Sanctions against russia. Recent revelopments (13 september update)
CONTROL OF TRANSACTIONS WITH SHARES IN AN LLC
On 8 September 2022, Russian President issued Decree No. 618 “On Special Procedure for Execution of Certain Transactions (Operations)” (the “Decree”). The decree provides for new rules, specifically for transactions involving transfer of shares in Russian LLCs as well as transactions involving Russian banks under sanctions.
The transfer of shares in Russian LLCs between Russian residents and foreign persons from unfriendly states is now subject to prior authorization by the governmental commission on control of foreign investments in Russia (the “Governmental Commission”). The list of unfriendly states is defined by the Government and currently includes the United States, members of the EU, Great Britain.
Controlled transactions include those entailing direct or indirect establishment, change or termination of:
- rights of possession, use and (or) disposal of shares in the charter capital of limited liability companies;
- other rights, allowing to determine the conditions for managing such limited liability companies and (or) the conditions for their entrepreneurial activities.
The Decree does not apply to the shares of Russian banks and other financial organizations, which are incorporated in the form of LLCs: such legal entities are subject to restrictions under previous Presidential Decrees.
New rules apply to such transactions between:
- a Russian resident and a person from a jurisdiction considered by Russia as unfriendly or a person (whatever its location) controlled by a person from a jurisdiction considered by Russia as unfriendly,
- persons from jurisdictions considered by Russia as unfriendly; and
- a person from a jurisdiction considered by Russia as unfriendly and a person from a jurisdiction which is not considered by Russia as unfriendly.
However, a person will not be considered as related to the unfriendly state, if:
- it is controlled by Russian persons, albeit through foreign entities, and information on such control has been disclosed to Russian authorities;
- it is controlled by persons incorporated in foreign states that are not considered as unfriendly, if such control was established before 1 March 2022.
In general, we are waiting for the publication of explanations, including explanations from the Federal Notary Public Chamber (Russian notary public having to notary certify any agreement for the sale and purchase of LLCs’ shares), regarding the specific conditions of implementation of the Decree No.618. Explanations on the concept of “Russian resident” would for example be helpful to better understand if the Decree No.618 shall apply to the sale of LLC’s shares by a Russian LLC (a Russian resident), which is itself owned by a person from a jurisdiction considered by Russia as unfriendly or to sale or purchase of LLC’s shares by a foreigner having a residence permit in Russia. Indeed, residency is in principle a currency law concept. Specifically, an entity is among others considered as a Russian resident if it has been incorporated under the Russian law whereas an individual is considered as a Russian resident if he/she is a Russian citizen; or a foreign citizen permanently residing in Russia based on a residence permit.
The Decree specifies that the procedure of approval by the Governmental Commission of transactions in relation to the transfer of LLCs’ shares shall be elaborated and approved by the Russian government within 10 days.
Obligations in in foreign currency under bank account (deposit) agreements concluded between credit institutions under sanctions and clients of these organizations that are resident legal entities, are recognized as duly executed if these obligations are fulfilled in rubles in an amount equivalent to the value of the obligations in foreign currency (irrespective of the currency in which such value is expressed) and calculated at the official exchange rate of the Central Bank of the Russian Federation established on the date of fulfillment of the obligations.
We are actively following the developments related to those issues and are fully prepared to advise our clients.