The State Duma has passed a law* aimed at strengthening state control over transactions involving “strategic” companies, as well as tightening liability for foreign investors carrying out transactions which both involve such companies and fail to comply with the procedure for obtaining prior approval from the Government Commission for the Control of Foreign Investment (“Strategic Approval”).
The adopted law amends Federal Law* No. 57-FZ “On the Procedure for Foreign Investment in Commercial Companies of Strategic Importance for National Defence and State Security” (the “Strategic Companies Law”) dated 29 April 2008. This law only applies to companies involved in “strategic” activities listed in the law (e.g. activities related to nuclear materials, radioactive waste, infectious disease agents, etc.).
The essence of the amendments is as follows.
Confiscation by the Russian state
As a general rule, transactions made in violation of the procedure for obtaining Strategic Approval are null and void.
The adopted amendments expand the list of possible consequences of the nullity of such transactions. Thus, the state will, based on a court order, be able to confiscate participatory interests/shares or assets of a Russian “strategic” company acquired in breach of the requirement to obtain Strategic Approval. The same can also happen to revenues received by the parties as a result of a transaction not approved by the Government Commission.
Russians as “foreign investors”
Russian citizens holding a residence permit (or any other permanent residence document) in a foreign state are given the status of a “foreign investor” for the purposes of the application of the Strategic Companies Law. This means that the direct or indirect acquisition by such citizens and companies controlled by them of shares (participatory interests), rights or assets of Russian “strategic” companies is subject to Strategic Approval.
The amendments do not distinguish between “unfriendly” and “friendly” states, as the Strategic Companies Law itself does not provide for such a distinction.
It should be remembered that, according to the current version of the Strategic Companies Law, Russian citizens who also have another citizenship (but not a residence permit) are already deemed foreign investors.
Under the new version of the Strategic Companies Law, persons holding a residence permit in a foreign country will be recognised as foreign investors even in the absence of foreign citizenship.
At the same time, Russian citizens who already exercise control over Russian “strategic” companies will, if they obtain a residence permit in a foreign country, be required to apply for control over such a “strategic” company within three months from the date of receipt of the residence permit.
Right to damages
Among other things, the adopted amendments establish the right of a Russian “strategic” company, in respect of which a transaction was carried out in violation of the Strategic Approval procedure, to claim compensation through the courts from a foreign investor for losses and damage caused to the company and its property due to the unfair exercise by this foreign investor (or a group thereof) of its (their) rights in relation to the Russian company or its property.
* In Russian