"Winter is coming": Russia will freeze the assets of foreigners under sanctions

Russian President has signed a law on the possibility of blocking the money and property of persons taking unfriendly actions against Russia. Interestingly, the bill was submitted to the State Duma and considered in the first reading back in July 2020. It was only in the spring of 2023 that work on the document resumed.

This legal act introduces the concept of “blocked persons” into the Law on Special Economic Measures (SEM), which includes foreign states, organizations, citizens and stateless persons, as well as legal entities controlled by them. In this case, control means the possibility of direct or indirect disposal of more than 50% of votes in the supreme governing body of a company (including if the share/stock package exceeding the threshold is owned by several foreign persons).

Previously, SEMs could also be aimed at prohibiting or imposing restrictions on financial or foreign economic transactions with respect to persons under Russian sanctions. Now this law provision has been specified with regard to the possibility of freezing (blocking) both monetary funds and (or) other property belonging to the blocked persons and financial transactions carried out in their interests and in their favour, including cross-border transfers.

At the same time, blocked persons are entitled to receive funds to their Russian bank accounts and interest on the deposits, may use pensions, scholarships, allowances and other social payments and make payments of taxes, fees, insurance premiums and penalties under the laws of the Russian Federation. In addition, it is allowed to receive and spend wages up to 10 thousand rubles (the equivalent of this amount in foreign currency) per month, as well as to pay for medical services provided to the blocked person himself and his family members (also within the limits of 10 thousand rubles monthly for each). The payment of wages to employees in the amount not exceeding the subsistence minimum, as well as severance and social severance payments in the minimum amount is not prohibited either.

The decision to apply special economic measures to specific individuals and the period of their application will be made by the President of the Russian Federation on the basis of proposals by the Russian Security Council, but the legislation does not provide for specific criteria for freezing funds and transactions. In all likelihood, each situation will be considered on a case-by-case basis. A decision of the Russian head of state will also be required to lift the restrictive measures.

Blocking of funds, property and financial transactions will be carried out by banks, insurance and microfinance companies, professional participants of the securities market, pawnshops and credit cooperatives and a number of other entities that will not be subject to civil liability for violation of the terms of relevant contracts with foreign clients and companies controlled by them.

The Bank of Russia is charged with ensuring the implementation of the SEMs. In case of repeated non-compliance with special economic measures, the Central Bank has the right to suspend the work of violators or revoke their license, as well as to apply to non-credit financial institutions such measures as sending instructions, restricting their activities and imposing fines.

The law will come into force in February 2024. This deadline is expected to allow those affected by the regulation to implement the procedures necessary to comply with the new requirements.

Source: Federal Law No. 422-FZ “On Amendments to Certain Legislative Acts of the Russian Federation” from August 4, 2023