Settlements Between Russian and Kazakhstan: Currency Control & Sanctions

 

November 10, 2024

BRACE Law Firm ©

For the member states of the Eurasian Economic Union (the "EAEU"), a common EAEU Customs Code applies, and uniform customs duties, Commodity Nomenclature of Foreign Economic Activity codes, and special antidumping and countervailing measures are established for trade with third countries. Customs control exists only at the external borders of the EAEU. However, it is necessary to consider that the legislation of EAEU member states — specifically Russia and Kazakhstan — regulating contract settlements differs. Consequently, parties to a foreign trade transaction must account for these differences in their operations.

This article examines issues regarding the regulation of settlements in both countries, currency legislation requirements, and problems arising during settlements.

Regulation of Settlements Between from Russian and Kazakhstani Companies

Legal regulation of settlements in Russia is carried out in accordance with Chapter 46 of the Civil Code of the Russian Federation. Settlements are effected in cash and via non-cash methods.

Settlements between legal entities, as well as settlements involving citizens connected with their entrepreneurial activity, are performed via non-cash methods. Settlements between these persons may also be performed in cash, unless otherwise established by law.

Non-cash settlements may be carried out in the form of payment orders, letters of credit, collection, checks, and other forms provided by law, banking rules, or customs applied in banking practice.

Settlements of legal entities are also regulated by Regulation of the Bank of Russia No. 762-P dated June 29, 2021, On the Rules for Transferring Funds.

In the Republic of Kazakhstan, payments are regulated by the Law of the Republic of Kazakhstan No. 11-VІ dated July 26, 2016, On Payments and Payment Systems [1] and the adopted Resolution of the Board of the National Bank of the Republic of Kazakhstan No. 208 dated August 31, 2016, On Approval of the Rules for Carrying Out Non-Cash Payments and (or) Money Transfers in the Territory of the Republic of Kazakhstan[2].

Payments and (or) money transfers are carried out based on or using payment instruments. Payments and (or) money transfers carried out by legal entities, branches, or representative offices of a legal entity through payment service providers are carried out only using bank accounts and (or) electronic wallets.

Payments under a transaction exceeding 1,000 times the Monthly Calculation Index (as of January 1, 2024 – 3,692 tenge [3]) are carried out by individual entrepreneurs registered as Value Added Tax (VAT) payers, or by legal entities in favor of another individual entrepreneur registered as a VAT payer, or a legal entity, only via non-cash methods.

In the territory of the Republic of Kazakhstan, the following types of payment instruments are used when making payments and (or) money transfers: payment order, payment request, check, promissory note, collection order, payment warrant, payment notice, and electronic payment instrument.

Currency Regulation in Kazakhstan and Russia

Transactions between companies from Russia and Kazakhstan are foreign trade transactions and are subject to currency control.

Currency control in the Russian Federation is carried out based on Federal Law No. 173-FZ dated December 10, 2003, On Currency Regulation and Currency Control, and Instruction of the Bank of Russia No. 181-I dated August 16, 2017, On the Procedure for Residents and Non-Residents to Submit Supporting Documents and Information to Authorized Banks when Carrying Out Currency Operations, on Unified Forms of Accounting and Reporting on Currency Operations, and the Procedure and Deadlines for Their Submission, adopted on the basis thereof. Agreements concluded between residents and non-residents that provide for settlements through resident accounts opened in authorized banks and (or) through resident accounts opened in banks outside the territory of the Russian Federation are subject to registration when the amount of obligations equals or exceeds the equivalent of:

• 3 million rubles for import contracts;
• 10 million rubles for export contracts.

It is important to note that carrying out currency operations where settlements are made bypassing accounts in authorized banks entails penalties provided by Article 15.25 of the Code of Administrative Offenses of the Russian Federation.

