Policies Towards Foreign Direct Investment

The government of Armenia officially welcomes foreign investment.  The Ministry of Economic Development and Investments is the main government body responsible for the development of investment policy in Armenia.  Armenia has achieved respectable rankings on some global indices measuring the country’s business climate. Armenia’s investment and trade policy is relatively open; foreign companies are entitled by law to the same treatment as Armenian companies.  Armenia has strong human capital and a well-educated population, particularly in the science, technology, engineering, and mathematics fields, leading to significant investment in the high-tech and information technology sectors. Many international companies have established branches or subsidiaries in Armenia to take advantage of the country’s pool of qualified specialists and trade preferences with Russia and the Eurasian Economic Union (EAEU).  However, many businesses have identified the challenges to Armenia’s investment climate as the country’s small market (with a population of less than three million), relative geographic isolation due to closed borders with Turkey and Azerbaijan, per capita gross national income of USD 3,990, and concerns related to weaknesses in the rule of law.

After a dramatic change in government in April/May 2018, major sectors of Armenia’s economy have presumably become more open to competition.  According to third parties, large businesses backed by oligarchic interests are less able to draw on government support to prop up their market positions.  A massive anti-corruption campaign was launched after the 2018 change of government, and a series of high-profile cases have resulted as part of efforts to eliminate systemic corruption.  These developments serve to improve Armenia’s investment climate and competitive environment; however, some report that the fight against corruption needs to be ongoing and institutionalized in the long term in critical areas such as the judiciary, tax and customs operations, health, education, military, and law enforcement sectors.  Moreover, foreign investors are still concerned about the rule of law and equal treatment. U.S companies have also reported that the investment climate is tainted by a failure to protect intellectual property rights. There have been concerns of lack of an independent and strong judiciary, which have undermined the government’s assurances of equal treatment and transparency and reduced businesses’ recourse in the instances of contract or tax disputes.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no limitations on foreign ownership or control of commercial enterprises.  There are also no sector-specific restrictions.

The Armenian government does not screen foreign direct investment.

Other Investment Policy Reviews

As of the end of 2018, Armenia has not undergone investment policy reviews by either the Organization of Economic Cooperation and Development (OECD) or U.N. Conference on Trade and Development (UNCTAD).  The World Trade Organization (WTO) conducted a Trade Policy Review in 2018, which can be found at https://www.wto.org/english/tratop_e/tpr_e/tp479_e.htm.

Business Facilitation

Armenia has traditionally fared well in the World Bank’s Ease of Doing Business report.  Companies can register electronically at http://www.e-register.am/en/  .  This single window service was launched in 2011 and allows individual entrepreneurs and companies to complete name reservation, business registration, and tax identification processes all at once.  The legal time limit for the process is two working days, but the application may be completed in one day. However, an electronic signature is needed in order to be able to register online. Foreign citizens can obtain an e-signature and more detailed information from the e-signature portal at https://www.ekeng.am/en/  .  A foreign partner is not required to obtain approval to invest.

Outward Investment

The Armenian government does not restrict domestic investors from investing abroad.

Basic provisions covering U.S. investments are set by the U.S.-Armenia Bilateral Investment Treaty (BIT), in force since 1996.  The U.S.–Armenia BIT stipulates that conditions for investors of each party be no less favorable than for the party’s own national investors or for investors from any third state.  It provides for the option of international arbitration in the case of investment disputes. Armenia has BITs in force with the following additional countries: Argentina, Austria, Belarus, Belgium, Bulgaria, Canada, China, Cyprus, Egypt, Finland, France, Georgia, Germany, Greece, Iran, Israel, Kuwait, Kyrgyzstan, Latvia, Lebanon, Lithuania, the Netherlands, Luxembourg, Romania, Russia, Spain, Sweden, Switzerland, Syria, Ukraine, the United Kingdom, Uruguay, and Vietnam.  According to UNCTAD, Armenia has also signed BITs with Iraq, Japan, Jordan, Kazakhstan, Qatar, Tajikistan, Turkmenistan, and the United Arab Emirates, but these agreements have not yet entered into force. Armenia is signatory to the Commonwealth of Independent States Multilateral Convention on the Protection of Investor Rights.

Armenia became a member of the EAEU in January 2015, together with Russia, Belarus, Kyrgyzstan, and Kazakhstan.  Armenia also entered into a Comprehensive and Enhanced Partnership Agreement (CEPA) with the EU in November 2017.  While CEPA will not affect customs or tax rates, it will, over time, align Armenia’s regulatory system and standards with those of the EU, as much as is possible under Armenia’s EAEU obligations.

There is no free trade agreement between the United States and Armenia, through Armenian exports to the United States may be eligible for preferential treatment under the Generalized System of Preferences program.  In May 2015, Armenia signed a Trade and Investment Framework Agreement (TIFA) with the United States. The TIFA establishes a United States-Armenia Council on Trade and Investment to discuss bilateral trade, investment, and related issues and examine ways to strengthen the trade and investment relationship between the two countries.

Armenia does not issue foreign tax credits and does not recognize the existing 1973 double taxation treaty signed by the Union of Soviet Socialist Republics (USSR) and the United States.  The United States considers Armenia to be party to this treaty by virtue of state succession to treaties and Armenia’s declaration of its commitment to fulfill the international treaty obligations of the former USSR as expressed in the Alma Ata Declaration of 1991.  The government of Armenia has expressed interest in negotiating a new double taxation treaty with the United States, but there is no strong evidence at this time that the lack of such an agreement deters new investments.

Transparency of the Regulatory System

The Armenian government nominally uses transparent policies and laws to foster competition.  Some report that Armenia’s new government has pursued a more consistent execution of these laws and policies in an effort to improve market competition and remove informal barriers to market entry, especially for small- and medium-sized businesses.  Armenia’s legislation on the protection of competition has been improved with clear definitions and newly introduced concepts on issues such as price manipulation, imposition of fines as a percentage of revenue versus fixed amounts, and penalties for state officials.  This has generated a gradual improvement of Armenia’s ranking according to international indices. However, companies regard the efforts of the State Commission for the Protection of Economic Competition (SCPEC) alone not to be enough to ensure a level playing field. They indicate that improvements in other state institutions and authorities that support competition, like the courts, tax and customs, public procurement, and law enforcement, are necessary.  Banking supervision is relatively well developed and largely consistent with the Basel Core Principles. The Central Bank of Armenia is the primary regulator of the financial sector and exercises oversight over banking, securities, insurance, and pensions. Data on Armenia’s public finances and debt obligations are broadly transparent, and the Ministry of Finance publishes periodic reports that are available online.

Safety and health requirements, most of them holdovers from the Soviet period, generally do not impede investment activities.  Nevertheless, investors consider bureaucratic procedures to be sometime burdensome, and discretionary decisions by individual officials may present opportunities for petty corruption.  A unified online platform for publishing draft legislation was launched in March 2017, and is available at https://www.e-draft.am/eng  .  Proposed legislation is available for the public to view.  Registered users can submit feedback and see a summary of comments on draft legislation.  However, the time period devoted to public comments is often regarded not sufficient to solicit proper feedback.  The results of consultations have not been reported by the government in the past. The government maintains other portals, including http://www.e-gov.am   and http://www.arlis.am  ,that make legislation and regulations available to the public.

International Regulatory Considerations

Armenia is a member of the EAEU and adheres to relevant technical regulations.  Armenia’s entry into CEPA will lead it to pursue harmonization efforts with the EU on laws, regulations, and policies relevant to economic affairs.  Armenia is also a member of the WTO, and the Armenian government notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade.  Armenia is a signatory to the Trade Facilitation Agreement and had already sent category “A”, “B,” and “C” notifications to the WTO.

Legal System and Judicial Independence

Armenia has a hybrid legal system that includes elements of both civil and common law.  Although Armenia is developing an international commercial code, the laws regarding commercial and contractual matters are currently set forth in the civil code.  Thus, because Armenia lacks a commercial court, all disputes involving contracts, ownership of property, or commercial matters are resolved by litigants in courts of general jurisdiction, which handle both civil and criminal cases.  However, some report that the courts that handle civil matters are overwhelmed by the volume of cases before them and are frequently seen by the public as corrupt.  Despite the ability of courts to use the precedential authority of the Court of Cassation and the European Court of Human Rights, many judges do not do so, making civil court decisions that investors consider as unpredictable.

According to several businesses, many Armenian courts suffer from low levels of efficiency, independence, and professionalism, which drives a need to strengthen the judiciary.  Very often in proceedings when additional forensic expertise is requested, the court may suspend a case until the forensic opinion is received, which it has been reported to take months.  Litigants are feeling distrustful aboutturning to Armenian courts for redress because of the lack of judicial independence.  Companies have noted that many judges at courts of general jurisdiction are reluctant to make decisions without getting advice from higher court judges.  Thus, the public opinion is that decisions may be influenced by factors other than the law and merits of cases at hand.  In general, the government honors judgments from both arbitration and Armenian national courts.

Due to the nature and complexity of commercial and contractual issues and the caseload of the civil courts, many matters involving investment or commercial disputes take months or years to work their way through the civil courts.  In addition, companies have complained of the inherent inefficiencies and institutional corruption of the courts, which lead to matters to be often delayed and outcomes not to be predictable. Even though the Armenian constitution provides investors the tools to enforce awards and their property rights, investors claim that there is little predictability in what a court may do.

Laws and Regulations on Foreign Direct Investment

Basic legal provisions covering foreign investment are specified in the 1994 Law on Foreign Investment.  Foreign companies are entitled by law to the same treatment as Armenian companies (national treatment). The Armenian government has submitted to parliament a new draft Law on Foreign Investment, to replace the 1994 law.  This new law would strengthen protections for foreign investors. A Law on Public-Private Partnership (PPP) has been drafted and is awaiting approval by the parliament. The PPP law establishes the framework for the government to attract private capital for joint projects focused on infrastructure.

Business Armenia is Armenia’s national authority for investment and export promotion.  It provides information to foreign investors on Armenia’s business climate, investment opportunities, and legislation; supports investor visits; and serves as a liaison for government institutions.  More information is available via Business Armenia’s website (https://www.businessarmenia.am/).

Competition and Anti-Trust Laws

SCPEC reviews transactions for competition-related concerns.  Relevant laws, regulations, commission decisions, and more information can be found on SCPEC’s website (http://www.competition.am/?lng=2  ).  Concentrations, including mergers, acquisitions of shares or assets, amalgamations, and incorporations are subject to ex ante control by SCPEC under conditions established by law.  Whenever a concentration gives rise to concerns about harm to competition, including the creation of a dominant position or strengthening the dominant position, SCPEC can prohibit such a transaction or impose certain remedies.  However, SCPEC’s investigative powers have been reported to be limited, forcing SCPEC to rely primarily on document studies. Armenia’s Law on Protection of Economic Competition has been amended several times in recent years to bring Armenia’s competition legal framework into alignment with EAEU and CEPA requirements.

Expropriation and Compensation

Under Armenian law, foreign investments cannot be confiscated or expropriated except in extreme cases of natural or state emergency, upon obtaining an order from a domestic court.  According to the Armenian constitution, equivalent compensation is owed prior to expropriation.

Dispute Settlement

ICSID Convention and New York Convention

Armenia is party to the ICSID Convention and Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).

Under Article 5 of the Armenian constitution, international treaties are a constituent part of Armenia’s legal system.  When an international treaty is ratified, if it stipulates norms other than those present in domestic law, the guidelines of the treaty shall prevail.

Investor-State Dispute Settlement

According to the 1994 Foreign Investment Law, all disputes that arise between a foreign investor and the Republic of Armenia must be settled in Armenian courts.  A Law on Commercial Arbitration was enacted in 2007, which provides a wider range of options for resolving commercial disputes. The U.S.–Armenia BIT provides that in the event of a dispute between an American investor and the Republic of Armenia, the investor may take the case to international arbitration.  As an international treaty, the BIT supersedes Armenian law, a point which Armenia’s constitution acknowledges and which holds in actual practice. As of January 2019, two investment disputes brought against Armenia under the U.S.–Armenia BIT were pending with the International Center for Settlement of Investment Disputes.

International Commercial Arbitration and Foreign Courts

Commercial disputes may be brought before an Armenian or any other competent court, as provided by law or in accordance with party agreements.  Commercial disputes are heard in courts of general jurisdiction.  Specialized administrative courts adjudicate cases brought against state entities.  Final judgments may be appealed to the Court of Appeal and Court of Cassation, the highest judicial authority in Armenia.

The Law on Arbitration Courts and Arbitration Procedures provides rules governing the settlement of disputes by arbitration.  In accordance with the New York Convention and Article 5 of the Armenian constitution, domestic courts must recognize foreign arbitral awards.

