Approval of FDI Transactions in Strategic Russian Companies by the Government Commission

 

June 13, 2025

BRACE Law Firm ©

 

The approval of transactions and establishment of control by the Government Commission for Control over Foreign Investment (the "Government Commission" or the "Commission") is a critical element in structuring transactions involving business entities of strategic importance for national defense and state security (the "Strategic Companies").

This article examines the procedure and procedural features of approving transactions involving Strategic Companies by the Government Commission.

Which Business Entities (Enterprises) Are Recognized as Strategic Companies?

To ensure national defense and state security, Federal Law No. 57-FZ dated April 29, 2008, On the Procedure for Making Foreign Investments in Business Entities of Strategic Importance for Ensuring National Defense and State Security (the "Law No. 57-FZ" or the "Law on Strategic Companies") establishes restrictions for foreign investors and groups of persons including a foreign investor regarding their participation in the chartered capitals of Strategic Companies.

Under the Law No. 57-FZ, a "Strategic Company" is a business entity established in Russia and carrying out at least one activity of strategic importance for national defense and state security specified in Article 6 of the Law No. 57-FZ (the "Strategic Activities").

Please note that Article 6 of the Law on Strategic Companies contains an exhaustive list of 50 Strategic Activities, which include, for example:

• geological study of the subsoil and (or) exploration and extraction of minerals in subsoil plots of federal significance;
• fishing;
• television broadcasting in a territory inhabited by half or more of the population of a constituent entity of the Russian Federation;
• space activities;
• development of weapons and military equipment;
• production of weapons and military equipment;
• trade in weapons and military equipment, etc.

Transactions subject to prior approval are defined in Article 7 of the Law No. 57-FZ. These include, for example, transactions resulting in a foreign investor acquiring the right to directly or indirectly dispose of more than 50% of the total number of votes in the chartered capital or the right to appoint the sole executive body.

Since the criteria for classifying business entities as strategic and transactions subject to prior approval are not the subject of this article, we will not consider them in detail.

The Government Commission for Control over Foreign Investment

The Government Commission for Control over Foreign Investment was established in accordance with the Law No. 57-FZ.

The Government Commission is an interagency body, the current composition of which was approved by Government Decree No. 2480-r dated September 11, 2024. It includes the Prime Minister, his deputies, the Ministers of Industry and Trade, Defense, Natural Resources and Ecology, Agriculture, Health, Economic Development, Finance, Transport, Construction and Housing and Utilities, Energy, Development of the Russian Far East and the Arctic, Justice, Digital Development, Communications and Mass Media, the heads of the Federal Antimonopoly Service, the Federal Security Service, the Federal Service for Surveillance on Consumer Rights Protection and Human Wellbeing, the Federal Service for Technical and Export Control, the Federal Service for Financial Monitoring, the Director General of the Rosatom State Atomic Energy Corporation, and the head of the staff of the board of the Military-Industrial Commission.

The Government Commission holds meetings as necessary, taking into account the established deadlines for considering applications for prior approval of transactions and applications for approval of the establishment of control. The authorized body, which is FAS Russia, submits proposals on issues requiring consideration.

A meeting of the Commission is considered competent if more than half of the Commission members are present. If a member is absent from a meeting, they must state their opinion on the issues under consideration in writing. The Commission takes decisions by a simple majority of the votes of those present at the meeting (taking into account the written opinions of absent members), which are documented in minutes signed by the chairperson. If a member of the Government Commission disagrees with the decision, they may state their opinion in writing, which shall be attached to the minutes. In the event of a tie, the chairperson’s vote is decisive. The Government Commission may also take decisions by absentee voting.

The latest information on the meetings of the Commission was published on the website of the Russian Government as of October 27, 2022. Two meetings were held in 2021, one in 2020, and two in 2019.

Approval of Transactions and Approval of the Establishment of Control under the Law No. 57-FZ

Prior approval of transactions and approval of the establishment of control are carried out in accordance with Article 8 of the Federal Law and the Rules for the Prior Approval of Transactions and the Approval of the Establishment of Control of Foreign Investors or a Group of Persons Including a Foreign Investor over Business Entities of Strategic Importance for National Defense and State Security, approved by Government Decree No. 838 dated October 17, 2009 (the "Rules").

A foreign investor who intends to enter into a transaction specified in the Law No. 57-FZ, or who has established control over a strategic business entity, must submit a corresponding application.

The "approval of the establishment of control" means an application to the authorized body to obtain prior consent for the acquisition of control over a strategic business entity.

Under the Law No. 57-FZ, "control" is the ability of a foreign investor, directly or through third parties, to determine the decisions taken by a business entity by disposing of votes at the general meeting of shareholders (participants), by participating in the board of directors (supervisory board) and other management bodies of such a business entity.

