Amendments expected to currency control regulations and liability for currency infringements

Pepeliaev Group advises that, on 1 June 2011, the Russian Government introduced three draft laws in the Sate Duma which provide for amendments to the currency control procedure and also to liability for infringing legislation on currency regulation and currency control.

The compulsory notification of the timeframe for receiving the proceeds of foreign trade

1. Draft Law No. 556478-5, which contains amendments to the Federal Law On currency regulation and currency control (the “Law”), stipulates that a resident is required to notify to an authorised bank the expected timeframe under the terms of a foreign trade contract for the proceeds to be received or any consideration due for prepayment to be supplied. This provision of the draft law appears less stringent in comparison with the proposal previously put forward to oblige the parties to foreign trade transactions to stipulate the timeframes in the text of their contracts. The new rule is similar to the current requirements to include in so-called transaction passports the anticipation of total contract amount and of the time period for which the contract will be valid. In practice, this means that when the time periods in question are stated in the foreign trade contract, they will have to be stated when the transaction passport is put together, but if they are not contained in the contract, an approximate time period must be given – otherwise the transaction passport will not be opened. These provisions are designed to monitor when the proceeds of foreign trade are credited or when a prepayment is returned (article 19 of the Law).

One-off provision of documents to an agent or currency control authority

This same draft law proposes to bring in a rule that one and the same document may be supplied for currency control purposes only once to the currency control agent (e.g. the bank) or currency control authority (or its local subdivisions). A similar rule was established for the first time for tax control purposes (article 93(5) of the Tax Code), it reflects common administrative and legal principles of exercising control. It may therefore be expected that such a rule will be enacted in other areas of state supervision.

Pepeliaev Group Comment: The current text of the draft law requires the same document to be presented to different currency control agents or state currency control authorities and their subdivisions. The legislator could stipulate that, if the document is provided to just one agent or currency control authority (or a subdivision thereof), then the document need not be presented again either to that or to another agent or currency control authority or equally to any of the latter’s subdivisions (the ‘one stop shop’ principle).

Only those documents which are usually used in carrying out the activity in question may be required for currency control purposes, and it may only be demanded that documents be compiled specifically for currency control purposes in cases where the law expressly provides so (as done regarding transaction passports or accounting and reporting forms for foreign currency transactions – these forms are approved under the law).

If information set out in a document has changed, then the agent or authority to which the document was submitted must be informed of the changes, and documents confirming the changes must be attached to the notification.

Pepeliaev Group Comment: The draft law does not specify that changes must be significant for currency control purposes to trigger the reporting obligation. Accordingly, in practice, a wide interpretation of these provisions is possible.

It should be noted that the prohibition on documents being requested again does not extend to cases where documents previously supplied have been lost for reasons beyond the control of the authority which has lost them.

Using electronic document flow more extensively between currency control authorities and agents

To simplify currency control, the draft law provides for a compulsory electronic document flow between currency control agents and authorities (on expiry of a 180-day period from when the adopted law was published, or from 2013 for customs authorities). To this end, banks will have to send a transaction passport to the state control authority within three days of the transaction passport being opened, and to send a bank control notice if there is information concerning an infringement of currency legislation by а legal entity.

Pepeliaev Group Comments: It seems likely that this will make the task of uncovering and proving infringements of currency legislation considerably simpler for state control authorities.

Changes in the penalties for a delay in declaring foreign currency proceeds

2. When there is delay in declaring foreign currency proceeds or the return of a prepayment to accounts in authorised Russian banks (article 15.25(4) of the Code of Administrative Offences), then the Russian Government believes it necessary to make the main penalty a fine in the form of a time-based interest payment, calculated at 1/150 of the Bank of Russia rate for each day of delay applied to the sum which was not declared on time (draft law No. 556482-5). When the fine is calculated, the rate applied is the Bank of Russia’s rate which was applicable during the delay.

However, the previous method of assessing the fine is also retained though it caused considerable objections on the grounds that it was disproportionate to the offence it was punishing. This applies when the currency proceeds on an account in an authorised bank were never declared and the penalty here is a fixed sum of between three quarters of and the full amount of the proceeds not declared.

Pepeliaev Group Comments: Thus, if a part of proceeds due on an account in an authorised bank is declared after the deadline for declaration and a part is not declared at all, then the fine for the part declared late will be calculated at 1/150 of the Bank of Russia’s rate applied to the amount of currency proceeds declared late for each day of the delay. Meanwhile, in respect of the part not declared at all, there will be a fine between three quarters and the whole amount of such undeclared sum.

The problem also remains of whether the amounts of fines are commensurate: the fine for underpayment of tax is 20% of the arrears (article 122(1) of the Tax Code), but the fine when foreign currency proceeds are not declared is between three quarters and the entire amount of the proceeds on a single occasion. This is despite the fact that, unlike tax, this is not money due to the state coffers and it belongs to the resident.

Change in penalties for a delay in submitting documents

Draft Law No. 556576-5 proposes to bring in a sliding scale for a fine for a delay in providing the accounting and reporting forms for foreign currency transactions and also documents and information confirming such transactions. The fine will depend on the length of the delay (the new part 61 of article 15.25 of the Code of Administrative Offences):

Pepeliaev Group Comments: The amendments in question are aimed at ensuring that the penalty is more commensurate with the offence. In addition, the explanatory note to the draft law does not make clear why the delay in supplying other documents and information for currency control purposes – i.e. reports concerning the movement of funds (investments) between accounts in banks outside Russia, accompanied by documentary confirmation? – is punished, as before, with a fine in a fixed amount on the basis of article 15.25(6) of the Code of Administrative Offences, irrespective of the length of the delay.

Conclusions and recommendations

The aim of the proposed amendments is to improve administration in the area of currency regulation and currency control. In many ways, they do make life easier for those involved in international trade.

There are good prospects for the draft laws put forward by the Russian Government to be considered by the State Duma before long, but many provisions in the draft laws will have to be refined during preparations for the second reading.

Persons involved in international trade need to bear in mind that, under article 54(2) of the Russian Constitution, which has supreme force and direct effect, if a new law is adopted which alleviates or eliminates liability for an infringement, the provisions of the new law are applied. Under the clause which enshrines this constitutional principle, article 1.7(2) of the Code of Administrative Offences, a law which reduces or abolishes administrative liability for an administrative offence, or which otherwise improves the position of a person who has committed an administrative offence, has retroactive effect. In other words, it also extends to a person who committed the administrative offence before such law came into force and in respect of whom the resolution imposing an administrative penalty has not yet been carried out. Therefore fines which have been assessed but not recovered on the date when the new laws come into force will need to be recalculated as appropriate.

Pepeliaev Group’s specialists will keep clients informed of the further progress of the draft laws.

For further information, please contact:

in Moscow – Ivan Khamenushko, Senior Partner, at: (495) 967-0007 or by e-mail;  Elena Ovcharova, Head of the Administrative Defence of Business Group, at (495) 967-00-07 or by e-mail; Elena Lazareva, Lead Associate, at (495) 967-00-07 or by e-mail; Peter Popov, Senior Associate, at: (495) 967-0007 or by e-mail

in St Petersburg - Sergey Spasennov, Partner, Head of St. Petersburg office, at (812) 640-60-10 or by e-mail