Russian counter measures : recent developments (update May 3, 2022)

 

Today, the President signed a new order introducing certain restrictions on transactions involving sanctioned persons. The order does not provide for a list of such targeted persons – the Government is to prepare a list within ten days.

Moreover, Russia proposed several legal initiatives countering introduced sanctions. Such initiatives include criminal liability for compliance with the sanctions (for more information please refer to our legal update of April 7) and nationalization of assets of foreign citizens and entities. However, specialized executive authorities criticized such initiatives proposing for a more comprehensive and softer regulation.

The Russian Central bank clarified a number of currency-related limitations. A new legal initiative decreasing fines for currency violations has also been introduced to the State Duma.

Additionally, the Government continues adopting measures aimed at business support, particularly for Russian entities planning to manufacture import-substituting products.

I. Russian counter measures

  1. Russian President signed order introducing new counter measures

On 3 May 2022, President Putting signed Order No. 252 “On Special Economic Measures Countering Unfriendly Acts of Certain Foreign States and International Organizations”.

Special economic measures include:

►Ban for federal and regional governmental bodies, entities and individuals under the Russian jurisdiction to:

+Perform any actions, including conclusion of foreign trade contracts, with entities and individuals subject to Russian special economic measures. The ban also extends to any engagement with organizations controlled by said targeted persons;

+Fulfill obligations under executed transactions, including under concluded foreign trade contracts, if such obligations have not been (fully) performed.

The Government shall within 10 days determine additional criteria for qualifying transactions as forbidden under this Order.

►Ban on exportation of products and / or raw materials manufactured and / or extracted on the Russian territory, if such products and / or raw materials are supplied to persons under sanctions or by such persons in favor of third persons.

The Government is to prepare a list of persons under sanctions within ten days.

  1. Government provided its commentaries to the draft law on criminal liability for compliance with sanctions

On 20 April 2022 Russian Government issued an official review to the draft law criminalizing implementation of sanctions, which had been introduced by a group of deputies and senators to the State Duma. This draft dated 7 April 2022 (No.102053-8) proposes to amend Article 201 of Russian Criminal Code related to the abuse of power by an individual performing managerial functions in a commercial or other organization by assimilating the compliance with international sanctions against Russia to an abuse of power. No date of examination of the draft law in first reading has been set so far.

According to the review, wording of the draft law that considers implementation of sanctions by the management of a Russian company as abuse of power punishable for imprisonment of up to ten years seems questionable and excessive.

Additionally, it is reminded that Article 201 of the Russian Criminal Code that is proposed to be amended is initially aimed at bona fide management operation in commercial and other entities. According to the Government, the approach proposed in the draft law will not secure rights of Russian citizens, entities, as well as interests of the Russian Federation.

In conclusion, the Government proposes further elaboration of more adequate wording.

  1. Presidential Council on codification and improvement of the civil legislation gave a negative review on the draft law proposing to nationalize the assets of foreigners

On 8 April 2022 draft law “On Amending Article 235 of the Russian Civil Code and Regulation of Certain Relations on Expropriation of Assets” was introduced to the Russian State Duma. It establishes legal framework for expropriation of assets located on Russian territory that belong to persons related to unfriendly foreign states (as defined by the Russian Government. The list includes US, UK, and member states of the EU).

Such persons would include citizens of such states, entities incorporated or conducting their business in such states, as well as their beneficiaries and persons under control of said foreign persons regardless of their registration or incorporation. Assets include movable and immovable property, money, bank deposits, securities, corporate rights, and other assets belonging directly or through affiliated persons to said entities and individuals.

Expropriation is proposed to be implemented by local authorities of the subject of the Russian Federation where the assets are located according to the procedure established in the region. Such expropriation is proposed to be effectuated without compensation of the value. While the text of the draft law refers to all Russian regions, the explanatory note attached to the draft law mentions assets located in Crimea. It is therefore unclear, whether at further stages of the legislative process the wording would change and cover only the assets that are located in Crimea.

