The Russian foreign investment regime traditionally only applies if the transaction results in an acquisition (direct/indirect) of any shares or rights in respect of a Russian entity or its assets (noting that payments and acquisition of securities of foreign entities may be subject to separate foreign investment restrictions not covered herein).
To date, the most complicated requirements applied to the broad (60+) list of sensitive – strategic – sectors with certain pre-closing approvals potentially taking 6 to 12 months or longer to obtain. However, the foreign investment regime is much broader than just the sensitive strategic sectors, and since February 2022 it has been ramped up to further scrutinise foreign investment in Russia, as well as exits of foreign investments from Russia (commonly referred to as the ‘Russian countersanctions regime’). This results in transactions requiring multiple foreign investment clearances (often from a number of regulators) at the same time, more transactions may be prohibited by law entirely until further notice, and the regulators are no longer statutorily bound in terms of remedies they may impose on the parties.
The thresholds depend on the exact combination of: (i) the type of investor and its beneficiaries / controlling persons (in particular, whether it is or is controlled by a Hostile Nation Person/Entity, a foreign state or international organisation); (ii) the type of Russian entity (in particular, if it is a Strategic Entity or included in any ‘protected lists’); (iii) the transaction structure (asset or share deal, acquisition of control or blocking rights, etc.), as well as (iv) the identity of the seller and its beneficiaries / controlling persons.
The combinations may result in: suspensory pre-closing clearance; pre-closing disclosure of UBOs; post-transaction notification or clearance; or a prohibition to acquire. Clearances may need to be sought from the GC which is essentially the entire Russian Government, a newly formed Sub-Commission of the GC (Sub-GC), the Federal Antimonopoly Service of Russia or the President of Russia.
Filings may be triggered by the acquisition of just one share (or 1%) in a Russian entity, including indirectly, though traditional foreign investment filings are usually triggered by an acquisition of 5%/25%/50% or more shares (votes) in a Russian entity, or of blocking rights in respect of a Russian entity or certain types of assets owned by such entity.
Whether or not the Russian foreign investment regime is triggered should be checked in every transaction that results in an acquisition (direct/indirect) of any shares or rights in respect of a Russian entity or assets owned by a Russian entity.
Restricted Investors are prohibited from:
- establishing control over Strategic (including Subsoil / Fishing) Entities;
- acquiring over 25% of certain assets of a Strategic (including Subsoil / Fishing) Entity.
Further restrictions, including clearance requirements and prohibitions to acquire, in sensitive industries such as media, insurance, banking, air & space, etc. may apply, but are not covered herein.
Types of Foreign Investors and Russian Targets
Strategic Entity: Russian entity engaged in an activity of “strategic significance” for Russia.
Subsoil Strategic Entity: Russian Strategic Entity which carries out geological studies, exploration and/or extraction of subsoil resources on land plots of federal significance. Following a series of court decisions, an entity which provides oilfield services on land plots of federal significance (even if not directly including geological studies, exploration and/or extraction of resources), is also a Subsoil Strategic Entity.
Strategic Fishing Entity: Russian Strategic Entity which is engaged in extraction (fishing) of aquatic biological resources.
Restricted Investor: foreign states, international organisations, foreign investors which had not disclosed their beneficiaries to the regulator and any entity controlled by them (including by several such investors in aggregate).
Ordinary Investor: entity controlled by non-Russian citizens or companies (or Russian citizens with a foreign citizenship) and not controlled by Restricted Investors (after a completed UBO disclosure).
Hostile Nation Person/Entity: primarily a person which is a foreign citizen or entity which is registered in a ‘hostile nation’ or the primary place of business of which person/entity is in a ‘hostile nation, the latter being a country which has introduced sanctions and/or other restrictive measures against the Russian Federation, Russian individuals and/or entities, and is listed in the Order of the Government of the Russian Federation No. 430-r (the list includes the UK, the EU and most other European countries, the US, Canada, as well as other countries).
Key sensitive sectors
Over 60 different industries are regarded of “strategic significance”, as well as traditionally sensitive industries such as media, insurance, banking, air & space, etc. From August 2022 additional prohibitions apply to entities included in certain ‘protected lists’ and/or engaged in the fuel and energy and natural resources sector, the financial sector, as well as entities in which the Russian Federation holds shares.