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. Last Updated: 07/27/2016

Investors: Contracts, Courts and Caution

Given the current political climate, cautious foreign investors may wonder what remedies are available in the event that their investments are restricted by official measures. Such remedies are a matter of Russian law, although contractual provisions also can be important.

Russian law generally guarantees foreign investors what is called national treatment. Their investments may not be treated any worse than the property of Russian companies or individuals in similar circumstances.

Nevertheless, the law permits exceptions to national treatment and, accordingly, foreign investors may not hold licenses for oil production, own land except possibly in connections with participation in privatization or invest in certain areas like defense production.

On the other hand, investors do enjoy the right to exchange ruble profits into foreign currency, while Russian investors may convert rubles only to import goods.

Russian law guarantees foreign investors the right to expatriate profits and interest earned from investments as well as the proceeds from liquidating investments, after payment of taxes and fees. The standard tax on dividends is 15 percent.

Russian law does not forbid nationalization or requisition of foreign investments; however, it does restrict these procedures and offers foreign investors compensation if they occur. The Law on Foreign Investments provides that only the Supreme Soviet may nationalize such investments and that requisition must occur according to lawful procedures. Compensation based on the actual value of the investments plus interest must be paid promptly in foreign currency and may be expatriated.

Russian courts are not the only recourse for slighted foreign investors. The Law on Foreign Investments permits foreign courts or arbitration to resolve disputes, as well as the Russian enterprises of which they own more than 30 percent, and Russian government agencies and companies.

However, such foreign dispute resolution must be based on an agreement between the foreign and Russian sides, lest Russian courts assert jurisdiction. Only courts in countries with appropriate treaties with the former Soviet Union or Russia may issue decisions that are enforceable in Russian courts. Russia also recognizes arbitration awards from countries that adhere to the New York Convention.

Cautious investments in Russia thus require starting with the right country to invest from, and preparing to finish with arbitration in the right country from which to obtain relief.

Alexander Papachristou of White & Case has practiced law in Moscow for more than four years.