Executive Summary

While the Russian Federation made substantial advances in 2016 to decrease the regulatory burden on businesses at the regional level, fundamental structural problems in governance of the economy continue to stifle foreign direct investment throughout the country. In particular, Russia’s judicial system remains heavily biased in favor of the state, leaving investors often with little recourse in the event of a legal dispute with the government. High levels of corruption among government officials compound this risk. The Russia government frequently adopts rules with little to no transparency or without incorporating public comments, creating significant business uncertainty. Moreover, Russia’s import substitution program often gives local producers a sizeable advantage over foreign competitors that do not meet Russia’s localization requirements. Additionally, Russia’s actions in eastern Ukraine and Crimea have led to the imposition of sanctions on targeted Russian entities by the United States and European Union – increasing the cost of legal compliance for U.S. companies and placing restrictions on the types of business activities permitted in Russia.

U.S. investors in Russia must ensure they are in full compliance with U.S. sanctions stemming from Russia’s annexation of Crimea in March 2014. These measures include a prohibition on the refinancing of debt beyond 30 days for sanctioned entities, restrictions on the export to Russia of certain kinds of equipment for the energy sector, and a complete ban on dealings with those entities or individuals identified by the U.S. Treasury Department as “specially designated nationals.” Further information on the U.S. sanctions program is available at the U.S. Treasury’s website:

The Agency for Strategic Initiatives has played an important role in improving Russia’s investment climate. Its system of ranking Russian regions, available at, has spurred many local authorities to improve the investment climate in their regions relative to others. As different regions compete for foreign investment, local authorities have substantially reduced local regulations, which account for the bulk of foreign investors’ regulatory burden.

A new law on public-private-partnerships (224-FZ) took effect January 1, 2016. The legislation allows an investor to acquire ownership rights over a property; in previous approaches to public-private-partnerships, the public authority retained ownership rights

Russia’s Special Investment Contract program, launched in 2015, aims to increase investment in Russia by offering tax incentives and simplified procedures for dealings with the government. These contracts, generally negotiated with and signed by the Ministry of Industry and Trade, ostensibly allow for the inclusion of foreign companies in Russia’s import substitution programs by providing access to certain subsidies for foreign producers if local production is established. In principle, these contracts may also aid in expediting customs procedures. In practice, however, reports suggest even companies that sign such contacts find their business hampered by policies biased in favor of local producers.

Russia’s Strategic Sectors Law (SSL) establishes a list of 45 “strategic” sectors or activities in which purchases of controlling interests by foreign investors must be pre-approved by Russia’s Commission on Control of Foreign Investment. In 2014, the Russian government expanded the list to include companies, investments, and transactions.

In 2015 Russian law was amended to give the Russian Constitutional Court authority to disregard verdicts by international bodies, including investment arbitration bodies, if it determines the ruling contradicts the Russian constitution.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2016 131 of 176
World Bank’s Doing Business Report “Ease of Doing Business” 2016 40 of 190
Global Innovation Index 2016 43 of 128
U.S. FDI in partner country ($M USD, stock positions) 2015 $9.201 billion
World Bank GNI per capita 2015 $11,450

1. Openness To, and Restrictions Upon, Foreign Investment

Policies toward Foreign Direct Investment

The Ministry of Economic Development (MED) is responsible for overseeing investment policy in Russia. The Foreign Investment Advisory Council (FIAC), which is chaired by the Prime Minister and includes over 50 international companies and banks, allows select foreign investors to directly present their views on improving the investment climate in Russia. FIAC also advises the government regarding regulatory rule-making.

Russia’s basic legal framework governing investment includes Law 160-FZ of July 9, 1999, “On Foreign Investment in the Russian Federation”; Law No. 39-FZ of February 25, 1999, “On Investment Activity in the Russian Federation in the Form of Capital Investment”; Law No. 57-FZ of April 29, 2008, “Order of Investing by Foreign Persons in Companies Having Strategic Importance for Ensuring the Defense of the Country and Security of the States”; and the Law of the RSFS No. 1488-1 of June 26, 1991, “On Investment Activity in the Russian Soviet Federative Socialist Republic (RSFSR).” This framework nominally attempts to guarantee equal rights for foreign and local investors in Russia. However, exemptions are permitted when it is deemed necessary to protect the Russian constitution, morality, health, human rights, and national security or defense, as well as for promoting the socioeconomic development of Russia. Foreign investors may freely use their revenues and profits obtained from Russia-based investments for any purpose as long as they do not violate Russian law.

Limits on Foreign Control and Right to Private Ownership and Establishment

Russian law places two primary restrictions on land ownership by foreigners. First, land located in border areas or other specifically assigned sensitive territories is restricted from foreign ownership. Second, foreign citizens and foreign legal entities cannot own more than 50 percent of a plot of agricultural land. As an alternative to agricultural land ownership, foreign companies typically lease land for up to 49 years, the maximum legally allowed.

President Vladimir Putin signed in October 2014 the law “On Mass Media,” which took effect on January 1, 2015 and restricts foreign ownership of any Russian media company to 20 percent (the previous law applied a 50 percent limit only to Russia’s broadcast sector). U.S. stakeholders have also raised concerns about similar limits on foreign direct investments in the mining and mineral extraction sectors; they describe the licensing regime as non-transparent and unpredictable as well.

