Material changes concerning administrative liability for violations of currency legislation
On 7 July the Russian State Duma adopted a law  easing liability for violations of currency legislation. The law’s coming into force may make it possible not to pay the fines for previous violations or to pay such fines at a reduced rate in the event that the fines have not been recovered.
The same law extends the elements of individual violations.
1. The amendments easing liability
1.1. The possibility of avoiding a fine when funds are credited to a foreign account
Liability is eliminated for crediting funds to a foreign account on grounds for which currency legislation does not provide (article 15.25(1) of the Code of Administrative Offences) and for the non-performance of the repatriation obligation (article 15.25(4) of the Code of Administrative Offences) provided that a number of conditions from the notes to the article are met:
- the funds have been credited to the foreign account under a foreign trade agreement within the set timeframe;
- no later than 45 days from date when the funds were credited to the foreign account such funds have been transferred to the account in the authorised bank (if only a part of the funds has been transferred, liability applies with respect to the relevant part).
|Since the release from liability is provided for only with respect to foreign trade agreements, the fine is retained if the funds have been credited on other grounds that are not included in the “white” lists of grounds for which Russian currency legislation provides (for instance, if the account belongs to an individual who is not engaged in foreign trade), and the amount of the fine is not reduced. However, the foreign units of Russian entities will be able to receive the revenue and transfer it to Russia.
1.2. Easing liability for non-performance of the repatriation obligation
The amounts of fines for violating the obligation to carry out the repatriation of the funds payable by the non-resident is materially reduced for most situations. According to the general rule, in the event that the funds have not been credited the fines will amount to:
- 5 - 30% – in the case of foreign trade agreements providing for payment to be made in foreign currency or in the case of loan agreements;
- 3 - 10% - in the case of foreign trade agreements concluded and performed in roubles (but this does not apply to rouble loan agreements with non-residents).
A reduced fine of 3-5% is also established if the resident is included in the list of professional parties involved in foreign trade activity. Such fines apply only to foreign trade agreements. Outstanding loans issued to non-residents entail a fine of 5-30% as specified above. The list of professional parties involved in foreign trade activity has not been approved yet, although the procedure for forming it was previously put forward for discussion.
|Unlike situations when ordinary elements of a violation of the repatriation rules apply, professional parties involved in foreign trade activity are not entitled to a reduced fine calculated based on a proportion of the key interest rate of the Bank of Russia per each day of the delay in the event that the obligation has been performed, but with a delay, i.e. in the event of an insignificant delay the fine of 3% will be more than if the resident is not a professional party involved in foreign trade activity. However, in the event of a long-term delay when the fine is calculated based on the key rate within the framework of ordinary elements of a violation, the fine could exceed the maximum rate of 5% established for professional parties involved in foreign trade activity.
New grounds have been introduced that eliminate liability for non-repatriation: liability will be imposed if the amount of the obligations under the agreement has exceeded the equivalent amount of RUB 200,000, and the delay has exceeded 45 days.
|The notes to the article do not contain any provisions that the threshold amount should apply in the event that the advance payment has not been reimbursed to the resident; neither do such notes contain any provisions that the threshold term should apply in the event the repatriation rules for officers have been repeatedly violated, which is punished by disqualification. In addition, the threshold amount does not apply to violations of professional parties involved in foreign trade activity.
The fine of 75-100% for non-repatriation is retained only for violations worth over RUB 100 million (article 15.25(5.2) of the Code of Administrative Offences) which, if committed repeatedly, will result in criminal liability being imposed (article 193 of the Russian Criminal Code).
|The disposition of the elements of a violation when the amount of non-repatriated funds exceeds RUB 100 million contains a reference to the basic elements, but includes a reference to article 15.25(5.3) of the Code of Administrative Offences (failure to reimburse an advance payment to a professional party involved in foreign trade activity). Until this technical legal defect is eliminated, which is likely to be done, an increased fine will not apply to professional parties involved in foreign trade activity in the event of a failure to reimburse an advance payment of over RUB 100 million.
1.3. Easing liability for a failure to provide documents and information
The liability for a failure to submit accounting and report forms, as well as the supporting documents and information to the bank will be imposed only in the event of a delay of over 90 days, i.e. liability for a shorter delay has been eliminated (article 15.25(6.3-1) of the Code of Administrative Offences).
Liability has been eliminated for a violation of the procedure for submitting accounting and report forms as well as the supporting documents and information to the bank provided that such violation is not related to the delayed submission.
Article 15.25(6) no longer includes liability for violating the rules for drawing up transaction passports; however the article does not directly provide for liability for a failure to register agreements with a bank. Please note that the draft new Code of Administrative Offences developed by the Russian Ministry of Justice contains separate provisions relating to liability for violating the procedure for registering agreements with banks.
Liability for violations relating to the submission of reports on foreign accounts and the storage of documents and information about foreign currency transactions remains unchanged.
