Russian Executive Order Restricts Transactions in Shares of Russian LLCs by Shareholders From “Unfriendly” Countries

On 08 September 2022, the Russian Government issued a Russian Presidential decree which introduced a new vetting procedure regulating situations where “unfriendly” persons take part in transactions involving shareholdings in Russian limited liability companies.  These transactions are now subject to an approval decision by the Government Commission on Control over Foreign Investments before they can be completed.  This is the latest in a growing line of countermeasures being introduced by the Russian President to try to keep liquid assets within Russia and bolster the country’s financial markets.

Approval under this Presidential Decree is required for any transaction that creates, modifies or terminates: rights to own, use or divest any participatory interest in any Russian LLC; or other rights determining the management of any Russian LLC. 

There is no de minimis exemption: any level of shareholding change will trigger the need for approval.  The new rules appear to cover indirect transactions, including for example the sale of a non-Russian company which has a Russian LLC subsidiary.  The new rules apply to new transactions, as well as to transactions which have already signed but not yet completed.

Unfriendly persons (natural or legal) are those associated with states undertaking unfriendly actions against Russia.  The current lists is as follows:

Albania Andorra Australia Canada EU Member States Iceland Japan

Liechtenstein Micronesia Monaco Montenegro New Zealand Northern Macedonia

Norway Republic of Korea San Marino Singapore Switzerland Taiwan (China)

Ukraine United Kingdom (including Jersey, Anguilla, British Virgin Islands, Gibraltar) USA

This is a political process.  There is no set procedure or timeline for obtaining approval.  Nor does the law set out the criteria for approval and the Government Commission has very wide discretion to approve transactions, require conditions in order to grant clearance or to deny an approval decision.  We understand that the real concerns arise where foreign shareholders from unfriendly states seek to exit Russian shareholdings through a sale to a Russian resident and thereby withdraw capital from Russia.  In these circumstances, the conditions which have sometimes been imposed can relate to discounting the value at which the shareholding is sold.  We understand that, thus far, no particular countries have been singled out for more or less favorable treatment by the Government Commission in processing these decisions.

Practical considerations may also delay this process.  For example, transfers of participatory interests in Russian LLCs require notarization by a Russian notary public.  Russian notaries are unlikely to be willing to provide such notarization without evidence of the Governmental Commission approval, or robust evidence that no such approval is necessary.