New special economic measures affecting blocked parties

On 4 August, the President signed Law No. 422-FZ that (1) introduces new special economic measures, (2) extends the list of parties to whom such measures may be applied, and (3) determines the range of parties responsible for implementing the measures. The amendments will enter into force on 1 February 2024.

From this date, both current and new special economic measures may be applied to "blocked parties".

Who may be regarded as a blocked party?

Blocked parties may include the following:

• Foreign states, entities and citizens or stateless persons
• Legal entities controlled by foreign entities, foreign citizens or stateless persons

A controlled legal entity will be a legal entity in whose highest governing body such parties can directly or indirectly control more than 50% of votes.

However, Law No. 422-FZ stipulates no other criteria for classification as a blocked party (e.g., place of registration or conducting or terminating operations in Russia).

What new measures may be applied?

The new special economic measures include the following:

• Banning/restricting financial transactions in respect of blocked parties
• Freezing cash/other assets owned by blocked parties and blocking financial transactions conducted in the interests or in favor of blocked parties

Freezing cash/other assets means prohibiting transactions with cash, securities or other assets owned by a blocked party as well as financial transactions conducted in the interests or in favor of a blocked party.

What rights does a blocked party retain?

A blocked party may:

• Receive cash and interest on deposits on the blocked party’s accounts opened with Russian credit institutions
• Receive cash transferred to increase the balance of the blocked party’s electronic funds
• Receive and spend pensions, stipends, benefits and social payments guaranteed by the state in accordance with Russian law
• Pay taxes, levies, insurance contributions, fines, penalties and interest to the Russian budget system
• Receive salary and spend it in an amount not exceeding RUB 10,000 in a calendar month per family member
• Pay for medical services provided to the blocked party or his or her family members in Russia in an amount not exceeding RUB 10,000 in a calendar month per family member
• Pay salary in an amount not exceeding the minimum subsistence level and termination benefits to employees in an amount not exceeding the minimum amount of such payments
• Make payments to compensate for harm to the life or health of a citizen and to compensate for harm in connection with the death of a breadwinner

Who decides to apply or cancel the new special economic measures?

A decision concerning the application of the new measures to particular parties and the period of their application is made by the President upon proposal of the Security Council, and the measures may also be canceled by decision of the President.

No specific conditions were established for introducing or canceling new special economic measures.

Who is responsible for implementing the new special economic measures?

Under Law No. 422-FZ, entities that conduct transactions with cash/other assets ("Authorized Entities") are responsible for implementing the new measures. These are companies operating in 19 industries, including the following:

• Credit and insurance institutions
• Leasing companies
• Operators of financial and investment platforms
• Entities that provide intermediary services in transactions involving the purchase and sale of immovable property
• Non-state pension funds

Authorized Entities are required to provide information on the implementation of the special economic measures to the Bank of Russia/federal executive bodies specified by the Government.

The Bank of Russia and the specified executive bodies, in their turn, are required to provide summarized aggregated information on the measures implemented to the Ministry of Finance on a quarterly basis.

May anybody be held liable for a failure to implement the special economic measures?

Under Law No. 422-FZ, Authorized Entities are liable for failure to implement the new measures.

For example, the Bank of Russia may revoke a banking license issued to a credit institution or cancel a professional license issued to a professional securities trader.