2013 Investment Climate Statement - Russia

2013 Investment Climate Statement
Bureau of Economic and Business Affairs
February 2013

Openness to, and Restrictions Upon, Foreign Investment

Russian President Vladimir Putin has stated that improving the investment climate in Russia and increasing foreign direct investment (FDI) is a priority for his tenure as President. This commitment led to a variety of reforms in 2012 that sought to reduce administrative barriers and provide incentives for foreign businesses looking to invest in Russia. The capstone of this commitment was Russia’s accession to the World Trade Organization (WTO) in August of 2012, reducing tariffs across the board and securing a variety of market-opening acts by the Russian government. 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. One of Putin’s stated goals, to move Russia from 120th (in 2010) to 20th on the World Bank’s Doing Business Index by 2020, saw incremental progress with Russia climbing to 112th in the 2012 publication. Russia’s continued engagement in the accession process to the Organization for Economic Cooperation and Development (OECD) could also lead to greater market access for foreign investors.

Despite these positive changes, investing in the Russian market still requires that firms navigate a complicated and fluid set of challenges ranging from complex and burdensome regulatory processes to corruption that marks both political and judicial structures. The Russian economy was impacted by the global economic slowdown and the 2008-2009 financial crisis but has quickly rebounded thanks to high energy prices and use of two sovereign wealth funds to inject capital into domestic markets. Russia’s GDP growth forecast of 3.6 percent in 2013 is a healthy figure when compared to the expected continuation of economic contraction in Europe, slow growth in the United States, and deceleration in China. However, Russia continues to be particularly vulnerable to global energy prices and continued weakness in the European economy, as the EU represents more than 50 percent of Russia’s total trade volume. According to the United Nations Conference on Trade and Development (UNCTAD) 2012 World Investment Report, Russia saw FDI flows grow 22 percent, reaching USD 53 billion in 2011, its third-highest level ever recorded. In addition, in 2011, according to Ernst & Young’s 2012 Russia Attractiveness Survey, Russia was the premier destination for investment in Central and Eastern Europe. This Survey combined analysis of statistical data with a survey of 208 global executives, 135 of whom do business in Russia. According to the survey, 19 percent of international investors considered Russia to be one of the most attractive regions of the world; this was up 8 percent from the previous year’s results. According to the Central Bank of Russia, in 1H 2012, FDI into Russia reached USD16.2 billion, with manufacturers and the financial industry receiving most of the money (the most recent numbers available). The Economic Development Ministry forecasts that 2012 FDI in Russia will exceed the 2011 level and will likely reach about USD 60 billion.

Prime Minister Medvedev is particularly committed to building a strong high technology sector in Russia. The country's solid base of expertise in the scientific and mathematics fields, combined with a sizable market and an economy growing faster than most others in the region, have helped entice a series of U.S. firms to make investments in Russia. Roughly a dozen U.S. companies and organizations already have announced their intention to invest in the Skolkovo Innovation Center, Russia's high-tech cluster in Moscow's outskirts modeled on the example of Silicon Valley.

While a legal structure exists to support foreign investors, the laws are not always enforced in practice. The 1991 Investment Code and 1999 Law on Foreign Investment guarantee that foreign investors enjoy rights equal to those of Russian investors, although some industries have limits on foreign ownership (see Establishment section). Russia has sought to enhance consultation mechanisms with international businesses, including through the Foreign Investment Advisory Council whose members are CEOs of large companies, regarding the impact of the country's legislation and regulations on the business and investment climate. Russia has a system of Investment Ombudsmen at the federal and regional levels. In June 2012, President Putin created the position of Ombudsman for Entrepreneur’s Rights, designed to be an additional measure of protection and advocacy for entrepreneurs. In December 2012, the State Duma approved the Business Ombudsman Law in its first reading and is expected to adopt the bill in the first half of 2013. Still, the country's investment dispute resolution mechanisms remain a work in progress, and at present can seem non-transparent and unpredictable (see Dispute Settlement section).

Russian government officials have repeatedly stressed that foreign investment and technology transfer are critical to Russia's economic modernization. At the same time, the government continues to limit foreign investment in sectors deemed to have strategic significance for national defense and state security via the Strategic Sectors Law of 2008. The law originally specified 42 activities that require government approval for foreign investment. Foreign investors wishing to increase or gain ownership above certain thresholds need to seek prior approval from a government commission headed by Russia's Prime Minister. The 2012 addition of Russian privately-held internet company Yandex to the strategic companies list highlights the broad interpretation of what is required to protect state security and national defense. However, there have been some adjustments to the list. Notably in 2011, Russia amended the law to simplify the approval process and narrow the range of potential investments requiring formal review. While the Commission has approved 129 of 137 applications for foreign investment since 2008, the number of transactions approved with conditions has been increasing significantly.

Statements made by key Russian officials in November of 2012 suggest the government will take additional action to roll back administrative barriers to foreign investment in Russian strategic companies. The Federal Antimonopoly Service (FAS) prepared various amendments, still awaiting approval by the State Duma, intended to simplify the procedures for state supervision of foreign investment in Russian strategic companies and to eliminate ambiguities in the interpretation and application of existing legislative provisions. (see Regulatory Transparency)

The share of the private sector in Russia’s GDP continued to decrease in 2012, falling to 50 percent from 60 percent in 2006, according to the Russian Ministry of the Economy. The government also continues to hold significant blocks of shares in many privatized enterprises. In an effort to increase market forces in the economy and raise revenue for the federal budget, in 2009 the government began considering more ambitious privatization of strategic enterprises. In October 2010, the Russian Cabinet approved a major Privatization Plan to sell an estimated $60 billion of government stakes in about 1000 companies (out of a total of 6,467 companies with some government ownership). This has been superseded by President Putin’s May 2012 Privatization Plan. To date, treatment of foreign investment in new privatizations has been inconsistent; foreign participation has often been confined to limited positions. Subsequently, many have faced problems with inadequate protection for minority shareholders and corporate governance. Potential foreign investors are advised to work directly and closely with appropriate local, regional, and federal agencies that exercise ownership or authority over companies whose shares they may want to acquire. (See State-Owned Enterprises)

In September of 2012, the United States and Russia signed a new bilateral visa agreement which extended the validity of a tourist visa to 36 months for both American and Russian travelers. This agreement also reduced the documentary requirements for Americans applying for a visa and eliminated the need for an invitation letter in most cases. The process for the approval and renewal of visas and residence permits for foreign businessmen and investors remains cumbersome with numerous documentary requirements. Additionally, there are regulations in specific industries that require a certain percentage of staff be Russian citizens, which may have a negative impact on foreign investors. The situation is improving, however. As part of Russia's efforts to encourage investment in innovation sectors, the GOR has eased the regulations on visas and residence permits for "highly-skilled" workers, and eliminated yearly quotas for foreign workers who fall into this category (defined by salary, position and education level). Potential investors are advised to consult the State Department's Country-Specific Information on travel to Russia, which includes the latest information on Russian visas.

