Control over foreign investments in Russia
Control over foreign investments is an integral part of the economic policy of any sovereign state. Russia, like many other countries in the world, has a history of regulating this process, but recent events have made significant adjustments to the mechanisms and objectives of this control. Let’s look at the evolution of the system of control over foreign investments in Russia, focusing on the role of the Government Commission and the impact of the counter-sanctions decrees of the president.
Government comission activities until 2022
Until 2022, the functioning of the Government Commission for the Control of Foreign Investments in Russia was based on the 2008 law “On the Procedure for Foreign Investments in Business Entities of Strategic Importance for Ensuring National Defense and State Security.”
The commission’s task was to proactively analyze transactions involving foreign investors in strategic sectors of the economy (defense industry, energy, communications, etc.).
The goal is to prevent foreign citizens from acquiring control over critical assets, which could threaten the national security or economic interests of the country. The process was mainly aimed at assessing the risks associated with potential threats and blocking transactions deemed inconsistent with the interests of the state. Rather, it was a regulatory role aimed at minimizing the potential negative impact of foreign investment.
Government comission activities after 2022
The situation has changed dramatically since the beginning of 2022. The new decrees of the President of the Russian Federation have become a key factor that has transformed the work of the Government Commission and expanded its sphere of influence. These decrees, among other things, set new priorities: protecting strategically important industries from unfriendly countries, preventing capital flight, and ensuring the stability of the financial system.
Now, the Government Commission and its sub-commissions not only analyze transactions, but also play a critical role in approving or blocking them. Strict restrictions and special procedures have been introduced to regulate the participation of foreign investors from unfriendly countries in the Russian economy. Obtaining permits from the sub-commission has become mandatory for making and executing transactions with certain assets if one of the parties is a person from an unfriendly country. This indicates a shift from preventive control to more stringent control aimed at directly protecting national interests under external pressure.
What has changed in the permit procedure since 2022:
- For the most part, permits are granted for transactions that are settled in rubles rather than in foreign currency
- The amount of voluntary contribution to the budget increased from 5-10% to 15% of the market value of assets in 2023, and then to 35% in 2024.
- The minimum discount on acquired assets has also been increased from 50% of the market value to 60% of the market value.
- Key business performance indicators (KPI) should also be established in order to obtain a permit.
Although it is still unclear what consequences may arise if it is not fulfilled, since responsibility for this is not yet provided for by law.