Restrictions on Foreign Investments in Russian Mass Media may be softened
On 17 January 2019 the Russian Constitutional Court decided that article 19.1 of the Russian Law on Mass Media (the "Media Law") restricting direct and indirect ownership of Russian media by foreign persons is partially unconstitutional. Now the Russian State Duma will have to amend the Media Law in order to clarify the relevant provisions and bring them into compliance with the Constitution of Russia.
The amendments to article 19.1 of the Media Law came into effect on 1 January 2016. Those amendments further tightened the restrictions for direct and indirect control by foreign persons over Russian legal entities with a broadcasting licence under Russian law. Under the amended Media Law, foreigners were, and still are, not allowed to directly own shares in a Russian mass media/broadcasting entity or control the editorial content of Russian mass media. The Media Law also restricts indirect ownership and control by foreigners to a maximum of 20% of the shares in an entity with shares in a Russian mass media/broadcasting entity. These restrictions also apply to Russian citizens with dual citizenship or, arguably, with a foreign residence permit.
The amended Media Law affected printed periodicals, online editions as well as radio and television broadcasters in Russia and was highly criticized by the industry. One of the persons affected was Mr Finkelstein, a participant (shareholder) in Radio-Shans, who was forced to reduce his shareholding in Radio-Shans due to by the amended Media Law. In his complaint to the Constitutional Court Mr Finkelstein claimed that article 19.1 of the Media Law is unconstitutional due to the following:
- It disproportionally limits the rights of private ownership, to judicial protection and the right to freely transfer, create and distribute information;
- It is discriminatory to Russian citizens with dual citizenship as compared to Russian citizens with no foreign citizenship; and
- It is not sufficiently specific (does not define what investment share in the broadcasting entity is allowed).
The Constitutional Court ruled that the provisions of article 19.1 of the Media Law contradict the Constitution of the Russian Federation. In particular it has to be clarified which individuals and legal entities are restricted from owning shares in Russian broadcasting entities (thus, the definition of a participant shall be explained) and how a Russian citizen with dual citizenship, being a shareholder in a Russian mass media outlet (or a broadcasting entity) and owning more than 20% of the shares in such a mass media outlet/broadcaster is allowed to exercise their corporate rights. Furthermore, the decision requires to clarify that foreigners owning shares in Russian mass media outlets/broadcasters shall have recourse to judicial protection in order to protect their property rights and legitimate interests in relation to such mass media outlets/broadcasters.
The decision further requires the Russian legislation authorities (i.e. the State Duma and the Council of Federation) to amend the Media Law, taking into account the position of the Constitutional Court. The decision, however, does not set any time limits for the parliament to draft and adopt the relevant amendments. Under article 87 of the Federal Constitutional Law “On the Constitutional Court of the Russian Federation”, should the legislator fail to amend the relevant unconstitutional provision, then such provision can be found to be inoperative, i.e. a court could regard such a provision as not applicable. So far it is also unclear to what extent the parliament would amend the Media Law and what consequences the amended law would have. We will keep monitoring this issue and will let you know of any developments in this respect.