Corruption remains a major challenge for Russia. Targeted efforts in 2012 to root out corruption by public officials and within business transactions led to widely reported investigations in the Ministry of Defense and the Ministry of Agriculture. Russia’s ranking improved 10 spots to 133rd in Transparency International’s 2012 Corruption Perceptions Index (CPI). The National Anti-Corruption Plan for 2012–2013 contains guidance and recommendations for the government on counteracting corruption, including the establishment of a legal framework for lobbying and increasing the transparency of state officials’ personal finances and acceptance of gifts. Specifically, the bill will require all civil servants to declare large expenditures or face termination. These officials must also present information on the expenditures of their spouses and children if the expenditures involve acquisitions of land, vehicles or securities. Expenditures that do not match the declared income will be investigated by law enforcement agencies. If an individual fails to prove that the property in question was acquired legally, the property will be confiscated and turned over to the state. Bribing a public official has been illegal in Russia since May 2011 (see Corruption section).

Global Benchmarks

The following table includes the most recent data from indices measuring the investment and business climate in Russia:




Transparency International Corruption Index


28 – 133 of 176 countries

Heritage Economic Freedom


50.5 – 144 of 184 countries

World Bank Doing Business


112 of 185 economies

Fiscal Policy
(IMF World Economic Outlook)

2011 (est.)

Government net annual borrowing: 1.11% of GDP

Trade Policy
(Heritage Economic Freedom)


68.2 (moderately free)

Business Start Up
(World Bank Doing Business)


101 of 185economies

Land Rights Access
(World Bank Doing Business)
Freedom Rating
(Freedom House)



Construction Permits: 178 of 185 economies
Registering Property: 46 of 185economies
5.5 out of 7 (scale of 1-7, 1 being the best)
Status: Not Free
Political Rights: 6
Civil Liberties: 5

Currency Conversion and Capital Transfers

While the ruble is the only legal tender in Russia, companies and individuals generally face no significant difficulty in obtaining foreign exchange. Only authorized banks may carry out foreign currency transactions but finding a licensed bank is not difficult. According to currency control laws, the Central Bank retains the right to impose restrictions on the purchase of foreign currency, including the requirement that the transaction be completed through a special account. The Central Bank does not require security deposits on foreign exchange purchases. Russia has no capital controls and there are no barriers to remitting investment returns abroad, including dividends, interest, and returns of capital. Nonetheless, investors should seek expert advice at the time of an investment.

Currency controls exist on all transactions that require customs clearance, which in Russia applies to both import and export transactions and certain loans. A business must open a "deal passport" with the authorized Russian bank through which it will receive and service the transaction or loan. A “deal passport” is a set of documents that importers and exporters provide to authorized banks which enable the bank to monitor payments with respect to the transaction or loan and to report the corporation's compliance with currency control regulations to the Central Bank. (Russia's regulations regarding deal passports are prescribed under Instructions of the Central Bank of Russia number 117-I of June 15, 2004.) In early 2011, the Central Bank of Russia expanded the list of grounds under which a deal passport does not have to be submitted. The Central Bank adopted Instruction number 1238-I on June 4th, 2012, which states “On order of submission by residents and nonresidents to authorized banks of documents and information relative to conducting of currency operations, order of deal passport formalization as well as order of currency operations’ registration by authorized banks and control for their execution”. One of the innovations suggested by the Instruction is an opportunity to file notifications on currency operations by an authorized bank. Previously, the parties involved in the transaction had to file the notification, themselves. Though the notification is an important element of Russia’s currency controls, under current regulations, basic transaction such as direct debiting from foreign currency accounts held by Russian residents are precluded. Once this Instruction enters into force, it is anticipated that this type of transaction will be permitted. Another improvement is the ability of the resident legal entity to the contract (loan agreement), to transfer formalization of the deal passport and currency operations relating to that contract, to its branch.

Expropriation and Compensation

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

Dispute Settlement

Russia has a body of conflicting, overlapping, and frequently changing laws, decrees and regulations, which complicates the environment for dispute resolution. In an attempt to address these challenges, First Deputy Prime Minister Shuvalov in 2010 was designated “Investment Ombudsman” which entails coordinating and overseeing efforts to improve the business and investment climate, including the protection of foreign and domestic investors. In 2011, President Medvedev appointed additional Investment Ombudsmen in each Federal District to perform similar roles at the regional level. The government has also encouraged international business leaders, as part of their work in the Foreign Investment Advisory Council, to participate in the discussion of dispute resolution mechanisms and individual commercial disputes. While these steps offer some promise, overall, the country's investment dispute mechanisms remain underdeveloped and largely non-transparent. In 2012, President Putin named “Business Russia” leader Boris Titov as Ombudsman for entrepreneurs' rights. Titov’s remit includes advocating for business rights in court and requesting suspension of official actions if a business feels its rights were violated.

Independent dispute resolution in Russia can be difficult to obtain since the judicial system is still developing. Courts are sometimes subject to political pressure. According to numerous reports, corruption in the judicial system is widespread and takes many forms, ranging from bribes of judges and prosecutors to fabrication of evidence. Corruption likely does not play a role in the vast majority of cases, most of which involve relatively low stakes. A law enacted in late 2008 as part of President Medvedev's anti-corruption initiative requires that judges disclose their incomes and real estate assets, including those owned by their spouses and minor children.

Another component of President Medvedev's anti-corruption initiative included a series of amendments to the Code of Criminal Procedure – in 2008, 2009, and 2010 – to limit pre-trial detention of individuals accused of economic crimes. Implementation of these reforms has yielded mixed results. Prosecutors have sometimes avoided them by charging defendants under articles technically not covered by the amendments and judges have sometimes refused to apply them. Nevertheless, available statistics reveal a substantial decrease in the number of pre-trial detentions in cases involving economic crimes since the legislation was passed.

