Further Measures Adopted by Russia in Response to Sanctions

Russia continues to introduce restrictive and other measures following the imposition of sanctions by the USA, EU, UK and other countries on Russia. Below is a summary of key regulations adopted in recent days (for more details on measures introduced on February 28 and March 1, 2022, to address the economic impact of sanctions against Russia, please see our last OnPoint.

Key Takeaways

• Russia has established a procedure allowing Russian debtors to pay foreign persons in Russian rubles.
• New support measures for Russian IT companies have been introduced.
• Severe liability for dissemination of false information has been established.
• Russia has expanded the law on restrictive measures against foreign persons.
• The Russian Government has proposed a mechanism to nationalize companies controlled by foreign investors associated with “unfriendly states” if they suspend operations in Russia.

(1) Procedure for Repayment of Debts to Certain Foreign Persons in Russian Rubles

On March 5, 2022, Russian President Putin signed Decree No. 95 "On Temporary Procedure for Performing Obligations to Certain Foreign Creditors" allowing Russian residents to repay debts to foreign creditors in Russian rubles ("Decree No. 95").

Decree No. 95 provides for a special temporary procedure for the payment of debts under credit facilities, loans and other financial instruments in the amount of more than RUB 10,000,000 per month (or the equivalent in foreign currency at the exchange rate set out by the Russian Central Bank on the first day of each month)

by:

• the Russian Federation;
• constituencies of the Russian Federation;
• municipalities; or
• Russian residents (collectively, "Debtors")
  

to:

• foreign individuals and entities associated with countries that took "unfriendly actions" against Russia (according to the Governmental Resolution No. 430-p, dated March 5, 2022, such countries include the US, the EU member states, the UK, Japan, Singapore, etc.) ("Persons from Unfriendly Countries");
• any individuals and entities who/which are under control of Persons from Unfriendly Countries (notwithstanding the country of their incorporation unless they are incorporated in Russia) ("Creditors").

According to Decree No. 95 and further clarifications from the Russian Central Bank, the Debtor may submit to a bank or any other credit organization an application for opening a special bank account (account type "C") in the name of a creditor or foreign nominee holder and repay the debt to Creditors by transferring the amount in Russian rubles to such bank account. The legal regime of such accounts is to be determined by the Russian Central Bank. No further guidance has been issued.

The above procedure is also applicable to debts assigned by Persons from Unfriendly Countries to other foreign persons or Russian residents after March 1, 2022.

Regarding the debt owed to other foreign creditors (i.e. who are not Persons from Unfriendly Countries), the debt would be considered repaid in a proper manner if the Debtor transfers funds in Russian rubles in the amount equivalent to the amount in foreign currency at the exchange rate set out by the Russian Central Bank (or in foreign currency subject to a special approval).

The Russian Central Bank and Ministry of Finance are entitled to (i) provide for a different procedure for repaying the above debts; and (ii) issue individual permits allowing a party to be exempt from the above procedure.

(2) New Measures to Support Russian IT Companies

On March 2, 2022, Decree No. 83 “On Measures to Ensure the Accelerated Development of the Information Technology Industry in the Russian Federation” was adopted, according to which Russian companies performing activities in the field of information technology and accredited by the Russian Ministry of Digital Development, Communications and Mass Communications (“Accredited IT Companies”) have been granted certain tax and other incentives.

In particular, Accredited IT Companies:

• may receive preferential loans at interest rates not to exceed 3% for continuing work and new projects;
• are exempt from paying income tax until December 31, 2024 (the income tax rate will be equal to 0%);
• are provided with a simplified procedure for hiring foreign employees; and
• are exempt from inspections by regulatory authorities for 3 years.

(3) Criminal/Administrative Liability for Dissemination of False Information

On March 4, 2022, President Putin signed into law two bills on amendments to the Russian Criminal Code and Code on Administrative Offenses.

The Criminal Code has been amended to impose criminal liability for the following:

1. public dissemination of deliberately false information about the use of the Armed Forces of the Russian Federation (e.g. distribution of "fake news");
2. public actions aimed at discrediting the usage of the Armed Forces of the Russian Federation (e.g. calls not to use Armed Forces); and
3. callings for the introduction of Restrictive Measures (sanctions) against the Russian Federation, citizens of the Russian Federation or Russian Legal Entities.

Criminal liability for items (2) – (3) is imposed only if a person was subject to administrative liability for a similar action during the preceding year.

