In a move to prevent information about Russian companies from leaving the country, several members of the State Duma (the Russian parliament's lower chamber) recently proposed draft legislation to restrict the disclosure of individual and corporate information to foreign enforcement authorities and organizations. If enacted, the law could significantly impact the ability of companies and individuals in Russia to respond to subpoenas and other requests for information from non-Russian authorities, including enforcement authorities in the United States. Moreover, based on its broad language, the draft law might also be construed to block even internal requests from the head office of multinational companies based outside of Russia.
Specifically, the draft legislation would amend the Russian federal law regarding "Information, Information Technologies and Protection of Information" (the "Information Law") and the Russian Code on Administrative Violations (the "Administrative Code"). Importantly, the proposed law would apply to all companies registered in Russia, including branch offices of multinational corporations headquartered elsewhere. If enacted, the law would prohibit the disclosure of information in response to any requests from "foreign states, international organizations, foreign and Russian legal entities which are controlled by foreign states or foreign organizations, foreign powers and executive authorities, foreign bodies and organizations undertaking dispositive, controlling supervision and other functions," unless such disclosure is specifically permitted by a Russian authority to be designated by the Russian Government.
While the prospects of this legislation are uncertain at this time, there are three key elements of which multinational businesses should take note: (i) the purpose of the draft legislation; (ii) the enforcement mechanisms included in the proposed law; and (iii) the potential impact on business operations for companies with branch offices, affiliates, or other interests in Russia.
As the Explanatory Note to the draft law makes clear, one primary purpose of the legislation is to restrict the ability of foreign authorities to obtain information from and about Russian organizations. Indeed, the Explanatory Note comments that "state authorities and authorized organizations of certain nations (and, in particular, the U.S.) frequently ignore international treaties and send their inquiries directly to the other nations' companies." The Note goes on to say that such a practice would be a violation of the "current order." As support, the Note makes reference to France, China, Germany, Austria, Italy, and India as having similar prohibitions on direct disclosures of "restricted information" to foreign authorities.
It is noteworthy that Russian authorities have historically resisted or ignored investigations of Russian parties undertaken by foreign authorities. In the event that the draft legislation is enacted, it would be reasonable to expect Russian authorities to be even less willing to grant the requisite permissions for disclosure of information to foreign authorities. As a result, any such disclosures largely could be limited to those provided by the Russian authorities themselves based on mutual legal assistance requests from foreign authorities.
The draft legislation contains penalty provisions to ensure adequate enforcement. For example, disclosure of requested information without permission from the Russian authority would be subject to administrative penalties ranging from 50,000 Rubles (approximately US$790) for individuals, with fines as high as 10 million Rubles (approximately US$157,700) for noncompliant companies. In addition, company officers who violate the provisions of the draft legislation could be fined up to 1 million Rubles (approximately US$15,800) or disqualified for up to three years from holding a position as a corporate executive in a Russian company.
Impact on Business Operations
For multinational business operating branch offices in Russia, the consequences of the amendments to the Information Law potentially present a number of problems. The draft legislation, of course, presages difficulties in complying with subpoenas or other information requests from non-Russian authorities and in defending against allegations in government investigations where information sourced from Russian branch offices and subsidiaries is material to the defense. But the language of the proposed law is sufficiently broad to impact other aspects of regular business operations as well. For example, the ability of multinational companies to conduct internal investigations involving their Russian operations and local Russian personnel could be significantly undermined. Thus, the issue is whether Russian offices and subsidiaries of a multinational business would be deemed "Russian legal entities controlled by foreign organizations" under the draft law. If so, obtaining information from their non-Russian headquarters and affiliates could be restricted unless permission from Russian state authorities is obtained prior to disclosure of such information.
The current wording of the draft law leaves significant ambiguity with respect to a number of aspects of everyday activity of multinational companies in Russia and potentially may affect due diligence in M&A or joint venture projects (e.g., request of information by foreign investors from their Russian targets), international arbitration and litigation (e.g., request for information, expert opinions, or witness testimony from Russian parties), or various requests to Russian authorities seeking guidance or explanations of regulatory enforcement practices. In all of these situations, under the draft legislation, disclosure of information may be dramatically delayed or even practically impossible insofar as the release of such information would depend on the position of the Russian governmental authorities.
Whether—and, if so, in what form—the draft legislation is ultimately enacted hinges on the level of support it receives from the presidential administration. The State Duma is scheduled to vote on the proposed legislation shortly after the new year (currently the draft law is set for voting in February 2016). It will then await approval by the higher house of Russian parliament and then go to Russian President Vladimir Putin for his signature. Depending on the level of support from the presidential administration, the approval process could take as long as several months, or it could move very quickly in the matter of several weeks. Jones Day will continue to monitor developments with this draft legislation and its potential impact on multinational businesses with interests in Russia.