Presentation to British Russian Law Association Sergei Voitishkin 24 November 2008 Baker & McKenzie...

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Presentation to British Russian Law Association Sergei Voitishkin 24 November 2008 Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, New Restrictions for Foreign Investments in Russia

Transcript of Presentation to British Russian Law Association Sergei Voitishkin 24 November 2008 Baker & McKenzie...

Page 1: Presentation to British Russian Law Association Sergei Voitishkin 24 November 2008 Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International,

Presentation to British Russian Law Association

Sergei Voitishkin 24 November 2008 Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm.

New Restrictions for Foreign Investments in Russia

Page 2: Presentation to British Russian Law Association Sergei Voitishkin 24 November 2008 Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International,

New Restrictions of Foreign Investments in Russia

Foreign Investments in the Russian Economy1st Half 2003-2008 (% to GDP)

0

2

4

6

8

10

12

2003 2004 2005 2006 2007 2008

Total incomingvolume of foreigninvestments in % toGDP

Direct investments in% to GDP

Page 3: Presentation to British Russian Law Association Sergei Voitishkin 24 November 2008 Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International,

New Restrictions of Foreign Investments in Russia

Foreign Investments Structure: 1st Half of 2008

22%

13%

2%

32%

5% 26%

Mining

Metals

Chemicals andPetrochemicals

Food Industry

Wood Processing

Other

Page 4: Presentation to British Russian Law Association Sergei Voitishkin 24 November 2008 Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International,

New Restrictions of Foreign Investments in Russia

2 new laws2 new laws• “On the Procedures for Foreign Investments in Companies of Strategic Significance for National Defense and

Security”

• “On the Introduction of Amendments in Legislative Acts of the Russian Federation in Connection with the Adoption of Federal Law “On the Procedures for Foreign Investments in Companies of Strategic Significance for National Defense and Security”

Both effective as of May 7, 2008

The restrictions do not apply to transactions consummated before May 7, 2008, except to the extent the rights and obligations under the transaction arise after this date

Page 5: Presentation to British Russian Law Association Sergei Voitishkin 24 November 2008 Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International,

New Restrictions of Foreign Investments in Russia

Purpose

• Is it a ban on foreign investments?

• Aimed at streamlining foreign investments in Russian strategic companies and establishing procedures for obtaining approvals

Page 6: Presentation to British Russian Law Association Sergei Voitishkin 24 November 2008 Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International,

New Restrictions of Foreign Investments in Russia

Foreign Investor

• Any foreign (non-Russian) organization, company, individual

• Russian companies Controlled by foreign persons

• Group of persons which includes a foreign investor

• Foreign states and international organizations and companies controlled thereby

Page 7: Presentation to British Russian Law Association Sergei Voitishkin 24 November 2008 Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International,

New Restrictions of Foreign Investments in Russia

Strategic Company means

activities involving nuclear facilities and radio active materials and wastes

production and distribution of cryptographic means and related services requiring licenses

electronic surveillance

weapons and military hardware

Aviation and aviation safety

space activities

TV or radio broadcasting (≥50% of public in a constituent member of Russia)

activities involving use of agents causing infectious diseases

natural monopolies (oil and gas pipelines, railways, airports and ports, dispatching in electricity, internal waterways)

telecoms (for companies with a dominant position, except Internet providers)

natural resources on strategic deposits (federal plots)

fishing

production of metals and special alloys for military use (having a dominant position)

printing (200 million pages a month)

activities affecting нydrometeorological and geophysical processes

Russian companies (LLC or JSC) engaged in any 42 strategic activitiesThese broadly include:

Page 8: Presentation to British Russian Law Association Sergei Voitishkin 24 November 2008 Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International,

New Restrictions of Foreign Investments in Russia

Strategic Deposits (Federal Subsoil Plots)

Hard Rock Deposits:

• Subsoil plots containing deposits and showings of uranium, diamonds, nickel, cobalt, platinum group of metals and certain other minerals

• Containing as of January 1, 2006 the following reserves: (i) core gold – over 50 tons; (ii) copper – over 500 thousand tons

