2. Restrictive measures (countersanctions)

General

Although some restrictive procedures had been in place earlier, a comprehensive regulatory regime known as the “countermeasures”, “special measures” or “countersanctions” has been rapidly evolving in Russia since 2022.
The countersanctions are implemented in relation to persons from the “unfriendly” foreign jurisdictions, which are the countries that imposed, or adhere to, sanctions against Russian interests and persons. The list of countries approved by the Government currently include, among others, most European jurisdictions, the US, UK, Canada, Australia, New Zealand, Singapore, South Korea and Taiwan. Countries that are not listed – for example, China, India, Mongolia, Malasia, countries of the Middle East, Africa and Latin America – are considered “friendly” jurisdictions.
The Russian countermeasures apply across numerous sectors and types of operations. Some of them are implemented universally, whilst others are enacted in respect of specific projects, companies or assets. Given that the countermeasures are taken in response to various restrictions imposed on the Russian persons and assets abroad, their key objective is to limit the possibilities for the “unfriendly” persons to exit and cash in on their assets in Russia. Stricter currency control and regulation of the flow of funds out of Russia are also important for the protection of the country’s financial stability. In addition to the transaction restrictions, the countermeasures include the introduction of temporary administration of certain foreign-owned assets; mandatory restructuring/localisation of international projects and companies; export and import restrictions; special rules on dispute resolution and others.
Most countermeasures apply to the transactions and operations with participation of an “unfriendly” foreign person (“UFP”), meaning
· An entity registered in an “unfriendly” jurisdiction, or having such jurisdiction as the principal place of business or place of predominant profit generation, or
· A citizen of an “unfriendly” foreign country.
In most instances, entities under control of UFP also qualify as UFP regardless of the country of incorporation. Conversely, an entity under Russian control (if properly disclosed) is not considered UFP even if established in an “unfriendly” country. Depending on the type of operation and asset, limitations may also apply to “friendly” investors and Russian companies without a UFP’s control.
The countermeasures are imposed by a decree of the Russian President, often setting out a period for their effectiveness which can be extended. The main body granting consent for the restricted operations is the Government Commission for Control over Foreign Investments (“Government Commission”). The commission permits can be individual or general (like a general licence). For certain types of assets, the Russian President approval or the consent of the Central Bank of Russia (the “CBR”) is required. All individual consents are entirely discretionary and may be conditional.
The procedure for granting of consent by the Government Commission is approved by the Russian Government. Official interpretations for the implementation of the countermeasures are issued by the authorised government ministries and the CBR. The Government Commission’s protocols also play an important role.

“S” accounts

In general, if an operation with UFP is subject to the restrictive measures (restricted operation), payments to UFP can only be made in Russian roubles to a special account opened with an authorised Russian bank (Type “S” account).¹ In addition to the payment accounts, there are other types of “S” accounts such as broker “S” account and depository “S” account.
¹ In translation, this type of account may be referred to either as “type “C” or “type “S” account. This is due to the peculiarities of the Russian alphabet – the Cyrillic letter “С” (transliterated as “S”) looks identical to the Latin letter “C”. Both designations refer to the same account type.
The “S” accounts are not interest-bearing and the funds deposited there only be used within Russia for a limited number of purposes, such as the payment of taxes and bank commissions.
Settlements with UFP on a restricted operation in hard currency or otherwise outside of the “S” account system normally require consent of the regulator.

Corporate transactions

As a rule, if UFP intends to dispose of or to acquire shares in a Russian company directly or indirectly or otherwise obtain the rights to direct the company’s activities, the relevant transaction is subject to the consent by the Government Commission. Examples of the transactions include:
· Sale of shares (participatory interest);
· Redemption of shares (participatory interest) by the company itself;
· Withdrawal or expulsion of a participant from an LLC;
· Pledge of shares (participatory interest);
· Voluntary liquidation;
· Trust arrangements; and
· Shareholders’ agreement.
Note that similar arrangements in respect of a non-Russian holding company also require the Russian regulator’s consent if they lead to an indirect disposal or acquisition of shares or control in a Russian company.
The regulator is entitled to establish any conditions for consent, but the following conditions are currently formulated by the Government Commission as applicable in most cases:
· Submission of a report from an independent Russian appraiser included in a government-approved list, prepared not later than six months prior to the date of the commission’s meeting.
· Discount of at least 50% of value of the assets as determined by an independent appraiser (note that this is not the purchase price).
· A voluntary contribution to the federal budget of at least 35% of value of the assets, as confirmed by the appraisal report.
· For shares (interest) with market value exceeding RUB 50bn, the Russina President’s consent.
No transactions are allowed with UFP-held shares in Russian companies included in the special lists approved by the Russian President, or certain holders of exploration and production rights for hydrocarbon and mineral resources. A special dispensation for these transactions can be granted by the President.
The proceeds of sale payable to UFP are transferred to the UFP’s S account, unless otherwise provided in the regulatory permit.

Dividends and other corporate distributions

Dividends and other distributions payable to UFP (such as proceeds of share capital reduction or liquidation proceeds) exceeding RUB 10m within a calendar month can only be made to the “S” account unless otherwise approved by the Government Commission or for credit organisations – the CBR.
The current approach is that the consent to pay out dividends other than through the “S” accounts may also be granted if:
· The total amount of distributable profits does not exceed 50% of the after-tax profits of the preceding year;
· The UFP shareholders intend to continue their activities in Russia;
· The company’s significance for Russian economy is confirmed by the relevant government agencies;
· The company complies with the KPIs; and
· The payments are made on a quarterly basis.
UFP may also be given consent for the dividend distribution if the UFP has made new investments in Russia after 1 April 2023 (in the amount not exceeding such investments).

Real estate

In general, consent of the Government Commission is required for any disposal or acquisition by a legal entity – UFP of the Russian real estate. Some exemptions apply, for example, to physical persons – UFPs, or where the transfer is free of charge and the acquiror is the Russian citizen.
If a “friendly” foreign person acquired real estate from UFP after 22 February 2022, the disposal of such real estate requires the Government Commission’s consent.

IP rights

Royalties and other payment relating to the use by Russian residents of IP rights are payable in Russian rubles to a special bank account type “O” account”. These requirements apply where owners of IP rights are UFPs or any entities that have publicly supported the imposition of anti-Russia sanctions, called for such sanctions, banned the use of their IP or suspended, restricted or terminated the manufacturing or supply of goods, works or services due to the sanctions.
Similarly to the “S” accounts, funds deposited on the “O” accounts cannot be freely used. Any transfers from the “O” account to another bank account of an IP owner (including outside of Russia) is subject to consent of the Government Commission.
The requirements do not apply to UFPs who properly discharge their obligations under agreements concluded with Russian companies.
Any acquisition of IP rights from UFP or payments relating to such transactions require consent of the Government Commission.

Loans, deposits and currency control

Numerous currency control restrictions form part of the countersanction measures. For detail, please see the “Currency regulation & control” section.