Transaction exemptions from anti-sanctions legislation: principles of operation

Anti-sanctions legislation is a key aspect in structuring corporate transactions and a priority point of legal review of assets with a foreign component.

The application of this legislation affects the timing of transactions, the amount of additional financial expenses of the parties and, in certain cases, the legality of ownership of the asset.

Facilitated requirements

At the beginning of this year, there were changes in the policy of issuing permits for transactions under the anti-sanctions legislation, which was reflected in the Resolution of the Government of the Russian Federation No. 40 dated 22.01.2024.

When applying to the Pravcomission for authorisation of intragroup transactions and transactions between unfriendly parties, it is no longer necessary to provide an independent appraisal report on the market value of the relevant assets and key performance indicators (KPIs), their target values used as conditions for the transaction.

Unlike other exemptions related to parties to transactions (paragraphs 12 and 4 of the Presidential Decrees of 5 March 2022 and 4 May 2022, respectively), the above-mentioned types of transactions are not completely excluded from state control. However, these transactions are still subject to approval by the Pravcomission, but the requirements for the set of documents to be submitted are reduced.

Whether a contribution to the budget is required

Fresh procedural changes likely eliminate the need for additional documents, including an asset valuation report for certain transactions. This raises the assumption that additional requirements, such as discount and voluntary budget contributions, also do not apply.

However, the answer to this question is not clear. Nowhere does it say that the absence of an asset valuation report precludes discount and budget contribution. Furthermore, these provisions are advisory and can be revised for each specific transaction.

In general, it seems possible that a government commission could approve a discount and budget contribution in the absence of an asset valuation report.

Key findings:

1. likely simplification of the procedure by not requiring an asset valuation report;
2. uncertainty about the applicability of discount and budgetary contributions given current developments;
3. the ability of the government commission to levy discount and budgetary contributions even in the absence of an asset valuation report.

Intra-group transaction

There is no definite answer as to what constitutes an intra-group transaction. According to Article 4(4) of the Law on Foreign Investments in Strategic Enterprises, it was said that intra-group transactions were those in which the ultimate control of the shares is retained by the same person.

But the updated rules again lead to the question: what is an intra-group transaction? They only point to the need to comply with the Law on Protection of Competition.

This law understands a “group of persons” to mean economically related companies, and the links between them can range from corporate to family. Thus, the term “intra-group transaction” may include various situations of transactions within such a “group of persons”.

Given the lack of adaptation of the antitrust concept of “group of persons”, a wide range of transactions may fall under the lenient requirements of the sanctions. This includes transactions that do not require management by a single person, effectively resulting in a change in the economic owner of the asset. However, this result is inconsistent with the overall logic of the legislation.

There is a need for a more precise definition of an intra-group transaction in the authorisation rules. Two formulations seem appropriate:

• one based on Article 4, paragraph 4 of the Law on Foreign Investment in Strategic Enterprises;
• based on article 28, paragraph 2, with reference to article 9, paragraph 1, part 1, item 1 of the law.

“On Protection of Competition”, using only one part of the concept of “group of persons”.

Both options imply special regulation of transactions that do not result in loss of control based on the holding of more than 50 per cent of assets.

Transactions at the corporate level between unfriendly parties

Transactions between unfriendly parties include those where the seller and buyer belong to or are controlled by an unfriendly foreign jurisdiction. These transactions require authorisation by a government commission if they involve Russian assets, whether directly or indirectly.

However, the exception formulated for such transactions covers a wide range of situations.

The professional community has long discussed the use of simplified rules for transactions between unfriendly parties, similar to intra-group transactions. The intention here is that the exception should only apply to transactions carried out outside the Russian Federation.

Thus, if transactions between unfriendly parties are directly related to shares of Russian companies, the transfer of which is reflected in the Russian Unified State Register of Legal Entities or in the register of shareholders of a Russian joint stock company, there should be no exception.

At the same time, the amendments raise questions about the scope of their application, as they do not specify at what corporate level transactions between unfriendly parties should be performed in order to use the simplified procedure.

Following the general logic of the formation and development of counter-sanctions legislation, the application of the new norm should be limited. It should not apply the exception to transactions that involve Russian assets and include the exit of foreign investors from the Russian market.

Additional clarification from the government commission is needed to eliminate this uncertainty and reduce the costs for businesses to conduct anti-sanctions analyses and compliance procedures.