Russian Media Law amended. Good-bye, foreigners?

18.11.2014

Legal500.com

Last week, the President signed and published Federal Law No. 305-FZ dated 14 October 2014 "On Amending Russian Federation Law "On the Media".

Compared to the current Russian Federation Law "On the Media" and the Federal Law "On Foreign Investments in Businesses of Strategic Importance for National Defence and Security", this new law will restrict substantially foreign control over the media.

The Law came under heavy criticism from the RF President's Council for Civil Society and Human Rights, which stated in its expert conclusion that the law required considerable elaboration and contained numerous errors, inconsistencies and a priori unenforceable provisions that need to be deleted from it. The main reason for concern is that the restrictions on foreign ownership and control, being worded quite broadly, apply to all media irrespective of their type, profile or coverage area. For instance, numerous regular product catalogues, children's publications, local and corporate media are subject to the restrictions. In addition, unlike the Federal Law "On Foreign Investments in Businesses of Strategic Importance for National Defence and Security", the new law bans any ownership or control in excess of the established 20 per cent threshold. The experts have agreed it would be more reasonable to introduce an authorisation-based procedure whereby the competent authorities would be entitled to decide on a case-by-case basis, proceeding from the media orientation, potential participants, coverage area and so on. The 20 per cent foreign ownership threshold is a puzzle in itself, as the blocking and control thresholds for the basic types of Russian corporate entity (joint-stock company and limited liability company) are, by default, higher (25 and 50 per cent, one-third and one-half, respectively). In particular, the new Law envisages the following. 1. Media founders The following entities and organisations may not be founders of media (of no matter what type or broadcasting/ coverage territory), media editorial offices or broadcasting companies:

  • foreign states;
  • international organisations;
  • organisations under their control;
  • foreign legal entities;
  • foreign invested Russian legal entities;
  • foreigners;
  • stateless persons;
  • Russian citizens holding foreign citizenship.

2. Exercising control over the media The above persons and entities (including Russian legal entities with foreign participation in their authorised capital exceeding 20%) are not entitled, either jointly or each individually:

  • to own, manage or control, directly or indirectly (including through controlled persons or entities, or via an interest exceeding 20% of the total shares in any entity), more than 20% of the shares in the authorised capital of a participant (member, shareholder) in a media founder, media editorial office or broadcasting company;
  • to introduce any measures for controlling a media founder, media editorial office or broadcasting company, or participants (members, shareholders) in a media founder resulting in an opportunity to own, manage and control such organisations, either directly or indirectly, and determine resolutions adopted thereby.

3. Consequences of breached restrictions If the above requirements are not observed:

  • the participants in media founders are not entitled to exercise a number of the rights of corporation participants, particularly, to receive information about the activities of the corporation (media founder), review its documents, challenge resolutions passed by corporation management bodies, claim indemnification, challenge concluded transactions on behalf of the corporation or demand that the consequences of their invalidity be applied;
  • the votes of such entities are not taken into account in establishing a quorum at a General Meeting of Participants (Members, Shareholders) or in vote tallying;
  • transactions resulting in violation of the given requirements are deemed to be null and void;
    media activities may be suspended by court ruling by application of the Russian federal media registration authority. The latter should apply for media activity suspension if it does not receive timely confirmation of compliance with the specified requirements of the Russian Federation Law "On the Media" or if it receives information that the given requirements are not being met.

4. Timeline. Transitional provisions The Law comes into force on 1 January 2016.  At the same time, should one or several Russian entities hold, directly or indirectly (through third parties), a dominant share exceeding 80% in the entity, be it a foreign legal entity or an over 20% foreign-invested Russian legal entity that owns, manages or exercises control over the media founder, media editorial office or broadcasting company as described above, any such entity is subject to the amended Law from 1 January 2017. Documents confirming this fact are to be filed with the Russian federal media registration authority by 1 February 2016. Information about compliance with the specified requirements of the Russian Federation Law "On the Media" as described above is to be furnished to the Russian federal media registration authority prior to 15 February 2016 (for entities being subject to the above exception - before 15 February 2017).

We cannot but agree with the RF President's Council that, in today's political environment, such a law might (an most likely will) be seen as an asymmetric response to the sanctions against Russia. If so, the accusations of infringing on freedom of expression already voiced by the West might be just the beginning.

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