E-Wallet Regulation in Russian International Trade: Legal Compliance Guide

December 29, 2023

BRACE Law Firm ©

Modern technologies allow partners to conduct settlements not only through standard accepted means but also via electronic funds and e-wallets. Russian legislation does not provide a definition for the term "e-wallet", but an e-wallet essentially constitutes an electronic means of payment.

To understand the core of the issue more clearly, it is necessary to outline the terminology related to the use of electronic funds. These are defined as funds previously provided by one person (the person providing the funds) to another person who records information regarding the amount of the provided funds without opening a bank account (the obligated person) to fulfill the money obligations of the person providing the funds to third parties, and in respect of which the person providing the funds has the right to transmit orders exclusively using electronic means of payment. [1]

Electronic means of payment is a tool and/or method that allows a client of a money transfer operator to draft, certify, and transmit orders for the purpose of transferring funds within applied forms of non-cash settlements using information and communication technologies, electronic data carriers (including payment cards), and other technical devices.[2]

At the same time, a payment system is a group of organizations interacting according to the rules of the payment system for the purpose of transferring funds, which includes the payment system operator, payment infrastructure service operators, and payment system participants, of which at least three organizations are money transfer operators. An electronic funds operator is a credit institution, including a non-bank credit institution, that has the right to conduct money transfers without opening bank accounts and other related banking operations as provided for by Federal Law No. 395-1 dated December 2, 1990, On Banks and Banking Activities.

An electronic funds operator must notify the Bank of Russia, in the manner established by the Bank, of the commencement of activities to transfer electronic funds no later than 10 business days from the date of the first increase in the balance of electronic funds. The notification must specify:

• the name and location of the electronic funds operator, as well as its banking license number;
• the type(s) of electronic means of payment provided to clients;
• the names of organizations engaged by the electronic funds operator to provide operational services and/or payment clearing services (if engaged). [3]

Furthermore, a foreign payment system is a group of organizations that have joined the rules of a foreign payment system determined by the operator of the foreign payment system, organized in accordance with foreign legislation, and interacting according to the rules of the foreign payment system (foreign payment system participants), under which a foreign bank (foreign credit institution) may act as a payer and recipient of funds for transfers by participants of the foreign payment system (a foreign central payment clearing counterparty).[4]

Various payment systems allow entrepreneurs to choose a convenient and functional solution for working with foreign partners. It is also essential to comply with Federal Law No. 115-FZ dated August 7, 2001, On Counteracting the Legalization (Laundering) of Criminally Obtained Incomes and the Financing of Terrorism, which establishes specific rules for conducting operations with funds. [5] Additionally, when conducting activities with foreign partners, one must comply with sanctions restrictions and prohibitions, which have significantly affected this segment of international cooperation.

The primary electronic payment systems include, for example:

• QIWI, one of the largest payment systems with millions of users;
• PayMaster, a service for Russian companies available for both online and offline businesses;
• WebMoney, also a large payment system; however, ruble operations have been unavailable to Russian users since 2022;
• YooKassa, a domestic payment system that offers its own virtual and physical cards;
• RoboKassa, etc.

The Federal Tax Service (FNS) of Russia has published a list of the main foreign e-wallets and their details on its website. This list is subject to constant updates and additions.[6]

When choosing a payment system, it is necessary to determine several key issues, the answers to which will dictate the required system and the usage tariff:

• where settlements will be conducted;
• what functionality the user requires;
• which tariff will be selected and what commissions will be paid.

As a general rule, in accordance with Federal Law No. 173-FZ dated December 10, 2003, On Currency Regulation and Currency Control (the "Law No. 173-FZ" or the "Currency Regulation Law"), residents may open accounts (deposits) without restrictions in banks and other financial market organizations located outside the territory of the Russian Federation which, according to the personal law of such organizations, have the right to provide services related to the attraction and placement of funds or other financial assets from residents for storage, management, investment, and/or the execution of other transactions in the interest of the resident or directly or indirectly at the expense of the resident. Residents may also conduct money transfers without opening a bank account using electronic means of payment provided by foreign payment service providers. Exceptions to the general rule are established by Federal Law No. 79-FZ dated May 7, 2013, On the Prohibition for Certain Categories of Persons to Open and Have Accounts (Deposits), to Keep Cash and Valuables in Foreign Banks Located Outside the Territory of the Russian Federation, and to Own and/or Use Foreign Financial Instruments.

Residents must notify the tax authorities at the place of their registration of the opening (closing) of accounts (deposits) and of changes in account (deposit) details no later than one month from the date of such opening (closing) [7] using the approved form.[8]

Residents have the right to transfer funds to their accounts in foreign currency and in the currency of the Russian Federation opened in banks located outside the territory of the Russian Federation from their accounts in authorized banks or from their other accounts in foreign currency and in the currency of the Russian Federation opened in banks located outside the territory of the Russian Federation. When Russian legal entities first transfer funds to their accounts opened in banks outside the territory of the Russian Federation from their accounts in authorized banks, they must present to the authorized bank a notification from the tax authority at the place of the legal entity's registration regarding the opening of the account, stamped to confirm receipt of said notification, except for operations required under the legislation of a foreign state and related to the conditions for opening such accounts.