Russia’s Strategic Sectors Law (SSL) establishes a list of 45 “strategic” sectors or activities, such as national defense and state security, in which the establishment of companies, investments, and transactions or purchases of controlling interests by foreign investors must be pre-approved by Russia’s Commission on Control of Foreign Investment, which was established in 2008 to monitor foreign investment in strategic sectors. The Commission received approximately 395 applications for foreign investment between 2008 and 2015, of which 195 were reviewed, according to the Federal Antimonopoly Service (FAS). Of those, the Commission granted preliminary approval for 183 cases, rejected 12 cases, and found that 150 applications did not require approval (see ). International organizations, foreign states, and the companies they control are treated as a single entity under this law, with their participation in a strategic business subject to restrictions applicable to a single foreign entity.

Other Investment Policy Reviews

The WTO conducted the first Trade Policy Review of the Russian Federation in September 2016. Reports relating to the review are available at: .

Business Facilitation

The Agency for Strategic Initiatives, created by President Putin in 2011 to increase innovation and reduce bureaucracy, has released since 2014 a yearly ranking of Russia’s regions in terms of the competitiveness of their investment climates. This initiative provides potential investors with important information about which regions are most open to foreign investment. By providing a benchmark to compare regions, known as the “Regional Investment Standard,” this initiative has also stimulated competition between regions, resulting in an overall improved investment climate in Russia. See  (in Russian) for more information.

The Federal Tax Service (FTS) operates Russia’s business registration website,  (in Russian). A company must register with a local FTS Office within 30 days of launching a new business. The business registration process must not take more than five days, according to Law 129-FZ of 2001. Foreign companies may be required to notarize the originals of incorporation documents included in the application package. To establish a business in Russia, a company must pay a registration fee of RUB 4,000 and register with the Federal Tax Service. See  for more details.

The Russian government established in 2010 an ombudsman for investor rights protection to act as partner and guarantor of investors, large and small, and as referee in pre-court mediation facilitation. The First Deputy Prime Minister was appointed as the first federal ombudsman. In 2011 ombudsmen were established at the regional level, with a deputy of the Representative of the President acting as ombudsman in each of the seven federal districts. The ombudsman’s secretariat, located in the Ministry of Economic Development, attempts to facilitate the resolution of disputes between parties. Cases are initiated with the filing of a complaint by an investor (by e-mail, phone or letter), followed by the search for a solution among the parties concerned. The breakdown of problems reported to the ombudsman has shown a majority of cases related to administrative barriers, discrimination of companies, exceeding of authority by public officials, customs regulations, and property rights protection.

In June 2012 a new mechanism for protection of entrepreneur’s rights was established. The head of the business organization “Delovaya Rossia” was appointed as the Presidential Commissioner for Entrepreneur’s Rights.

Outward Investment

The Russian government does not restrict Russian investors from investing abroad. In effect since 2015, Russia’s “de-offshorization law” (376-FZ) requires that Russian tax residents notify the government about their overseas assets, potentially subjecting these to Russian taxes.

2. Bilateral Investment Agreements and Taxation Treaties

Russia is party to some 69 treaties in force which contain investment provisions; for a full list, see . Russia is a signatory but never ratified and ultimately terminated its application to the European Energy Charter Treaty, which includes a mechanism for investor-State dispute settlement.

Four regional integration agreements include the Eurasian Economic Union (EAEU) treaty (with Armenia, Belarus Kazakhstan , and Kyrgyzstan ), the Belarus-Kazakhstan-Russia agreement on services and investment, the Common Economic Zone Agreement (with Belarus, Kazakhstan, Ukraine), and the European Union-Russia Partnership and Cooperation Agreement (PCA). As a member of the EAEU, Russia is party to the EAEU-Vietnam Tree Trade Agreement (FTA), which contains investment provisions; individual member countries of the EAEU generally retain authority to enter into their own bilateral investment treaties.

The United States and Russia signed a bilateral investment treaty (BIT) in 1992, however, it was never ratified by Russia and is not in force. A U.S.-Russian dialogue to explore prospects for negotiating a new BIT ceased upon Russia’s annexation of Crimea in 2014. As such, investors from the two countries have no protections beyond domestic laws.

The U.S.-Russia Income Tax Convention, in effect since 1994, was designed to address the issue of double taxation and fiscal evasion with respect to taxes on income and capital. The treaty is available at . In total, Russia is party to 82 double taxation treaties; the Russian Ministry of Finance’s list (in Russian) is available at .

3. Legal Regime

Transparency of the Regulatory System

While the Russian government at all levels offers moderately transparent policies, actual implementation can be inconsistent. Moreover, Russia’s import substitution program often leads to burdensome regulations that can give domestic producers a financial advantage over foreign competitors. Draft bills and regulations are made available for public comments in accordance with disclosure rules set forth in the Government Resolution 851 of 2012.

Key regulatory actions are published on a centralized web site and can be accessed at . The web site maintains regulatory documents that are enacted or about to be enacted. Draft regulatory laws are published on the web site . Draft laws that do not fall under Resolution 851 can be found on the State Duma (Russia’s parliament) legal database ( ).

The President’s office has the authority to take major decisions affecting businesses without a formal comment period. In practice, this has meant that major decisions affecting businesses are often take without industry input. This has led to an unpredictable regulatory environment.

Accounting procedures are generally transparent and consistent. Documents compliant with Generally Accepted Accounting Principles (GAAP), however, are usually provided only by businesses that interface with foreign markets or borrow from foreign lenders. Russian Accounting Standards, which are largely based on international best practices, otherwise apply.

