31 May 2024

Foreign Currency Regulation in Russia: Rules & Liability

May 31, 2024

BRACE Law Firm ©

Foreign currency is an integral part of foreign trade activity, which, in accordance with Federal Law No. 173-FZ dated December 10, 2003, On Currency Regulation and Currency Control (the "Currency Regulation Law", "Law No. 173-FZ"), comprises:

monetary signs in the form of banknotes, treasury notes, and coins in circulation that are a legal tender for cash payments in the territory of the relevant foreign state, as well as those being withdrawn or already withdrawn from circulation but subject to exchange;
funds on bank accounts and in bank deposits in monetary units of foreign states and international monetary or settlement units;
the national monetary unit of a foreign state issued in digital form by the national central bank of a foreign state or another body of a foreign state whose functions include the issuance of such monetary units, which is in circulation and is a legal tender in the territory of the relevant foreign state.[1]

Paragraph 6 of Part 1 of Article 5 of Federal Law No. 395-I dated December 02, 1990, On Banks and Banking Activities (the "Banking Law") establishes that banking operations include, among other things, the purchase and sale of foreign currency in cash and non-cash forms.

In addition, foreign currency is a currency value.[2] The rules of the first paragraph of Chapter 30 of the Civil Code of the Russian Federation (the "Civil Code") apply to currency values unless the law establishes special rules for the purchase and sale of such values.[3] The Currency Regulation Law specifies that the purchase and sale of foreign currency[4] and checks (including traveler's checks) with a par value denominated in foreign currency in Russia shall be conducted only through authorized banks[5] and the State Development Corporation VEB.RF.[6] Authorized banks are credit organizations established in accordance with legislation that have the right, based on licenses from the Central Bank of the Russian Federation (the "Central Bank"), to conduct banking operations with funds in foreign currency.[7]

Importantly, organizations conducting operations with funds or other property must identify the client, the client’s representative, and/or the beneficiary before accepting them for servicing by establishing the following information:

regarding individuals: surname, first name, and patronymic, citizenship, date of birth, identity document details, data from documents confirming the right of a foreign citizen or stateless person to stay in Russia, residential or stay address, taxpayer identification number (the "INN"), and other information allowing for the confirmation of such data;
regarding legal entities: name, legal form, INN or foreign organization code, information on licenses to carry out activities subject to licensing, domain name, website address in the "Internet" through which the legal entity provides services (if any); for legal entities registered under Russian law, also the Primary State Registration Number (the "OGRN") and the legal address; for legal entities registered under the laws of a foreign state, also the registration number, place of registration, and the legal address in the state of registration;
regarding foreign structures without the formation of a legal entity: name, registration number assigned in the state of registration, taxpayer code in the state of registration, place of principal activity; for trusts and other similar structures, also the composition of property under management, the surname, first name, patronymic, and residential address of the founders, trustees, and protectors.[8]

Furthermore, currency purchase and sale transactions may involve the acquisition of cash or non-cash foreign currency. The purchase and sale of cash foreign currency is permitted only for individuals; legal entities may acquire foreign currency only in non-cash form.

The procedure for authorized banks to perform certain types of banking operations with cash foreign currency and checks denominated in foreign currency involving individuals is governed by Central Bank Instruction No. 136-I dated September 16, 2010. In cases where counterfeit foreign currency is encountered during a cash transaction, the teller acts in accordance with Central Bank Regulation No. 630-P dated January 29, 2018, On the Procedure for Conducting Cash Operations and the Rules for Storing, Transporting, and Collecting Banknotes and Coins of the Bank of Russia in Credit Organizations in the Territory of the Russian Federation.

Additionally, Central Bank Instruction No. 181-I dated August 16, 2017 (the "Instruction No. 181-I") establishes the procedure for residents and non-residents to submit supporting documents and information to authorized banks when conducting currency operations, as well as unified accounting and reporting forms. Instruction No. 181-I applies to residents that are legal entities, individual entrepreneurs, or persons engaged in private practice, as well as individuals involved in providing loans to or receiving loan repayments from non-residents using their bank accounts, and individuals conducting settlements for digital currency transactions. The requirements of Instruction No. 181-I also apply to non-residents, excluding individuals.

Use of Foreign Currency in Exports and Imports of Goods

Interaction in the export and import of goods involves foreign partners from other states, requiring the use of foreign currency for settlements. To conduct these settlements, companies open currency accounts in authorized banks to pay for goods during import and receive funds during export.