Page 9: Presentation to British Russian Law Association Sergei Voitishkin 24 November 2008 Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International,

New Restrictions of Foreign Investments in Russia

Strategic Deposits (II)

Hydrocarbons:

• Containing as of January 1, 2006 the following reserves: (i) recoverable oil reserves 70 million tons and above; (ii) gas reserves 50 billion cubic meters and above

• Deposits located in the inland sea waters, territorial sea waters, or on the continental shelf (off-shore deposits)

Page 10: Presentation to British Russian Law Association Sergei Voitishkin 24 November 2008 Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International,

New Restrictions of Foreign Investments in Russia

Strategic Deposits (III)

• Those which can only be developed using defense lands

List of strategic subsoil plots to be published by

Federal Agency for Subsoil Use

Conservatively, a deposit meeting the requirements

need not be on the list to qualify as federal (strategic)

Page 11: Presentation to British Russian Law Association Sergei Voitishkin 24 November 2008 Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International,

New Restrictions of Foreign Investments in Russia

Restrictions

Control means:

As regards strategic companies:• > 50% of voting shares• Right to appoint CEO and/or >50% of the management board or board of directors• Act as management company (manager)• Determine decisions of the strategic company

Strategic natural resources companies:

• 10% and more of voting shares• Right to appoint CEO and/or 10% or more of the management board or board of directors• Act as management company (manager)• Determine decisions of the strategic company

Foreign states, international organizations and organizations controlled thereby cannot acquire control over strategic companies

Page 12: Presentation to British Russian Law Association Sergei Voitishkin 24 November 2008 Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International,

New Restrictions of Foreign Investments in Russia

Approvals

Strategic companies

• Acquire more than 50% of voting shares

• Get right to appoint CEO and/or >50% of the management board or board of directors;

• Act as management company (manager)

• Any other right to determine decisions by the governing bodies and the business

Foreign investors and groups (non-state controlled) require special approval to:

Page 13: Presentation to British Russian Law Association Sergei Voitishkin 24 November 2008 Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International,

New Restrictions of Foreign Investments in Russia

Approvals

Strategic natural resources companies

• Acquire 10% and more of voting shares

• Get right to appoint CEO and/or 10% or more of the management board or board of directors

• Act as management company (manager)

• Any other right to determine decisions by the governing bodies and the business

Page 14: Presentation to British Russian Law Association Sergei Voitishkin 24 November 2008 Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International,

New Restrictions of Foreign Investments in Russia

Approvals

As regards foreign states, international organizations and organizations controlled thereby:

• >25% of voting shares in a strategic company (or other right to block decisions) (but cannot buy more than 50%)

• >5% of voting shares in a strategic natural resources company (but cannot buy more than 10% minus one share)

Page 15: Presentation to British Russian Law Association Sergei Voitishkin 24 November 2008 Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International,

New Restrictions of Foreign Investments in Russia

Approvals

Restrictions also apply to cases when control is established through a change of shareholding as a result of share conversions, buy-back, charter capital decrease, etc.

Foreign investor must file for approval within 3 months, and if

approval is denied, must decrease its shareholding

Page 16: Presentation to British Russian Law Association Sergei Voitishkin 24 November 2008 Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International,

New Restrictions of Foreign Investments in Russia

Restrictions

• Transfer of subsoil rights (transfer of licenses) to federal plots to companies under the control of foreign investors is prohibited (intra group transfers?)

• Foreigners are prohibited to hold subsoil rights with respect to federal deposits

• Off-shore deposits may be used by Russian companies in which Russian state holds more than 50% shares

Page 17: Presentation to British Russian Law Association Sergei Voitishkin 24 November 2008 Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International,

New Restrictions of Foreign Investments in Russia

Conversion of Exploration Rights into Production Rights

• New grounds for refusal (threat to national security)

• New compensation rules (expenses, return of bonus for grant of rights, plus a premium)

• Generally may be viewed as a positive development

Page 18: Presentation to British Russian Law Association Sergei Voitishkin 24 November 2008 Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International,

