Key Takeaways:

  • Russian President Putin signs decree placing Russian subsidiaries of two European companies under "temporary management" by Kremlin loyalists.
  • Risk of expropriation of Russia-based assets belonging to companies from countries deemed "unfriendly" to Russia appears to be materially increasing.
  • Companies operating in Russia that are impacted, or that may potentially be impacted, by asset seizures or sales must consider the export controls and sanctions implications of exiting Russia.

On July 16, 2023, Russian President Vladimir Putin signed a decree seizing control of the Russian subsidiaries of the French food-products company, Danone S.A., and Danish brewer, Carlsberg A/S, claiming the assets were being placed under "temporary" administration by individuals loyal to Putin. Danone Russia JSC is now reportedly under the control of Yakub Zakriev, a deputy prime minister of Chechnya and its agriculture minister, while Carlberg A/S's Baltika Brewing Company is now headed by Taimuraz Bolloev, reputed to be a close friend of Putin.

The legal basis for these actions was a decree issued by Putin on April 25, 2023, which allowed for assets from "unfriendly countries"1 to be placed under administrative receivership in retaliation for the seizure of Russian property by such countries. At the same time that this decree was issued, the German firm Uniper SE's stake in Unipro (an electric power distribution company) was given to the Russian Federal Agency for State Property Management (Rosimushchestvo) as was Finnish energy company Fortum Oyj's stake in Fortum Russia B. V.

Hundreds of companies from "unfriendly countries" continue to operate in Russia and should take heed of the increasing use of asset seizures by the Russian government. Among the various legal ramifications of such asset seizures are those related to export controls and sanctions.

Export Control Implications of Asset Transfers

Hardware (including manufacturing equipment), software, and related technology in the possession of Russian subsidiaries of companies from "unfriendly countries" could be subject to U.S. export controls even if originally lawfully exported to the Russian subsidiary. Transfers or retransfers of items subject to the U.S. Export Administration Regulations ("EAR") to Russian persons, whether effected pursuant to an asset seizure, forced sale, or voluntary sale, could require an export license. Companies continuing to operate in Russia should create inventories of such items to mitigate export controls compliance risks or, at a minimum, be able to identify the nature and scope of such items to U.S. Government regulators in the event of an inquiry or investigation. In the event of a voluntary sale, an export license from the Department of Commerce's Bureau of Industry and Security ("BIS") may be required with a presumption of denial applying to most license applications.

Sanctions Implications of Asset Seizures and Transfers

Similarly, involuntary asset transfers involving sanctioned persons could technically be considered sanctions violations. If there is sufficient time, impacted companies could request a license from the Treasury Department's Office of Foreign Assets Control ("OFAC") if U.S. sanctions are implicated or authorization from other sanctions authorities, as applicable. However, it is unlikely such a license would be granted.

Violations of Export Control Laws and Sanctions Related to Asset Seizures

Although violations of export controls resulting from asset seizures could hardly be framed as willful conduct, absent contrary guidance from BIS, impacted companies whose assets are subject to the EAR and have been forcibly transferred to a Russian person should consider submitting a voluntary disclosure to BIS if the transfer required an export license. Similarly, if the asset seizure involved a sanctioned person, impacted companies should assess whether a voluntary disclosure to OFAC is advisable. In either case, a company's action (or inaction) as these risks are becoming more apparent may have a significant impact on the reaction of U.S. regulators to such a disclosure.

Next Steps for Companies Operating in Russia

Companies continuing to operate in Russia need to consider that they could become the target of an expropriation or forced sale of their assets by the Russian government. As part of contingency planning, they should consult with counsel on strategies to mitigate the U.S. sanctions, export controls and other legal and business risks arising from such a situation. Foley Hoag has assisted numerous companies both seeking to operate compliantly in Russia as well as those seeking to exit the country. If you are looking for assistance on next steps or how to ensure compliance with U.S. sanctions and export control regulations, please contact a member of Foley Hoag's International Trade & National Security practice. For information on earlier Russia-related actions, see our prior Client Alerts on our Russia and Belarus Sanctions practice page.

Footnote

1. Russia has previously identified the following jurisdictions as "unfriendly": Albania, Andorra, Australia, Canada, all member countries of the European Union, Iceland, Japan, Liechtenstein, Micronesia, Monaco, Montenegro, New Zealand, North Macedonia, Norway, San Marino, Singapore, South Korea, Switzerland, Taiwan, the United Kingdom, the United States, and Ukraine. See TASS, "Russian government approves list of unfriendly countries and territories" (March 7, 2022), available at: https://tass.com/politics/1418197.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.