ANDREY TSYGANOV: THE LAW DOES NOT TIGHTEN REGULATION, IT CREATES AN UNDERSTANDABLE DECISION-MAKING PROCEDURE

On 27 April 2018, Deputy Head of FAS Andrey Tsyganov gave a briefing to mark 10 years of control over foreign investments in Russia

Ten years ago, on 29 April 2008 No. 57-FZ Federal Law “On the procedure of foreign investment in the economic entities of strategic importance for national defense and state security” was passed, establishing a mechanism of control over foreign investments in the Russian Federation.

The Law set limits for foreign investors in terms of transactions, establishing control over strategic companies an on acquiring the property of strategic companies, the costs of which is 25% and more of the balance asset value of an economic entity. No. 57-FZ Federal Law prohibits foreign states to establish control over strategic companies and specify the consequences for failure to observe the Law.

“The Law passed ten years ago is nowhere near tightening regulations over foreign investments in Russia. The task was to get together separate norms that someway or other limited the procedure for participation of foreign companies in the capital of Russian companies, integrate them in a single law, establish a decision-making procedure understandable for everybody, shift from prohibitive regulation to preventative control and specify punishment for violating the Law”, explainedAndrey Tsyganov.

To enforce No. 57-FZ Federal Law, the Government Commission for Control over Foreign Investments in the Russian Federation was formed. FAS was assigned the functions to control foreign investments in the Russian Federation.

“Our work is built up in such a way that in ten years we have not made any serious blunders, neither in terms of the content of the decisions made by FAS for the sessions of the Government Commission, not in terms of the deadlines and procedures of petition consideration”, continuedDeputy Head of FAS.

In the past ten years No. 57-FZ Federal Law underwent several modifications. The first package of amendments was adopted in 2011; the second - by 2014, and the third– by 2016.

“Looking at the meaning of those changes, all of them were designed to reach two main goals – reduce the field of control over foreign investments and simplifying or clarifying the control procedure. For example, in 2011 we reduced considerably the scope of application of the law to subsoil users – threshold values for control over use of federal sites of subsoil resources were raised from 10 % to 25 %”, commented Andrey Tsyganov.

International financial organizations where the Russian Federation participates, foreign investors under control of the Russian Federation, a subject or a citizen of the Russian Federation who is not a citizen of any other state, and cryptographic activity of the banks without a strategic share belonging to the Russian Federation or stopped being possessed by the Russian Federation were removed from the purview of the law.

In 2014 the Law was extended to other actions that lead to establishing control over strategic companies and acquiring over 25% of the main production facilities of a strategic company. A requirement was set to file a notification about completing transactions and other actions if the Government Commission had made a decision on approving them.

“The legislator removed control over those transactions that did no change the scope of rights of a foreign investor with regard to Russian strategic economic entities, and excluded the need to repeatedly put the issue on the agenda of the Government Commission after the foreign investor undertakes the expected obligations, and reached a relevant agreement with the Federal Antimonopoly Service. Thus, we accelerated the procedure for considering petitions of foreign investors by several months”.

In ten years of enforcement of No. 57-FZ Federal Law, FAS received 516 petitions. Out of 229 petitions considered by the Government Commission, only 13 were refused preapprovals due to threats to national defence and state security.

“Statistics showed that investigating petitions is a “piece-work”. To understand whether a transaction is subject to consideration and approval by the Government Commission, the three main circumstances should coincide: there is a foreign investor, a Russian strategic company and the investor is establishing control over the strategic company. FAS Department for Control over Foreign Investments focuses its efforts on clarifying these three circumstances”.

The Federal Antimonopoly Servicecan demand through Courts to ban voting at general shareholders meetings with the package of shares that a foreign investor obtained unlawfully.

“These measures are first of all preventative because violations of the law are rare”, explained the speaker.

Discussing judicial practice, Deputy Head of FAS pointed out that in some cases judicial proceedings against foreign investors are terminated when violations are eliminated.

“We are always in favor of peaceful solutions”, mentioned Deputy Head of FAS.

Andrey Tsyganov also commented on development of the Russian economy under sanctions: “FAS is now considering 34 transactions. It means that foreign investments in Russian economic entities continue”.

Head of FAS Department for Control over Foreign Investments, Olesya Milchakova, and her Deputies Grigory Karakov and Alexander Poroshin also took part in the briefing.