Amendments to Federal Law No. 57-FZ on the Procedure for Foreign Investment in Businesses of Strategic Significance for National Defense and State Security of April 29, 2008 ("Amendments") take effect on December 6, 2014.

The amendments are clearly intended to tighten regulation of foreign investment in strategic businesses, but also close a number of existing loopholes in regulation, which will result in a certain degree of liberalization.

Tougher regulation of foreign investment in strategic companies:

  • In addition to the existing restrictions on foreign investor direct and indirect equity participation in strategic businesses and control over their governing bodies, the Amendments introduce a new requirement for foreign investors to obtain approval for the acquisition of a strategic business's main production assets in the event that the value of such property exceeds 25% or more of the book asset value of the strategic company.
  • Foreign states, international organizations, and organizations they control are now prohibited from entering into transactions involving the acquisition of property comprising the main production assets of a strategic business with a value of 25% or more of the book asset value of the company.
  • Unrelated international organizations, foreign states, and companies they control will now be treated as a single entity for the purpose of the law, and their joint participation in the strategic business will be subject to the restrictions established for the participation of an individual foreign state/international organization or controlled organization.

Closing of loopholes in regulation resulting in liberalization:

  • The rule that transactions concerning a strategic business (except strategic businesses using federally significant subsoil) do not require prior approval if the foreign investor – the acquirer or its parent company – already directly or indirectly disposes of more than 50% of the total votes conferred by shares/participatory interests in such company has been more clearly formulated. This rule takes a large number of intragroup transactions out of the prior approval requirement.
  • The law previously did not apply to transactions between organizations under the control of the RF/RF citizens who are RF tax residents (except RF citizens with dual citizenship). The law now does not apply if only the acquirer, rather than both parties to the transaction, is under control of the RF/an RF region/an RF citizen who is an RF tax resident (except RF citizens holding another citizenship).
  • The list of strategic activities has been revised. According to the Amendments, for instance, activities involving the use of infectious agents will now only be deemed strategic in cases where they require licensing, while the use of infectious agents by companies whose primary activity is food production will not be deemed strategic. This means that producers of juices, milk, yeast and many other food products, as well as medical organizations, which are not subject to licensing in this area, will cease to be strategic companies.