"Prior approval of a transaction" is a procedure in which transactions that may affect national defense and (or) state security must be approved accordingly before they are completed. This is necessary to prevent undesirable changes in the ownership structure or management of a strategic business entity and to exclude conditions and factors that pose a danger to the vital interests of the individual, society, and (or) the state. Entering into transactions without prior approval entails consequences, which we will consider below.

Thus, the Law No. 57-FZ requires prior approval for those transactions resulting in a foreign investor acquiring shares (interests) in the chartered capital of strategic business entities and (or) fixed production assets, the value of which is 25% or more according to the accounting (financial) statements, while the approval of the establishment of control is required for other transactions or actions resulting in the establishment of control by a foreign investor over such a business entity. For example, as a result of a Russian citizen who controls a strategic business entity acquiring another citizenship, obtaining a residence permit, or another valid document confirming the right to permanent residence in a foreign state.

An application for prior approval of a transaction or an application for approval of the establishment of control is sent to the federal executive body authorized to perform the functions of control over foreign investment, which is FAS Russia, addressed to its head (or deputy head) in two copies.

FAS Russia Order No. 1067/21 dated October 4, 2021, approved the Administrative Regulation for the provision of the state service for the consideration of applications for prior approval of transactions and applications for approval of the establishment of control of foreign investors or a group of persons including a foreign investor over business entities of strategic importance for national defense and state security (the "Administrative Regulation").

An "application for prior approval of a transaction" is a request submitted by a foreign investor who intends to enter into a transaction affecting strategic business entities. The purpose of the application is to obtain prior approval of the transaction from the authorized body (e.g., FAS Russia).

If the fact of establishing control is not obvious when entering into a transaction, the applicant may send an inquiry to the antimonopoly authority regarding the need for approval of such a transaction. Within 30 days from the date of receipt of the corresponding inquiry, the authorized body must consider it and send a substantive response to the applicant, as well as inform the Government Commission of the inquiry received and the response sent (Part 6 of Article 8 of the Law No. 57-FZ).

FAS Russia Order No. 1237/18 dated August 30, 2018, approved the Administrative Regulation for the provision of the state service for the consideration of inquiries regarding the need for approval of transactions in accordance with Part 6 of Article 8 of the Law No. 57-FZ.

We note that in accordance with Article 13 of the Law No. 57-FZ, the antimonopoly authority provides clarifications on its application. FAS Russia Order No. 1130/18 dated August 13, 2018, approved the corresponding Administrative Regulation for providing clarifications on the application of the Law No. 57-FZ by FAS Russia. The service is provided within a period not exceeding 30 days from the date of receipt of the inquiry.

Applications for Prior Approval of a Transaction and the Establishment of Control regarding Strategic Enterprises

The following documents are included in an application for prior approval of a transaction:

• a statement in free form on the prior approval of the transaction, which must contain a proposal on the duration of the prior approval of the transaction. If, as a result of the transaction, the applicant acquires the right to directly or indirectly dispose of a certain number of votes of a strategic business entity, the statement must indicate the number of such votes;
• a document confirming the state registration of the legal entity or individual entrepreneur;
• a document certifying the identity of the applicant — a natural person;
• a document confirming the fact of the establishment of the applicant — a foreign organization that is not a legal entity — in accordance with the legislation of the state in which it was established;
• the constituent documents of the applicant — a legal entity;
• a draft contract or other agreement disclosing the content of the transaction;
• a document containing information on the main activities carried out by the applicant (except for cases where transactions are entered into by a foreign state);
• a document containing information on the composition of the group of persons to which the applicant belongs, as well as information on its participation in agreements that may have a significant impact on the activities of the business entity;
• a document containing information on the beneficiaries, Beneficiary Owners, the person controlling the applicant, and signs of the applicant being under control in accordance with Article 5 of the Law No. 57-FZ;
• a draft business plan of the business entity, including with respect to the type or types of activity specified in Article 6 of the Law No. 57-FZ, according to the approved form.[1]
• a document containing information on the shares (interests) in the chartered capital of the business entity belonging to the applicant, as well as on other circumstances that may lead to the establishment of control by a foreign investor or a group of persons over the business entity in the event of a transaction;
• the balance sheet of the business entity as of the last reporting date preceding the date of submission of the application;
• information on the book value of assets as of the last reporting date preceding the date of submission of the application.

The following documents are included in an application for approval of the establishment of control, along with a statement on the approval of the establishment of control prepared in free form:

• a document confirming the state registration of the legal entity or individual entrepreneur;
• a document certifying the identity of the applicant — a natural person;
• a document confirming the fact of the establishment of the applicant — a foreign organization that is not a legal entity — in accordance with the legislation of the state in which it was established;
• the constituent documents of the applicant — a legal entity;
• a document containing information on the main activities of the applicant (except for cases where transactions are entered into by a foreign state);
• a document containing information on the composition of the group of persons to which the applicant belongs;
• a document containing information on the beneficiaries, Beneficiary Owners, the person controlling the applicant, and signs of the applicant being under control;
• a document containing information on the shares (interests) of the strategic business entity belonging to the applicant, as well as on other circumstances resulting in the establishment of control over the strategic enterprise.

