Update: New Russian Decree Introduces Blocking Measures and Allows Government to Determine Designated Persons

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Russian President Vladimir Putin has issued a decree listing several special economic retaliatory 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 the Application of Special Economic Retaliation Measures in Connection with Hostile Actions of Certain Foreign States and International Organizations” (Decree 252). Executive Order 252 obliges Russian federal and municipal authorities as well as organizations and individuals under the jurisdiction of the Russian Federation to follow certain special economic measures introduced against persons to be placed on the government list (designated persons). These designated persons would include legal and natural persons, as well as their controlled organizations. Executive Order 252 went into effect May 3 and has no wind-up period.

SPECIAL ECONOMIC MEASURES OF DECREE 252

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

  1. Execution of transactions (including the conclusion of foreign trade contracts) with a designated person
  2. Fulfillment of outstanding obligations under existing transactions (including foreign trade contracts) with a designated person
  3. Carrying out financial transactions for the benefit of a Designated Person
  4. Export goods and/or raw materials produced in and/or originating in Russia provided that such goods are supplied (a) for the benefit of a named person; or (b) by a named person for the benefit of unnamed persons

DESIGNATIONS

The government must adopt a list of designated persons within 10 days. The President has authorized the government to determine additional criteria for transactions that fall under prohibitions (1) and (2).

In addition, the President authorized the Ministry of Finance to issue official guidelines on the implementation of Decree 252 with the exception of prohibition (3), where he authorized the Russian Central Bank to issue official guidelines.

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 has used his powers under this law and ordered the government to introduce certain special economic measures that the government will decide and against the persons appointed by the government. This was in accordance with Decree No. 592 “On the application of special economic measures in connection with hostile actions of Ukraine against citizens and legal entities of the Russian Federation” of October 22, 2018 (Decree 592). The government has introduced several measures under Executive Order 592, including the following:

  1. Blocking of funds, securities and assets in Russia and prohibition of the transfer of funds (withdrawal of capital) from Russia against several hundred persons directly designated (including mainly Ukraine and natural and legal persons linked to Ukraine) and entities controlled by them, pursuant to resolution no. 1300, of November 1, 2018
  2. Bans on the import of certain goods originating in 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 in the absence of special government authorization) under resolution no. 1716-83 of December 29, 2018

Since their adoption, Executive Order 592 and the aforementioned resolutions have been amended several times.

IMPACT OF DECREE 252 ON EXISTING TRANSACTIONS

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

However, it is already evident that Executive Order 252 significantly expands the scope of existing Russian blocking measures. Notably, compared to Executive Order 592, Executive Order 252 includes a total ban on transactions with or for the benefit of designated persons.

A major development is that Executive Order 252 now gives any Russian counterparty the legal basis to cease performing, rescind or rescind existing contracts, including international loan agreements, with a named person or entered into for the benefit of a named person. designated.

However, the impact of Executive Order 252 will largely depend on the list of designated persons which has not yet been adopted by the government.

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