Illegal and Suspicious Currency Operations in Russia

December 29, 2023

BRACE Law Firm ©

Currency operations are an integral part of foreign trade activity. Regulatory authorities exercise currency control over currency operations; however, illegal or suspicious currency operations frequently occur in practice.

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"), currency operations include:

• the acquisition by a resident from a resident and the alienation by a resident in favor of a resident of currency values on legal grounds, as well as the use of currency values as a means of payment;
• the acquisition by a resident from a non-resident or by a non-resident from a resident, and the alienation by a resident in favor of a non-resident or by a non-resident in favor of a resident, of currency values, Russian Federation currency, and domestic securities on legal grounds, as well as the use of currency values, Russian Federation currency, and domestic securities as a means of payment;
• the acquisition by a non-resident from a non-resident and the alienation by a non-resident in favor of a non-resident of currency values, Russian Federation currency, and domestic securities on legal grounds, as well as the use of currency values, Russian Federation currency, and domestic securities as a means of payment;
• the import into Russia and the export from the Russian Federation of currency values, Russian Federation currency, and domestic securities;
• the transfer of foreign currency, Russian Federation currency, and domestic and external securities from an account opened outside the territory of Russia to an account of the same person opened within the territory of the Russian Federation, and from an account opened within the territory of the Russian Federation to an account of the same person opened outside the territory of the Russian Federation;
• the transfer by a non-resident of Russian Federation currency and domestic and external securities from an account (account section) opened within the territory of Russia to an account (account section) of the same person opened within the territory of the Russian Federation;
• the transfer of Russian Federation currency from a resident's account opened outside the territory of Russia to another resident's account opened within the territory of the Russian Federation, and from a resident's account opened within the territory of Russia to another resident's account opened outside the territory of the Russian Federation;
• the transfer of Russian Federation currency from a resident's account opened outside the territory of Russia to another resident's account opened outside the territory of the Russian Federation;
• the transfer of Russian Federation currency from a resident's account opened outside the territory of the Russian Federation to an account of the same resident opened outside the territory of Russia. [1]

Illegal currency operations include currency operations prohibited by the currency legislation of the Russian Federation or carried out in violation of the currency legislation of the Russian Federation. This includes the purchase and sale of foreign currency and checks (including traveler's checks) with a nominal value indicated in foreign currency bypassing authorized banks. It also includes currency operations where settlements are made bypassing accounts in authorized banks or accounts (deposits) in banks and other financial market organizations located outside the territory of the Russian Federation, in cases not provided for by the currency legislation of the Russian Federation. Additionally, it includes currency operations where settlements are made using funds credited to accounts (deposits) in banks and other financial market organizations located outside the territory of the Russian Federation in cases not provided for by currency legislation, or the transfer of funds without opening a bank account using electronic means of payment provided by foreign payment service providers in cases not provided for by currency legislation. [2]

Illegal currency operations include:

• currency operations between residents, except for cases specified in Clause 1 of Article 9 of the Currency Regulation Law;
• the conduct of currency operations associated with the provision of foreign currency by residents in favor of non-residents from unfriendly states under loan agreements;[3]
• the crediting of foreign currency by residents to their accounts (deposits) opened in banks and other financial market organizations located in unfriendly states outside the territory of the Russian Federation, as well as the conduct of money transfers without opening a bank account using electronic means of payment provided by foreign payment service providers. [4]

In turn, suspicious operations are operations carried out by clients of credit organizations that have an unusual character and signs of a lack of obvious economic sense and apparent legal purposes. Such operations may be conducted to withdraw capital from the country, finance "grey" imports, transfer funds from non-cash to cash form and subsequently evade taxes, as well as for the financial support of corruption and other illegal purposes.[5] It should also be noted that the concept of a "suspicious currency operation" is reflected in the draft Federal Law On Amending the Federal Law On Currency Regulation and Currency Control and Article 2 of the Federal Law On Amending the Federal Law On Currency Regulation and Currency Control regarding the Liberalization of Restrictions on Currency Operations by Residents Using Accounts (Deposits) Opened in Banks Located Outside the Russian Federation, and the Repatriation of Funds (the "Draft Federal Law"). [6] It represents a type of suspicious operation that is a currency operation carried out by a resident or non-resident and corresponding to the signs established by the Central Bank of the Russian Federation in accordance with the legislation of the Russian Federation on combating the legalization (laundering) of proceeds of crime and the financing of terrorism, or the actions of a resident or non-resident associated with the conduct of such a currency operation.