In addition to the listed information, the statement also indicates the essential terms of the transaction, as well as a full list of persons who, as a result of the transaction, acquire rights to establish control over the business enterprise.

The applicant may submit to FAS Russia, as part of the application, other documents and information that it considers necessary to confirm the fact of the establishment of control by the applicant over the strategic business entity, as well as other information necessary to characterize the proposed transaction and (or) to take a decision on this transaction.

It is prohibited to require the applicant to:

• submit documents and information or perform actions, the submission or performance of which is not provided for by regulatory legal acts;
• submit documents and information that are at the disposal of state bodies, local government bodies, and (or) organizations subordinate to state bodies and local government bodies;
• submit documents and information, the absence and (or) unreliability of which were not indicated in the initial refusal to accept documents. [2]

The statement and the documents attached to it are prepared in Russian. If the original documents are prepared in a foreign language, they are submitted with a notarized translation into Russian (with an apostille from the competent authority of the state in which this document was prepared). An inventory of the documents sent is attached to the statement.

Documents are submitted in bound form and certified by the seal (if any) of the person submitting the application. If the application is submitted by a natural person, the documents are certified by the signature of the natural person, the authenticity of which is notarized in the prescribed manner. The application may be submitted to the authorized body by a representative of the applicant who has a notarized power of attorney or other document confirming the person's authority to submit the application.

If the documents contain information constituting a state, commercial, official, or other secret protected by law, the applicant shall indicate in the statement an exhaustive list of documents containing such information.

The information and documents included in the application must be complete and reliable. If it is impossible for the applicant to fully submit the necessary information and documents, they are submitted to the extent available to it. In this case, the reasons for the impossibility of the applicant submitting the relevant information and documents are indicated, and it is also reported where such information and documents can be requested.

When an applicant submits applications for the prior approval of several transactions specified in Article 7 of the Law No. 57-FZ, an application is submitted for each transaction separately. In this case, the applicant indicates the scope of rights obtained as a result of the transaction involving the business entity, taking into account previously held rights.

If the authorized body receives several applications from one applicant regarding the same business entity that are under consideration, then the day of submission (registration) of all applications of such an applicant will be considered the day of submission (registration) of the last application or the day of submission of the required information in full for all applications submitted.

If additional information is received from the applicant regarding the need to make changes to the statement, documents, and information included in an application under consideration, the day of receipt (registration) of the application is considered the day the relevant changes were received by the authorized body. Information about changes in the statement, documents, and information included in the application that are relevant for decision-making shall be brought to the attention of the authorized body by the applicant in writing within three days from the day the applicant became aware of such changes.

Within no more than 14 days from the day of receipt of the application, the authorized body must:

• register the application;
• check for the presence of the documents specified in Article 8 of the Law No. 57-FZ in the application. If not all of the specified documents are present in the application, the authorized body sends a request to the applicant regarding the need to submit the missing documents. If the applicant does not submit the missing documents within one month from the day the request was sent, the authorized body returns the application to the applicant without consideration;
• determine the fact of the establishment of control by the applicant over the business entity.

If it is established that the information contained in the documents included in the application is unreliable, or if the applicant has not submitted information available to it and additionally requested by the authorized body, the authorized body returns the application to the applicant without consideration.

If, during the consideration of the application, it is determined that the applicant has not established control over the business entity, within 3 working days from the day of determining the relevant fact, the authorized body must take a decision to return the application to the applicant, indicating the reasons for taking such a decision, and send such a decision to the applicant, with a copy of such a decision to the Government Commission. In this case, prior approval of the specified transaction or approval of the establishment of control is not required.

Within no more than 30 days from the day of receipt of the application, conclusions, and materials, the Government Commission takes one of the following decisions:

• on the prior approval of the transaction or on the approval of the establishment of control;
• on the prior approval of the transaction or on the approval of the establishment of control in the presence of an agreement with the applicant to ensure the fulfillment of the applicant's obligations provided for in Article 12 of the Law No. 57-FZ;
• on the refusal of prior approval of the transaction or approval of the establishment of control.

The duration of the decision on the prior approval of the transaction is determined based on the applicant's proposal and is indicated in this decision. If it is necessary to extend the duration of a decision on the prior approval of a certain transaction, the applicant upon whose application such a decision was taken may send an appeal to the authorized body justifying the need to extend the duration of such a decision (indicating the necessary extension period). The extension of the duration of a decision on prior approval of a transaction or a refusal of such extension is documented based on the Commission's decision within 3 working days from the day it was taken by a decision of the authorized body sent to the applicant.

The period for consideration of an application by the authorized body and the Government Commission may not exceed three months from the day of registration of the application by the authorized body until the day of prior approval of the transaction or approval of the establishment of control, or the refusal of prior approval of the transaction or approval of the establishment of control, which are documented by the corresponding decision of the authorized body. In exceptional cases, the period for consideration of an application may be extended by three months (Article 11 of the Law No. 57-FZ).

