Significant amendments to currency legislation

Pepeliaev Group advises that the State Duma has passed two laws that relate to currency transactions. Moreover, draft amendments are being prepared to the Bank of Russia’s Instructions No. 138-I dated 4 June 2012, which deal with currency control.

The law in question was passed with a view to including within the area of currency regulation cross-border transfers in roubles between residents. It also clarifies the legal rules in terms of non-residents making cross-border transfers in roubles and the ability for residents to open rouble accounts in banks located outside Russia.

The list of currency transactions is supplemented with the following types of transactions involving Russian roubles:

• cross-border transfers between the accounts of residents (a transfer of Russian currency from a resident’s account opened outside Russia to another resident’s account opened within Russia, as well as from a resident’s account opened within Russia to another resident’s account opened outside Russia);

• transfers between the accounts of residents abroad (a transfer of Russian currency from a resident’s account opened outside Russia to another resident’s account opened outside Russia);

• transfers between accounts of the same resident abroad (a transfer of Russian currency from a resident’s account opened outside Russia to an account of the same resident opened outside Russia).

In practice, these transactions were carried out before and are permitted as they previously were (articles 9, 12(5) and 12(6.1) of the Law have been supplemented as appropriate). Treating cross-border transactions in roubles as currency transactions is aimed at ensuring that banks keep records of them and maintain control when they are implemented, for the purpose of making them more transparent for state authorities.

Moreover, specific rules of the Law On currency regulation and currency control have been clarified:

• from article 12(1) of the Law, the restriction has been deleted which provided that residents were able to open accounts (deposits) in foreign banks without restrictions only if the bank was located in an OECD or FATF member state. This was an obsolete rule that long ago had ceased to apply, because the special regime for residents to open accounts in non-OECD and FATF member states was repealed in 2007;

• it is acknowledged that residents may open accounts (deposits) in foreign banks not only in foreign currency but also in Russian roubles. This plugs a gap in the law that arose after the special regime for residents to open such accounts was repealed in 2007: in practice, foreign rouble accounts were opened, but article 12(1) of the law did not directly make provision for such a possibility;

• the restrictions are eliminated on non-residents carrying out transactions in Russian roubles, and it is acknowledged that the following may be carried out:

a) cross-border transfers between non-residents in roubles (from accounts / deposits in banks outside Russia to Russian banks and vice versa) (article 10(1) of the Law); 

b) transfers in roubles from accounts/deposits of non-residents in authorised Russian banks to their accounts/deposits in foreign banks (article 13(4) of the Law; the Law previously made provision for the reverse transaction, i.e. non-residents transferring Russian roubles from foreign accounts/deposits to accounts/deposits in Russian banks). 

This removes from the Law On currency regulation and currency control imaginary restrictions on currency transactions, for which there are no grounds based on the main provisions of the Law.

This law reinforces criminal and administrative liability for violating currency legislation: it sets out a new version of the Russian Criminal Code which establishes liability for a failure to perform the obligation to repatriate (article 19 of the Law On currency regulation and currency control). It also provides for other amendments to the Russian Criminal Code and Code of Administrative Offences.

The text has changed little in comparison with the initial version of the draft law which was put before the State Duma. All the main provisions are retained. Below is a reminder of them: 

• the threshold for criminal liability (a large amount of funds not transferred or returned) has been reduced from RUB 30 million to RUB 6 million. The previous large amount has become particularly large, with increased liability;

• to determine a large and a particularly large of funds not transferred or returned, it is permitted to add together several currency transactions carried out within a year, including (based on the text of the law) under several contracts; 

• not only the CEOs of companies but other persons may be held criminally liable;

• liability is established for failing to comply with an obligation to repatriate not only foreign currency but also roubles (this was a gap in the previous text of the Criminal Code);

• aggravating factors are introduced (a particularly large amount; an act being committed by a group of persons with prior collusion or by an organised group; an act being committed with a falsified document being knowingly used; an act being committed with a legal entity being used that was created for one or several crimes involving financial transactions being undertaken and other transactions being undertaken with money or property);

• a new article 193.1 of the Criminal Code is introduced ‘Undertaking currency transactions that involve a transfer of foreign currency or the currency of the Russian Federation to the accounts of non-residents using falsified documents’. The article defines falsified documents as documents containing information that is known to be inaccurate regarding the grounds, purposes and aims of the transfer. No minimum monetary threshold is set above which criminal liability arises, so a transfer of funds to a non-resident’s account using documents containing information that is known to be inaccurate entails criminal liability irrespective of the amount of the transaction;

• article 15.25 of the Code of Administrative Offences has been amended to differentiate between liability for failing to supply or supplying out of time to the tax authorities reports on the movement of funds on accounts (deposits) in foreign accounts depending on the length of the delay and whether the offence has been repeated. The differentiation of liability depending on the length of a delay is an extenuating factor, but if an offence is repeated within a single year, the fine increases substantially, and may reach RUB 600,000 for legal entities.

At the start of June, a draft for discussion and to gather comments and recommendations was placed on the Bank of Russia’s website of draft Instructions to amend the Bank of Russia’s Instructions No. 138-I dated 4 June 2012. The deadline for comments and recommendations has now expired and the draft amendments have been deleted from the Bank of Russia’s website).

Under the draft amendments, it is proposed that the Instructions will come into force on 1 October 2013. 

The proposed amendments cover all sections of the Instructions. In particular, the text that was available on the Bank of Russia’s website provided that:

• when a customs declaration is submitted a resident will file with a bank only a statement concerning supporting documents no later than 15 business days after the month when the declaration was registered. These and other accompanying amendments of the Instructions are due to the need for its provisions to be further adjusted in relation to the customs authorities sending information electronically to banks about declarations registered for goods (article 23(6.1) of the Law On currency regulation and currency control);

• a transaction passport is executed when contracts are entered into not for an amount above the rouble equivalent of $50,000 but for an amount starting from $50,000; 

• it is necessary to execute a transaction passport for contracts that provide for movable property to be leased (previously a direct obligation was enacted only when real estate was leased, and there were different interpretations for movable property); 

• when a transaction passport is executed in relation to a draft contract, the deadline for the signed contract to be supplied to the bank has been cut from one year to six months;

• the list has been made closed of the types of contracts providing for periodic fixed payments in relation to which a statement about supporting documents and the supporting documents themselves are not filed (a lease of movable and immovable property, a finance lease (leasing), provision of telecoms services, and insurance);

• the regime is clarified for determining the expected maximum timeframe for a non-resident to perform obligations or for funds to be received from a non-resident when this is stated in statements about currency transactions and statements about supporting documents;

• a resident must check that a bank has correctly filled in statements and a transaction passport if the bank undertakes such actions under a contract with the resident, and the resident must supply adjusted statements or an application to amend a transaction passport if such resident disagrees with the information contained in documents completed by the bank.

Pepeliaev Group’s lawyers are ready to provide assistance on issues relating to the application of currency law, taking into account the new matters listed above. 

in Moscow – Ivan Khamenushko, Senior Partner, at (495) 967-00-07 or by i.khamenushko@pgplaw.ru; Elena Ovcharova, Head of Administrative Defense for Business Group, at (495) 967-00-07 or by e.ovcharova@pgplaw.ru