In a move to prevent information about Russian companies from
leaving the country, several members of the State Duma (the Russian
parliament's lower chamber) recently proposed draft legislation
to restrict the disclosure of individual and corporate information
to foreign enforcement authorities and organizations. If enacted,
the law could significantly impact the ability of companies and
individuals in Russia to respond to subpoenas and other requests
for information from non-Russian authorities, including enforcement
authorities in the United States. Moreover, based on its broad
language, the draft law might also be construed to block even
internal requests from the head office of multinational companies
based outside of Russia.
Specifically, the draft legislation would amend the Russian federal
law regarding "Information, Information Technologies and
Protection of Information" (the "Information Law")
and the Russian Code on Administrative Violations (the
"Administrative Code"). Importantly, the proposed law
would apply to all companies registered in Russia, including branch
offices of multinational corporations headquartered elsewhere. If
enacted, the law would prohibit the disclosure of information in
response to any requests from "foreign states, international
organizations, foreign and Russian legal entities which are
controlled by foreign states or foreign organizations, foreign
powers and executive authorities, foreign bodies and organizations
undertaking dispositive, controlling supervision and other
functions," unless such disclosure is specifically permitted
by a Russian authority to be designated by the Russian
Government.
While the prospects of this legislation are uncertain at this time,
there are three key elements of which multinational businesses
should take note: (i) the purpose of the draft legislation; (ii)
the enforcement mechanisms included in the proposed law; and (iii)
the potential impact on business operations for companies with
branch offices, affiliates, or other interests in Russia.
Purpose
As the Explanatory Note to the draft law makes clear, one
primary purpose of the legislation is to restrict the ability of
foreign authorities to obtain information from and about Russian
organizations. Indeed, the Explanatory Note comments that
"state authorities and authorized organizations of certain
nations (and, in particular, the U.S.) frequently ignore
international treaties and send their inquiries directly to the
other nations' companies." The Note goes on to say that
such a practice would be a violation of the "current
order." As support, the Note makes reference to France, China,
Germany, Austria, Italy, and India as having similar prohibitions
on direct disclosures of "restricted information" to
foreign authorities.
It is noteworthy that Russian authorities have historically
resisted or ignored investigations of Russian parties undertaken by
foreign authorities. In the event that the draft legislation is
enacted, it would be reasonable to expect Russian authorities to be
even less willing to grant the requisite permissions for disclosure
of information to foreign authorities. As a result, any such
disclosures largely could be limited to those provided by the
Russian authorities themselves based on mutual legal assistance
requests from foreign authorities.
Enforcement Mechanisms
The draft legislation contains penalty provisions to ensure adequate enforcement. For example, disclosure of requested information without permission from the Russian authority would be subject to administrative penalties ranging from 50,000 Rubles (approximately US$790) for individuals, with fines as high as 10 million Rubles (approximately US$157,700) for noncompliant companies. In addition, company officers who violate the provisions of the draft legislation could be fined up to 1 million Rubles (approximately US$15,800) or disqualified for up to three years from holding a position as a corporate executive in a Russian company.
Impact on Business Operations
For multinational business operating branch offices in Russia, the consequences of the amendments to the Information Law potentially present a number of problems. The draft legislation, of course, presages difficulties in complying with subpoenas or other information requests from non-Russian authorities and in defending against allegations in government investigations where information sourced from Russian branch offices and subsidiaries is material to the defense. But the language of the proposed law is sufficiently broad to impact other aspects of regular business operations as well. For example, the ability of multinational companies to conduct internal investigations involving their Russian operations and local Russian personnel could be significantly undermined. Thus, the issue is whether Russian offices and subsidiaries of a multinational business would be deemed "Russian legal entities controlled by foreign organizations" under the draft law. If so, obtaining information from their non-Russian headquarters and affiliates could be restricted unless permission from Russian state authorities is obtained prior to disclosure of such information.
Conclusion
The current wording of the draft law leaves significant
ambiguity with respect to a number of aspects of everyday activity
of multinational companies in Russia and potentially may affect due
diligence in M&A or joint venture projects (e.g., request of
information by foreign investors from their Russian targets),
international arbitration and litigation (e.g., request for
information, expert opinions, or witness testimony from Russian
parties), or various requests to Russian authorities seeking
guidance or explanations of regulatory enforcement practices. In
all of these situations, under the draft legislation, disclosure of
information may be dramatically delayed or even practically
impossible insofar as the release of such information would depend
on the position of the Russian governmental authorities.
Whether—and, if so, in what form—the draft legislation
is ultimately enacted hinges on the level of support it receives
from the presidential administration. The State Duma is scheduled
to vote on the proposed legislation shortly after the new year
(currently the draft law is set for voting in February 2016). It
will then await approval by the higher house of Russian parliament
and then go to Russian President Vladimir Putin for his signature.
Depending on the level of support from the presidential
administration, the approval process could take as long as several
months, or it could move very quickly in the matter of several
weeks. Jones Day will continue to monitor developments with this
draft legislation and its potential impact on multinational
businesses with interests in Russia.
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