International Regulatory Considerations

As a member of the Eurasian Economic Union (EAEU: Armenia, Belarus Kazakhstan Kyrgyzstan , and Russia  ), Russia has delegated certain decision-making authority to the supra-national Eurasian Economic Commission (EEC), the EAEU’s executive body. In particular, the EEC has the lead on concluding trade agreements with third countries, customs tariffs (on imports), and technical regulations. EAEU agreements and the EEC decisions establish basic principles that are implemented by the member states at the national level through domestic laws, regulations, and other measures involving goods. EAEU agreements and EEC decisions also cover trade remedy determinations, establishment and administration of special economic and industrial zones, and the development of technical regulations. The EAEU Treaty establishes the priority of WTO rules in the EAEU legal framework. Authority to set sanitary and phytosanitary standards remains at the individual country level.

U.S. companies cite technical regulations and related product-testing and certification requirements as major obstacles to U.S. exports of industrial and agricultural goods to Russia. Russian authorities require product testing and certification as a key element of the approval process for a variety of products, and, in many cases, only an entity registered and residing in Russia can apply for the necessary documentation for product approvals. Consequently, opportunities for testing and certification performed by competent bodies outside Russia are limited. Manufacturers of telecommunications equipment, oil and gas equipment, and construction materials and equipment, in particular, have reported serious difficulties in obtaining product approvals within Russia. Technical Barriers to Trade (TBT) issues have also arisen with alcoholic beverages, pharmaceuticals, and medical devices.

Russia joined the WTO in 2012. Although Russia has notified the WTO of numerous technical regulations, it appears to be taking a narrow view regarding the types of measures that require notification. Consequently, Russia’s notifications in 2016 may not reflect the full set of technical regulations that require notification under the WTO TBT Agreement.

Legal System and Judicial Independence

The U.S. Embassy advises any foreign company operating in Russia to have competent legal counsel and create a comprehensive plan on steps to take in case the police carry out an unexpected raid. Russian authorities have exhibited a pattern of transforming civil cases into criminal matters, resulting in significantly more severe penalties. In short, unfounded lawsuits or arbitrary enforcement actions remain an ever-present possibility for any company operating in Russia.

Critics contend that Russian courts in general lack independent authority and, in criminal cases, have a bias toward conviction. In practice, the presumption of innocence tends to be ignored by Russia’s courts, and less than one percent of criminal cases end in acquittal. In cases that are appealed when the lower court decision resulted in a conviction, less than one percent are overturned. In contrast, when the lower court decision is “not guilty,” 37 percent of the appeals result in a finding of guilt.

Russia has a civil law system, and the Civil Code of Russia governs Russian contracts. Specialized commercial courts (also called arbitrage courts) handle a wide variety of commercial disputes. Russia was ranked by the World Bank’s 2017 “Doing Business” Index as 12th in terms of contract enforcement, based upon “the time and cost for resolving a commercial dispute through a local first-instance court,” as well as the extent to which it had “adopted a series of good practices that promote quality and efficiency in the court system.”

Commercial courts are required by law to decide business disputes efficiently, and many cases are decided on the basis of written evidence, with little or no live testimony by witnesses. The courts’ workload is dominated by relatively simple cases involving the collection of debts and firms’ disputes with the taxation and customs authorities, pension fund, and other state organs. Tax-paying firms often prevail in their disputes with the government in court. The volume of routine cases limits the time available for the courts to decide more complex cases. The court system has special procedures for the seizure of property before trial to prevent its disposal before the court has heard the claim, as well as procedures for the enforcement of financial awards through the banks. As with some international arbitral procedures, the weakness in the Russian arbitration system lies in the enforcement of decisions; few firms pay judgments against them voluntarily.

A specialized court for intellectual property (IP) disputes was established in 2013. The IP Court hears matters pertaining to the review of decisions made by the Russian Federal Service for Intellectual Property (Rospatent) and determines issues of IP ownership, authorship, and the cancellation of trademark registrations. It also serves as the court of second appeal for IP infringement cases decided in commercial courts and courts of appeal.

Laws and Regulations on Foreign Direct Investment

The 1991 Investment Code and 1999 Law on Foreign Investment (160-FZ) guarantee that foreign investors enjoy rights equal to those of Russian investors, although some industries have limits on foreign ownership (see separate section on “Limits on Foreign Control and Right to Private Ownership and Establishment”). Russia’s Special Investment Contract program, launched in 2015, aims to increase investment in Russia by offering tax incentives and simplified procedures for dealings with the government. In addition, a new law on public-private-partnerships (224-FZ) took effect January 1, 2016. The legislation allows an investor to acquire ownership rights over a property; in previous approaches to public-private-partnerships, the public authority retained ownership rights.

Competition and Anti-Trust Laws

The Federal Antimonopoly Service (FAS) implements antimonopoly laws and is responsible for overseeing matters related to the protection of competition. Russia’s fourth and most recent anti-monopoly legislative package, which took effect January 2016, introduced a number of changes, including limiting the criteria under which an entity could be considered “dominant,” broadening the scope of transactions subject to FAS approval, and reducing government control over transactions involving natural monopolies. Over the past several years, FAS has opened a number of cases involving American companies.

In addition, FAS has claimed the authority to regulate intellectual property, arguing that monopoly rights conferred by ownership of intellectual property should not extend to the “circulation of goods,” a point supported by the Russian Supreme Court.

Expropriation and Compensation

The 1991 Investment Code prohibits the nationalization of foreign investments, except following legislative action and when such action is deemed to be in the public interest. Acts of nationalization may be appealed to Russian courts, and the investor must be adequately and promptly compensated for the taking. At the sub-federal level, expropriation has occasionally been a problem, as well as local government interference and a lack of enforcement of court rulings protecting investors.