Article 14 of the Currency Regulation Law establishes that residents may open bank accounts (bank deposits) in foreign currency in authorized banks without restriction, unless otherwise provided by this Federal Law. In accordance with Central Bank Instruction No. 204-I dated June 30, 2021 (the "Instruction No. 204-I"), the grounds for opening an account are the conclusion of an account agreement and the completion of identification in accordance with Federal Law No. 115-FZ dated August 7, 2001, On Counteracting the Legalization (Laundering) of Professionally Obtained Income and the Financing of Terrorism.[9] The account opening process is finalized, and the account is considered open, once the entry regarding the opening of the relevant personal account is made in the Register of Open Accounts.[10]

Settlements for currency operations by resident legal entities are conducted through bank accounts in authorized banks, digital ruble accounts opened by the digital ruble platform operator, or through electronic money transfers. Resident legal entities may also conduct settlements through accounts opened in accordance with Article 12 of the Currency Regulation Law, which allows residents to open accounts (deposits) in banks and other financial market organizations located outside Russia, and to transfer funds without opening a bank account using electronic means of payment provided by foreign payment service providers. Exceptions apply to cases defined by Federal Law No. 79-FZ dated May 7, 2013, which prohibits certain categories of persons from opening and holding accounts (deposits) and keeping cash and valuables in foreign banks located outside Russia, as well as from owning or using foreign financial instruments. This prohibition applies to:

Persons holding:

State positions of the Russian Federation;[11]
Positions of the First Deputy and Deputy Prosecutors General of the Russian Federation;
Positions of members of the Board of Directors of the Central Bank;
State positions of the constituent entities of the Russian Federation;[12]
Positions appointed by the President, the Government, or the Prosecutor General;
Positions of deputy heads of federal executive bodies;
Positions in state corporations (companies), funds, and other organizations created by the Russian Federation;
Positions of heads of urban districts, municipal districts, and other municipal entities;
Federal state service positions, state civil service positions of constituent entities, and positions in the Central Bank or state corporations;
Deputies of representative bodies of municipal districts and urban districts exercising their powers on a permanent basis.

Spouses and minor children of the persons mentioned above.
Other persons in cases provided for by federal laws.

Resident legal entities may conduct settlements without using bank accounts in authorized banks in the following cases:

with non-resident individuals in cash rubles under retail sale contracts, VAT compensation payments, and for transport, hotel, and other services provided to the public in Russia;
with non-residents in cash foreign currency and rubles for servicing foreign aircraft at airports and foreign vessels at river and sea ports, as well as for paying air navigation and port fees in Russia;
in cash foreign currency and rubles with non-residents for servicing their own aircraft, vessels, and other transport vehicles while located in foreign territories, including the payment of mandatory fees;
in foreign currency and rubles with resident individuals located outside Russia, and with branches and representative offices of Russian legal entities and non-resident individuals, under passenger and cargo transportation contracts for personal and family needs;
settlements in cash foreign currency with resident individuals located outside Russia for operations under Part 6.1 of Article 12 of the Currency Regulation Law, etc.

If an organization opens or closes a currency account in a bank within Russia, it does not need to notify the tax inspectorate, as this obligation falls on the bank.[13] Notification is also not required for opening or closing a transit currency account, which is opened simultaneously with a current currency account for specific purposes. Since a transit account does not meet the criteria of an account established by tax legislation, the bank is not required to report its opening or closing to the tax authorities.[14] However, when opening or closing a currency account abroad, the organization must submit a notification[15] to the IFTS at its place of registration within one month[16] from the date the account was opened or closed. If the details of the currency account change, a notification of the change in account details must be submitted within the same timeframe.

Mandatory Sale of Foreign Currency Earnings

Due to the unfriendly actions of foreign states and international organizations involving restrictive measures against the Russian Federation, Presidential Decree No. 79 dated February 28, 2022, established the mandatory sale of foreign currency in the amount of 80% of the foreign currency credited to accounts in authorized banks starting January 1, 2022, under foreign trade contracts concluded with non-residents for the transfer of goods, provision of services, performance of work, or transfer of intellectual activity results.

An obligation was also established for residents who are foreign trade participants to sell foreign currency credited to their accounts in amounts determined by the Government Commission for the Control of Foreign Investments and within the timeframe set by the Board of Directors of the Central Bank. According to an extract from the minutes of the subcommission meeting dated June 9, 2022, No. 61,[17] starting June 10, 2022, foreign trade participants are required to perform the mandatory sale of foreign currency in the amount of 0% of the foreign currency credited to their accounts under foreign trade contracts.