What Obligations of the Investor May the Government Commission Establish?

The Government Commission may determine one or more of the following obligations imposed on the applicant (Article 12 of the Law No. 57-FZ):

• the formation of the management bodies of the business entity from among persons who can be admitted to information constituting a state secret, and the implementation of measures by such a business entity to protect state secrets;
• the continuation of the strategic company’s supplies of products (works, services) under the state defense order;
• the continuation of the strategic company’s performance of work to maintain mobilization capacities;
• the strategic company’s performance of activities to provide services at prices (tariffs) established in accordance with the legislation on natural monopolies, and (or) activities for the purpose of providing public utilities at established prices (tariffs);
• the execution of the strategic company’s business plan submitted by the applicant;
• the immediate taking of measures by such a business entity under conditions of the introduction of martial law or a state of emergency;
• the preservation by such a business entity of the average headcount of employees during the period determined by the decision on the prior approval of the transaction or on the approval of the establishment of control;
• the processing of minerals extracted by a business entity of strategic importance and using a subsoil plot of federal significance;
• the processing of aquatic biological resources harvested (caught) by a business entity of strategic importance;
• the continuation by a business entity of strategic importance of carrying out a type of activity of strategic importance for national defense and state security;
• the transfer within the established period of the rights to carry out activities for water supply and wastewater disposal and (or) activities related to the use of infectious disease agents to another person in compliance with the requirements of the Law No. 57-FZ or into state or municipal ownership;
• the carrying out of activities by a business entity of strategic importance at facilities ensuring the vital activity of the population (including water supply and wastewater disposal facilities, wastewater treatment facilities, electricity supply, heat supply, gas supply facilities, and hydraulic structures), in compliance with the established requirements for ensuring the safety of life and health of citizens, environmental protection, and prevention of natural and man-made emergencies;
• the continuation of the implementation by a business entity of strategic importance carrying out hot water supply, cold water supply, and (or) wastewater disposal, of the current investment program;
• ensuring the preservation by a business entity of strategic importance of the volumes of production and supply of products (works, services) at a level no lower than that preceding the date of the transaction or the establishment of control;
• the introduction of innovative technologies at industrial production facilities, as well as the location in Russia of industrial production facilities for parts, components, assemblies, and materials used by a business entity of strategic importance for the production and supply of products (works, services).

The Commission may also determine other obligations imposed on the applicant, the fulfillment of which is related to ensuring national defense and state security.

The antimonopoly authority carries out the state function of checking the fulfillment of obligations assumed in accordance with Article 12 of the Law No. 57-FZ. The result of the performance of such a state function is a letter from the antimonopoly authority, respectively, on the absence of a violation of the fulfillment of obligations by the person being checked, or on the establishment of a violation of such assumed obligations by the person being checked. [3]

Checks can be planned and unplanned. Planned and unplanned checks can be carried out:

• at the location of the person being checked (on-site checks);
• at the location of the antimonopoly authority (documentary checks).

Planned checks are carried out in accordance with the procedure established in the agreement, but at least once a year during the entire period of the agreement. Unplanned on-site checks are carried out in the event that the antimonopoly authority receives information about facts of violation of the terms of the agreement by the checked persons.

The basis for starting a check is the occurrence of the deadline for the check specified in the agreement, or the receipt of information about a possible violation of the terms of the agreement.

Checks are carried out by analyzing the legal acts of the checked person, contracts concluded by the checked person, financial and reporting documents of the checked person, as well as other documents necessary for the check.

Gross or repeated non-fulfillment of obligations assumed in accordance with Article 12 results in the foreign investor being deprived in court of the right to vote at the general meeting of shareholders (participants) of the strategic business entity, and in this case, the votes are not taken into account when determining the quorum of the general meeting of shareholders (participants) and counting votes at the general meeting of shareholders (participants) (Paragraph 4 of Article 15 of the Law No. 57-FZ).

Legal Consequences of the Absence of Approval of a Transaction involving a Strategic Enterprise

Transactions entered into in violation of the requirements of the Law No. 57-FZ are null and void. Actions resulting in a foreign investor acquiring the right to determine the decisions of the management bodies of a strategic business entity, including the conditions for its entrepreneurial activity, do not entail legal consequences from the moment they are performed (Article 15 of the Law No. 57-FZ).

Cases related to the violation of the requirements of the Law No. 57-FZ are subject to the jurisdiction of Arbitration Courts.

The court applies the consequences of the invalidity of a null and void transaction, including the possibility of collecting into the Russian budget shares (interests) acquired as a result of a null and void transaction, or acquired property that relates to fixed production assets, as well as collecting income received as a result of a null and void transaction by parties acting intentionally.

