Additional countermeasures to ensure Russia’s financial stability
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Key restrictions
On 1 March 2022 the Russian President signed a decree [1] on additional temporary economic measures to ensure Russia’s financial stability (the “Decree”).
The document sets up a special procedure for residents [2] to conduct the following transactions with foreign persons connected with countries that are taking unfriendly actions against Russia, effective 2 March 2022:
Now, these transactions will need to be authorised by the Governmental Commission for Control over Foreign Investment in the Russian Federation [3], and securities transactions may be made in on-exchange trading based on permits from Russia’s Central Bank by agreement with the Ministry of Finance and containing the terms of the transactions.
The decree also extends to:
The transaction procedure introduced by the Decree does not apply to transactions to which Russia’s Central Bank and government authorities are parties.
It is anticipated the bans will be effective regardless of the governing law chosen by the parties to the transaction. In this sense, a choice of English law, for example, cannot keep Russian law provisions banning the performance of such types of transactions from being effective.
This procedure for getting approval for “sanctioned” transactions was not invented by Russian law. The prior authorisation procedure was borrowed from US and European sanctions programmes. In the United States the authorities are the Office of Foreign Assets Control (OFAC) and the Bureau of Industry and Security (BIS).
Regulatory gaps
There are number of gaps in the Decree that presumably should be interpreted in economic agents’ favour.
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Penalties for violating sanctions
Russian law doesn’t set special penalties for violating the regime envisaged by the Decree. However, law enforcement authorities could potentially invoke the following penalties:
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[1] Russian Federation President’s Decree No. 81 of 1 March 2022 “On Additional Temporary Measures of an Economic Nature to Ensure the Financial Stability of the Russian Federation”.
[2] Please note that the Decree uses the term “resident”, not “currency resident” or “tax resident”. Therefore, it could be difficult in practice to determine its legal status. It seems that, at a minimum, Russian citizens, Russian permanent residents and legal entities registered in Russia will be treated as residents.
[3] That body has existed for quite a long time and acts under the federal law “On Procedures for Foreign Investments in Business Companies of Strategic Importance for National Defence and State Security”, No. 57-FZ of 29 April 2008. The commission has a habit of denying applications that have been filed.
[4] Russian Federation Government Order No. 1230-r of 13 May 2021.
[5] Article 15.25(1) of the Russian Federation Code of Administrative Offences.
[6] Article 15.24.1 of the Russian Federation Code of Administrative Offences.