Furthermore, signs of high involvement of a credit organization in conducting suspicious non-cash and (or) cash operations are understood as one of the following circumstances:

• the total value of the share (proportion) of the volume of suspicious cash operations in the debit turnover of accounts held by legal entities and individuals and the share (proportion) of the volume of suspicious non-cash operations in the debit turnover of accounts held by legal entities exceeds 5 percent over the last quarter;
• the volume of suspicious non-cash operations exceeds 5 billion rubles over the last quarter;
• the volume of suspicious cash operations exceeds 5 billion rubles over the last quarter.

At the same time, based on an information letter,[7] the Bank of Russia will apply the following criteria for determining signs of high involvement of a credit organization in conducting suspicious non-cash and (or) cash operations:

• the total value of the share (proportion) of the volume of suspicious cash operations in the debit turnover of client accounts and the share (proportion) of the volume of suspicious non-cash operations in the debit turnover of accounts of clients that are legal entities and individual entrepreneurs exceeds 2 percent over the last quarter;
• the total volume of suspicious operations by clients with non-cash and cash funds exceeds 0.5 billion rubles over the last quarter.

The following acts of the Bank of Russia are used for the purpose of qualifying operations as suspicious operations:

• Letter of the Bank of Russia No. 150-T dated August 7, 2013, On Increasing the Attention of Credit Organizations to Specific Client Operations;
• Letter of the Bank of Russia No. 110-T dated June 19, 2013, On Increasing the Attention of Credit Organizations to Specific Client Operations;
• Letter of the Bank of Russia No. 104-T dated June 10, 2013, On Increasing the Attention of Credit Organizations to Specific Client Operations;
• Letter of the Bank of Russia No. 73-T dated April 17, 2013, On Increasing the Attention of Credit Organizations to Specific Client Operations, etc.

The main reasons for conducting suspicious operations include:

• importing goods via "grey" delivery schemes, where the goods are generally declared as other goods or parts — the purpose of such a scheme is the need to hide the real value of the goods and pay lower customs duties;
• tax evasion, when interaction between participants in foreign economic activity is carried out without the required registration;
• capital flight to a foreign jurisdiction, generally involving funds obtained illegally;
• corruption schemes accompanied by violations of anti-corruption legislation.

Signs indicating the unusual character of the transaction are also used for the purpose of qualifying operations as suspicious operations, for example:

• the complicated or unusual nature of the operation (transaction) which has no obvious economic sense or apparent legal purpose, or inconsistency of the operation (transaction) with the purposes of the organization's activity established by the constitutive documents of that organization, as well as inconsistency of the nature of the client's operation (transaction) with the activity declared upon acceptance for service and (or) during service;
• the identification of repeated conduct of operations or transactions whose nature gives grounds to believe that the purpose of their implementation is to evade the mandatory control procedures provided for by the legislation of the Russian Federation;
• the introduction of significant changes by the client (representative of the client) to a previously agreed operation (transaction) scheme immediately before the start of its implementation, especially those concerning the direction of movement of funds or other property;
• the clear inconsistency of operations carried out by the client (representative of the client) with generally accepted market practices for conducting operations, etc. [8]

The legislation also provides a definition for suspicious operations, which represent operations with funds or other property presumably carried out for the purpose of legalizing (laundering) proceeds of crime and the financing of terrorism. [9]