When taking a decision to apply the consequences of the invalidity of a null and void transaction, the court takes into account the presence or absence of risks of maintaining or creating a threat to national defense and (or) state security in the event of applying the consequences established by Paragraph 2 of Article 167 of the Civil Code, where each of the parties is obliged to return to the other everything received under the transaction, and in case of impossibility to return what was received in kind (including when what was received is expressed in the use of property, work performed, or service provided), to reimburse its value.

In Case No. A50-17636/2023, the prosecutor's office, in the interests of Russia, filed a lawsuit to apply the consequences of the invalidity of a null and void transaction, documented by the minutes of a meeting of the board of directors of a joint-stock company, in the form of returning movable and immovable property to the joint-stock company, recognizing the limited liability company’s ownership of the movable and immovable property transferred to it as a contribution to the chartered capital as absent, and recognizing the right of pledge as absent.

The courts, "taking into account the specificity, nature, and volume of the activities carried out by the joint-stock company, reasonably considered that this organization belongs to the category of strategic companies for ensuring national defense and state security, the acquisition of shares of which by foreign investors is regulated by the provisions of the Law No. 57-FZ". [4]

Taking into account that transactions to establish a pledge over the property of the joint-stock company and the limited liability company are null and void from the moment they were made and can entail legal consequences, for which reason the limited liability company and the foreign citizen had no legal grounds for concluding contracts providing for the establishment of a pledge of the fixed production assets of the strategic company in their favor, which is significant for national defense and security, the courts recognized that "the transaction to increase the chartered capital of the limited liability company, made in fulfillment of the decision of the board of directors of the joint-stock company, contradicts the requirements of Paragraph 2 of Article 168 and Article 169 of the Civil Code, as it was made by persons acting exclusively in the interests of a foreign citizen, whose control over the strategic company was not approved in the manner established by the Law No. 57-FZ, which led to the possibility of a threat to national defense and state security". [5]

In Case No. A21-2269/2023, the prosecutor's office also, in the interests of the Russian Federation, appealed to the court to apply the consequences of the invalidity of null and void transactions in the form of collecting into the income of the Russian Federation shares of a JSC belonging to a foreign company. In support of the claim, it was stated that "a group of persons with the participation of a foreign investor, by concealing the fact of the transaction, controlling persons, Beneficiary Owners, and beneficiaries from the authorized bodies of Russia, illegally acquired shares and obtained control of non-residents over a port of strategic importance for Russia. The antimonopoly service noted that the sequential acquisition of 46.5% of the port's shares allows them, under the guise of legal participation in the company's activities, to obtain data on the dynamics of Russia's cargo turnover, the range of goods transshipped through the port, which directly affects the food, energy, and military security of an exclave constituent entity of Russia".[6]

In violation of the requirements of the Law No. 57-FZ, the defendant did not apply to the authorized body and the Government Commission with an application for prior approval of the transaction to acquire shares of the port, representing the right to dispose of more than 25% of the total number of votes attributable to voting shares in the chartered capital of the port, which is a company, and reasonably recognized that they were made "with a purpose obviously contrary to the fundamentals of law and order, as they are aimed at obtaining control by a group of persons including a foreign investor over an enterprise of strategic importance, bypassing the requirements of the Law No. 57-FZ".[7]

If it is impossible to apply the consequences of the invalidity of a null and void transaction, as well as if a foreign investor, within a period not exceeding 3 months from the day of establishing control, has not submitted an application for approval of the establishment of control, the court, upon a lawsuit by the authorized body, takes a decision to deprive the foreign investor of the right to vote at the general meeting of shareholders (participants) of the strategic business entity. In such a case, the votes at the general meeting of shareholders (participants) of the foreign investor are not taken into account when determining the quorum of the general meeting of shareholders (participants) and counting votes.

Decisions of the general meeting of shareholders (participants) and other management bodies of such a business entity, as well as transactions entered into after the foreign investor established control in violation of the requirements of the Law No. 57-FZ, may be recognized as invalid in court.

If a foreign investor or a group of persons who have established control over a business entity has received a refusal to approve the establishment of control, this foreign investor, within a three-month period from the day the decision on refusal was sent, is obliged to dispose of part of the shares (interests) in such a business entity belonging to them so that the remaining shares (interests) do not provide the right of control. In case of non-fulfillment of the specified requirement, this foreign investor is deprived in court of the right to vote at the general meeting of shareholders (participants), and its votes are not taken into account when determining the quorum of the general meeting of shareholders (participants) and counting votes.