To implement Presidential Decree No. 771 dated October 11, 2023, On the Mandatory Sale of Foreign Currency by Certain Russian Exporters, the Government of the Russian Federation ordered[18] Russian exporters:

starting October 16, 2023, to credit to their accounts in authorized banks foreign currency in an amount not less than 80% of the foreign currency received under foreign trade contracts:

within a period not exceeding 60 days[19] from the date of actual receipt of the foreign currency;
within a period not exceeding 120 days from the date of transfer of goods to non-residents;

to carry out the mandatory sale on the domestic currency market of 90% of the credited foreign currency within 14 days of crediting, but not less than 50% of the funds received under the contracts within 30 days of receipt;
to ensure that their subsidiary business companies fulfill these mandatory sale requirements.

Temporary Procedure for Operations with Cash Foreign Currency

From March 9 to September 9, 2022, the Central Bank established a procedure for withdrawing funds from currency deposits or accounts of citizens, where all funds were preserved and accounted for in the currency of the deposit. Clients could withdraw up to 10,000 US dollars in cash, with any remaining funds provided in rubles at the market rate on the date of withdrawal.

During this temporary procedure, currency is issued in US dollars regardless of the account's currency. The conversion of other currencies into US dollars occurs at the market rate on the date of withdrawal. Funds can be obtained at the bank's cash desk.

Citizens may continue to hold funds in currency deposits or accounts. All funds are preserved and accounted for in the currency in which the account or deposit was opened. The terms of the deposit or account do not change. Interest will be accrued as usual in the currency of the deposit. Citizens may also open new currency accounts and deposits, but funds from them can only be withdrawn in rubles at the market rate during the temporary procedure. Banks will not sell cash currency to citizens during this period. Cash currency can be exchanged for rubles at any time and in any volume.

Clients of all banks without exception can receive funds from their currency deposits or accounts. Banks may require several days to transport the necessary amount of cash to a specific branch.

The Central Bank maintains restrictions on cash currency[20] due to sanctions that prohibit Russian financial institutions from acquiring the cash currency of Western countries. For citizens whose currency account or deposit was opened before March 9, 2022, the withdrawal limit remains at the balance as of 00:00 Moscow time on that date, but not more than 10,000 US dollars or the equivalent amount in euros, regardless of the currency of the deposit, provided they have not previously used this option.

Other funds can still be received in rubles. The amount paid cannot be less than the amount calculated on the day of payment at the official Central Bank rate for funds placed before September 9, 2022. Funds placed after September 9, 2022, are issued at the bank's rate on the date of issuance.

The ban on banks charging commissions for issuing currency from accounts or deposits has been extended for another 6 months.

Currency transfers without opening an account and through electronic wallets are issued in rubles. The amount paid cannot be less than the amount calculated on the day of payment at the official Central Bank rate.

Notably, non-resident legal entities are not permitted to withdraw cash in US dollars, euros, British pounds, or Japanese yen until September 9, 2024; there are no restrictions on other currencies. Resident legal entities may receive cash in these specific currencies only for travel expenses based on statutory rates. No restrictions apply to other currencies, provided the operations comply with Russian law.

Liability for the Purchase and Sale of Foreign Currency Privately and Other Cases of Sales Bypassing Authorized Banks

The purchase and sale of foreign currency bypassing authorized banks is prohibited; however, it is possible to acquire currency "on the street." Importantly, the buyer in such a transaction faces administrative liability for violating Russian currency legislation under Article 15.25 of the CAO RF. Illegal currency operations, including the purchase and sale of foreign currency and checks denominated in foreign currency,[21] are punishable by an administrative fine on citizens, individual entrepreneurs, and legal entities in the amount of 20% to 40% of the amount[22] of the illegal currency operation or the funds transferred without opening a bank account; for officials, the fine is 20% to 40% of the amount but not more than 30,000 rubles.

In addition, Article 15.25 of the CAO RF provides for other violations related to the purchase and sale of foreign currency, including:

failure by a resident to submit a report on transfers of funds without opening a bank account using foreign electronic payment means, if such reporting is mandatory;
submission by a resident of a notification of opening (closing) an account or changing account details in a bank located outside Russia after the deadline[23] or in an incorrect form;
failure by a resident to submit a notification of opening (closing) an account or changing account details in a bank located outside Russia;[24]
failure by a resident to fulfill the obligation to receive foreign currency and/or rubles due for goods, work, or services in their authorized bank accounts within the established timeframe;[25]
failure by a resident to ensure that a portion of Russian rubles, as determined by the Government, is received in their accounts for foreign trade contracts;
failure by a resident to fulfill the obligation[26] to return to Russia funds paid to non-residents for goods not imported, work not performed, or services not rendered;
non-compliance with the procedure for submitting reports on the movement of funds in accounts located outside Russia;
failure by a resident to submit accounting and reporting forms for currency operations and supporting documents[27] to an authorized bank after 90 days following the expiration of the established deadline, etc.