Despite legislation prohibiting the nationalization of foreign investments, investors in Russia – particularly minority-share investors in domestically-owned energy companies – should exercise caution. Russia has a history of indirectly expropriating companies through “creeping” and informal means, often related to domestic political disputes. Some examples: the privately owned oil company Bashneft was nationalized and then “privatized” in 2016 through its sale to the government-owned oil giant Rosneft without a public tender; and in the Yukos case, the Russian government used questionable tax and legal proceedings to ultimately gain control of the assets of a large Russian energy company. Other examples include foreign companies being pressured into selling their Russia-based assets at below-market prices. Foreign investors, particularly minority investors, have little legal recourse in such instances.

Dispute Settlement

ICSID Convention and New York Convention

Russia is party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. While Russia does not have specific legislation providing for enforcement of the New York Convention, Article 15 of the Constitution specifies that “the universally recognized norms of international law and international treaties and agreements of the Russian Federation shall be a component part of [Russia’s] legal system. If an international treaty or agreement of the Russian Federation fixes other rules than those envisaged by law, the rules of the international agreement shall be applied.” Russia is a signatory but not a party/never ratified the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID).

Investor-State Dispute Settlement

Available information indicates that at least 13 investment disputes have involved a U.S. person and the Russian Government since 2006. Some attorneys refer international clients who have investment or trade disputes in Russia to international arbitration centers, such as Paris, Stockholm, London, or The Hague. A 1997 Russian law allows foreign arbitration awards to be enforced in Russia, even if there is no reciprocal treaty between Russia and the country where the order was issued, in accordance with the New York Convention. Russian law was amended in 2015 to give the Russian Constitutional Court authority to disregard verdicts by international bodies if it determines the ruling contradicts the Russian constitution.

Bankruptcy Regulations

Russia has had a law providing for bankruptcy of enterprises since the early 1990s. A law on personal bankruptcy came into force in 2015. Russia’s ranking in the World Bank’s “Doing Business” Index for “Resolving Insolvency” is 51 out of 190 economies.

In accordance with Art. 9 of the Law on Insolvency (Bankruptcy), the management of an insolvent firm must petition the court to declare the company bankrupt within 1 month of failing to pay the Bank’s claims. The court will institute a supervisory procedure and will appoint a temporary administrator, which will convene the first creditors’ meeting, where the creditors will decide whether to petition the court for liquidation or reorganization.

In accordance with Article 51 of the Law on Insolvency (Bankruptcy), a bankruptcy case must be considered within 7 months of the day the petition was received by the arbitral court.

Liquidation proceedings by law are limited to 6 months and can be extended by 6 more months (art. 124 of the Law on Insolvency (Bankruptcy)). Therefore, the time dictated by law is 19 months. However, in practice, liquidation proceedings are extended several times and for longer periods.

Total cost of the insolvency proceedings can be approximately 9% of the value of the estate, including: fees of attorneys, fees of the temporary insolvency representative for the supervisory period, fees of an insolvency representative during liquidation proceedings, payments for services of professionals hired by insolvency representatives (accountants, assessors), and other (publication of announcements, mailing fees, etc.).

4. Industrial Policies

Investment Incentives

Since 2005, Russia’s industrial investment incentive regime has granted tax breaks and other government incentives to foreign companies in certain sectors in exchange for producing locally. As part of its WTO Protocol, Russia agreed to eliminate the elements of this regime that are inconsistent with the Trade-Related Investment Measures TRIMS Agreement by July 2018 and to begin consultations in July 2016 with the United States and other WTO members on WTO-consistent measures. The government also introduced Special Investment Contracts as an alternative incentive program in 2015.

The Russian Direct Investment Fund (RDIF) was established in 2011 as a state-backed private equity fund to operate with long term financial and strategic investors and by offering co-financing for foreign investments directed at the modernization of the Russian economy. RDIF participates in projects estimated from USD 50 to 500 million, with a share in the project not exceeding 50 percent. RDIF has participated in over 52 projects in the following sectors: energy, energy saving technologies, telecommunications, healthcare and other areas, with a total amount of investments of about USD 11 billion and with expected foreign co-financing of USD 25-30 billion. RDIF has also developed a system for foreign co-investment in its projects that allows foreign investors to participate automatically in each RDIF project.

Foreign Trade Zones/Free Ports/Trade Facilitation

Russia continues to promote the use of high-tech parks, special economic zones, and industrial clusters, which offer additional tax and infrastructure incentives to attract investment. “Resident companies” can receive a broad range of benefits, including exemption from profit tax, value-added tax, property tax, import duties, and partial exemption from social fund payments. The government evaluates and grants funding for the business investments on a yearly basis.

Russia has 23 special economic zones (SEZs), which fall in one of four categories: industrial and production zones; technology and innovation zones; tourist and recreation zones; and port zones. An Audit Chamber investigation of SEZs in April 2016 found the zones have had no measurable impact on the Russian economy since they were founded in 2005. “Territories of Advanced Development,” a separate but similar program, was launched in 2015 with plans to create areas with preferential tax treatment and simplified government procedures in Siberia, Kaliningrad, and the Russian Far East. In May 2016, President Putin ordered work on 10 existing SEZ’s to cease and suspended the creation of any new SEZs, at least until a more integrated approach to SEZ’s and “Territories of Advanced Development” was put in place.

Performance and Data Localization Requirements

Russian law generally does not impose performance requirements, and they are not widely included as part of private contracts in Russia. Some have appeared, however, in the agreements of large multinational companies investing in natural resources and in production-sharing legislation. There are no formal requirements for offsets in foreign investments. Since approval for investments in Russia can depend on relationships with government officials and on a firm’s demonstration of its commitment to the Russian market, these conditions may result in offsets in practice.

