Measures of impact (resistance) to unfriendly actions

On 22 May 2018, the State Duma (a lower chamber of the Russian parliament) adopted draft law No. 441399 - 7 "On measures of impact (resistance) to unfriendly actions of the United States of America and/or other foreign states" (the "Draft Law") in its third and final reading. The Draft Law was introduced in response to the latest additions to the US sanctions which were imposed on Russian companies and individuals on 6 April 2018 by the US Department of the Treasury's Office of Foreign Assets Control.

The full text of the Draft Law in Russian is available here.

The Draft Law is now even more generic as compared to its initial version. The Draft Law neither imposes specific restrictions nor refers to any particular types of products, services, including legal services, or industries to be prohibited. Virtually all restrictions will be specifically defined by the President or by the Government within the scope set forth by the Draft Law.

The restrictions may be imposed on companies and nationals originating from the US or those other countries which have committed "hostile actions" against the Russian Federation, Russian companies and individuals, eg by imposition of political or economic sanctions, or other actions threatening territorial integrity, political or economic stability of the Russian Federation (the "Designated Jurisdictions").

The restrictions, if imposed, shall apply to the Designated Jurisdictions, organisations from the Designated Jurisdictions, directly or indirectly, controlled by or affiliated with the Designated Jurisdictions, if such organisations are involved in committing "hostile actions" against the Russian Federation (the "Designated Persons").

The Draft Law sets forth the following potential restrictions:

  1. termination or suspension of co-operation between the Russian Federation and/or Russian legal entities, on the one hand, and the Designated Persons, on the other hand, in sectors to be determined by the President;
  2. prohibition or limitation on import of products and/or raw materials (list to be determined by the Government) originated from the Designated Jurisdictions or manufactured by the Designated Persons.

This restriction shall not apply to vital goods, which equivalents are not produced in Russia and to goods imported for personal use only by Russian citizens, foreign citizens and stateless persons;

  1. prohibition or limitation on export of products and/or raw materials (list to be determined by the Government) by the Designated Persons or citizens of the Designated Jurisdictions;
  2. prohibition or limitation for rendering services (list to be determined by the Government) for the government or municipal needs, as well as needs of state-controlled entities, natural monopolies and entities, performing specifically regulated operations in electrical supply, gas supply and similar spheres by the Designated Persons;
  3. prohibition or limitation of performance by the Designated Persons or citizens of Designated Jurisdictions of the following activities:
  • privatisation of state and municipal property; and/or
  • arranging the sale of state property on behalf of Russia and/or performing functions of the seller of such state property;
  1. other measures as may be decided by the President.

What does it mean for your business?

The Draft Law will now be submitted to the Federal Assembly (an upper chamber of the Russian parliament). The Draft Law has to be signed into law by the President and officially published to become effective. Given the circumstances, it is highly likely that the Draft Law will be adopted as a matter of priority at the end of May – early June at the latest.

At this stage only the US (including its companies and citizens) is specifically indicated as a Designated Jurisdiction as there is no specific list of any other Designated Jurisdictions. There is a risk that all jurisdictions which introduced sanctions against Russia and Russian persons could be possibly recognised as a Designated Jurisdiction and the companies registered in these jurisdictions being the Designated Persons. Moreover, there are no further explanations what will be recognised as "direct or indirect control" over the companies by the Designated Jurisdictions (shareholders control, profit distribution agreements, etc).

Taking into account the above, to continue your business in Russia it is necessary to closely follow the developments and consider your operational model in Russia to take into consideration control and affiliation levels (based on provisions of the Draft Law) of the Designated Jurisdictions and the Designated Persons operating in Russia or with Russian persons. We assume that more precise information will be available at a later stage.

Click here to make sure that you read our previous alert on the Draft Law.

Risks of criminal liability for compliance with or facilitation of foreign sanctions

On 15 May 2018, the State Duma adopted the draft law No. 464757 - 7 "On introduction of an amendment to the Criminal Code of the Russian Federation" (the "Criminal Bill") in the first (initial) reading. The Criminal Bill was introduced on 14 May 2018 as the additional retaliatory measure supporting the concept introduced by the Draft Law.

The second reading of the Criminal Bill is now postponed because of a significant number of objections from business received by the State Duma. The State Duma is conducting additional consultations with representatives of the business and legal community to adjust the Criminal Bill to better protect the business interests of the Russian economy. The date of the next reading has not been set yet.

The current iteration of the Criminal Bill sets forth two types of criminal actions/inaction:

  1. actions (inaction) aimed at the execution of a decision of foreign states / union of states / international organisations on introducing restrictive measures, provided that these actions (inaction) result in the restriction or refusal to commit ordinary business operations or transactions by Russian persons (states, citizens, legal entities)

Maximum sanctions:

  • a fine of up to RUB 600,000 (approx. USD 9,700); or
  • imprisonment for up to four years.
  1. deliberate actions encouraging introduction of restrictive measures by foreign states against Russian private and public entities as well as entities controlled by them

Maximum sanctions:

  • a fine of up to RUB 500,000 (approx. USD 8,107); or
  • imprisonment for a term of up to three years.

Discussions on the Criminal Bill and potential implications

On 23 May 2018, the Legislation Council of the State Duma held a meeting with representatives of the business and legal community. The community proposed to replace criminal liability for actions (inactions) in compliance with foreign sanctions with administrative liability. It was also proposed to introduce criminal liability only for actions aimed at facilitation of introduction of the restrictive measures against Russia by foreign states.

At this stage, it is quite early to assess specifically the potential implications of the Criminal Bill to the foreign companies operating in Russia because it is highly likely that the text will be revised substantially before adoption.