Russia update – Western brands need to be aware of raft of new Russian counter-measures which may impact on their exit strategies

As the war in Ukraine enters its twelfth week, with no apparent end in sight, Western brands with operations in Russia have been frantically trying to put in place measures to ensure they are complying with the evolving and expanding list of sanctions rules, which have been imposed on Russia. 

Even if Russian operations are not currently caught by sanctions rules, many high profile brands are looking for an orderly exit from or suspension of activity in Russia, in order to protect the reputation of the brand.

In the meantime, Russia has been busy passing its own laws, which seek to punish persons and entities who are associated with "unfriendly states".  Western brands need to take stock of these counter-measures, as they may have an impact on the type of withdrawal or suspension of activity that they wish to implement.

Below, we have set out an update on the key new measures.

- On 8 April 2022, the Russian Government announced a draft law allowing compulsory seizure of assets of persons or entities associated with “unfriendly” states without any compensation.

• A wide list of persons may be affected, including foreign states, individuals and legal entities, as well as their beneficiaries or persons under their control, irrespective of the jurisdiction of their registration or main business activity. The list of “unfriendly” states is defined by the Russian Government's decree dated 5 March 2022 and includes, among others, the US, the EU and the UK.
• The law proposes to nationalise the following assets that were located in the territory of the Russian Federation as of 24 February 2022: movable and immovable property, cash, bank deposits, securities, corporate rights and any other rights, including data, that belong directly or through affiliates to “unfriendly” states or persons associated with them.
• Russian local authorities will have power to decide on nationalisation of the assets located in their respective region. It is not clear if the law will apply to assets that are no longer owned by persons associated with “unfriendly” states but that were owned by them as of 24 February 2022. The date of the first hearing of the proposed law by the State Duma has not yet been scheduled.

- On 5 March 2022 President Vladimir Putin issued a decree allowing Russian state and debtors to repay foreign currency debts owed to creditors from “unfriendly” states in rubles. The decree applies to debts exceeding 10 million rubles (approximately £130,000) in monthly payments (or its equivalent). 

- Russian Duma is currently considering a draft law that will allow Russian courts to introduce external administration and sale of assets of companies in which persons associated with “unfriendly” states directly or indirectly own at least 25% and which have ceased their operations in Russia after 24 February 2022. 

- The Russian Government issued a decision allowing in certain circumstances the use of foreign IP rights without obtaining the consent of or paying any compensation to the persons associated with “unfriendly” states.

- Another draft law that was announced in April 2022 proposing to introduce criminal liability, including up to 10 years' imprisonment, on directors and offices, both Russian and foreign citizens, for the compliance with the sanctions against Russia. 

- On 3 May 2022 President Vladimir Putin issued a decree introducing special economic measures prohibiting the Russian state, companies and individuals from entering into new transactions, performing existing contractual obligations and exporting goods and raw materials with or for the benefit of the "sanctioned" persons. On 11 May 2022 Russian government published a list of "sanctioned" persons which currently includes 31 companies, most of which are part of Gazprom Germania group that was put under the control of Germany's energy network regulator earlier this year.

If you require any further information in relation to this area, please do not hesitate to contact Gordon Drakes.