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Foreign Strategic Investments Law: Recent Developments

Russian-American Round Table, organized by AmCham, FAS and U.S. Embassy in Moscow

12 April 2012

Roman Dashko

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Foreign Strategic Investments Law (“FSIL”)Brief Historic Overview

● Adopted in 2008

● Practice of implementation:

– investor applications routinely approved, rate of turn down low

– active FAS practice of clarifications on FSIL issued on individual basis

– court practice related to FSIL is developing

● But in some areas FSIL regime seemed to be unnecessarily strict, e.g.:

– deals where ultimate investors are Russian

– certain activities and industries (e.g., use of medical equipment, food industry)

– specific low thresholds in the natural resources sector

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FSIL 2011 Amendments Summary

● First substantive amendments since FSIL adoption

● No prior FSIL approval is required (Art. 2.3):

– investments by international financial organizations which are parties to international treaties with Russia

– investments by international financial organizations founded under international treaties with Russia

– list of such organizations was approved by Russian Government (Order Nr. 119-p dated 3 February 2012) and includes EBRD, IFC etc.

– post-transaction notification (Art. 14)

continued >

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FSIL 2011 Amendments Summary

● Exceptions from the scope of FSIL application (Art. 2.9):

– transactions between organizations that are controlled by the Russian Federation or controlled by Russian citizens - Russian tax residents (without dual citizenship)

– control is determined by analogy to control over strategic companies (other than in natural resources sector): direct or indirect ownership over 50%, etc.

– neither prior approval nor post-transaction notification is required

continued >

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FSIL 2011 Amendments Summary

● Changes for natural resources companies

– prior approval threshold raised from 10% to 25%

– no approval for acquisition of new shares if shareholding percentage of a foreign investor or a group of companies does not change

– post-transaction notification (Art. 14)

continued >

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FSIL 2011 Amendments Summary

● Exceptions for other industries

– data encryption activities of banks, if no shareholding by the Russian Federation

– organizations handling radioactive equipment or materials, if not primary activity and in the civil sector

● Certain procedural amendments regarding verification of the strategic status of a target company and preparation of an agreement with an investor (if required)

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Future Developments

● Exceptions for other industries (e.g., certain activities in food industry)

● Clarification of interpretation of strategic industries (in connection with licensed activities)

● Simplified procedure for companies in certain industries

● Amendments to the Subsoil Law

● FAS approval as an evidence of non-strategic status of a company

● Others?

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Questions?

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