For instance, a supply agreement was concluded between a Russian entrepreneur (supplier) and an entrepreneur from Kazakhstan, under which the Russian entrepreneur accepted currency of the Russian Federation in cash, bypassing the bank, for goods shipped in execution of said agreement. This circumstance served as the basis for holding him administratively liable [4].

Similar regulatory legal acts exist in the Republic of Kazakhstan. The main regulatory legal act governing currency relations in the Republic of Kazakhstan is the Law of the Republic of Kazakhstan dated July 2, 2018, On Currency Regulation and Currency Control. The currency regulation authority in the Republic of Kazakhstan is the National Bank of the Republic of Kazakhstan.

The specified law regulates public relations associated with the implementation of currency operations — operations related to the transfer of ownership and other rights to currency values, the use of currency values as a means of payment — and defines the goals and objectives of currency regulation and currency control. Currency operations between residents and non-residents are carried out in national and (or) foreign currency.

Currency values are understood as foreign currency, as well as national currency, securities, and payment documents denominated in national currency, in cases where operations are performed with them between residents of the Republic of Kazakhstan and non-residents of the Republic of Kazakhstan, and between non-residents of the Republic of Kazakhstan, as well as their export (transfer) from the Republic of Kazakhstan or import (transfer) into the Republic of Kazakhstan.

Legal entities (excluding international organizations) created in accordance with the legislation of the Republic of Kazakhstan, with a location in the territory of the Republic of Kazakhstan, as well as their branches and representative offices, are recognized as residents of the Republic of Kazakhstan for currency regulation and control purposes. Accordingly, legal entities and organizations created in accordance with the legislation of foreign states and having a location outside the Republic of Kazakhstan are not residents.

Import is understood as the transfer of goods by a non-resident of the Republic of Kazakhstan to a resident of the Republic of Kazakhstan, the partial transfer of exclusive rights to intellectual property objects by a non-resident of the Republic of Kazakhstan to a resident of the Republic of Kazakhstan, the performance of works, the provision of services, and the lease of property by a non-resident of the Republic of Kazakhstan to a resident of the Republic of Kazakhstan.

Export is the transfer of goods by a resident of the Republic of Kazakhstan to a non-resident of the Republic of Kazakhstan, the partial transfer of exclusive rights to intellectual property objects by a resident of the Republic of Kazakhstan to a non-resident of the Republic of Kazakhstan, the performance of works, the provision of services, and the lease of property by a resident of the Republic of Kazakhstan to a non-resident of the Republic of Kazakhstan.

Thus, settlements between Russian and Kazakhstani companies in their national currencies or any other foreign currency fall under the scope of the specified law.

Payments and (or) money transfers for currency operations of residents and non-residents are carried out through bank accounts in authorized banks in the manner established by the currency legislation of the Republic of Kazakhstan.

Residents of the Republic of Kazakhstan must ensure the repatriation of national and (or) foreign currency for export or import. A resident is obliged to ensure the repatriation of national and (or) foreign currency within the deadlines provided by the currency contract for export or import. The deadline by which the resident (excluding a branch (representative office) of a foreign organization) fulfills the repatriation requirement (the "Repatriation Deadline in the RK") is determined based on the conditions for the fulfillment of obligations by the parties to the currency contract for export or import in the manner determined by the rules for implementing export-import currency control in the Republic of Kazakhstan.

The conditions of a currency contract for export or import subject to the repatriation requirement must provide for deadlines for the fulfillment of obligations by non-residents. Authorized banks servicing currency contracts for export or import have the right to demand that the resident clarify the Repatriation Deadline in the RK.

National and (or) foreign currency subject to repatriation and credited to accounts in foreign banks must be transferred to the resident's accounts (excluding a branch (representative office) of a foreign organization) in authorized banks before the expiration of the Repatriation Deadline.

