Currency Regulation in Russia: Permitted and Prohibited Operations

January 31, 2023

BRACE Law Firm ©

Currency operations have become an integral part of modern entrepreneurship conducted both within Russia and abroad. However, market participants must consider that constantly changing legislation regarding currency operations obliges them to track all updates to the regulations governing this sphere. In rapidly shifting political and economic environments, certain currency operations become prohibited, others become permitted again, and some are restricted based on various indicators. For instance, regarding currency operations:

• The government has established a ban on specific currency operations;
• A permit-based procedure for transactions has been introduced;
• Operations involving cash foreign currency have been restricted.

To examine this issue in detail, it is necessary to identify who, from the perspective of currency regulation legislation, is considered a resident and who is a non-resident, as permitted or prohibited currency operations depend on this status. The primary document regulating currency operations is Federal Law No. 173-FZ dated December 10, 2003, On Currency Regulation and Currency Control (the "Law on Currency Regulation" or the "Law No. 173-FZ").

To distinguish between permitted and prohibited currency operations, one must determine which persons are classified as residents and non-residents for currency regulation purposes.

As a reminder, under Law No. 173-FZ, residents include:

• Individuals who are citizens of the Russian Federation;
• Foreign citizens and stateless persons permanently residing in the Russian Federation on the basis of a residence permit provided for by Russian legislation;
• Legal entities created in accordance with Russian legislation, except for foreign legal entities registered in accordance with the Federal Law On International Companies;
• Branches, representative offices, and other divisions of residents located outside the Russian Federation;
• Diplomatic missions, consular offices of the Russian Federation, permanent missions of the Russian Federation to international organizations, other official representative offices of the Russian Federation, and representative offices of federal executive authorities located outside the Russian Federation;
• The Russian Federation, constituent entities of the Russian Federation, and municipal entities participating in relations regulated by the Law on Currency Regulation and other federal laws and regulations adopted in accordance with it.

Non-residents include:

• Individuals who are not residents;
• Legal entities created in accordance with the legislation of foreign states and located outside the Russian Federation;
• Organizations that are not legal entities, created in accordance with the legislation of foreign states and located outside the Russian Federation;
• Diplomatic missions, consular offices of foreign states accredited in the Russian Federation, and permanent missions of such states to interstate or intergovernmental organizations;
• Interstate and intergovernmental organizations, their branches, and permanent missions in the Russian Federation;
• Branches, permanent missions, and other separate or independent structural units of non-residents located in the Russian Federation;
• Foreign legal entities registered in accordance with the Federal Law On International Companies;
• Other persons.

Under the general rule of Article 6 of Law No. 173-FZ, residents and non-residents may conduct currency operations without restrictions, except for currency operations where restrictions are established to prevent a significant reduction in gold and foreign exchange reserves, sharp fluctuations in the Russian currency exchange rate, or to maintain the stability of the Russian balance of payments.

At the same time, as a general rule, currency operations between residents are prohibited, with the exception of:

• Operations related to settlements in duty-free shops and the sale of goods or provision of services to passengers en route during international transportation;
• Operations between agents and principals when agents provide services;
• Operations under transport expedition, carriage, and chartering agreements, as well as cargo insurance agreements;
• Operations with foreign securities conducted on organized trades;
• Operations with foreign securities, provided that rights to such securities are recorded in depositories and settlements are made in the currency of the Russian Federation;
• Operations related to mandatory payments (taxes, fees, and other payments) in foreign currency in accordance with Russian legislation;
• Operations related to payments on foreign securities, excluding promissory notes;
• Operations involving payment for and (or) reimbursement of an individual's expenses related to business travel outside the Russian Federation;
• Foreign currency operations during the execution of budgets within the Russian budgetary system in accordance with budgetary legislation;
• Operations to support the activities of diplomatic missions, consular offices of the Russian Federation, and other official representative offices of the Russian Federation;
• Transfers by a resident individual of foreign currency from the Russian Federation to resident individuals' accounts opened in banks located outside the Russian Federation, in amounts not exceeding an equivalent of $5,000 per business day through one authorized bank at the official exchange rate;
• Transfers by a resident individual of foreign currency into the Russian Federation from accounts opened in banks located outside the Russian Federation to other resident individuals' accounts;
• Operations involving payment for and (or) reimbursement of expenses related to business trips outside the Russian Federation;
• Operations related to settlements between transport organizations and individuals under passenger carriage agreements;
• Transfers by individuals to spouses or close relatives, including siblings and half-siblings, adopters, and adoptees, to the accounts of said persons opened in authorized banks or banks located outside the Russian Federation, etc.

