Currency Controls in Russia: A history of the issue
Currency regulation has existed in Russia since the 15th century. Since that time it has fluctuated: from liberal approaches, to a total ban on operations with foreign currency. After the revolution in 1917, the government instituted a state monopoly on foreign currency operations. Article 88 of the Criminal Code of the RSFSR, specifying criminal penalties for illegal foreign currency transactions, was in place up until 1991. The violation of this law – conducting operations with foreign currency, or “speculation” with foreign currency assets or securities – was punishable by imprisonment for a term of 3–8 years, with the mandatory confiscation of the foreign currency assets or securities, as well as the possibilities of exile for an additional period of 2–5 years and/or the confiscation of one’s other property. Speculation on a large scale was punishable by imprisonment for 5–15 years, with the confiscation of property, and even up to the death penalty.
In 1994, Article 88 was excluded from the Criminal Code of the RF. Yet in its place appeared Article 162.7, “Illegal Transactions with Foreign Currency Assets.” This article specifies that illegal transactions with foreign currency assets, or their illegal possession or transportation, are punishable by a fine of 30–100 times the minimum wage, or imprisonment for a term of up to 5 years, with or without the confiscation of property.
The point of all of this strictness is the control of the movement of foreign currency in the country, which facilitates the support of financial and macroeconomic stability. A second goal is the control of the movement of capital and management of cross-border money flows, assisting in the fight against money laundering. However, many countries have decided to abandon currency controls entirely, as they are considered an ineffective mechanism to combat money laundering.
Currency controls in Russia are primarily the supervision by the state and banks of the compliance with currency regulations. That is, if a Russian company or citizen uses foreign currency for transfers abroad, this operation should pass mandatory currency control. From the point of view of the state, currency control is necessary to check the legality of operations which take place. At the same time, the state looks an extra time into the pocket of the owner of the currency, checking where this money came from.
The functions of currency control in the RF traditionally rest with the government and the Central Bank. Bank regulators control all foreign currency operations which take place in banks. If in the course of their check a bank discovers a violation, it should document it and report it to the Central Bank – which in turn passes the information on to the tax authorities, which fine the violator.
The existing system of currency controls is quite transparent, and avoiding it is unlikely. When foreign currency arrives in a bank, it is not immediately credited to the account of the recipient; first the “purity” of the money is checked, that is, for what goods or services this payment was made. In the event of uncertainty, the bank normally asks the recipient of the currency to confirm the legality of this transfer. If the client is unable to show supporting documents to the bank, the funds are returned to the sender. If an operation does not fall into the category of permitted operations, the bank similarly does not allow such a payment.
Control of foreign currency operations is mainly carried out by commercial banks. The Central Bank issues regulations on the conditions for the acquisition of foreign currency and settlements in it on the territory of the country, issues licenses for operations of the sale and purchase of currency, keeps import and export operations under control – that is, controls the outflow of capital abroad – and through this affects the ruble exchange rate.