Risk-Oriented Approach of the Bank of Russia in Currency Operations

Conducting currency operations involves the need for interaction with credit organizations; however, the client's instructions cannot be executed for all operations. If a bank suspects that a conducted operation has illegal or suspicious characteristics, the credit organization is entitled to carry out a series of actions that restrict or suspend actions on the account. When exercising internal control, the credit organization applies the following measures:

• it does not conduct operations to debit funds from a bank account (deposit), to reduce electronic money balances, does not carry out transfers of funds using the faster payment service of the Bank of Russia's payment system, or cash withdrawal operations; [10]
• it does not pay out the remaining balance of funds on the account upon termination of the bank account (deposit) agreement or does not transfer it to another account of such a client or to the account of a third party upon the instruction of such a client;
• it ceases providing the client with the ability to use electronic means of payment.

As a result of the Central Bank of the Russian Federation's exercise of supervisory activities over credit organizations, cases where their clients — resident legal entities — regularly conduct transit operations continue to be identified. Transit operations may be characterized by the cumulative (simultaneous) presence of the following signs: [11]

• crediting funds to a client's account from a large number of other residents from accounts opened in Russian banks, with their subsequent debiting;
• debiting funds from the account is carried out within a period not exceeding two days from the date of their crediting;
• they are conducted regularly (as a rule, daily);
• they are conducted over a long period of time (as a rule, at least 3 months);
• the client's activity, within the framework of which funds are credited to and debited from the account, does not create tax payment obligations for its owner or the tax burden is minimal;
• no payment of taxes or other mandatory payments to the budget system of the Russian Federation is carried out from the account used for these operations, or it is carried out in insignificant amounts that are not comparable to the scale of the account owner's activity.

For the purpose of optimizing and increasing the effectiveness of state control in member states, a risk-oriented approach is applied, providing for the exercise of state control based on an assessment of the risk of violating requirements established by the technical regulations of the EAEU. Based on the results of this assessment, the form, duration, and frequency of state control measures are selected. [12] The rules for risk assessment for the purpose of selecting the form, duration, and frequency of state control measures are determined in accordance with the legislation of the member states.

When organizing control in the sphere of combating the legalization of proceeds of crime, the financing of terrorism, and the financing of the proliferation of weapons of mass destruction, authorities and organizations apply a risk-oriented approach. This provides for the assignment of the activities of organizations carrying out operations with funds or other property, and individual entrepreneurs, to a specific risk level of non-compliance with established requirements. This risk level is formed by them taking into account the results of national risk assessment, sectoral risk assessment, and remote monitoring, among other factors. [13]

The authorized body and corresponding control bodies, in the manner established by each of them, conduct assessments of the risks of operations for the purpose of legalizing proceeds of crime and the financing of terrorism in the sphere of activity of organizations carrying out operations with funds or other property, and individual entrepreneurs, by sectors of economic activity (sectoral risk assessment), taking into account the results of national risk assessment.

The assessment of risks of conducting operations (transactions) for the purpose of legalizing (laundering) proceeds is conducted in accordance with Bank of Russia Directive No. 5966-U dated October 5, 2021, On the Procedure for the Bank of Russia to Assess the Risks of Operations (Transactions) for the Purpose of Legalizing (Laundering) Proceeds of Crime and the Financing of Terrorism by Sectors of Economic Activity (Sectoral Risk Assessment). The Federal Treasury conducts the assessment of risks for conducting operations (transactions) for the purpose of legalizing (laundering) proceeds in accordance with Order of the Federal Treasury No. 24n dated November 20, 2023, On Approval of the Procedure for the Federal Treasury to Assess the Risks of Operations (Transactions) for the Purpose of Legalizing (Laundering) Proceeds of Crime and the Financing of Terrorism by Sector of Economic Activity (Sectoral Risk Assessment). [14]

In accordance with Decree of the Government of the Russian Federation No. 219 dated February 19, 2022, On Approval of the Regulations on Control (Oversight) in the Sphere of Combating Legalization (Laundering) of Proceeds of Crime, Financing of Terrorism, and Financing of the Proliferation of Weapons of Mass Destruction, for the purpose of applying a risk-oriented approach during control (oversight), the activity of the controlled person is subject to assignment to one of the following risk levels of non-compliance with legislative requirements:

• high;
• increased;
• moderate;

The control body carries out the assignment of a controlled person (except for audit organizations providing audit services to public interest entities) to a specific risk level of non-compliance with legislative requirements, including changes to the risk level, in accordance with the algorithm used in the risk assessment model.