Armenia intends to develop an alternative dispute resolution (ADR) mechanism that will include mediation and arbitration.  ADR could be used not only in commercial matters, including those involving mobile property and secured transactions, but also in cases involving family and labor disputes.   While ADR options are available to those who seek alternatives to litigation, they currently are not widely used or trusted.  

Bankruptcy Regulations

According to the Law on Bankruptcy adopted in 2006, creditors, equity, and contract holders (including foreign entities) have the right to participate and defend their interests in bankruptcy cases.  Armenia decided in 2018 to adopt a new, specialized bankruptcy court to begin operations in 2019.  Creditors have the right to access all materials relevant to cases, submit claims to court, participate in meetings of creditors, and nominate candidates to administer cases.  Monetary judgments are usually made in local currency.  The Armenian Criminal Code defines penalties for false and deliberate bankruptcy, concealment of property or other assets of the bankrupt party, or other illegal activities during the bankruptcy process.  Armenia amended its bankruptcy law in 2012 to clarify procedures for appointing insolvency administrators, reducing the processing time for bankruptcy proceedings, and conducting asset sales by auction.

According to the World Bank’s 2019 Ease of Doing Business Index, Armenia stands at 95 in the ranking of 190 economies on the ease of resolving insolvency (http://www.doingbusiness.org/rankings  ; http://www.doingbusiness.org/data/exploreeconomies/armenia#resolving-insolvency  ).  Resolving insolvency takes 1.9 years on average and costs 11 percent of the debtor’s estate, with the most likely outcome being that the company will be broken up and sold.  The average recovery rate is 38.2 cents on the dollar.

Investment Incentives

Armenia offers incentives for exporters (e.g. no export duty, VAT refund on goods and services exported) and foreign investors (e.g. income tax holidays, the ability to carry forward losses indefinitely, VAT deferral, and exemptions from customs duties for investment projects).    Starting from January 1, 2018, the Armenian government exempted imports of capital investment-related goods from VAT payments at the border. In 2015, the Armenian government exempted from customs duties investment-related import of equipment and raw materials from non-EAEU member countries.  VAT and customs duties exemptions are implemented based on government decisions made on a case-by-case basis. Also, in accordance with the Law on Foreign Investment, several ad hoc incentives may be negotiated on a case-by-case basis for investments that are targeted at certain sectors of the economy or are of strategic interest.

Foreign Trade Zones/Free Ports/Trade Facilitation

In June 2011, Armenia adopted a Law on Free Economic Zones (FEZ), amended in October 2018, and developed several key regulations to attract foreign investments into FEZs:  exemptions from VAT, profit tax, customs duties, and property tax. The Alliance FEZ was opened in August 2013 and currently hosts sixteen businesses taking advantage of its facilities. The focus of Alliance FEZ is on high-tech industries, which include information and communication technologies, electronics, pharmaceuticals and biotechnology, architecture and engineering, industrial design, and alternative energy.  In 2014, the government expanded operations in the Alliance FEZ to include industrial production. In 2015, the Meridian FEZ, focused on jewelry production, watchmaking, and diamond cutting, opened in Yerevan, with six businesses operating in it. The Meghri FEZ, located on Armenia’s border with Iran, opened in 2017. A new FEZ, located in Hrazdan, opened in late 2018 and is focused on the high-tech and information technology sectors.

Performance and Data Localization Requirements

There are no performance requirements for investment in terms of mandating local employment.  The processes for obtaining visas, residence, or work permits are straightforward. There are no government-imposed conditions on permission to invest, including tariff and non-tariff barriers.

Armenia does not follow any policy that would force foreign investors to use domestic content in goods and technology.  There are no requirements for foreign information technology providers to turn over source code or provide keys for encryption.  There are no requirements to store data within the country.

Real Property

Armenian law protects secured interests in property, both personal and real.  Armenian legislation provides a basic framework for secured lending, collateral, and pledges and provides a mechanism to support modern lending practices and title registration.  According to Armenia’s constitution, foreign citizens are prohibited from owning land, though they may take out long-term leases. In the World Bank’s 2019 Ease of Doing Business report, Armenia ranked 14th among 190 economies for the ease of registering property.  Lack of clear title to land is not an issue in Armenia.

Intellectual Property Rights

Armenia has a strong intellectual property rights (IPR) framework.  Domestic legislation, including the 2006 Law on Copyright and Related Rights, provides for the protection of IPR on literary, scientific, and artistic works (including computer programs and databases), patents and other rights of invention, industrial design, know-how, trade secrets, trademarks, and service marks.  The Intellectual Property Agency (IPA) in the Ministry of Economic Development and Investments is responsible for granting patents and overseeing other IPR-related matters. Armenia requires no state registration for copyright. The collective management organization ARMAUTHOR manages authors’ economic rights. Trademarks and patents require state registration by the IPA.  There is no special trade secret law in Armenia, but protection of trade secrets is partially covered by patent registration. Formal registration is easy and transparent, the database of IPR registrations is public, and applications to register intellectual property are published online for two months for comment by third parties.

Armenia’s legislation is in compliance with the Trade Related Aspects of Intellectual Properties Agreement.  In 2005, Armenia created an IPR Enforcement Unit in the Organized Crime Department of the Armenian Police, which does not, however, exercise ex-officio powers and acts only based on complaints from right holders.

Despite the existence of relevant legislation and executive government structures, the concept of IPR remains unrecognized by a large part of the local population. The onus for IPR complaints remains with the offended party.  The police assert that the majority of cases are settled through out-of-court proceedings. While the Armenian government has made some progress on IPR issues, strengthening enforcement mechanisms remains necessary.

A new Law on Copyright has been drafted and submitted to the government.  It includes provisions from new international agreements and provides additional detail on many of the provisions in the current law.  Copyright contract rights are better defined and examples of contracts between the user and the rights-holder are included. Phonogram producers’ rights are harmonized with copyright holders’ rights and are extended to 70 years.  The new legislation includes specific provisions from the Marrakesh and Beijing Treaties that regulate the rights of disabled artists and orphan works. Two new laws, the Law on Patents and Law on Industrial Design, have also been drafted by the IPA and submitted to the government.

The Armenian customs authorities track statistics related to the seizure of counterfeit goods, but the reports are not regularly updated.  The latest relevant information can be found at http://www.petekamutner.am/Content.aspx?itn=csVLDepFightAgainstSmug  .

Armenia is not listed in USTR’s Special 301 Report or Notorious Markets List.

Capital Markets and Portfolio Investment

The banking system in Armenia is sound and well-regulated, but the financial sector is not highly developed, according to investors.  IMF estimates suggest that banking sector assets account for about 90 percent of total financial sector assets, however, financial intermediation is poor. Nearly all banks require collateral located in Armenia, and large collateral requirements often prevent potential borrowers from entering the market.  U.S. businesses have noted that this creates a significant barrier for small- and medium-sized enterprises and start-up companies.

The Armenian government welcomes foreign portfolio investment and there is a supporting system and legal framework in place. Armenia’s securities market is not well developed and has only minimal trading activity through the NASDAQ-OMX exchange, though efforts to develop capital markets are underway.  Liquidity sufficient for the entry and exit of sizeable positions is often difficult to achieve due to the small size of the Armenian market. The Armenian government hopes that as a result of pension reforms in 2014, which brought two international asset managers to Armenia, capital markets will play a more prominent role in the financial sector of the country.  Armenia adheres to its IMF Article VIII commitments by refraining from restrictions on payments and transfers for current international transactions. Credit is allocated on market terms and foreign investors are able to access credit locally.

Money and Banking System

The banking sector is healthy and indicators of financial soundness have increased in recent years.  The sector is well capitalized and liquid, though dollarization is high. Non-performing loans have fallen to below 10 percent of total loans.  There are 17 commercial banks in Armenia and 13 universal credit organizations, and there are extensive branch networks throughout Armenia. As of the end of 2018, the top three Armenian banks by assets are Ameriabank (779.7 billion AMD, or USD 1.59 billion), Ardshinbank (678.6 billion AMD, or USD 1.38 billion,) and Armbusinessbank (642.8 billion AMD, or USD 1.31 billion).  The minimum capital requirement for banks is 30 billion AMD (62.5 million USD). There are no restrictions on foreigners to open bank accounts. Residents and foreign nationals can hold foreign currency accounts and import, export, and exchange foreign currency relatively freely in accordance with the Law on Currency Regulation and Currency Control. Foreign banks may establish a subsidiary, a branch, or representative office, and subsidiaries of foreign banks are allowed to provide the same types of services as domestically-owned banks.

The Central Bank of Armenia (CBA) is responsible for the regulation and supervision of the financial sector.  The authority and responsibilities of the CBA are established under the Law on Central Bank of Armenia. Numerous other articles of legislation and supporting regulations provide for financial sector oversight and supervision.

Foreign Exchange and Remittances

Foreign Exchange

Armenia has no limitations on the conversion and transfer of money or the repatriation of capital and earnings, including branch profits, dividends, interest, royalties, or management or technical service fees.  Most banks can transfer funds internationally within two to four days. Armenia maintains the Armenian dram (AMD) as a freely convertible currency under a managed float. The AMD/USD exchange rate has proven generally stable in recent years, though it has not been without occasional sharp movements.

According to the Law on Currency Regulation and Currency Control, prices for all goods and services, property, and wages must be set in AMD.  There are exceptions in the law, however, for transactions between resident and non-resident businesses and for certain transactions involving goods traded at world market prices.  The law requires that interest on foreign currency accounts be calculated in that currency, but paid in AMD.

Remittance Policies

Armenia has no limitations on the conversion and transfer of money or the repatriation of capital and earnings, including branch profits, dividends, interest, royalties, lease payments, private foreign debt, or management or technical service fees.

Sovereign Wealth Funds

Armenia does not have a sovereign wealth fund, though the government is considering plans to create one.

Most of Armenia’s state-owned enterprises (SOEs) were privatized in the 1990s and early 2000s, yet SOEs are still active in a number of sectors.  SOEs in Armenia operate as state-owned closed joint stock companies that are managed by the Department of State Property and state non-commercial organizations.  There are no laws or rules that ensure a primary or leading role for SOEs in any specific industry. Armenia is a party to the WTO’s Government Procurement Agreement and SOEs are covered under that agreement.  SOEs in Armenia are subject to the same tax regime as their private competitors, and private enterprises in Armenia can compete with SOEs under the same terms and conditions. A public list of state-owned closed joint stock companies can be found on the website of the Department of State Property (http://spm.am/am/projects/  ).

Privatization Program

Most of Armenia’s state owned enterprises were privatized in the 1990s and early 2000s.  Many of the privatization processes for Armenia’s large assets were reported to be neither competitive nor transparent, and political considerations in some instances prevailed over fair tender processes.  The current law on privatization, the fifth, is the Law on the 2017–2020 Program for State Property Privatization, which lists 47 entities for privatization, of which 24 are new additions and 23 were noted in earlier laws but not privatized.  The Department of State Property Management is responsible for managing the state’s share of the entities in the privatization program.

There is not a widespread understanding of responsible business conduct (RBC) in Armenia, but several larger companies with foreign ownership or management are introducing the concept.  It is rare to see examples of Armenian companies that contribute to local communities through charity, employee service days, or other similar programs. However, RBC programs that do exist are viewed favorably.  Some NGOs, notably business associations, are playing a more active role to promote responsible business conduct. Armenia joined the Extractive Industries Transparency Initiative (EITI) in March 2017 as a candidate country.  The first EITI national report for Armenia was published in January 2019. As part of its EITI membership aspirations, the government in March 2018 adopted a roadmap to disclose beneficial owners in the metal ore mining industry.  Armenia is not an adherent to the OECD Guidelines for Multi-National Enterprises or the UN Guiding Principles for Business and Human Rights.

Some information is available regarding corporate governance, accounting, and internal controls to protect shareholders.  Major pillars of corporate governance in Armenia include the Law on Joint Stock Companies, the Law on Banks and Banking Activity, the Law on Securities Market, and a Corporate Governance Code.  International observers note inconsistencies in this legislation and generally rate corporate governance practices as weak to fair.

Domestic laws related to labor, employment rights, consumer protection, and environmental protection are not always enforced effectively.  These laws and regulations cannot be waived to attract foreign investments.

