If a company is entered into a sanctions list, it is no longer obliged to disclose information

Pepeliaev Group advises of the exceptions that the Russian Government has introduced with respect to the rules governing companies disclosing information regarding their business activity[1].

During January 2018 the Russian Government issued three resolutions:

  • Resolution No. 5[2] according to which if foreign states, associations and/or unions of states, and /or state (interstate) institutions of foreign states or associations and/or unions of states introduce restrictive measures (“sanctions”) against Russian companies, the following information with respect to such companies that is entered into the Unified Federal Register of Information about the Activities of Legal Entities is not required to be published on the Internet:

    • on the financial statements and/or accounts if a federal law provides for the obligation to disclose such information in the mass media;
    • that the movable property belonging to a legal entity is pledged, if this is required pursuant to the law (however, information about the legal entity which is the pledgor will be published);
    • that an independent guarantee has been provided. This does not apply to independent guarantees issued by Vneshekonombank and credit institutions (bank guarantees);
    • that the client has entered into a factoring agreement;
    • other information which must be entered according to the law (for example, the results of a mandatory audit, information that a concession agreement has been concluded, information about bankruptcy, etc.).

Комментарий ПГ

Article 7.1(7)(n) of the Federal Law “On the state registration of legal entities” to which the Resolution contains references is a reference to other laws in this case.

  • Resolution No. 10[3] according to which a company is entitled not to disclose or to disclose to a limited extent information on major transactions or interested party transactions, if such a transaction:

    • relates to the execution of a defence order and to the implementation of military and technological cooperation;
    • has been entered into with a person against which sanctions have been introduced.

  • Resolution No. 65[4] according to which when information is entered into, amended in or excluded from the Register of Notifications of Pledge of Movable Property, the applicant is entitled to point to a refusal to have information about the pledgee published on the Internet, if such publication may cause sanctions to be imposed on the pledgee.

Комментарий ПГ

The specified Resolutions are countermeasures against the sanctions introduced against Russian companies. These Resolutions have two purposes: to make up for the negative effect of the sanctions introduced against Russian companies, on the one hand, and to protect other companies from being entered into the so-called sanctions lists on the other.

At the same time, we believe that it is still too early to assess how efficient the remedies used may be.

In particular, it is unclear whether the measures introduced will help the companies that have already been entered into the lists of persons against which restrictive measures have been introduced. For if a company’s business activity lacks transparency, this impairs the company’s credibility both for counterparties and for investors, which may become a significant detriment to such companies’ business development.

It still remains equally unclear how efficient the measure is that consists of granting the right not to disclose information on major transactions and on interested party transactions and not to publish information on a pledge of movable property. There are numerous sources from which such information can be obtained, and the criteria for any persons to be entered into sanctions lists are very unclear. Indeed, the fact that a company is performing activity relating to the military-industrial complex as well as there being stable business relationships with persons against which sanctions have been introduced make the company more prone to be entered into the sanctions lists. At the same time, we believe that rejecting transparency in the activity of companies will not help the above consequence to be avoided. On the contrary, this will cause great suspicion.

Finally, there is no clear understanding of the sense of the wording used in Resolution No. 65 relating to the right not to publish on the Internet information about pledgees: “...if the disclosure of information about the pledgee causes (may cause) restrictive measures to be applied to the pledgee”. Taking into account that there are no universal criteria for determining against which person such measures are introduced, the cited provision can be construed too broadly, which may cause an abuse of such right.

What to think about and what to do

The anti-sanctions mechanisms that are being developed should certainly be subject to close scrutiny. At the same time, it still remains unclear what will happen if such mechanisms are used and how they will affect individual companies.

The intention of the state to protect its business entities by creating such special mechanisms may to a certain extent make up for the negative effect on the companies. At the same time, such tools should be treated with appropriate care.

Help from your adviser

Pepeliaev Group's lawyers are ready to assist with the practical application of the new rules of disclosing information on companies’ business activity as well as with respect to other issues relating to the disclosure of information and ways of avoiding sanctions against Russian companies.

We will monitor how the above initiatives develop, then will inform you about any new protective measures and the consequences of their application.

[1] Such right has been granted by Federal Law No. 481-FZ dated 31 December 2017 “On amending specific items of Russian legislation”.

[2] Resolution No. 5 of the Russian Government dated 12 January 2018 “On determining cases when individual items of information specified in article 7.1(7) of Federal Law “On the state registration of legal entities and individual entrepreneurs” are not to be posted on the ‘”Internet” information and telecommunication network, as well as on determining persons with respect to which the specified items of information are not to be posted on the ‘”Internet” information and telecommunication network”.

[3] Resolution No. 10 of the Russian Government dated 15 January 2018 “On determining cases when joint-stock companies and limited liability companies are released from the obligation to disclose and/or to provide information relating to major transactions and/or interested party transactions”.

[4] Resolution No. 65 of the Russian Government dated 25 January 2018 “On imposing restrictions on having information about a pledgee of movable property published on the “Internet” information and telecommunication network”.

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