Information regarding the algorithm for assigning the controlled person's activity to risk levels is not subject to transfer to third parties.

The risk assessment model is approved by the control body in coordination with the authorized body, and by a self-regulatory organization of auditors (regarding risk assessment for audit organizations other than those providing services to public interest entities) also in coordination with the federal executive body exercising external control over the activities of audit organizations providing services to public interest entities. [15]

The risk level may be reviewed, and information is provided to controlled persons assigned to a moderate risk level via a letter containing information regarding the possible non-compliance by the controlled person with legislative requirements. If, after 30 calendar days from the date of receipt of the letter (the date of delivery of a registered postal item, the date of a "read report" for an electronic message, or the date recorded in the receipt for receiving documents (information) in the Personal Account), the signs of violations are not eliminated, then the failure of the controlled person to take measures may be considered by the territorial body of Rosfinmonitoring as grounds for reviewing the risk level. [16]

The selection of the provided control measures is carried out based on the assigned risk level of non-compliance with legislative requirements:

• for a high risk level — a planned (unscheduled) inspection in the form of a documentary or field inspection;
• for an increased risk level — a planned inspection in the form of a documentary or field inspection;
• for a moderate risk level — informing;
• for a low risk level — control measures are not conducted.

The control body, for the purpose of preventing violations of legislative requirements by the controlled person and eliminating the causes, factors, and conditions contributing to the violation of requirements, carries out preventive measures. During preventive measures, control bodies are entitled to conduct questioning (surveys) of controlled persons regarding the organization and exercise of internal control by them for the purpose of combating the legalization of proceeds of crime, the financing of terrorism, and the financing of the proliferation of weapons of mass destruction. For the purpose of questioning (surveying) the controlled person, the control body may use an email address provided during the state registration of the legal entity or individual entrepreneur, or via the controlled person's personal account registered on the official website of the control body or in the state information system used by the control body for control (oversight) purposes. The control body uses the data from completed questionnaires for conducting preventive and control measures. Preventive measures are conducted in accordance with preventive programs for violations of legislative requirements approved annually by the control bodies.

Planned and unscheduled inspections of the controlled person's compliance with legislative requirements are conducted in the form of field and documentary inspections. Planned and unscheduled inspections are conducted without coordination with the prosecutor's office. The duration of inspections may not exceed:

• for field inspections — 30 calendar days;
• for documentary inspections — 90 calendar days.

The period for conducting an inspection may be extended by no more than 30 calendar days.

The risk management system is the main tool for determining the objects and forms of customs control. The goal of developing a risk-oriented approach during customs control is to create a smart, flexible, information-rich, self-adjusting risk management system.[17]

It should be noted that legislation in the sphere of currency control is changing, and in the context of the risk-oriented approach, the Draft Federal Law provides for the addition of a new part to Article 22, in accordance with which currency control bodies apply a risk-oriented approach based on methodologies approved by the currency control bodies when exercising control over currency operations of residents and non-residents, including control over suspicious currency operations.

Liability for Conducting Illegal and Suspicious Currency Operations

Administrative liability for violating currency legislation and acts of currency regulation bodies is provided for by Article 15.25 of the CAO RF, and criminal liability is provided for by Articles 193, 193.1, and other articles of the Criminal Code of the Russian Federation.

Thus, the conduct of illegal currency operations, i.e., currency operations prohibited by the currency legislation [18] of the Russian Federation or carried out in violation of the currency legislation of the Russian Federation, entails the imposition of an administrative fine: [19]

• on citizens, persons carrying out entrepreneurial activities without forming a legal entity, and legal entities — in the amount of 20 to 40 percent of the amount of the illegal currency operation or the amount of funds transferred without opening a bank account using electronic means of payment provided by foreign payment service providers;
• on officials — from 20 to 40 percent of the amount of the illegal currency operation or the amount of funds transferred without opening a bank account using electronic means of payment provided by foreign payment service providers, but not more than 30,000 rubles.

