Special Economic Measures: What is possible, and what is not
An analysis of the changes in foreign currency regulation introduced as a result of the foreign sanctions is conducted by Ekaterina Zemskaya, Advisor on legal issues to the Director of the NGO “Forum Analytical Center”
The special economic measures adopted beginning at the end of February have brought changes to the existing system of currency regulation, dividing non-residents into foreign persons from friendly and unfriendly states, with the application of distinct requirements to transactions with each group.
The list of unfriendly states was approved by the Order of the Government of the Russian Federation dated 05.03.2022, No. 430-R, and today includes the following countries: Albania, Andorra, Australia, the Bahamas, Canada, the member states of the European Union, Iceland, Japan, the Republic of Korea, Liechtenstein, Micronesia, Monaco, Montenegro, New Zealand, North Macedonia, Norway, San Marino, Singapore, Switzerland, Taiwan, Ukraine, the United Kingdom (including the islands of Guernsey, Jersey and Maine – possessions of the British Crown – and controlled overseas territories: Anguilla, the British Virgin Islands, Gibraltar), and the United States of America.
The special economic measures introduced are restrictive, and may include:
● a ban on a range of operations and transactions;
● a special procedure for performing a number of operations and transactions;
● a special regime for bank accounts;
● the requirement for repatriation and mandatory sale of foreign exchange earnings.
Structurally, these restrictive measures affect relations with a foreign element – namely, foreign currency and monetary instruments in it, or foreign persons. Therefore, the object of these measures is both interactions between residents regarding foreign currency or monetary instruments in foreign currency, and interactions with the participation of a non-resident, both with foreign currency and monetary instruments in it, and with rubles.
The types of operations for which special economic measures have been introduced are:
● Loans (credits)
● Advance payments
● Operations for the payment of shares, deposits, shares in property, contributions under a simple partnership agreement
● Settlements for real estate
● Settlements for securities
● Settlements under bank account (deposit) agreements in foreign currency
● Export of foreign currency
● Acquisition of foreign currency on the domestic market
Further we will look at several of these measures and operations in detail.
Limitations on the Purchase or Withdrawal of Foreign Currency
Banks may sell to private individuals without limitations any foreign currency other than the US dollar or euro. Until March 9, 2023, private individuals may purchase dollars or euros only from banks with funds in these currencies which they received after April 9, 2022. Any currency may be exchanged for rubles without limitation.
The Bank of Russia has set a limit of 10,000 US dollars (or the equivalent sum in euros) on the withdrawal of foreign currency from bank accounts or deposits. Citizens may withdraw in foreign currency only funds which were in the account or deposit prior to March 9, 2022. Other funds may be withdrawn in rubles at the market rate of the day of the withdrawal. Foreign currency is issued only in US dollars or euros, regardless of the original currency of the account or deposit.
Resident legal entities and resident individual entrepreneurs can receive cash US dollars, Japanese yen, British pounds, or euros up to the equivalent of $5000, and only to pay expenses for foreign business trips. A resident company or resident individual entrepreneur can receive all other currencies in cash on the grounds provided for by law, without restrictions.
Non-resident legal entities and non-resident individual entrepreneurs cannot receive cash US dollars, Japanese yen, British pounds, or euros. Non-residents can receive other currencies from their accounts without restrictions.
For all non-residents from unfriendly countries, there is a complete ban on the purchase and sale of foreign currency – both for rubles and for other foreign currency. An exception is made for non-resident banks from unfriendly states, which are granted the right to conclude transactions on the Russian foreign exchange market for the purchase and sale of one foreign currency in exchange for another, as well as the corresponding supply currency forwards and swap contracts. But the prices in these contracts should not deviate by more than 2% from the prices of similar instruments on Russian exchange trading and on international markets at the time of their conclusion.
New Rules for the Transfer of Funds
Until October 1, 2022, the Bank of Russia limits the transfer of funds abroad. However, the limits on such transfers have been consistently raised since their introduction. So from July 1, 2022, transfers of funds abroad from accounts opened in a credit institution by individuals resident in Russia, including those from “friendly” foreign countries, can be carried out up to the amount of $1,000,000 per calendar month.
