Russian Currency Control: Liability and Fines

 

May 31, 2024

BRACE Law Firm ©

 

Administrative and criminal law provide for liability for violations of currency legislation, which depends on the type of offense and, frequently, the amount and scale of the violation.

The purpose of currency regulation, governed by 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"), is to ensure the implementation of a unified state currency policy, as well as the stability of the Russian currency and the domestic currency market as factors for the progressive development of the national economy and international economic cooperation. Along with currency policy regulation, it is important to note that residents and non-residents who violate the provisions of Russian currency laws and acts of currency regulation authorities bear liability under the following regulations:

• Article 15.25 of the CAO RF, Violation of the Currency Legislation of the Russian Federation and Acts of Currency Regulation Authorities;
• Article 193 of the Criminal Code of the Russian Federation, Evasion of Obligations to Repatriate Funds in Foreign Currency or the Currency of the Russian Federation;
• Article 193.1 of the Criminal Code of the Russian Federation, Currency Operations Involving the Transfer of Funds in Foreign Currency or the Currency of the Russian Federation to the Accounts of Non-Residents Using Forged Documents.[1]

As a general rule, currency operations between residents are prohibited, except for the operations specified in Article 9, Paragraph 1 of Law No. 173-FZ.

Notably, officials of the tax authorities are entitled to apply liability measures for violations of currency legislation when exercising control and supervision over compliance with currency laws.[2]

Administrative Liability for Violation of Currency Legislation

The execution of illegal currency operations constitutes a violation. These include currency operations prohibited by Russian currency legislation or those carried out in violation of such legislation, including the purchase and sale of foreign currency and checks with a nominal value in foreign currency bypassing authorized banks. It also includes currency operations where settlements are made bypassing accounts in authorized banks or accounts in banks and other financial market organizations located outside Russia in cases not provided for by Russian currency legislation. Furthermore, it includes currency operations where settlements are made using funds credited to accounts in banks and other financial market organizations located outside Russia in cases not provided for by currency law, or the transfer of funds without opening a bank account using electronic payment means provided by foreign payment service providers in cases not provided for by Russian currency legislation. Such actions entail an administrative fine:

• on citizens, individuals engaged in entrepreneurial activities without forming a legal entity, and legal entities[3] in the amount of 20% to 40% of the amount of the illegal currency operation or the amount of funds transferred without opening a bank account using electronic payment means provided by foreign payment service providers;
• on officials[4] in the amount of 20% to 40% of the amount of the illegal currency operation or the amount of funds transferred without opening a bank account using electronic payment means provided by foreign payment service providers, but not exceeding 30,000 rubles.

Federal Law No. 235-FZ dated July 13, 2022, On Amendments to Article 15.25 of the Code of Administrative Offenses of the Russian Federation [5] mitigated the liability for administrative offenses provided for by Article 15.25, Part 1 of the CAO RF. The fine was set between 20% and 40% of the operation amount, whereas the previous provision stipulated liability ranging from 75% to 100% of the illegal currency operation amount. Given these changes, courts are issuing decisions to modify administrative liability measures and reduce the amount of sanctions.[6]

In light of the sanctions restrictions imposed by unfriendly countries, the Federal Customs Service (FCS) of Russia and the Federal Tax Service (FTS) of Russia have expressed their opinions regarding administrative liability. Specifically, in its letter[7] regarding administrative liability within the framework of sanctions restrictions, the FTS of Russia formulated the following position:

According to the Ruling of the Constitutional Court of the Russian Federation,[8] liability for failure to comply with currency legislation requirements must be considered in conjunction with the provisions of Article 1.5 and Article 2.1, Part 2 of the CAO RF. These articles stipulate that administrative liability may only be applied if there was an opportunity to comply with the relevant rules and norms, and the resident failed to take all measures within their control to ensure compliance. At the same time, a person cannot be found guilty of an administrative offense if they lacked the opportunity to comply with the requirements of Russian currency legislation. This may be evidenced, among other things, by the application of extraterritorial restrictive measures by foreign states, provided that the person took all measures within their control to comply with such requirements.

The absence of a resident's guilt in violating Russian currency legislation indicates the absence of the corpus delicti of an administrative offense. Pursuant to Article 24.5, Part 1, Item 2 of the CAO RF, this constitutes a circumstance precluding proceedings in an administrative offense case. Under Article 25.1, Part 1 of the CAO RF, a resident is entitled to present any evidence demonstrating the absence of guilt in the committed violation of currency legislation, including the lack of opportunity to comply with such requirements and the measures taken to ensure compliance. Pursuant to Article 26.2 of the CAO RF, evidence in an administrative offense case includes any factual data based on which the tax official handling the case establishes the presence or absence of an administrative offense event, the guilt of the person being held liable, and other circumstances relevant to the correct resolution of the case.