It should be noted that in accordance with Article 251 of the Code of the Republic of Kazakhstan No. 235-V ZRK dated July 5, 2014, On Administrative Offenses, a penalty is provided in the form of a fine in the amount of 20% of the amount of uncredited national and (or) foreign currency for the failure by an individual entrepreneur or legal entity to fulfill the requirement for repatriation of national and (or) foreign currency, if the following are not credited to bank accounts in authorized banks:

• revenue in national and (or) foreign currency from exports;
• national and (or) foreign currency transferred by a resident of the Republic of Kazakhstan in favor of a non-resident of the Republic of Kazakhstan for settlements on imports, subject to return due to non-fulfillment or incomplete fulfillment of obligations by the non-resident of the Republic of Kazakhstan under the contract.

The state revenue authority, jointly with the National Bank of the Republic of Kazakhstan and currency control agents, monitors the movement of money and other fulfillment of obligations within separate currency contracts for export or import to control the fulfillment of the repatriation requirement by residents (excluding branches (representative offices) of foreign organizations). For this monitoring purpose, the authorized bank servicing the currency contract for export or import assigns it an accounting number (registration number), which is subsequently indicated when submitting reports on the currency contract for export or import to currency control authorities.

When assigning an accounting number, the authorized bank has the right to demand from the resident participant of the currency contract, in addition to the submitted copy of the contract, the following information and (or) documents:

• information on the participants of the currency contract, including identification data, country of registration, and information on the participation of a party to the currency contract in the capital of another party to the currency contract;
• information on the transaction, including details and the amount of the currency contract, the currency of the currency contract and settlements thereunder, and the completion date of obligations under the currency contract;
• information on the accounts through which settlements under the transaction will be carried out;
• amendments and (or) additions to the currency contract made by its participants, and other documents of the currency contract participants related to the transaction being carried out.

To comply with the requirements of the currency legislation of the Republic of Kazakhstan, currency control agents (authorized banks, authorized organizations, as well as professional participants of the securities market carrying out currency operations on client instructions) have the right to demand from residents and non-residents when they conduct currency operations:

• constituent and other documents, including those identifying the participants of this person;
• the currency contract or its copy, including one with a mark on the assignment of an accounting number;
• documents and (or) information confirming fulfillment or based on which the fulfillment of obligations under currency contracts is necessary;
• information on payments and (or) money transfers for currency operations.

The authorized bank has the right to request for review the originals of currency contracts and other documents required by this clause, as well as a translation into Kazakh or Russian of documents drafted in a foreign language. Currency control agents do not have the right to demand the submission of documents not related to the currency operation being conducted.

The procedure for obtaining accounting numbers, as well as the conditions and criteria, including the threshold value of the sum of the currency contract for export or import, upon the presence of which currency contracts for export or import are subject to control of the fulfillment of the repatriation requirement, are determined by the rules for carrying out export-import currency control in the Republic of Kazakhstan, which we will consider below.

Export-Import Currency Control in Kazakhstan

Export-import control is carried out in accordance with the Joint Resolution of the Board of the National Bank of the Republic of Kazakhstan No. 78 dated September 29, 2023, and Order of the Deputy Prime Minister – Minister of Finance of the Republic of Kazakhstan No. 1054 dated October 4, 2023, On Approval of the Rules for Carrying Out Export-Import Currency Control in the Republic of Kazakhstan [5] (the "Currency Control Rules in the RK"), which entered into force on January 1, 2024.

The purpose of export-import currency control is to ensure compliance by exporters and importers with the legislation of the Republic of Kazakhstan regarding requirements for the repatriation of foreign currency and (or) the national currency of the Republic of Kazakhstan, which consists of crediting to bank accounts in authorized banks:

• revenue in national and (or) foreign currency from exports;
• national and (or) foreign currency transferred by a resident in favor of a non-resident for settlements on imports, in the event of non-fulfillment or incomplete fulfillment of obligations by the non-resident.

A resident is required to ensure the fulfillment of the requirement for repatriation of national and foreign currency within the Repatriation Deadline; for this purpose, the currency contract must strictly provide for deadlines for the fulfillment of obligations by non-residents.

