Which transactions are considered prohibited?
Under Decree 1:
Foreign exchange transactions related to the provision by residents to non-residents of foreign currency under loan agreements;
Crediting of foreign currency by residents to their accounts (deposits) opened with banks and other financial market organizations located outside the territory of the Russian Federation, as well as transfers of funds without opening a bank account using electronic means of payment provided by foreign payment service providers;
Under Decree 2:
Transactions involving the extension of loans and borrowings in rubles to persons of foreign states carrying out unfriendly actions;
Transactions that give rise to ownership rights in securities and real estate, carried out with persons of foreign states carrying out unfriendly actions;
Export of cash foreign currency and foreign-currency monetary instruments in an amount exceeding the equivalent of USD 10,000, calculated at the official exchange rate of the Central Bank of the Russian Federation established on the date of export.
Which states are considered unfriendly?
The list of unfriendly states has not been published to date.
According to unofficial information, such states include: Austria, Australia, Albania, Anguilla, Belgium, Bulgaria, the British Virgin Islands, the United Kingdom, Hungary, Germany, Gibraltar, Greece, Denmark, Jersey, Ireland, Iceland, Spain, Italy, Canada, Cyprus, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Singapore, Slovakia, Slovenia, the USA, Taiwan, Finland, France, Croatia, the Czech Republic, Sweden, Switzerland, Estonia, and Japan.
Who is recognized as a person of foreign states carrying out unfriendly actions for the purposes of Decree 2?
Persons holding the citizenship of such states;
Persons whose place of registration, principal place of business, or principal place of profit-making is in unfriendly states;
Persons controlled by the above-mentioned persons, regardless of their nationality.
Procedure for foreign exchange transactions under loan agreements with non-residents:
Do the restrictions on granting loans in foreign currency to non-residents established by Decree 1 apply only to residents of unfriendly states?
No. Decree 1 prohibits granting loans to all non-residents, regardless of whether such persons are recognized as residents of unfriendly states.
Under the Currency Regulation Law, non-residents include the following persons:
individuals who are not residents, i.e. Russian citizens and persons holding a residence permit in the Russian Federation;
legal entities established under the laws of foreign states and located outside the territory of the Russian Federation;
organizations that are not legal entities, established under the laws of foreign states and located outside the territory of the Russian Federation, etc.
May I extend a loan to my controlled foreign company in foreign currency or in rubles?
Granting loans in foreign currency to non-residents is prohibited.
Granting a loan in rubles is permitted if the controlled foreign company does not fall within the definition of a person associated with unfriendly states. However, such a prohibition does not apply if the transaction is carried out on the basis of a permit issued by the Government Commission for Control over Foreign Investments in the Russian Federation (hereinafter, the Permit).
If I previously granted a loan to a non-resident (before 1 March 2022), may I receive funds from the non-resident as repayment of the loan or interest on such loan?
Foreign exchange transactions involving the receipt by residents of foreign currency in the performance by non-residents of their obligations under loan agreements previously granted by residents to non-residents are not restricted (including repayment of the loan by non-residents, payment by non-residents of interest and/or penalties under such loan). This position is confirmed by clarifications issued by the Central Bank of the Russian Federation and published on the official website of the CBR.
If I entered into a loan agreement with a non-resident as lender in February 2022, but under the terms of the agreement the funds may be transferred in March, is such a transaction permitted?
The transfer of foreign currency to a non-resident in performance of effective loan agreements concluded before 1 March of the current year must be terminated immediately. This position is confirmed by clarifications issued by the Central Bank of the Russian Federation.
May I extend a loan or credit in rubles to a citizen of an unfriendly state?
As a general rule, such a transaction may be carried out only on the basis of the Permit.
Restrictions on crediting funds to accounts opened with foreign banks:
May I transfer foreign currency from my account in a Russian/foreign bank to my account in a foreign bank?
No, such a transaction is prohibited under Decree 1.
May I credit Russian rubles to my foreign account and then convert them into foreign currency?
We believe that such a transaction will be considered crediting foreign currency to a foreign account, and therefore such a transaction will also be deemed prohibited.
May I credit Russian rubles to my foreign account?
