THE RUSSIAN NON-DISCLOSURE APPROACH FOR STRATEGIC ENTERPRISES

A recent decree at the federal level now obliges all Russian strategic enterprises to agree their foreign economic activity with the government. Russian strategic companies include Russian state unitary enterprises and Russian state-woned companies that are active in certain specific sectors of the Russian economy and are considered to be of importance to Russian national defense and security. Such sectors include nuclear energy, space activities, weapons, precious stones, international airports and federal television channels, while the majority of the entities on the list are engaged in R&D in these spheres. Among the list of strategic enterprises are:

• Gazprom
• Rossneft
• Transneft
• Zarubezhneft
• RZD (Railway Compay)
• Aeroflot
• Inter RAO
• Rushydro
• Sovcomfort
• A number of defense holding companies and their joint ventures.

From now on these enterprises and their subsidiaries will be allowed to disclose information about their activity at the request of the foreign countries' authorities and international organizations solely with the consent of a federal body of executive power.  There are 11 federal bodies authorized to provide or refuse permissions depending on the sector in which strategic companies operate. For instance, Russian Railways and Aeroflot must seek permission from the Ministry of Transport; Gazprom, Rosneft, Transneft and IInter RAO from the Ministry of Energy.

The decree is connected with the European Commission's investigation of Gazprom and the searches of its subsidiaries in Europe that preceded it.

The very structure of the decree poses legal questions: The decree limits the autonomy of a legal entity, while the Civil Code of the Russian Federation allows for imposing such restrictions solely under federal laws. Furthermore, the decree may run counter to a number of international conventions, which according to Russian legislation enjoy supremacy over decrees- the New York purchase and sale convention, the Vienna convention on international sales contracts and bilateral inter-governmental agreements on the protection of foreign investments.

The decree enhances the perception of Russia as a country where everything is operated in the manual mode. For this reason investors' reaction to the introduction of government coordination procedures may be negative. The decree has caused bewilderment, almost anger in almost all strategic companies, but for Gazprom. Their subsidiaries operating in Europe will have to struggle their way through the requirements of the Russian and European authorities. By and large all operating companies are affiliates of Russian ones. They are registered in Europe and cannot afford to defy the local bodies of power. Many Russian strategic enterprises are involved in international activity. Hypothetically, they may find themselves in a situation where their interests may be harmed. The state has certain shares in the strategic companies so the interests of the Russian state may be affected too. 

By prohibiting strategic Russian companies from disclosing to foreign governments information relating to business activities, the Decree could cause problems for strategic Russian exporters and their subsidiaries that are subject to trade remedy investigations abroad. Anti-dumping and anti-subsidy investigations conducted by foreign authorities require the cooperation of the companies investigated, if those companies are to disprove allegations of dumping or subsidization, or at least minimize the level of duties imposed. Where a company under investigation refuses access to, or otherwise does not provide necessary information or it significantly impedes an investigation, WTO rules (Russia is now a member of the WTO) permit investigating authorities to resort to "facts available" in order to calculate whether dumping or subsidization is taking place. This means that authorities may rely upon information other than that provided by the parties to the investigation, including publicly available information, irrespective of the potential inaccuracies. This often leads to the imposition of much higher duties at the border.

Bottom Line: Rather than a decree that aims at protecting Gazprom, my personal view is that if Gazprom has a strong story to tell about its business, then it should look out for the best talent it can find to tell it. This is precisely what the Google and the Microsoft of the world do when facing either EU or U.S. antitrust investigations.