Commercial courts are required by law to decide business disputes relatively quickly, and many cases are decided on the basis of written evidence and little or no live testimony of witnesses. The commercial court workload is dominated by relatively simple non-contentious cases involving the collection of debts between firms and 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 number of routine cases limits the time available to decide more complex cases. Many observers believe that over the twenty year period that the commercial court system has existed, its judges have grown more competent and better at writing decisions. Many lawyers nonetheless report that due to insufficient training, especially in complex business disputes, many judges often make poorly reasoned or simply incorrect decisions. Execution of court decisions is often problematic. Few firms pay judgments against them voluntarily and rumors of corruption concerning bailiffs, who are charged with enforcing decisions, are frequent, although hard evidence is scarce.

Federal Law 262, in effect since mid-2010, requires courts to publish their decisions online and otherwise make information about their activities publicly available. All Russian courts now have websites, which generally include a schedule of cases to be heard, the name of the judge, the location of the court, form documents that can be used by prospective litigants, and copies of decisions. Personal information is expunged before case decisions are posted online. The better websites allow citizens to calculate filing fees and search for analogous decisions. The commercial courts have played a leadership role in providing information online and using information technology. Electronic filing allows citizens to sign up to receive e-mail notifications of developments in cases of interest to them. NGOs have rated the compliance of courts with their obligations under the law and found that the information provided varies greatly in quality from one region to another, but have noted a willingness by some courts to respond to queries and criticisms by improving their sites. Although there are gaps and failures to provide information, overall judicial transparency has increased since the law took effect in 2010.

Many attorneys refer Western clients who have investment or trade disputes in Russia to international arbitration in Stockholm or to courts abroad. 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. Russia is a member of the International Center for the Settlement of Investment Disputes (ICSID) and accepts binding international arbitration. Russia is also a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (UNCITRAL). However, international arbitral awards still require Russian courts to enforce awards and bailiffs to attach assets; these have yet to become consistently effective enforcers of court judgments, whether domestic or international.

As noted above, commercial disputes between business entities are heard in the commercial court system. That court system has special procedures for the seizure of property before trial, such that it cannot be disposed of before the court has heard the claim, as well as for the enforcement of financial awards through the banks. Additionally, the International Commercial Arbitration Court at the Russian Chamber of Commerce and Industry will hear claims if both parties agree to refer disputes there. A similar arbitration court has been established in St. Petersburg. As with international arbitral procedures, the weakness in the Russian arbitration system lies in the enforcement of decisions.

As per Federal Law of December 2011, a specialized court for intellectual property (IP) disputes is schedule to open in early 2013. This court, embedded in the system of arbitration (commercial) courts, will hear cases on intellectual property rights (IPR), including those challenging statutory instruments on IP, in the first instance and cassation. In September 2012 the Higher Qualification Board of Judges (a body within the Russian judicial corps responsible for nominating judges to be further appointed by the President) nominated 20 judges to form the new IPR Court, and the Chief Judge of the IPR Court was appointed by the President in December 2012.

Former President Medvedev encouraged widespread adoption of alternative dispute resolution (ADR) to help courts handle their caseloads and to provide citizens with speedier and cheaper methods of resolving legal disputes. In January 2011, a new law took effect that authorizes the use of mediation in various kinds of disputes, including commercial ones, and provides for the confidentiality of mediation proceedings and for their enforceability in court. Although there are still issues concerning implementation, this represents an important step towards further development of ADR in Russia.

The level of professionalism in the legal bar, including in the realm of corporate compliance, continues to grow. While significant quality disparities reportedly still exist between large international firms with Russia offices and indigenous Russian firms, there are indications that continued joint trainings and other professional interactions are slowly improving the quality of local legal support for the business community.

Performance Requirements and Incentives

Performance requirements are not generally imposed by Russian law and are not widely included as part of private contracts in Russia. However, they have appeared 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 frequently depends on relationships with government officials and on a firm's demonstration of its commitment to the Russian market, this may result in offsets in practice.

The Central Bank of Russia has imposed caps on foreign employees in foreign banks. The ratio of Russian employees in a subsidiary of a foreign bank is set at no less than 75 percent; if the executive of the subsidiary is a non-resident, at least 50 percent of the bank’s managing body are to be Russians.

Right to Private Ownership and Establishment

Both foreign and domestic legal entities may establish, purchase, and dispose of businesses in Russia, except in certain sectors that are regarded as affecting national security.

The Russian government limits foreign investment in sectors deemed to have strategic significance for national defense and state security via the Strategic Sectors Law of 2008. The law originally specified 42 activities that require government approval for foreign investment. Foreign investors wishing to increase or gain ownership above certain thresholds need to seek prior approval from a government commission headed by Russia's Prime Minister. The 2012 addition of Russian privately-held internet company Yandex to the strategic companies list highlights the broad interpretation of what is required to protect state security and national defense. However, there have been some adjustments to the list. Notably in 2011, Russia amended the law to simplify the approval process and narrow the range of potential investments requiring formal review by the Commission. With respect to extractive industries, government approval was previously required for foreign ownership above a 10 percent threshold for companies operating subsoil plots of "federal significance." The November 2011 reforms raised the threshold to 25 percent, a move that experts predict will greatly reduce the number of cases considered. While the Commission has approved 129 of 137 applications for foreign investment since 2008, the number of transactions approved with conditions has been increasing significantly.

Protection of Property Rights

Real Estate: The Constitution and a 1993 presidential decree give Russian citizens general rights to own, inherit, lease, mortgage, and sell real property. Foreigners enjoy similar rights with certain restrictions, notably with respect to the ownership of farmland and areas located near federal borders. Mortgage legislation enacted in 2004 facilitates the process for lenders to evict homeowners who do not stay current in their mortgage payments. Thus far this law has been successfully implemented and generally effective. Mortgage lending is in its initial stages, and after a sharp contraction in 2008-09, the total value of mortgages in Russia is around three percent of GDP. In January – November 2012, mortgage lending grew by 40 percent over the same period of 2011, with new issuances amounting to USD 32 billion in the first eleven months of the year.

IPR: In Russia, the protection of intellectual property rights (IPR) is enforced on the basis of civil, administrative, criminal or customs legislation. The Civil Code sets up the level of compensation for IPR infringement and/or incurred damages for copyright, trademarks and geographical indications. The Code of Administrative Offenses concerns IPR infractions that violate public or private interest or rights, but do not meet the criteria of the Criminal Code. An administrative investigation may be initiated at the request of an IPR owner or by law enforcement authorities (police or customs) suspecting possible IPR infringement. Administrative cases are dealt with by general jurisdiction courts or state arbitration (commercial) courts that have jurisdiction over economic disputes. The IPR provisions of the Criminal Code apply to large-scale infringements of copyright, patent and trademark rights that cause gross damages, as defined by the Criminal Code.

