FEDERAL ANTIMONOPOLY SERVICE

Control over foreign investments into the entities of strategic importance (the Russian model)

Mr. Andrey TsyganovDeputy Head FAS Russia

Legal foundations for regulation of foreign investments

The FAS Russia is an authorized federal agency that controls foreign investments into the strategic economic entities.

•The legal basis for implementation of these functions are the Federal Law №57-FZ “On Procedures for Foreign Investments in the Business Entities of Strategic Importance for the Russian National Defence and State Security” and the Federal Law №160-FZ “On Foreign Investments in the Russian Federation”, as well as a number of Resolutions of the Government of the Russian Federation.

The main objective if the presentation is review of the enforcement practice of the Federal Antimonopoly Service under the Law № 57-FZ.

2

3

Control over foreign investments into strategic entities

The Federal Law №57-FZ of 29.04.2008 “On Procedures for Foreign Investments in the Business Entities of Strategic Importance for the Russian National Defence and State Security” sets forth:

www.fas.gov.ru

restrictive exemptions for foreign investors when purchasing shares of strategic economic entities or acquiring control over such entities;

list of strategic types of activity;

the procedure for submission and consideration of the notifications of foreign investors when investing in strategic economic entities;

sanctions for non-observance of the requirements of the legislation.

4

Types of control over foreign investments in strategic sectors

Preliminary – submission of notification in accordance with requirements of the parts 1-4 of the Article 7 of the Law №57-FZ.Subsequent – envisages submission of:

www.fas.gov.ru

petition (information) on acquiring of 5% and more percent of shares (stocks) in authorized capital of the strategic entity in accordance with Article 14 of the Law №57-FZ;

notification on establishing control in accordance with the part 5 Article 7 of the Law №57-FZ.

5

Decision of the Government Commission for Control over Foreign Investments in the Russian Federation on preliminary approval of

transaction

Execution of transaction by foreign investor within the period of set by the decision of the Commission

Conclusion of the agreement on fulfilling of obligations in accordance with part 3

Article 12 of the Law №57-FZ

Terms of transactions that establish control of foreign investors over strategic business entities

www.fas.gov.ru

Basic indicators that characterize enforcement practice of the Law on foreign investments

From the date of entering into force of the Law № 57-FZ the FAS Russia received:

► 174 notifications (136 – under the Law № 57-FZ 38 – under the Law № 160-FZ);► 413 petitions (276 – under part 3 Article 16 Law № 57-FZ137 – under Article 14 Law № 57-FZ);► 56 requests under part 6 Article 8 Law № 57-FZ;► 233 applications from foreign investors, strategic economic entities, federal state authorities on application of the Law № 57-FZ;► 33 requests from the Federal Subsoil Resources Management Agency on receiving and remaking of the licenses on the right to use spots of subsoil of federal importance.

6

General characteristics of the received notifications

The list of applicant who submitted notifications included:

► 10 international organizations

► 24 organizations under control over foreign state or international organization

► 131 private foreign companies

Foreign investors who submitted notifications with regard to economic entities of strategic importance were from 29 foreign states.

7

General characteristics of the received notifications

Out of 174 received notifications:

56% – related to the sphere of using spots of subsoil of federal importance;

19% – relation to the sphere of development, production and expansion of the cryptographic hardware, including 15% in the bank sphere;

11% – related to the sphere of natural monopolies activity;

9% - related to the sphere of TV and radio broadcasting and polygraphy;

5% - related to other strategic sectors of activity.

8

Outcome of consideration of notifications submitted to the FAS Russia

99 notification were considered by the FAS Russia within its competence, out of them:► 17 notifications with regard to credit organizations were considered in a

simplified way;► on 51 notifications the FAS Russia took decision on return of the notifications due

to the absence of establishment of control over strategic economic entity; ► 4 notifications were returned without consideration due to the incomplete set of

required documents or due to non-provision of lacking information in due timeframes;► 4 notifications were returned to applicants as the notified transactions fall under

exemptions set forth by part 4 Article 4 of the Law №57-FZ;► on 2 notifications the FAS Russia took decision on their return, as applicant

didn’t have a right to conclude transactions that lead to establishment of control over strategic economic entity;

► 21 notifications were withdrawn by applicants due to their refusal to conclude the notified transactions or necessity to further elaborate materials under notification.