In certain sectors, the Russian government has pressed for localization and increasing local content. Russia is currently considering local content requirements for industries that have high percentages of government procurement, such as medical devices or pharmaceuticals. Russia is not a signatory to the WTO’s Government Procurement Agreement. Consequently, restrictions on public procurement have been a major avenue for Russia to implement localization requirements without running afoul of international commitments.

The Central Bank of Russia has imposed caps on the percentage of foreign employees in foreign banks’ subsidiaries. The ratio of Russian employees in a subsidiary of a foreign bank is set at less than 75 percent. If the executive of the subsidiary is a non-resident of Russia, at least 50 percent of the bank’s managing body should be Russian citizens.

5. Protection of Property Rights

Real Property

Russia placed ninth overall in the 2017 World Bank “Doing Business Index” for “registering a property,” which analyzes the “steps, time and cost involved in registering property, assuming a standardized case of an entrepreneur who wants to purchase land and a building that is already registered and free of title dispute,” as well as the “the quality of the land administration system.”

The Russian Constitution, along with a 1993 presidential decree, gives Russian citizens the right to own, inherit, lease, mortgage, and sell real property. The state owns the majority of Russian land, although the structures on the land are typically privately owned. Mortgage legislation enacted in 2004 facilitates the process for lenders to evict homeowners who do not stay current in their mortgage payments. To date, this law has been successfully implemented and is generally effective.

Intellectual Property Rights

Russia remained on both the 2017 U.S. Special 301 Priority Watch List and the 2016 Notorious Markets report, as a result of continued and significant chal­lenges to intellectual property right (IPR) protection and enforcement, particularly in the areas of copyright infringement, trademark counterfeiting/hard goods piracy, and non-trans­parent collecting society procedures. Stakeholders reported in 2017 that IPR enforcement continued to decline overall in 2016, following similar declines in the prior several years and a reduction in resources for enforcement personnel. There were also reports that IPR protection and enforcement were not priorities for government officials.

Online piracy continues to pose a significant problem in Russia. Some progress has been made in the field of copyright protection, most notably with the 2015 antipiracy law and site-blocking implementation, as well as a licensing agreement the three major music labels reached with vKontakte (vK). The film and publishing industries, however, have made no progress with notorious market/social networking site vK. The Russian government has developed amendments to its anti-piracy law to facilitate the permanent blocking of “mirror” websites, which passed the first reading in the Duma in March 2017. At present, obtaining a permanent injunction for site blocking takes from three to four months – including derivative “mirrors” of a site previously blocked. Because these “mirrors” can appear within hours or days of a site being blocked, expediting the legal process remains important. Industry sources estimate that obtaining a final writ of execution from a court to block permanently a “mirror” site will take around two weeks.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at .

Resources for Rights Holders

Edward Eichler

Trade and Investment Officer
Bolshoy Deviatinsky Pereulok No. 8
Moscow 121099, Russian Federation
+7 (495) 728-5000 (Economic Section)

American Chamber of Commerce Russia

Ulitsa Lesnaya 7
Block A, 11th floor
Moscow 125047
Telephone: +7 (495) 961-2141 

6. Financial Sector

Capital Markets and Portfolio Investment

Russia is open to portfolio investment and has no restrictions on foreign investments. Russia’s two main stock exchanges – the Russian Trading System (RTS) and the Moscow Interbank Currency Exchange (MICEX) – merged in December 2011. The MICEX-RTS bourse conducted an initial public offering on February 15, 2013, auctioning an 11.82 percent share.

The Russian Law on the Securities Market includes definitions of corporate bonds, mutual funds, options, futures, and forwards. Companies offering public shares are required to disclose specific information during the placement process as well as on a quarterly basis. In addition, the law defines the responsibilities of financial consultants assisting companies with stock offerings and holds them liable for the accuracy of the data presented to shareholders. In general, the Russian government respects IMF Article VIII, which it accepted in 1996.

Credit in Russia is allocated generally on market terms, and the private sector has access to a variety of credit instruments. Foreign investors can get credit on the Russian market, but interest rate differentials tend to prompt investors from developed economies to borrow on their own domestic markets when investing in Russia.

Money and Banking System

Banks make up a large share of Russia’s financial system. Although Russia had 616 licensed banks as of February 1, 2017, state-owned banks, particularly Sberbank and VTB Group, dominate the sector. Five of Russia’s largest banks are state-controlled (with private banks Otkritie and Alfa Bank ranked fifth and eighth, respectively). The top five banks held 55.4 percent of all bank assets in Russia as of March 1, 2017. The role of the state in the banking sector continues to distort the competitive environment, impeding Russia’s financial sector development. At the beginning of 2017, the aggregate assets of the banking sector amounted to 93 percent of GDP, and aggregate capital was 10.9 percent of GDP. Russian banks reportedly operate on short time horizons, limiting capital available for long-term investments. Overall, non-performing loans (NPLs) account for 9.5 percent of total banking assets as of February 2017. Foreign banks are allowed to establish subsidiaries, but not branches within Russia.

Foreign businesses operating within Russia must register as a business entity in Russia.

Foreign Exchange and Remittances

Foreign Exchange

While the ruble is the only legal tender in Russia, companies and individuals generally face no significant difficulty in obtaining foreign exchange. Only authorized banks may carry out foreign currency transactions, but finding a licensed bank is not difficult. The Central Bank of Russia (CBR) retains the right to impose restrictions on the purchase of foreign currency, including the requirement that the transaction be completed through a special account, according to Russia’s currency control laws. The CBR does not require security deposits on foreign exchange purchases. Otherwise, there are no barriers to remitting investment returns abroad, including dividends, interest, and returns of capital, apart from the fact that reporting requirements exist and failure to report in a timely fashion will result in fines. To navigate these requirements, investors should seek legal expert advice at the time of making an investment.