The Repatriation Deadline is calculated as the period of time between:

• the date of export and the date of receipt of currency in payment for exports;
• the date of payment and (or) money transfer for imports and the date of return of the unused advance payment for imports in the event of non-fulfillment and (or) incomplete fulfillment of obligations by the non-resident;
• the date of payment and (or) money transfer for imports and the date of import in the absence of deadlines for the return of the unused advance payment in the currency contract for import.

The Repatriation Deadline is calculated by the exporter or importer independently, based on the conditions for the fulfillment of obligations for export or import by the parties to the currency contract.

The movement of goods across the border of the Republic of Kazakhstan for export or import is the movement of goods from the territory (to the territory) of the Republic of Kazakhstan to the territory (from the territory) of another EAEU member state.

A currency contract for export or import is subject to accounting registration if the amount of such contract exceeds 50,000 US dollars. If the contract amount is not specified in the currency contract for export or import on the date of its conclusion, such contract is considered a contract subject to accounting registration. If a currency contract for export or import is denominated in a currency other than the US dollar, and such contract lacks an indication of the exchange rate relative to the US dollar, the conversion is carried out using the official currency exchange rate on the date of signing such contract (in its absence, on the effective date of the contract) to determine the equivalent of the currency contract amount for export or import in US dollars.

Generally, an exporter or importer applies to obtain an accounting number before the commencement of the fulfillment of obligations under the currency contract for export or import by any of its parties. If a non-resident participant begins the fulfillment of obligations under a currency contract for export or import first, and such fulfillment involves the receipt of money, the transfer of goods, the performance of works, the provision of services, the partial transfer of exclusive rights to intellectual property objects, or the lease of property in favor of a resident of the Republic of Kazakhstan, then such resident applies for accounting registration before the receipt of money, receipt of goods, performance of works, provision of services, receipt of partial exclusive rights to intellectual property objects, or receipt of property for lease into their possession.

To obtain an accounting number, the exporter or importer submits to the authorized bank (its branch) or the territorial branch of the National Bank:

• an application for acceptance of the currency contract for export or import for currency control in the form according to Appendix 3 to the Currency Control Rules in the RK;
• the original or copy of the currency contract for export or import. If the currency contract for export or import is concluded in a foreign language, its translation into Kazakh or Russian is submitted.

The application for acceptance of the currency contract for currency control indicates the Repatriation Deadline calculated in accordance with the Currency Control Rules in the RK.

Only one accounting number is assigned to one currency contract for export or import.

The assignment of an accounting number may be refused in the following cases:

• presence of conditions in the currency contract for export or import, including all amendments and (or) additions thereto, that contradict the requirements of the currency legislation of the Republic of Kazakhstan;
• discrepancy of the exporter's or importer's signature in the application for acceptance of the currency contract for currency control with the signature sample in the document with signature samples;
• on grounds provided by the Law of the Republic of Kazakhstan No. 191-IV dated August 28, 2009, On Counteracting the Legalization (Laundering) of Income Obtained by Criminal Means and the Financing of Terrorism.

Upon the occurrence of circumstances affecting the deadlines and conditions for the fulfillment of obligations by the parties under the currency contract, the exporter or importer submits corresponding information and (or) supporting documents (copies thereof) to the authorized bank (its branch). Information and (or) documents are submitted no later than the last day of the month of the expiration of the Repatriation Deadline in which the amount of obligations unfulfilled by the non-resident to the exporter or importer exceeded 50,000 US dollars in equivalent.

The fulfillment of obligations by the parties under the currency contract in full or the presence of a non-resident's or resident's outstanding balance not exceeding 50,000 (fifty thousand) US dollars in equivalent constitutes grounds for removing the currency contract from accounting registration.