The examination of the circumstances of a currency legislation violation covers all established requirements, including the execution of foreign trade contracts, currency operations, and the submission of reports on the movement of funds in a resident's overseas accounts. It is important to note that the tax authority must resolve the issue of a resident's guilt in committing an administrative offense in each specific case separately, taking into account all the circumstances of the case.[9]

Regarding administrative liability for offenses under Article 15.25, Parts 4 and 5[10] of the CAO RF under external sanctions pressure, the FCS of Russia reflected its opinion in an information notice:[11]

In accordance with the CAO RF, a legal entity is found guilty of an administrative offense if it is established that it had the opportunity to comply with the rules and norms for the violation of which the CAO RF provides administrative liability, but the entity failed to take all measures within its control to comply with them.[12] A resident is entitled to present any evidence demonstrating the absence of guilt, including evidence of taking all measures to comply with Russian currency legislation requirements amid the introduction of sanctions by foreign states against Russian citizens and companies. Thus, a resident may present evidence to the customs authority regarding the impossibility of performing obligations under a foreign trade contract, the use of an alternative method of performing mutual obligations under such a contract, or the crediting of funds to accounts opened in a bank other than the authorized bank that registered or serviced the contract and which is subject to anti-Russian sanctions.[13]

Pursuant to Article 26.2 of the CAO RF, evidence in an administrative offense case includes any factual data based on which the judge, authority, or official handling the case establishes the presence or absence of an administrative offense event, the guilt of the person being held liable, and other circumstances relevant to the correct resolution of the case.

A resident is deemed to have fulfilled the obligation to receive foreign currency or Russian currency from non-residents into their bank accounts in authorized banks if restrictive measures have been introduced against that specific resident by a foreign state or state union, and such resident is included in the list of residents approved by the FTS of Russia and agreed upon with the Ministry of Finance and the Bank of Russia.[14] Thus, when holding a resident liable, an assessment of guilt must be provided, including a consideration of the current economic situation. That is, if it is established that the violation of currency legislation occurred due to sanctions imposed by unfriendly foreign states, the actions of the foreign trade participant will be evaluated accordingly. In the absence of guilt, administrative liability will be excluded. However, it should be noted that for violations occurring before the introduction of sanctions and before the Government Decree[15] on the suspension of inspections, administrative proceedings against persons who violated currency legislation continue, and court decisions holding them liable are not overturned.[16]

Article 15.25 of the CAO RF consists of several clauses reflecting types of currency violations and corresponding sanctions:

• failure by a resident to submit a report on fund transfers to the tax authority;[17]
• violation of the deadline for submission and the form of the notice of account opening;[18]
• failure by a resident to fulfill, within the prescribed period, the obligation to receive foreign currency and/or Russian currency into their accounts in authorized banks;[19]
• failure to fulfill the obligation to return funds to Russia paid to non-residents for goods not imported into the Russian Federation;[20]
• non-compliance with the established procedure[21] for submitting reports on the movement of funds in accounts[22] (deposits) in banks and other financial market organizations located outside Russia, etc.

Depending on the elements of the administrative offense and the danger of the committed act, the corresponding sanction may include a warning, an administrative fine, or disqualification for a specified term.

Furthermore, the statute of limitations for administrative liability for an offense under Article 15.25, Clause 4 of the CAO RF is calculated from the day following the last day of the period granted for the performance of the relevant obligation.[23]

It is also important to note that the conversion of foreign currency and the value of internal and external securities into Russian currency is performed at the exchange rate of the Central Bank of Russia effective on the day the administrative offense was committed or discovered. For offenses involving a resident's failure to receive foreign currency into accounts in authorized banks within the prescribed period, the administrative fine for crediting funds to authorized bank accounts with a delay is calculated based on the key rate[24] of the Central Bank of the Russian Federation in effect during the period of delinquency.

Criminal Liability for Violation of Currency Legislation

The Criminal Code of the Russian Federation also provides for criminal liability for violations of currency legislation committed on a large and extra-large scale. A "large scale" is defined as an amount of uncredited or unreturned funds in foreign currency or Russian currency for currency operations carried out once or repeatedly within one year exceeding 100 million rubles, while an extra-large scale exceeds 150 million rubles.