Enforcement: In recent years, Russia made significant progress in improving the legislative environment and legal framework for IPR protection. Russia passed amendments to Part IV of the Civil Code for compliance with the Trade-Related Aspects of Intellectual Property (TRIPs) agreement, amended its Customs Code to include ex-officio authority for Russian Customs officials, and amended the Law on Circulation of Medicines to provide for 6 years of regulatory data protection effective as of Russia’s accession to the WTO in August 2012. However, implementation and enforcement thereof is subject to the respective regulations and corresponding bylaws, which are yet to be developed. Additionally, a law adopted in December 2011 laid the foundation for the establishment of a Russian IPR Court within Russia's system of commercial courts by February 2013.

Copyright violations (films, videos, sound recordings, computer software) remain a serious problem, particularly in the online environment. Although dwarfed in volume by pirated products online, legitimate DVD sales are on the rise, thanks in part to cheaper legitimate products, a growing consumer preference for high quality goods, and increased law enforcement action against pirates. Local representatives of the entertainment and software industries have also reported marginal declines in levels of piracy. Russian police on occasion carry out end-user raids against businesses using pirated products. However, at times, police have used IPR enforcement as a tactic to elicit bribes or harass NGOs.

Bankruptcy: Russia has had a law providing for bankruptcy of enterprises since the early 1990s. Law enforcement officials, however, tend to view bankruptcy with suspicion and reported 500 cases of financial crime involving bankruptcy in 2011. In November 2012, the State Duma passed in its first reading (three readings required for passage) a personal bankruptcy bill. The bill states that a citizen who finds himself in financial difficulty can submit a bankruptcy statement to the court. The court may then grant the individual the right to pay the debt in installments for a term of up to five years. An individual with debts exceeding 50,000 rubles (USD 1,576) and whose arrears amount to three months can be declared bankrupt. In this case, the individual cannot apply for a bank loan without citing his bankruptcy for the five years after his bankruptcy status was declared. The individual is then given six months to come up with a debt restricting plan subject to the approval of both the creditors and the court. Once the plan is approved, all late payment fees and penalties will be waived and assets unfrozen. Only in the case of a person who has no assets and no income may the debt be completely written off. The bill also stipulates a ban on declaring oneself bankrupt more than once in five years. The Duma is expected to approve the bill in the first half of 2013 with provisions possibly coming into effect in 2014.

Transparency of the Regulatory System

Russia's legal system remains in a state of flux, with various parts of the government continuing to implement new regulations and decrees on a broad array of topics, including the tax code and requirements related to regulatory and inspection bodies. Negotiations and contracts for commercial transactions, as well as due diligence processes, are complex and protracted. Investors must do careful research to ensure that each contract fully conforms to Russian law. Contracts must likewise seek to protect the foreign partner against contingencies that often arise. Keeping up with legislative changes, presidential decrees, and government resolutions is a challenging task. Uneven implementation of laws creates further complications; various officials, branches of government, and jurisdictions interpret and apply regulations inconsistently and the decisions of one may be overruled or contested by another. As a result, reaching final agreement with local political and economic authorities can be a long and burdensome process. Companies should be prepared to allocate sufficient funds to engage local legal counsel to set up their commercial operations in Russia.

Taxes: Russia’s tax system has recently undergone major changes. The Russian government has brought its tax legislation into line with OECD requirements, which has simplified the system, and prevents double taxation on transfer prices. Businesses nonetheless continue to raise concerns regarding audits. Multiple audits, repeated requests for documentation, and technical weaknesses of some claims have been identified as serious impediments to the conduct of business. The Council of the Russian Chamber of Commerce and Industry’s Working Group of Tax Experts has predicted that in 2013-14 tax audits will increase, be exercised even more strictly, with larger assessments, as the system of incentives for tax inspectors was revised in 2012 to take into account the amount of additional tax accruals resulting from tax audits (2011 tax audits brought RUB 4.5 million to federal coffers). Russia’s new Law on Transfer Pricing entered into force on January 1, 2012, with certain provisions scheduled to be phased in by 2014. Some experts caution that once all provisions are enacted in 2014, additional disputes with tax authorities might flare up.

Public Comment: All draft laws that go through the Russian Duma are published on the Duma's website. Sometimes, but not consistently, ministries and other Russian government bodies also publish proposed legislation (including draft laws, government decrees and regulations) on their websites. Russia’s Open Government initiative aims to provide more transparency and governmental accountability to Russian citizens by creating opportunities for public comment on a wide range of initiatives. Russian Ministries have become more active in seeking input from industry experts and business groups, including the Foreign Investment Advisory Council, when developing business-related laws and regulations. Some NGOs claim Open Government is largely a public relations effort that will result in few substantive changes in decision- making. However, Russia is in the initial stages of this initiative and it is too soon to come to a conclusion on the efficacy of the program.

Strategic Sectors: Statements made by key Russian officials in November of 2012 suggest the government will take additional action to roll back administrative barriers to foreign investment in Russian strategic companies. The Federal Antimonopoly Service (FAS) has prepared various amendments, still awaiting approval by the State Duma, intended to simplify the procedures for state supervision of foreign investment in Russian strategic companies and to eliminate ambiguities in the interpretation and application of existing legislative provisions. The proposed amendments include the following: (1) removal of food and beverage production from the list of strategic activities involving the use of infectious agents (e.g. cultured bacteria in yogurt production). FAS is considering similar revisions to exempt certain entities involving selected activities (e.g foreign banks vis-a-vis distribution and servicing of encryption devices required for their operations); (2) eliminating the need for prior approval by the Government Commission for certain share increases or transactions in cases where the foreign investors hold 75 percent or more of a Russian strategic company’s shares; (3) eliminating the need for prior approval for intra-group transactions by foreign investors controlled by the same entity; (4) allowance of automatic permit extensions for foreign investors already holding a permit (typically with a 2-year term) to invest in a strategic enterprise; (5) elimination of the need for government approval for acquisitions by Russian-controlled purchasers from foreign-controlled sellers (currently, only Russian-to-Russian transactions are exempt, but not acquisitions by Russian-controlled purchasers from foreign-controlled sellers); (6) clearer rules on state supervision and approval of transactions involving the placement of securities of Russian strategic companies (including depositary receipts) on stock exchanges, including foreign stock exchanges.