Despite the availability of Russian e-wallets, conducting business with foreign partners requires interaction through foreign e-wallets as well. It is important to note the established prohibitions and restrictions regarding foreign e-wallets, for example:

• it is prohibited to accept payment for goods and services via an e-wallet if the goods were sold or the services were rendered within the territory of Russia;
• it is prohibited to accept payment when conducting international trade;
• it is prohibited to issue loans.

However, the following are permitted for such wallets:

• receiving funds for personal purposes (applies only to individuals);
• receiving payment from Russian and foreign partners to a debit card linked to the wallet.

When using e-wallets, one should not forget the reporting requirements[9] that users of such payment platforms must submit. Specifically, entrepreneurs, individuals, and legal entities who have received more than 600,000 rubles into a foreign wallet must report the movement of funds in that foreign e-wallet. If the funds were received in a foreign currency, they must be converted at the appropriate exchange rate. A report must be submitted separately for each account (deposit) in a bank or other financial market organization outside the Russian Federation, as well as for each electronic means of payment (e-wallet).

Violation of established deadlines for submitting reports on the movement of funds in accounts (deposits) in banks and other financial market organizations located outside the territory of the Russian Federation, or on money transfers without opening a bank account using electronic means of payment provided by foreign payment service providers, and/or supporting documents by more than 10 but not more than 30 days, entails an administrative fine:

• on citizens in the amount of 1,000 to 1,500 rubles;
• on officials in the amount of 2,000 to 3,000 rubles;
• on legal entities in the amount of 20,000 to 30,000 rubles. [10]

Since the amount of the fine increases depending on the duration of the delay calculated in days, such a period of delay must include days on which the obligation to submit supporting documents for currency operations is enforceable—meaning business days.[11] Under any other approach, the amount of the fine would depend on circumstances (including the calendar placement and the number of weekends and non-working public holidays) that the person being held administratively liable cannot control.

Furthermore, it is important to note that due to the unfriendly actions of foreign states and international organizations that contradict international law, as of March 1, 2022, residents were prohibited from crediting foreign currency to their accounts (deposits) opened in banks and other financial market organizations located outside the territory of the Russian Federation, as well as from conducting money transfers without opening a bank account using electronic means of payment provided by foreign payment service providers.[12]

Administrative liability for violating currency legislation is provided for by Article 15.25 of the Code of Administrative Offenses of the Russian Federation (the "CAO RF"). For example, if a resident fails to submit a report to the tax authority on money transfers without opening a bank account using electronic means of payment provided by foreign payment service providers when such reporting is mandatory, it entails an administrative fine on citizens, officials, and legal entities in the amount of 20% to 40% of the total funds credited to the electronic means of payment provided by the foreign payment service provider for the reporting period. For such an administrative offense committed for the first time,[13][14] the administrative punishment in the form of a fine shall be replaced by a warning.[15]

Given that foreign partners in international trade are under the jurisdiction of different states, one must consider the specifics of the automatic exchange of information with foreign states when settling via e-wallets. Specifically, the Tax Code of the Russian Federation provides for the international automatic exchange of financial information with the competent authorities of foreign states (territories). This involves the provision of information by the federal executive body authorized for control and supervision in the field of taxes and fees to the competent authorities of foreign states (territories), and the receipt of information from them, on an automatic basis in accordance with the international treaties of the Russian Federation on taxation issues. [16]

The federal executive body authorized for control and supervision in the field of taxes and fees transmits such information to the competent authorities of foreign states (territories) included in the list of states [17] (territories) with which the automatic exchange of financial information is conducted, and of which the clients, beneficiaries, and/or persons directly or indirectly controlling them are tax residents.

The procedure for transmitting financial information to the competent authorities of foreign states (territories), the receipt of financial information by the Federal Tax Service from such competent authorities, and the requirements for protecting the transmitted financial information are defined by Resolution of the Government of the Russian Federation No. 428 dated April 9, 2018, On the Procedure for Transmitting Financial Information and Country-by-Country Reports to the Competent Authorities of Foreign States (Territories) and Receiving Financial Information and Country-by-Country Reports by the Federal Tax Service, as well as Requirements for Protecting the Transmitted Information.

Despite the fairly extensive legislation regarding payment for goods and services via e-wallets, fraudulent schemes are still possible. In this regard, Article 159.3, "Fraud Using Electronic Means of Payment," was introduced into the Criminal Code of the Russian Federation. It provides sanctions for such illegal acts in the form of a fine of up to 120,000 rubles or in the amount of the convicted person's wages or other income for a period of up to one year, or compulsory labor for up to 360 hours, or correctional labor for up to one year, or restriction of liberty for up to two years, or forced labor for up to two years, or imprisonment for up to three years.