Importantly, the conversion of foreign currency and the value of internal and external securities into Russian rubles is performed at the Central Bank rate effective on the day the administrative offense was committed or discovered.

Furthermore, Federal Tax Service Letter No. D-5-17/39@ dated July 14, 2023, establishes that, given the public-law nature of currency regulation and established judicial practice,[28] violations related to illegal currency operations are considered socially dangerous and harmful to state security. Consequently, administrative fines for such offenses are not replaced by warnings. However, for a first-time administrative offense under parts 1.1, 2, 2.1, 5.2, 6, 6.2, 6.3, and 6.3-1 of Article 15.25 of the CAO RF, the fine shall be replaced by a warning.

In addition to administrative liability, participants in the currency market may also face criminal liability. Specifically, a seller of foreign currency who is not an authorized bank may be held liable under Article 172 of the Criminal Code of the Russian Federation for conducting illegal banking activities.[29]

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References

[1] Point 2 of Article 1 of the Currency Regulation Law.

[2] Point 5 of Article 1 of the Currency Regulation Law.

[3] Point 2 of Article 454 of the Civil Code.

[4] Point 1 of Article 11 of the Currency Regulation Law.

[5] Central Bank Instruction No. 136-I dated September 16, 2010.

[6] Federal Law No. 82-FZ dated May 17, 2007, On the State Development Corporation VEB.RF.

[7] Point 8 of Part 1 of Article 1 of Law No. 173-FZ.

[8] Point 1 of Article 7 of Federal Law No. 115-FZ dated August 7, 2001, On Counteracting the Legalization (Laundering) of Professionally Obtained Income and the Financing of Terrorism.

[9] Point 1.2 of Instruction No. 204-I.

[10] Point 2.1 of Part III of the Appendix to Central Bank Regulation No. 809-P dated November 24, 2022.

[11] Presidential Decree No. 32 dated January 11, 1995, On State Positions of the Russian Federation.

[12] Presidential Decree No. 1381 dated December 4, 2009, On Standard State Positions of the Constituent Entities of the Russian Federation.

[13] Point 1.1 of Article 86 of the Tax Code of the Russian Federation.

[14] Letter of the Ministry of Finance of Russia No. 03-02-10/3/56597 dated September 4, 2017.

[15] Order of the Federal Tax Service No. ED-7-14/272@ dated April 24, 2020.

[16] Point 2 of Article 12 of the Currency Regulation Law.

[17] Communicated by the Ministry of Finance of Russia No. 05-06-05/VN-29704 dated June 10, 2022.

[18] Resolution of the Government of the Russian Federation No. 1681 dated October 12, 2023. Valid until April 30, 2025.

[19] Letter of the Ministry of Finance of Russia No. 05-11-08/110130 dated November 17, 2023.

[20] Information from the Central Bank dated March 7, 2024.

[21] Resolution of the Arbitration Court of the North-Western District No. F07-15453/2023 dated November 28, 2023, in Case No. A56-15120/2022.

[22] Decision of the Basmanny District Court of Moscow No. 12-588/2023 dated May 12, 2023.

[23] Resolution of the Fourth Cassation Court of General Jurisdiction No. P16-1743/2022 dated February 25, 2022.

[24] Decision of the Arbitration Court of Moscow dated June 18, 2021, in Case No. A40-60199/21-72-394.

[25] Resolution of the Supreme Court of the Russian Federation No. 77-AD23-5-K1 dated January 29, 2024.

[26] Resolution of the Arbitration Court of the Ural District No. F09-3096/22 dated June 14, 2022, in Case No. A76-34924/2021.

[27] Central Bank Instruction No. 181-I dated August 16, 2017.

[28] Resolution of the Sixth Arbitration Appellate Court No. 06AP-3277/2022 dated July 19, 2022, in Case No. A73-18456/2021.

[29] Judgment of the Essentuki City Court of the Stavropol Territory dated November 3, 2023, in Case No. 1-94/2023.