Government approves bill tightening oversight over foreign investment
The government commission on legislative activity has supported amendments by the Federal Antimonopoly Service (FAS) to the Law on Foreign Investment in Businesses of Strategic Importance for National Defence and State Security, as well as respective amendments to laws on subsoil resources, competition protection, and natural monopolies. This was reported by RBC.
The amendments to the law on strategic foreign investments, which may be submitted to the State Duma in November, expand the concept of what a strategic enterprise is, augment the list of operations of strategic importance for defence and security (adding development of regional and multiregional subsoil licence blocks, and manufacture of fish products), and introduce a requirement for foreign investors who already own more than 50% of entities that will become strategic business as a result of the bill's passage to seek approval for their control from the government commission on foreign investment or else reduce their interest to below 50%.
The bill deems a 'strategic business' to be "a business established in the Russian Federation that meets one of two criteria: either it performs at least one of the operations relating to strategic sectors, or it "has licences or other permits granting it the right to perform at least one of said operations". A 'business' is taken to mean a commercial organisation or not-for-profit organisation "performing operations that generate income" (whereas currently only joint-stock companies or limited liability companies can be considered 'strategic').
The bill's provisions will apply to the acquisition of "property owned by the state or municipality that is classified as a basic means of production" used to perform strategic operations. This means that the acquisition of such property by a foreign investor will require prior approval from the government oversight commission.
Under the bill, within one year of its entry into force, a foreign investor who directly or indirectly controls more than 50% of the voting shares of an entity that has become a strategic business as a result of the bill's passage must either submit an application for approval of the establishment of corporate control or dispose of some of its shares in order to divest its control. Otherwise, the authorities may deprive the foreign investor of its voting rights in the controlled company through the courts. If the investor has submitted an application for the approval of control and has been refused, it will also be required to reduce its share to below 50%.
This rule may lead to a situation whereby companies that the bill will designate as strategic (among other things, by expanding the list of strategic industries) and in which foreigners own more than 50% will have to quickly find Russian investors in the event of non-approval, probably at a significant discount, warns the Russian National Association of Fisheries Enterprises, Entrepreneurs and Exporters (VARPE), as indicated in the bill's accompanying documents.
It is proposed to add the following to the list of strategic operations:
The FAS initially proposed amendments to the law on strategic foreign investments in February 2025. Those amendments came under criticism from business associations, and in subsequent drafts of the bill, the agency partially accommodated the business community by deciding not to include in the list of strategic operations the processing, transportation and storage of fish and seafood, aquaculture, the development of subsoil licence blocks containing groundwater, and "production operations with a direct process connection to the implementation" of one or more existing strategic operations.