One should also note the rules for currency operations between non-residents under Article 10 of Law No. 173-FZ:

• Non-residents may, without restrictions, transfer foreign currency and the currency of the Russian Federation between each other from accounts (deposits) in banks outside the Russian Federation to bank accounts (deposits) in authorized banks, or from bank accounts (deposits) in authorized banks to accounts (deposits) in banks outside the Russian Federation or in authorized banks;
• Non-residents may, without restrictions, transfer foreign currency and the currency of the Russian Federation within the Russian Federation without opening bank accounts, conduct settlements in cash foreign currency or the currency of the Russian Federation (subject to the maximum limit for cash settlements provided by Russian legislation), as well as transfer foreign currency and the currency of the Russian Federation from the Russian Federation without opening bank accounts and receive such transfers within the Russian Federation;
• Non-residents may conduct currency operations with domestic securities within the Russian Federation, subject to requirements established by antimonopoly legislation and Russian securities market legislation;
• Currency operations between non-residents within the Russian Federation in the currency of the Russian Federation must be conducted through bank accounts (deposits) opened within the Russian Federation in the appropriate manner. This is because non-residents may only open foreign currency and Russian ruble bank accounts (deposits) within the Russian Federation at authorized banks.

The interaction between residents and non-residents regarding currency regulation is governed by Clauses 4 and 5 of Article 9 of Law No. 173-FZ, specifically:

• Currency operations between residents related to foreign currency settlements under factoring agreements (where financial agents (factors) have been assigned monetary claims in foreign currency or the currency of the Russian Federation due to residents who, under foreign trade contracts with non-residents, transfer goods, perform work, provide services, or transfer information and intellectual property results, including exclusive rights to them) are conducted without restrictions;
• Currency operations between residents related to foreign currency settlements for the payment of monetary claims expressed in foreign currency (which were assigned by non-residents who, under foreign trade contracts with residents, transfer goods, perform work, provide services, or transfer information and intellectual property results, including exclusive rights to them, or by other non-residents who are the proper holders of monetary claims against residents under said foreign trade contracts, to residents acting as financial agents (factors) under agreements assigning such claims) are conducted without restrictions.

Which Currency Operations Are Prohibited Due to Currency Counter-Sanctions?

In connection with the unfriendly actions of the United States and associated foreign states and international organizations—which contradict international law and involve restrictive measures against citizens of the Russian Federation and Russian legal entities—the President signed decrees to protect national interests that regulate currency activities and introduce specific prohibitions and restrictions.

According to Decree of the President of the Russian Federation No. 79 dated February 28, 2022, On the Application of Special Economic Measures in Connection with the Unfriendly Actions of the United States of America and Associated Foreign States and International Organizations (the "Presidential Decree No. 79"), residents participating in foreign trade must conduct a mandatory sale of 80% of foreign currency revenue credited to their accounts in authorized banks under foreign trade contracts since January 1, 2022. However, following the stabilization of the ruble exchange rate and the achievement of sufficient liquidity in the domestic market, the Subcommittee of the Government Commission on Monitoring Foreign Investment in Russia decided on May 23, 2022, to reduce the mandatory sale requirement from 80% to 50%. Additionally, a unanimous decision allowed residents participating in foreign trade to conduct the mandatory sale of foreign currency credited under foreign trade contracts with non-residents (involving the transfer of goods, services, work, or intellectual property results, including exclusive rights to them) in the amount of 0% of the currency revenue, provided the following conditions are met simultaneously:

• The resident is simultaneously a party to export and import contracts concluded with the same non-resident or different non-residents, including cases where a single contract contains both export and import terms;
• The resident's export contract (under which foreign currency was received) and the import contract (for which the currency is intended) are registered with the same authorized bank, and/or settlements for both are conducted through accounts opened at the same authorized bank;
• The foreign currency is debited to the non-resident under the import contract from the resident's transit currency account where the export revenue was previously credited, in the amount of upcoming payments under the import contract.

