In recent days, several Decrees of the President of the Russian Federation and instructions of the Central Bank of the Russian Federation have been published, which introduce serious currency restrictions in addition to those already in force under the Federal Law “On Currency Regulation and Currency Control” ¹. A number of restrictions also apply to the conditions for investors to withdraw from projects in the Russian Federation.
Below we describe the main changes introduced by Decrees and Instructions of the Central Bank of the Russian Federation:
1. A ban on the export of foreign currency on cash from the Russian Federation, as well as monetary instruments in foreign currency in the amount of more than 10 thousand US dollars (at the exchange rate on the date of export) (from 03/02/22);
2. A ban on cross-border transfers of residents’ own funds in foreign currency to their own accounts abroad
Both individuals and legal entities are prohibited from cross-border transfers of their own funds in foreign currency to their own accounts in foreign banks. The ban prohibits both: bank transfers (i.e. from account to account) and transfers using electronic means of payment, bypassing the Russian banking system.
The ban applies from 01.03.2022. At the same time, according to the Decree of the President of the Russian Federation of 01.03.22 (clause “b”), such operations can be carried out with the permission of the Government Commission for Control over Foreign Investments in the Russian Federation.
It is not clear whether the ban only applies to cases when an individual credits currency from any of his accounts to his own account abroad or to any receipt of funds to a foreign account.
However, if a resident makes a bank transfer to his foreign account in rubles, this operation is not formally banned. A similar transfer in rubles using electronic means of payment, however, is prohibited.
The issue of the possibility of transferring securities from deposit accounts in Russian banks for safekeeping in foreign banks remains controversial. Literally, the Decree uses the word "foreign currency", and, therefore, the transfer of securities is not formally prohibited. At the same time, it is possible that banks will interpret the restrictions broadly, refusing to perform such an operation.
Restrictions also affect those Russian citizens, who permanently reside abroad, but have savings in Russian banks. It becomes impossible for them to “withdraw” money from the Russian Federation to their foreign accounts.
For non-residents (i.e. foreign organizations, as well as individuals who do not have Russian citizenship or a residence permit in the Russian Federation), the “withdrawal” of funds from accounts in Russian banks to their own accounts in foreign banks remains open. It is possible that by other means this channel will soon be unavailable (check item 7 – other restrictive measures).
3. A ban is established on the transfer of foreign currency in the procedure for providing cross-border loans
Applies to cases where a payment is made by a resident (in the sense of currency legislation) to a non-resident. It should be assumed that such transactions are not allowed, even if a non-resident receives borrowed funds by crediting them to his account in a Russian authorized bank.
It is possible to issue a foreign currency loan to a non-resident only with the permission of the Government Commission for Control over Foreign Investments in the Russian Federation.
Presumably, transfers of funds, in the order of issuing loans to other residents who permanently reside outside the Russian Federation and receive these funds to their foreign accounts, should be allowed.
4. Special procedure for granting credits and loans in rubles to persons from unfriendly states
A special procedure has been established for issuing credit and loans in rubles to foreign persons who are residents or are otherwise associated with foreign states that are unfriendly to the Russian Federation (hereinafter referred to as the Unfriendly Countries), for example, by virtue of citizenship, place of registration, predominantly doing business or predominantly making a profit. As well as with persons who are under the control of persons from Unfriendly countries, regardless of the place of registration or business.
The word “сontrol” is not defined in the Decree.
Unfriendly countries according to the internal letter of the Central Bank of the Russian Federation dated 1.03.22 are: 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, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Singapore, Slovakia, Slovenia, USA, Taiwan, Finland, France, Croatia, Czech Republic, Sweden, Switzerland, Estonia, Japan.
Now it is possible to issue loans in rubles to persons from Unfriendly countries only with the permission of the Government Commission for Control over Foreign Investments in the Russian Federation (from 02.03.22).
5. Special procedure for transactions for the sale and purchase of real estate and securities with persons from Unfriendly countries
A special procedure applies to transactions (operations) that give the right of ownership of securities and real estate.
