Special Economic Measures in Russian Foreign Trade: A Comprehensive Legal Overview

April 30, 2023

BRACE Law Firm ©

The Russian Federation applies special economic measures to ensure its interests and security, and to eliminate or minimize threats to the rights and freedoms of its citizens.

In accordance with Clause 2 of Article 3 of Federal Law No. 281-FZ dated December 30, 2006, On Special Economic Measures and Compulsory Measures (the "Law No. 281-FZ" or the "Law on Special Economic Measures"), special economic measures include a prohibition on performing actions regarding a foreign state and (or) foreign organizations and citizens, as well as stateless persons permanently residing in a foreign state, and (or) the imposition of obligations to perform such actions and other restrictions. Such measures may be directed at:

• suspending the implementation of all or part of programs in the field of economic or technical assistance, as well as programs in the field of military-technical cooperation;
• prohibiting financial operations or establishing restrictions on their execution;
• prohibiting foreign trade operations or establishing restrictions on their execution;
• terminating or suspending the effect of international trade treaties and other international treaties of the Russian Federation in the field of foreign trade relations;
• changing export and (or) import customs duties;
• prohibiting or restricting the entry into ports of the Russian Federation of vessels and the use of the airspace of the Russian Federation or individual areas thereof;
• establishing restrictions on the performance of tourism activities;
• prohibiting or refusing to participate in international scientific and scientific-technical programs and projects, or scientific and scientific-technical programs and projects of a foreign state.

The President of the Russian Federation decides on the application of special economic measures against a specific foreign state and (or) foreign organizations and citizens, as well as stateless persons permanently residing in a foreign state, and the term during which such special economic measures will apply. The President makes this decision based on proposals from the Security Council of the Russian Federation and must immediately inform the Federation Council and the State Duma.

The President establishes the duration of special economic measures. The President shall decide to cancel the application of special economic measures if the circumstances serving as the basis for their application are eliminated. If the circumstances are eliminated before the established term expires, the President makes the decision early; otherwise, the President extends the term. The Federation Council, the State Duma, or the Government of the Russian Federation may submit a proposal to the President to cancel special economic measures. [1]

For example, the President issued the following decrees to cancel special economic measures:

• Presidential Decree No. 39 dated February 6, 2019, On the Cancellation of Certain Special Economic Measures Regarding the Republic of Turkey;
• Presidential Decree No. 357 dated July 25, 2019, On the Cancellation of Certain Special Economic Measures Regarding the Republic of Turkey.

In response to unfriendly actions by the United States and associated foreign states and international organizations that contradict international law, the President signed several decrees introducing special economic measures across various sectors:

• Presidential Decree 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 Joining Them (the "Decree No. 79");
• Presidential Decree No. 81 dated March 1, 2022, On Additional Temporary Economic Measures to Ensure the Financial Stability of the Russian Federation (the "Decree No. 81");
• Presidential Decree No. 95 dated March 5, 2022, On the Temporary Procedure for Fulfilling Obligations to Certain Foreign Creditors (the "Decree No. 95");
• Presidential Decree No. 100 dated March 8, 2022, On the Application of Special Economic Measures in Foreign Trade to Ensure the Security of the Russian Federation (the "Decree No. 100");
• Presidential Decree No. 138 dated March 3, 2023, On Additional Temporary Economic Measures Related to the Circulation of Securities (the "Decree No. 138");
• Presidential Decree No. 430 dated July 5, 2022, On the Repatriation by Residents – Participants in Foreign Trade of Foreign Currency and the Currency of the Russian Federation (the "Decree No. 430");
• Presidential Decree No. 961 dated December 27, 2022, On the Application of Special Economic Measures in the Fuel and Energy Sector in Connection with the Establishment by Certain Foreign States of a Price Cap on Russian Oil and Oil Products (the "Decree No. 961");
• Presidential Decree No. 252 dated May 3, 2022, On the Application of Retaliatory Special Economic Measures in Connection with the Unfriendly Actions of Certain Foreign States and International Organizations (the "Decree No. 252");
• Presidential Decree No. 943 dated December 22, 2022, On the Application of Special Economic Measures in the Sphere of Natural Gas Supplies in Connection with the Unfriendly Actions of Certain Foreign States and International Organizations (the "Decree No. 943");
• Presidential Decree No. 520 dated August 5, 2022, On the Application of Special Economic Measures in the Financial and Fuel and Energy Sectors in Connection with the Unfriendly Actions of Certain Foreign States and International Organizations (the "Decree No. 520");
• Presidential Decree No. 302 dated April 25, 2023, On Temporary Management of Certain Property (the "Decree No. 302"), etc.