Article 193, Clause 1 of the Criminal Code of the Russian Federation establishes that criminal liability applies to persons previously subject to administrative punishment for acts provided for by Article 15.25, Part 5.2 of the CAO RF, and is established for:

• violation of Russian currency legislation requirements regarding the crediting of funds in foreign currency or Russian currency on a large scale from one or more non-residents to a resident's accounts in an authorized bank or a resident's accounts in banks located outside Russia, in the prescribed manner, due to the resident under the terms of foreign trade contracts for goods transferred to non-residents, work performed for them, services rendered to them, or information and results of intellectual activity transferred to them, including exclusive rights thereto;[25]
• violation of Russian currency legislation requirements regarding the return[26] to Russia to a resident's accounts in an authorized bank or a resident's accounts in banks located outside Russia, in the prescribed manner, of funds in foreign currency or Russian currency on a large scale, paid to one or more non-residents for goods not imported into Russia (not received in Russia), unperformed work, unrendered services, or untransferred information and results of intellectual activity, including exclusive rights thereto.

The sanction for violations of Article 193, Clause 1 of the Criminal Code includes:

• 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 one to three years;
• or forced labor for a term of up to three years, or imprisonment for a term of up to three years.[27]

Article 193, Clause 2 of the Criminal Code of the Russian Federation regulates violations of Russian currency legislation requirements regarding the crediting of funds[28] committed:

• on an extra-large scale;
• by a group of persons by prior conspiracy or an organized group;
• using a knowingly forged document;
• using a legal entity created for the commission of one or more crimes related to financial operations and other transactions with funds or other property.

The sanction for violations of Article 193, Clause 2 of the Criminal Code is imprisonment for a term of up to five years with a fine of up to 1,000,000 rubles or in the amount of the salary or other income of the convicted person for a period of up to five years, or without such fine.

Federal Law No. 134-FZ dated June 28, 2013, On Amendments to Certain Legislative Acts of the Russian Federation Regarding Counteracting Illegal Financial Operations, added Article 193.1 to the Criminal Code. This article provides for criminal liability for violating currency legislation using forged documents: Article 193.1, Currency Operations Involving the Transfer of Funds in Foreign Currency or the Currency of the Russian Federation to the Accounts of Non-Residents Using Forged Documents. Under Article 193.1 of the Criminal Code, liability is determined for currency operations involving the transfer of funds in foreign currency or Russian currency to the bank accounts of one or more non-residents by submitting documents to a credit organization acting as a currency control agent that contain knowingly false information[29] regarding the grounds, purposes, and designation of the transfer, in the form of:

• 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 one to three years;
• forced labor for a term of up to three years;
• imprisonment for a term of up to three years.

For the same acts committed:

• on a large scale;[30]
• by a group of persons by prior conspiracy;
• using a legal entity created for the commission of one or more crimes related to financial operations and other transactions with funds or other property, the sanction is imprisonment for a term of up to five years with a fine of up to 1,000,000 rubles or in the amount of the salary or other income of the convicted person for a period of up to five years, or without such fine.

For the aforementioned acts committed on an extra-large scale or by an organized group, the sanction is imprisonment for a term of five to ten years with a fine of up to 1,000,000 rubles or in the amount of the salary or other income of the convicted person for a period of up to five years, or without such fine.

Taking into account the provisions of Article 78 of the Criminal Code of the Russian Federation, the statute of limitations for criminal liability for crimes provided for by:

• Article 193, Clause 1 and Article 193.1, Clause 1 of the Criminal Code is two years after the commission of the crimes;
• Article 193, Clause 2 and Article 193.1, Clause 2 of the Criminal Code is six years after the commission of the crimes;
• Article 193.1, Clause 3 of the Criminal Code is ten years after the commission of the crime.

Moratorium on Fines for Currency Violations

Economic restrictions introduced by unfriendly countries significantly affected liability for currency violations. Specifically, Federal Law No. 235-FZ dated July 13, 2022, On Amendments to Article 15.25 of the Code of Administrative Offenses of the Russian Federation, introduced changes and established a moratorium on the application of administrative liability. In its information notice, [31] the Ministry of Economic Development of Russia expressed the following opinion on this issue:

The Law provides for a moratorium on holding residents administratively liable for certain currency violations:

• illegal currency operations;
• failure to return currency earnings, including to accounts in foreign banks in the share determined by the Russian Government;
• improper performance or termination of obligations under a foreign trade contract by other methods permitted by Russian law;
• failure to submit information to the Bank of Russia regarding the receipt of funds from non-residents if they were unable to fulfill currency legislation requirements due to sanctions by foreign states.

The norm applies to legal relationships arising in the period from February 23, 2022. This meant that all cases regarding violations committed during this period already pending before judges, authorized government bodies, and/or their officials would be terminated as of the day the law entered into force. Decisions already made in such cases were not subject to execution.

As sanctions pressure on Russia grows, it becomes objectively impossible for organizations to comply with the requirements of Russian currency legislation. To reduce the administrative burden, increase the competitiveness of national goods in foreign markets, and mitigate sanctions restrictions, the Ministry of Finance approved the Main Directions of Budget, Tax, and Customs-Tariff Policy for 2023 and for the Planning Period of 2024 and 2025. This document, among other measures, provides for the introduction of a moratorium on administrative liability for failure to comply with Russian currency legislation requirements caused by the application of restrictive measures.

