Russia's Federation Council passes law tightening rules for foreign investment in strategic enterprises

MOSCOW. April 26 (Interfax) - The Federation Council or upper house of Russia's parliament has passed a law that simplifies the procedure for the Russian Federation to recover property from unscrupulous foreign investors as part of the law on investments in strategic business entities.

The government submitted the bill to the parliament at the end of December 2022.

According to the current legislation on foreign investments in strategic enterprises (N57-FZ) transactions made in violation of the requirements of this law will be deemed null and void. That is, if they are made without prior approval of the Government Commission on Monitoring Foreign Investment. At the same time, the court, based on a claim from the Federal Antimonopoly Service (FAS), after recognizing the transaction void, may apply to this transaction the consequences prescribed in the Civil Code (Article 167.2 2), which is bilateral restitution: the parties to an invalid transaction must return to each other the property transferred under it or its value.

In addition, the Law on Foreign Investments provides for a special measure - depriving a foreign investor of the right to vote at the annual general meeting of shareholders, without depriving them of their right to the shares themselves.

The law bypasses the Civil Code, directly prescribing in the law on foreign investments the possibility of recovery via the courts of shares and property of a strategically important enterprise or income received by a foreign investor as a result of fulfilment of the deal in question in the event the deal is recognized as void due to the foreign investor's bad faith. In addition, the draft law provides for the possibility of claims by a strategically important enterprise for judicial recovery from a foreign investor of losses (including lost profits) incurred by that enterprise, as well as compensation for damage caused to its property. When resolving the issue of recovery of property for the benefit of the state, it will be necessary to take into account the presence or absence of risks of continuation or occurrence of a threat to the defense and security of the state.

Russia currently defines 50 activities of strategic importance for national defense and state security, including work with nuclear facilities and radioactive substances, development and production of weapons and military equipment, aviation security, space activities, television and radio broadcasting, fishing, and exploration and extraction of minerals. In 2022, the list has been updated to include transportation of certain types of cargo specified by the Russian government by sea and water transport, creation and maintenance of information systems for registration of air transportation, conducting vulnerability analysis and provision of physical protection of facilities of the fuel and energy complex.

The law goes into effect 10 days after its publication.