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. Last Updated: 07/27/2016

Business Law: Russia Has Only Just Begun

Russian law has come a long way in a relatively short time, but foreign investors generally believe that more needs to be done. The following specific measurer seem to be both feasible and desirable.

o Clear property rights. Russian law does not make clear under what circumstances anyone can own things and, if so, what rights that ownership entails. Land is the best example, since the law says that it can be taken away from its owner if used contrary to its stated purpose. However, it is not widely understood how even a building may be sold from one person to another.

o Recording of mortgages. Russian law permits mortgaging to support borrowing, but it does not provide for recording of such mortgages in a central place. Instead, the pledger is supposed to keep a record and put a sign on any property announcing that it has been pledged. Thus, a lender must rely on the word of the borrower that it has not been pledged to someone else.

o Dispute settlement. Russia has introduced a new court system, the Arbitration Court, to try to offer reliable settlement of commercial disputes; however, this system is new and untested. Commercial arbitration is available, but only Russian arbitrators may be used. Most investors thus prefer to air their grievances outside of Russia, but Russian law does not provide generally for enforcement in Russia of foreign decisions. Foreign arbitration awards have been enforced here, but it can be lengthy and less than fully satisfying.

o Stable taxes and other charges. Some taxes can be prohibitively high, but what investors expect is that they not change so often. The Russian authorities in the course of the last year have introduced value-added and excise taxes, along with duties and other fees and then frequently raised and dropped the rates. It is good news that the top personal income tax rate went from 60 to 40 to 30 percent, but no one can promise that the rate will not go right back up again just as quickly.

o Clear banking rules. The Central Bank regulates foreign currency matters such as opening overseas bank accounts from which loans may be repaid, or obtaining permission for such loans. Rather than issuing such rules in written form, the Central Bank considers applications for various licenses on a case by case basis. Investors must rely on anecdotes to estimate whether they will get the required licenses.

It seems that Russia does not so much need new laws to attract foreign investment as it needs to clarify existing ones. As long as investors know what they are getting themselves into, many will be willing to take on Russia's challenges.

Alexander Papachristou, attorney at White & Case, has practiced law in Moscow for four and a half years.