If the subject of the crime in a fraud case is non-cash funds, including electronic funds, the act must be considered as the theft of another's property. Such a crime is considered completed from the moment the funds are withdrawn from the owner's bank account or the electronic funds are withdrawn, resulting in damage to the owner of these funds. [18]

The convenience of e-wallets has allowed them to become firmly established not only for use by individuals but also as a convenient tool for individual entrepreneurs, the self-employed, and legal entities. The speed of receiving funds and the user-friendly interfaces of e-wallet platforms have been key factors in the transition from bank-based settlements. However, despite this convenience and speed, fraudulent schemes involving e-wallets do occur in practice. Legislative changes regarding the identification of owners have minimized the risks of transferring funds to unidentified e-wallets.

At the same time, when settling with foreign partners via e-wallets, one must remember the restrictions, prohibitions, and liability for violating currency, tax, and payment system legislation, and take these specifics and legislative changes into account when conducting international trade.

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References

[1] Clause 18 of Article 3 of Federal Law No. 161-FZ dated June 27, 2011, On the National Payment System.

[2] Clause 19 of Article 3, ibid.

[3] Order of the Bank of Russia No. 2694-U dated September 14, 2011, On the Procedure for Notifying the Bank of Russia by an Electronic Funds Operator Regarding the Commencement of Activities to Transfer Electronic Funds.

[4] Clause 27 of Article 3 of Federal Law No. 161-FZ dated June 27, 2011, On the National Payment System.

[5] Resolution of the Arbitration Court of the West Siberian District dated August 15, 2023, No. F04-3862/2023 in case No. A45-37799/2022. The plaintiff appealed to the court to lift the suspension of remote servicing of a settlement account. The bank had notified the client of the suspension of orders for operations via remote access technology due to suspicions regarding the operations. Although the plaintiff provided documents, the bank did not lift the restrictions. The court denied the claim, ruling that the provided documents were insufficient to verify the legality of the operations.

[6] Website of the Federal Tax Service of Russia.

[7] Resolution of the Arbitration Court of the West Siberian District dated October 3, 2022, No. F04-4640/2022 in case No. A45-810/2022. Untimely notification of the opening of accounts in a bank located outside the Russian Federation entails administrative liability. The plaintiff sought to overturn the liability resolution, but the court denied the request as the offense was confirmed.

[8] Order of the Federal Tax Service of Russia No. ED-7-14/272@ dated April 24, 2020, On the Approval of Forms and Formats for Notifications of Opening (Closing) an Account (Deposit), Changing Details of an Account (Deposit) in a Bank or Other Financial Market Organization Located Outside the Territory of the Russian Federation, and the Method of Their Submission by a Resident to the Tax Authority, and the Form for Notifying the Presence of an Account in a Bank Outside the Territory of the Russian Federation Opened in Accordance with an Authorization that has Expired.

[9] Resolution of the Government of the Russian Federation No. 819 dated December 28, 2005, On the Approval of Rules for the Submission by Resident Legal Entities and Resident Individual Entrepreneurs to Tax Authorities of Reports on the Movement of Funds and Other Financial Assets in Accounts (Deposits) in Banks and Other Financial Market Organizations Located Outside the Territory of the Russian Federation, and on Money Transfers Without Opening a Bank Account Using Electronic Means of Payment Provided by Foreign Payment Service Providers.

[10] Resolution of the Eighteenth Arbitration Appeal Court dated April 12, 2022, No. 18AP-2185/2022 in case No. A07-30628/2021. The plaintiff argued the delay in filing the report was only 5 days. Following an inspection, an administrative offense report was drafted. The court denied the plaintiff's request to cancel the liability act, finding the report was actually submitted 12 days late.

[11] Review of Judicial Practice of the Supreme Court of the Russian Federation No. 3 (2018), approved by the Presidium of the Supreme Court of the Russian Federation on November 14, 2018.

[12] Clause 3 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 Foreign States and International Organizations Joining Them.

[13] Letter of the Federal Tax Service of Russia No. D-5-17/39@ dated July 14, 2023, On the Application by Territorial Tax Authorities of the Provisions of Federal Law No. 70-FZ dated March 26, 2022, and No. 290-FZ dated July 14, 2022.

[14] Decision of the Khamovnichesky District Court of Moscow dated September 13, 2023, No. 12-1331/2023, On the Annulment of Acts of Administrative Liability under Article 15.25 of the CAO RF. A Russian citizen conducted money transfers without opening a bank account using electronic means of payment provided by a foreign payment service provider. The claim was denied.

[15] Article 4.1.1 of the CAO RF.

[16] Clause 1 of Article 142.1 of the Tax Code of the Russian Federation.

[17] Order of the Federal Tax Service of Russia No. ED-7-17/986@ dated October 28, 2022, On the Approval of the List of States (Territories) with which Automatic Exchange of Financial Information is Conducted.

[18] Clause 5 of Resolution of the Plenum of the Supreme Court of the Russian Federation No. 48 dated November 30, 2017, On Judicial Practice in Cases of Fraud, Misappropriation, and Embezzlement.