New Restrictions of Foreign Investments in Russia

Approvals

Approval may be sought by the foreign investor or in the case of a group, by any legal entity or individual in the group who intend to do a transaction (or acquire control)

Filing documents:

• Application• Registration certificate, foundation documents• Draft contract for the acquisition of control• Information about key activities of the applicant• Information about the applicant’s group and persons who control it• Draft business plan• Information about shares it already has in the strategic company• Other relevant information

Page 19: Presentation to British Russian Law Association Sergei Voitishkin 24 November 2008 Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International,

New Restrictions of Foreign Investments in Russia

Notification requirements:

Foreign investors and groups must notify FAS of acquiring 5% and more in a strategic company.

As regards past deals (prior to May 7, 2008) – within 180 days, ie. by November 3, 2008.

Deals done after May 7, 2008, must be notified within 45 calendar days from the date of transaction. The investor must submit a copy of the sale and purchase agreement (or similar document).

Page 20: Presentation to British Russian Law Association Sergei Voitishkin 24 November 2008 Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International,

New Restrictions of Foreign Investments in Russia

Approvals

Filing should be made with the Federal Antimonopoly Service (FAS),

approval is granted by the Russian Government Commission for Control over Foreign Investments

Timing (3.5 months which may be extended to 6.5 months)

Vladimir PutinPrime Minister

Igor ShuvalovFirst Vice President

Anatoly SerdukovMinister of Defense

Yuri TrutnevMinister of Natural Resources

Igor ArtemievHead of the Federal Antimonopoly Service

Page 21: Presentation to British Russian Law Association Sergei Voitishkin 24 November 2008 Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International,

New Restrictions of Foreign Investments in Russia

Approvals If it is not clear whether approval is required, a request for clarifications may be filed with FAS.

Time for review: 30 days

FAS asks the Federal Security Service if the transaction poses a threat to state security and defense, determines whether the strategic company has any relevant licenses, access to state secrets, defense orders, dominant position, and defense-related or socially important IP, etc.

FAS then sends all materials to the Government Commission which may reject or grant approval (including conditional approval)

Page 22: Presentation to British Russian Law Association Sergei Voitishkin 24 November 2008 Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International,

New Restrictions of Foreign Investments in Russia

Approvals

Conditions:

• Appointment to the governing bodies of candidates who have clearance (i.e. Russian nationals)

• Performance of government defense contracts• Maintenance of facilities which may be used for defense

purposes• Provision of services applying tariffs set for natural

monopolies• Implementation of the business plan proposed by applicant• Implementation of measures envisaged in the case of war

or state of emergency• Undertaking not to allow redundancies• Processing of natural resources in Russia

Page 23: Presentation to British Russian Law Association Sergei Voitishkin 24 November 2008 Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International,

New Restrictions of Foreign Investments in Russia

Approvals

• The Commission should decide which conditions apply and the applicant must agree to such conditions prior to the Commission’s decision to grant its approval.

• The conditions are specified in an agreement signed by the applicant with FAS within 20 days of the Commission’s decision to impose conditions.

• The agreement enters into force on the date the Commission grants the conditional approval.

Page 24: Presentation to British Russian Law Association Sergei Voitishkin 24 November 2008 Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International,

New Restrictions of Foreign Investments in Russia

Sanctions

• Transactions executed in breach of the Law on Strategic Activities are null and void.

• The parties to a void transaction may be ordered to return everything received under such transaction.

• If it is impossible to reverse a deal, a Russian court may rule to deprive the foreign investor of voting rights at general shareholders meetings of the strategic company.

Page 25: Presentation to British Russian Law Association Sergei Voitishkin 24 November 2008 Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International,

New Restrictions of Foreign Investments in Russia

Appeals Procedure

• FAS decisions and actions in connection with applications for strategic acquisitions may be appealed with a Russian court

• The Commission’s decision may be appealed with the High

Arbitration Court.

Page 26: Presentation to British Russian Law Association Sergei Voitishkin 24 November 2008 Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International,

Presentation to British Russian Law Association

Sergei Voitishkin 24 November 2008 Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm.

New Restrictions of Foreign Investments in Russia