Today, June 4, 2018, President Putin signed Federal Law No. 127-FZ, “On Measures for Reaction (Counteraction) to Unfriendly Actions of the United States of America and Other Foreign States” (the “New Law”). Before signing, the document had been passed by the Russian Duma on May 22 and received assent from the Federation Council on May 30.

The New Law does not in itself contain new sanctions or counter-sanctions, but authorizes the President to establish by decree new sanctions against foreign governments, organizations, companies, individuals and goods in response to a wide range of policy actions and unfriendly acts towards the Russian government, as well as Russian-origin people, organizations and products. The New Law does not contain provisions that would have any immediate effect on business in Russia until the President decides to exercise his new authority under it; as such, for now our recommendation is “watch this space” and be sure that all compliance officers in your organization are aware of this development.

The New Law grants the President maximum discretion in determining what constitutes an unfriendly act that would justify counter-sanctions; it likewise does not contain an exhaustive list of measures that the President can decide to implement. It includes 5 categories of potential sanctions as well as “other measures” as decided by the President.

The Russian government (Russia has both a President and a Prime Minister who is considered the Head of Government while the President is Head of State; the current Prime Minister is former President Dmitry Medvedev) also has a role to play in the sanctions, and is tasked with implementing sanctions and determining the list of sanctioned products, services and/or entities once the President has decided to impose sanctions.

The five specific categories of sanctions are:

• terminating or suspending membership by Russia or Russian entities in international organizations;

• banning imports of products based on country of origin or identity of producer;

• forbidding certain products from being exported from Russia by citizens of certain countries and certain foreign-controlled organizations;

• prohibiting certain services from being rendered and/or work from being performed by citizens of certain countries and certain foreign-controlled organizations; and

• restriction on participation in privatization by citizens of certain countries and certain foreign-controlled organizations.

Although the New Law gives the President almost total freedom in determining how, what or whom to sanction, it does contain restrictions: import bans cannot be imposed on (a) “life-sustaining goods of which no analogues are produced in the Russian Federation” or (b) on foreigners’ personal effects.

The New Law is also notable for what it does not contain: provisions banning imports of foreign medicines and banning certain foreign citizens from working in Russia. Such provisions were discussed at earlier stages in the law’s drafting and drew swift criticism from many corners.

The New Law is separate from a related legislative proposal for a “blocking statute,” currently working its way through Russian Parliament, aimed at punishing compliance with foreign sanctions. That proposal is currently stalled after opposition from the business community, later supported by President Putin when he announced last week through his press secretary that any new laws should not “create apprehension on the part of companies doing business in our market.” However, compliance with countersanctions imposed under the New Law will be mandatory. Curiously, Article 1.4 of the New Law says that countersanctions are mandatory for compliance by “state agencies, local government agencies, as well as citizens of the Russian Federation and legal entities under the jurisdiction of the Russian Federation.” Foreign citizens, even foreign citizens on Russian soil, are not included in that list. It is too early to tell, however, whether this will have any effect on the enforcement of the New Law.

Vladislav Zabrodin    Managing Partner   Moscow   Tel.: +7 (495) 970 1090

Kyle Davis   Of Councel   Moscow   Tel.: +7 (495) 970 1090

Additional notes

Should any questions arise in connection with the above or if you need any additional materials, please contact Vladislav Zabrodin and Kyle Davis at Office of Capital Legal Services.

This Information letter keeps the clients of Capital Legal Services and other interested parties abreast of information that may, to any extent, affect their activity or cater to their particular interests. The opinions and commentaries expressed in this information letter shall not be deemed as legal opinions and do not cancel the need to obtain legal advice or legal opinion on separate issues. 

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