News

On 26 February, the State Duma approved in the second and third readings a bill tightening control over foreign investment in strategic enterprises. According to Kommersant, it concerns companies operating in areas of critical importance to the state, such as the defence industry, aircraft development, radio broadcasting and mineral extraction.

Currently, transactions resulting in a foreign investor directly or indirectly acquiring more than 50% of voting shares must be approved by the government commission in charge of foreign investments. The same applies to Russian companies controlled by Russian citizens with dual citizenship.

The State Duma amendment expands the types of actions requiring the commission's approval. The commission will now also oversee transactions to acquire state-owned or municipally-owned fixed assets (buildings, structures, equipment) that are used for strategic purposes.

Sergei Gavrilov, head of the Duma property, land and property relations committee, explained that the authorities are expanding the scope of instances in which an injection of foreign capital must be agreed in advance. "Previously, the focus was mainly on stocks and shares in strategic companies. Now, state-owned or municipally-owned property is also subject to scrutiny if it is used for strategically important operations – in other words, production facilities, infrastructure, transport facilities and other assets without which such operations cannot be carried out," he said.

The bill also widens the net for individuals who need to obtain approval from the government commission. "The requirements for information disclosure about who actually is behind a company and who runs it are being tightened," Gavrilov said. He continued that investors will have "fewer opportunities to act through a complex chain of ownership without disclosing anything to the authorised agency."

As Kommersant notes, foreign investors who already hold a controlling stake and want to further increase their share are not currently subject to approval by the subcommittee for new transactions. Now, however, they will have to send information about the beneficial owners to the FAS. Furthermore, the seller of the controlling stake will be required to provide this information before the transaction will be approved by the government commission (currently this information is only required from the buyer).

In addition, the amendments increase the number of sectors that are classed as strategic activities. In particular, the extraction of subsoil resources of federal significance is now extended to include deposits lacking federal status, but meeting a number of conditions regarding reserves (e.g., oil reserves of 50 – 70 million tonnes), as well as large-scale fish processing and certain types of aquaculture (Pacific salmon farming).

For new sectors, Gavrilov said, there is a lower participation interest threshold: foreign persons who already own more than a five per cent stake in such enterprises will have to report this. If the foreign investor's stake exceeds 50 per cent, either the participation interest must be reduced or the government commission must grant approval, otherwise the voting right may be taken away by a court.