In Case No. A50-32879/2019, on a lawsuit to deprive the company's shareholders of the right to vote at the general meeting, to recognize as invalid transactions to transfer in pledge and to acquire ordinary registered shares of the company, the courts indicated that "the acquisition of interests was carried out not directly by the Beneficiary Owners — Russian citizens (in the absence of any legal obstacles for this), but specifically through foreign persons, while the defendants did not provide clear and distinct explanations to the courts regarding the use of this scheme of acquisition and exercise of powers to own shares (through Cypriot companies), for which reason such behavior was interpreted by the courts only as aimed at achieving the ultimate result in the form of establishing control by a group of persons with the participation of foreign investors over a business entity of strategic importance". The courts concluded that the transactions were null and void and deprived the defendants of the right to vote at the general meeting of shareholders.[8]

The number of votes attributable to voting shares (interests) of a business entity of strategic importance shall be the sum of the participation interests of several foreign companies under common control.[9]

Based on contracts for the sale and purchase of shares of a joint-stock company concluded between a foreign company (seller) and three foreign companies (buyers), the latter became owners of 20%, 10%, and 7% of the shares of the joint-stock company, respectively. The court held that to count the number of votes attributable to voting shares of the joint-stock company in its chartered capital belonging to the specified foreign companies (buyers) registered in various foreign jurisdictions, their participation interests are subject to addition. The court concluded that in this case, a foreign state as an investor obtained the ability to indirectly dispose of more than 25% of the votes attributable to voting shares (interests) in the chartered capital of the joint-stock company, which is a business entity of strategic importance.

Taking into account that no applications for prior approval of transactions to acquire shares of the joint-stock company from a foreign investor in accordance with the requirements of the Law No. 57-FZ were received by FAS Russia, and no permission from the Government Commission for prior approval of transactions for the acquisition of shares of the joint-stock company by foreign companies (buyers) was obtained, the court recognized the named transactions as null and void based on Paragraph 5 of Part 1 of Article 7 of the Law No. 57-FZ and applied the consequences of their invalidity.[10]

It should also be taken into account that foreign investors are obliged to submit information on the acquisition of 5% or more of shares (interests) in strategic business entities to FAS Russia in the manner established by the Russian Government.[11] (Article 14 of the Law No. 57-FZ).

In the same manner, Russian citizens who have acquired another citizenship, obtained a residence permit, or another valid document confirming the right to permanent residence in a foreign state, or persons in respect of whom the decision on admission to the citizenship of the Russian Federation has been revoked, stateless persons permanently residing outside the territory of the Russian Federation, and foreign citizens who previously had the citizenship of the Russian Federation and formalized their renunciation of the citizenship of the Russian Federation, are obliged to submit information on the specified changes if the specified citizens or persons own 5% or more of the shares (interests) in a strategic business entity and do not control such a business entity.

A notification, prepared in free form, must contain:

• information about the applicant, including the full and (if any) short names, including the brand name, the address of the legal entity indicated in the Unified State Register of Legal Entities, the address to which postal correspondence is sent, for a natural person also the surname, name, and (if any) patronymic and place of residence, contact phone number;
• information about each of its beneficiaries, Beneficiary Owners, and persons controlling the applicant, as well as signs of the applicant being under control;
• the main activities (powers) of the applicant;
• details of documents confirming the state registration of the applicant — a legal entity or a natural person as an individual entrepreneur;
• for natural persons — details of documents certifying the identity of the applicant — a natural person;
• documents confirming the fact of acquiring another citizenship, obtaining a residence permit, or another valid document confirming the right to permanent residence in a foreign state, the revocation of a decision on admission to citizenship, the permanent residence outside Russia of a stateless person, the formalization of renunciation of Russian citizenship by a foreign citizen;
• information about the strategic company, including the name, legal form, address of the legal entity indicated in the Unified State Register of Legal Entities, the address to which postal correspondence is sent, tax identification number, details of the certificate of state registration, and activities of strategic importance;
• information on the acquisition of shares (interests), including the name of the document confirming the basis for the acquisition of shares (interests), the date of their acquisition, the number (indicating percentages) of shares (interests), and in the event that the applicant had shares (interests) of this company before the date of the transaction — the total number of shares (interests);
• information on the conclusion of transactions and other actions, the decision on prior approval of which was taken in accordance with the Law No. 57-FZ.[12]

Failure to provide such information also entails the loss of voting rights at the general meeting of shareholders (participants) until the day information is received from the antimonopoly authority on the proper fulfillment of the requirements of Article 14 of the Law No. 57-FZ. In this case, the votes held are not taken into account when determining the quorum of the general meeting of shareholders (participants) and counting votes at the general meeting of shareholders (participants).

A strategic business entity may appeal to an Arbitration Court with lawsuits against a foreign investor for compensation for losses caused, including Lost Profits, and compensation for damage caused to its property in connection with the bad faith exercise by the foreign investor of rights in respect of such a business entity or its property.

Consent to Conclude Transactions under Sanctions and Counter-sanctions Measures

In conditions of sanctions pressure in connection with the introduction of restrictive measures by foreign states, a special licensing procedure for transactions and operations with foreign counterparties and persons controlled by them from states that have introduced restrictions against Russia was introduced in Russia in the form of additional temporary economic measures to ensure financial stability.

At the same time, permissions to enter into such transactions are issued not in accordance with the Law No. 57-FZ, but based on Presidential Decrees or Government Decrees.

