2 March 2022
Restrictive measures in the field of cross-border transactions

On February 28, 2022, The Decree of the Russian Federation President "On the application of special economic measures ..." was published.

The Decree establishes significant restrictions on cross-border monetary transactions and is directly related to both: transactions of individuals and participants in foreign economic activity.

1. Both individuals and legal entities are prohibited from cross-border transfers of their own funds in foreign currency to their own accounts in foreign banks. The ban prohibits both: bank transfers (i.e. from account to account) and transfers using electronic means of payment (bypassing the Russian banking system).

The ban comes into effect from the moment the Decree is published, which is to say it has already been in effect from 28/02/2022.

Most likely, starting from 01/03/2022, Russian banks will stop executing orders for such transfers to their clients. In addition, even if someone manages to withdraw funds bypassing the banking system (for example, using electronic means of payment), such funds sent to foreign bank account may be considered credited in violation of the law, and subsequent use of these funds will be considered as an administrative offense punishable by a fine of up to 100% of the amount of the operation itself.

From a formal point of view, some "gaps" can be found in the restrictions. So, if a resident makes a bank transfer to his foreign account in roubles, this operation is not formally banned. A similar transfer in rubles using electronic means of payment, however, is prohibited.

The issue of the possibility of transferring securities from deposit accounts in Russian banks for safekeeping in foreign banks remains controversial. The Decree uses the exact words "foreign currency", and, therefore, the transfer of securities is not formally prohibited. At the same time, it is possible that banks will interpret the restrictions broadly, refusing to perform such an operation.

Restrictions also affect those Russian citizens, who permanently reside abroad, but have savings in Russian banks. It is now impossible for them to “withdraw” money from the Russian Federation to their foreign accounts.

The ban does not formally apply to transfers to close relatives.

For non-residents (i.e. foreign organizations, as well as individuals who do not have Russian citizenship or a residence permit in the Russian Federation), the “withdrawal” of funds from accounts in Russian banks to their own accounts in foreign banks remains open. It is possible that by other means this channel will soon be unavailable.

2. A ban has been enacted on the transfer of foreign currency in the procedure for providing cross-border loans, i.e. when a payment is made by a resident (in the sense of currency legislation) to a non-resident. It should be assumed that such transactions are not allowed, even if a non-resident receives borrowed funds by crediting them to his account in a Russian authorized bank.

Presumably, transfers of funds in the order of issuing loans to other residents who permanently reside outside the Russian Federation and receive these funds to their foreign accounts should be allowed. At the same time, it cannot be ruled out that Russian banks, due to legal uncertainty, will not take on the risk by executing such payment orders.

This restriction does not apply to the issuance of advance payments. At the same time, the issuance of advance payments is subject to currency control, and the contract on the basis of which such an advance can be transferred abroad, as a rule, is kept on a special account in a Russian bank.

The ban blocks the ability to finance controlled foreign companies (CFCs) with loaned funds. At the same time, there is no prohibition on capital transactions, for example, by making money as a contribution to the capital of a CFC.

3. All participants in foreign economic activity who receive revenue from such activities in foreign currency are required to sell 80% of the total amount of proceeds, i.е. convert it to rubles.

This obligation applies retrospectively: everyone who has already received such revenue since the beginning of the current year is obliged to sell 80% of the total revenue within 3 business days, i.e. one should have already sold the revenue this past week. Presumably, if the Russian recipient of the revenue has already converted the foreign currency into rubles, the obligation will be considered fulfilled. The decree in this part refers to the procedure for the sale, which is yet to be determined by the Central Bank of the Russian Federation.

The question about the consequences for those participants in foreign economic activity who, having received revenue in foreign currency at the beginning of this year and have already disposed of it without converting it into rubles, remains open. For example, by transferring an advance payment to a foreign supplier or by making partial payment of a debt in relation to a foreign creditor. We can only hope that such persons will not be considered as those who did not fulfil the duty that they previously could not have known existed.

Everyone who receives foreign exchange earnings, starting from February 28, 2022, also has a three-day period for converting 80% of the amount of funds received into rubles.

The mandatory conversion rule applies to all receipts: payments received for goods, services, transferred projects of intellectual property, etc. Even cases where a foreign trade contract for legitimate reasons is not subject to bank registration fall within the scope of this obligation.

4. Due to the difficult situation, some “mitigating” measures are envisaged. Thus, Russian banks are allowed to open accounts for individuals without their physical presence. This possibility is provided, presumably, for clients who urgently want to transfer their funds from one credit institution (for example, one subject to sanctions) to another Russian bank, whose activities are not limited by sanctions. Together with the transfer of funds, the “old” bank must transfer to the “new” bank the client documentation obtained during the “KYC” procedure.

At the moment of publication of this legal alert, we understand that new addendums to the Decree have been released.

 

This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.

Practices

Key contacts

Sergey Kalinin

Sergey Kalinin

Moscow, Limassol