The Central Bank outlined the procedure for calculating the amount of foreign currency subject to mandatory sale in its Information.[1] Under the same decree, starting March 1, 2022, the following were prohibited:

• Currency operations involving residents providing foreign currency to non-residents under loan agreements;
• Residents crediting foreign currency to their accounts (deposits) opened in banks and other financial market organizations located outside the Russian Federation, as well as transferring funds without opening a bank account using electronic means of payment provided by foreign payment service providers.

Regarding the execution of Presidential Decree No. 79, the Central Bank of the Russian Federation provided clarifications in its Information dated March 2, 2022. For example, the ban on transferring foreign currency to accounts in banks located outside the Russian Federation does not apply to Russian credit organizations.

As of March 1, 2022, a ban was established on transferring foreign currency to non-residents under both newly concluded loan agreements and loan agreements in effect as of that date. The transfer of foreign currency to a non-resident under loan agreements concluded before March 1, 2022, must cease immediately. At the same time, the Central Bank's information also notes that the decree does not prohibit residents (individuals, legal entities, individual entrepreneurs, private practitioners, and self-employed persons) from making payments to non-residents in either the currency of the Russian Federation or foreign currency for these purposes.

A ban was also introduced on payments related to securities of Russian issuers to any foreign legal entities or individuals (dividends, coupon income, and other bond payments),[2] however, this provision was repealed following the entry into force of Decree of the President of the Russian Federation No. 81 dated March 1, 2022, On Additional Temporary Economic Measures to Ensure the Financial Stability of the Russian Federation, and Decree No. 95 dated March 5, 2022, On the Temporary Procedure for Fulfilling Obligations to Certain Foreign Creditors (the "Decree No. 95"). Thus, if the recipient of dividends from a Russian issuer is not a person specified in Clause 1 of Decree No. 95, the funds will be transferred to a bank account opened for that person in a credit organization (provided the securities were acquired before March 1, 2022, or after March 1, 2022, from persons not named in Clause 1 of Decree No. 95). Otherwise, the funds will be transferred to a Type C account, the regime of which is established by a decision of the Board of Directors of the Bank of Russia. The regime for using a Type C bank account was established by the Decision of the Board of Directors of the Bank of Russia dated November 21, 2022, On Establishing the Regime of Type C Accounts for Conducting Settlements and Carrying Out Transactions Subject to the Procedure for Fulfilling Obligations Provided for by Decree No. 95.

Furthermore, Decree of the President of the Russian Federation No. 100 dated March 8, 2022, On the Application of Special Economic Measures in the Sphere of Foreign Trade Activities to Ensure the Security of the Russian Federation, established the following special economic measures:

• A ban on the export from and/or import into the Russian Federation of products and/or raw materials according to lists determined by the Government of the Russian Federation;
• Restrictions on the export from and/or import into the Russian Federation of products and/or raw materials according to lists determined by the Government of the Russian Federation;
• The establishment of increased export and/or import customs duty rates for products and/or raw materials exported from and/or imported into the Russian Federation, according to lists determined by the Government of the Russian Federation.

Temporary bans on the export of certain goods were established by the following resolutions:

• Government Resolution No. 311 dated March 9, 2022, On Measures to Implement the Decree of the President of the Russian Federation No. 100 dated March 8, 2022;
• Government Resolution No. 313 dated March 9, 2022, On Measures to Implement the Decree of the President of the Russian Federation No. 100 dated March 8, 2022;
• Government Resolution No. 361 dated March 14, 2022, On Introducing a Temporary Ban on the Export of White Sugar and Raw Cane Sugar from the Russian Federation (this document has not been applied since September 1, 2022, regarding the temporary ban established by this document, due to expiration);
• Government Resolution No. 362 dated March 14, 2022, On Introducing a Temporary Ban on the Export of Grain Crops Outside the Russian Federation (this document has not been applied since July 1, 2022, due to the expiration of the temporary ban);
• Government Resolution No. 529 dated March 31, 2022, On Introducing a Temporary Ban on the Export of Rapeseed and Sunflower Seeds from the Russian Federation (this document has not been applied since September 1, 2022, due to the expiration of the temporary ban).

