Russia’s annexation of Crimea in March 2014 is not recognized by the U. USG sanctions on various Russian government officials and a limited number of entities, as well as the imposition of stricter licensing controls on certain products exported to Russia. The government of Russia continues to express interest in attracting higher levels of domestic and foreign investment. Looking to domestic investment, the Russian Government has established a number of regulations which penalize Russian individuals and firms for investing abroad, in part possibly to offset lower levels of foreign direct investment in Russia foreign investment advisory council during 2014.
American firms seeking to invest in the Russian Federation should be aware that the Russian investment climate continues to be marked by high levels of corruption and political risk, making thorough due diligence and good legal counsel essential for any potential investment. USG sanctions on various Russian government officials and a limited number of entities, and the postponement of key bilateral and multilateral engagement on economic reforms. In late March, Senator Andrei Klishas of the Federation Council, the upper chamber of Russia’s national legislature, said the Council plans to draft legislation which would allow the confiscation of property, assets, and accounts of American and EU companies, including private companies, as a retaliatory measure on possible sanctions from the U. However, the government of Russia continues to express interest in attracting higher levels of domestic and foreign investment by private companies. Looking to domestic investment, the Russian Government has established a number of regulations which penalize Russian individuals and firms for investing abroad, possibly to offset lower foreign direct investment in Russia during 2014.
As detailed below, the Russian Government has also worked actively on the technical level to improve the business and investment climate. Despite numerous new programs and initiatives, progress has been uneven and the government has yet to take action to make much needed structural reforms. Russia’s illegal annexation of Crimea has dampened growth prospects for the Russian economy. The International Monetary Fund predicts the Russian economy will grow by a sluggish 0. Given the uncertainty surrounding Russia’s actions in Ukraine, the World Bank provided two estimates for GDP in 2014. The low risk scenario anticipates 1.
1 percent GDP growth and the high risk scenario anticipates a contraction of 1. Russian government officials have repeatedly stressed that foreign investment and technology transfer are critical to Russia’s economic modernization. At the same time, the government continues to limit foreign investment in sectors deemed to have strategic significance for national defense and state security via the Strategic Sectors Law of 2008. The law originally specified 42 activities and has since been amended on five separate occasions. Russia continues to promote the use of high-tech parks, special economic zones and industrial clusters which offer additional tax and infrastructure incentives to attract investment. 20th on the World Bank’s Doing Business Index by 2020, saw progress with Russia climbing to 92nd in the 2014 publication.
Russia’s policy to foster innovation continues but the enthusiasm and funding for this policy appears to be waning. The flagship project, the Skolkovo Innovation Center, was designed to be the Russian equivalent of Silicon Valley and has been assured funding through 2015 with future funding uncertain. While a legal structure exists to support foreign investors, the laws are not always enforced in practice. 50 percent of Russia’s GDP in 2013. In June 2013, the Russian government unveiled its 2014-2016 Privatization Plan, the most recent update of Russia’s original privatization plan that was drafted in 2010 and amended in 2012.
In September 2012, the United States and Russia signed a new bilateral visa agreement which extended the validity of a tourist visa to 36 months for both American and Russian travelers. This agreement also reduced the documentary requirements for Americans applying for a visa and eliminated the need for an invitation letter in some cases. Corruption remains a major challenge for Russia. Targeted efforts in 2012 to root out corruption by public officials and within business transactions led to widely-reported investigations in the Ministry of Defense and the Ministry of Agriculture. While the ruble is the only legal tender in Russia, companies and individuals generally face no significant difficulty in obtaining foreign exchange. Only authorized banks may carry out foreign currency transactions but finding a licensed bank is not difficult. According to currency control laws, the Central Bank retains the right to impose restrictions on the purchase of foreign currency, including the requirement that the transaction be completed through a special account.
Currency controls exist on all transactions that require customs clearance, which in Russia applies to both import and export transactions and certain loans. Russian bank through which it will receive and service the transaction or loan. The 1991 Investment Code prohibits the nationalization of foreign investments, except following legislative action and where deemed to be in the national interest. Such nationalizations may be appealed to Russian courts, and the investor must be adequately and promptly compensated. At the sub-federal level, expropriation has occasionally been a problem, as has local government interference and a lack of enforcement of court rulings protecting investors. Russia has a body of conflicting, overlapping, and frequently changing laws, decrees and regulations, which complicates the environment for dispute resolution. Independent dispute resolution in Russia can be difficult to obtain since the judicial system is still developing.
Courts are sometimes subject to political pressure. Until mid- 2014, Russia will continue to have two parallel court structures: one, which is specialized in commercial cases and known as the Arbitrage Courts, answers to the Higher Arbitrage Court and a second criminal and civil court system that answers to the Russian Supreme Court. At the end of June 2014, the Higher Arbitrage Court will be eliminated and the lower arbitrage courts will thereafter answer to the Russian Supreme Court. In an attempt to address some of these challenges facing the business community, the GOR created the Office of the Ombudsman for Entrepreneur Rights in 2012 which is headed by Boris Titov, a businessman and former Chairman of the business group Delovaya Rossiya. Titov’s remit includes advocating for foreign and domestic business rights in court and requesting suspension of official actions if a business feels its rights were violated. In 2008, then-President Medvedev carried out a series of legal reforms that aimed to reduce corruption in the courts. These measures included a law that requires judges to disclose their income and real estate assets, including those owned by their spouses and minor children.
Commercial arbitration courts are required by law to decide business disputes relatively quickly, and many cases are decided on the basis of written evidence and little or no live testimony of witnesses. The arbitration court workload is dominated by relatively simple non-contentious cases involving the collection of debts between firms and disputes with the taxation and customs authorities, pension fund, and other state organs. Federal Law 262, in effect since 2010, requires courts to publish their decisions online and otherwise make information about their activities publicly available. All Russian courts now have websites, which generally include a schedule of cases to be heard, the name of the judge, the location of the court, form documents that can be used by prospective litigants, and copies of decisions. Personal information is expunged before case decisions are posted online. Many attorneys refer Western clients who have investment or trade disputes in Russia to international arbitration in Stockholm or to courts abroad.
