If assets of the Russian state or the Russian Central Bank are unlawfully seized by the US, Russia may retaliate by taking assets of US persons in Russia, according to President Putin’s Decree No. 442 of 23 May 2024.
In detail
Who may be considered a US person?
The US persons are defined broadly and include:
1) the US Government,
2) foreign persons (companies and individuals) connected with the US including
a) US citizens and residents,
b) persons registered in the US,
c) persons having their primary place of economic activity in the US,
d) persons that primarily earn income from their activities in the US,
3) persons under the control of any such foreign persons connected with the US (paragraph 2 above).
Criteria in paragraph 2 are non-exhaustive. Any “foreign person connected with the US” may be considered a US person regardless of the nature and strength of the connection to the US. Non-US companies with a strong US presence may also fall into this category, particularly subsidiaries of companies from “unfriendly states”, including EU countries.
What classes of assets are at risk?
Virtually all assets including money, real estate, securities and interests in Russian companies, property rights and movable property owned by US persons in Russia.
The Russian Government Commission for Control over Foreign Investments is tasked to develop a list of assets that can be seized as compensation. This is the same body that approves sale of Russian assets by owners from “unfriendly states”.
What is the trigger for the seizure of assets?
The seizure in Russia can be triggered by an “unlawful seizure of the assets of the Russian state or the Central Bank of Russia based on decisions of the US state bodies and/or courts”.
What is the procedure for seizure?
The owner of an asset seized by the US, that is, the Russian state or the Russian Central Bank, applies to a Russian court seeking to establish the event of unlawful seizure of its asset and compensate the owner for its losses. The owner submits to the court its loss estimate.
If the court concludes that there were no justified grounds for the US actors to seize the asset, it requests a list of assets of US persons in Russia from the Government Commission. Upon receiving the list, the court orders that the US persons’ rights to certain assets in Russia be terminated and the assets be transferred as compensation for losses.
The detailed procedure is to be determined by the Russian Government.
When does this start to apply?
The President gave the Russian Government four (4) months to develop amendments to Russian laws aimed at implementing the framework procedure established by the Decree. Therefore, the seizure process is unlikely to start until such amendments are made, and the Presidential Decree serves as a framework for the process.
We expect that the Presidential Decree will result in additional complications, if not a stalemate, with receiving approvals of asset sale transactions involving US persons.
Contacts:
Alexey Frolov, partner, Moscow
Maxim Kuznechenkov, partner, Moscow
Pavel Novikov, partner, Moscow
Anton Maltsev, partner, Moscow
Kirill Manshin, senior associate, Moscow
Maxim Kalinin, partner, Saint Petersburg