According to Article 193 of the Criminal Code of the Russian Federation, the violation of the requirements of the currency legislation of the Russian Federation on crediting funds in foreign currency or the currency of the Russian Federation on a large scale from one or several non-residents to a resident's accounts in an authorized bank or to a resident's accounts in banks located outside the territory of the Russian Federation in the established manner, due to the resident in accordance with the terms of foreign trade agreements (contracts) for goods transferred to non-residents, work performed for them, services rendered to them, information and results of intellectual activity transferred to them, including exclusive rights to them, as well as the violation of the requirements of the currency legislation of the Russian Federation on returning to the Russian Federation to a resident's accounts in an authorized bank or to a resident's accounts in banks located outside the territory of the Russian Federation in the established manner funds in foreign currency or the currency of the Russian Federation on a large scale paid to one or several non-residents for goods not imported into the territory of the Russian Federation (not received in the territory of the Russian Federation), unperformed work, unrendered services, untransferred information and results of intellectual activity, including exclusive rights to them, committed by a person subjected to administrative punishment for acts provided for by Part 5.2 of Article 15.25 of the CAO RF, is punishable by a fine in the amount of 200,000 to 500,000 rubles or in the amount of the salary or other income of the convicted person for a period of 1 to 3 years, or by forced labor for a term of up to 3 years, or by deprivation of liberty for a term of up to 3 years.

For the same acts committed:

• on an especially large scale;
• by a group of persons by prior conspiracy or by an organized group;
• using a knowingly forged document;
• using a legal entity created for the commission of one or several crimes associated with the conduct of financial operations and other transactions with funds or other property, they are punishable by deprivation of liberty for a term of up to 5 years with a fine in the amount of up to 1 million rubles or in the amount of the salary or other income of the convicted person for a period of up to 5 years, or without such.

The acts provided above are recognized as committed on a large scale if the amount of non-credited or non-returned funds in foreign currency or the currency of the Russian Federation for currency operations conducted once or repeatedly within 1 year exceeds 100 million rubles, and on an especially large scale — 150 million rubles.

Criminal liability is also provided for under Article 193.1 of the Criminal Code of the Russian Federation for the conduct of currency operations to transfer funds in foreign currency or the currency of the Russian Federation to the bank accounts of one or several non-residents with the submission to a credit organization possessing the powers of a currency control agent of documents associated with the conduct of such operations and containing knowingly false information regarding the grounds, purposes, and destination of the transfer.

Illegal and suspicious currency operations are increasingly subjected to control by supervisory bodies, and the changing legislation allows for more control over currency operations and the identification of illegal and suspicious operations. To exclude the commission of illegal and suspicious currency operations, it is necessary to monitor the changing currency legislation so as not to commit unintentional offenses in the sphere of currency legislation.

