Established by the Russian government in 2008, the Government Commission on Control over Foreign Investments in the Russian Federation, headed by the chairman of the Russian government, is responsible for the review of FDI applications.

Although the final decision on the application is made by the Government Commission, all the preparatory work, such as receiving applications, reviewing their completeness and liaising with relevant government bodies to obtain opinions on the planned transactions, is done by the Federal Antimonopoly Service (FAS), which is also responsible for developing law enforcement practice in this area.

Summary of major changes in 2024

• Russian laws on foreign investments were not substantially amended in 2024. FAS continues to implement amendments adopted earlier. The trend on invalidating transactions by foreign investors over Russian strategic companies and to freeze the respective stakes in such companies for the benefit of the Russian Federation continues.
• Such cases are often in the defense and certain other sensitive spheres. It is noteworthy that FAS in such cases is increasingly developing a complex and comprehensive position regarding the establishment of control.
• In a number of cases, control was established on the basis of a combination of circumstantial evidence, which included not only legal but also factual circumstances.

Who files?

The application for FDI approval is filed by the acquirer in a transaction resulting in acquisition of control over an entity engaged in activities of strategic importance to Russian national defense and security—a "strategic entity." The acquirer is required to obtain the consent of the Government Commission prior to the acquisition of control over a strategic entity, or the transaction is declared void.

If an acquirer is a foreign state-owned company, it must submit an application for approval with respect to an acquisition of any Russian company—not necessarily a strategic entity—if it obtains, directly or indirectly, a blocking stake in, or veto rights in relation to, such a company. These applications with respect to Russian companies not engaged in activities of strategic importance are generally subject to the simplified review by FAS only, unless the regulator invokes the right of the prime minister to decide that a full-scale FDI review by the Government Commission is required.

To apply for consent, the acquirer must submit an application to FAS with attachments including corporate charter documents of the acquirer and the target; information on their groups' structures, including the whole chain of control over both the acquirer and the target; transaction documents; and a business plan for the development of the target after closing. A table disclosing the acquirer's ultimate controlling entities, beneficiaries and beneficiary owners is also required.

Types of deals reviewed

The Government Commission reviews transactions that result in the acquisition of control over strategic entities. Foreign investors must also obtain the Government Commission's consent for certain transactions involving the acquisition of a strategic entity's property.

The list of activities of strategic importance comprises 51 activities that, if engaged in by the target, cause the target to be considered a strategic entity. The activities include not only those directly related to state defense and security—such as operations with nuclear materials, production of weapons and military machines—but also certain other indirectly related activities, such as TV and radio broadcasting over certain territories, fishing activities and publishing activities.

The criteria for determining control are broad and are lower (25 percent) for a target that is involved in the exploration of subsoil blocks of federal importance, such as oil fields with a certain size of reserves, uranium mines, and subsoil blocks subject to exploration within a defense and security zone, or in fishing activities.

Foreign public investors are prohibited from obtaining control over strategic entities or acquiring more than 25 percent of a strategic entity's property, and must obtain consent from the Government Commission for acquisitions of lower stakes in strategic entities, or acquisition of blocking rights with respect to activities of such entities.

Such investors, however, may acquire control—defined as 25 percent or more of shares—over a strategic entity involved in exploration of subsoil blocks of federal importance or engaged in fishing activities, if this does not change the existing control over such entities by the Russian Federation, where it has a stake in such entities exceeding 50 percent. These acquisitions must be specifically approved by the Government Commission.

Investors refusing to disclose information about their beneficiaries, beneficial owners and controlling persons to FAS are subject to a special, stricter regime established for foreign public investors. According to the rules for disclosing this information approved by the government, a foreign investor planning to enter into a transaction involving a strategic entity must make a prior disclosure of its controlling entities, beneficiaries and beneficial owners in order to avoid being treated as a non­disclosing investor, and to ensure that the stricter regime established for foreign public investors will not apply. The disclosure must be made either in the form of an application for approval, if approval is required, or in the form of an informational letter filed with FAS 30 days before the transaction.

The chairman of the government commission—the prime minister—has the right to decide that prior approval is required with respect to any transaction by any foreign investor with regard to any Russian company (not necessarily the strategic entity), if this is needed for the purpose of ensuring national defense and state security. The process is initiated by FAS, which obtains opinions from the Ministry of Defense, the Federal Security Service and other governing bodies whether or not the transaction needs to be sent to the chairman for his decision.

