On 5 July 2017, the State Duma of the Russian Federation adopted a law that substantially amends Federal Law No. 160-FZ "On Foreign Investments in the Russian Federation" (the "Foreign Investment Law") and Federal Law No. 57-FZ "On the Procedure for Making Foreign Investments in Companies of Strategic Importance for National Defence and State Security" (the "Strategic Investment Law").
Under the current Foreign Investment Law, acquisitions of more than 25% of voting shares in or of other blocking rights with respect to Russian companies by a foreign investor controlled by a foreign state(s) or an international organisation(s) are subject to state control and require a pre-transaction filing. Such filings must be submitted to the Russian Federal Antimonopoly Service (the "FAS") which handles them and in certain cases hands them over to the Government Commission for Monitoring Foreign Investments.
According to the recent changes to the Foreign Investment Law, the head of the Government Commission for Monitoring Foreign Investments (the prime minister of the Russian Federation) can decide that a particular foreign investment must be approved in accordance with the procedure required for investments into "strategic" entities under the Strategic Investment Law. Consequently, the Government Commission has broad discretion in determining whether a particular transaction, even made by a private company, should be submitted to them for a review in a time-consuming and complicated procedure under the Strategic Investment Law, instead of the simpler procedure under the Foreign Investment Law.
Another important change concerns the consequences of breaching the requirement to obtain the FAS's approval for the above transactions: the transactions concluded in breach of the Foreign Investment Law will be regarded as null and void. Prior to the latest developments, the negative consequences were limited to an administrative fine of RUB 1,000,000.
The amendment also extends the scope of the Strategic Investments Law to include some new types of activities that are regarded, from this time onwards, as "strategic" activities. In particular, the activities of an operator of an electronic trading platform for state procurement will be regarded as the "strategic" activities. In the event of a failure to submit a notification of an acquisition of more than 5% of shares in a "strategic" legal entity, the court can deprive the foreign investor of their voting rights at general shareholders meetings in response to a claim brought by the FAS.
Last but not least, within 90 days after the amending law comes into effect, all foreign investors should provide the FAS with the information on their existing shareholdings amounting to more than 5% of the share capital of any "strategic" entity which is registered in the Republic of Crimea or Sevastopol. If this requirement is not met, the FAS may apply to court, requesting that the non-compliant foreign investor is deprived of their voting rights at general shareholders meetings of the legal entity concerned.
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