Special Economic Measures Have Been Adopted

On 28 February, 1 March and 5 March 2022, the Russian President signed Decrees on special economic measures in connection with so-called "unfriendly" (as such term is used in the Decrees) actions by the USA and the foreign states and international organizations that have joined them relating to the imposition of sanctions on Russian individuals and Russian companies. ^{1 2}

Summary

The key measures, as we interpret them as of today, can be summarized as follows:³

Mandatory sale of foreign currency proceeds, foreign currency loans

According to Decree 79:

(i)    Starting from 28 February 2022, Russian residents are required to undertake a mandatory sale of 80 percent of foreign currency proceeds credited to their bank accounts in Russia under their foreign trade contracts with non-residents (in relation to goods, services, works and IP) - within three business days from the date the proceeds are credited.^{7 8}

(ii)    As of 1 March 2022, currency operations related to Russian residents granting foreign currency loans to non-residents under loan agreements are prohibited. 

(iii)    As of 1 March 2022, Russian residents are prohibited from crediting foreign currency to their overseas accounts (deposits) held with banks and other financial market organizations.^{9 10}

(iv)    As of 1 March 2022 transfers without opening a bank account using electronic means of payment provided by foreign payment service providers are prohibited.

Despite the ban, according to Decree 81, the transactions (operations) specified in items (ii) – (iv) above, can be carried out (performed) with the prior approval of the Government Commission.

Ruble credits and loans, transactions involving immovable property and securities

Decree 81 sets out a special procedure for Russian residents' transactions with persons connected to the relevant foreign states ("Specific Foreign Persons").

"Specific Foreign Persons" means:

• foreign persons connected to foreign states, which are acting in an "unfriendly" (as such term is used in the Decree) manner in relation to Russian companies and individuals, including any persons that are citizens of those states, or are registered in those states, or conduct their business primarily in those states, or realize profits primarily in those states, as well as
• persons that are under the control of the above foreign persons, irrespective of the place of their registration or the place where they primarily conduct their business.

In relation to Specific Foreign Persons, please note the following: 

• The above definition implies that the conditions for conducting transactions set out by Decree 81 apply not only to transactions with persons that are registered in, or conduct their business primarily in, the respective foreign states, but also their subsidiaries, including those registered in Russia (subject to certain exemptions – please see further information below with respect to financing by Russian banks of Russian persons).
• The list of relevant foreign states and territories has been officially published and includes: Australia, Albania, Andorra, the United Kingdom (including Jersey, Anguilla, the British Virgin Islands, Gibraltar), member states of the European Union, Iceland, Canada, Liechtenstein, Micronesia, Monaco, New Zealand, Norway, Republic of Korea, San Marino, North Macedonia, Singapore, USA, Taiwan (China), Ukraine, Montenegro, Switzerland, Japan.¹¹
• In line with Decree 95, for the purposes of Decree 81, Specific Foreign Persons do not include persons that are (i) under the control of Russian companies or individuals (with the ultimate beneficiary being the Russian Federation, a Russian company or a Russian individual) and (ii) information about such control has been disclosed to tax authorities of the Russian Federation ("Controlled Foreign Persons").

Transactions (operations) between Russian residents and Specific Foreign Persons can be carried out (performed) only with the prior approval of the Government Commission (which may specify further conditions for conducting such transactions) for:

(i)    granting loans and credits by Russian residents to Specific Foreign Persons in rubles;

(ii)    transactions (operations) of Russian residents carried out (performed) with Specific Foreign Persons, which entail the acquisition of ownership title to securities;

(iii)    transactions (operations) of Russian residents carried out (performed) with Specific Foreign Persons, which entail the acquisition of ownership title to immovable property.

Transactions involving securities specified in item (ii) above can be made via organized trades with the prior approval of the CBR, as agreed with the Ministry of Finance, and containing conditions for making such transactions.

It is worth noting that the above procedures for carrying out transactions (operations) also apply to transactions that are conducted by Russian residents with non-resident counterparties who are not Specific Foreign Persons, in cases where the transactions relate to securities or immovable property acquired by such counterparties from Specific Foreign Persons after 22 February 2022. 

