The law on countersanctions has entered into force with respect to unfriendly states
On June 4, 2018, Federal Law No.127-FZ “On measures (countermeasures) against unfriendly actions of the United States of America and other foreign states” (the “Law”) entered into force.
The Law establishes that it is possible for measures to be applied not only with respect to the USA, other unfriendly states and their citizens, but also with respect to:
- companies under the jurisdiction of unfriendly states; and
- companies that are, directly or indirectly, controlled by unfriendly states or are affiliated to them (“controlled persons”).
Thus, if we proceed from the wording of the Law, a Russian company with any foreign equity can become subject to counter-sanctions.
The list of measures which the Russian Government can introduce further to a decision of the Russian President includes the following:
- terminating or suspending the international cooperation of Russia and of Russian companies with unfriendly states and companies that are under the jurisdiction of such states and controlled persons (in industries to be identified further to a decision of the Russian President);
- a ban or restriction on the import into Russia of products or raw materials originating from unfriendly states, or produced by companies that are under the jurisdiction of such states, or by controlled persons;
- a ban or restriction on the export from Russia of products and raw materials by entities that are under the jurisdiction of unfriendly states or by controlled persons;
- a ban or restriction on the performance of work or supply of services for federal or municipal needs, and also for the needs of certain types of legal entities, by entities that are under the jurisdiction of unfriendly states or by controlled persons;
- a ban or restriction on the participation of citizens of unfriendly states, controlled persons and entities that are under the jurisdiction of unfriendly states, in privatization and in the performance of work and supply of services to arrange for the sale of federal property and/or for the performance of the function of a seller of federal property on behalf of the Russian Federation; and
- other measures further to a decision of the Russian President.
The Russian Government will define the list of products and raw materials which may be banned from being imported/exported, as well as other types of work/services the procurement of which from the above persons may be banned or restricted.
Please note that, originally, the draft law provided for 16 measures. However, it was considerably reworked and pared back based on the outcome of discussions. In fact, this reduction was achieved through the provision concerning ‘other measures’ which makes the list an open list and vests in the Russian President the right to decide that any measures in addition to those referred to in the Law can be introduced.
The wording of the Law, however, makes clear that the ban on the import of products and raw materials will not be applied to the import of goods by individuals for personal consumption.
Moreover, such a ban may not be applied with respect to vital and essential goods, where no analogues are produced in Russia. However, while the status of ‘vital and essential goods’ can be established for medicines based on the special list, it is not entirely clear how a ‘vital need’ will be determined with respect to other categories of goods.
We would specifically stress that the Russian State Duma is at present considering a draft law to introduce criminal liability for a refusal to perform ordinary business transactions in compliance with sanctions imposed by foreign states and for intentionally facilitating the introduction of such sanctions with respect to Russian entities, whether private or public.