Russia: Competition requirements for foreign investments.

31.05.2011

The Global Practice Service

Russia, just like any other country,is interested in attracting foreign material and financial resources, state-of-the-art equipment, technology and management experience. This calls for a favourable investment climate, a stable business environment for foreign investors and compliance with the rules of international law and standards of investment cooperation.

According to Russia’s federal law on foreign investments, the legal treatment of foreign investors’ activities and use of profits generated by investments may not be less favourable than that enjoyed by Russian investors subject to exceptions established by federal laws.

A foreign investor shall comply with Russia’s anti-monopoly laws and refrain from unfair competition and restrictive business practices in the country. The Russian law on protection of competition applies to any agreement and action performed in and outside of Russia between Russian and/or foreign organisations and other parties, if such agreements and actions relate to Russia based fixed assets, intangible assets, shares (ownership interests) in business entities, rights in relation to commercial organisations operating in Russia or in any other way influencing competition in Russia.

The anti-monopoly authorities exercise governmental control over economic concentration requiring prior consent or a subsequent notice in certain cases of merger or consolidation of commercial organisations, acquisition of shares or ownership interests in commercial organisations or assets of business entities (depending on the total amount of assets or revenues of organisations, degree of involvement in an organisation, share of assets acquired, attribution to one group of entities). Failure to meet competition control requirements may lead to an imposition of an administrative fine and/or invalidation of the deal if the deal in question leads to or may lead to restrain of competition.

On the basis of its federal law Russia also exercises control over foreign investments in business entities that are strategically important for national defence and security.

Decisions to allow such investments in Russia are made by a special Governmental Commission subject to mandatory applications to be submitted by investors. There are 42 types of activities that have strategic importance for Russia (including arms, nuclear materials and equipment, space, aviation equipment, geological exploration of subsoil, prospecting for and extraction of minerals in subsoil areas of federal significance, pipeline transportation of oil, petroleum products and gas, railway transportation, extraction of aquatic biological resources, and tele- and radiobroadcasting covering more than one half of Russia’s population). A draft law is pending in Parliament that would slightly narrow their scope, as control will not apply to activities relating to use of infectious disease agents of pathogenicity group IV (at creameries, milk plants, and so on); operation of radiation sources falling under category 4 of potential radiation hazard (X-ray and dental equipment, defect detectors, luggage inspection equipment, and so on); and banks’ activities in the sphere of cryptography (with the exception of banks with participation of the Russian Federation). In addition, investors will no longer be required to apply for prior consent for acquisitions of shares (ownership interests) in a business entity using a subsoil area of federal significance if such acquisitions do not lead to an increase in the foreign investor’s ownership interest in the business entity (even if additional shares are issued). Some excessive administrative barriers preventing foreign investors from engaging in strategic activities are being eliminated.

For reasons of national importance, however, the requirement persists to obtain prior consent of the Governmental Commission for transactions made by foreign investors, international organisations or organisations controlled by them and resulting in acquisition of the right to dispose, directly or indirectly, of more than 25% of votes attached to voting shares (ownership interests) in a Russian business entity or to block in any other way the decisions of the governing bodies of such business entity.

In general, the competitive requirements for foreign investments in Russia are nothing extraordinary and are in many respects similar to those established by other countries in this respect.

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