Resources to Report Corruption

Armenia experienced a peaceful revolution in April/May 2018 that led to the arrival of a new government with an explicit anti-corruption mandate.  The current government released a new official plan in January 2019 that includes a section on combatting corruption. The government has increased corruption investigations against mid- to high-level government officials since the revolution.  Numerous high-ranking officials have stated publicly that corruption within their respective institutions will no longer be tolerated. Though some report that the government has mainly targeted ex-government officials in corruption investigations, there is no indication that Armenia’s anti-corruption laws are being applied by the post-revolutionary government in a discriminatory manner.  Armenia’s anti-corruption laws extend to all Armenian citizens.

Corruption, particularly in areas that have been reported to be critical such as the justice system, as well as concerns related to the rule of law, enforcement of existing legislation, and equal treatment, remain a significant obstacle to U.S. investment in Armenia.  Investors claim that the health, education, military, corrections, and law enforcement sectors lack transparency in procurement and have in the past used selective enforcement to elicit bribes. Civil courts are still widely perceived to be corrupt by the general public.  Although bribery is illegal in Armenia for all citizens, the government does not actively encourage private companies to establish internal codes of conduct. Several multinational companies, select local companies, and foreign and local companies working with international financial institutions have implemented corporate governance mechanisms to tackle corruption internally.  However, such corporate governance principles are not widely implemented among local companies.

According to Transparency International’s 2018 Corruption Perceptions Index, Armenia received a score of 35 out of 100, ranking it 105th among 180 countries.

Armenia’s ability to counter, deter, and prosecute corruption is noted to be hindered by the lack of robust enforcement of official disclosure laws to prevent the entrance and retention of corrupt officials in positions of authority and influence.  The objective and systematic scrutiny of declarations by government officials is generally considered to be lacking. According to international evaluations, Armenian authorities have limited capacities to investigate money laundering and bring such cases to prosecution.

The Law on Civil Service, in force since 2002, as well as the Laws on Municipal Service (2005) and on Local Self-Government (2002), prohibit the participation of civil and municipal servants, as well as local government elected officials such as mayors and councilors, in commercial activities.  However, powerful officials at the national, district, or local levels often acquire direct, partial, or indirect control over private firms. Such control is exercised through a hidden partner or through majority ownership of fully private parent companies. This involvement can also be indirect, including through close relatives and friends. According to foreign investors, these practices reinforce protectionism, encourage the creation of monopolies or oligopolies, hinder competition, and undermine the image of the government as a facilitator of private sector growth.  Because of the strong interconnectedness of the political and economic spheres, Armenia has historically struggled to introduce legislation to encourage strict ethical codes of conduct and the prevention of bribery in the business field. In 2016, the Armenia adopted legislation on criminal penalties for noncompliance or filing of false declarations and illicit enrichment.

Armenia is a member of the UN Anticorruption Convention.  While not a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, Armenia is a member of the OECD Anti-Corruption Network for Eastern Europe and Central Asia and has signed the Istanbul Action Plan.  A monitoring report released by the OECD in 2018 cited Armenia’s lack of enforcement of anti-corruption laws, together with continued presence of oligopolistic interests in the economy, as points of serious concern. The report contained a series of recommendations, including to take bold measures to ensure judicial and prosecutorial independence and integrity, introduce corporate liability for corruption offenses, investigate and prosecute high-profile and complex corruption cases, and increase transparency and strengthen monitoring in public procurement.  Armenia has also joined the global Open Government Partnership initiative.

No specific law exists to protect NGOs dealing with anti-corruption investigations.  The government, in close coordination with civil society, approved new legislation on public organizations in December 2016.  The new law gives NGOs the right to engage in economic activities.

Resources to Report Corruption

For investigating corruption:

Investigation Department of Corruption, Organized and Official Crimes
Special Investigation Service of Armenia
13A Vagharsh Vagharshyan Street
Yerevan, Armenia
[+374 11] 900 002
press@investigatory.am

For prosecuting corruption:

Arsen Simonyan
Head of Department for Combating Corruption
and Economic Crimes
RA Prosecutor General’s Office
5 V. Sargsyan Street
Yerevan, Armenia
(37410) 511-655
info@prosecutor.am

For financial and asset declarations of high level officials:

Armen Khudaverdyan
Deputy Chairperson
Ethics Commission
26 Baghramyan Street
Yerevan, Armenia
374 10 524689
siranush.sahakyan@president.am

Watchdog organization:

Varuzhan Hoktanyan
Executive Director
Transparency International (Armenia)
164/1 Antarayin Street
Yerevan, Armenia
374 10 569589
varuzh@transparency.am

Armenia has a history of political demonstrations, some of which have turned into violent confrontations between the police and protesters.  However, the frequency of violent protests has significantly decreased. The last major violent protest occurred in July 2016, when an armed group, Sasna Tsrer, stormed and occupied a police compound in Yerevan.  Three police officers were killed as a result. During the two-week standoff that followed, Sasna Tsrer took hostage additional police and medical personnel, demanding political changes.  During the standoff, demonstrations in support of Sasna Tsrer took place in Yerevan and clashes between law enforcement officers and protesters occurred.  These clashes did not pose any damage to businesses. In 2018, Armenia experienced a peaceful revolution that led to a change of government.  Acts of peaceful civic disobedience in Yerevan and some other cities led to street closures, including on the road to Yerevan’s international airport, but did not impede the ordinary functioning of business or harm the country’s macroeconomic stability.  These actions did not result in any damage to projects or installations.

The state of conflict between Armenia and Azerbaijan, including the regular exchanges of fire along the international border and the disputed territory of Nagorno-Karabakh, presents some potential political risk, according to investors and businesses.  A cease-fire with Azerbaijan has been in effect since 1994 for the conflict surrounding the disputed region of Nagorno-Karabakh.  However, intermittent gunfire along the cease-fire line and along the border with Azerbaijan continues, often resulting in injuries and/or deaths.  There was an increase in violence along the Line of Contact and Armenian-Azerbaijan international border on April 2-5, 2016.  The heavy clashes led to the highest death toll since the signing of the 1994 cease-fire agreement. There have been no threats to commercial enterprises from skirmishes in the border areas.  It is unlikely that civil disturbances, should they occur, would be directed against U.S. businesses or the U.S. community.  The government of Azerbaijan has suspended the importation and operations of U.S. companies in Azerbaijan if the companies’ products or services are provided in Nagorno-Karabakh and has banned the entry into Azerbaijan of some persons who have visited Nagorno-Karabakh.  Due to the existing state of hostilities, consular services are not available to U.S. citizens in Nagorno-Karabakh.

Armenia’s human capital is one of its strongest resources.  The labor force is generally well educated, particularly in the science, technology, engineering, and mathematics fields.  Almost one hundred percent of Armenia’s population is literate.  According to official information, enrollment in secondary school is over 90 percent, and enrollment in senior school (essentially equivalent to American high school) is about 85 percent.  Despite this, official statistics indicate a high rate of unemployment, at around 18 percent.  Unemployment is particularly pronounced among women and youth, and significant underemployment is also a problem.

Considerable foreign investment in Armenia has occurred in the high-tech sector.  High-tech companies have established branches or subsidiaries in Armenia to take advantage of the country’s pool of qualified specialists in electrical and computer engineering, optical engineering, and software design.  There is a shortage of workers with vocational educations.  About 20 percent of the non-agricultural workforce is employed in the informal economy, primarily in the services sector.  Armenian law protects the rights of workers to form and to join independent unions, with exceptions for personnel of the armed forces and law enforcement agencies.  The law also provides for the right to strike, with the same exceptions, and permits collective bargaining.  The law stipulates that workers’ rights cannot be restricted because of membership in a union.  It also differentiates between layoffs and firing with severance. According to some reports, labor organizations remain weak because of employer resistance, high unemployment, and poor economic conditions; collective bargaining is not common in Armenia.  However, since the 2018 change of government, there have been consistent reports of grassroots movements to create unions in various spheres, including for doctors, teachers, and academics. Still, traditional labor unions are generally inactive with the exception of those connected with the mining and chemical industries.  Labor laws are not waived to retain or attract investments.

The current Labor Code is considered to be largely consistent with international standards.  The law sets a standard 40-hour work week, with 20 days of mandatory annual paid leave.  However, there are consistent reports that many private sector employees, particularly in the service sector, are unable to obtain paid leave and are required to work more than eight hours a day without additional compensation.  The treatment of labor in free economic zones is no different than elsewhere in the country.  Employers are generally able to adjust employment in light of fluctuating market conditions.  Severance in general does not exceed 60 working days.  Benefits for workers laid off for economic reasons are mostly limited to offering qualification trainings to the unemployed and job search assistance.

Individual labor disputes can usually be resolved through courts; however, the courts are often overburdened, causing significant delays.  Collective labor disputes should be resolved through collective bargaining.  Armenia’s Health and Labor Inspection Body (HLIB) has a mandate to monitor health and occupational safety issues, but its enforcement powers have been undermined by continuous restructuring of the body and the absence of a legal framework and regulations to guide HLIB functions.  No labor inspections have been completed since 2015.

Amendments to the Labor Code of Armenia that entered into force in 2015 clarified the procedures for making changes in labor contracts and further specified the provisions required in labor contracts, notably those relating to probationary periods, vacation, and wage calculations.

The current legal minimum wage is AMD 55,000 (USD 115) per month.  Most companies pay an unofficial extra-month bonus for the New Year’s holiday.  Wages in the public sector are often significantly lower than those in the private sector.

Armenia has an agreement with the Overseas Private Investment Corporation (OPIC), signed in 1992. OPIC mobilizes private capital to help solve critical development challenges, providing investors with financing, guarantees, political risk insurance, and support for private equity investment funds.  OPIC has been involved in several projects in Armenia, including the expansion of the Yerevan Marriott and lending operations at several financial institutions. In 2019, OPIC concluded a deal to extend USD 10 million in financing to First Mortgage Company to expand the origination of long-term home mortgage loans.  Armenia is a member of the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA).

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

* Source for Host Country Data:  Statistical Committee of the Republic of Armenia

Table 3: Sources and Destination of FDI

Source:  IMF Coordinated Direct Investment Survey (CDIS), 2017

A significant portion of outward investment is not disaggregated by destination in the CDIS.

Table 4: Sources of Portfolio Investment

Data not available.

Policies Towards Foreign Direct Investment

The Ministry of Economic Development (MED) is responsible for overseeing investment policy in Russia. The Foreign Investment Advisory Council (FIAC), established in 1994, is chaired by the Prime Minister and currently includes 53 international company members and four companies as observers. The FIAC allows select foreign investors to directly present their views on improving the investment climate in Russia, and advises the government on regulatory rule-making. Russia’s basic legal framework governing investment includes 1) Law 160-FZ, July 9, 1999, “On Foreign Investment in the Russian Federation”; 2) Law No. 39-FZ,  February 25, 1999, “On Investment Activity in the Russian Federation in the Form of Capital Investment”; 3) Law No. 57-FZ, April 29, 2008, “Foreign Investments in Companies Having Strategic Importance for State Security and Defense”; and 2) the Law of the RSFSR No. 1488-1, 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, and to promote the socioeconomic development of Russia. Foreign investors may freely use their revenues and profits obtained from Russia-based investments for any purpose provided 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 are restrictions on foreign ownership of land located in border areas or other “sensitive territories.” The second restricts foreign ownership of agricultural land: foreign individuals and companies, persons without citizenship, and agricultural companies more than 50-percent foreign-owned may hold agricultural land through leasehold right. 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.  In December 2018, the State Duma approved in its first reading a draft bill introducing new restrictions on online news aggregation services. If adopted, foreign companies, including international organizations and individuals, would be limited to a maximum of 20 percent ownership interest in Russian news aggregator websites.

Russia’s Commission on Control of Foreign Investment (Commission) was established in 2008 to monitor foreign investment in strategic sectors in accordance with the SSL. Between 2008 and 2017, the Commission received 484 applications for foreign investment, 229 of which were reviewed, according to the Federal Antimonopoly Service (FAS). Of those 229, the Commission granted preliminary approval for 216 (94 percent approval rate), rejected 13, and found that 193 did not require approval. (See https://fas.gov.ru/p/presentations/86). In 2018, the Commission reviewed 24 applications and granted approvals for investments worth RUB 400 billion (USD 6.4 billion).  International organizations, foreign states, and the companies they control, are treated as single entities under this law, and with their participation in a strategic business, subject to restrictions applicable to a single foreign entity.

Since January 1, 2019, foreign providers of electronic services to business customers in Russia (B2B e-services) have new Russian value-added tax (VAT) obligations. These include: (1) VAT registration with the Russian tax authorities (even for VAT exempt e-services); (2) invoice requirements; and (3) VAT reporting to the Russian tax authorities and VAT remittance rules.

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: https://www.wto.org/english/tratop_e/tpr_e/tp445_e.htm  .