If at least one positive answer is received, FAS sends materials to the prime minister for review and adoption of the decision. Upon receipt of the positive decision, FAS will notify the foreign investor about the need to receive approval for a prospective transaction. Any transaction made in breach of this requirement is void.

The process is obligatory for transactions with targets participating in a national project, operating a city-forming enterprise, enjoying a dominant position in any market, or being the sole producer of products or services that are not under the control of a foreign investor, and so on. In practice, FAS also invokes this right if the target operates in certain sensitive spheres in the state's policies and the economy—in particular, operating certain critical technologies, such as genetic engineering, nanodevices, or cryobiology and biomaterial conservation.

Scope of the review

• Generally, a review of the FDI application assesses the transaction's impact on state defense and security.
• FAS initially requests opinions of the Ministry of Defense and the Federal Security Service as to whether the transaction poses any threat to Russian defense and security. Additionally, if the target has a license for dealing with information constituting state secrets, FAS requests information from the Interagency Committee for the State Secrecy Protection on the existence of an international treaty allowing a foreign investor to access information constituting state secrets.
• Russian law does not provide any additional details on the review's scope or the criteria on which the transaction under review is assessed.

Review process timeline

The statutory period for reviewing the application is three months from the date of its acceptance for review. The Government Commission can extend the review period for an additional three months. In practice, the Commission uses this extension right for a large portion of applications pending review, and review timing fully depends on the availability of the Commission's members and the prime minister, so it may take longer than the statutory timing.

The law sets out a simplified procedure for review of transactions in which a target operates in certain civil sectors—such as the food industry, energy and water supply, and machinery—but due to specifics of production, has a small strategic asset accounting for not more than 1 percent of total assets of the company in the form of a water supply facility, a drainage facility or a production quality-control laboratory with a strategic license. This means it qualifies as a strategic entity.

For such types of transactions, the approval is generally issued by FAS itself, unless there are negative or no opinions on the deal received from the Ministry of Defense and the Federal Security Service, with subsequent notification of the Government Commission of the decision.

Approvals on applications by foreign state-owned companies filed under the simplified procedure are reviewed by FAS only and therefore are generally issued quite swiftly, unless FAS decides to invoke the right of the prime minister.

Most transactions submitted to the Government Commission for review are approved. That approval confirms the time period within which the acquisition must be completed. The acquirer can subsequently apply to the Government Commission with a substantiated request to extend this period, if necessary.

The Government Commission can approve the transaction subject to certain obligations imposed on the foreign investor. The law contains certain lists of obligations, which is not exhaustive; the Government Commission has a right to impose any type of obligation on the foreign investor. Those obligations may include the obligation to invest certain amounts of funds into activities of the strategic entity; or to process bioresources or natural resources extracted by the strategic entity on Russian territory, as well as to sell the strategic entity's products at fixed prices; the continued execution of investment programs; and to localize production of parts, components and accessories used by strategic entities in their production of goods.

How foreign investors can protect themselves

Early in a transaction, a foreign investor should analyze whether the target company qualifies as a strategic entity and whether the planned transaction triggers a requirement for the Government Commission's consent. It is also necessary to analyze whether such consent would be needed in case the acquirer is qualified as a non-disclosing investor. Answering these questions will allow the investor to start filing preparations, and then to file its application sufficiently in advance to manage the filing's impact on the timing of the transaction.

If the planned transaction does not require prior consent but consent would be needed if the acquirer is qualified as a non­disclosing investor, the acquirer must disclose to FAS information on the acquirer's beneficiaries, beneficial owners and controlling persons in advance, at least 30 days before the planned transaction.

Even if the target company does not qualify as a strategic entity, the investor should analyze whether it operates in the spheres for which invoking the right of the prime minister is mandatory, or in other potentially sensitive spheres, including those affected by sanctions or counter-sanctions, or possesses any critical technologies that may potentially trigger the referral of the transaction by FAS to the prime minister and result in a full-scale FDI review of the transaction.

Finally, a foreign public investor that intends to acquire a stake exceeding 25 percent of shares in any Russian company, or blocking rights with respect to such company, must obtain FAS clearance of such acquisitions.

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