Given the political and economic situation, currency legislation underwent rapid changes that introduced various prohibitions and restrictions. The aforementioned transactions may be conducted based on permits issued by the Government Commission on Monitoring Foreign Investment in the Russian Federation, which may contain specific conditions for such transactions.[3] The issuance of these permits follows rules approved by a resolution of the Russian Government.[4]

Despite the prohibitions and restrictions, the Central Bank of the Russian Federation also gradually removed previously introduced restrictions, such as the limits on transferable amounts. Specifically, starting July 1, 2022, resident individuals are permitted to transfer no more than $1 million (or the equivalent in another foreign currency) per calendar month from their account in a Russian bank to their account abroad or to another person.[5] An identical threshold applies to transfers by individuals who are residents of friendly states. Previously, the limit for these operations was $150,000. These limits were raised due to the stable position of the domestic currency market.

Authorized banks also participate in the currency market and conduct the following currency operations without restrictions:

• Receiving and repaying loans and borrowings, and paying interest and penalties under corresponding agreements;
• Providing funds under loan participation financing agreements and transferring (returning) funds under such agreements;
• Depositing residents' funds to bank accounts and withdrawing residents' funds from bank accounts;
• Operations involving bank guarantees and the fulfillment of residents' obligations under suretyship and pledge agreements;
• Residents' acquisition of promissory notes from authorized banks;
• Purchase and sale of cash and non-cash foreign currency and checks by individuals. From April 18, 2022, to March 9, 2023, banks may sell cash US dollars and euros to citizens that were received by the cash desks starting April 9, 2022. Restrictions on the sale of other foreign currencies were removed as of May 20, 2022 (per Information of the Bank of Russia dated March 9, 2022,[6] April 8, 2022,[7] May 19, 2022,[8] and August 1, 2022[9]);
• Payment of commission fees to authorized banks;
• Other currency operations classified as banking operations under the legislation of the Russian Federation.

The introduced prohibitions and restrictions fundamentally and substantially changed not only entrepreneurial activities but also currency relationships between legal entities and individuals, including residents and non-residents. This necessitated short-term adjustments to foreign trade contracts and agreements involving obligations dependent on foreign counterparties or foreign currency. Furthermore, restrictions on the export of cash foreign currency by individuals significantly impacted currency activities.

Rule-making in currency regulation during unstable political and economic conditions is understandable and necessary. A critical aspect of this field has been the need to clearly and quickly monitor the introduction of bans, restrictions, and subsequent relaxations affecting all sectors, including business and personal purposes. Currency regulation, particularly the established prohibitions and restrictions, has allowed for the development of a strategy that contributes to maintaining a stable economic situation in the country.

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References

1. Information of the Bank of Russia dated March 2, 2022, Application of Decree of the President of the Russian Federation No. 79 dated February 28, 2022, On the Application of Special Economic Measures in Connection with the Unfriendly Actions of the United States of America and Associated Foreign States and International Organizations.
2. Instruction of the Bank of Russia No. 018-34-3/1202 dated February 28, 2022, On Securities.
3. Decree of the President of the Russian Federation No. 81 dated March 1, 2022, On Additional Temporary Economic Measures to Ensure the Financial Stability of the Russian Federation.
4. Government Resolution No. 295 dated March 6, 2022, On Approving the Rules for the Issuance of Permits by the Government Commission on Monitoring Foreign Investment in the Russian Federation to Implement Additional Temporary Economic Measures to Ensure the Financial Stability of the Russian Federation and Other Permits Provided for by Certain Decrees of the President of the Russian Federation, and the Exercise of Other Powers for These Purposes, and Amending the Regulations on the Government Commission on Monitoring Foreign Investment in the Russian Federation.
5. Information of the Bank of Russia dated June 30, 2022, Bank of Russia Continues to Remove Previously Introduced Currency Restrictions.
6. Information of the Bank of Russia dated March 9, 2022, Bank of Russia Introduces a Temporary Procedure for Operations with Cash Currency.
7. Information of the Bank of Russia dated April 8, 2022, Bank of Russia Eased the Temporary Procedure for Operations with Cash Currency.
8. Information of the Bank of Russia dated May 19, 2022, Bank of Russia Eased the Temporary Procedure for Operations with Cash Currency.
9. Information of the Bank of Russia dated August 1, 2022, Bank of Russia Extended Restrictions on Cash Foreign Currency Withdrawals for Another 6 Months, Until March 9, 2023.