Russia Adopts Decree Allowing Quick Sale of Seized Assets from ‘Unfriendly’ Parties

The Russian president recently issued Decree No. 693 titled On Certain Specifics for the Sale of Property Held in Federal Ownership (Decree 693). Decree 693 is part of Russia’s broader countersanctions measures and allows the government to expedite the sale of assets held as federal property in a manner to be determined by the president. The mechanisms introduced by Decree 693 increase the risk that assets of Western and other “unfriendly” investors in Russia could quickly change hands in the event of expropriation.

The timing of Decree 693 coincides with several developments, including the European Union considering the use of frozen Russian sovereign assets as a source of reparations to Ukraine and a group of US senators introducing bipartisan bill REPO 2.0 to repurpose frozen Russian sovereign assets for transfer to Ukraine on a quarterly basis.

Stated Aim of Decree 693

In essence, Decree 693 sets forth a procedure for expedited privatization. Despite it not saying so, it may well apply to assets seized from “unfriendly” persons. Because Decree 693’s stated aim is the same as for other Russian countersanctions decrees: protecting the national interests and security of the Russian Federation in response to sanctions against Russia introduced by the United States, other countries, and international organizations.

Key Provisions

Decree 693 sets forth the following special procedures for the sale of Russia’s federal property:

• Presidential decision: It is the Russian president who decides to invoke a Decree 693 sale.
• Designated arranger and seller: Bank PSB JSC (f.k.a. Promsvyazbank JSC) arranges for the sale of, and sells, federal property on behalf of the Russian Federation. Notably, this bank, one of the largest banks in Russia, is owned by the government and has been critical for Russia’s defense sector and military industry. The bank is subject to blocking and/or other sanctions imposed by the United States, the European Union, the United Kingdom, Australia, Canada, Japan, Singapore, Switzerland, and certain other jurisdictions.
• Accelerated valuation: The market value of federal property for sale must be determined by one of the Decree 693 authorized appraisers (see immediately below) within the noticeably short period of time, which is 10 business days of entering into a valuation contract.
• Decree 693 authorized appraisers: An appraiser must be from a list to be approved by the Russian government. We cannot exclude that the Decree 693 appraisers list will include appraisers who are authorized to determine the market value of assets being sold by foreigners for the purposes of filing for Russian government permission for exit transactions (the information on these appraisers is at the Russian finance ministry website).
• Accelerated registration and transfer: A special procedure will apply to the state registration, recording, and transfer of rights in federal property, including reduced timeframes for these administrative steps.
• Deviation from laws: In general, Decree 693 contains rules that contradict existing laws and regulations, as well as previously issued countersanctions decrees. And Decree 693 directly states that the Russian president may determine “special features” of applying any piece of the Russian legislation to the Decree 693 procedures, and among affected legislation it lists privatization, company, securities, banking, and competition laws. This means that the president may set aside or alter laws at his own discretion for each particular sale. But this is not a novelty: Decree 693 is just yet another example of the Russian president’s sweeping powers under the countersanctions framework.

Setting the Stage Further

Based on a literal interpretation of Decree 693, it appears that the president can invoke the Decree 693 procedures for the sale of any Russian federal property, regardless of how the Russian government acquired it (whether in a bona fide transaction or through nationalization or expropriation) and from whom (whether Russian owners or foreign owners).

But given its countersanctions nature, among other things, Decree 693 sets the stage further for the potential seizure of assets belonging to countries and persons that Russia considers “unfriendly.”[1]

There are several decrees allowing Russia to seize “unfriendly” persons’ assets as retaliation, and once seized, the assets become federal property. For example, last year the Russian president signed a decree (Decree 442) establishing the framework for potential seizure of assets of the United States and United States persons to compensate the Russian state and the Central Bank for damage caused by the actions of the United States.

Notably, Decree 442 appeared to be Russia’s response to the then recently adopted US law known as the REPO for Ukrainians Act. Despite being expressly directed against the United States and US persons, Decree 442 is highly likely to be applied against other “unfriendly states” and persons as well, should the Russian president decide so. Reportedly, implementing legislation to be adopted under Decree 442 would contain provisions to that effect, thereby creating a regulatory framework for expedited seizure of “unfriendly” persons assets in general. No such legislation has been adopted to date, however.

Key Takeaways

Funds currently stranded in the so-called S-type accounts continue to be at risk of expropriation. The mechanisms introduced by Decree 693 elevate the risk that other assets of Western and certain other investors could quickly change hands after expropriation. The most exposed assets appear to be assets located in Russia that directly or indirectly belong to “unfriendly” persons, including securities, shares (interests) in Russian subsidiaries and other companies, and real and other tangible property.

More broadly, Decree 693 offers yet another pathway for asset administration in potential retaliation for any use of frozen Russian sovereign assets to support Ukraine. Against the ever-evolving geopolitical landscape, enforcement of this new piece of Russia’s countersanctions may be only a matter of time.

With an increased risk of assets being expropriated, persons from “unfriendly states” may reconsider their strategy in respect of these assets. In many instances (but not always), there might be a need to obtain sanction authorities approvals in several countries for a Russia-related transaction or certain aspects of it, including directed at divestment of assets located in Russia. A Russian countersanctions governmental approval may also be required. Obtaining any such approval can be a lengthy process. Nevertheless, it may be worth considering whether proceeding with divestiture can provide certainty in an otherwise uncertain landscape.