Grafski Consulting
Efficient Market Entry into Russia
32 years of hands-on business development expertise in Russia

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How to Succeed in Russia: Top Ten Tips for Foreign Investors


«Andrew Mac has an excellent reputation for his proficiency in cross-border transactions»

Chambers Europe 2012

By Andrew Mac, Head of EPAM USA PLLC based in Washington, DC. He specializes in cross-border transactions with the involvement of Russia, Ukraine and other CIS states. He is an expert in M&A, corporate and competition law, corporate compliance, FCPA/Bribery Act, capital markets and state regulations.


Russia has a unique corporate and investment culture. In-house counsel looking to navigate this world would be wise to consider ways they can protect themselves from particular risks. This Top Tenprovides a brief overview of important tips for foreign investors in Russia. The following is based on nearly two decades of experience counseling Western clients in Russia

1. Find the right Russian Partner

When you are a newcomer it is better to have someone who can assist you in your new environment, especially when it comes to conducting business in Russia. One stands a significantly better chance of success in Russia by teaming up with the right Russian partner. The right partner has:

      Relevant industry experience,

      A proven track record of success, and

      Sufficient structural bandwidth to properly support a joint venture.


2. Never underestimate your Russian Partner

Unfortunately, there are still certain Western media-driven stereotypes about Russian businessmen, which undermine their reputation. The fast growing Russian market created a new type of local businessmen. They are well-educated, well-travelled, very hard working and open-minded (usually more so than many of their Western counterparts). They have invaluable insights into operating successfully in Russia.

3. Choose the Right Lawyer

The Russian legal system is quite complex and continuously developing. Choosing the right lawyer is no less important than choosing the right Russian business partner. There are many reputable international and Russian law firms and almost all major US and UK legal rating agencies cover these firms in sufficient detail. Do notsimply rely upon someone else's recommendation. Take the time to interview and get to know your counsel before instructing them. In addition to being a great legal practitioner, your lawyer should

      Be proactive

      Understand your commercial needs, and

      Be able to constructively interact with your business partners.


4. Insist on a Thorough Due Diligence and Assume No Liabilities

Issues related to:

  • The target's establishment or privatization,
  • The licenses it obtained,
  • The rights with respect to its assets,
  • The amount of net assets,
  • Current or potential involvement in litigation, and
  • Many other aspects need to be thoroughly reviewed by local counsel.

Quite often your counsel will have to exert significant pressure to obtain critical documents as targets are reluctant to disclose all information upfront. Do not settle for anything less than full disclosure of all material documents, no matter how long it takes.

Most risks uncovered in due diligence can be mitigated prior to closing. But, at times some risks are so material that they could fundamentally alter the nature of the transaction itself and cannot be mitigated in a reasonable time period before closing. In such situations, your counsel should insist on detailed indemnities for each specific risk secured by appropriate escrow mechanisms.

5. Use English Law

Russian law, as was previously mentioned, is constantly developing and is still not as flexible as more established legal systems. This shortcoming makes Russian law less undesirable when drafting key transaction documents. For instance, there are still a number of gaps under Russian law, such as the regulation of indemnities and shareholders agreements, thatmakes using this instrument under Russian law highly unpredictable.Therefore, English law governs the vast majority of Russian M&A transactions.

6. Regulatory Approvals are Important

Generally, there are two general regulatory approvals investors should be concerned with:

  • Antitrust/Merger Control- The Russian merger control authority – the Federal Antimonopoly Service (FAS) is vested with wide authority in regulating mergers and acquisitions, both in and outside of Russia (in the latter case it would have authority if such a transaction could potentially affect assets located in Russia). Under most circumstances, either a preliminary approval from the FAS is needed prior to closing or a post-closing notification to the FAS is required. If not conducted properly, there is a risk that the transaction will be challenged in court (if it threatens fair competition within a certain market) or – in the case of a merger – will end up in involuntary split-off or the imposition of large administrative fines.
  • Strategic Investment Approval- The Russian Strategic Investment Law provides that any acquisition by a foreign investor leading to"control" over a company that is engaged in "strategic operations" requires preliminary consent of the Russian governmental commission. There are approximately forty sectors that are currently considered strategic, which means that any acquisition of a Russian company involved in any of these activities is classified as a strategic investment. An investor should carry out a detailed review of all its targets activities and have counsel analyze carefully whether any of its activities could be considered strategic under this law. Failure to comply with this law will invalidate the transaction. 

There are other regulatory requirements that are industry specific and publically held companies, so called "Open Joint Stock Companies," are regulated by securities laws and regulations. These should be carefully analyzed when applicable.

7. Trust but Verify

Russian law provides for complex multi-tier corporate governance structures that allow investors to protect their rights and adequately monitor the operations of a joint venture. However, the charters and bylaws must be carefully drafted to define the authorities of each governing body (from the general meeting of shareholders, board of directors, down to the CEO). For example, the CEO (usually called General Director) is the sole executive authority in a Russian company having broad daily operational authority and is the only person who can unilaterally legally bind a Russian company without formalapprovals. Consequently, when entering into a joint venture with a Russian company, make sure you are both adequately represented at the board level and the charter/bylaws set forth clear and reasonable restrictions on the CEO's authority.

8. Beware of SPVs

Although Special Purpose Vehicles (SPVs) are not unique to Russian transactions, they require extra levels of scrutiny in Russia. In addition to being tax optimization vehicles, SPVs used by Russian companies often have no formal easily discernible ownership links to the Russian company and/or its beneficial owners. Therefore, in case of dispute a foreign investor would be enforcing a potential award against a shell company with little or no assets. To avoid this, make sure that the SPV's obligations are secured by the parent companies and/or beneficial owner(s).

9. Choose Arbitration

Arbitration is the most widely used dispute resolution mechanism in Russian M&A transactions. This is because arbitration proceedings generally provide more guarantees that the case will be considered by a specialist in the area relevant to the transaction (many arbitration tribunals have heard Russian related cases for almost a decade) and that the arbitral award will be recognized and subject to enforcement in Russia due to treaty obligations. Increasingly, there is a positive trend of enforcement of arbitral awards in Russia.

10. Strict Adherence to the Law

In addition to other likely applicable laws such as the FCPA and the U.K.Bribery Act, Russian law imposes strict fines, penalties and criminal liability for corruption. One may hear that there are certain socially acceptable practices that are less than transparent in the Russian market, but these practices are in no way exceptions to any of the relevant laws. In addition to being illegal, in our experience it is bad business policy as almost without exception those foreign investors who have succeeded long term in the Russian market have gone out of their way to strictly abide by the law rather than find ways to take advantage of temporary shortcomings in a quickly emerging market like Russia.

Russia's continually developing corporate landscape can be intimidating for foreign investors. However, being aware of the key Russian peculiarities can help in-house counsel minimize risk in any sort of transaction. This Top Ten provides key issues every in-house counsel should consider as a foreign investor in Russia.