For 6 months (until October 1, 2022), transfers abroad from the bank accounts of resident individuals from “unfriendly” foreign states, and not working in Russia, as well as legal entities from these states, have been suspended. For the same period, transfers abroad of funds from the accounts of Russian brokers of non-resident individuals and legal entities from countries that support sanctions, have been suspended. At the same time, the possibility remains for all non-residents to transfer abroad the funds that they receive as salary.
Credit institutions are granted the right to open a bank account (deposit) in foreign currency for a private individual client without his personal presence (or that of his legal representative), in the event of the transfer by this individual of funds in foreign currency from his bank account (deposit) opened in a credit institution subjected to unfriendly actions of foreign states to the credit institution opening the account (deposit) – provided that simultaneously with doing this, the credit institution that carries out the transfer of funds, conveys to the new credit institution the information established during the identification of this private individual client. This transfer is carried out by the credit institution after obtaining the consent in writing of the private individual client for the transfer and use of information about this individual (established during his identification) to the credit institution, in order to conclude a bank account (deposit) agreement with him .
Payment by Residents of Shares in the Property of Non-residents
Until December 31, 2022, a ban has been imposed on carrying out the following operations without obtaining permission from the Central Bank of the Russian Federation:
a) payment by a resident of a share, deposit, share in the property (authorized or share capital, mutual fund of a cooperative) of a non-resident legal entity;
b) payment by a resident to a non-resident of a contribution within the framework of the performance of a simple partnership agreement, with investment in the form of capital investments (joint venture agreement).
Along with this, from June 1, 2022 the Bank of Russia waived the requirement for Russian residents to receive individual permission from the Bank of Russia to pay for shares, deposits and shares in the property of non-residents – if the funds are deposited in rubles or the currency of a friendly state. If payment is made in the currency of an unfriendly state, the amount of such an operation should not exceed the equivalent of 15 million rubles. Similar requirements apply to contributions to non-residents under simple partnership agreements
Credits and Loans
From March 1, 2022, residents are prohibited from providing foreign currency to non-residents under a loan agreement. Also, residents are forbidden to provide loans and credits in rubles to persons from unfriendly countries. These transactions (with a number of exceptions) can be carried out only on the basis of permits issued by the Government Commission for Control over the Implementation of Foreign Investments in the Russian Federation, acting in accordance with the “Rules for issuing permits by the Government Commission for Control over the Implementation of Foreign Investments in the Russian Federation, in order to implement additional temporary economic measures to ensure the financial stability of the Russian Federation, and other permits provided for by separate decrees of the President of the Russian Federation,” issued by the Resolution of the Government of the Russian Federation, No. 295 dated 06.03.2022.
In addition, there is currently a special procedure for fulfilling obligations in the amount of over 10,000,000 rubles/month on loans and credits from foreign creditors from unfriendly states. In order to fulfill these obligations, the debtor has the right to send to a Russian credit institution an application for opening an account of type “S,” intended for settlements in the name of a foreign creditor, or a foreign organization that has the right in accordance with its own law to register and transfer rights to securities (a foreign nominee holder), in respect to which these obligations are fulfilled. In order to fulfill obligations related to the issue of securities, the debtor has the right to send such an application to a non-bank credit institution which is a central depository, in accordance with Federal Law No. 414-FZ of December 7, 2011, “On the Central Depository.” The system of type “S” accounts was established by the Decision of the Board of Directors of the Bank of Russia dated 24.06.2022.
Obligations to residents or to persons from friendly countries, in cases where the right of claim under these obligations was assigned to them after March 1 by creditors from an unfriendly state, are fulfilled according to the same rules.
Settlements for Real Estate and Securities
A special procedure has been established for the execution of transactions, conducted by residents with foreign creditors from unfriendly states, which entail the emergence of the right of ownership of securities and real estate. It provides for the receipt in the manner specified above of the relevant permits (the preliminary approval of such transactions) from the Government Commission for Control over the Implementation of Foreign Investments in the Russian Federation.