Fines reduced for unlawful foreign currency transactions and cancelled for violations committed because of sanctions

Pepeliaev Group advises that, on 24 July 2022, a Federal Law came to force[1] that reduces fines for parties involved in foreign trade for unlawful foreign currency transactions and cancels fines for violations committed because of sanctions.

Changes:

Law No.235-FZ has introduced the following important changes to article 15.25 of the Code of Administrative Offences, which imposes administrative liability for violations of Russian currency legislation and regulations of currency regulation authorities:

• It has reduced the fine for unlawful foreign currency transactions (in other words, for foreign currency transactions forbidden by Russian foreign currency legislation or performed with violations of it) from 75-100% of such a transaction to 20-40% for persons carrying out business activity without a legal entity being established and for legal entities (article 15.25(1) of the Code of Administrative Offences).

• It has reduced the fine for resident exporters when they fail to repatriate revenue in the currency of the Russian Federation. The amount of the fine has been reduced from the current 3 - 10% to 3 - 5 % of the amount of money that has not been transferred to bank accounts in authorised banks within the specified period of time (except for contracts connected with the export of wood and timber; the fine for these has remained the same)

• It has replaced the fine for a company's officers for violating foreign currency legislation from the fine established in the form of a fixed amount to a fine calculated as a percentage of the amount of an offence (parts 1, 4, 4.3 and 5 of article 15.25 of the Code of Administrative Offences). The maximum amount of the fine for officers, as before, cannot exceed RUB 30,000.

• It has cancelled the fines for residents for unlawful foreign currency transactions performed from 23 February until 31 December 2022 and for the failure to return foreign currency proceeds, if this is caused by sanctions (comment to article 15.25(10) of the Code of Administrative Offences).

The retroactive effect of the law

A law that cancels liability for an offence or in any other way improves the position of an offender has retroactive effect. In other words, it also applies to a person that had committed an offence before such law came into force and with regard to whom a resolution to impose an administrative punishment has not been executed.

After such law comes into effect, a resolution to impose administrative punishment that has not been executed (fully or in part) by the time liability is abolished shall not be executed.

What to think about

According to Law No. 235-FZ, unlawful foreign currency transactions and the failure to return foreign currency proceeds, for which no liability arises, must be “caused by restrictive measures being applied to citizens of the Russian Federation or Russian legal entities, such measures being imposed by foreign states (territories), state associations and/or unions and/or state (interstate) institutions of foreign states or state associations and/or unions performing hostile actions against Russia”.

It is still not clear how this exception will apply. However, we expect that the tax authorities and courts will proceed from a literal interpretation of this legal provision. Thus, liability will be cancelled if the resident, its beneficial owner or bank are on the sanction lists and this is the reason for the violation. The liability will not be cancelled if there are restrictive measures and hostile actions take place, but they are not connected with official sanctions (for example, the buyer’s bank or the buyer itself fail to transfer monetary funds to a resident saying that the reason for this is “the current situation”).

What is to be done

If, on 27 July 2022, the execution of resolutions to impose administrative punishments (in full or in part if the fine is reduced) is not stopped, we recommend that you file a petition requesting that the execution be stopped. Unfortunately, the reimbursement of fines that have been paid for violations of Russian currency legislation takes significant time and often causes the tax authorities to resist.

Help from your adviser

Pepeliaev Group's lawyers are ready to provide any required legal support concerning the matters of new legal developments, as well as to protect the interests of your company and of your employees in disputes with administrative bodies, including with regard to issues connected with compliance with Russian currency legislation.

[1] Federal Law No. 235-FZ dated 13 July 2022 “On amending Article 15.25 of the Code of Administrative Offences of the Russian Federation” (the “Law”, “Law No.235-FZ”).