Counterparties from unfriendly countries: how to work with them

Issues of working with counterparties from unfriendly countries have become relevant for some Russian companies. In response to economic sanctions and political events, Russia has taken measures to limit or control transactions with such countries.

This article will discuss how to properly work with counterparties from unfriendly countries within the framework of Russian legislation.

List of unfriendly countries

Unfriendly countries include those countries that impose sanctions against Russia, restrict trade relations or take other hostile actions.

Currently, this list includes:

• USA
• European Union (including all its member states)
• Canada
• Great Britain
• Japan
• Australia
• Norway
• Switzerland
• New Zealand.

These countries are included in the list of unfriendly countries due to the introduction of economic sanctions against Russia, as well as due to political factors.

This the list may change, so it is important to regularly check the latest information on official sources.

Who is considered a person associated with an unfriendly state?

Persons associated with an unfriendly state are not only companies, but also individuals who are citizens or residents of such states.

Let's consider who exactly falls into this category:

• Companies registered in unfriendly countries.

If an organization is registered in an unfriendly country, then it is considered a person associated with such a state. This applies not only to large corporations, but also to small and medium-sized enterprises.

A company registered in the United States is included in the list of persons associated with an unfriendly state if it does business with Russian companies.

• Individuals who are citizens or residents of unfriendly countries.

If a person is a citizen or resident of an unfriendly state, then he will also be considered a person associated with such a state. Some restrictions may apply not only to businesses but also to individuals, for example, when participating in transactions or investments.

A British citizen working for a Russian company may be subject to restrictions related to his citizenship.

• Companies with a share in capital owned by citizens or companies of unfriendly countries.

If the capital of a Russian company includes shares owned by citizens or organizations from unfriendly countries, such a company will also be considered associated with an unfriendly state.

This may apply to major transactions, such as acquisitions or sales. A Russian company in which 40% of the shares are owned by a French investor falls under these rules.

• Individuals controlling companies from unfriendly countries.

If a Russian company is managed or controlled by individuals or entities from unfriendly countries, such companies may also fall into this category.

A company in Russia that is managed by a US citizen may face restrictions on transactions with other Russian companies.

• Individuals with ties to organizations sanctioned in unfriendly countries.

If an organization or individual has partnerships or business relations with companies or individuals under sanctions in unfriendly countries, they may also be considered associated with such states.

For example, a company from the Russian Federation that regularly cooperates with a company from Germany may face restrictions.

It is important to understand that all these rules are regulated not only at the level of individual countries, but also at the level of international agreements.

What transactions require permission?

Russian companies and citizens must comply with special rules. One of the main requirements is obtain permission from authorized bodies before entering into certain transactions.

Let's consider what transactions require permission:

• Real estate transactions.

For example, if a Russian company sells commercial real estate to a company from an unfriendly country, or a Russian citizen decides to sell his apartment to an investor from an unfriendly state, then this cannot be done simply like that.

• Transactions with shares in companies.

If a Russian company sells a share or shares of another company that has owners from an unfriendly state, such a transaction requires permission.

• Transactions on the provision of loans or credits.

If a Russian company or citizen issues a loan or credit to a company or individual from an unfriendly state, such a transaction also requires a document to be drawn up.

• Money transfer transactions.
• Securities transactions.
• Export-import transactions.
• Transactions with technologies or equipment.

For example, companies from Russia want to sell or transfer technologies, equipment or software that will be purchased by counterparties from unfriendly countries.

How to obtain such a permit?

Before applying for a permit, you need to find out whether the transaction falls under the requirements that require a special permit.

Usually this concerns transactions with equipment that can be used for military purposes, strategically important products or dual-use goods.

To apply for a permit, you need to prepare documents. Typically, this list includes:

• Application for a permit (the form may vary depending on the type of transaction).
• Description of goods.
• Agreement with the counterparty.
• Documents confirming the compliance of the goods or services with state requirements.

The application must be submitted to the relevant government agencies that control foreign trade, export or import of goods and services.

In Russia, these agencies are:

• Ministry of Industry and Trade of the Russian Federation - for export permits.
• Federal Customs Service of the Russian Federation - to control transactions and export of restricted goods.
• Foreign Trade Control Commission (depending on the situation).

The review time may vary depending on the complexity of the transaction.

If all requirements are met, the businessman is issued a permit. The document will indicate what exactly can be exported, as well as a list of persons with whom business is permitted.

After receiving the permit, it is important to strictly adhere to all the terms of the transaction specified in the permit. Violation of the terms may result in the cancellation of the permit and the imposition of sanctions.

How to submit an application and documents to the commission?

If you want to enter into a transaction with a counterparty from an unfriendly state, you need to obtain permission from the authorized bodies.