Prohibitory and Restrictive Economic Measures

Due to the restrictive measures imposed against Russian citizens and legal entities, Decree No. 79 prohibited the following, effective March 1, 2022:

• carrying out currency operations related to residents providing foreign currency to non-residents under loan agreements;
• residents depositing foreign currency into their accounts (deposits) opened in banks and other financial market organizations located outside the Russian Federation, as well as transferring funds without opening a bank account using electronic means of payment provided by foreign payment service providers.

The Bank of Russia provided official clarification regarding the application of certain presidential decrees in its Official Clarification No. 2-OR dated March 18, 2022, On the Application of Certain Provisions of Decree No. 79, Decree No. 81, and Decree No. 95.

In accordance with Decree No. 100, the following special economic measures were introduced:

1. A ban on exporting products and (or) raw materials from the Russian Federation and (or) importing them into the Russian Federation according to lists determined by the Government of the Russian Federation:

• Government Decree No. 313 dated March 9, 2022, On Measures to Implement Presidential Decree No. 100 dated March 8, 2022;
• Government Decree No. 311 dated March 9, 2022, On Measures to Implement Presidential Decree No. 100 dated March 8, 2022.

2. Restrictions on exporting products and (or) raw materials from the Russian Federation and (or) importing them into the Russian Federation according to lists [2] determined by the Government of the Russian Federation.
3. The establishment of increased export and (or) import customs duty rates for products and (or) raw materials exported from or imported into the Russian Federation, according to lists determined by the Government of the Russian Federation.

Failure to comply with special economic measures may lead to administrative liability. For example, in the Decision of the Arbitration Court of the Yaroslavl Region dated January 13, 2023, in Case No. A82-19213/2022, On the Cancellation of Acts of Bringing to Administrative Liability under Article 16.3 of the CAO RF (failure to comply with prohibitions and restrictions on the import of goods into the customs territory of the Customs Union or the Russian Federation and their export), the court denied the request because the parties provided no documents confirming that they had obtained the necessary permit from the Ministry of Agriculture for exporting the goods.

Similarly, in the Decision of the Arbitration Court of the Primorsky Krai dated December 20, 2022, in Case No. A51-9845/2022, the court denied the request because the bidder presented no permit documents, and thus failed to comply with export control measures.

Decree No. 252 also introduced the following special economic measures:

1. A prohibition on federal state authorities, state authorities of the constituent entities of the Russian Federation, other state bodies, local governments, organizations, and individuals under the jurisdiction of the Russian Federation from:

• entering into transactions (including foreign trade contracts) with legal entities, individuals, and organizations under their control that are subject to special economic measures (the "persons under sanctions");
• fulfilling obligations to persons under sanctions under existing transactions (including foreign trade contracts) if such obligations are unfulfilled or partially fulfilled;
• carrying out financial operations where the beneficiaries are persons under sanctions.

2. A prohibition on exporting products and (or) raw materials produced or extracted in the Russian Federation if they are supplied to or by persons under sanctions for the benefit of other persons.

Under this decree, the Government of the Russian Federation was required to:

• approve the list of persons under sanctions[3];
• determine additional criteria for identifying transactions prohibited from being performed or fulfilled.