Based on permissions issued by the Government Commission, the following transactions may be carried out (executed):

• transactions (operations) to provide loans and borrowings (in rubles) to persons of foreign states committing unfriendly actions;
• transactions (operations) resulting in the ownership of securities and real estate, carried out (executed) with persons of foreign states committing unfriendly actions;[13]
• the carrying out of foreign exchange operations related to the provision of foreign currency by residents to non-residents under loan agreements;
• the crediting by residents of foreign currency to their accounts (deposits) opened in banks and other financial market organizations located outside the territory of the Russian Federation, as well as the transfer of funds without opening a bank account using electronic means of payment provided by foreign payment service providers;[14]
• the transfer by residents of funds received in the form of dividends from Russian joint-stock companies or upon the distribution of profits of Russian limited liability companies, partnerships, and cooperatives;[15]
• transactions (operations) resulting directly and (or) indirectly in the establishment, modification, or termination of ownership, use, and (or) disposal rights for interests in the chartered capitals of limited liability companies (except for credit organizations and non-credit financial organizations) or other rights allowing to determine the management conditions for such limited liability companies and (or) the conditions for their entrepreneurial activity;[16]
• transactions (operations) resulting directly and (or) indirectly in the establishment, modification, or termination of ownership, use, and (or) disposal rights for more than 1% of the shares or interests (contributions) in the chartered capital of Russian credit organizations, insurance organizations, non-state pension funds, microfinance companies, or management companies of joint-stock investment funds, mutual funds, or non-state pension funds, or more than 1% of the votes attributable to such shares, interests (contributions);[17]
• obligations under loans and borrowings, financial instruments to foreign creditors in an amount exceeding 10 million rubles per calendar month, or in an amount exceeding the equivalent of this sum in foreign currency at the official rate of the Bank of Russia established on the 1st day of each month;[18]
• transactions (operations) with foreign securities belonging to residents and recorded in accounts opened for the central depository in foreign organizations as a person acting in the interests of other persons, resulting in the transfer of ownership of such securities to non-residents (including persons of unfriendly foreign states);[19]
• transactions (operations) resulting directly and (or) indirectly in the establishment, modification, termination, or encumbrance of ownership, use, and (or) disposal rights for securities of Russian legal entities, interests (contributions) in the chartered (pooled) capitals of Russian legal entities, participation interests, rights, and obligations belonging to participants in production sharing agreements, joint activity agreements, or other contracts on the basis of which investment projects are implemented in Russia, provided that these securities, interests (contributions), rights, and obligations belong to foreign persons associated with unfriendly states.[20]

Government Decree No. 295 dated March 6, 2022 (the "Decree No. 295"), approved the Rules for the issuance by the Government Commission for Control over Foreign Investment in the Russian Federation of permissions for the purpose of implementing additional temporary economic measures to ensure the financial stability of the Russian Federation and other permissions provided for by individual Presidential Decrees, as well as the implementation of other powers for these purposes and making an amendment to the Regulation on the Government Commission for Control over Foreign Investment in the Russian Federation.

An application for the issuance of a permission to carry out (execute) a transaction (operation) or a group of transactions (operations) is submitted by a resident or a person of a foreign state committing unfriendly actions to the authorized body, which is the Ministry of Finance of Russia. If an application is received, the authorized body may send such a statement or appeal to the federal executive body performing the functions of developing and implementing state policy and legal regulation in the sphere of activity in which the legal entity in respect of which the relevant transaction (operation) is planned to be carried out (executed) operates. The relevant federal body sends a reasoned position to the authorized body regarding the expediency or inexpediency of issuing a permission for the fulfillment of obligations (payment).

The documents provided for by the Decree No. 295 in respect of a particular transaction are attached to the application, which are submitted in bound form and certified by the seal (if any) of the applicant. If the applicant is a natural person, the documents are certified by the signature of the natural person, the authenticity of which is notarized in the prescribed manner. The application may be submitted to the authorized body by a representative of the applicant who has a notarized power of attorney or other document confirming the person's authority to submit the application. An inventory of the documents sent is attached to the application.

The information and documents included in the application must be complete and reliable. If it is impossible for the applicant to submit information and documents in full, they are submitted to the extent available to it. In this case, the reasons for the impossibility of the applicant submitting the relevant information and documents are indicated, and it is also reported where such information and documents can be requested.

For the purpose of issuing a permission to carry out (execute) transactions (operations), if the application meets the requirements provided for by the rules of Decree No. 295, recommendations for the issuance of such a permission are sent by the relevant federal body within 5 working days from the day of its receipt.

The permission of the Government Commission to carry out (execute, enter into) a transaction (operation, obligations, payment) containing conditions, including the timing for carrying out (executing, entering into) such a transaction (operation, obligation, payment), or the refusal to issue a permission to carry out (execute, enter into) a transaction (operation, obligation, payment), is a decision of the subcommission documented by the authorized body. The date of entry into force of the decisions of the Government Commission is the date the head of the authorized body signs the decision of the subcommission documented by the authorized body, unless otherwise established by a decision of the Government Commission.