By analogy with the provision of loans in rubles (see paragraph 4), transactions for the sale and purchase of securities and real estate with persons associated with Unfriendly countries can only be concluded on the basis of obtaining permission from the Government Commission for Control over Foreign Investments of the Russian Federation.
Permission is required for transactions concluded with both: persons from Unfriendly countries and other countries, if the alienated assets were acquired from persons from Unfriendly countries after 22.02.2022.
Transactions of securities may also be carried out at organized trading with the permission of the Central Bank of the Russian Federation and in agreement with the Ministry of Finance of the Russian Federation, indicating the conditions for such transactions.
6. Mandatory sale of foreign exchange earnings in the amount of 80% under foreign trade contracts
All participants in foreign economic activity who receive revenue from such activities in foreign currency are required to sell 80% of the total amount of proceeds, i.е. convert it to rubles.
This obligation applies retrospectively: everyone who has already received such revenue since the beginning of the current year is obliged to sell 80% of the total revenue within 3 business days, i.e. already this week. Presumably, if the Russian recipient of the revenue has already converted foreign currency into rubles, the obligation will be considered fulfilled. The decree in this part refers to the procedure for the sale, which is yet to be determined by the Central Bank of the Russian Federation.
The question about the consequences for those participants in foreign economic activity who, having received revenue in foreign currency at the beginning of this year, have already disposed of it without converting it into rubles, remains open. For example, by transferring an advance payment to a foreign supplier or by making partial payment of a debt in relation to a foreign creditor. We can only hope that such persons will not be considered as those who broke the duty that they previously could not have known about.
Everyone who receives foreign exchange earnings, starting from February 28, 2022, also has a three-day period for converting 80% of the amount of funds received.
The mandatory conversion rule applies to all receipts: payments received for goods, services, transferred projects of intellectual property, etc. Even cases where a foreign trade contract for legitimate reasons is not subject to bank registration fall within the scope of this obligation.
7. Other restrictive measures
The Central Bank of the Russian Federation issued a number of instructions to credit institutions and established restrictions that will be in effect from 01.03.22 to 31.03.22, including:
1. Suspended transfers:
- from accounts of non-resident legal entities from un-friendly countries in Russian banks to accounts opened abroad, as well as transfers without opening a bank account abroad;
- non-resident individuals (residents of countries that have announced restrictive measures against the Russian Federation) from accounts opened with a Russian bank to foreign accounts, as well as transfers abroad without opening a bank account.
2. Transfers of non-resident individuals without opening a bank account and from a bank account in the amount of 5 thousand US dollars per month or the equivalent in foreign currency at the exchange rate of the Central Bank of the Russian Federation on the date of the transfer are limited.
3. The Central Bank of the Russian Federation also ordered professional participants in the securities market engaged in brokerage activities to suspend the execution of orders from clients - foreign legal entities and individuals for the sale of securities from 07:00 on February 28, 22.
The Central Bank of the Russian Federation ordered depositaries and registrars to suspend the execution of all operations to write off securities of Russian issuers from personal accounts and depo accounts opened by foreign legal entities and individuals, with the exception of:
- transactions performed in accordance with the federal laws of the Russian Federation against the will of the person exercising rights under securities;
- operations on trading depo accounts (sub-accounts to a clearing depo account) on the basis of an instruction or a report of a clearing organisation based on the results of clearing on transactions concluded at the trading organiser's trades.
4. The Central Bank of the Russian Federation issued an order that prevents the payment of dividends and interest on securities of Russian issuers to foreign investors. This prohibition applies to payments through professional participants in the securities market. The ban was introduced for 6 months, or until the order of the Central Bank of the Russian Federation is canceled. Directly on the calculation of interest and the distribution of dividends, the ban is not established. Therefore, today there are formally no obstacles to the transfer of dividends by Russian organizations to their non-resident participants, if the securities are not circulated on the organized market and the payment is not made through a professional participant.
5. From March 4, 2022, the Bank of Russia reduced the commission for individuals on transactions for the purchase of foreign currency through brokers from 30% to 12% and set the commission for legal entities at 12% of the transaction amount.
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