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A new Challenge for Russia Specialized AML and Sanctions Evasion Checks. The Impact of Presidential Decree N 73 on Compliance and Due Diligence in Russia.

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Key Aspects

  • The trend since 2014 of reducing key corporate information disclosure in Russia now received yet another major text authorizing key Russian companies, known as Economically Significant Organisations, to de facto stop disclosing whatsoever information. 
  • The impact on key aspects such as Shareholding Structure, Board Membership, Corporate Financials etc will be significant to analyzing, especially outside Russia, from Trusted State Registries, and corroborating client provided information in the banks. 
  • Even bigger impact it has on “collateral” organizations and persons since those large Economically Significant Organisations, each, as a rule, have literally thousands of nexus connections to other organizations and persons. This ranges from key aspects such as Shareholding Structure Assessment in Sanction analysis, to mere light board membership in a foreign subsidiary of those organizations. 

What’s new

Since 2014, gradually,  Russian authorities introduced a number directives that affected corporate operations, particularly in how companies disclose and provide information. In this series, on January 27, 2024, President Vladimir Putin signed Decree N 73, titled “On the Temporary Procedure for the Disclosure and Provision of Information by Economic Societies, which are Economically Significant Organizations, and Certain Related Persons.”

Context and Implications

This decree emerges as a response to what the Russian government perceives as unfriendly actions by the United States and other foreign states, i.e. Economic Sanctions. It modifies the existing framework under which Economically Significant Organizations (ESOs) operate, especially regarding information disclosure. The decree directly references key federal laws that affect the disclosure of information. Notably, it impacts the transparency obligations under the Joint Stock Companies Act of 1996, Securities Act of 1998, Anti-Money Laundering Act of 2001, Audit Act of 2010, Consolidated Financial Reporting Act of 2010, and other significant legislations. The decree allows these ESOs and their related entities to withhold key information that was previously required to be disclosed in public information systems.

Defining of Economically Significant Organizations in Russia

As per the Federal Law from August 4, 2023, N 470-FZ, an Economically Significant Organization is defined as a business entity that plays a pivotal role in the national economy, potentially due to its size, market influence, strategic importance, or contribution to critical sectors. This definition encompasses a wide range of companies whose operations are integral to Russia's economic stability and growth.

In other words, ESOs can be both State-owned organizations as well as privately owned or listed ones, including ones that are foreign owned. ESOs are becoming, in most of the cases, de facto Politically Exposed Entities. If before February 2022 a large portion in the similar group could be merely seen as simply large corporations (by revenue or otherwise) and not necessarily seen as PEP like organization, after 2022 the context is more and more shifting towards blanket classifications of an ESO as SOE, i.e PEP like organization. 

Key Provisions of the Decree No. 73

Restriction on Disclosure: Economically Significant Organizations, and related Persons/Entities, are temporarily exempt from disclosing information mandated by a wide range of federal laws. This includes laws concerning banking, securities markets, competition, personal data, and more.

Notification and Request-Based Provision: While these entities are exempt from public disclosure, they must notify federal executive authorities and provide information upon request to these bodies.

Confidentiality of Provided Information: Information not publicly disclosed but provided to federal authorities remains confidential and is not to be published in state information systems or other sources.

To access the original Presidential Decree No. 72 please follow this link.

For further reading on legal status and definition of Economically Significant Entities please follow this link