The United Nations Conference on Trade and Development (UNCTAD) issues an annual review of investment and new industrial policies: https://unctad.org/sections/dite_dir/docs/wir2018/wir18_fs_ru_en.pdf  and an investment policy monitor: https://investmentpolicyhub.unctad.org/IPM 

Business Facilitation

The Agency for Strategic Initiatives (ASI) was created by President Putin in 2011 to increase innovation and reduce bureaucracy. Since 2014, ASI has released an annual ranking of Russia’s regions in terms of the relative competitiveness of their investment climates, and provides potential investors with important information about regions most open to foreign investment. ASI provides a benchmark to compare regions, the “Regional Investment Standard,” and thus has stimulated competition between regions, causing an overall improved investment climate in Russia. See https://asi.ru/investclimate/rating/ (in Russian). The Federal Tax Service (FTS) operates Russia’s business registration website: www.nalog.ru.Per law (Article 13 of Law 129-FZ of 2001), a company must register with a local FTS office within 30 days of launching a new business, and he business registration process must not take more than three days, according to. 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 FTS. Starting January 1, 2019, a registration fee waived for online submission of incorporation documents.  See http://www.doingbusiness.org/data/exploreeconomies/russia .

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. According to the breakdown of problems reported to the ombudsman, the majority of cases are 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. Boris Titov, the head of the business organization “Delovaya Rossia” was appointed as the Presidential Commissioner for Entrepreneur’s Rights.

In 2018, Russia implemented four reforms that increased its score in World Bank’s Doing Business ranking. First, Russia made the process of obtaining a building permit faster by reducing the time needed to obtain construction and occupancy permits.  Russia also increased quality control during construction by introducing risk-based inspections. Second, it made getting electricity faster by imposing new deadlines for connection procedures and by upgrading the utility’s single window as well as its internal processes. Getting electricity was also made cheaper by reducing the costs to obtain a connection to the electric network. Third, Russia made paying taxes less costly by allowing a higher tax depreciation rate for fixed assets. Fourth, Russia made trading across borders easier by prioritizing online customs clearance and introducing shortened time limits for its automated completion.

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.

While there are no restrictions on the distribution of profits to a nonresident entity, some foreign currency control restrictions apply to Russian residents (both companies and individuals), and to foreign currency transactions. As of January 1, 2018, all Russian citizens and foreign holders of Russian residence permits are considered Russian “currency control residents.” These “residents” are required to notify the tax authorities when a foreign bank account is opened, changed, or closed and when there is a movement of funds in a foreign bank account. Individuals who have spent less than 183 days in Russia during the reporting period are exempt from the reporting requirements and the restrictions on the use of foreign bank accounts.

Russia is party to some 63 treaties in force which contain investment provisions. For a full list, see http://investmentpolicyhub.unctad.org/IIA . Russia is a signatory but has 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 Free Trade Agreement (FTA), which contains investment provisions. Individual member countries of the EAEU generally retain authority to enter into their own bilateral investment treaties.  In January 2018, the EAEU and India announced plans to sign an FTA in the near future. The EAEU is also negotiating FTAs with other countries, including Singapore, and Turkey. An interim three-year free trade agreement (IFTA) between EAEU and Iran was signed in May 2018. This IFTA came into force in early 2019, and reduces or eliminates tariffs on certain goods – accounting for roughly 50 percent of trade between the parties. In May 2018, the EAEU and China signed an agreement on trade and economic cooperation.

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 purported 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 https://www.irs.gov/pub/irs-trty/russia.pdf . In total, Russia is party to 82 double taxation treaties. The Russian Ministry of Finance’s list (in Russian) is available at http://minfin.ru/ru/document/?id_4=117045 .

Transparency of the Regulatory System

While the Russian government at all levels offers moderately transparent policies, actual implementation can also 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: www.pravo.gov.ru. The web site maintains regulatory documents that are enacted or about to be enacted. Draft regulatory laws are published on the web site www.regulation.gov.ru. Draft laws that do not fall under Resolution 851 can be found on the State Duma (Russia’s parliament) legal database: http://asozd.duma.gov.ru/ .

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. Reports prepared in accordance with the International Financial Reporting Standards (IFRS) are required for the consolidated financial statements of all entities who meet the following criteria: entities whose securities are listed on stock exchanges; banks and other credit institutions, insurance companies (except those with activities limited to obligatory medical insurance); non-governmental pension funds; management companies of investment and pension funds; and clearing houses. Additionally, certain state-owned companies are required to prepare consolidated IFRS financial statements by separate decrees of the Russian government. Russian Accounting Standards, which are largely based on international best practices, otherwise apply.

International Regulatory Considerations

As a member of the EAEU, Russia has delegated certain decision-making authority to the EAEU’s supranational executive body, the Eurasian Economic Commission (EEC). In particular, the EEC has the lead on concluding trade agreements with third countries, customs tariffs (on imports), and technical regulations. EAEU agreements and 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. In 2017-2018, Russia submitted 12 notifications under the WTO TBT Agreement. However, they may not reflect the full set of technical regulations that require notification under the WTO TBT Agreement.  A full list of notifications is available at: http://www.epingalert.org/en 

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 Russian courts, and less than one-half of a 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 contracts. Specialized commercial courts (also called arbitrage courts) handle a wide variety of commercial disputes. Russia was ranked by the World Bank’s 2019 Doing Business Report as 18th in terms of contract enforcement, unchanged from 2018.

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. The aforementioned SSL regulates foreign investments in “strategic” companies. Amendments to Federal Law No. 160-FZ “On Foreign Investments in the Russian Federation” and Russia’s Strategic Sectors Law (SSL), signed by the President into law in May 2018, liberalized access of foreign investments to strategic sectors of the Russian economy and made the strategic clearance process clearer and more comfortable. The new concept is more investor-friendly, since applying a stricter regime can now potentially be avoided by providing the required beneficiary and controlling person information. In addition, the amendments expressly envisage a right for the Federal Antimonopoly Service of Russia (FAS) to issue official clarifications on the nature and application of the SSL that may facilitate law enforcement.

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 to this law. Changes include 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.  The fifth anti-monopoly legislative package, devoted to regulating the digital economy, has been developed by the FAS and is currently undergoing an interagency approval process.

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 – are encouraged to exercise caution. Russia has a history of indirectly expropriating companies through “creeping” and informal means, often related to domestic political disputes. Some examples of recent cases include: 1) 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; 2) 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; 3) Russian businesspeople reportedly often face criminal prosecution over commercial disputes.  In February 2018, a prominent U.S. investor was jailed over a commercial dispute. Other, more general 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, and 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 14 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.

International Commercial Arbitration and Foreign Courts

In addition to the court system, Russian law recognizes alternative dispute resolution (ADR) mechanisms, i.e. domestic arbitration, international arbitration and mediation. Civil and commercial disputes may be referred to either domestic or international commercial arbitration. Institutional arbitration is more common in Russia than ad hoc arbitration.

Arbitral awards can be enforced in Russia pursuant to international treaties, such as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the 1958 New York Convention, and the 1961 European Convention on International Commercial Arbitration, as well as domestic legislation.

Mediation mechanisms were established by the Law on Alternative Dispute Resolution Procedure with participation of the Intermediary in January 2011. Mediation is an informal extrajudicial dispute resolution method whereby a mediator seeks mutually acceptable resolution. However, mediation is not yet widely used in Russia.

Bankruptcy Regulations

Russia established a law providing for enterprises bankruptcy in the early 1990s. A law on personal bankruptcy came into force in 2015. Russia’s ranking in the World Bank’s Doing Business 2019 Report for “Resolving Insolvency” is 55 out of 190 economies. In accordance with Article 9 of the Law on Insolvency (Bankruptcy), the management of an insolvent firm must petition the court of arbitration to declare the company bankrupt within one month of failing to pay the bank’s claims. The court will institute a supervisory procedure and will appoint a temporary administrator. The administrator will convene the first creditors’ meeting, at which 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 seven months of the day the petition was received by the arbitral court.

Liquidation proceedings by law are limited to six months and can be extended by six 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 nine percent 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.).

In July 2017, amendments to the Law on Insolvency expanded the list of persons who may be held vicariously liable for a bankrupted entity’s debts and clarified the grounds for such liability. According to the new rules, in addition to the CEO, the following can also be held vicariously liable for a bankrupt company’s debts: top managers, including the CFO and COO, accountants, liquidators, and other persons who controlled or had significant influence over the bankrupted entity’s actions by kin or position, or could force the bankrupted entity to enter into unprofitable transactions. In addition, persons who profited from the illegal actions by management may also be subject to liability through court action. The amendments clarified that shareholders owning less than 10 percent in the bankrupt company shall not be deemed controlling, unless they are proven to have played a role in the company’s bankruptcy. The amendments also expanded the list of persons who may be subject to secondary liability and the grounds for recognizing fault for a company’s bankruptcy. This sent a warning signal to management and business owners as well as controlling persons, including financial and executive directors, accountants, auditors and even organizations responsible for maintaining the company’s records.

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. The TRIMS Agreement requires elimination of measures such as those that require or provide benefits for the use of domestically produced goods (local content requirements), or measures that restrict a firm’s imports to an amount related to its exports or related to the amount of foreign exchange a firm earns (trade balancing requirements). Russia notified the WTO that it had terminated these automotive investment incentive programs as of July 1, 2018. However, shortly thereafter, the Ministry of Industry and Trade announced that it would provide support to automotive manufacturers if they meet certain production quotas and local content requirements. The government is developing a new points-based system to estimate vehicle localization levels to determine original Equipment Manufacturer (OEM)’s eligibility for Russian state support.  The government will provide state support only to OEMs whose finished vehicles are deemed to be of Russian origin, which will depend upon them scoring at least 2,000 points under the new system to get some assistance and 6,000 point to enjoy a full range of support measures. Points will be awarded for localizing the supply of certain components.

The government also introduced Special Investment Contracts (SPIC) as an alternative incentive program in 2015. On December 18, 2017, the government changed the rules for concluding SPIC, to increase investment in Russia by offering tax incentives and simplified procedures for government interactions. 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 to 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 contracts find their business hampered by policies biased in favor of local producers. The amendments aim to improve the SPIC mechanism by clarifying investment requirements and necessary documentation. They also provide a timeframe and procedures for application review, and for amending or terminating a SPIC. Finally, the amendments allow for broader composition of the SPIC private partner: the investor may now procure not only manufacturing services, but also engineering, distribution, and financial services, among others.

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 USD 500 million, with a share in the project not exceeding 50 percent. RDIF has attracted long-term foreign capital investments totaling more than USD 40 billion in the following sectors: energy, energy saving technologies, telecommunications, healthcare and other areas. 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 investments on a yearly basis.

Russia has 25 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. As of January 2018, 15 U.S. companies are working in Russian SEZs. According to Russian data, U.S. investors had invested over USD 1 billion in SEZs as of October 2018, making the U.S. the second largest investor in Russian SEZs.  A Russian Audit Chamber investigation of SEZs in April 2017 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 increased local content. For example, in a bid to boost high-tech manufacturing in the renewable energy sector, Russia guarantees a 12 percent profit over 15 years for windfarms using turbines with at least 65 percent local content. Russia is currently considering local content requirements for industries that have high percentages of government procurement, such as medical devices and 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.

Russia’s data storage provisions (the “Yarovaya law”) took effect on July 1, 2018, with providers being required to store data in “full volume” beginning October 1, 2018. The Yarovaya law requires domestic telecoms and ISPs to store all customers’ voice calls and texts for six months; ISPs must store data traffic for one month. The Yarovaya law initially required even longer retention with a shorter implementation window, which companies criticized as costly and unworkable.

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.

Russia placed 12th overall in the 2019 World Bank Doing Business Report 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 the U.S. Trade Representative (USTR) Special 301 Priority Watch List in 2019 and had several illicit streaming websites and online markets reported in the 2018 Notorious Markets List as a result of continued and significant challenges to intellectual property right (IPR) protection and enforcement.  Particular areas of concern include copyright infringement, trademark counterfeiting/hard goods piracy, and non-transparent royalty collection procedures. Stakeholders reported in 2018 that IPR enforcement continued to decline overall from 2017, 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. Russia has not met a series of commitments to protect IPR in the domestic market, including commitments made to the United States as part of its World Trade Organization (WTO) accession. Although the Russian government has made strides in copyright protection, most notably with antipiracy laws and blocking internet sites hosting pirated material, film studios and other copyright-intensive industries have made no progress with copyright-violating search engine Yandex or social networks vKontakte, OK.ru, and  Telegram. Amendments to the anti-piracy law aimed to block “mirror” websites came into force in October 2017 and oblige search engines, such as Google or Yandex, to withhold information about the domain name of an infringing website and any references to mirror sites of permanently blocked websites upon receiving a request from Roskomnadzor, the federal body responsible for regulating media content. Expediting the legal process remains important since these “mirrors” can appear within hours or days of a site being blocked. Industry sources estimate that obtaining a final writ of execution from a court to block permanently a “mirror” site will take around two weeks.  As a result of increased scrutiny, internet companies Yandex, Mail.Ru Group, Rambler, and Rutube signed an anti-piracy memorandum with several domestic right holders on November 1, 2018. The anti-piracy memorandum will be valid until September 1, 2019, if the relevant law is not adopted by this deadline. Industry sources believe compliance is unlikely if updated legislation is not enacted.