Here are the steps to help you go through this process:

Step 1. Prepare the documents

You may need:

• Application for a permit, which is filled out in the prescribed form.
• Description of the transaction, including the product or service that you want to export or import.
• A copy of the contract with the counterparty.
• Documents that confirm that everything meets the requirements of the law (for example, quality or safety certificates).

Step 2. Fill out the application

Need specify:

• Company name, legal address.
• Description of goods or services to be transferred.
• Information about the counterparty (for example, company name, its registration data).
• Reasons for obtaining permission for the transaction.

Step 3. Submit documents

This can be done in several ways:

• By personal application to the commission office (for example, to the Ministry of Industry and Trade of the Russian Federation or to the Federal Customs Service).
• Via an electronic system (if such an option is provided). Many government agencies offer the opportunity to submit applications through online platforms, where you can upload documents and track the status of the application.

Step 4. Wait for consideration

After submitting the application, the commission will begin the process of its consideration. This may take from a few days to a few weeks, depending on the complexity of the transaction and the scope of checks.

After reviewing the application, an answer will be provided: either the transaction will be allowed or denied. If the result is negative, additional documents may need to be submitted.

Restrictions on the export of goods and equipment

Russian companies have faced new restrictions on the export of goods and equipment under sanctions.

These restrictions concern technologies that can be used to produce or improve products.

Some types of equipment cannot be exported without permission.

This usually concerns:

• Equipment with high technological potential that can be used for military purposes.
• Dual-use technologies that can be used in both civilian and military industries.
• High-priced products, such as expensive machinery or equipment that can affect the security of the country.
• Products related to national security, such as sensitive technologies that could be used by unfriendly states.

Restrictions on the export of goods and equipment from Russia are established by several government agencies:

• The Ministry of Industry and Trade of the Russian Federation regulates the export of goods and equipment that can be used in certain industries.
• The Federal Customs Service controls all flows across the border.
• The Ministry of Economic Development of the Russian Federation participates in determining the goods and technologies whose export is restricted.

If a company violates export restrictions, the following consequences are possible:

• Fines and administrative sanctions, which can be quite high.
• Delay or confiscation of goods at the border.
• Criminal liability if the violation is related to the intentional violation of established rules.

To avoid unpleasant situations, it is important:

• Check the list of restrictions before export, which is regularly updated on the websites of government agencies.
• Obtain permission if your transaction or export involves the export of goods subject to restrictions.
• Consult with lawyers and experts in the field of foreign trade who will help you properly prepare documents.

To export equipment that falls under restrictions, you need to contact specialized authorities with an application.

For example:

• The Ministry of Industry and Trade of the Russian Federation can issue a permit for the export of equipment if it is not related to defense technologies.
• The Federal Customs Service helps with the preparation of documents for export if the goods are not subject to strict sanctions.

What happens if you conduct a transaction without a special permit?

In Russia, there are strict laws governing the export of equipment, especially when it comes to products that are subject to sanctions or restrictions.

If you conduct a transaction without a special permit, several Russian laws and regulations may be violated. Here are some of them:

• Federal Law of 18.07.2009 No. 181-FZ "On Protection of Competition".

This law regulates actions related to foreign trade and operations that may violate Russia's interests in the international arena. Violation of the law may result in fines and sanctions.

• Federal Law of 09.12.2006 No. 170-FZ "On State Control over Export and Controlled Goods".

The law regulates the export of goods that are subject to state control, including strategically important products.

• Federal Law of 06.07.2003 No. 96-FZ "On the Export and Import of Goods for Defense and Security".

Regulates the export of goods and equipment that can be used for military or defense purposes. In case of violation of the rules of this law, criminal liability is possible.

• RF Government Resolution of 29.12.2014 No. 1510 "On Export Control Measures".

Regulates the procedure for obtaining licenses and permits for the export of certain goods and equipment, which is especially important for transactions with products that fall under sanctions.

• Federal Law of 04.06.2018 No. 163-FZ "On International Financial Activity".

The law concerns international money transfers and determines the procedure under which transactions with foreign counterparties require obtaining special agreements for export or import. Violation may lead to sanctions and bans on further transactions.

• Federal Law of 29.12.2004 No. 195-FZ "On Foreign Trade".

Regulates all aspects of foreign trade, including requirements for obtaining permits for the export of goods and services. Serious financial and legal consequences are possible.

• Decree of the President of the Russian Federation of 06.05.2022 No. 268 "On the application of retaliatory measures in response to unfriendly actions of foreign states."

The decree is aimed at monitoring transactions with counterparties from unfriendly countries. Violation of the provisions of this decree may lead to sanctions and fines.