Currency controls also exist on all transactions that require customs clearance, which, in Russia, applies to both import and export transactions, and certain loans. A business must open a “deal passport” with the authorized Russian bank through which it will receive and service the transaction or loan. A “deal passport” is a set of documents that importers and exporters provide to an authorized bank, which enables the bank to monitor payments with respect to the transaction or loan and to report the corporation’s compliance with currency control regulations to the CBR. Russia’s regulations regarding deal passports are prescribed under Instructions of the Central Bank of Russia No. 117-I of June 15, 2004.

Effective 2016, the CBR introduced tighter regulations for cash currency exchanges: a client must provide his full name, passport details, registration place, date of birth, and taxpayer number, if the transaction value exceeds 15,000 rubles (approximately $200). In July 2016, this amount was increased to 40,000 rubles (approximately $680). The declared purpose of this regulation is to combat money laundering and terrorist financing.

Remittance Policies

The Central Bank of Russia (CBR) retains the right to impose restrictions on the purchase of foreign currency, including the requirement that the transaction be completed through a special account, according to Russia’s currency control laws. The CBR does not require security deposits on foreign exchange purchases. Otherwise, there are no barriers to remitting investment returns abroad, including dividends, interest, and returns of capital, apart from the fact that reporting requirements exist and failure to report in a timely fashion will result in fines. To navigate these requirements, investors should seek legal expert advice at the time of making an investment. Banking contacts confirm that investors have not had issues with remittances and in particular with repatriation of dividends.

Sovereign Wealth Funds

There are two sovereign wealth funds in Russia: the Reserve Fund ($16.02 billion and 1.1 percent of GDP as of March 1, 2017) and the National Wealth Fund ($72.6 billion and 4.8 percent of GDP on March 1, 2017). It was expected that the Reserve Fund would be depleted under the 2017-2019 budget passed in December 2016. However, if global oil prices remain above the budgetary estimate of $40 per barrel for 2017 it is possible the Reserve Fund will be replenished over time. The Ministry of Finance oversees both funds’ assets, while the CBR acts as the operational manager. Both funds are audited by Russia’s Accounts Chamber (the standing body of state financial control established by Russia’s parliament), and the results are reported to the State Duma. The two funds have different charters. The Reserve Fund is designed to supplement federal budget deficits due to a fall in oil revenues. The National Wealth Fund provides support for the pension system. The two funds are maintained in foreign currencies, and are included in Russia’s foreign currency reserves, which amounted to $395.7 billion as of March 17, 2016.

7. State-Owned Enterprises

Russia defines a state-owned enterprise as a business in which the government owns at least 25 percent. State-owned enterprises could be subdivided into four main categoriesunitary enterprises (federal or municipal, that are fully owned by the government), of which there are 3,719; other state-owned enterprises where government holds a majority stake – such as Sberbank, the biggest Russian retail bank (over 50 percent is owned by the government); natural monopolies, such as Russian Railways; and state corporations (usually a giant conglomerate of companies) such as Rostec and Vnesheconombank (VEB). There are currently eight state corporations.

FAS announced in October 2016 that the Russian government and state-owned enterprises (SOEs) accounted for 70 percent of Russia’s economy. The number of government-owned “unitary enterprises” has tripled in the past three years. The total number of SOEs exceeded 24,000 as of 2016.

SOE procurement rules are non-transparent and use informal pressure by government officials to discriminate against foreign goods and services. The current Russian government policy of import substitution mandates numerous requirements for localization of production of certain types of machinery, equipment, and goods.

Privatization Program

The Russian government and its SOEs dominate the economy. Due to federal budget constraints in 2016, privatization plans became a higher priority. In 2016, the Russian government sold 10.9 percent of diamond company Alrosa in July, 50.08 percent of Bashneft in October, and 19.5 percent of Rosneft in December. The government approved in early 2017 a new 2017-19 plan identifying state-controlled assets of Sovcomflot, Alrosa, Novorossiysk Commercial Seaport, and United Grain Company for privatization. The plan would also reduce the state’s share in VTB, one of Russia’s largest banks, from over 60 percent to 25 percent plus one share within three years.

8. Responsible Business Conduct

While not standard practice, Russian companies are beginning to show an increased level of interest in their reputation as good corporate citizens. When seeking to acquire companies in Western countries or raise capital on international financial markets, Russian companies face international competition and scrutiny, including with respect to corporate social responsibility (CSR) standards. Consequently, most large Russian companies currently have a CSR policy in place, or are developing one, despite the lack of pressure from Russian consumers and shareholders to do so. CSR policies of Russian firms are usually published on corporate websites and detailed in annual reports, but do not involve a comprehensive “due diligence” approach of risk mitigation that the OECD Guidelines for Multinational Enterprises promotes. Most companies choose to create their own non-government organization (NGO) or advocacy outreach rather than contribute to an already existing organization. The Russian government is a powerful stakeholder in the development of certain companies’ CSR agendas; some companies view CSR as merely financial support of social causes and choose to support local health, educational, and social welfare organizations favored by the government. One association, the Russian Union of Industrialists and Entrepreneurs, developed a Social Charter of Russian Business in 2004 in which over 200 Russian companies and organizations have since joined.