The President granted the Ministry of Finance the right[4] to provide official clarifications on the application of Decree No. 252, while the Central Bank of Russia provides clarifications regarding financial operations where the beneficiaries are persons under sanctions.

Decree No. 520 established a ban until December 31, 2023, on transactions that directly or indirectly lead to the establishment, modification, termination, or encumbrance of ownership, use, and disposal of securities of Russian legal entities, stakes in the authorized capitals of Russian legal entities, participatory interests, and rights and obligations belonging to participants in production sharing agreements, joint venture agreements, or other agreements used to implement investment projects in the Russian Federation, provided that these securities, stakes, rights, and obligations belong to foreign persons associated with foreign states that commit unfriendly actions against the Russian Federation, Russian legal entities, and individuals, or to persons controlled by such foreign persons. This prohibition covers transactions involving:

• shares in the authorized capitals of joint-stock companies included in the list[5] of strategic enterprises and strategic joint-stock companies;
• shares or stakes in the authorized capitals of business entities in which the aforementioned joint-stock companies directly or indirectly hold shares or stakes;
• participatory interests, rights, and obligations belonging to participants in the Sakhalin-1 Production Sharing Agreement (Chayvo, Odoptu, and Arkutun-Dagi fields on the shelf of Sakhalin Island) and the Kharyaga Field Production Sharing Agreement;
• shares or stakes in the authorized capitals of business entities that manufacture equipment for fuel and energy sector organizations or provide maintenance and repair services for such equipment, business entities that produce and supply thermal and (or) electrical energy, and business entities that process oil and raw oil products. The President approved the list[6] of these entities based on a government proposal;
• shares or stakes in the authorized capitals of Russian credit organizations, the list[7] of which the President approved based on a government proposal coordinated with the Central Bank of Russia;
• shares or stakes in the authorized capitals of business entities that use:
  • subsoil plots in the Russian Federation containing hydrocarbon deposits (with recoverable reserves of at least 20 million tons of oil, at least 20 billion cubic meters of natural gas, or at least 35 million tons of coal), uranium, high-purity quartz raw materials, yttrium-group rare earths, nickel, cobalt, tantalum, niobium, beryllium, or copper;
  • subsoil plots in the Russian Federation that are primary diamond deposits, or primary (ore) deposits of gold, lithium, or platinum-group metals;
  • subsoil plots in internal sea waters, the territorial sea, or the continental shelf of the Russian Federation.

The prohibition in Decree No. 520 does not apply to legal relations regulated by Presidential Decree No. 416 dated June 30, 2022, On the Application of Special Economic Measures in the Fuel and Energy Sector in Connection with the Unfriendly Actions of Certain Foreign States and International Organizations.

Temporary Economic Measures

Decree No. 81 defined temporary economic measures to ensure the financial stability of the Russian Federation:

1. Effective March 2, 2022, a special procedure applies to residents' transactions with foreign persons associated with foreign states[8] that commit unfriendly actions against Russian legal entities and individuals, and with persons controlled by such foreign persons, regardless of their place of registration or primary business location:

• transactions involving the provision of loans and borrowings (in rubles) to persons from unfriendly states, except where prohibited by Russian regulations;
• transactions resulting in the ownership of securities and real estate carried out with persons from unfriendly states.

2. The transactions mentioned above, as well as those in Clause 3 of Decree No. 79, may be performed based on permits issued by the Government Commission for Control over Foreign Investments in the Russian Federation, which may include specific conditions.
3. Transactions with foreign persons who are not from unfriendly states involving securities and real estate acquired from unfriendly foreign persons after February 22, 2022, must follow the procedure established by Decree No. 81.
4. Transactions resulting in ownership of securities may take place on organized trades based on permits from the Central Bank of Russia, coordinated with the Ministry of Finance.
5. The transaction procedure in Decree No. 81 does not apply to transactions where the Central Bank or state bodies are a party.
6. Credit organizations may transfer funds in foreign currency to correspondent accounts in non-resident banks, subject to the restrictions in Decree No. 81.
7. Effective March 2, 2022, exporting cash foreign currency or foreign currency instruments from the Russian Federation in an amount exceeding the equivalent of $10,000 USD (calculated at the Central Bank's official exchange rate on the date of export) is prohibited.

