Overview of Limitations of Foreign Investments and Consequences for Foreign Companies in Russia

Due to the significant changes of the investment climate in Russia, the Russian Government has introduced a number of extraordinary measures to prevent foreign investor and capital flight, some of them directly targeting multinationals operating in Russia.

On March 7, the Government approved the list of countries, exercising unfriendly actions in relation to Russia (“unfriendly nations”). The list of “unfriendly nations” will become one of the key tools of law enforcement practice in the context of counter-sanction measures, including issues of parallel imports, selective waiver of intellectual property rights, etc. The list includes the US, all EU member-states, UK, Canada, Australia, Republic of Korea as well as other nations which imposed sanctions on Russia.

On March 10, the Government disclosed more details of the procedure for appointing external administration to foreign companies that have decided to stop their activities in Russia, as well as the criteria for introducing external management.

The draft law initiated by the Government may affect enterprises with a foreign participation share of over 25% (direct or indirect ownership by representatives of “unfriendly countries”). External administration can be introduced in two cases:

1. The termination of the entity’s economic activity in Russia (“hard mechanism”).
2. Actions of management bodies that may lead to termination of activities, liquidation and bankruptcy, for example, termination of contracts that is important to keep operations, dismissal of more than one third of the staff, etc. (“soft mechanism”).

Accumulated FDI in Russia constitutes almost 700 billion USD (the majority originating from European Union countries), and their future in Russia represents a significant issue both for the Russian and European economies.

As part of our ongoing efforts to protect and support multinational investments in Russia, Kesarev has prepared a brief guide on the measures introduced by the government of Russia that affect operations of international companies in the country.

To access the full guide click here.