9. Corruption

Despite some government efforts to combat it, the level of corruption in Russia remains high. Endemic corruption at the highest levels of government was the focus of nationwide protests in March 2017. Transparency International’s 2016 Corruption Perception Index, ranked Russia in 131st place out of 176. Russia adopted a law in 2012 requiring individuals holding public office, state officials, municipal officials, and employees of state organizations to submit information on the funds spent by them and members of their families (spouses and underage children) to acquire certain types of property, including real estate, securities, stock, and vehicles. The law also required public servants to disclose the source of the funds for these purchases and to confirm the legality of the acquisitions. Recent anti-corruption campaigns include guidance for government employees and establishment of a legal framework for lobbying. In 2014, government plans called for an education campaign for employees and students in tertiary education on bribery and the law. In 2015, federal legislation provided a clear definition of conflict of interest as a situation in which the personal interest (direct or indirect) of an official affects or may affect the proper, objective, and impartial performance of official duties.

The 2016 anti-corruption plan, typically adopted for two years, called for anti-corruption activity in the judiciary, investigations into conflicts of interest, and increased practical cooperation between the NGO/expert community and government officials. Legislative amendments were introduced in 2016 to improve the anti-corruption climate: (1) the new Criminal Code established a punishment for individuals who were acting as middlemen in corrupt business practices, and (2) the Federal Law on anti-corruption established reporting requirements for municipal deputies and officials. The Constitutional Court gave clear guidance to law enforcement bodies on the issue of asset confiscation due to the illicit enrichment of officials. Russia has ratified the UN Convention against Corruption, but its ratification did not include article 20, which deals with illicit enrichment. The Council of Europe’s Group of States against Corruption reported in 2016 that Russia fully complied with 11 recommendations – and partially complied with 10 – provided by this organization during the previous periodic review.

Nonetheless, the Russian government acknowledged difficulty enforcing the law effectively, and Russian officials often engaged in corrupt practices with impunity. Some analysts have expressed concern that a lack of depth in the compliance culture in Russia will render Russia’s adherence to international treaties a formality that does not function in reality. The implementation and enforcement of the many measures required by these conventions have not yet been fully tested. In recent years, there appear to have been a greater number of prosecutions and convictions of mid-level bureaucrats for corruption, although real numbers were difficult to obtain. The areas of government spending that ranked highest in corruption were public procurement, media, national defense, and public utilities.

Russia’s Investigative Committee estimated annual damages of 40 billion rubles ($615 million) caused by corruption, although independent estimates put the figure much higher. The Russian Prosecutor General Yuri Chaika said that Russian law enforcement registered in 2016 close to 33,000 crimes of this category. Most regular categories of corruption crimes were acts of bribery, kickbacks in government procurement, embezzlement, and incorrect obligation of federal and local budget funds. Vladimir Kolokoltsev, the Russian Minister of Interior (MVD), said that more than 1,300 officials were charged in 2016 on various corruption crimes by his Ministry and other law-enforcement agencies.

Corruption in the past was mostly associated with large construction or infrastructure projects. Russia’s Federal Security Service stated in February 2016 that 5 billion rubles ($77 million) of defense spending was lost to corruption in 2014. In 2016, authorities brought corruption charges against three governors, one federal minister, one deputy minister, the head of Federal Customs (charges were later dropped), and the deputy head of the Federal Investigative Committee. Not one law-enforcement agency managed to avoid high-level corruption investigations in their ranks, including the newly-formed National Guard. In September of 2016, Russian authorities arrested a MVD colonel who allegedly had stashed more than U.S. $120 million in cash in a Moscow apartment.

It is important for U.S. companies, irrespective of size, to assess the business climate in the relevant market in which they will be operating or investing and to have effective compliance programs or measures to prevent and detect corruption, including foreign bribery. U.S. individuals and firms operating or investing in Russia should take time to become familiar with the relevant anticorruption laws of both Russia and the United States in order to comply fully with them. They should also seek, when appropriate, the advice of legal counsel.

Additional country information related to corruption can be found in the U.S. State Department’s annual Human Rights Report available at

Resources to Report Corruption

Vladimir Tarabrina
Ambassador at Large for International Anti-Corruption Cooperation
Ministry of Foreign Affairs
32/34 Smolenskaya-Sennaya pl, Moscow, Russia
+7 499 244-16-06

Anton Pominov
Director General
Transparency International – Russia
Rozhdestvenskiy Bulvar, 10, Moscow

10. Political and Security Environment

Political freedom has been significantly curtailed during the past year, including rising government hostility toward almost all opposition media outlets and increasing harassment of NGOs. In the aftermath of Russia’s attempted annexation of Crimea in March 2014, nationalist rhetoric increased markedly. New laws give the government the authority to label NGOs “foreign agents” if they receive foreign funding, greatly restricting the activities of these organizations. As of March 2016, more than 150 NGOs have been labelled foreign agents. A law enacted in May 2015 authorizes the government to designate a foreign organization as “undesirable” if it is deemed to pose a threat to national security or national interests. Seven foreign organizations currently have this designation and are banned from operations in Russia.

Although the use of strong-arm tactics is not unknown in Russian commercial disputes, the U.S. Embassy is not currently aware of cases where foreign investments have been attacked or damaged for purely political reasons. In Chechnya, Ingushetia, and Dagestan in the northern Caucasus region, Russia continues to battle resilient separatists who increasingly ally themselves with ISIS. These jurisdictions and neighboring regions in the northern Caucasus have a high risk of violence and kidnapping. Since December 2016, the number of terror attacks in Chechnya claimed by ISIS has increased markedly, as have counterterror military operations. Chechens and other North Caucasus natives have joined the ranks of ISIS fighters by the thousands, and the group has issued threats against Chechen and Russian targets. In the past, ISIS affiliated cells have carried out attacks in major Russian cities, including Moscow and St. Petersburg. In 2016, Russian law enforcement reportedly thwarted planned ISIS cell attacks in both cities.

