Foreign investments

Preparing for Russian actions against foreign investment – Government, public sector

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The Russian Federation has recently implemented measures in retaliation for US and EU sanctions that may violate its obligations under international treaties that protect foreign investment in Russia.1 These measures include:

  • Allow Russian companies to use patents without paying compensation to patent holders from specific countries designated as “hostile”2

  • Impose restrictions on foreign currency transfers3

  • Require Russian companies, including subsidiaries of foreign companies, to sell foreign exchange earnings from their export activities to the Central Bank of Russia and exchange them for rubles.4

  • Allow Russian nationals to pay in rubles debt denominated in foreign currencies to foreign debtors from “unfriendly” countries.5

  • Prohibit foreign holders from selling shares and bonds in Russian companies.6

  • Effective confiscation of aircraft belonging to foreign lessors by placing the leased aircraft on the Russian aircraft register.7

In addition, the Russian government has introduced a draft law that envisages the takeover of assets held by foreign companies that withdraw from the Russian market.8

Russia has bilateral investment treaties in force with more than 60 countries, including 20 of the 27 member states of the European Union,9 Canada, Japan, Korea, Switzerland, United Kingdom, Ukraine and several Latin American countries.tenBilateral investment treaties protect investments in the Russian Federation made by investors from these countries against specific forms of state action. For example, bilateral investment treaties generally protect foreign investors against unlawful expropriation, interference with the free transfer of funds, and unfair and inequitable treatment. In addition, many of the Russian Federation’s bilateral investment treaties contain provisions that allow investors who suffer harm as a result of the Russian Federation’s violations of investment treaty protections to seek compensation through of international arbitration outside of Russia.

Hughes Hubbard & Reed LLP’s investment treaty arbitration team has brought more cases against the Russian Federation than any other law firm. We were the first to successfully use bilateral investment treaty arbitration to seek compensation against the Russian Federation for its unlawful expropriation of Yukos Oil Company on behalf of a Yukos shareholder based in UK. In 2014, immediately after the illegal annexation of Crimea by the Russian Federation, we established the applicability of the Ukraine-Russia BIT to Russian actions in the Crimean Peninsula in a series of five groundbreaking arbitrations that upheld the expropriation of property by the Russian Federation following its annexation of Crimea for breaching the BIT. The aggrieved investors in these cases have collectively obtained hundreds of millions of dollars in damages against the Russian Federation which are enforceable in any of the 169 countries party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. .

Footnotes

1 Some of these measures were implemented by the following decrees of the President of the Russian Federation: Decree No. 79 on special economic measures in connection with hostile actions of the United States of America and foreign states and international organizations which joined them on February 28, 2022 (“Decree No. 79”); Decree No. 81 on Additional Temporary Economic Measures for Ensuring Financial Stability of the Russian Federation dated March 1, 2022 (“Decree No. 81”); Decree No. 95 on the temporary procedure for the enforcement of obligations towards certain foreign creditors of March 5, 2022 (“Decree No. 95”); Decree No. 100 on the Implementation of Special Economic Measures in the Field of Foreign Economic Activity for the Security of the Russian Federation dated March 8, 2022 (“Decree No. 100”); Decree No. 299 Amending Paragraph 2 of the Method for Determining the Amount of Compensation Paid to the Patent Holder When Making a Decision on the Use of an Invention, Useful Model or Design manufacturer without its consent, and the procedure for its payment dated March 6, 2022 (“Decree No. 299”).

2 Decree No. 299; https://www.washingtonpost.com…

3 Decree No. 81; https://www.wsj.com/livecovera…

4 Decree No. 79; https://www.Reuters.com/busine…

5 Decree No. 95; https://www.wsj.com/livecovera…

6 https://www.Reuters.com/market…

7 Law No. 56-FZ on Amendments to the Air Code of the Russian Federation and Certain Legislative Acts of the Russian Federation of March 14, 2022. https://www.wsj.com/livecoverage/russia-ukraine-latest- news-2022-03-14/card/putin-signs-law-to-seize-foreign-aircraft-redeploy-for-domestic-use-7dG55AU0aMqdgs7HDTKb; https://www.irishtimes.com/bus…

8 Bill on special external management; see https://www.washingtonpost.com…

9 These are Austria, Belgium, Bulgaria, Czech Republic, Cyprus, Denmark, Finland, France, Germany, Greece, Hungary, Lithuania, Italy, Luxembourg , the Netherlands, Norway, Romania, Slovakia, Spain and Sweden.

10 The United Nations Commission on Trade and Development (UNCTAD) maintains a list of bilateral investment treaties to which the Russian Federation is a party. https://investmentpolicy.unctad.org/international-investment-agreements/countries/175/russian-federation. This list includes several treaties, such as the Bilateral Investment Treaty between the Russian Federation and the United States, which have not entered into force.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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