Modest progress has been made in the area of customs IPR protection since the Federal Customs Service (FTS) can now confiscate imported goods that violate IPR.  Between January and September 2018, the FTS seized 14.4 million counterfeit goods, compared with 10.1 million in 2017. The FTS prevented infringement and damages to copyright holders amounting to RUB 5.8 billion (USD 94.4 million) between January and September 2018, compared with RUB 4.5 billion (USD 77.1 million) in all of 2017.  For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/  .

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 432 licensed banks as of March 13, 2019, state-owned banks, particularly Sberbank and VTB Group, dominate the sector. The top five largest banks are state-controlled (with private Alfa Bank ranked sixth). The top five banks held 59.2 percent of all bank assets in Russia as of March 1, 2019. 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 2019, the aggregate assets of the banking sector amounted to 91.4 percent of GDP, and aggregate capital was 9.9 percent of GDP. Russian banks reportedly operate on short time horizons, limiting capital available for long-term investments. Overall, a share of non-performing loans (NPLs) to total gross loans reached 5.5 percent as of January 1, 2019. Foreign banks are allowed to establish subsidiaries, but not branches within Russia. The Russian Central Bank and the Far East Development Ministry have proposed a number of policy initiatives aimed at creating a Regional Financial Center (RFC) in the Russian Far East. The Far East Development Ministry has drafted a bill to create the RFC that is still undergoing an interagency approval process.  These proposed measures, still to be approved, include legal amendments permitting foreign bank branches in the region. 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 currency. 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. As of March 1, 2018, the Central Bank of Russia (CBR) no longer requires a “transaction passport” (i.e. a document with the authorized bank through which a business receives and services a transaction) when concluding import and export contracts. The CBR also simplified the procedure to record import and export contracts, reducing the number of documents required for bank authorization. Additionally, banks are now responsible for preparing reporting documentation and keeping record of such contracts. The new instruction is an example of further liberalization of the settlement procedure for foreign trade transactions in Russia. In 2016, the CBR tightened 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 USD 220). In July 2016, this amount was increased to 40,000 rubles (approximately USD 606). The declared purpose of this regulation is to combat money laundering and terrorist financing.

Remittance Policies

The 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

On February 1, 2018, Russia combined its two sovereign wealth funds, the Reserve Fund and the National Wealth Fund (NWF). These funds have a combined holding of USD 59.13 billion as of March 1, 2019. The government plans to use domestic and foreign borrowing to finance the budget deficit in 2019, while accumulating funds in the NWF. The Ministry of Finance oversees the fund’s assets, while the CBR acts as the operational manager. Russia’s Accounts Chamber (the standing body of state financial control established by Russia’s parliament) regularly audits the NWF, and the results are reported to the State Duma. The NWF is maintained in foreign currencies, and is included in Russia’s foreign currency reserves, which amounted to USD 479.3 billion as of March 8, 2019.

Russia does not have a unified definition of a state-owned enterprise (SOE). However, analysts define SOEs as enterprises where the state has significant control, through full, majority, or at least significant minority ownership. The OECD defines material minority ownership as 10 percent of voting shares, while under Russian legislation, a minority shareholder would need 25 percent plus one share to exercise significant control, such as block shareholder resolutions to the charter, make decisions on reorganization or liquidation, increase in the number of authorized shares, or approve certain major transactions. SOEs are subdivided into four main categories: 1) unitary enterprises (federal or municipal that are fully owned by the government), of which there are 862 unitary enterprises owned by the federal government as of January 1, 2018. 2) other state-owned enterprises where government holds a stake of which there are 1,130 joint-stock companies owned by the federal government as of January 1, 2018 – such as Sberbank, the biggest Russian retail bank (over 50 percent is owned by the government); 3) natural monopolies, such as Russian Railways; and 4) state corporations (usually a giant conglomerate of companies) such as Rostec and Vnesheconombank (VEB). There are currently six state corporations. Nevertheless, the number of federal government-owned “unitary enterprises” declined by 22.2 percent in 2017, according to the Federal Agency for State Property Management, while the number of joint-stock companies with state participation declined by 20.2 percent in the same period.

SOE procurement rules are non-transparent and use informal pressure by government officials to discriminate against foreign goods and services. Sole-source procurement by Russia’s SOEs increased to 45.5 percent in 2018, or to 37.7 percent in value terms, according to a study by the non-state “National Procurement Transparency Rating” analytical center.  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. 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. However, citing unfavorable market conditions, the government once again put on hold privatization of Russia’s largest SOEs and sold none of its largest companies slated for privatization in 2017-2019. As a result, the total privatization revenues received in 2018 reached only RUB 2.44 billion (USD 39 million), down 58 percent compared to 2017.

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 (RSPP), developed a Social Charter of Russian Business in 2004 in which 265 Russian companies and organizations have since joined, as of October 2017. According to a study conducted by Skolkovo Business School together with UBS bank, in 2017 corporate contributions to charitable causes in Russia reached an estimated RUB 220 billion (USD 3.8 billion). RSPP reported that as many as 176 major Russian companies published 924 corporate non-financial reports in 2000-2017, including on social responsibility initiatives.

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 led by one of Russia’s opposition leader Alexei Navalny. Anti-corruption protests continued across Russia in April 2017, days after President Vladimir Putin admitted Russia had a problem with state corruption. The protests hit the capital and several other cities, but attendance was notably smaller than in March 2017, when Russians took to the streets in droves demanding government reforms to tackle the issue. Transparency International’s 2018 Corruption Perception Index (CPI), ranked Russia 138 out of 180.

Russia’s CPI scores declined in 2018 to 28, down from 29 in 2015-2017. Roughly 39 percent of entrepreneurs surveyed by the Russian Chamber of Commerce in June-July 2018 said corruption declined in the preceding six months, while 9.5 percent said corruption intensified. Businesses mainly experienced corruption during applications for permits (39.2 percent), during inspections (34.5 percent), and in the procurement processes at the municipal level (30 percent).

In December 2018, Russia’s Prosecutor General Yuri Chaika reported 7,800 corruption convictions in 2018, including of 837 law enforcement officers, 63 elected officials at regional and municipal levels, and 606 federal, regional, and municipal officials.  Among these corruption convictions was Sakhalin Region’s former governor, Aleksandr Horoshavin, sentenced to 13 years in prison for bribery and money laundering.

In December 2018, the Russian government awarded 46 million rubles (USD 690,000) to a private company to direct discussions on anticorruption and civil-society development across the country.  During 2019, the contractor will conduct 135 events in Moscow, Saint Petersburg, Crimea, and 17 regions in Russia. These will include round table discussions, lectures, seminars, forums, and conferences. The company will also conduct social polling and in-depth interviews.

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 2017 to improve the anti-corruption climate including the creation of a registry of officials charged with corruption-related offences (entered into force on January 1, 2018). The information about the officials who were dismissed for having committed corruption-related offences will be kept in the registry for the period of five years. The employer of an official dismissed for corruption will be responsible for entering the information in the online database. 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.

Corruption in the past was mostly associated with large construction or infrastructure projects. Russia’s Federal Security Service stated in February 2016 that RUB5 billion (USD 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 an MVD colonel who allegedly had stashed more than USD 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 https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/.

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
Email: Info@transparency.org.ru

Individuals and companies that wish to report instances of bribery or corruption that impact, or potentially impact their operations, and to request the assistance of the United States Government with respect to issues relating to issues of corruption may call the Department of Commerce’s Russia Corruption Reporting hotline at (202) 482-7945, or submit the form provided at http://tcc.export.gov/Report_a_Barrier/reportatradebarrier_russia.asp  

Political freedom continues to be limited by restrictions on the fundamental freedoms of expression, assembly, and association and crackdowns on political opposition, independent media, and civil society. In the aftermath of Russia’s attempted annexation of Crimea in March 2014, nationalist rhetoric increased markedly. Russian laws give the government the authority to label NGOs as “foreign agents” if they receive foreign funding, greatly restricting the activities of these organizations. Since the law’s enactment, 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. Fourteen foreign organizations currently have this designation and are banned from operations in Russia.

According to the Russian press, 7,700 individuals were convicted of economic crimes in 2018; the Russian business community alleges many of these cases were the result of commercial disputes.  Potential investors should be aware of the risk of commercial disputes being criminalized. 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. Large-scale protests took place on March 26, 2017, when tens of thousands of 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.

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. After years of gradual hikes, the monthly minimum wage in Russia will finally be increased to the official “subsistence” level of RUB 11,163 (USD 196) on May 1, 2019, eight months ahead of the original schedule. 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 4.9 percent in 2018. As of the end of 2017, Moscow and the Republic of Ingushetia had the lowest and highest unemployment rates in the country – 1.2 percent and 26.3 percent, respectively. Real wages increased in 2018 by 6.8 percent year-on-year, with retail sales expanding by 2.6 percent year-on-year. 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 65.6 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 1.8 million registered migrant workers in 2017 (down from 1.83 million in 2017) 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. The Russian Interior Ministry estimated at the end of 2018 that the number of illegal immigrants in Russia accounted for about 2.0 million people and continued to fall. 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.

The U.S. Overseas Private Investment Corporation (OPIC; slated to be incorporated into the U.S. International Development Finance Corporation in October 2019) 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 nearly USD 502 million (10 projects covered by OPIC finance and five projects by OPIC insurance). See https://www.opic.gov/opic-action/active-opic-projects for more information.

The OPIC agreement (Investment Incentive Agreement) between the United States and Russia can be found at https://www.opic.gov/sites/default/files/docs/europe/BL_Russia-04-03-1992.pdf .

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

* Source for Host Country Data: FDI data – Central Bank of Russia; GDP data – Rosstat (GDP) (Russia’s GDP was 92,000 billion rubles in 2017, according to Rosstat. The yearly average ruble-dollar exchange rate in 2017, according to the IRS, was 58.3529 rubles to the dollar.)

Table 3: Sources and Destination of FDI

Table 4: Russian Portfolio Investment Destinations

Policies Toward Foreign Direct Investment 

The government of Ukraine actively seeks FDI.  In 2014, the president established the National Investment Council as a consultative and advisory body under the President, and in 2016 the Ukrainian government established the Ukraine investment promotion office (UkraineInvest.com), a state agency with a mandate to attract and support FDI.  Ukraine also established a Business Ombudsman in 2015 to provide a forum for domestic or foreign businesses to file complaints about unjust treatment by state or municipal authorities, state-owned or controlled companies, or their officials. Ukrainian legislation provides for national treatment of foreign investors, in line with its World Trade Organization (WTO) commitments. 

Limits on Foreign Control and Right to Private Ownership and Establishment 

The regulatory framework for the establishment and operation of business in Ukraine by foreign investors is generally similar to that for domestic investors.  Registering a foreign investment is governed by “The Law on Foreign Investments” (2013). Before registering their business, non-Ukrainian citizens must register with the Office of Immigration in the Ministry of Foreign Affairs and receive a taxpayer identification number through the State Fiscal Service.  However, the accreditation process for representative offices of foreign companies and their branches is significantly slower than the simplified registration process for Ukrainian businesses. Accreditation for representative offices is issued by the Ministry of Economic Development and Trade, and it typically costs USD 2,500 and takes 60 days.  In comparison, registering a Joint-Stock company or a Limited Liability company takes approximately six days.

Foreign and domestic private entities can engage in all forms of remunerative activity, with some exceptions:  foreign companies are restricted from owning agricultural land, producing bio-ethanol, manufacturing carrier rockets, and some publishing activities.  In addition, Ukrainian law authorizes the government to set limits on foreign participation in state-owned enterprises, although the definition of “foreign participation” is vague, and the law is rarely used in practice.  Certain critical infrastructure, especially in the energy sector, is precluded by law from private ownership and therefore not available to foreign investors. This includes the gas transmission system, electricity grids, and various manufacturing operations. 