Public protests continue to occur sporadically in Moscow and other cities. Authorities frequently refuse to grant permits for opposition protests, and there is usually a heavy police presence at demonstrations. The most recent large-scale protest took place on March 26, 2017, when an estimated 60,000 people took to the streets in coordinated demonstrations in Moscow, St. Petersburg, and dozens of other cities across Russia to protest government corruption. Police arrested more than 1,000 people. Official counts of participants at demonstrations tend to overestimate numbers at pro-government events and underestimate those at anti-government events.

11. Labor Policies and Practices

The Russian labor market remains fragmented, characterized by limited labor mobility across regions and substantial differences in wages and employment conditions. Earning inequalities are significant, enforcement of labor standards remains relatively weak, and collective bargaining is underdeveloped. Employers regularly complain about shortages of qualified skilled labor. This phenomenon is due, in part, to weak linkages between the education system and the labor market. In addition, the economy suffers from a general shortage of highly skilled labor. Meanwhile, a large number of inefficient enterprises, with high vacancy levels offer workers unattractive, uncompetitive salaries and benefits. The minimum wage is currently set below the government’s official poverty line. Employers are required to make severance payments when laying off employees in light of worsening market conditions.

The rate of actual unemployment (calculated according to International Labor Organization (ILO) methodology) averaged 5.5 percent in 2016. Average unemployment in urban districts (4.5 percent) was much lower than in rural districts (8.1 percent). As of the end of 2016, St. Petersburg and the Republic of Ingushetia had the lowest and highest unemployment rates in the country – 1.6 percent and 28.8 percent, respectively. Real wages increased slightly in 2016 by 0.6 percent year-on-year, but retail sales remained negative, dropping to 5.9 percent year-on-year in December 2016. Private businesses must compete with SOEs, which dominate the economy. Recent surveys indicate Russians would prefer to work for SOEs because they offer better salaries and benefits. SOEs and the public sector employ 33 percent of Russia’s 65 million economically active persons. The public sector, which maintains inefficient and unproductive positions, directly accounts for about 24.5 percent of the workforce.

The 2002 Labor Code governs labor standards in Russia. Normal labor inspections identify labor abuses and health and safety standards in Russia. The government generally complies with ILO conventions protecting worker rights, though enforcement is often insufficient, as the Russian government employs a limited number of labor inspectors.

Official statistics show 1.69 million registered migrant workers (down from 1.83 million in 2015) who have valid work permits from visa countries or work “patents” from visa-free Central Asian countries. Workers from EAEU countries (Armenia, Belarus, Kazakhstan, and Kyrgyzstan) are eligible to work in Russia without work authorization documents. Russia’s Federal Migration Service, which is part of the Ministry of Internal Affairs, has estimated the number of unregistered migrants at as many as 1.55 million people. Migrant workers are concentrated in the construction, retail, housing, and utilities sectors. The Russian government enacted sectoral restrictions for foreign workers in 2016 that cap the percentage of foreign workers allowed in different industries.

12. OPIC and Other Investment Insurance Programs

The U.S. Overseas Private Investment Corporation (OPIC) announced in the wake of Russia’s actions in Ukraine in 2014 that it had suspended consideration of any new financing and insurance transactions in Russia. Prior to this decision, OPIC had been authorized to provide loans, loan guarantees (financing), and investment insurance against political risks to U.S. companies investing in Russia since 1992. OPIC currently has 15 active projects in Russia totaling $501,986,655 (10 projects covered by OPIC finance and five projects by OPIC insurance). See  for more information.

The OPIC agreement (Investment Incentive Agreement) between the United States and Russia can be found at .

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($T USD) 2016 $1.232 2015 $1.331
Foreign Direct Investment Host Country Statistical Source* USG or International Statistical Source USG or international Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2016 $2.95 billion 2015 $9.2 billion
Host country’s FDI in the United States ($M USD, stock positions) 2016 $8.09 billion 2015 $4.6 billion
Total inbound stock of FDI as % host GDP 2016 0.2% 2015 0.7% N/A

*Host Country Source Data: FDI data – Central Bank of Russia; GDP data – Rosstat (GDP) (Russia’s GDP was 85,880.6 billion rubles in 2016, according to Rosstat. The yearly average ruble-dollar exchange rate in 2016, according to the IRS, was 69.685 rubles to the dollar.)
Table 3: Sources and Destination of FDI

Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment (2015) Outward Direct Investment (2015)
Total Inward 257,287 100% Total Outward 286,583 100%
Cyprus 86,281 34% Cyprus 104,446 36%
Netherlands 32,368 13% Netherlands 57,461 20%
Bahamas 21,297 8% British Virgin Islands 33,501 12%
Bermuda 13,562 5% Austria 21,054 7%
Germany 13,523 5% Switzerland 16,456 6%

Table 4: Sources of Portfolio Investment

Portfolio Investment Assets (as of December 2015)
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries 68,119 100% All Countries 2,814 100% All Countries 65,304 100%
Luxembourg 24,612 36% United States 546 19% Luxembourg 24,257 37%
Ireland 19,379 28% Cyprus 437 16% Ireland 19,377 30%
Netherlands 4,420 6% Luxembourg 355 13% Netherlands 4,179 6%
United States 3,514 5% Netherlands 241 9% United States 2,968 5%
Cyprus 2,468 4% Ireland 42 1% Cyprus 2,031 3%

14. Contact for More Information

Embassy of the United States of America
Economic Section
Bolshoy Deviatinsky Pereulok No. 8
Moscow 121099, Russian Federation
+7 (495) 728-5000, ext. 5179 (Economic Section)

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