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References

1. Clause 9 of Article 1 of Law No. 173-FZ.
2. Clause 1 of Article 15.25 of the CAO RF.
3. Subclause "a" of Clause 3 of the 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 Associated with Them.
4. Subclause "b" of Clause 3 of the 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 Associated with Them.
5. Letter of the Bank of Russia No. 172-T dated September 4, 2013, On Priority Measures in the Exercise of Banking Supervision.
6. Prepared by the Ministry of Finance of Russia, Project ID 04/13/09-21/00119907.
7. Information Letter of the Bank of Russia No. IN-01-12/23 dated April 13, 2021, On Criteria for Determining Signs of High Involvement of a Credit Organization in Conducting Suspicious Non-cash and (or) Cash Operations.
8. Regulation of the Bank of Russia No. 375-P dated March 2, 2012, On Requirements for Internal Control Rules of a Credit Organization for the Purpose of Combating the Legalization (Laundering) of Proceeds of Crime and the Financing of Terrorism.
9. Article 3 of Federal Law No. 115-FZ dated August 7, 2001, On Combating the Legalization (Laundering) of Proceeds of Crime and the Financing of Terrorism.
10. Decision of the Arbitration Court of Moscow dated December 12, 2023, in Case No. A40-185105/23-98-1484. The plaintiff applied to the court with a demand to compel the bank to resume access to the remote banking system for the account. The Bank received information from the Bank of Russia regarding the assignment of the plaintiff to a high degree (level) of risk of conducting suspicious operations based on established criteria. The court refused to satisfy the plaintiff's demand.
11. Letter of the Bank of Russia No. 236-T dated December 31, 2014, On Increasing the Attention of Credit Organizations to Specific Client Operations.
12. Article 4 of the Agreement on Principles and Approaches to the Exercise of State Control (Oversight) over Compliance with the Requirements of Technical Regulations of the Eurasian Economic Union. Concluded in Moscow on February 16, 2021.
13. Article 9.1 of Federal Law No. 115-FZ dated August 7, 2001, On Combating the Legalization (Laundering) of Proceeds of Crime and the Financing of Terrorism.
14. Date of entry into force of the document—December 31, 2023.
15. Order of the Federal Treasury No. 13n dated July 13, 2023, On Approval of the Model for Assessing Risks of Non-compliance by Audit Organizations Providing Audit Services to Public Interest Entities with the Requirements of the Legislation of the Russian Federation in the Sphere of Combating the Legalization (Laundering) of Proceeds of Crime, Financing of Terrorism, and Financing of the Proliferation of Weapons of Mass Destruction.
16. Order of Rosfinmonitoring No. 192 dated September 7, 2022, On Approval of the Procedure for the Federal Financial Monitoring Service to Conduct Control Measures in the Sphere of Combating the Legalization (Laundering) of Proceeds of Crime, Financing of Terrorism, and Financing of the Proliferation of Weapons of Mass Destruction.
17. Section 4 of the Order of the Government of the Russian Federation No. 1388-r dated May 23, 2020, Strategy for the Development of the Customs Service of the Russian Federation until 2030.
18. Resolution of the Arbitration Court of the North Caucasus District dated August 31, 2018, No. F08-6427/2018 in Case No. A53-5243/2018. The inspection conducted a check of the company regarding compliance with the requirements of the currency legislation of the Russian Federation, during which it established that illegal currency operations for crediting revenue from the sale of goods received under a foreign trade contract to an account were conducted by the company in a bank located outside the territory of the Russian Federation. The identified violations form the objective side of administrative offenses, liability for which is established by Part 1 of Article 15.25 of the CAO RF. Having checked the company's argument that it and its representative office located outside the Russian Federation are different currency residents and, consequently, have different restrictions on conducting currency operations, and that the restriction whose violation is charged to the company is established for a resident legal entity and not for a resident representative office, the court instances established that a legal entity bears liability for the actions or inactions of a representative office. Since all bank accounts are opened for a resident's foreign representative office by the parent company, the provisions of Articles 12 and 14 of Law No. 173-FZ apply to transfers of funds to the accounts of a resident's foreign representative office opened in banks outside the territory of the Russian Federation. Taking into account the above, the courts reached conclusions regarding the presence of events and elements of administrative offenses in the actions (inaction) of the company, liability for which is provided for by Part 1 of Article 15.25 of the CAO RF, and therefore rightfully refused the company's satisfaction of the stated demands.
19. Decision of the Arbitration Court of Moscow dated June 24, 2021, in Case No. A40-55653/21-130-345. The plaintiff applied to the court with an application to recognize as illegal the resolution of the Inspectorate of the Federal Tax Service of Russia on holding him administratively liable for violating currency legislation and acts of currency regulation bodies. The company submitted the documents established by legislation with a violation of the term by 9 working days, thereby committing an administrative offense. The court made a decision to refuse satisfaction of the demand.