Ukraine currently reviews merger and acquisition investments on competition grounds, but is considering a mechanism for investment review on national security grounds.   According to Ukraine’s investment promotion office, UkraineInvest, foreign direct investments are reviewed on an ad hoc basis by the Cabinet of Ministers if concerns arise, but there is currently no formal process in place. 

Other Investment Policy Reviews 

The Organization for Economic Cooperation and Development (OECD) and the World Trade Organization (WTO) conducted formal investment and trade reviews in 2016, and can be found at OECD: http://www.oecd.org/investment/oecd-investment-policy-reviews-ukraine-2016-9789264257368-en.htm   WTO: https://www.wto.org/english/tratop_e/tpr_e/tp434_e.htm  .  The OECD further reported on SOE reforms in the hydrocarbons sector in 2019: http://www.oecd.org/countries/ukraine/soe-review-ukraine-hydrocarbons.htm   and analyzed Ukraine’s efforts at decentralization in 2018: https://www.oecd.org/countries/ukraine/maintaining-the-momentum-of-decentralisation-in-ukraine-9789264301436-en.htm  

Business Facilitation

The Ukrainian government has taken major steps forward to facilitate the ease of doing business, particularly in improving the protection of minority investors, simplifying procedures for small claims and pre-trial conferences for contract enforcement, and eliminating certain verification requirements that have hindered trading across borders.  As a result, Ukraine moved up five spots in the World Bank’s 2019 Doing Business Ranking, from 76th place in 2018 to 71st. The previous year, Ukraine had climbed four positions in the ranking. In March 2019, the government abolished 149 outdated regulations and requirements in order to simplify doing business in Ukraine.

Private entrepreneurs and legal entities can register online at https://poslugy.gov.ua/   and https://online.minjust.gov.ua/dokumenty/choise/  .  Companies can submit documents online for the Registrar to share with the State Committee of Statistics of Ukraine, the State Pension Fund, State Fiscal Service, the Employment Insurance Fund, the Social Security Fund, and the Fund for Social Insurance.  Usually it takes up to six days to register a business.

Outward Investment

As of December 31, 2018 Ukraine’s investments in foreign countries totaled approximately USD 6.3 billion, according to data provided by the State Statistics Service of Ukraine.  Individuals are limited to investing a maximum of EUR 50,000 (USD 56,000) abroad per year and any investment exceeding this cap requires a license from the National Bank of Ukraine.  Legal entities and private entrepreneurs registered in Ukraine have a cap of EUR 2 million (USD 2.24 million) per year.

Ukraine has signed more than 70 bilateral investment treaties (BITs).  The BIT between the United States and Ukraine has been in force since 1996.  A full list of Ukraine’s BITs can be found at https://feao.org.ua/news/ukraines-bilateral-treaties-investments/?lang=en  .  Ukraine has over 60 bilateral taxation treaties, including with the United States.  A list of Ukraine’s bilateral taxation treaties can be found at http://sfs.gov.ua/en/sts-activity/international-tax-relations/international-treaties–conventions–on-taxation/  .  Ukraine also has a number of free trade agreements (FTAs), and information on these treaties is available at http://mfa.gov.ua/en/about-ukraine/economic-cooperation/trade-agreements. (However, some of this information is outdated).  Ukraine signed a FTA with Thailand September 2018 and with Israel January 2019.  Ukraine is currently negotiating a FTA with Turkey.

In February 2017, Ukraine signed an agreement with the United States to apply the provisions of the U.S. Foreign Account Tax Compliance Act (FATCA).  The legislation needed to ratify FATCA, as well as two other necessary laws to enforce it, are pending in the Parliament.

Transparency of the Regulatory System

Ukraine is struggling to build a transparent and consistent regulatory environment.  The current regulatory regime is characterized by outdated, contradictory, and burdensome regulations, a high degree of arbitrariness and favoritism in decisions by government officials, weak protection of property rights and minority shareholders’ interests, and irregular payments and other bribes.  The country, however, is generally moving in the right direction towards clearer rules and fair competition. Ukraine’s efforts to implement its EU Association Agreement, including the Deep and Comprehensive Free Trade Area (DCFTA), should help boost overall transparency and legal certainty as Ukraine strives to meet EU standards.  Continued deregulation is also one of Ukraine’s key commitments under its IMF program.

Information on existing and draft legislation is available on the Verkhovna Rada (parliament) and Cabinet of Ministers websites.  Proposed legislation may be published on the corresponding Ministry website for public commentary, but often draft legislative initiatives are not publicly available or they reappear in dramatically different form.

The formulation of regulations falls solely under the purview of the government.  In Ukraine there are no regulatory processes managed by non-governmental organizations or private sector associations.  The relevant ministry or regulatory agency is required by law to publish draft text of proposed regulations on its website for review and comment for at least one month but not more than three months.  Along with the draft text, the governmental body must include a data-based assessment justifying the need for the regulation and analyzing potential impact. The ministry or agency receives comments via its website, at public meetings, and through targeted outreach to stakeholders.  At the end of the consultation period, the relevant ministry or regulator must publish the results on its website. 

In a sign of increased openness, the government in the past few years has consulted with NGOs and business associations such as the American Chamber of Commerce and the European Business Association when drafting business- or finance-related regulations and legislation.  These organizations have provided feedback and proposed amendments during the review and approval process.

Public finances and debt obligations are mostly transparent.  Budget documents and information on debt obligations are widely and easily accessible to the general public, including online.  Budget documents provide a mostly full picture of the government’s planned expenditures and revenue streams. Information on debt obligations is publicly available, and is published as part of the budget document on the Parliament’s website.  Information on the status of sovereign and guaranteed debt is published and updated on a monthly basis on the Finance Ministry’s website. Ukraine’s finances related to state-owned enterprises, its three social insurance funds, and natural resource extraction are not yet fully transparent, however.

International Regulatory Considerations

Ukraine is not a member of the EU, but it is working to harmonize many of its standards to meet EU requirements and facilitate access to EU markets.  As Ukraine drafts laws, it often incorporates or references EU norms and standards. Ukraine is a member of the WTO and a signatory to the WTO Trade Facilitation Agreement.  The Ministry of Economic Development and Trade (MEDT) is responsible for notifying all draft technical regulations to the WTO Committee on Technical Barriers to Trade. MEDT typically submits draft text to the WTO for comment, but there have been instances where the draft text was submitted, relatively late in the legislative process, after it had already passed the first reading in the Parliament. 

Legal System and Judicial Independence

The legal system in Ukraine is based on a civil system of codified laws passed by the parliamentary body, the Verkhovna Rada.  In the event of a commercial dispute, a foreign investor may seek recourse through a number of institutions. Generally, the Foreign Investment Law provides that a dispute between a foreign investor and the state of Ukraine must be settled in the Ukrainian courts, unless otherwise provided for by international treaties (such as the case of independent arbitration through the investor-State dispute settlement provisions of the U.S.-Ukraine BIT). 

Courts of general jurisdiction are organized by territory and specialty and include:  local courts; appellate courts; specialized high courts for civil and criminal cases; and the Supreme Court.  Local courts are either courts of general jurisdiction or specialized courts (i.e. commercial and administrative courts).  Local commercial courts exercise jurisdiction over commercial and corporate disputes, while local administrative courts administer justice in legal disputes connected with state government and municipalities, with the exception of military disputes.

The judicial system is independent of the executive branch.  However, extensive corruption in the court system provides an opening for outside influence.  Among the major problems of the Ukrainian judicial system are its overall lack of capacity and the existence of executive and prosecutorial influence on judges.  Ukraine is ranked 117 out of 140 countries with regard to judicial independence by the Global Competitiveness Index   report 2017-2018 (up twelve spots since the 2016-2017 report).

In general, regulations are appealable, but determining whether a regulation is appealable in the national court system depends on the nature and origin of the regulation.

Laws and Regulations on Foreign Direct Investment 

The Law of Ukraine on Investment Activity (1991) established the general principles for investment and was subsequently followed by additional legislative acts, most recently the Law of Ukraine #2058-YIII of May 2017 “On Amendments to Some Laws to Remove Obstacles for Attracting Foreign Investments.”  The website of Ukraine’s Investment Promotion Office (https://ukraineinvest.com/  ) provides relevant laws, rules, procedures, and reporting requirements for potential investors.  Potential investors can also receive specific investment support by emailing howcanwehelp@ukraineinvest.com.

Due in part to conflicts in the body of laws that govern investment and commercial activity in Ukraine, and persistent issues with corruption, foreign investors have found it difficult to pursue cases in Ukrainian courts and often seek arbitration outside of the country.

Competition and Anti-Trust Laws 

The Antimonopoly Committee of Ukraine (AMCU) is the Ukrainian state authority for protection of economic competition.  AMCU’s functions include investigating and prosecuting anticompetitive conduct, granting permissions for mergers and acquisitions, considering applications regarding violations of public procurement as an appeal body, monitoring the state aid system, competition advocacy within the government, and formulating competition policy. 

Expropriation and Compensation 

Current legislation permits legal expropriation of property in certain criminal proceedings or in cases of failure to fulfil investment obligations during privatization procedures.  Additionally, the Law on Legal Regime of Martial Law and the Law on Confiscation of Property During Legal Regime of Martial Law allow for voluntary or forced expropriations for military purposes with compensation to be provided either immediately or following cancellation of the “special regime/martial law” in place due to military operations in eastern Ukraine. 

Dispute Settlement

ICSID Convention and New York Convention

Ukraine is a Party to both the International Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID) and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.  On October 20, 2015, the Government of Ukraine submitted a formal UN communication, noting that Ukraine’s ability to implement its obligations under the New York Convention in the occupied territories of Crimea, Donetsk, and Luhansk is limited and not guaranteed until Ukraine regains effective control from the Russian Federation.  The full text of the communication is available at: C.N.597.2015.TREATIES-XXII.1 of 20 October 2015 .

The procedure for recognition and enforcement of foreign arbitral awards in Ukraine is regulated by the following legislative acts:

• The Law on International Commercial Arbitration (ICAL, 1994).  ICAL is almost a literal translation of the UNCITRAL Model Law.
• The Code of Civil Procedure of Ukraine (CPC, 2004).  Pursuant to Article 390 of the CPC, Ukrainian courts shall enforce foreign court decisions provided that:  recognition and enforcement are stipulated under an international treaty ratified by the Verkhovna Rada; or on the basis of the reciprocity principle under an ad hoc agreement with a foreign country, whose court decision shall be enforced in Ukraine.

Investor-State Dispute Settlement

While U.S. investors have faced many challenges with the Government of Ukraine over the years that have devolved into disputes, international arbitration under provisions of the Bilateral Investment Treaty between the United States and Ukraine have been rare, with two known arbitral proceedings since 2016.  The Embassy only tracks disputes at the request of U.S. businesses or individuals involved in the case, and cannot provide a comprehensive number for all investment disputes involving U.S. or other foreign investors in Ukraine. Such disputes are a significant problem, however, both in fact and in terms of public perception.  As of early 2019, the Embassy was tracking approximately 20 active disputes, some very protracted. Going back 10 years, the Embassy has tracked almost 100 disputes involving a U.S. business or individual. The majority of disputes are related to customs and tax (particularly VAT) issues, or corporate raids.

ICAL limits the jurisdiction of international arbitration tribunals to civil law disputes arising from international economic operations (provided that the commercial enterprise of at least one party exists outside of Ukraine), disputes between international organizations and enterprises with foreign investments in Ukraine, and intracompany disputes of these enterprises.  ICAL does not address foreign arbitral awards issued against the government.

Extrajudicial action against foreign investors in the form of official acts of government (e.g. unwarranted inspections, investigations, fines) and illegitimate acts by private parties (e.g. corporate raiding) occur in Ukraine.  The current Ukrainian government has made it a stated priority to improve the business environment and attract more foreign investment, but progress has been slow.

International Commercial Arbitration and Foreign Courts

The Law on Arbitration Courts (2004) stipulates that parties can now refer most of their commercial or civil-law disputes to courts of arbitration, which are non-state bodies.  Article 51 stipulates that awards of the aforementioned courts of arbitration are final, and Article 57 stipulates that they can be subject to mandatory enforcement via a competent state court.  The Embassy, however, is not aware to what extent arbitration is used by the business community.

Ukraine’s International Commercial Arbitration Court (ICAC) and Maritime Arbitration Commission at the Ukrainian Chamber of Commerce and Industry are both annexed to the ICAL, which itself is a near-direct translation of the UNCITRAL model law.  ICAL distributes the functions of arbitration assistance and supervision between the district courts and the President of the Chamber of Commerce and Industry of Ukraine for both ad hoc and institutional arbitrations. Local courts are obliged to recognize and enforce foreign arbitral awards under ICAL and the CPC, per Ukraine’s obligations under the ICSID and the New York Convention of 1958.  However, the reliability, consistency, and timeliness of implementation are unknown. 