Please note the following: 

• Initially, there was no exemption for intra-group loans in Decrees 79 and 81, i.e., in reality, absent the Government Commission's prior approval, "lifting" of funds from Russian operational companies (in the form of loans) to the level of international holdings and foreign shareholders was suspended. However, taking into account certain provisions of Decree 95, it has become possible to “lift” funds to Controlled Foreign Persons in the form of loans in rubles.
• With respect to financing by Russian banks of Russian persons:
  • According to clarifications published by the CBR, dated 5 March 2022, Decree 79 and Decree 81 do not prevent Russian banks from providing credits to (i) Russian banks under the control of Specific Foreign Persons; and (ii) Russian companies (it appears, also under the control of Specific Foreign Persons) where the purpose of the credits is to finance payment of salaries and other payments of a social nature to the employees of such companies.¹²
  • According to the "generaI license" of the Government Commission of 9 March 2022, Russian banks are permitted to provide credits to Russian residents (both companies and Russian individuals) who are (i) under the control of foreign persons who are Specific Foreign Persons and (ii) operate in Russia, provided that the credit proceeds are used to finance their business operations in Russia.¹³
• It appears from a literal interpretation that the range of securities and the place of issuance are not limited in Decree 81. This may mean that the above special procedure applies to securities issued by Russian or foreign companies. 
• The restrictions apply to transactions involving securities, and, as follows from a literal interpretation of Decree 81, do not apply to transactions with participation interests.¹⁴
• Payment of dividends on shares and coupons on bonds does not require the approval of the Government Commission or the CBR in accordance with Decree 81, but must comply with a special procedure for payments according to Decree 95 (please see section "Debt servicing under credits, loans and securities" for further information). 
• Decree 81 does not specify if its application is determined by who is acquiring ownership title to immovable property or securities. This means that the restriction applies both to the acquisition and sale of securities and immovable property by Russian residents, where the counterparty is a Specific Foreign Person.
• Decree 81, in effect, supplements the existing FDI regime of approval of transactions made by foreign investors, as it requires obtaining the Government Commission's prior approval for an additional range of transactions.¹⁵
• According to clarifications published by the CBR, a number of operations relating to securities involving Specific Foreign Persons do not require the Government Commission's approval, such as operations relating to: (i) the conversion of depositary receipts into shares of Russian issuers (provided that the shares are eventually credited to the depo account of the depositary receipts holder); (ii) the transfer of securities by a Specific Foreign Person who held such securities to the person in whose interests it acted (i.e. a trustee or a broker who is a title owner returning securities), (iii) the transfer of securities without ownership title being transferred; (iv) debiting a depo account of a nominal holder and crediting another depo account of a nominal holder, and (v) operations carried out without the will of a person exercising rights under securities (e.g. execution of court decisions, conversion etc.).¹⁶

Debt Servicing under Credits, Loans and Securities

Decree 95 sets out a temporary procedure for the performance by debtors, who are Russian residents, the Russian Federation, the constituent entities of the Russian Federation or municipalities, of their obligations (i) under credits and loans, as well as (ii) financial instruments (i.e. including securities and derivatives) to Specific Foreign Persons. 

Please note that, for the purposes of Decree 95, Specific Foreign Persons do not include companies registered in Russia. 

This procedure relates to the performance of obligations in an amount exceeding RUB 10 million per calendar month (or its equivalent in foreign currency as per the CBR exchange rate as of the first day of each calendar month).