Importantly, transactions completed before these decrees took effect generally do not have retroactive force unless explicitly stated; state authorities must act in accordance with the decrees. For instance, the state registration of property rights was suspended in one case due to the lack of the authorization required under Decree No. 81 for real estate transactions with foreign persons. [9] However, a court granted the request to declare the suspension illegal and ordered the registration because the sales contract was signed, payment was made, and documents were submitted before Decree No. 81 was adopted.

The Bank of Russia addressed specific issues regarding the application of Decrees No. 81 and No. 79 in its Letter No. 12-4-2/5091 dated June 16, 2022.

In addition to Decrees No. 81 and No. 79, the President signed Decree No. 95, which established a temporary procedure for the Russian Federation, its constituent entities, municipalities, and residents to fulfill loan, debt, and financial instrument obligations to foreign creditors associated with unfriendly states or persons controlled by them. This procedure applies to obligations exceeding 10 million rubles per calendar month (or the foreign currency equivalent).

The restrictions in Decrees No. 79, 81, and 95 do not apply to the Asian Infrastructure Investment Bank, the International Bank for Economic Co-operation, the International Investment Bank, the New Development Bank, or the Russian-Kyrgyz Development Fund. [10]

Economic Measures Regarding Real Estate and Securities

To address urgent needs, the President signed Decree No. 302. It stipulates that if the Russian Federation or Russian legal or physical persons are deprived of ownership or property rights regarding assets in unfriendly foreign states, or if such rights are restricted or threatened, or if there is a threat to national, economic, or energy security, temporary management shall be introduced for:

• movable and immovable property located in the Russian Federation belonging to foreign persons associated with unfriendly states (including citizens, residents, or those registered in or deriving profit from such states) and persons controlled by them;
• securities and stakes in the authorized capitals of Russian legal entities belonging to persons from unfriendly states;
• property rights belonging to persons from unfriendly states.

Decree No. 302 also approved a list of specific assets subject to temporary management. The Federal Agency for State Property Management was appointed as the temporary manager. [11] The manager exercises the powers of the owner, except for the power to dispose of the property, and is responsible for inventorying and preserving the assets.

To implement additional temporary economic measures, the Government adopted Decree No. 295 dated March 6, 2022, On Approving the Rules for the Issuance of Permits by the Government Commission for Control over Foreign Investments in the Russian Federation to Implement Additional Temporary Economic Measures to Ensure the Financial Stability of the Russian Federation and Other Permits....

Furthermore, to protect national interests and financial stability, the President signed Decree No. 138. It governs transactions with shares of Russian joint-stock companies, federal loan bonds, and bonds of Russian issuers where rights are recorded by a Russian depository, as well as investment units of Russian mutual funds, provided such securities (or foreign securities representing Russian shares) were acquired after March 1, 2022, from unfriendly foreign persons and credited to a Russian depository account or registry account:

• from a registry account of a foreign organization acting as a registrar;
• from a Russian depository or registry account of a foreign nominee holder;
• from a Russian depository account for depository programs;
• from a Russian depository account of a foreign authorized holder;
• from a Russian depository or registry account of a foreign organization acting in the interest of another person under a contract.

Certain securities transactions [12] require permits from the Bank of Russia or the Government Commission for Control over Foreign Investments. The requirements of Decree No. 138 do not apply to transactions:

• involving Russian shares obtained through the conversion of foreign securities held before March 1, 2022;
• involving the conversion, buyout, or redemption of Russian securities by their issuer;
• involving the buyout of shares of a public joint-stock company under Federal Law No. 208-FZ dated December 26, 1995, On Joint-Stock Companies;
• related to the redemption of mutual fund units by a management company or upon fund termination;
• related to returning Russian securities to fulfill loan agreements or repo agreements concluded on or before March 1, 2022;
• carried out in accordance with Articles 5.3 and 5.5 of Federal Law No. 319-FZ dated July 14, 2022;
• related to the transfer of Russian securities obtained through universal succession.

