In July 2017, President Putin signed two federal laws, No. 155-FZ and No. 165-FZ, introducing significant changes in the legal regulation of foreign investment in the Russian Federation, aiming to implement the policy of “de-offshorization” of the national economy and strengthening state control over transactions with respect to Russian “strategic” companies.
• Law No. 155-FZ introduces amendments to federal law “on
First, the amendments stipulate that offshore companies incorporated in a state that
Importantly, the ban on the privatization of the Russian state and municipal property applies not only to offshore companies incorporated in the jurisdictions on the
Second, according to the amendments, neither offshore companies
Given that the term “control” is defined rather broadly in applicable Russian legislation, the amendments introduced by Law No. 155-FZ will apparently lead to the ban on a number of investment transactions in Russia involving not only offshore companies themselves, but also onshore companies under their control. The ban may also be interpreted as applicable to cases where offshore companies are just links in the chain of ownership within the group structure.
• Law No. 165-FZ introduces amendments to federal law “on foreign investment in the Russian Federation” and the Strategic Investment Law.
One of the most important changes is that the chairman of the commission will now have the right to determine and decide at his discretion that the transactions performed by foreign investors in respect of practically any Russian companies, not only in respect of strategic business entities, require prior governmental approval to ensure national defense and state security. This will apparently give the government the ability to interfere
It is worth mentioning that the amendments made by Law No. 165-FZ also introduce a new kind of liability for foreign investors’ failure to report their holding or acquisition of 5 percent or more of shares in strategic business entities as required by the Strategic Investment Law. In addition to the already existing fines, such a violation will result in the prohibition of a foreign investor to exercise their right to vote at a general meeting of shareholders of the strategic business entity
In light of the above-mentioned legislative changes, it becomes important to more carefully prepare and structure acquisition and investment transactions in Russia—especially if there are links to offshore companies.
1 As per the Strategic Investment Law, a “strategic business entity” is a company engaged, or permitted to be engaged, in one or several activities that are deemed strategic sectors of