Also, a contract is removed from accounting in the event of a written statement by the importer in any form regarding the termination of the currency contract for import: return to the non-resident of goods previously received from them, return to the non-resident of exclusive rights to intellectual property objects previously partially transferred by them, return to the non-resident of property previously transferred by them for lease, or return to the importer of the unused advance payment received in payment of the currency contract for import in the event of the importer's non-fulfillment of the obligation to supply goods, perform works, or provide services. Similarly, in the event of a written statement by the exporter in any form regarding the termination of the currency contract for export given non-fulfilled obligations of the non-resident to pay for goods, works, or services: return to the exporter of previously shipped goods, exclusive rights to intellectual property objects, property previously partially transferred to the non-resident for lease, in the event of the non-resident's non-fulfillment of the obligation to pay for goods, works, or services, or return to the non-resident of currency received by the exporter in payment of the currency contract for export in the event of the exporter's non-fulfillment of the obligation to supply goods, perform works, or provide services.

The authorized bank sends a banking control face card to the National Bank by the 15th day (inclusive) of the month following the reporting month (the month of the expiration of the Repatriation Deadline) in the following cases:

• the Repatriation Deadline has expired, and the amount of obligations unfulfilled by the non-resident under the currency contract for export or import to the exporter or importer exceeds 50,000 US dollars in equivalent;
• the exporter or importer violated the deadline for applying for the assignment of an accounting number to the currency contract for export or import.

The National Bank sends this information to the state revenue authority, which conducts a reconciliation of data from goods declarations, applications for the import of goods, and electronic invoices in the information systems of the state revenue authority and the National Bank. If a violation of the Currency Control Rules in the RK is established, it considers whether the actions (inaction) of the exporter or importer contain signs of violations for which liability is provided in accordance with the legislation of the Republic of Kazakhstan and, if necessary, forwards the matter to other currency control bodies according to their competence.

We have briefly examined the main requirements of export-import currency control in the Republic of Kazakhstan. In the next section, we will consider:

Sanctions on Payments to Kazakhstan

Since 2014, Russia has been under intense sanctions pressure from the US, the European Union, and other countries. The Republic of Kazakhstan does not support US and European Union (EU) sanctions against Russia and other countries, but, according to Deputy Prime Minister of the Republic of Kazakhstan Serik Zhumangarin, it is "forced to comply with them because it is beneficial for us from an economic point of view." Also, according to him, Kazakhstan "will not withstand sanctions pressure"[6].

So-called "secondary sanctions" are measures that can be imposed against companies violating the sanctions regime by carrying out significant transactions with companies from sanctions lists. A key feature of US economic sanctions is their extraterritoriality. The US extends jurisdiction far beyond its territory through the instrument of secondary sanctions, which are often imposed against third parties and countries.

The mechanism for imposing secondary sanctions was established by the US federal law Countering America’s Adversaries Through Sanctions Act (CAATSA) (Pub. L. 115-44), signed on August 2, 2017 [7]. This law extended the obligation to comply with the sanctions regime to "non-US persons" who cooperate with Russian legal entities and individuals subject to American sanctions.

On the part of the European Union (the "EU"), the so-called 11th package of sanctions was adopted, in which the EU Council effectively granted itself powers to impose secondary sanctions, i.e., sanctions against non-European companies helping to circumvent existing trade embargoes against Russia.

Anomalously increased trade flows between Russia and neighboring countries cause concern for the US and the EU. For example, in 2022, Kazakhstan's imports from the EU increased by 33.9% compared to 2021, and from the US by 40.5%, while exports from Kazakhstan to Russia increased by 25.1% [8].

In March 2023, EU representatives conducted an investigation into the circumvention of anti-Russian sanctions through countries of Central Asia and the Caucasus. It was stated then that about 770 items imported from the EU were found in Russian military equipment and weapons. EU representatives visited Kazakhstan, Uzbekistan, Kyrgyzstan, Turkey, Georgia, and Armenia to clarify the EU's position on secondary sanctions. Following the visits, all countries declared their readiness to cooperate with the EU and strengthen measures to prevent the re-export of sanctioned goods to Russia [9].

