4.1 Grounds for approval

Approval must be sought when a foreign investor or group makes an investment by purchasing shares in the authorized capital of companies which have strategic importance for national defense and security of the RF (hereinafter, 'Strategic Entities'), as well as when a foreign investor or group enters into other transactions that result in foreign investors or groups acquiring control over Strategic Entities.

A foreign investor is any foreign entity that invests within the territory of the RF.

A group that includes a foreign investor is also subject to the Law on Investing in Strategic Entities.

A Strategic Entity is an entity established in the RF that is engaged in at least one activity having strategic importance for the national defense and security of the RF. A list of such activities is provided in the Law on Investing in Strategic Entities.

The FAS of Russia is charged with ensuring compliance with the Law on Investing in Strategic Entities. However, decisions on the applications filed by foreign investors are made by the Government Commission headed by the Russian Prime Minister.

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4.2 Transactions subject to approval

The Law on Investing in Strategic Entities contains a list of transactions that are subject to prior approval by the Government Commission.

This list includes:

1. Transactions aiming to establish control over a Strategic Entity that does not operate subsoil plots of federal importance;
2. Transactions aiming to establish control over a Strategic Entity operating subsoil plots of federal importance;
3. Other transactions aiming to transfer to a foreign investor (group) the right to direct the decision making process of the management bodies of a Strategic Entity, including the course of its business operations.

The law also stipulates the need to obtain the consent of the Government Commission in circumstances where the foreign investor acquires control of a Strategic Entity as a result of a change in the proportion of votes attributed to its shares (e.g., when the company in question buys back its own shares).

The elements of control are determined by law. The main elements include: direct or indirect acquisition of more than 50% of the voting shares of a Strategic Entity (or 10%, when a company is operating subsoil plots of federal importance), the power to appoint the chief executive officer, more than 50% of the Board of Directors (more than 10%, if the company is a subsoil user); the power to otherwise direct the business operations of the company, etc.

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4.3 General approval procedure.

Obtaining an approval includes the following steps:

1. submission of an application to the FAS of Russia for obtaining prior consent and enclosing the documents specified in the list contained in the Law on Investing in Strategic Entities;
2. preparation by the FAS of Russia of the application for review by the Government Commission (i.e., preparing proposals, working with the Federal Security Service (FSB) to obtain an opinion as to whether a threat is created to national defense and security as a result of the transaction, etc.).
3. review of the application by the Government Commission, based on which one of the following decisions is made:
1. to give prior approval to the transaction; or
2. to give prior approval to the transaction and to enter into an agreement binding the applicant to perform certain obligations ensuring the security of the state (with the FAS of Russia being a party to the agreement); or
3. to refuse to approve the transaction.

As a rule, the Government Commission is convened on a quarterly basis to review the applications submitted.

There is no duty levied for the review of an application.

The period during which the prior approval remains valid is established by the Government Commission based on the applicant's proposal.

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4.4 Implications of a failure to obtain approval

Transactions entered into in breach of the statutory requirements applicable to foreign investors or groups investing in Strategic Entities are null and void. Interested parties may bring a lawsuit seeking to enforce the invalidity of the transaction.

If the approval procedure is violated, the FAS of Russia may also seek a court decision requiring that the foreign investor (group) be deprived of its right to vote at the general shareholders meeting and may also bring a lawsuit for the purpose of invalidating the decisions of the general shareholders meeting and other management bodies of a Strategic Entity made after such control was acquired.

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