Restrictions on currency transactions and securities/real estate transactions
By the Decrees of the President of the Russian Federation of February 28, 2022 “On the application of special economic measures in connection with the unfriendly actions of the United States and foreign States and International Organizations that have joined them” (hereinafter – Decree 1), as well as of March 1, 2022 “On additional temporary economic measures to ensure the financial stability of the Russian Federation” (hereinafter – Decree 2) new currency restrictions were introduced for currency residents of the Russian Federation, which, among other things, affect individuals – currency residents of the Russian Federation. What operations are considered as prohibited? In accordance with Decree 1:
- Implementation of foreign exchange transactions related to the provision of foreign currency by residents in favor of non-residents under loan agreements;
Crediting of foreign currency by residents to their accounts (deposits) opened in banks and other financial market organizations located outside the territory of the Russian Federation, as well as making money transfers without opening a bank account using electronic means of payment provided by foreign payment service providers; In accordance with Decree 2:
- Transactions on the provision of loans and credits (in rubles) to persons of foreign States committing unfriendly acts;
- Transactions entailing the emergence of ownership rights to securities and real estate carried out with persons of foreign states committing unfriendly actions;
Export of foreign currency in cash and monetary instruments in foreign currency in an amount exceeding the equivalent of 10 thousand US dollars and calculated at the official exchange rate of the Central Bank of the Russian Federation established on the date of export. Which states are considered unfriendly? The list of unfriendly states has not been published at the moment. According to unofficial data, such States include: Austria, Australia, Albania, Anguilla, Belgium, Bulgaria, British Virgin Islands, Great Britain, Hungary, Germany, Gibraltar, Greece, Denmark, Jersey, Ireland, Iceland, Spain, Italy, Canada, Cyprus, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Singapore, Slovakia, Slovenia, USA, Taiwan, Finland, France, Croatia, Czech Republic, Sweden, Switzerland, Estonia, Japan. Who are considered as persons of foreign States committing unfriendly acts for the purposes of Decree 2?
- Persons who have the citizenship of such States,
- Persons with a place of registration, with a place of preferential economic activity, or a place of preferential profit-making in unfriendly states,
- Persons who are under the control of the above-mentioned persons, regardless of their nationality.
The procedure for performing currency transactions under loan agreements with non-residents: Do the restrictions on the issuance of loans in foreign currency to non-residents established by Decree 1 apply only to residents of unfriendly states? No, Decree 1 prohibits the issuance of loans to all non-residents, regardless of the recognition of such persons as residents of unfriendly states. Non-residents in accordance with the Law on Currency Regulation include the following persons:
- individuals who are not residents, that is Russian citizens, or persons who have a residence permit in the Russian Federation;
- legal entities established in accordance with the legislation of foreign states and located outside the territory of the Russian Federation;
- organizations that are not legal entities, established in accordance with the legislation of foreign states and have their location outside the territory of the Russian Federation, etc.
Can I issue a loan to my controlled foreign company in foreign currency or in rubles? Issuing a loan in foreign currency to non-residents is prohibited. The issuance of a loan in rubles is allowed if the controlled foreign company does not fall under the definition of a person associated with unfriendly states. However, such a ban does not apply if such an operation is carried out on the basis of a permit issued by the Government Commission for the Control of Foreign Investment in the Russian Federation (hereinafter referred to as the Permit). If I have previously issued a loan to a non-resident (before March 1, 2022), can I receive funds from a non-resident as part of the repayment of the loan or interest on such a loan? Foreign exchange operations for residents to receive foreign currency when non-residents fulfill their obligations under loan agreements previously provided by residents to non-residents are not limited (including operations for non-residents to repay a loan, non-residents to pay interest amounts and (or) penalties on such a loan). This position is confirmed by the explanations of the Central Bank of the Russian Federation published on the official website of the Central Bank of the Russian Federation. If I, as a lender, concluded a loan agreement with a non-resident in February 2022, but under the terms of the agreement they can transfer funds in March, is such an operation allowed? The transfer of funds in foreign currency to a non-resident within the framework of the execution of existing loan agreements concluded before March 1 of this year is subject to immediate termination. This position is confirmed by the explanations of the Central Bank of the Russian Federation. Can I issue a loan or a credit in rubles to a citizen of an unfriendly state? As a general rule, such an operation can be carried out only on the basis of a Permit. Restrictions on crediting funds to accounts opened