Capital Markets and Portfolio Investment

The Russian banking system remains relatively small, with RUB 43.2 trillion (USD 1.4 trillion) in aggregate net assets as of October 1, 2012. Although Russia has roughly 1000 banks, the sector is dominated by state-owned banks, particularly Sberbank and VTB. The six largest banks (in terms of assets) in Russia are state-controlled, and the top five held 50.9% of all bank assets in Russia as of November 1, 2012. The successful implementation of the Deposit Insurance System in 2004 has proved a critical psychological boon to the banking sector, reflected in the overall growth of deposits. Despite measured progress, the Russian banking system is not yet efficiently performing its basic role of financial intermediary (i.e., taking deposits and lending to business and individuals). At the beginning of 2012, aggregate assets of the banking sector amounted to just 76.3% of GDP and aggregate capital was just 9.6% of GDP. Russia's banking sector has nearly recovered from the economic crisis, with corporate loan growth reaching 17.1% and retail loan growth 42.7% in the 12 months running to November 1, 2012. The Bank of Russia considers the latter too rapid and is taking measures to restrain it. The share within Russia's banking sector of non-performing and troubled loans, which during the 2008-2009 financial crisis increased substantially, stabilized in 2010 at around 20% and began to slowly decline in the second half of 2011, such that in November 2012 it was less than 16%.

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 plans for an initial public offering (IPO), possibly in early 2013. Russian authorities and shareholders of MICEX and RTS believe the merged entity, MICEX-RTS, has the potential to become a global player. However, most large Russian companies currently choose to list their stock in London and elsewhere abroad in order to obtain higher valuations.

The 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 who assist companies with stock offerings and holds them liable for the accuracy of the data presented to shareholders.

Russian financial authorities are attempting to deepen the ruble-denominated domestic debt market to make it more attractive to foreign investors. In December 2011, the Central Bank issued a resolution allowing, effective January 1, 2012, government bonds (“OFZ”s) to be traded outside Russian exchanges (over the counter). Currently, foreign investors wanting to trade domestic bonds must set up local brokerage and custody accounts, a lengthy process that discourages many investors from buying OFZs. Additionally, in October 2012, the Federal Financial Markets Service granted Euroclear Bank, the world’s largest settlement system for securities, access to the Central Securities Depository to offer post-trade services for Russian OFZs. The Russian Deputy Finance Minister expressed hope that Russian OFZs would begin trading via Euroclear by early 2013. Hostile takeovers are common in Russia among both foreign and local firms. Private companies' defenses to prevent hostile takeovers relate to all potential hostile takeovers, not just foreign ones.

Russia's financial market suffers from a shortage of private domestic institutional investors. For example, the life insurance market remains underdeveloped, comprising only 6.2% of insurance premium payments. Private pension funds, held back by a public distrust of financial instruments and a lack of tax incentives, currently have an equivalent of USD17 billion in management, equal to 0.8% of GDP. Pension reform proposals supported by the government in late 2012 would do little to grow the private pension fund industry.

Russia had very high capital outflow (USD 34.6 billion) in early 2012, which later decelerated to average about USD 12 billion per quarter. In January –September 2012, total net private capital outflows were estimated at USD 57.9 billion.

State-Owned Enterprises

The share of the private sector in Russia’s gross domestic product (GDP) continued to decrease in 2012, falling to 50 percent from 60 percent in 2006, according to the Russian Ministry of the Economy. The government also continues to hold significant blocks of shares in many privatized enterprises. In an effort to increase market forces in the economy and raise revenue for the federal budget, in 2009 the government began considering more ambitious privatization of state-owned enterprises (SOEs). In October 2010, the Russian Cabinet approved a major Privatization Plan to sell an estimated USD 60 billion of government stakes in about 1000 SOEs (out of a total of 6,467 companies with some government ownership). This has been superseded by President Putin’s Privatization Plan, signed in May 2012, which calls for the sale of all state holdings in firms outside the defense and energy industries by 2016. To date, treatment of foreign investment in new privatizations has been inconsistent; foreign participation has often been confined to limited positions. Subsequently, many have faced problems with inadequate protection for minority shareholders and corporate governance. Potential foreign investors are advised to work directly and closely with appropriate local, regional, and federal agencies that exercise ownership or authority over SOEs whose shares they may want to acquire.

President Putin’s Privatization Plan contains a preliminary list of companies to be privatized by 2016; the list contains two categories: all non-natural resource sector companies scheduled for privatization over the next 12 to 18 months, and energy companies which will likely see further state consolidation before any equity sale. First Deputy PM Shuvalov has stated publically that the government will not rush privatization, and if market conditions worsen privatization could be further postponed. The October 2012 USD 55 billion purchase by SOE oil giant Rosneft, of 100% of TNK-BP (inwhich BP received a 20% stake in Rosneft) reflects more a consolidation of assets than any move to lessen State involvement in the economy. Sberbank sold a 7.6% stake in September 2012, leaving the State with 50% plus one share. Bank VTB has expressed plans to sell a 10-25% stake in 2013. Sovkomflot, a shipping group, and Alrosa, a diamond giant, may also sell minority stakes.

Corporate Governance: Despite Russia’s ongoing privatization program, the state, whether as majority shareholder in open joint-stock companies or as sole shareholder in “state corporations,” continues to play a large role in the Russian economy. (Note: State corporations are 100% owned by the Russian government and operate under special legislation. The Russian economy also features thousands of other companies owned in part or whole by the Russian government that operate under different legal arrangements, such as unitary enterprises and joint stock companies.) Private enterprises are theoretically allowed to compete with SOEs on the same terms and conditions, and in some sectors, including where state ownership is minimal, competition is robust. But in other areas the playing field can be tilted. Issues that hamper efficient operations and fair competition with SOEs include a lack of transparency, lack of independence and unclear responsibilities of boards of directors, misalignment of managers' incentives and company performance, inadequate control mechanisms on managers' total remuneration or their use of assets transferred by the government to the SOE, and minimal disclosure requirements.