As of the end of the first half of 2024, 494 companies from 57 countries fell under US secondary sanctions for ties with Russia. Their main cause was supplies of electronics and industrial goods, as well as assistance in circumventing sanctions to persons already subject to them[10].

In October 2024, it became known that the US Department of the Treasury imposed sanctions against 275 individuals and organizations involved in supplying advanced technologies and equipment to Russia from Kazakhstan, Uzbekistan, Turkey, Switzerland, China, and India. The Kazakhstani company Kazstanex, engaged in the supply of machine tools from manufacturing plants worldwide, including equipment for car services, furniture production, and metalworking, fell into the sanctions list due to supplies to Russia. According to the US Treasury, a scheme for supplying metalworking equipment from Europe to Russia was uncovered. Specifically, the Russian company "Tekhnologiya Razvitiya Otkrytykh Sistem" (TROS) used Kazstanex for the transshipment of machine tools. The US Treasury claims that this company is the nominal recipient of the equipment and also stores it before delivering it to Russia through the Chinese firm Shanghai Winsun[11].

Additionally, the Kazakhstani company Catu Tech Ltd. fell into the sanctions list in August 2024 due to regular supplies of highly sensitive electronic equipment to Russia. Among the sanctioned companies was the representative office in the Republic of Kazakhstan of the Turkish firm All Global Trading Elektronik Dis Ticaret Ltd Sti, whose main activity is wholesale trade of electrical equipment, wires, and microchips [12].

The greatest danger currently is posed by the threat of secondary sanctions against banks. In December 2023, the US President signed an executive order, a key element of which is the authority of the US Treasury to impose sanctions on foreign banks for helping to conduct transactions for sanctioned Russian persons or for facilitating supplies of certain materials and equipment to Russia's military-industrial complex. This significantly complicated international settlements between Russian companies and their counterparties in friendly countries. A number of leading banks in Turkey, the UAE, India, China, Kazakhstan, and Uzbekistan, under the threat of secondary sanctions, began refusing to open accounts for Russian legal entities, suspending transfers, increasing payment processing times, rejecting or returning funds, and checking Russian partners for cooperation with the Russian defense sector and inclusion in sanctions lists. The rejection rate increased to 30% in July 2024. The average transaction time relative to July data increased by approximately 15%, to two weeks [13].

The Agency for Regulation and Development of the Financial Market of Kazakhstan reported that banks independently assess the exposure of conducted operations to compliance risk as part of risk management in their activities. To minimize the risks of secondary sanctions against Kazakhstan, "Kazakhstani banks adhere to a conservative policy when conducting payments and transfers involving sanctioned persons." Banks and their clients independently make decisions on conducting operations considering the relevant potential risks and in accordance with applicable legislation. It was noted that no additional requirements were established for Kazakhstani banks [14].

In August 2024, the Kazakhstani Bank RBK notified clients that when crediting incoming and outgoing payments, as well as transfers related to Russia and Belarus, it "has the right to temporarily stop the operation until complete requested information is received and all documents are verified." The bank explained that due to the issuance of successive sanctions packages by both the European Union and the US and G7 countries, measures to combat intermediaries used to circumvent sanctions and export controls have been strengthened, aimed at increasing overall transparency and the bank's compliance with international economic sanctions [15].

To avoid violating the sanctions regime and falling under secondary sanctions, companies in Kazakhstan, including banks, are forced to verify signs indicating that a counterparty may be included in sanctions lists.

Compliance Regarding Russian Companies in Kazakhstan

It should be borne in mind that sanctions lists are constantly updated; this happens on a case-by-case basis. The applied sanctions measures also change. And if a counterparty was not on the list during a check today, it does not mean that everything will be in order tomorrow and you will still be able to cooperate with them.

