The Russian President ratified amendments to the law on investments regarding objects of strategic significance

On 4 November 2014, Russian President Vladimir Putin signed Law No. 343-FZ, Amendments to Federal Law No. 57, dated 29 April 2008, “Foreign investments in economic entities that have strategic significance for national defense and security,” and in certain other legislative acts. The new amendments will come into force on 6 December 2014.

The amendments to the Federal Law No. 57 of 2008 are as follows:

1. Food production companies that use infectious agents are no longer businesses of strategic importance.
2. The law on foreign investments in strategic companies now extends to companies and their main production facilities when 25 percent of their assets, based on the last reporting date, are related to national defense and state security.
3. Strategic companies with foreign investors are exempt from the need to receive official approvals for intercompany transactions when they are accountable to a single individual.
4. Transactions by foreign investors who own 75 percent or more in the shared capital of strategic companies no longer need approval for transactions.
5. The authorities may extend preliminary approvals of transactions.
6. Foreign investors must notify the Federal Antimonopoly Service about transactions involving shares in businesses that the Government Commission previously approved as well as the assets of these businesses.
7. The amendments contain additional obligations for transaction approvals.

The purpose of the amendments is to enhance the ability of authorities to monitor foreign investments in Russian strategic businesses. The amendments clarify a number of notions, such as “group of persons” and “agreement,” and they lists the activities of strategic importance for Russian national defense and state security.

The Law on procedures for foreign investments in business entities of strategic importance now will apply to transactions that are related to the acquisition, possession, or use of the assets of strategic business entities and their main production facilities when the assets, transactions, and other dealings of that business place 25 percent of the firm in the control of foreign investors or groups of individuals. The amendments enhance the government’s monitoring of such transactions. They also establish additional requirements for the disclosure of state, commercial, official, or other secrets, protected by law, to the Federal Antimonopoly Service, at the request of the proper authorities.

Specific provisions also amend Federal Law No. 166-FZ, Fisheries and conservation of aquatic biological resources, dated 20 December 2004.

The amended law includes a list of consequences for those who violate the provisions of the law, which can occur, for example, when:

1. a foreign investor gains control over a strategic business entity illegally; or
2. a strategic business comes under the control of foreign investors prior to the necessary approvals.

The Law on foreign investments narrowed the list of transactions requiring provisional approval and introduced incentives for foreign investors, including the possibility of extending the validity of the Government Commission’s provisional approval of certain transactions. These changes result in a simpler and more transparent approval procedure for transactions regarding foreign investments in strategic industries in the Russian Federation.