in foreign banks: Can I transfer foreign currency from my Russian/foreign bank account to my foreign bank account? No, such an operation is prohibited in accordance with Decree 1. Can I transfer Russian rubles to my foreign account and then convert them into foreign currency? We believe that such an operation will be recognized as the transfer of foreign currency to a foreign account, as a result of which such an operation will also be recognized as prohibited. Can I transfer Russian rubles to my foreign account? The decree does not provide for restrictions for such an operation, the operation is allowed. If I receive funds from a non-resident to my account in a foreign bank, will such an operation be considered prohibited? The decree does not establish new restrictions on crediting funds from non-residents.Current restrictions are provided by Article 12 of the Law on Currency Regulation. In connection with the focus of Decree 1 on preventing capital outflow from the Russian Federation, in our opinion, the operation will be recognized as permitted. There are no clarifications on this issue at the moment. We draw attention to the fact that there is a position in the professional community, according to which the ban applies to all transfers of foreign currency to foreign accounts of a resident, including from non-residents. Can I transfer foreign currency to a bank account located in a state not included in the list of “unfriendly” states (for example, in the CIS)? The text of Decree 1 does not provide for exceptions for such states. Such an operation will also be considered prohibited. Am I obliged to transfer foreign currency from accounts in a foreign bank to an account in a Russian bank? The text of Decree 1 does not establish such obligations. Can I use foreign currency as a means of payment in transactions with non-residents, i.e. transfer funds to a non-resident’s account in a foreign bank? The text of Decree 1 does not provide for restrictions for such transactions. The operation is allowed. This position is confirmed by the explanations of the Central Bank of the Russian Federation. Can I transfer securities from a Russian depository to a foreign depository? The text of the Decree does not provide for restrictions for such transactions. In this case, restrictions may be set by the state in which the relevant bank is located. Restrictions on currency transactions in the framework of real estate and securities transactions with persons associated with unfriendly States: Can I sell securities or real estate to a person who is recognized as a person associated with an unfriendly state? Transactions entailing the emergence of ownership rights to securities or real estate carried out with persons of foreign states committing unfriendly acts are prohibited, except in cases where Permission has been obtained. The ban applies to both transactions for the sale and acquisition of securities or real estate. Restrictions on securities transactions apply to both external and internal securities? Decree 2 does not specify the type of securities. Thus, transactions with both external and internal securities fall under the restrictions. Does this ban apply to the sale of real estate located on the territory of the Russian Federation? Decree 2 does not specify the location of the real estate. Thus, transactions with any real estate, regardless of its location, can fall under restrictions. Can I purchase (sell) securities or real estate from a citizen (to a citizen) of a non-unfriendly state? This is allowed without obtaining a Permit, subject to the following conditions:
- The seller/ Buyer is not controlled by a person of an unfriendly state (for example, is not a relative, affiliated person);
- The counterparty to the transaction purchased real estate / securities after February 22, 2022, not from persons of foreign states committing unfriendly actions.
Can I donate securities to persons of foreign states committing unfriendly acts? No, since such an operation entails the emergence of ownership rights from a person of a foreign state committing unfriendly acts. What responsibility is provided for the commission of illegal transactions in real estate and securities transactions? We are waiting for explanations from the regulatory authorities. General questions: If I am outside the Russian Federation for more than 183 days a year, do restrictions apply to me? A literal interpretation of the Decrees allows us to conclude that the ban applies to all currency residents of the Russian Federation, regardless of the time spent in the Russian Federation. We recommend that you comply with the established restrictions until appropriate clarifications appear. What sanctions are applied if I make an illegal currency transaction under Decree 1 and Decree 2? Separate provisions regulating prosecution for illegal currency transactions are not contained in the Decrees of the President of the Russian Federation of February 28 and March 1. Responsibility must be explicitly provided by the federal laws of the Russian Federation, in particular, the Administrative Code of the Russian Federation. At the same time, at the moment, the Administrative Code of the Russian Federation contains a general rule regarding liability for violation of the currency legislation of the Russian Federation, according to which the penalty for illegal currency transactions is 75-100% of the transaction amount (Article 15.25 of the Administrative Code of the Russian Federation). We are waiting for additional clarifications from the regulatory authorities. Due to the situation that has arisen, new currency restrictions are possible.