The Decree does not provide for restrictions on such a transaction; the transaction is permitted.
If I receive funds from a non-resident to my account with a foreign bank, will such a transaction be considered prohibited?
The Decree does not establish new restrictions on the crediting of funds from non-residents. The current restrictions are provided for in Article 12 of the Currency Regulation Law. Given that Decree 1 is aimed at preventing capital outflow from the Russian Federation, in our view, the transaction should be considered permitted. No clarifications on this issue are available at present.
Separately, we note that there is a view in the professional community that the prohibition applies to all credits of foreign currency to a resident’s foreign account, including from non-residents.
May I credit foreign currency to an account with a bank located in a state not included in the list of "unfriendly" states (for example, in the CIS)?
The text of Decree 1 does not provide exceptions for such states. Such a transaction will also be considered prohibited.
Am I obliged to transfer foreign currency from accounts with a foreign bank to an account with a Russian bank?
The text of Decree 1 does not impose such obligations.
May I use foreign currency as a means of payment in transactions with non-residents, i.e. credit funds to a non-resident’s account with a foreign bank?
The text of Decree 1 does not provide restrictions on such transfers. The transaction is permitted. This position is confirmed by clarifications issued by the Central Bank of the Russian Federation.
May I transfer securities from a Russian depository to a foreign depository?
The text of the Decree does not provide restrictions on such transfers. At the same time, restrictions may be imposed by the state in which the relevant bank is located.
Restrictions on foreign exchange transactions in connection with transactions involving real estate and securities with persons associated with unfriendly states:
May I sell securities or real estate to a person recognized as a person associated with an unfriendly state?
Transactions that give rise to ownership rights in securities or real estate, carried out with persons of foreign states carrying out unfriendly actions, are prohibited, except where the Permit has been obtained. The prohibition applies both to transactions for the sale and for the acquisition of securities or real estate.
Do the restrictions on transactions involving securities apply to both external and internal securities?
Decree 2 does not specify the type of securities. Accordingly, the restrictions apply to transactions involving both external and internal securities.
Does this prohibition apply to the sale of real estate located in the territory of the Russian Federation?
Decree 2 does not specify the location of the real estate. Accordingly, transactions involving any real estate, regardless of its location, may fall within the restrictions.
May I purchase (sell) securities or real estate from/to a citizen of a state that is not considered unfriendly?
This is permitted without obtaining the Permit, provided that the following conditions are met:
The seller/buyer is not a person controlled by a person from an unfriendly state (for example, is not a relative or an affiliated person);
The counterparty to the transaction acquired the real estate/securities after 22 February 2022 from persons of foreign states carrying out unfriendly actions.
May I gift securities to persons of foreign states carrying out unfriendly actions?
No, because such a transaction results in the acquisition of ownership rights by a person of a foreign state carrying out unfriendly actions.
What liability is предусмотрена for unlawful transactions involving real estate and securities?
We are awaiting clarifications from the regulatory authorities.
General questions:
If I am outside the Russian Federation for more than 183 days a year, do these restrictions apply to me?
A literal interpretation of the Decrees suggests that the prohibition applies to all Russian foreign exchange residents regardless of the length of their stay in the Russian Federation. Until the relevant clarifications are issued, we recommend complying with the established restrictions.
What sanctions apply if I carry out an unlawful foreign exchange transaction under Decree 1 and Decree 2?
The Decrees of the President of the Russian Federation of 28 February and 1 March do not contain separate provisions governing liability for unlawful foreign exchange transactions. Liability must be expressly provided for by the federal laws of the Russian Federation, in particular the Code of Administrative Offences of the Russian Federation. At present, however, the Code of Administrative Offences contains a general rule on liability for violations of Russian currency legislation, under which the fine for unlawful foreign exchange transactions is 75-100% of the transaction amount (Article 15.25 of the Code of Administrative Offences of the Russian Federation). We expect additional clarifications from the regulatory authorities.
In connection with the current situation, new foreign exchange restrictions may be introduced.
We recommend monitoring changes on the official portals of the public authorities of the Russian Federation.
The information provided in this alert does not constitute professional advice.