SWFs: There are two sovereign wealth funds in Russia: the Reserve Fund (USD 62.08 billion as of January 2013) and the National Wealth Fund (USD 88.59 billion as of January 2013). The Ministry of Finance manages both funds' assets in accordance with established procedures; the Central Bank of Russia acts as operational manager. Both funds are audited by Russia's Chamber of Accounts and the results are reported to the Federal Assembly. The Russian government drew heavily from both funds in 2009 and 2010 to finance bail-out programs for major banks and industries during the global economic crisis.

Corporate Social Responsibility

While far from 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 on 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. Russian firms' CSR policies often are now published on corporate websites and detailed in annual reports. These CSR policies and strategies, however, are still in an early stage relative to those of Western counterparts. Most companies choose to create their own NGO or advocacy group rather than contribute to an already existing organization. The Russian government remains the most powerful stakeholder in the development of certain companies' CSR agendas, resulting in the expectation that these companies support local health, educational and social welfare systems as specified by the government.

The Federal Service for Financial Markets established a corporate governance code in 2002 and has endorsed an OECD White Paper on ways to improve practices in Russia. International business associations such as the American Chamber of Commerce in Russia, the U.S.-Russia Business Council, the Association of European Businesses in Russia, and the International Business Leaders Forum, as well as Russian business associations, stress corporate governance as an important priority for their members and for Russian businesses overall. One association, the Russian Union of Industrialists and Entrepreneurs, developed a Social Charter of Russian Business in 2004 that over 200 Russian companies and organizations have since joined.

Political Violence

The large-scale public protests seen after the March 2012 Presidential elections died down towards the close of the year but were revived on January 12, 2013 when tens of thousands of people turned out to protest the Dima Yakovlev Law, which bans the adoption of Russian children by American citizens. The law was in direct retaliation to the U.S. 2012 Magnitsky Act which bans the travel of Russian human rights violators to the United States. The arrest and subsequent imprisonment of three (one has since been released) members of the Russian punk rock group “Pussy Riot” became another flashpoint for opponents of the Putin administration and raised questions regarding the state of Russia’s democracy. Opposition figures have faced increasing harassment by the Russian authorities though permits for protest marches are generally approved and have, so far, avoided large scale violence.

Aleksey Navalny, anticorruption whistleblower and member of the opposition Coordination Council, was charged with three criminal cases in 2012, including prior 2009 charges for conspiring to steal timber that were resurrected following Navalny’s public criticism of Investigative Committee chief Aleksandr Bastrykin. Other opposition figures, including politician Boris Nemtsov and chess professional Garry Kasparov, were detained at various points in 2012 on a variety of grounds. The resurgence of the protest movement suggests that Russians have become more politically engaged and that mass civic action will continue to be a feature of the Russian political landscape. Although the use of strong-arm tactics is not unknown in Russian commercial disputes, the U.S. Embassy is not aware of cases where foreign investments have been attacked or damaged for purely political reasons. Russia continues to struggle with an ongoing insurgency in Chechnya, Ingushetiya and Dagestan. These republics and neighboring regions in the northern Caucasus have a high risk of violence and kidnapping.


The Russian government stepped up its campaign against corruption in 2012. In March then-Russian President Medvedev adopted the National Anti-Corruption Plan for 2012–2013. The plan contains guidance and recommendations for the government, federal executive bodies and other government agencies on counteracting corruption, including the establishment of a legal framework for lobbying and increasing the transparency of state officials’ personal finances and acceptance of gifts. In 2012, Russia adopted a law 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 requires public servants to disclose the source of the funds to confirm the legality of the acquisitions. In addition, the State Duma approved in its first reading a draft law requiring state officials, deputies, senators and governors to disclose information on their foreign bank accounts and transactions related to acquisition of property and stocks abroad. The law is expected to be adopted in 2013. Speaking at the Russian General Prosecutor's Office on the occasion of the 291st anniversary of its establishment, Sergei Ivanov, Chief of the Presidential Administration, mentioned that in 2012 over 7,000 persons charged with corruption received prison sentences and a greater number of corruption cases were initiated. One high level case led to the firing of Defense Minister Anatoly Serdyukov, although no formal charges have been announced.

Russia is a signatory to the UN Convention against Corruption, the Council of Europe's Criminal Law Convention on Corruption, and, as of 2012, the OECD Anti-Bribery Convention . The Convention criminalizes commercial bribery and prohibits both offering bribes to foreign government officials and accepting such bribes. It provides no exceptions for “grease payments,” and includes foreign entities doing business in Russia, meaning these entities could be subject to liability under their own country’s law, as well as Russia’s. The law also increased the penalties that may be imposed upon an individual or entity found in violation. Fines and ranges of incarceration vary under the new law depending upon the type of bribe and the official involved, and the court may prevent the offender from holding certain governmental or corporate positions in the future.

However, concerns remain regarding the implementation and enforcement of the many measures required by these conventions. In recent years, there appears to be a greater number of prosecutions and convictions of mid-level bureaucrats for corruption, but real numbers are difficult to obtain and high-ranking officials are rarely prosecuted. 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 an 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 the time to become familiar with the relevant anticorruption laws of both Russia and the United States in order to properly comply with them, and where appropriate, they should seek 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 //2009-2017.state.gov/g/drl/rls/hrrpt/.

Assistance for U.S. Businesses: The U.S. Department of Commerce offers several services to aid U.S. businesses seeking to address business-related corruption issues. For example, the U.S. Commercial Service can provide services that may assist U.S. companies in conducting their due diligence as part of a company's overarching compliance program when choosing business partners or agents overseas. The U.S. Commercial Service can be reached directly through its offices in major U.S. and foreign cities, or through its Website at: www.trade.gov/cs.

The Departments of Commerce and State provide worldwide support for qualified U.S. companies bidding on foreign government contracts through the Commerce Department's Advocacy Center and State's Office of Commercial and Business Affairs. Problems, including alleged corruption by foreign governments or competitors, encountered by U.S. companies in seeking such foreign business opportunities can be brought to the attention of appropriate U.S. government officials, including local embassy personnel and through the Department of Commerce Trade Compliance Center "Report A Trade Barrier" Website at: tcc.export.gov/Report_a_Barrier/index.asp.

The U.S. Government seeks to level the global playing field for U.S. businesses by encouraging other countries to take steps to criminalize their own companies' acts of corruption, including bribery of foreign public officials, by requiring them to uphold their obligations under relevant international conventions. A U.S. firm that believes a competitor is seeking to use bribery of a foreign public official to secure a contract should bring this to the attention of appropriate U.S. agencies, as noted below.