The Embassy is not aware of any investment disputes that have involved state-owned enterprises.

Bankruptcy Regulations

In a turning point for Ukrainian bankruptcy law reform, in October 2018 the Ukrainian parliament adopted the Code of Bankruptcy Proceedings to replace the existing bankruptcy law that had been in force since 1992.  The President signed the bill into law in April 2019. The new Bankruptcy Code enters into force six months after the legislation is published (provisions on electronic auctions will enter into force three month after publication).

The new Bankruptcy Code improves creditors’ rights by allowing them to select the bankruptcy administrator, decide the starting price of debtor assets at auction, and participate in other matters regarding asset sales.  The Law on Bankruptcy (1992) does not require approval by creditors for selection or appointment of an insolvency representative, nor does it require approval by creditors for sale of substantial assets of the debtor. The Bankruptcy Code also improves the procedures for selling debtor’s assets by introducing online electronic auctions.  Currently, assets are often sold offline in a non-transparent way. In addition, the new Bankruptcy Code does not require prior collection through courts or enforcement services for insolvency proceedings to begin. For creditors this might significantly ease the debt collection process and reduce legal costs and court fees. 

Bankruptcy is not criminalized in Ukraine.  The Criminal Code of Ukraine, however, criminalizes 1) intentionally making an entity bankrupt; 2) distorting certain financial data in order to conceal insolvency of a financial institution.

In the 2019 World Bank’s Doing Business Report Ukraine ranked 145 (improved from 149th in 2018) in the “resolving insolvency” subcategory.  Ukraine’s low ranking is driven by a low recovery rate and the high costs associated with recovering funds from the insolvent firm by creditors.

Parliament passed legislation in February 2018 to create a national credit registry administered by the National Bank of Ukraine.  This EU-mandated legislation seeks to reduce lending risks through the publication of credit histories, including bankruptcies.

Investment Incentives 

Foreign investors are exempt from customs duties for any in-kind contribution imported into Ukraine for the company’s charter fund.  Some restrictions do apply and import duties must be paid if the enterprise sells, transfers, or otherwise disposes of the property. Ukraine also offers relatively generous depreciation rates for most fixed assets, including property, plant, and equipment for both foreign and domestic investors.

Foreign Trade Zones/Free Ports/Trade Facilitation

Ukraine does not maintain special or free economic zones (SEZs-FEZs).

Performance and Data Localization Requirements 

Ukraine has no forced localization policies or requirements for foreign IT providers to turn over any source code or provide backdoors into hardware or software applications.  Overall, Ukraine’s IT infrastructure and Internet Service Providers are largely unregulated. However, Ukraine implemented sanctions in 2017 that ban internet service providers from providing access to the Russian social networks VKontakte and Odnoklassniki as well as all services from Yandex and Mail.Ru.

Under Article II, clause 6 of the Bilateral Investment Treaty between the United States and Ukraine, neither Party shall impose performance requirements as a condition of establishment, expansion, or maintenance of investments, which require or enforce commitments to export goods produced, or which specify that goods or services must be purchased locally, or which impose any other similar requirements.

There are no legal measures preventing or impeding companies from transmitting business-related data outside of Ukraine.  In terms of data storage and protection requirements, the EU–Ukraine Association Agreement requires Ukraine to revise legislation to bring it in compliance with the EU’s General Data Protection Regulation (GDPR).  Ukraine’s adoption of regulations harmonized with the EU’s GDPR is still in progress.

An employer is free to employ a foreign national as long as the employer has obtained a work permit for this person.  The law of Ukraine “On Employment of the Population” sets forth the procedure for issuing work permits to foreigners. Authorities issue work permits on a case-by-case basis, for a particular applicant and a particular  position in a company. A work permit is normally issued for the period of employment indicated in the employment contract, but not for more than one year. A work permit can be renewed for the same term, for an unlimited number of times and free of charge.

A foreign citizen with a valid work permit who spends more than 90 days within a 180-day period in Ukraine, can obtain a temporary residence certificate.  As of June 1, 2018, temporary residence certificates are now contactless electronic cards with biometric data. The new permits are generally issued for the term of an individual’s work permit.  There are also no age or nationality restrictions on who can be a manager or company director in the private sector.

Citizens of EU countries, the United States, Canada, Japan and some other countries do not require a visa to enter Ukraine for a stay of up to 90 days within a 180-day period.  Individuals who are planning to get a temporary residence permit in Ukraine due to work must obtain a long-term type D visa. The list of countries and respective visa requirements are available on the website of the Ministry of Foreign Affairs of Ukraine (http://mfa.gov.ua/en  ).  There are no reports from foreign investors and their employees of excessively onerous visa requirements inhibiting their mobility.  However, Russian citizens have reported difficulties and heightened scrutiny when arranging travel to Ukraine. Additionally, people who previously traveled to Russian-occupied Crimea since 2014 have been reported being denied entry to Ukraine.

Real Property

Ukraine’s regulatory framework generally protects property interests, as well as mortgages and liens.  The record system is generally reliable and maintained by the Ministry of Justice. Nonetheless, judicial reform is needed to improve efficient enforcement of property rights.  Foreign nationals are able to lease land, but there is a moratorium on the sale of agricultural land to foreigners.

Ukrainian media estimates that five percent of land in Ukraine does not have clear title.  The government in 2017 ordered the transfer of the State Land Cadaster to blockchain technology in order to allow for reliable data synchronization, which would prevent data manipulation and improve control over the system, but the status of this initiative is unclear.  Pilot projects to transfer the State Land Cadaster and the legal registry to blockchain began in late 2018. Unoccupied property can become communal property only by court decision following a request from the local body authorized to manage real estate property. The request can only be made a year after the property was registered as unoccupied.  

Intellectual Property Rights

Ukraine has a long history of inadequate enforcement and protection of intellectual property rights (IPR).  Ukraine has been listed on the Priority Watch List of the U.S Trade Representative’s Special 301 Report since 2015 due to the widespread use of unlicensed (pirated) software, the transshipment and sale of counterfeit goods, rampant Internet piracy, and an overabundance of rogue of collective management organizations (CMOs).  Moreover, in 2017, the United States announced the partial suspension of Ukraine’s benefits under the Generalized System of Preferences (GSP) for failure to meet the GSP eligibility criterion related to the adequate and effective protection of IPR. Ukraine is also listed in the USTR’s Notorious Markets List. 

Over the past year, Ukraine has passed significant legislation and developed laudable plans to improve the protection of IPR, but the implementation of this legislation and these plans to date has been slow and ineffective.  Despite the passage of new legislation and early steps to implement it, in operation Ukraine’s system of CMOs remains non-transparent and corrupt.  Rights holders report it is still difficult to combat online copyright infringement despite Ukraine improving its anti-piracy legislative framework in 2017.  Furthermore, the presence of counterfeit goods in Ukraine continues to be high due to limited action by law enforcement, and there is widespread use of unlicensed software. 

Due to Ukraine’s weak protection of IPR, online markets that facilitate the sale and distribution of counterfeit goods continue to operate in Ukraine.  Industry reports that a high volume of allegedly counterfeit goods is readily available on these marketplaces, and that the process to remove the listings of these items is cumbersome and ineffective. 

Sales of counterfeit goods in physical marketplaces continue to be widespread as well.  One of the largest counterfeit markets in Europe, with around 6,000 merchants, is the 7th Kilometer Market in Odesa.  Law enforcement authorities do not perform raids or seizures at this market, according to stakeholders and local media.  The Troyeshchyna and Petrivka markets in Kyiv, Khmelnytskiy market as well as the Barabasova market in Kharkiv also sell a high volume of counterfeit goods.

Most counterfeit goods are not produced in Ukraine but are instead imported.  Vendors reportedly source the counterfeit items from Turkey and China. In 2018, Customs reported that they inspected 7,260 shipments due to the suspicion of IP rights’ violations and reported 12 cases of illegal trade of counterfeit goods valued at USD 61,000. This is approximately 30 percent less than in 2017, when Customs authorities opened 14 criminal cases for illegal importation and exportation of counterfeit goods valued at over USD 400,000.  The EU is working with Ukraine on draft law no. 4614 to improve the detection and prevention of “goods infringing intellectual property rights moving through the border” as part of Ukraine’s obligations under the Deep and Comprehensive Free Trade Agreement (DCFTA) with the EU.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

Capital Markets and Portfolio Investment

The Ukrainian government encourages foreign portfolio investment in Ukraine.  Ukraine’s capital market consists of two separate sectors: stock market and commodity market.  The stock market includes ten stock exchanges and a settlement center. No clearing services are offered at present. 

Government bonds constitute 95 percent of the trades; a few corporate securities are listed, and the volume of their trades is insignificant.  The capital market for portfolio investment is small and lacks liquidity. The local institutional investment sector, including private pension investment, is weak.  The commodity market in Ukraine is underdeveloped and unregulated. It includes hundreds of commodity exchanges and other participants, not licensed or subject to any supervision. 

The regulator, the National Securities and Stock Market Commission, lacks financial and operational independence and, therefore, Ukraine is not a signatory of the Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (of the International Organization of Securities Commissions. The necessary legislation to strengthen the independence of the Securities Commission was submitted to the Parliament but has not been passed yet.

A foreign investor may open an account in a bank operating in Ukraine and transfer in funds for further investment, or invest directly to an account of a Ukrainian resident company.  In 2017, the National Bank of Ukraine began allowing foreign investors to use escrow accounts to make investments in Ukraine. Only Ukrainian-licensed securities traders may handle securities transactions (subject to certain exceptions).

Credit is largely allocated on market terms and foreign investors are able to get credit on the local market, utilizing a variety of credit instruments, though interest rates remain high.  The credit market environment has long lacked transparency; enforcement of key laws and regulations has been weak; and investors, both domestic and foreign, continue to face significant uncertainty.

Money and Banking System

Ukraine’s banking sector has seen remarkable progress following the 2014-2015 crisis thanks to reforms resulting in the closure of over 90 banks for insolvency or for money laundering activities.  The banking sector reported a record high net profit of UAH 21.7 billion (USD 775 million) in 2018 with the number of unprofitable banks falling from 18 in 2017 to 13 in 2018. Foreign banks’ profits amounted to UAH 15 billion (USD 555 million) in 2018.  Non-performing loans, however, remain one of the biggest unresolved issues of the banking sector accounting for 52.8 percent of loans as of the end of 2018.

There are approximately 77 banks operating in Ukraine, but the top 20 banks accounted for 91 percent of net assets in 2018.  The market share of state-owned banks (Privatbank, Ukreximbank, Ukrgasbank, and Oshchadbank) accounted for 54.7 percent of net assets in 2018.  The banking sector’s net assets amounted to USD 50 billion at end of 2018.

Ukraine’s central bank, the National Bank of Ukraine (NBU), regulates banks operating in Ukraine.  The NBU Governor Smolii outlined a plan to increase the penetration of financial services in Ukraine at a 2018 Financial Inclusion Forum.  The plan included developing new technologies to increase accessibility in rural areas of the country, promoting financial literacy, and protecting customer rights to instill confidence in the system.  Approximately 63 percent of Ukraine’s adults have at least one bank account, according to World Bank estimates.

Foreign-licensed banks may carry out all activities conducted by domestic banks, and there is no ceiling on participation in the banking system, including operating via subsidiaries.  A foreign company can open a bank account in Ukraine for the purposes of investment operations; otherwise, it needs to register a representative office in Ukraine. A nonresident private person can open a bank account in Ukraine.

Foreign Exchange and Remittances

The National Bank in 2018 continued to liberalize currency controls and restrictions on repatriating funds, which had been put in place to stabilize the Ukrainian foreign exchange market during the 2014 economic crisis.  There is a five million euro monthly limit per company for repatriation of non-listed equities and corporate bonds (for foreign currency purchasing and transferring abroad). For all other types of investments repatriation – listed equities, government bonds, funds from reducing share in capital, company liquidation, etc. – there are no restrictions.  There is a monthly limit of seven million euros for the repatriation of dividends. The NBU has indicated it intends to raise the monthly limit to ten million euros.

Companies that receive payment in foreign currency are required to exchange 30 percent of the payment they receive into local Ukrainian currency.  This requirement was decreased from 50 percent as of March 1, 2019.

In June 2018 Ukraine’s Parliament passed the Law “On Currency and Currency Transactions,” which liberalized the currency control framework.  The currency law introduces the “everything is allowed, unless expressly forbidden” principle versus the former “everything is forbidden, unless expressly allowed” principle for cross-border currency transactions.  Consequently, the law prompted a shift from the previous, heavily bureaucratic currency regulation to one more flexible and with fewer restrictions on currency operations. Government authorities should interpret any ambiguous provisions in the Currency Law and the NBU Regulations in favor of companies or individuals that perform currency transactions.