Special Economic Measures in the Fuel and Energy Sector

To counter the price cap on Russian oil and oil products imposed by foreign states, the President signed Decree No. 961. Since the US and associated states prohibited the maritime transport of Russian oil and related services when prices exceed a fixed limit (the price cap mechanism), Decree No. 961 prohibits supplying Russian oil and oil products to foreign entities if the contracts directly or indirectly use a price cap mechanism. This ban applies at all stages of supply up to the final buyer and is effective until July 1, 2023. Government Decree No. 118 dated January 28, 2023, established the product codes (TN VED) and monitoring rules for this decree.

Additionally, Decree No. 943 established that until October 1, 2023:

1. Gazprom and its affiliates are prohibited from fulfilling obligations to foreign persons associated with unfriendly states or persons controlled by them regarding:

• payment for natural gas or gas condensate extracted from the Achimov deposits of the Urengoy field if the obligation exceeds the price cap[13] set by the Government;
• payment for natural gas extracted from the South Russian gas field if the obligation exceeds the price cap set by the Government;
• payment for services related to gas and condensate extraction at the Achimov deposits if the fee exceeds the limit set by the Government.

2. Obligations under Clause 1 must be fulfilled only in amounts not exceeding the established price caps and limits.

The prohibition in Decree No. 943:

• extends to obligations toward Russian legal entities whose shares or stakes are held by foreign persons or controlled by them;
• applies to obligations that became due after March 1, 2022;
• does not apply to transactions performed on organized trades.

Special economic measures are generally temporary and apply independently of other measures taken by the leadership of the Russian Federation; they serve to protect the interests of the Russian Federation, its citizens, and its legal entities.

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References

1. Article 5 of Law No. 281.
2. Government Decree No. 312 dated March 9, 2022, On Introducing on a Temporary Basis a Permit Procedure for the Export of Certain Types of Goods Outside the Territory of the Russian Federation.
3. Government Decree No. 851 dated May 11, 2022, On Measures to Implement Presidential Decree No. 252 dated May 3, 2022, together with the List of Legal Entities Subject to Special Economic Measures and the List of Legal Entities Operating in the Field of Military-Technical Cooperation Subject to Special Economic Measures.
4. Clause 3 of Decree No. 252.
5. Presidential Decree No. 1009 dated August 4, 2004, On Approving the List of Strategic Enterprises and Strategic Joint-Stock Companies.
6. Presidential Order No. 372-rp dated November 9, 2022, On Approving the List of Business Entities that Manufacture Equipment for Fuel and Energy Organizations and Provide Maintenance and Repair Services, Entities that Produce and Supply Heat and (or) Electric Energy, and Entities that Process Oil and Raw Oil Products.
7. Presidential Order No. 357-rp dated October 26, 2022, On Approving the List of Russian Credit Organizations Subject to a Ban on Transactions (Operations) with Shares and Authorized Capital Stakes.
8. Government Order No. 430-r dated March 5, 2022, On Approving the List of Foreign States and Territories Committing Unfriendly Actions Against the Russian Federation and Russian Legal Entities and Individuals.
9. Decision of the Arbitration Court of the Moscow District dated March 2, 2023, No. F05-1649/2023 in Case No. A41-46764/2022.
10. Presidential Decree No. 738 dated October 15, 2022, On the Application of Certain Presidential Decrees.
11. Clause 3 of Decree No. 302.
12. Clause 2 of Decree No. 138.
13. Government Decree No. 2544 dated December 30, 2022, On Measures to Implement Presidential Decree No. 943 dated December 22, 2022.