U.S. Foreign Corrupt Practices Act (FCPA): In 1977, the United States enacted the FCPA, which makes it unlawful for a U.S. person, and certain foreign issuers of securities, to make a corrupt payment to foreign public officials for the purpose of obtaining or retaining business for or with, or directing business to, any person. The FCPA also applies to foreign firms and persons who take any act in furtherance of such a corrupt payment while in the United States. For more detailed information on the FCPA, see the FCPA Lay-Person's Guide at: www.justice.gov/criminal/fraud/fcpa/docs/lay-persons-guide.pdf.

The Department of Justice (DOJ) FCPA Opinion Procedure enables U.S. firms and individuals to request a statement of DOJ’s present enforcement intentions under the anti-bribery provisions of the FCPA regarding any proposed business conduct. The details of the opinion procedure are available on DOJ's Fraud Section Website at: www.justice.gov/criminal/fraud/fcpa.

Although the Department of Commerce has no enforcement role with respect to the FCPA, it supplies general guidance to U.S. exporters who have questions about the FCPA and about international developments concerning the FCPA. For further information, see the Office of the Chief Counsel for International Counsel's website, at: http://www.ogc.doc.gov/trans_anti_bribery.html.

Other Instruments: It is U.S. Government policy to promote good governance, including host country implementation and enforcement of anti-corruption laws and policies pursuant to their obligations under international agreements. Since enactment of the FCPA, the United States has been instrumental to the expansion of the international framework to fight corruption. Several significant components of this framework are the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Anti-Bribery Convention), the United Nations Convention against Corruption (UN Convention), the Inter-American Convention against Corruption (OAS Convention), the Council of Europe Criminal and Civil Law Conventions, and a growing list of U.S. free trade agreements.

OECD Anti-Bribery Convention: The OECD Anti-Bribery Convention entered into force in February 1999. There are 38 parties to the Convention including the United States (see http://www.oecd.org/dataoecd/59/13/40272933.pdf). The Convention obligates the Parties to criminalize bribery of foreign public officials in the conduct of international business. The United States meets its international obligations under the OECD Anti-Bribery Convention through the FCPA. In 2011, Russia passed anti-corruption legislation that clearly criminalized foreign bribery and is expected to formally accede to the Anti-Bribery Convention in early 2012.

Local Laws: U.S. firms should familiarize themselves with local anticorruption laws, and, where appropriate, seek legal counsel. While the U.S. Department of Commerce cannot provide legal advice on local laws, the Department's U.S. Commercial Service can provide assistance with navigating the host country's legal system and obtaining a list of local legal counsel.

Transparency International (TI) publishes an annual Corruption Perceptions Index (CPI). The CPI measures the perceived level of public-sector corruption in 183 countries and territories around the world. The CPI is available at: http://cpi.transparency.org/cpi2011/. TI also publishes an annual Global Corruption Report which provides a systematic evaluation of the state of corruption around the world. It includes an in-depth analysis of a focal theme, a series of country reports that document major corruption related events and developments from all continents and an overview of the latest research findings on anti-corruption diagnostics and tools. See http://www.transparency.org/publications/gcr. Transparency International-Russia also posts corruption-related research materials and findings on the following sites, all specific to Russia: www.transparency.org.ru/INTER/index.asp and www.askjournal.ru.

The World Bank Institute publishes Worldwide Governance Indicators (WGI). These indicators assess six dimensions of governance in 213 economies, including Voice and Accountability, Political Stability and Absence of Violence, Government Effectiveness, Regulatory Quality, Rule of Law and Control of Corruption. See http://info.worldbank.org/governance/wgi/sc_country.asp. World Bank Business Environment and Enterprise Performance Surveys may also be of interest.

The World Economic Forum publishes the Global Enabling Trade Report, which presents the rankings of the Enabling Trade Index, and includes an assessment of the transparency of border administration (focused on bribe payments and corruption) and a separate segment on corruption and the regulatory environment. See http://www.weforum.org/reports/global-enabling-trade-report-2012

Global Integrity, a nonprofit organization, publishes its annual Global Integrity Report, which provides indicators with respect to governance and anti-corruption. The report highlights the strengths and weaknesses of national level anti-corruption systems. The report is available at: http://www.globalintegrity.org/report.

Bilateral Investment Agreements

While the United States and Russia signed a bilateral investment treaty (BIT) in 1992, it is not in force due to lack of ratification by the Duma. Both countries have recently held exploratory talks regarding the feasibility of pursuing a BIT in the future. Russia shares BITs with 75 countries, 54 of which are currently in force.

The United States and Russia have shared an income tax treaty since 1992, which is designed to address the issue of double taxation and fiscal evasion with respect to taxes on income and capital. Full text of the treaty: http://www.irs.gov/pub/irs-trty/russia.pdf There is some concern that taxation requirements have sometimes been used in Russia as a way to "raid" or illegally take possession of foreign companies, particularly small and medium enterprises.

OPIC and Other Investment Insurance Programs

The U.S. Overseas Private Investment Corporation (OPIC) has been authorized since 1992 to provide loans, loan guarantees ("financing"), and investment insurance against political risks to U.S. companies investing in Russia. OPIC's political risk insurance and financing help U.S. companies of all sizes invest in Russia. OPIC insures against three political risks: expropriation; political violence; and currency inconvertibility. OPIC recently announced that political risk insurance now covers private equity fund investments. To meet the demands of larger projects in Russia and worldwide, OPIC can insure up to USD 250 million per project and up to USD 300 million for projects in the oil and gas sector with offshore, hard currency revenues. Projects in the oil and gas sector with offshore, hard currency revenues may be approved for an exposure limit up to USD 400 million if the project receives a credit evaluation ("shadow rating") of investment grade or higher. The individual per project exposure limit for financing is USD 250 million. The maximum combined (insurance and financing) exposure limit to OPIC on a single project is USD 400 million. OPIC has no minimum investment size requirements. OPIC also makes equity capital available for investments in Russia by guaranteeing long-term loans to private equity investment funds. Detailed information about OPIC's programs can be accessed at www.opic.gov. Russia is also a member of the World Bank’s Multilateral Investment Guarantee Agency.


The Russian labor market remains fragmented, characterized by limited labor mobility across regions and consequent wage and employment differentials. Earnings inequalities are substantial, enforcement of labor standards is relatively weak, and collective bargaining is underdeveloped. Employers regularly complain about shortages of qualified labor. This 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. Businesses face increasing labor costs as competition over a limited pool of workers intensifies. On the other hand, a large number of inefficient SOEs with high vacancy rates offer workers unattractive, uncompetitive salaries and benefits.

