1. law, govt and politics

CLIENT ALERT
NAVIGATING THE NEW RUSSIAN
MEDIA LAW
ON 14 OCTOBER 2014 THE RUSSIAN PRESIDENT SIGNED A LAW INCORPORATING
IMPORTANT AMENDMENTS ("AMENDMENT") TO THE FEDERAL LAW "ON THE MASS
MEDIA" ("LAW"). THE AMENDMENT, WHICH COMES INTO FORCE ON 1 JANUARY 2016,
INTRODUCES STRICT LIMITATIONS ON THE ABILITY OF FOREIGN ENTITIES TO OWN,
CONTROL OR RUN RUSSIAN MEDIA BUSINESSES.
THE PURPOSE OF THIS ALERT IS TO PROVIDE AN OVERVIEW OF THE AMENDMENT AND
GIVE SOME GUIDANCE AS TO WHICH ACTIONS MAY BE NECESSARY IN ORDER TO ENSURE
COMPLIANCE WITH THE AMENDMENT.
RESTRICTIONS
AMENDMENT
INTRODUCED
BY
THE
manage, control and actually determine their
decisions.
While the Law in its current wording is confined to
Russian broadcasting businesses limiting foreign
participation to a 50% stake, the restrictions on
foreign entities introduced by the Amendment go
much further.
The Amendment prohibits foreign persons from:
▪
founding or participating as a shareholder of a
mass media organisation;
▪
performing the functions of an editorial board of a
mass media organisation;
▪
carrying out any broadcasting activities;
▪
shareholding, managing or controlling more than
20% of shares directly and indirectly (as well as
through entities under their control or
cumulatively) of an entity which is a shareholder
of a mass media organisation, its editorial board or
a broadcasting entity; and
▪
establishing any other form of control over a
shareholder or a founder of a mass media
organisation, indirect shareholders of a mass media
organisation or an editorial board or a broadcasting
entity, if this enables a foreign person to own,
TYPES OF MASS MEDIA ACTIVITIES
COVERED BY THE AMENDMENT
The types of activities now targeted by the
Amendment are a lot wider than before. While the
Law in its current version applies only to TV and
radio broadcasters which meet certain criteria, the
Amendment covers (i) mass media organisations in
general, which includes any periodical, TV or radio
channel, website (if registered as mass media in
Russia) and any other form of periodical distribution
of information with a permanent name; (ii) any
entities performing the functions of the editorial board
of a mass media organisation; and (iii) any
broadcasting entities.
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Quasi foreign persons (i.e. companies with foreign
shareholders, but ultimate Russian ownership) may
enjoy a slightly extended period to comply with the
requirements. Therefore, provided that the ultimate
ownership has been declared to the regulator by
1 February 2016, such persons shall have until
1 February 2017 to satisfy the requirements
introduced and notify Roskomnadzor by 15 February
2017.
Given the broad definition of 'mass media' in the
Amendment, many companies that are actually not in
the media business may be subject to the newly
introduced restrictions (for example, large retailers that
issue flyers or magazines with their products provided
they are registered as mass media).
DEFINITION OF ‘FOREIGN PERSON’
A 'foreign person' subject to the Amendment includes
any of the following: (i) a foreign state; (ii) an
international organisation, (iii) an organisation
controlled by a foreign state or an international
organisation, (iv) a foreign legal entity, (v) a Russian
legal entity, more than 20% of which is directly or
indirectly owned by a foreign entity, (vi) a foreign
citizen, (vii) a person with no citizenship, or (viii) a
Russian citizen with a citizenship of another country.
This definition is significantly wider than the current
wording of the Law which extends only to foreign
entities and citizens, Russian entities with a foreign
participation of 50% and more, persons with no
citizenship and Russian citizens with dual citizenship.
SANCTIONS
Activities of a mass media organisation in breach of
any of the above restrictions or notification
requirements may be suspended and/or terminated by
court upon a claim of Roskomnadzor.
Further, any transactions which result in a breach of
the restrictions introduced by the Amendment are
void.