The subcommission may take decisions on the issuance of the Government Commission's permission to carry out (execute, enter into) a transaction (operation) to an indefinite circle of persons.

In this article, we have examined procedural issues related to the prior approval of transactions and approval of the establishment of control in strategic business entities as restrictive exceptions for foreign investors provided for by the Law No. 57-FZ to ensure national defense and state security. Applications are submitted to FAS Russia and considered by the Government Commission, which includes representatives of various ministries and agencies. Upon approval of the relevant application, certain obligations may be imposed on the foreign investor, the fulfillment of which is controlled by the state. Failure to comply with the considered procedure entails a number of negative consequences, for example, the nullity of the transaction.

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References

1. Order of FAS Russia No. 299/18 dated March 13, 2018, On Approving the Form for a Draft Business Plan of a Business Entity of Strategic Importance for Ensuring National Defense and State Security, Including with Respect to the Activity or Activities Specified in Article 6 of Federal Law No. 57-FZ dated April 29, 2008, On the Procedure for Making Foreign Investments in Business Entities of Strategic Importance for Ensuring National Defense and State Security.
2. Order of FAS Russia No. 1067/21 dated October 4, 2021, On Approving the Administrative Regulation of the Federal Antimonopoly Service for the Provision of the State Service for Reviewing Petitions for Preliminary Approval of Transactions and Petitions for Approval of the Establishment of Control by Foreign Investors or Groups of Persons Including a Foreign Investor over Business Entities of Strategic Importance for Ensuring National Defense and State Security.
3. Order of FAS Russia No. 436 dated June 28, 2012, On Approving the Administrative Regulation of the Federal Antimonopoly Service for the Performance of the State Function of Verifying the Fulfillment of Obligations Undertaken by a Foreign Investor or a Legal Entity or Individual Belonging to a Group of Persons in accordance with Article 12 of Federal Law No. 57-FZ dated April 29, 2008, On the Procedure for Making Foreign Investments in Business Entities of Strategic Importance for Ensuring National Defense and State Security.
4. Ruling of the Arbitration Court of the Urals District dated June 24, 2024, in Case No. A50-17636/2023.
5. Ruling of the Arbitration Court of the North-Western District dated November 15, 2023, in Case No. A21-2269/2023.
6. Ruling of the Arbitration Court of the Urals District dated May 4, 2021, in Case No. A50-32879/2019.
7. Review of Court Practice on Disputes Related to the Protection of Foreign Investors, approved by the Presidium of the Supreme Court of the Russian Federation on July 12, 2017.
8. Government Decree No. 795 dated October 27, 2008, On Approving the Rules for Submission of Information by a Foreign Investor or a Group of Persons Including a Foreign Investor and Other Persons of the Information Provided for by Article 14 of the Federal Law On the Procedure for Making Foreign Investments in Business Entities of Strategic Importance for Ensuring National Defense and State Security.
9. Decree of the President of Russia No. 81 dated March 1, 2022, On Additional Temporary Economic Measures to Ensure the Financial Stability of the Russian Federation.
10. Decree of the President of Russia No. 79 dated February 28, 2022, On the Application of Special Economic Measures in Connection with the Unfriendly Actions of the United States of America and Foreign States and International Organizations that Joined Them.
11. Decree of the President of Russia No. 430 dated July 5, 2022, On the Repatriation of Foreign Currency and the Currency of the Russian Federation by Residents — Participants in Foreign Economic Activity.
12. Decree of the President of Russia No. 618 dated September 8, 2022, On the Special Procedure for the Execution of Certain Types of Transactions (Operations) Between Certain Persons.
13. Decree of the President of Russia No. 737 dated October 15, 2022, On Certain Issues of the Execution of Certain Types of Transactions (Operations).
14. Decree of the President of Russia No. 95 dated March 5, 2022, On the Temporary Procedure for Fulfilling Obligations to Certain Foreign Creditors.
15. Decree of the President of Russia No. 844 dated November 8, 2023, On Additional Temporary Economic Measures Related to the Circulation of Foreign Securities.
16. Decree of the President of Russia No. 520 dated August 5, 2022, On the Application of Special Economic Measures in the Financial and Fuel-and-Energy Spheres in Connection with the Unfriendly Actions of Certain Foreign States and International Organizations.
17. Decree of the President of Russia No. 737 dated October 15, 2022, On Certain Issues of the Execution of Certain Types of Transactions (Operations).
18. Decree of the President of Russia No. 95 dated March 5, 2022, On the Temporary Procedure for Fulfilling Obligations to Certain Foreign Creditors.
19. Decree of the President of Russia No. 844 dated November 8, 2023, On Additional Temporary Economic Measures Related to the Circulation of Foreign Securities
20. Decree of the President of Russia No. 520 dated August 5, 2022, On the Application of Special Economic Measures in the Financial and Fuel-and-Energy Spheres in Connection with the Unfriendly Actions of Certain Foreign States and International Organizations.