Additional Russian Measures Affecting International Investors and Cross-Border Trade

Governmental control of investors’ divestments. Most importantly, approval is now required by a Russian government commission for any person or company from or connected to “unfriendly jurisdictions” (i.e., countries that have introduced sanctions on Russia and Russian persons) to purchase or sell interests in Russian limited liability companies or complete any other transaction that results in gaining or losing some level of control over the entities. These measures largely mirror a similar requirement enacted earlier this year concerning shares in joint-stock companies. While it has been possible to receive government approval for the divestment of a Russian company by persons from “unfriendly jurisdictions,” the deciding agency has often imposed terms, such as a price discount and other limitations. The new decree also requires government approval for transactions outside of Russia where there is a transfer of control that affects a Russian limited liability company. It remains unclear how the Russian authorities will be able to enforce this provision.

New Model for “nationalization”? The Russian government took a major step by seizing the assets of the Sakhalin-2 oil and gas development and transferring the operational use rights to a newly created Russian limited liability company. This move fits a pattern of Russia dealing with the more significant investments first. Sakhalin-2 provides a template that Russia could use again on other large projects and companies with foreign investment. Note that the Russian government was careful to refrain from an outright “nationalization” of foreign-owned assets in Sakhalin-2. The Russian government sought to make legal challenges more difficult by nominally leaving the options for foreign investors taking shares in the Russian company or receiving buyout funds in rubles in Russian banks (although with access to and ability to repatriate those funds in question).

Keeping stores and restaurants open: Western-owned retail and restaurants have also been impacted. If (1) the rent for space used for retail or food service depends on the level of sales at that location, (2) a Western-controlled business is the tenant, and (3) the tenant has stopped using the space, the landlord may demand payment of rent as of January 1, 2022 at 2021 levels (i.e., when the space was used). For example, if a lease agreement for a fast-food establishment requires a base payment of RUB 100,000 per month and an additional variable payment of 2.5 percent of sales at that location and the tenant has stopped operating at that location, the tenant must now also pay the variable payment at 2021 levels—even though the space is not being used.

As of September 13, a landlord in the above-described situation may also terminate a lease when either the additional payment has not been made or the tenant continues not to use the space (even if payment is made).

Our attorneys and consultants are available to assist in addressing questions regarding the impact of the Russian rules described above and their implementation. Our Ukraine crisis team, which includes attorneys qualified under Russian law, is well positioned to assist companies, banks, and investors coping with the prospect of reformulating their legal and business strategies in response to the conflict in Ukraine and working to recover lost assets.