In order to perform the above obligations a Russian debtor is entitled to open a special "C" type account in rubles, in the name of (i) a Specific Foreign Person or (ii) a foreign nominal holder. In order to perform obligations related to the issuance of securities, a Russian debtor can open such account with a Russian central depositary.¹⁷

The regime governing "C" type accounts has been set out by the CBR¹⁸ and provides that the possibilities for using funds in such accounts are limited. Funds in a type "C" bank account can be withdrawn, for instance, for the payment of taxes, for the purchase of federal government bonds placed by the Ministry of Finance, for "transfers to the bank accounts of non-residents [in rubles] as provided for by the authorisation", and for "transfers related to other operations as provided for by the authorisation". This means that a non-resident would need authorisation to withdraw funds for any purposes other than those specified as being permitted (such as payment of taxes and purchase of federal government bonds) (it seems that this is intended to be the prior authorisation of the Ministry of Finance or the CBR).¹⁹

Apart from a special type "C" bank account, the CBR has also established the following types of type "C" accounts: depo account, special broker account, clearing bank account and clearing depo account. According to Decree 95, depo accounts opened prior to its entry into force (i.e. prior to 5 March 2022) in the name of non-residents who are Specific Foreign Persons or foreign nominal holders, are considered to be type "C" accounts. Therefore, where a non-resident sells its securities previously held in a depo account with a Russian depositary, such securities will be debited from a special depo account of a non-resident. 

Despite the fact that Decree 95 is aimed at establishing a specific procedure for Russian debtors performing obligations to Specific Foreign Persons, in fact, it also regulates the performance of obligations to other creditors as well:

• obligations in foreign currencies to foreign creditors, who are not Specific Foreign Persons, can be performed in rubles, in an amount equivalent to the value of the obligations in foreign currency as per the CBR exchange rate as of the date of payment (it appears that this relates to obligations of all types, i.e. obligations under credits, loans and financial instruments); 
• obligations in foreign currencies to Russian residents, whose securities are held in depo accounts with Russian depositaries, can be performed in rubles in an amount equivalent to the value of obligations in foreign currency as per the CBR exchange rate as of the date of payment (payments are to be made via Russian depositaries, without using the "C" type account).

Decree 95 specifically provides that Russian companies shall perform their obligations relating to the issuance of foreign securities by foreign entities (Eurobonds, depositary receipts) in accordance with the procedure set out by the Decree. In particular, this may mean that the said procedure must also be followed for payments by a Russian company-borrower in favor of a foreign SPV under a loan agreement underlying the transfer to the borrower of proceeds from the placement of Eurobonds issued by such SPV.

The CBR and the Ministry of Finance are entitled to specify a different procedure for Russian debtors performing obligations under credits, loans and financial instruments (the CBR in relation to obligations of credit and non-credit financial organizations; the Ministry of Finance in relation to obligations of other debtors). Until such alternate procedures are established, the CBR and the Ministry of Finance are entitled to issue prior approvals for the obligations to be performed that bypass the procedure specified by Decree 95 (the CBR in relation to credit and non-credit financial organizations; the Ministry of Finance in relation to other debtors). 

Decree 95 can be interpreted so that the performance by Russian debtors of their obligations under credits, loans and financial instruments to foreign creditors in the agreed currency of debt is possible, but requires the prior approval of the CBR or the Ministry of Finance (as applicable). To our knowledge, the mechanism for issuing such approvals to Russian debtors is already in operation.

Export of Cash in Foreign Currencies

According to Decree 81, starting from 2 March 2022, export of cash in foreign currencies and/or monetary instruments in foreign currencies in an amount exceeding the equivalent of US$10,000 (as per the CBR rate as of the date of export) is prohibited.

Buyback of Shares by Public Joint Stock Companies

According to Decree 79, up to and including 31 December 2022, public joint stock companies may acquire their own shares²⁰ subject to meeting each of the following conditions:

• the acquired shares are admitted to trading on a stock exchange;
• the volume-weighted average price of the acquired shares, determined for any three months starting from 1 February 2022, decreased by 20 percent or more as compared to the three-month volume-weighted average price of such shares starting from 1 January 2021;
• the main securities market index calculated by the stock exchange for any three months starting from 1 February 2022 decreased by 20 percent or more as compared to such index calculated by the stock exchange for the three months starting from 1 January 2021;
• the shares are acquired via organized trades on the basis of orders addressed to an unlimited number of trade participants;
• the shares are acquired by a broker on a public joint stock company's instruction; and
• the board of directors of a public joint stock company has adopted a decision on the acquisition of shares of the public joint stock company, specifying:
  • the categories (types) of shares to be acquired, 
  • the number of shares of each (category) type to be acquired,
  • the period for the acquisition (which must expire no later than 31 December 2022).

