The Russian President has issued Decree No. 81 — “due to the unfriendly actions of the US and other countries in violation of international law” — establishing special procedures for any transactions leading to the transfer of share title between Russian residents and foreign persons connected to such countries unless special authorization is obtained.

Under a separate Decree No. 79, Russian residents also cannot receive any funds in their foreign bank accounts.

What this means for US companies with Russian employees/consultants

• Decree No. 81 covers any transfer of title to shares, and it is very likely that the “special permit” exception was not drafted for the general public. Therefore Russian residents are essentially prohibited from purchasing or receiving shares in US companies (or any other companies incorporated in any country imposing sanctions on Russia).
• Under Decree No. 79, Russian residents will not be able to receive 1) proceeds from the sale of any shares or 2) cash dividends into their US-based brokerage or bank accounts.
• The Decrees impose restrictions on Russian residents, not directly on the US company that they work for.
• For purposes of the exchange control laws and regulations, a “Russian resident” likely covers any Russian national even if they are living outside of Russia and are not a tax resident in Russia.

Practical considerations and next steps

• Previously granted stock options or restricted stock units

  • It is strongly advisable to formally suspend any outstanding stock awards for Russian residents for the time being. This would include the vesting of RSUs and vesting/exercise of stock options. This is the safest solution, as it should avoid putting your employees or contractors at risk of breaching these new orders upon the receipt of shares.
  • Alternatively, companies can consider cancelling outstanding stock awards and making a one-time bonus payment through local payroll. This would require a waiver of outstanding equity.

• Employee stock purchase programs (ESPP)

  • Again, to avoid putting employees at compliance risk, no ESPP purchase should be made for Russian employees while these Decrees are in effect.
  • For current ongoing offering/purchase periods, companies may consider refunding accrued ESPP withholdings or temporarily suspending the ESPP for Russian employees. The latter would mean that no further ESPP contributions would be deducted from payroll, but the employees could potentially remain enrolled, such that if the rules change prior to the next purchase date, their ESPP participation could be reinstated. Subject to the company’s ESPP plan rules, catch-up contributions could then be deducted from payroll for the purchase.
  • Alternatively, for companies with ESPP cycles with at least a few months remaining before the next purchase date, the company could in theory continue in the normal course, including payroll deductions, and then confirm prior to the next purchase whether the purchase may proceed. However, even if share purchase were permitted, there may still be issues with transferring the accumulated funds abroad, so payroll deductions may need to be held locally or managed on a bookkeeping basis.
  • Moreover, cash is of increasing importance to Russian residents, and we are already receiving reports of employees asking companies to cease or refund payroll deductions in order to maximize their take-home pay. Accordingly, it may be preferable to temporarily suspend the ESPP or at least give employees the opportunity to suspend and receive a refund of accrued withholdings (with the possibility of remaining enrolled in case purchase is permitted in the future).

• Future grants

  • While typical option/RSU grants might not result in the immediate transfer of title in shares, it is preferable to avoid any new grants to Russian residents for now.
  • Alternatively, the risk might be somewhat reduced if grants are subject to longer vesting conditions, such that any potential vesting/exercise will not occur in the near-term and can be reevaluated later. However, it is of course very uncertain at this time whether the above rules will change before such time. Therefore, at a minimum, any grants should include language in the agreement that gives the company broad discretion to suspend, modify, or cancel grants if necessary to comply with applicable law. Additional Russia-specific language may also be advisable.

• Shares already held by Russian individuals

  • For now, it appears that Russian residents are being permitted to continue holding previously issued shares (i.e., shares from past RSU vesting, option exercises, and ESPP purchase) in their US brokerage accounts.
  • Russian residents holding shares received under company equity compensation programs will need to comply with the foreign exchange and ownership rules in the same manner as any other Russian resident holding shares in a brokerage account outside of Russia.
  • Whether sales of shares will be permitted in practice may depend on the particular broker involved. In cases where a Russian resident sells shares, we understand some brokers are now no longer supporting wiring of funds to Russia, whether in USD, RUB, EUR, or any other currency.

Note all of the above proposed steps may be subject to stock plan limitations, though generally plans and agreements should contain provisions giving the company broad discretion to take such actions in the current circumstances.