None of the FAS Russia decisions was appealed to court.

9

10

Enforcement practice under the Law on foreign investments

During eight meetings of the Governmental Commission there were considered 47 notifications of foreign investors, out of them:

• 38 – were cleared; • 2 – were declined; • 7- were cleared with imposing of remedies defined by the part 1

Article 12 of the Law № 57-FZ (to implement these decisions the FAS Russia concluded 5 agreements, in two cases the investors refused from conclusion of notified transactions).

It should be noted that presently the FAS Russia is considering 28 notifications from foreign investors. 8 notifications are ready to be considered during the next meeting of the Governmental Commission.

Outcome of consideration of petitions, requests and applications under the Law №57-FZ from its enaction

Out of 413 received petition there were considered:

274 petitions – under part 3 Article16 (this part is almost finished)

131 petitions – under Article 14

8 petitions are being considered.

Part of the petitions was submitted with violation of the established order (with regard to period of submission or scope of the required documents).

Out of 56 requests of foreign investors submitted in accordance with part 6 Article 8 of presently 55 requests were considered.

Out of 233 applications submitted by foreign investors, strategic economic entities and federal state authorities there were considered 230 applications. The rest are being considered.

11

In order to avoid a number of typical mistakes made by foreign investments under submission of notifications under part 6 Article 11 of the Law № 57-FZ there was adopted a Resolution of the Government of the Russian Federation of 17.10.2009 № 838 “On adoption of Rules for preliminary clearance of transaction and establishment of control of foreign investors or group of persons that consists of foreign investor over economic entities of strategic importance for ensuring state defence and security”.

12

Development of legal basis for control over foreign investments in strategic economic sectors

13

The Rules developed by the FAS Russia and adopted by the Government:

specified requirements to the notifications submitted by foreign investors; introduced order for defining the date of submission (registration) of

notification if the applicant submits one by one a number of interrelated notifications with regard to one strategic economic entity or introduces amendments to the text of notification after its submission; determined the rights of the authorized agency for conduction of inspection of strategic economic entity;

regulated the order for concluding agreements between the FAS Russian and foreign investor on ensuring fulfillment of obligations determined by the Governmental Commission.

Overview on Resolution of the Government of the Russian Federation of 17.10.2009 № 838

14

Improvement of legislation on foreign investments (first package of amendments)

The FAS Russia elaborated and submitted to the Government of the Russian Federation the draft bill on introducing amendments to the Law № 57-FZ that amid alia envisages:

•exemption from the sphere of transaction control; within the frameworks of the extra emission, in case it results in absence of change in the share of the foreign investor our its group of persons in its authorized capital;

•reduction of the list of strategic types of activity (activity of commercial banks in the sphere of cryptography, radioactive sources, usage of agents of infection);

•Improvement of the number of procedural aspects in consideration of notification, including the order for concluding agreements between the FAS Russia and foreign investors with regard to terms of fulfillment of their obligations determined by the Governmental Commission when clearing the transaction.

Draft bill is aimed at liberalization and improvement of control over foreign investments in strategic economic entities.

Moreover, proposals on mitigation of rules for control over foreign investments with regard to transactions in the sphere of usage of subsoil spots of federal importance are presently widely discussed.

15

•All legal regulations on control over foreign investments in strategic economic entities are applied in practice.

•Regime of control is quite liberal. •During two years of application of the Law № 57-FZ out of

174 notifications that were submitted for consideration it was only in two cases that there was taken a decision on refusing the deal.

•The judicial practice is being formed.•Enforcement issues and issues on improvement of legislation

are subject to public discussions.

CONCLUSION

16

THANK YOU FOR ATTENTION!

www.fas.gov.ru