Consequences can include: monetary fines and imprisonment, among other measures. If the violations are made by a group, the consequences would be more severe.

The Code on Administrative Offenses has been amended to impose administrative liability for violations set out in items (2) – (3) above and some other non-related clauses (on operations with property which was unlawfully obtained etc.).

The bill previously contained provisions providing for liability on individuals for complying with foreign sanctions (blocking law), however, those provisions were removed in the last reading.

(4) Restrictions on Foreign Persons

On March 4, 2022, amendments to the Law "On Measures to Influence Persons Involved in Violations of Fundamental Human Rights and Freedoms, the Rights and Freedoms of Citizens of the Russian Federation” were introduced. These amendments grant the Ministry of Foreign Affairs the right to impose restrictions on foreign persons, in particular:

1. a ban on entry to Russia;
2. a seizure of financial and other assets on the territory of Russia;
3. a ban on any transactions with respect to property and investments of sanctioned individuals;
4. a prohibition on the disposal of property located on the territory of Russia;
5. suspension of activity on the territory of Russia of legal entities under the control of such citizens; and
6. suspension of their powers on the boards of directors or other management bodies of organizations registered in Russia.

The above restrictions may be imposed on any foreign citizens. The previous version of the Law "On Measures to Influence Persons Involved in Violations of Fundamental Human Rights and Freedoms, the Rights and Freedoms of Citizens of the Russian Federation” (i.e. before amendments of March 4, 2022) contained similar restrictions in relation to US citizens only. The law was expanded to expand/clarify certain measures and cover all foreigners. Such measures can be imposed on a person by decision of “officials” (the law does not set out clear grounds on when such restrictions may be imposed on a person).

(5) Bill on "Nationalization" of Foreign Companies’ Assets

On March 9, 2022, the Commission of the Russian Government on Legislative Activity approved a bill on "nationalization" of assets of foreign companies.” The bill was planned to be introduced to the State Duma (lower house of Russian parliament) on March 10, 2022, but as of March 11, 2022, it had not yet been introduced.

The bill would provide for the following:

• A special bankruptcy procedure may be initiated by Russian authorities if a Russian company controlled by foreign persons related to so-called unfriendly countries (such countries include the USA, EU member states, UK, etc.) (or such foreign persons own directly or indirectly more than a 25% share) "illegally" terminates its activity in Russia ("external administration");
• Only Russian companies having assets of RUB 1,000,000,000 and/or more than 100 employees may be subject to external administration;
• The functions of the external administrator would be performed by VEB.RF (which is subject to various EU, UK, and US sanctions) or, if the company is a financial organization, the Agency for Insurance of Deposits;
• The decision on introducing external administration would be made by a court at the request of the Federal Tax Service, other authorities or any of the members of a company's officers; and
• If (i) the Russian company's activities are resumed or the equity interest is sold to a Russian person (or other foreign person who is not related to an unfriendly country); and (ii) the business and employees are retained, the shareholder of the company would have five (5) days to try and stop external administration. Otherwise, the court will introduce external administration and appoints a temporary administration for three (3) months, after which the equity interest in the charter capital of the Russian company would be put up for auction. The new shareholder would be obliged to retain 2/3 of the number of employees and undertake activities for at least 1 year.

On March 10, 2022, Russian media reported that the Social Consumer Initiative Organization prepared a list of departing companies (at that time, 59 companies) whose property may potentially be nationalized, bank accounts are arrested and external administration may be introduced. Such list (not publicly available yet) was sent for consideration to the Russian Government and the General Prosecutor’s Office.

(6) Other Measures

In addition, on March 5, 2022, Russian media reported that the Russian Central Bank had limited transfers from the bank accounts of Russian individuals to bank accounts of their relatives (spouses, parents, children, grandparents, grandchildren, etc.) in an amount equal to USD 5,000 per month.

Earlier, on March 4, 2022, the Russian Central Bank announced that the charge for purchasing foreign currency (currency exchange) would be 12% of the sum to be purchased by individuals (through brokers) and legal entities (previously, the Russian Central Bank had set out a 30% charge for purchasing foreign currency by individuals through brokers).

On March 10, 2022, the Russian Government compiled a list of goods that are prohibited from being exported from Russia until the end of 2022. The list includes technological, telecommunications, medical equipment, vehicles, agricultural machinery, electrical equipment – more than 200 items in total.