FAS once again revisits bill expanding oversight of transactions involving foreign investors
The Federal Antimonopoly Service (FAS) has submitted what is now the third version of a bill amending Law No. 57-FZ "On the Procedures for Foreign Investment in Business Entities of Strategic Importance for National Defense and State Security". The original version of the amendments, published in February, drew criticism from the Russian Union of Industrialists and Entrepreneurs (RSPP) – an association representing the interests of big business – particularly when it saw the risk that foreign investors would retroactively have to seek approval for earlier transactions to gain control of companies that are not strategically important now, but would become so as a result of the bill being passed. In April the FAS revised the bill, relieving some of the business concerns.
The restated bill, posted by the antimonopoly regulator on 21 May, still seeks to expand the list of strategic types of operation to include the exploitation of subsoil license blocks, other than those of federal importance, that contain certain reserves of oil, gas, copper, and gold, and rare-earth mineral deposits. However, in the fishing sector, the expansion was not so substantial as had been put forward in the previous version. Only the production of fish and other fishery and aquaculture products would be classed as strategic operations, while associated activities such as the acceptance, processing, transloading, transportation, storage, and offloading of aquatic bioresources, which figured in the previous version of the amendments, have been dropped. For a new type of operation to be considered strategic, a company should derive at least 50% of its earnings from the production of fish products, and the book value of the assets of such company and its group of entities should exceed RUB 800 million.
Furthermore, the FAS has decided against adding the catch-all clause of "production operations having a direct process connection" with any type of strategic operation whatsoever to the list of strategic types of operation in which the involvement of foreign investors requires the regulator's approval. The bill had not proposed criteria that would enable specific types of operation to be ascribed to this category, and the business community had fears that the new clause would be broadly interpreted.
The revised amendments state that transactions by foreign investors requiring preliminary approval will include the acquisition of property "under state or municipal ownership that is classed as capital production assets used to implement types of operation having strategic importance for national defense and state security." According to the previous wording, it was possible for such property "to have been used in the past" for implementing strategic types of operation. In other words, companies that had acquired property which was actually no longer used to conduct strategic types of operation could fall within the scope of regulation.
Finally, the FAS reinserted into the bill the requirement for retrospective approval for earlier transactions in which a foreign investor purchased more than 50% of a company producing fish and other fishery and aquaculture products from catches of aquatic bioresources (if the company's earnings from such production amount to 50% or more of total earnings and the total book value of its assets exceed RUB 800 million). Proposed provisions such as these create the risk of "having transactions retrospectively contested," the RSPP warned in its feedback on the first version of the amendments.