2. The amendments introducing the liability
2.1. Liability has been introduced for violations relating to accounts with other foreign financial market institutions
Starting from 2020 the obligation to submit notifications and reports to the tax authorities applies to residents’ foreign accounts (deposits) not only with banks, but also with other financial market institutions.
The law at issue introduces liability for violating the specified obligations which is similar to liability with regard to the bank accounts.
The law also introduces liability for transactions on accounts with foreign financial market institutions that are prohibited by Russian law. Although the Bank of Russia has permitted all such transactions without limits, the Federal Tax Service has reminded that this permission does not apply to prohibited transactions between residents and does not provide for a release from the repatriation obligation. Previously liability for prohibited transactions between residents and for violating the repatriation rules could be imposed as well. However, the new version of article 15.25(1) of the Code of Administrative Offences introduces a fine for withdrawing funds that have been credited to accounts with foreign financial market institutions in prohibited transactions between residents.
The above amendments eliminating the liability in the event that funds have been withdrawn from a foreign account to be transferred to a Russian account apply only to accounts with foreign banks. No amendment has been made to apply this release from liability to other financial market institutions, and in this case as well the amendments are not altogether coherent.
2.2. Liability of individuals for violating the repatriation rules has been introduced
The law introduces liability of individuals similar to that of legal entities or individual entrepreneurs in the elements of the violation concerning a failure to receive proceeds and a failure to obtain funds from a borrower. This is related to the individuals’ obligation to ensure repatriation of funds in the event that they grant loans to non-residents. The elements relating to the repayment of an advance payment still do not contain any provisions concerning individuals.
Based on the information on the Russian Government’s website the amendments were made with a view to introducing liability specifically for the non-repatriation of loans. However, the Federal Tax Service has expressed a position that individuals are obliged to have proceeds repatriated. Therefore, individuals are facing, in addition to the liability for failure to receive funds from the borrowers, the risk of liability for failure to have the revenue repatriated.
The amounts of the fines for individuals are the same as the above reduced amounts of fines provided for entities and entrepreneurs. However, individuals are not subject to the above confiscatory fine in the event of a violation worth more than RUB 100 million.
2.3. Liability has been introduced for a failure to ensure the termination of obligations under rouble agreements with respect to which repatriation has been previously lifted
Starting from 2020 the repatriation obligation has been lifted in full or in part with regard to most export foreign trade agreements concluded and performed in roubles. The specified obligation has been substituted with an obligation of residents to ensure that the obligations under such foreign trade agreements have been terminated using legal methods.
The law provides for a warning or a fine for the non-performance of such obligation, such fine amounting to 5-30% of the amount of the funds payable to the resident by the non-resident, and to RUB 20,000 - RUB 30,000 for officers. The fine of 5-30% is also provided for the professional parties involved in foreign trade activity, which is directly set out in the law, whereas a violation of the repatriation obligation entails reduced fines for such parties. The ground for such a discrepancy is unclear.
The fine for violating the new obligation that applies to rouble agreements is higher that the fine for non-performance of the repatriation obligation when it is retained for such agreements (3-10%), and is equal to the fine for the non-performance of the repatriation obligation with respect to amounts in a foreign currency.
Moreover, no reduced fine is provided for based on the Bank of Russia’s key rate in the event that the obligation has been performed, but with a delay.
General assessment of the amendments
When there are serious doubts as to whether many currency restrictions are justified, the easing of liability for a number of violations should be supported. However, the structure of the provisions relating to liability is becoming more complicated, and although the discrepancies between the approaches to similar violations do not actually prevent the law from being applied, they can hardly be considered justified. Some discrepancies raise questions as to whether they have resulted from the lawmaker’s conscious activity to implement its purposes or rather are technical legal defects.
What to think about and what to do
A law that improves the position of an offender has retroactive effect, i.e. it applies to persons who have committed an administrative offence before such law came into force as well as to persons with regard to whom a resolution to impose an administrative punishment has not been executed (article 1.7(2) of the Code of Administrative Offences).
If this law is adopted many residents may become subject to a reduced fine or may be released from administrative liability.
As for the new fines, they apply in the event of a violation of the obligations which will become due after the law comes into force.
Help from your adviser
Pepeliaev Group’s specialists have successful experience of representing entities and their employees before currency control authorities and courts. Our lawyers are ready to provide comprehensive legal support with regard to issues relating to the application of currency legislation, including the retroactive application of the new law with a view to easing liability or to ensuring a release from such liability.
 Instruction No. 5371-U of the Bank of Russia dated 24 December 2019.
 Letter No. VD-4-17/6473 of the Federal Tax Service dated 17 April 2020.
 The “Frequently asked questions” section of the Federal Tax Service’s website (https://www.nalog.ru/rn77/service/kb/). Question: “Are resident individuals allowed to credit to their accounts amounts in foreign currency received in foreign trade activity and payable for services supplied to non-residents..?”
 Article 2(4) of Federal Law No. 265-FZ dated 2 August 2019 and article 24(4), article 19(1.1)(1) and article 23(4)(21) of Federal Law No.173-FZ “On currency regulation and currency control" dated 10 December 2003.