Law signed on blocking assets of foreign persons under Russian sanctions

On 4 August 2023, the President of the Russian Federation signed Federal Law No. 422-FZ “On Amending Certain Legislative Acts of the Russian Federation” (“Law No. 422-FZ”). The law suggests blocking (freezing) the assets of foreign persons against whom Russian special economic measures (sanctions) have been introduced.

The federal law introduces changes to Federal Law No. 281-FZ “On Special Economic Measures and Compelling Measures” (“Sanctions Law”) that was passed on 30 December 2006. It also introduces the notion of a “blocked person” and expands the list of restrictions applicable to foreign states, organisations and nationals.

Notion of “blocked person”

According to Law No. 422-FZ, blocked persons are:

• foreign states, organisations, nationals and stateless persons in whose respect the President of the Russian Federation has made a decision — based on the suggestions of Russia’s Security Council — to apply special economic measures; and
• legal entities controlled by foreign organisations, nationals and stateless persons

(collectively referred to as “Blocked Persons”).

“Control” criterion

The “control” criterion stipulated by Law No. 422-FZ implies the right to directly or indirectly (through third parties, including those from the same group), independently and jointly control over 50% of votes in the supreme governing body of the controlled entity due to participation in such entity.

Blocking (freezing) of assets

The list of potential special economic measures set out in the Sanctions Law was expanded to include the following measures:

• freezing (blocking) assets belonging to the Blocked Persons; and
• a ban on (restriction of) financial transactions with the assets of the Blocked Persons and those in the interests or in favour of the Blocked Persons.

Before now, the list of special economic measures — even though it provided for the possibility of introducing measures aimed at prohibiting transactions — did not expressly allow the freezing (blocking) of assetsSee part 2 of art. 3 of the Sanctions Law: “Special economic measures include a prohibition to take action in relation to a foreign state and/or foreign organisations and nationals or stateless persons permanently residing in the territory of a foreign state, and/or the imposition of a duty to take such action, and other restrictions. Such measures can be aimed at: 1) suspending the implementation of all or part of the programmes in the field of economic or technical aid and programmes in the field of military and technical cooperation;
2) prohibiting financial transactions or establishing restrictions on the implementation thereof;
3) prohibiting foreign trade transactions or establishing restrictions on the implementation thereof;
4) terminating or suspending international trade agreements and other international treaties of the Russian Federation in the field of foreign economic ties;
5) changing export and/or import duties;
6) prohibiting or restricting the entry of vessels in Russian ports and the use of Russian air space and its separate areas;
7) establishing restrictions on tourist activities;
8) prohibiting or withdrawing from international scientific and science and technology programmes and projects of a foreign state.”

Freezing (blocking) means a ban on carrying out transactions with money, securities and other property belonging to the Blocked Person, and financial transactions conducted in the interests or in favour of the Blocked Person.

These measures should be implemented by organisations that carry out the relevant transactions with money and other property in accordance with the law of the Russian Federation (“Authorised Operators”). Such organisations include, among others, lending institutions, professional securities traders, insurance companies, non-government pension funds, etcA full list of Authorised Operators is given on page 17 of Law No. 422-FZ.

Exceptions

Law No. 422-FZ allows Blocked Persons to carry out certain transactions with blocked assets. Specifically, a Blocked Person has the right to:

• receive money in their Russian accounts and interest on their deposits;
• receive and spend pensions, stipends, benefits and social welfare payments;
• pay taxes, levies, social insurance contributions, penalties, fines and interest payable to the budgets of the Russian budgetary system;
• receive salary, and spend it, up to RUB10,000 per month per each family member (parents, spouses and children) as well as pay for healthcare services to the same amount; and
• pay salary to employees to an amount not in excess of the subsistence wage, severance pay and other payments to make up for the harm inflicted.

Reporting

Authorised Operators accountable to the Central Bank of Russia (“Central Bank”) must report to the Central Bank on the implementation of special economic measures against Blocked Persons. The Central Bank, in turn, has oversight of the implementation of special economic measures and gives clarifications on their implementation.

For other Authorised Operators, the Supervisory Authority will be the federal executive bodies to be designated by the Government of the Russian Federation.

Liability of authorised operators

An important provision of Law No. 422-FZ is that the implementation of special economic measures against the Blocked Persons is not a ground for the Authorised Operator to incur civil liability.

On the contrary, multiple failures during the year to implement special economic measures in relation to the Blocked Persons or breach of other acts released under the Sanctions Law can result in the revocation or cancellation of the Authorised Operator’s licence.

Effective date and practical significance

Law No. 422-FZ will take effect upon the expiry of 180 days after the date of its official publication (ie from 1 February 2024).

However, we note that the current version of the Sanctions Law contains a provision allowing the President of the Russian Federation to take a decision on the adoption of special economic measures in relation to particular persons.

Certain restrictions in relation to the assets of certain foreign persons were introduced by Order of the President of the Russian Federation No. 252 of 3 May 2022 “On the Application of Special Economic Measures in connection with the Unfriendly Actions of Certain Foreign States and International Organisations.” The list of persons upon whom the restrictions were imposed is set out in Government Resolution No. 851 of 11 May 2022.

On a separate note, we point out that the measures stipulated by Presidential Decree No. 302 of 25 April 2023 (as amended on 16 July 2023) “On the Temporary Administration of Certain Property” are of a slightly different nature, according to the Federal Agency for Government Property Management. We mentioned this earlier in our previous legal update.