Compliance is an internal control system that helps a company operate in accordance with certain rules. These can be adopted both within the organization itself and externally, for example, by legislative acts. Sanctions compliance, in turn, is a system of business processes aimed at identifying and localizing potential risks associated with the introduction of sanctions restrictions. It is necessary if a corporation conducts business in different countries or if one of the partner companies is on a sanctions list.

Facing the threat of secondary sanctions, financial organizations and second-tier banks of the Republic of Kazakhstan have strengthened compliance procedures to observe sanctions against Russia previously introduced by Western regulators [16].

Compliance control in Kazakhstani banks currently functions based on Resolution of the Board of the National Bank of the Republic of Kazakhstan No. 188 dated November 12, 2019, On Approval of the Rules for Forming Risk Management and Internal Control Systems for Second-Tier Banks and Branches of Non-Resident Banks [17] (the "Rules No. 188").

Rules No. 188 define compliance risk as the probability of losses due to non-compliance by the bank and its employees with the requirements of civil, tax, and banking legislation of the Republic of Kazakhstan, legislation of the Republic of Kazakhstan on state regulation, control, and supervision of the financial market and financial organizations, legislation of the Republic of Kazakhstan on currency regulation and currency control, on payments and payment systems, on pension provision, on the securities market, on accounting and financial reporting, on credit bureaus and the formation of credit histories, on collection activities, on mandatory deposit guarantees, on counteracting the legalization (laundering) of income obtained by criminal means and the financing of terrorism, on joint-stock companies, internal bank documents regulating the procedure for the bank's provision of services and conducting operations in the financial market, as well as legislation of foreign states influencing the bank's activity.

As follows from this definition, compliance with sanctions is currently a compliance risk. In the event of a threat of secondary sanctions, it is necessary to determine the policy of relations with persons included in the sanctions lists of certain countries, since failure to meet this requirement is associated with financial risks and economic restrictions from the authorized bodies of the countries imposing such sanctions.

When servicing Russian resident clients, screening of international transfers is conducted to prevent the acquisition of sanctioned goods/services. Thus, banks in Kazakhstan check for presence in the relevant sanctions lists of the US, European Union, and other countries. The check also includes the collection and analysis of information on the ultimate beneficial owners of the legal entity [18].

Furthermore, the subject of the contract is studied to exclude the presence of sanctions regarding the specified subject of the contract, the contract currency, the contract amount, and the bank details of the parties to the contract to exclude the presence of the bank specified in the contract in sanctions lists, the presence of a third party to the contract, and the presence of a convoluted shipment/payment scheme lacking economic sense.

Based on the results of studying the specified information, the bank decides on the advisability or lack thereof of conducting client operations.

The National Bank of the Republic of Kazakhstan recommends choosing a payment currency alternative to the US dollar or Euro when conducting payments with sanctioned persons, and not conducting such payments through European or American correspondent banks. Violation of requirements regarding operations with persons from US and EU sanctions lists carries risks of freezing conducted operations, severing business relations, and closing correspondent accounts [19].

Payments from Kazakhstan to China

In February – June 2024, there was a serious problem with payments sent from Russia to China not reaching recipients. Chinese firms trading with Russia recommend that Russian counterparties open NRA accounts (Non-resident accounts) in Kazakhstan and pay from such accounts. In May 2024, there was a period when some Chinese banks did not accept money from non-residents of the Republic of Kazakhstan. However, currently, banks in China work with Kazakhstan uninterruptedly, do not block, and process payments arriving from this country[20].

Since Kazakhstan is not under sanctions and is an EAEU member state, opening accounts in Kazakhstan is currently one of the legal ways to avoid sanctions for non-resident companies as well.

The country's currency legislation provides that non-residents in Kazakhstan open bank accounts in tenge or foreign currency (including rubles, yuan) without restrictions. Therefore, any foreign firm can open an account in a bank of Kazakhstan and use it to make payments to China. It is important to note that local banks will not accept money from Russian banks that are under sanctions at the moment of payment execution. Sending money from Kazakhstan to the RF looks similar. A bank of the RK will not be able to send money to a Russian bank that is under sanctions [21].

