Foreign investment under closer scrutiny: new disclosure requirements

Russian foreign investment regulation continues to evolve toward maximum transparency of ownership structures and sources of control over assets. The state remains focused on transactions involving companies operating in strategically important sectors of the economy. New requirements effectively expand the scope of information investors must disclose when approving transactions and enhance regulators’ ability to analyze corporate structures.

From formal owner to ultimate control

While previously information about the direct acquirer of an asset was of key importance, today the attention of regulatory authorities is focused on the entire ownership structure.

When coordinating transactions, information about ultimate beneficiaries, beneficial owners, and individuals capable of exerting actual influence on decision-making is becoming increasingly important. Not only the formal corporate structure is analyzed, but also control mechanisms existing through contractual relationships, trusts, foundations, nominee ownership, and other structures.

For investors, this means the need to conduct a legal audit of the group structure in advance and prepare a full package of information on the ownership chain.

Increased disclosure requirements

The modern approach of regulators involves a comprehensive review of the origin of investments and the control structure.

Particular attention is paid to:

• ultimate beneficial owners;
• persons exercising direct or indirect control;
• ownership structure at all levels of the group of companies;
• foreign elements in the corporate structure;
• the presence of signs of actual control by third parties.

Experience shows that formal disclosure of shareholders or company participants is no longer sufficient. Regulators strive to obtain the most complete understanding of who actually makes decisions and benefits from a transaction.

Expanding control over investment transactions

One of the noticeable trends is the increase in the number of transactions that may come under additional government control.

Even if an acquisition does not formally fall into the category of clearly strategic transactions, it may attract the attention of regulatory authorities in cases where issues of economic security, critical infrastructure, or other significant state interests are affected.

As a result, investors are increasingly faced with the need to undergo additional approval procedures that were not previously considered mandatory.

Strategic status: a risk not always obvious

A particular difficulty is determining whether an investment object is classified as a strategic company.

In practice, companies often underestimate this risk based on the actual nature of their activities. However, strategic status can arise not only from the conduct of certain types of business, but also from the availability of special permits, licenses, or other legal grounds.

Therefore, checking the regulatory status of the investment object becomes a mandatory element of preparing any transaction with foreign participation.

New risks for investors

Increased disclosure requirements inevitably impact the timing and predictability of transactions.

The main risks include:

• increasing the duration of approval procedures;
• request for additional documents and clarifications;
• the need to disclose information about a group of companies outside of Russia;
• suspension of consideration of the transaction until the comments are resolved;
• the risk of the transaction being declared invalid if disclosure requirements are violated.

Such requirements become especially sensitive for international holdings with a complex ownership structure and a multi-level system of corporate control.

Special attention sectors

The highest level of regulatory control is traditionally maintained in relation to companies whose activities are related to ensuring state security, the functioning of critical infrastructure, and the use of strategically significant resources.

This category may include organizations operating in the fields of subsoil use, transport, logistics, communications, information technology, cybersecurity, the financial sector, as well as enterprises that have special licenses or other permits that affect their legal status.

For foreign investors and Russian companies with foreign participation, the new requirements mean the need for more thorough preparation of transactions even at the structuring stage.

Due diligence must now cover not only the acquisition target itself, but also the entire corporate structure of the parties to the transaction, the presence of signs of control, the nature of beneficial ownership, and potential regulatory restrictions. Preliminary analysis of such issues helps reduce the risk of delays in approval procedures and avoid claims from government agencies after the deal closes.