Since 22 October 2018, the assets of several hundred mostly Ukrainian persons which are located in Russia have been frozen based on Presidential Decree 592 of 22 October 2018 (“Presidential Decree 592”) and Governmental Order 1300 of 1 November 2018 (“Governmental Order 1300”). To date, these and other sanctions against Ukraine are the only measures which have been taken under Federal Law 127-FZ “On measures (counter-measures) in response to unfriendly actions of the United States [...]” of 4 June 2018.
On 23 October 2020, the State Duma adopted Draft Law 996800-7 at its first reading (the “Draft Law”), which regulates the practical implementation of the sanctions:
- The Draft Law introduces changes to Federal Law 281-FZ “On special economic measures” of 30 December 2006 and extends the application of these changes to the sanctions which have been in place against Ukraine since 22 October 2018. That means the new rules also regulate the freezing of the assets of currently over 600 individuals and 75 companies on the basis of Presidential Decree 592 and Governmental Order 1300.
- Governmental Order 1300 provides that not only the assets (non-cash funds, non-documentary securities, other property) of the sanctioned persons but also those of the organizations controlled by them are frozen. The Draft Law now clarifies what control means – the right to control directly or indirectly, based on shareholding or an agreement, more than 25% of the votes in the controlled organization’s supreme management body.
- Under the Draft Law, asset freezing is defined very broadly as a ban on performing any operations with monetary funds, securities or other property belonging to the sanctioned persons or any other operations in the interest or for the benefit of the sanctioned person. Exceptions are made only for operations aimed at the receipt or spending of statutory pensions, scholarships, allowances, social payments, taxes and fines.
- This ban must be implemented by organizations performing operations with monetary funds, securities or other property in accordance with Russian legislation. These organizations are listed in the Draft Law and include financial institutions and various other financial services providers, such as insurance companies, payment processors and securities brokers. They will have to provide the Bank of Russia or their relevant other supervisory authority regular reports on how they implemented the sanctions.
- Neither Presidential Decree 592 nor Governmental Order 1300 nor the Draft Law contains a general ban on providing resources or assistance to the sanctioned persons. Neither do they contain secondary sanctions for non-Russian persons. To what extent business relations with the sanctioned persons can be maintained irrespective of the asset freeze regime should be assessed on a case-by-case basis.
The Draft Law is likely to become law in this form before the end of this year. To enter into force, the Draft Law must be adopted by the State Duma in three readings, approved by the Federation Council and signed by the Russian President.
By Hannes Lubitzsch, Associated Partner, and Tatiana Dovgan, Senior Associate, Noerr