The decision of the board of directors may provide that information relating to the buyback will not be disclosed in the form of a material fact report, or specify a later time for disclosure.

A public joint stock company conducting a buyback of shares in accordance with Decree 79 is required to send a notification to the CBR in respect of the buyback procedure, along with documents confirming that the criteria set out in the said Decree have been satisfied in electronic form via the company's personal page on the CBR website.

When a public joint stock company conducts a buyback of shares in accordance with Decree 79, the provisions of clauses 4, 5, 7 and 8 of Article 72 of the Law on Joint Stock Companies shall apply, subject to the relevant provisions of the said Decree.²¹

The above procedure for buyback of shares by public joint stock companies is now also reflected in the law.

Opening bank accounts

According to Decree 79, banks are permitted to open bank accounts (deposits) for individuals without them being present in person, in a situation where an individual transfers their funds from one bank to another and, at the time of such transfer, a former bank passes on to the new bank the information it obtained as a result of identifying that individual.²²

The above procedure for the transfer of funds from one bank to another is now also reflected in the law, specifying, though, that this relates to the transfer of funds from a bank which is subject to "unfriendly" (as such term is used in the law) actions of foreign states and the relevant bank accounts (deposits) are those in foreign currencies.²³

Other measures

Apart from the measures introduced by Decrees 79, 81 and 95, a number of other measures have been brought in (which vary by the area of regulation and by the level of acts introducing those measures). 

In particular, a Presidential Decree has been issued which imposes a ban on exporting from, and/or importing into, Russia certain products and raw materials, as per the lists approved by the Government.²⁴

The CBR has imposed restrictions on operations in cash in foreign currencies for companies²⁵ and individuals,²⁶ restrictions on transfers of funds abroad for individuals (in relation to transfers to other individuals),²⁷ as well as restrictions on the transfer of funds abroad by non-residents (both companies and individuals).²⁸

The CBR has also taken measures to allow issuers to maintain their current level of listing. The CBR has provided grace periods to comply with the requirements for the securities to be maintained in the quotation lists:²⁹

• with respect to the presence of independent directors in the board of directors – before the expiry of one month after the issuer's annual shareholders' meeting held in relation to the results of 2022;
• with respect to the number of the issuer's shares in circulation – until 1 July 2023;
• with respect to the level of the credit rating of the issuer (the bond issuance) or the surety (guarantor) which met the requirements as of 1 February 2022 – until 1 October 2022.

In addition, there have been amendments to the law which sets out certain measures (sanctions) on individuals violating fundamental human rights and freedoms, rights and freedoms of Russian citizens (e.g. a ban on entry into Russia, freezing their assets in the territory of Russia): the possible application of such measures has been extended to include citizens of any foreign states and stateless persons (prior to these amendments the law mentioned only citizens of the USA).³⁰

Also, a law has been adopted which, among other things, entitles the CBR, in order to ensure financial stability, to suspend (for up to six months) the carrying out of operations and transactions by credit and non-credit financial organizations, set out economic ratios (that limit risks) on an individual basis, set out other performance indicators for credit and non-resident financial organizations, including on an individual basis.³¹

The range of measures applied, as described in this alert, is not exhaustive. 

We will continue to monitor the situation.

Click here to download 'Special Economic Measures Have Been Adopted' PDF in Russian