On 21 April 2022 Presidential Council on codification and improvement of civil legislation did not support the draft law proposing nationalization of assets, according to a press-release of the Council published by Interfax. The review of the presidential council has not yet been published on the Duma website and the Government may later also provide its own review.

The Presidential Council is an institution formed under the President. It is a consulting body and one of its functions is making opinions about proposed amendments to the civil legislation.

The draft law was introduced by some deputies from Crimea on 8 April 2022 (N°. 103072-8) to the State Duma. This initiative originally targeted assets of Ukrainian individuals and entities located in Crimea but finally the proposal seemed to establish legal framework for expropriation of assets located on all the Russian territory that belong to persons related to unfriendly foreign states (as defined by the Russian Government). Since the introduction of the draft law to the Duma, no more movement has been made or scheduled.

According to the opinion of the Council, the explanatory note attached to the draft law does not provide any argumentation in respect of the proposed regulation. Additionally, according to the Council, this initiative contradicts Article 35 of the Russian Constitution that provides that no one can be deprived of their property except by a court decision. The expropriation of property for state needs can be made only on the condition of prior and equivalent compensation.

Currently the draft law is at the initial stage of the legislative process. It has to be approved in three readings by the State Duma before being transferred to the Federation Council and then to the President. The date of the first reading is yet to be announced.

II. Measures aimed at business support

  1. Bank of Russia clarified rules on the sale of foreign currency

On 16 April 2022, Russian Central Bank (CBR) issued clarifications on the requirements for the residents to sell 80 % of the profit in foreign currency (established on 28 February 2022). The 80 % amount can be decreased by:

►payment for transportation, insurance and freight forwarding;

►payment of customs duties and fees;

►payment for services for the purchase outside the Russian Federation of food, fuels and lubricants (bunker fuel), inventories and other goods for the operation, maintenance and repair of transport on the way or at intermediate stops (parking);

►payment for international telecommunication services, incl. international roaming.

Additionally, according to the CBR, the ban on the transfer of foreign currency does not apply if residents transfer rubles to their foreign accounts (deposits). Then they can be converted into foreign currency and credited to such account in a foreign bank or transferred to another person’s account in a foreign bank.

  1. The 30 % advance limit rule will not apply to certain contracts

On 15 April 2022, the CBR adopted resolution extending a list of contracts not targeted by the 30 % advance payment threshold. The rule provides that in contracts where nonresidents provide services, works, information, results of intellectual activity to residents, the advance payment should not exceed 30 % of the obligation under the agreement. The agreements on provision of the following services will not be targeted:

►Tourism and travelling;

►Organization or participation in the organization of international exhibitions and fairs or international congresses or international business missions;

►Repair, installation and dismantling outside Russia;

►Maintenance and operation of equipment, premises, buildings, structures.

  1. The Government authorized new cases for lease of public land plots without bidding

On 9 April 2022, the Government issued Resolution authorizing the lease of state and municipal land plots without bidding. Starting from 12 April until the end of 2022 Russian citizens and entities can lease such land plots for the manufacture of import-substituting products. The list of such products will be determined on a regional level.

The authority will have to review the application for provision of land without bidding within 14 calendar days. Previously the review was done within a month.

III. Proposed Legislation

  1. Proposal to decrease fines for currency violations adopted in the first reading

On 19 April, Draft law No. 94339-8 amending Article 15.25 of the Code of Administrative Offences was adopted in the first reading by the State Duma.

The draft law proposes to introduce a fine of 20 to 40 % of the operation for executives, individual entrepreneurs and entities. Currently fines for entities can amount to 75 to 100 % of the operation.

Additionally, the draft law proposes decreasing fines for failure of timely repatriation of proceeds under a foreign trade agreement with a non-resident where payment was fixed in roubles. The fine proposed equals 3 to 5 % of the not credited amount. The current fines can amount up to 10 % of the not credited amount.

Fines for executives would not exceed RUB 30,000 in any scenario.

The second reading has not yet been scheduled.

We are actively following the developments related to those issues and are fully prepared to advise our clients.

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