The 2002 Labor Code governs labor standards in Russia. The enforcement of worker safety rules continues to be a major issue, as enterprises are often unable or unwilling to invest in safer equipment or to enforce safety standards.

The rate of actual unemployment (calculated according to ILO methodology) in 2012 remained relatively low, and declined from 6.6% in January 2012 to historic low of 5.2% in August and September. Average unemployment in urban districts (4.4% as of November) is much lower than in rural districts (8.3%). Two regions in the North Caucasus have the highest unemployment rates in the country: Ingushetia (47% as of September-November) and Chechnya (30.8%). In stark contrast, the unemployment rate is only 0.6% in Moscow and 1.1% in St. Petersburg.

Official statistics registered only five labor strikes in January-November 2012. Independent commentators, however, noted 258 protests during January-November 2012, including 87 that involved the complete or partial cessation of work. The majority of labor disputes occurred in the manufacturing sector. The primary causes of labor disputes were wage arrears, company reorganization or closure, low pay, and layoffs. Approximately 45% of Russia's workforce is unionized. The government generally adheres to ILO conventions protecting worker rights but often fails to enforce them.

Foreign Trade Zones/Free Ports

Russia has 26 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. Enterprises operating within SEZs enjoy a range of benefits that the Ministry of Economic Development (MED) – which manages the SEZ program – estimates can save investors up to 30% of the cost of doing business. Specifically, investors enjoy streamlined administrative requirements and procedures, a more favorable customs regime (including the waiver of import duties and refunds of the value-added-tax), and reduced tax rates on income, property, land, and transport. SEZ investors also receive discounts on infrastructure expenses, including facilities and utilities costs. Such benefits are extended for an agreed introductory period, often lasting five years.

In a Federation Council meeting in December 2012 there was wide support for a proposal to leverage the SEZs in attracting new foreign direct investment rather than working to place companies that have already decided to invest in Russia within an SEZ. How the MED will go about refocusing the SEZ mission to attract investment is unclear; but the proposal reflects broad interest in improving the performance of the existing SEZs, which have met with mixed results to date. Lack of interest from foreign investors in addition to environmental concerns led to the closure of the proposed Kaliningrad tourist and recreational zone SEZ in late 2012. The majority of SEZ investments are still listed as "planned,” meaning investors are still able to back out of commitments. The Russian government has been hesitant to go forward with major SEZ infrastructure projects. Detailed information about the benefits and results of Russia's SEZs can be found at the MED's SEZ website: http://www.economy.gov.ru/minec/activity/sections/sez/main/.

Independent of the SEZs, in 2010 President Medvedev launched an initiative to establish the Skolkovo Innovation Center in the Moscow suburbs to promote investment in high-technology startup businesses, research, and commercialization of technological innovation. Inspired by the model of Silicon Valley, Skolkovo "resident companies" can receive a broad range of benefits, including complete exemption from profit tax, value-added tax, property taxes, and import duties, and partial exemption from social fund payments. Applicants for residency are evaluated and selected by an international admission board; company performance is monitored to ensure continued qualification for benefits. According to the Skolkovo Foundation, over 200 companies have been selected as residents thus far.

Foreign Direct Investment Statistics

Table 1 shows flows of foreign investment into Russia by country for the first nine months of 2012, compared to the same period in 2011. Total foreign investment decreased by 14% year-on-year. According to Russian statistical practice, total foreign investment numbers include direct investment (FDI), portfolio investment, and other investment (largely trade credits). FDI flows into Russia, however, increased slightly in 2012, rising by 4 %; the largest share came from Switzerland. FDI from the Netherlands and Cyprus is consistently high, reflecting the fact that most FDI coming from these countries is either returning or reinvested Russian capital through subsidiaries or off-shore “shell” vehicles. (Note: The data in the tables below are from the Russian State Statistical Service (RosStat) and differ from data maintained by the Central Bank of Russia and the U.S. Department of Commerce.)

Table 1: Top Investors - By Year (in USD million)



Jan-Sep 2012

Jan-Sep 2011

Jan-Sep 2010











































All Others














The numbers in Table 2 represent the accumulated stock of total foreign investment in Russia by originating country, including FDI, portfolio, and "other" investment as of September 30, 2012, compared to the amount accumulated a year prior. Source: RosStat.

Table 2: Top Investors - Accumulated Basis (in USD million)



As of Sep 30, 2012

As of Sep 30, 2011

As of Sep 30, 2010











































All Others














Table 3 shows total foreign investment by region over the first nine months of 2011, compared to the same period in 2010. RosStat has not provided updated data on regional foreign investment for 2012. In the 2010-2011 comparison, Moscow continued to attract the largest volume of investments (63.4% of total foreign investment), mainly due to the concentration of companies' headquarters and consumers with high purchasing power. Source: RosStat. (Note: includes direct, portfolio and "other" investment.)

Table 3 – Foreign Investment – Top Regions (in USD million)


Jan-Sep 2011

Jan-Sep 2010








Moscow (city)







Tyumen Region







Sakhalin Region







St. Petersburg







Belgorod Region





















Table 4 shows investment by sector over the first nine months of 2012, compared to the same period in 2011. Total investment decreased in five of the ten top sectors. Foreign investment into the financial sector dropped off precipitously, with a decrease of 42%. Given the continued weakness of the global economy, investors are reducing their exposure to emerging markets, including Russia. Foreign, particularly European, banks are also repatriating profits from their Russian subsidiaries. Source: RosStat.

Table 4: Foreign Investment: Top Sectors (in USD million)



Jan-Sep 2012

Jan-Sep 2011

Jan-Sep 2010















Extraction of Fuel







Wholesale and Retail Trade







Production of coke and oil products














Transport and Communications







Real Estate and Related Services







Chemical Industry







Food Industry







Production of vehicles







All Others














Table 5 shows stocks of Russian FDI abroad as of September 30, 2012 and September 30, 2011, as well as flows of Russian FDI abroad for the first nine months of 2012, compared to the same period in 2011. Russian FDI stocks abroad increased in five of seven top destinations for FDI (data from 2011 was unavailable for Luxembourg and the United Kingdom). Source: RosStat.

Table 5: Top Destinations of Russian FDI - By Year (in USD million)


as of Sep 30, 2012

as of Sep 30, 2011





















United States





United Kingdom