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References

[1] Article 25 of the Currency Regulation Law.

[2] Clause 6 of the FTS of Russia Order No. MMV-7-17/418@ dated August 26, 2019, On Approval of the Administrative Regulations for the Federal Tax Service to Exercise Control and Supervision over Compliance by Residents (excluding credit organizations and non-credit financial organizations provided for by Federal Law No. 86-FZ dated July 10, 2002.

[3] Ruling of the Arbitration Court of the North-Western District dated December 5, 2023, No. F07-18289/2023 in case No. A56-15171/2022 regarding the challenge of a decision to hold the applicant liable under Part 1 of Art. 15.25 of the CAO RF for the accrual and payment of wages in cash to non-resident employees.

[4] Ruling of the Supreme Court of the Russian Federation dated December 2, 2022, No. 127-AD22-16-K4 regarding the reversal of acts holding an official liable under Part 1 of Art. 15.25 of the CAO RF for violating Russian currency legislation.

[5] The amendments entered into force on July 24, 2022.

[6] Decision of the Arbitration Court of the City of Saint Petersburg and the Leningrad Region dated June 27, 2023, in case No. A56-15171/2022 regarding the reversal of a decision to hold a party liable under Part 1 of Art. 15.25 of the CAO RF for illegal currency operations.

[7] Letter of the FTS of Russia No. ShYu-4-17/8337@ dated July 1, 2022, On Issues of Holding Residents Administratively Liable for Violations of the Currency Legislation of the Russian Federation Committed in Connection with Sanctions Imposed Against the Russian Federation, Russian Legal Entities and Individuals.

[8] Ruling of the Constitutional Court of the Russian Federation No. 486-O-O dated April 2, 2009.

[9] Article 26.11 of the CAO RF.

[10] Ruling of the Arbitration Court of the North Caucasus District dated February 18, 2022, No. F08-14544/2021 in case No. A32-21280/2021 regarding the reversal of a decision to hold a party liable under Part 5 of Art. 15.25 of the CAO RF.

[11] Information from the FCS of Russia On Issues of Holding Russian Persons Administratively Liable for Currency Violations Amid Unfriendly Actions of the USA and Joined Foreign States and International Organizations. [12] Article 2.1, Clause 2 of the CAO RF.

[13] Official Clarification of the Bank of Russia No. 3-OR dated April 4, 2022.

[14] Article 19, Clause 4.2 of Law No. 173-FZ.

[15] Resolution of the Government of the Russian Federation No. 977 dated May 28, 2022, On Currency Control Measures Under External Sanctions Pressure.

[16] Decision of the Arbitration Court of the Magadan Region dated April 2, 2024, in case No. A37-1781/2022. [17] Article 12, Clause 7 of Law No. 173-FZ.

[18] Ruling of the Arbitration Court of the Central District dated October 18, 2022, No. F10-3801/2022 in case No. A08-1417/2022.

[19] Ruling of the Arbitration Court of the North-Western District dated December 1, 2022, No. F07-15552/2022 in case No. A56-1188/2022.

[20] Ruling of the Arbitration Court of the North-Western District dated July 7, 2023, No. F07-6266/2023 in case No. A56-36997/2021.

[21] Resolution of the Government of the Russian Federation No. 1365 dated December 12, 2015.

[22] Ruling of the Arbitration Court of the Moscow District dated April 28, 2023, No. F05-8022/2023 in case No. A40-194321/2022.

[23] Clause 37 of the Review of Judicial Practice of the Supreme Court of the Russian Federation No. 2 (2019), approved by the Presidium of the Supreme Court on July 17, 2019.

[24] Information Message of the Bank of Russia dated December 15, 2023.

[25] Ruling of the Soviet District Court of the City of Vladikavkaz dated August 7, 2020, in case No. 1-635/2020.

[26] Ruling of the Kirov District Court of the City of Makhachkala dated April 5, 2024, No. 1-343/2024.

[27] Judgment of the Moscow District Court of the City of Saint Petersburg dated September 7, 2022, in case No. 1-888/2022.

[28] Appellate Ruling of the Moscow City Court dated September 19, 2022, in case No. 10-17769/2022.

[29] Judgment of the Chkalovsky District Court of the City of Yekaterinburg dated April 19, 2024, No. 1-400/2024.

[30] Ruling of the Prikubansky District Court of the City of Krasnodar dated December 21, 2023, in case No. 1-1506/2023.

[31] Information from the Ministry of Economic Development of Russia A Moratorium Has Been Established Until the End of the Year on the Application of Administrative Liability and Fines for Currency Violations Have Been Reduced.