President Vladimir Putin issued a decree, “On Special Economic Measures in connection with the Unfriendly Actions of the United States of America and Other Foreign Countries” (Decree), on 28 February. This is the first decree addressing Russian economic measures to respond to the recent sanctions adopted by several countries in connection with the current geopolitical situation.
The president has broad powers and discretion to impose such measures by virtue of Federal Law No. 390-FZ, “On Security,” of 28 December 2010; Federal Law No. 281-FZ, “On Special Economic Measures and Coercive Measures,” of 30 December 2006; and Federal Law No 127-FZ, “On Retaliation Measures (Countermeasures) on Unfriendly Actions of the United States of America and Other Foreign Countries,” of 4 June 2018.
The Decree measures apply to Russian residents, both natural persons and corporates, and are in effect immediately.
The measures are as follows:
- Within three business days from 28 February 2022, residents involved in cross-border commercial activity must sell 80% of the foreign currency received from foreign counterparties since 1 January 2022. This would particularly affect export of goods, providing services to foreign customers, and transfer of intellectual property rights abroad.
- Starting from 28 February 2022, residents involved in cross-border commercial activity must sell 80% of the foreign currency received from foreign counterparties on an ongoing basis within three business days of receipt of each transfer. Russia's Central Bank is to issue a regulation on the mandatory sale of foreign currency by residents.
- Starting from 1 March 2022, the following transactions by Russian residents are prohibited:
- Extending loans to non-residents in foreign currency
- Transfer of own funds in foreign currency to bank accounts opened with banks and financial institutions abroad, as well as transfer of own funds by means of foreign epayment systems without opening a bank account
- Until 31 December 2022, any Russian public company is in general allowed to buy back its issued shares if all of the following conditions are met:
- The shares are admitted to trading on a stock exchange.
- The average share price went down in any given three months starting from 1 February 2022 by 20% or more as compared to the average price in any given three months starting from 1 January 2021.
- The stock exchange primary index went down in any given three months starting from 1 February 2022 by 20% or more as compared to the average price in any given three months starting from 1 January 2021.
- The shares are bought back at the stock exchange by making a general offer for purchase to all participants of the trades.
- The company engages a broker to conduct the buyback.
- The board of directors of the company has adopted a decision to buy back shares within the period not exceeding 31 December 2022, and such decision specifies the types of the shares and the number of shares of each type subject to buyback.
- The information on the public company shares’ buyback may be exempted from mandatory disclosure if so specified by the relevant decision on buyback, or be subject to disclosure within the time period as specified by the relevant decision.
- A company exercising buyback is obliged to notify Russia's Central Bank and provide documentation confirming compliance with the Decree terms.
- A Russian bank can open a bank account to a natural person without meeting them in person if the bank account is opened in connection with transfer of funds from an account opened in another Russian bank, and the transfer of funds is accompanied by transfer of identification details of the natural person.
It remains to be seen what other economic measures will be introduced. Morgan Lewis will continue to monitor the situation and provide updates as needed.
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Bruce Johnston
Grigory Marinichev
Michael Masling
Kenneth J. Nunnenkamp
Christina Renner
Vasilisa Strizh
Carl A. Valenstein
Alexey Chertov
Jiazhen (Ivon) Guo
Katelyn M. Hilferty
Christian Kozlowski
Eli Rymland-Kelly