_{1 Decree No. 79 "On Special Economic Measures in connection with Unfriendly Actions by the United States of America and the Foreign States and International Organizations that have Joined Them," dated 28 February 2022 ("Decree 79"), Decree No. 81 "On Additional Temporary Economic Measures to Secure the Financial Stability of the Russian Federation" of 1 March 2022 ("Decree 81"), and Decree № 95 "On the Temporary Procedure for the Performance of Obligations to Certain Foreign Creditors," dated 5 March 2022 ("Decree 95").
2 Government Resolution No. 430-r "On Approval of the List of States and Territories Acting in an Unfriendly Manner towards the Russian Federation, Russian companies and Russian individuals," dated 5 March 2022 (please see the section "Ruble credits and loans, transactions involving immovable property and securities" for further information).
3 Due to the fact that the situation is changing rapidly, it should be noted that official clarifications may be provided which result in approaches that differ from those suggested by us in this Client Alert.
4 The Government Commission on Control over Foreign Investments in the Russian Federation ("Government Commission").
5 This relates to foreign persons connected to the relevant foreign states, as well as persons that are under the control of such foreign persons (please see the section "Ruble credits and loans, transactions involving immovable property and securities" and "Debt servicing under credits, loans and securities" for more details).
6 This relates to foreign persons whose ultimate beneficiaries are Russian persons (please see the section "Ruble credits and loans, transactions involving immovable property and securities" for more details).
7 This rule also applies to foreign currency proceeds credited in Russia as of 1 January 2022: 80 percent of such foreign currency funds have been subject to a mandatory sale within three business days from the date of the Decree's entry into force.
8 According to Decree 79, the procedure for the mandatory sale is set out by the CBR. In the absence of any guidance to the contrary, it appears that the procedure set out by CBR Instruction No. 111-I "On the Mandatory Sale of Portion of Foreign Currency Proceeds in the Internal Currency Market of the Russian Federation" of 30 March 2004 should be applied.
9 This ban can be interpreted not only as a ban on residents crediting their overseas accounts with their own funds, but also in a wider manner, i.e. as a ban on crediting overseas accounts with funds coming from third parties. Such interpretation would mean that there is now a ban on the previously permitted crediting of overseas accounts with loans granted by non-residents of certain states for more than two years, export proceeds for repayment of those loans, as well as certain export proceeds that were released from the repatriation requirement as of 1 July 2021 (Articles 12(5 and 5.1), 19(2)(1) and 19(8) of the Law on Currency Regulation).
10 In effect, this restriction (under its wider interpretation) would impede the performance by Russian companies of their current contractual obligations (including in pre-export finance and project finance transactions) that envisage crediting a certain amount of proceeds to residents' overseas accounts.
11 According to Decree 81, banks are entitled to make transfers in foreign currency to correspondent accounts in non-resident banks, subject to complying with the restrictions set out in Decree 81. 
12 CBR Information Letter No. IN-01-31/26 of 5 March 2022.
13 Information from the Ministry of Finance of 9 March 2022 (in Russian).
14 We note that transactions involving participation interests are mentioned in passing in a Government resolution, which sets out the procedure for granting approvals. However, in our view, this is a technical mistake, rather than the introduction of a similar restriction for transactions involving participation interests.
15 The procedure for granting approvals is set out by Government Resolution No. 295 of 6 March 2022. The application for approval can be filed by a resident or by a Specific Foreign Person. 
16 CBR Information Letter No. IN-01-31/26 of 5 March 2022.
17 It appears that this relates to payments made at issuance.
18 CBR information of 8 March 2022 (in Russian).
19 The CBR – in relation to the performance of obligations by residents being credit and non-credit financial organizations, and the Ministry of Finance – in relation to obligations of other debtors. 
20 Except for the purpose of reducing the total number of shares.
21 Federal Law No. 46-FZ of 8 March 2022.
22 The individual's written consent is needed for such transfer of information. The method and form of such transfer of information shall be determined by the banks themselves.
23 Federal Law No. 46-FZ of 8 March 2022.
24 President Decree No. 100 of 8 March 2022.
25 CBR information of 10 March 2022
26 CBR information of 9 and 11 March 2022: (in Russian). 
27 CBR Information Letter No. IN-019-12/27 of 5 March 2022.
28 The respective CBR letter was not officially published (in Russian).
29 CBR information of 6 March 2022 (in Russian).
30 These amendments were made by Federal Law No. 30-FZ of 4 March 2022 (which enters into force on 15 March 2022), and relate to Federal Law 272-FZ "On Sanctions for Individuals Violating Fundamental Human Rights and Freedoms, Rights and Freedoms of the Citizens of the Russian Federation," dated 28 December 2012.
31 Federal Law No. 46-FZ of 8 March 2022.}

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