Russian President Vladimir Putin issued a decree listing several retaliatory special economic measures against legal entities and individuals, as well as organizations controlled by them, to be designated by the Russian government.

On May 3, Putin issued decree No. 252, "On Application of Retaliatory Special Economic Measures in Connection with Unfriendly Actions of Certain Foreign States and International Organizations" (Decree 252). Decree 252 requires Russian federal and municipal authorities as well as organizations and individuals falling under the Russian Federation jurisdiction to follow certain special economic measures introduced against persons to be listed by the government (Designated Persons). These Designated Persons would include legal entities and individuals, as well as their controlled organizations. Decree 252 entered into force on May 3, and has no wind-down period.

SPECIAL ECONOMIC MEASURES OF DECREE 252

In essence, Decree 252 introduced multiple prohibitions (blocking measures), including on the following:

1. Executing transactions (including entering into foreign trade contracts) with a Designated Person
2. Performing outstanding obligations under existing transactions (including foreign trade contracts) with a Designated Person
3. Conducting financial operations benefiting a Designated Person
4. Exporting goods and/or raw materials produced and/or originated in Russia provided that such products are supplied (a) for the benefit of a Designated Person; or (b) by a Designated Person for the benefit of non-designated persons

DESIGNATIONS

The government must adopt a list of Designated Persons within 10 days. The president authorized the government to determine additional criteria for transactions which fall under prohibitions (1) and (2).

Further, the president authorized the Ministry of Finance to issue official guidance on the implementation of Decree 252 with the exception of prohibition (3), where he authorized the Russian Central Bank to issue official guidance.

EXISTING BLOCKING MEASURES

Decree 252 is issued under the auspices of Federal Law No. 281-FZ “On Special Economic Measures and Coercive Measures” of December 30, 2006. Decree 252 is the second decree introducing blocking measures. In the past, the president used his powers under this law and ordered the government to introduce certain special economic measures as the government will decide and against persons the government designates. This was per Decree No. 592 “On the Application of Special Economic Measures in Connection with Unfriendly Actions of Ukraine in Relation to Citizens and Legal Entities of the Russian Federation” of October 22, 2018 (Decree 592). The government introduced several measures under Decree 592, including the following:

1. Blocking funds, securities, and property in Russia and banning the transfer of funds (withdrawal of capital) from Russia against several hundred directly designated persons (including mostly Ukraine and Ukraine-related individuals and legal entities) and entities controlled by them, under Resolution No. 1300, of November 1, 2018
2. Prohibitions on the import of certain goods originating from Ukraine or in transit through Ukraine, the export of certain Russian goods to Ukraine, and the export to Ukraine of certain goods (e.g., oil and oil products, LPG and diesel fuel absent a special government permission) under Resolution No. 1716-83, of December 29, 2018

Since their adoption, Decree 592 and the aforementioned resolutions were amended several times.

IMPACT OF DECREE 252 ON EXISTING TRANSACTIONS

The practical consequences of the newly introduced measures will become clearer after the official guidance becomes available.

However, it is already apparent that Decree 252 substantially extends the purview of the existing Russian blocking measures. Notably, as compared with Decree 592, Decree 252 includes a total ban on transactions with Designated Persons or for their benefit.

A major development is that Decree 252 now gives any Russian counterparty the legal grounds to stop performing under, exit from, or terminate existing contracts, including international loan agreements, with a Designated Person or entered into for the benefit of a Designated Person.

However, the impact of Decree 252 will greatly depend upon the list of Designated Persons yet to be adopted by the government.

Trainee solicitor Maxim Sidorenko contributed to this LawFlash

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