Non-compliant founders or shareholders of (i) mass
media organisations, (ii) entities performing the
functions of an editorial board of a mass media
organisation or (iii) broadcasting entities are not
entitled to perform their corporate rights, including
voting rights, the ability to receive information in
relation to the entity's activities and the right to
challenge or appeal any decisions of the organisation's
management board.
DEFINITION OF ‘CONTROL’
The Amendment also introduces the term 'control'
prohibiting any form of control over a shareholder or
a founder of a mass media organisation, an indirect
shareholder of a mass media organisation, or an
editorial board or a broadcasting entity. The Law and
the Amendment do not give any further explanation as
to how to interpret 'control'.
EXEMPTION – INTERNATIONAL TREATIES
The only exemption to the above restrictions is where
bilateral or multilateral international treaties, to which
the Russian Federation is a signatory, provide for
special investment protection. Although the number of
international treaties concerning foreign investment in
Russia is quite large, the likelihood that a particular
treaty affords the desired protection is rather small,
but each case will need to be analysed separately.
For the purposes of interpreting the meaning of
control in the context of the Amendment one may
consider applying by way of analogy the control
definitions of other Russian laws. For example, a
'controlling entity' under the Strategic Investment Law
is, inter alia, an entity which has contractually or
otherwise received the right or power to determine the
decisions of another entity, including the right to
determine the terms of such entity's business
activities.
CALL FOR ACTION
RELEVANT TIMELINES AND DATES OF
REFERENCE
Taking into consideration the latest restrictions
introduced by the Amendment, the general
recommendation for all mass media companies
(including those that are ultimately Russian owned)
acting in Russia and their corporate or individual
parents is to review the current ownership/control
structure. This should include a review of the
shareholders and commercial arrangements with
foreign parents, IP holders, and content providers.
The Amendment comes into effect on 1 January 2016.
Most importantly, the founders of mass media or the
editorial board of mass media must submit to
Roskomnadzor - the Russian media regulator - a
formal application statement confirming compliance
with the Amendment by 15 February 2016.
If a mass media organisation or its parent will be in
violation of any of the above restrictions when the
Amendment comes into force, it eventually will need
to be decided whether the Russian operations should
be continued, and if so, how to restructure the
business in order to comply with the Amendment..
Therefore, control rights might also include certain
contractual rights of a foreign licensor under IP
licensing arrangements (such as termination rights in
case of violations of content requirements, etc.).
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The following
considered:
restructuring
options
could
be
▪
to create a structure where the mass media is at
least 80% owned and managed by a new or
existing Russian partner;
▪
to implement a licence structure according to
which the Russian media business is fully owned
and operated locally with royalties being paid for
brand licences and certain content to foreign
licensors and content providers;
▪
to divide the business so that the editorial and
broadcasting activities are controlled by a Russian
entity and the remaining part of the business
remains foreign-controlled, e.g. separating the
roles of the so-called founder (registration as mass
media in Russia) and the editorial office/
broadcasting entity, on the one hand, from the
publisher being in control of the remaining
business streams, on the other hand; or
▪
The above options may entail not only the
restructuring of the current (foreign) shareholding, but
also involve the revision of the relevant contractual
arrangements, such as franchise and licensing
agreements,
implementing
special
dividend
distribution systems, etc. All of these options are
currently being discussed within the media industry
and close consultations with Roskomnadzor and
various other state bodies are held. It remains to be
seen which of the structures will be preferred by the
various businesses and whether the legislator or the
regulator will adopt modifications and possible carveouts for certain types of mass media or existing
businesses.
CONTACTS
Steffen Kaufmann
Partner
Steffen.Kaufmann@dlapiper.com
Elena Kurchuk
Counsel
Elena.Kurchuk@dlapiper.com
termination of the mass media registration of
websites (in case of online media) or marketing
brochures (if the circulation numbers are below the
relevant threshold for mandatory registration as
mass media).
Michael Malloy
Counsel
Michael.Malloy@dlapiper.com
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