For example, a Russian company transfers its own funds from an account in a Russian bank to its account opened in one of the banks of Kazakhstan. Then, from the Kazakhstani account, the Russian company transfers money to its counterparty in China.

It is also possible to open an account in banks of Kazakhstan for Chinese companies. The Russian legal entity pays money from a bank in Russia to the Chinese supplier to their account in a bank of Kazakhstan, after which the Chinese enterprise transfers its money from this account to its account in a bank of China [22].

Russia and the Republic of Kazakhstan are the largest countries by territory and population in the EAEU. The states are connected by the longest border in the world, stretching more than 7.6 thousand km. This plays an important role in interregional cooperation in the system of foreign trade between Russia and Kazakhstan. For the last 30 years, our states have been connected by close economic relations.

In this article, we have examined the provisions of the currency legislation of the Republic of Kazakhstan that must be considered when working with a counterparty, as well as restrictions caused by sanctions against Russian companies.

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References

[1] Information-Legal System of Regulatory Legal Acts of the Republic of Kazakhstan of the Institute of Legislation and Legal Information of the Republic of Kazakhstan of the Ministry of Justice of the Republic of Kazakhstan.

[2] Ibid.

[3] Law of the Republic of Kazakhstan No. 43-VIII dated December 5, 2023, On the Republican Budget for 2024-2026. Information-Legal System of Regulatory Legal Acts of the Republic of Kazakhstan of the Institute of Legislation and Legal Information of the Republic of Kazakhstan of the Ministry of Justice of the Republic of Kazakhstan.

[4] Resolution of the Arbitration Court of the West Siberian District dated February 17, 2023, in case No. A03-3801/2022.

[5] Information-Legal System of Regulatory Legal Acts of the Republic of Kazakhstan of the Institute of Legislation and Legal Information of the Republic of Kazakhstan of the Ministry of Justice of the Republic of Kazakhstan.

[6] Kazakhstan stated forced compliance with EU and US sanctions. June 5, 2023, "Izvestia" website.

[7] U.S. Government Publishing Office website.

[8] Sanzhar Kaldarov. Secondary sanctions on Kazakhstan – what are the risks? HALYK FINANCE Analytical Center.

[9] Ibid.

[10] Ilya Lakstygal. July 26, 2024. Since 2022, almost 500 firms have been affected by US secondary sanctions for ties with Russia. VEDOMOSTI portal.

[11] Andreeva D. Another Kazakhstani company fell under US sanctions. October 31, 2024. Forbes Kazakhstan website.

[12] Ibid.

[13] Zagvozdkina E. Kazakhstan refused to "blindly follow" sanctions against Russia to the detriment of its interests. August 16, 2024. Forbes website.

[14] Kazakhstan did not establish additional requirements for banks after sanctions against MosExchange. June 17, 2024. INTERFAX website.

[15] Notification on compliance with sanctions regimes. Press release on the official Bank RBK website.

[16] Banks of Kazakhstan strengthened compliance to observe anti-Russian sanctions. April 26, 2023. Frank Media website.

[17] Information-Legal System of Regulatory Legal Acts of the Republic of Kazakhstan of the Institute of Legislation and Legal Information of the Republic of Kazakhstan of the Ministry of Justice of the Republic of Kazakhstan.

[18] General recommendations on interaction with persons – residents of jurisdictions having strategic deficiencies in the sphere of AML/CFT or subject to sanctions regimes (unilateral sanctions). Information from the National Bank of the Republic of Kazakhstan website.

[19] Ibid.

[20] NRA accounts in banks of Kazakhstan for settlements with China. Website of the Unified Registration Service of Kazakhstan for foreigners in Kazakhstan.

[21] Ibid.

[22] Ibid.