At the end of last week the State Duma of the Russian Federation (the lower house of the Russian Parliament) passed in the first reading a bill on the protection of state interests in the case of depositing budget funds in banks (the "Bill").
What the Bill imposes
The Bill imposes restrictions on Russian banks and Russian subsidiaries of foreign banks that refuse to work with Russian companies that are subject, or potentially subject, to sanctions imposed against Russia. In case a bank denied or limited financing to a Russian company which is indicated in the US SDN and/or EU DP lists or is a subject to sectoral sanctions, the Russian Government may remove such a bank from the list of banks that may receive money on deposits from public entities (state corporations, unitary enterprises and partially government-owned companies). Restrictions may be imposed even if there is only a risk of such denial or limitation.
The Bill also authorizes the Government to set requirements for banks to receive money from state-owned companies. The list of banks complying with the requirements will be published on a monthly basis on the website of the Central Bank.
In addition, the Bill suggests imposing a penalty of RUB 60 million on stateowned companies for conducting business with "prohibited" banks. All accounts of state-owned companies in such banks should be closed within six months.
Entry into effect
To come into effect the Bill should be passed by the State Duma in two more readings, approved by the Federation Council (the upper house of the Russian Parliament) and signed by the Russian President. It is still possible that further down the legislative process the Bill could be significantly changed or even cancelled; however, foreign banks operating in Russia should still pay attention to its potential implementation. We will keep monitoring the progress of this legislative initiative.