The NBU has had a floating exchange rate policy for the last four years, though the NBU carries out currency interventions to meet two objectives:  reducing excessive currency fluctuations and replenishment of international reserves.

Sovereign Wealth Funds

Ukraine does not maintain or operate a sovereign wealth fund.

The Government of Ukraine operates 1,600 state-owned enterprises (SOEs) out of 3,358 registered SOEs, with an economic output of approximately ten percent of GDP.  While the government lists 3,358 enterprises, more than 1,700 of them no longer operate as profitable businesses. SOEs in Ukraine are defined as companies which the state owns at least 50 percent +1 share.  SOEs are active in areas such as energy, machine-building, and infrastructure. There is no common public list of all SOEs in Ukraine and each ministry publishes a list of SOEs under its respective management.  The Ministry of Economic Development and Trade periodically updates information on annual financial reports of significant SOEs (100 of the largest SOEs), which it publishes on the ministry website. http://www.me.gov.ua/Documents/List?lang=uk-UA&id=40a27e1b-8234-43d3-a37f-c4c752729fca&tag=FinansovaZvitnistPidprimstv     

The corporate governance law, which entered into force in 2016, requires SOEs to publicize annual financial reports and disclosures on official websites, including information on financial indicators, company officials, transactions, etc.  Ukrainian law also stipulates that SOEs publish their annual financial statements and audits. In 2018, the government of Ukraine stepped up its corporate governance reform efforts, and created supervisory boards in strategic SOEs. Strategic SOEs, including Ukrzaliznytsia, Ukrenergorynok, Ukrposhta, and Ukrenergo, have selected independent and government board members.  These reforms have been an important step in improving the management, efficiency, and responsiveness of the companies.

Most SOEs rely on government subsidies to function and cannot directly compete with private firms.  Several SOEs capable of making a profit have already been privatized, and the result has been that mostly inefficient firms have remained in government hands.  The Government of Ukraine heavily subsidizes its state-owned enterprises (especially in the coal mining, rail transportation, gas, and communal heating sectors) and has supported debts of many SOEs with sovereign loan guarantees.  SOE access to extensions of tax payment deadlines remains nontransparent, especially where SOEs are directed to sell their products at below-market prices.

SOE senior managers traditionally report directly to the relevant Ministry.  Ukrainian law specifies that ministries are not permitted to interfere with the daily economic activities of an SOE, but numerous anecdotal reports indicate that ministries and vested interests ignore this restriction.  The Cabinet of Ministers has the power to decide on the creation, reorganization, and liquidation of SOEs, and to adopt and enforce SOE charters. It can delegate this authority to relevant ministries supervising the SOE.  The Cabinet of Ministers may also delegate to ministries the permission to create joint ventures with state property and prepare proposals to divide state property between the national and municipal levels. 

Privatization Program 

In March 2018, the government began implementing a new law on the privatization of state property aimed at attracting more investors.  The legislation allows investors to settle disputes under international law, makes it obligatory to employ international advisers for the sale of larger firms, and bans Russian and off-shore companies from participating in the privatization process.  Despite the launch of the new law, the government did not complete a single large-scale privatization in 2018.

On May 3, 2018, the government approved a list of companies designated for sale.  The list contained 26 SOEs, including several regional energy providers, or oblenergos, the Odesa Portside Plant (OPP), and electricity generator Centrenergo.  With the exception of Centrenergo, sales of the remaining SOEs were targeted to proceed under terms of the new law signed in 2018.  Of the 26 companies designated for privatization, the government initiated advisor tenders for six companies in 2018.  Five of these tenders were challenged by competitors believed to be acting on behalf of vested interests.  As of 2019, the five advisor appointments remained stalled.  A lackluster interest and poorly-prepared bidders led to the government’s decision to cancel the sale in late 2018 of the sixth company, Centerenergo, despite a promising start to the process. In 2018, Ukraine’s central budget received only UAH 0.3 billion (USD 11 million) from privatization, comprising only 1.4 percent of the original plan.

The GOU approved a revised list of 21 SOEs designated for privatization on January 16, 2019.  The 2019 list excluded most utility companies due to a government decision to transfer the utilities to a communal ownership structure.  The government also approved a list of smaller-scale SOEs to put up for sale in 2019.  

The State Property Fund (SPC) oversees privatizations in Ukraine.  The rules on privatization apply to foreign and domestic investors and, theoretically, a relatively level playing field exists.  Observers have cited, however, numerous instances in past privatizations where vested interests influenced the process to fit a pre-selected bidder.  Despite these concerns, the government has stated that there would be no revisions of past privatizations. Still, some court cases have surfaced wherein private companies are challenging earlier privatizations.

There is limited but growing awareness in Ukraine of internationally accepted standards for responsible business conduct, including corporate social responsibility.  Primary drivers for the introduction of these standards have been Ukraine’s vibrant civil society, international companies and investors, and efforts by business associations such as the American Chamber of Commerce and the European Business Association.  The Government of Ukraine has put in place corporate governance standards to protect shareholders; however, these are voluntary.

In 2017, Ukraine became the 47th country to adhere to the OECD Guidelines for Multinational Enterprises  , which provides recommendations on a due diligence approach to responsible business conduct.  Ukraine established its National Contact Point to promote these guidelines for Multinational Enterprises under the Ministry of Economic Development and Trade (http://ncp.gov.ua/?lang=en  ).  There are also independent NGOs, such Center for the Development of Corporate Social Responsibility, as well as investment funds, worker organizations/unions, and business associations promoting or monitoring responsible business conduct.  There are no reported restrictions on their activities aimed at promoting responsible business conduct.

Ukraine has been a member of the Extractive Industries Transparency Initiative (EITI) since 2013.  Participation by companies in Ukraine is still voluntary.

Ukraine has numerous laws to combat corruption by public officials, and following the Revolution of Dignity in 2014 the government launched new anti-corruption institutions, including the National Anti-Corruption Bureau (NABU) to investigate corruption by public officials, the Special Anti-Corruption Prosecutor’s Office (SAP), and the National Agency for Prevention of Corruption (NAPC).  In addition, a law mandated that public officials declare their assets on a publicly viewable online system. These new institutions, however, have had an uneven track record. After the successful 2016 launch of the asset declaration system for public officials, the NAPC failed to fulfill its mandate to verify officials’ declarations and to fairly manage political party finance reporting.  NABU and SAP have taken 107 corruption cases to court since 2015, including indictments of high-level officials, but have failed to obtain a single conviction as cases became mired in court proceedings. On June 7, 2018 the Parliament approved long-awaited legislation to establish an Anti-Corruption Court, and the process establishing the court is underway.

Foreign businesses, including U.S. companies, continue to identify corruption in many sectors as a significant obstacle to FDI.  Reform of public procurement has been a success story, with the introduction of the online ProZorro system providing transparency for most procurement, except in the defense sector, which remains non-transparent and allegedly a continuing source of corruption.  The energy sector has seen some improvements, including reforms at the large oil and gas SOE Naftogaz, but participants in the sector continue to complain of significant and sometimes insurmountable corruption. Government interference in the corporate governance of Naftogaz is a persistent concern.  There are allegations of corruption at specific SOEs in a variety of sectors, as well as allegations that external corrupt forces interfere regularly in SOE operations.

There are a number of NGOs actively involved in investigating corruption and advocating for anti-corruption measures.  In 2017, the Parliament passed a law with broad requirements for non-governmental individuals engaged in anti-corruption activities to file public asset declarations.  The declaration requirements for anti-corruption activists went into effect in early 2018, despite calls from the international community for the Parliament to scrap the requirement.

Resources to Report Corruption

NABU, established in October 2014, is the appropriate resource for the reporting of high-level corruption.

Government of Ukraine contact for combating corruption:

Mr. Artem Sytnyk, Director
National Anti-Corruption Bureau
3, Vasyl Surikov St, Kyiv, Ukraine 03035
Hot-line:  0-800-503-200
Email: info@nabu.gov.ua
Corruption Reporting eForm:  http://nabu.gov.ua/povidomlennya-pro-kryminalne-pravoporushennya  

Contact at Transparency International:

Mr. Andriy Borovyk
Executive Director
Transparency International Ukraine
2A provulok Kostia Hordiienka, 1st floor, Kyiv, Ukraine 01024
+38(044) 360-52-42
Email: office@ti-ukraine.org

The military conflict continues in parts of Donetsk and Luhansk oblasts between Ukrainian government troops and forces that Russia leads, arms, and funds.  Residents of Russia-controlled areas are subject to political violence at the hands of Russia’s proxy authorities.  Civilian casualties occur regularly due to landmines and shelling, as fighting occurs in and around major population centers.  Infrastructure for water, gas, and electricity are also frequently damaged by fighting.  Ukraine lacks control of over 500 km of its border in Donetsk and Luhansk, allowing Russia to freely supply its proxies with equipment, weapons, and soldiers.  Russia continues its illegal occupation of the Autonomous Republic of Crimea and the City of Sevastopol.

There were several protests and demonstrations during 2018 against the government, mainly evoking populist messaging against economic conditions in the country and perceptions of the government failing to fight corruption.  These protests, however, have generally been peaceful with few instances of violence.  The 2019 presidential election cycle meant increased competition among political parties, decreasing the pace of work in parliament.

Ukraine has a well-educated and skilled labor force of about 26 million people with a nearly 100 percent literacy rate.  Ukraine’s population was 42.2 million people in December 2017. Ukraine’s official unemployment rate was 9.1 percent in 2018 although unemployment in some regions, particularly in western Ukraine, remained significantly higher.  According to the Ministry of Social Policy of Ukraine, there were about 1.7 million unemployed workers in 2018. However, only 21 percent were officially registered with the State Employment Service. Wages in Ukraine remain low by Western standards.  In January 2019, the minimum monthly wage increased to 4173 UAH (USD 155) from 3723 UAH (USD 138) in January 2018. The real average monthly wage increased by 14.2 percent year-on-year to 9218 UAH (USD 341). The highest wages are traditionally in the financial and aviation sectors; the lowest wages are paid to agricultural and public health workers. 

Ukrainian law allows workers to organize, and unions are prevalent in most industries.  The law provides most workers with the right to form and join independent unions and to bargain collectively without previous authorization.  By law, trade unions are equal, and a union’s establishment does not require government permission. Within classic sectors of the economy, sector-specific collective bargaining agreements involve representative employers’ associations (e.g., chemical employers), sector trade unions, and some participation of the government through the Ministry of Social Policy.  Such agreements can also take place at the regional level. However, the independence of unions from government or employer control has been disputed by certain labor groups. Independent trade unions allege that the country’s largest trade union confederation, the Federation of Trade Unions of Ukraine (FPU), enjoyed a preferential relationship with employers and members of some political parties.  Unions not affiliated with the FPU have been denied a share of disputed trade union assets inherited by the FPU from Soviet-era unions. There have also been cases of workers who renounced membership in an FPU-affiliated union and who joined a new union, facing loss of pay, undesirable work assignments, and dismissal.

The law provides for the right to strike “to defend one’s economic and social interests,” as long as strikes do not jeopardize national security, public health, or the rights and liberties of others; the government generally respects this right.  It does not extend the right to strike to personnel of the Prosecutor General’s Office, the judiciary, armed forces, security services, law enforcement agencies, the transportation sector, or public servants. Workers who strike in prohibited sectors may receive prison terms of up to three years. 

During 2018, the State Labor Service was responsible for enforcing labor laws.  Inspectors were limited in number and funding. Although the Government of Ukraine renewed planned and unplanned labor inspections, the number of completed inspections continued to fall, and experts assessed the number to be inadequate relative to the size of the Ukrainian economy.  A new law established the National Mediation and Reconciliation Service (NMRS) to mediate labor disputes. According to official Ukrainian statistics, during 2017 the NMRS resolved 312 labor disputes, which involved 1.5 million employees and 6,835 economic entities.

The United States has offered Overseas Private Investment Corporation (OPIC) political risk insurance and financing in Ukraine since 1992.  OPIC has an active pipeline of projects in Ukraine, across various sectors. There are currently 20 OPIC projects in Ukraine with a value USD 983 million.  Ukraine is also a member of the World Bank-based Multilateral Investment Guarantee Agency (MIGA). 

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

* State Statistics Service of Ukraine

Table 3: Sources and Destination of FDI

Source: State Statistics Service of Ukraine

Table 4: Sources of Portfolio Investment