Sanctions against Russia: frequently asked questions

On 02.03.2022 the Council of the European Union has published its decision 2022/346, which was actually adopted already on 01.03.2022. The following Russian banks and their subsidiaries were cut off from SWIFT:

• Bank Otkritie
• Novikombank
• Promsvyazbank Bank
• AKB Rossiya
• Sovcombank
• VNESHECONOMBANK (VEB.RF)
• VTB BANK’.

The experts cannot rule out that this list may be extended in the future.

Cutting off from SWIFT does not paralyze money transfers within Russia since it has a national alternative to SWIFT – System of Transfer of Financial Messages (“SPFS”). Most of Russian banks are already connected to it.

As to international money transfers, banks which are not able to use SWIFT anymore, will be able to use other means of communication (e.g., e-mail, telex communication, etc.) provided that the banks involved in money transfers on both sides agree on such alternatives. Using such alternative means of communication shall significantly delay the duration of payment operations in comparison to using SWIFT and might lead to the  increase  of bank fees.

In addition, international banks might not be willing to use outdated means of communication and refuse to conduct money transfers if they involve Russian banks disconnected from SWIFT.

Each case conducting payments via banks which are cut off from SWIFT and fall under sanctions must be assessed in terms of potential liability for the breach of sanctions. In case of doubt it is advisable to switch to alternative non-sanctioned banks.

It must be noted that certain banks are connected to SPFS outside Russia:

SPFS connections outside Russia which provides an alternative in situations when it is not possible to use SWIFT anymore:

• Switzerland: Gazprombank (Switzerland) AG
• Kazakhstan: АО «Subsidiary Bank «Alfa-Bank» (Kazakhstan), DO AO Bank VTB
• Belarus: 27 local banks
• Armenia: 2 local banks

The most feasible option shall depend on the corporate structure of both sides to an agreement, and on the available bank accounts.

In general, following solutions can be recommended:

• Switching to a non-sanctioned bank which is not disconnected from SWIFT
• Switching to one of the banks which are connected to SPFS or other financial messaging systems
• Payment to a bank account of the payment recipient in a third country (e.g., Kazakhstan, Armenia)
• Payment via agents which have working bank accounts
• If the current set-up does not work, switching bank accounts shall require amendment of commercial agreements.

Starting from 02.03.2022 it is prohibited to sell, supply, transfer or export euro denominated banknotes to Russia or to any natural or legal person, entity or body in Russia, including the government and the Central Bank of Russia, or for use in Russia. Exception is made only for natural persons travelling to Russia or members of their families if they buy euro banknotes for personal use.

Similar restrictions were adopted by the U.S. Government starting from 11.03.2022.

On 08.04.2022, the EU also prohibited the sale of banknotes and transferrable securities denominated in any official currencies of the EU member states to Russia and Belarus, or to any natural person or legal entity or body in Russia and Belarus.

This is possible, but a foreign company is obliged to complete registration with Russian tax authorities prior to opening of a bank account in Russia.

• Extraordinary, and 
• Inevitable in particular situation.

Generally, the main regulations on entry of foreign nationals into the Russian Federation remain the same, for instance: Federal Law on the rules of exit and entry to Russia (Federal Law No. 114-FZ) and Government Decree on the temporary entry restrictions to Russia during the COVID-19 pandemic (Government Decree No 635-р).

The Russian government has suspended the simplified procedure for issuing visas to particular groups of citizens of the “unfriendly” countries starting from 04.04.2022 (politicians, diplomats, and journalists). Other restrictions can be adopted for particular persons or groups of persons, but currently there are not any announcements in this regard.

 According to the Russian Federal Air Transport Agency (Rosaviation), flights of air carriers from the EU countries, Great Britain, the USA and Canada have been restricted.

On the other hand, all restrictions previously introduced due to COVID-19 on regular and charter flights between Russia and 52 states were lifted from 09.04.2022. The list of countries includes China, India, Mexico, the South African Republic, and others.

In practice, there may be difficulties with border officials (FSB) at checkpoints when crossing borders by land transport. Therefore, we recommend that you check the border situation before you travel to Russia.

The Central Bank of Russia has issued several decisions on  limitations of advance payments for agreements between Russian residents and foreign residents.

The amount of advance payment is limited to 30% of the contractual price for the service agreements (except for the financial services and insurance / reinsurance contracts) and agreements related to IP rights, if the contractual price exceeds USD 15,000 or its equivalent as of the date of entering into the contract, as well as for the contractor agreements. 

The amounts of advance payments under other contracts are not limited. In particular, the Central Bank of Russia has specified that the following contracts are exempted from limitations:

• Service agreements under USD 15,000;
• License agreements under USD 15,000;
• Insurance contracts;
• Freight-forwarding, transportation or logistics service agreements;
• Supply agreements for any goods;
• Provision of tourism services (including accommodation and transportation);
• Provision of repair, installation, and dismantling services outside the territory of the Russian Federation;
• Provision of maintenance and operation services for buildings and facilities (including utilities);
• Payment of advances for participation in international exhibitions, fairs, congresses:
  • For residents from "friendly" countries on any contracts
  • For residents of “unfriendly” countries if the event takes place in a "friendly" country. For example, there is a 30% limit when paying an advance to a US counterparty for an EU exhibition. If we pay in advance for the exhibition to an EU counterparty, and the exhibition takes place in Serbia, it is possible to make full prepayment.

From 10.03.2022 till 10.09.2022 Russian legal entities and individual entrepreneurs can buy currency in cash for foreign business trips limited to USD 5,000 (USD, EUR, GBP, JPY). No limits for other currencies are established.

Non-resident legal entities from “unfriendly” countries are prohibited from buying foreign currency in Russia. This restriction applies also to the representative offices and branches of foreign companies as well as foreign legal entities with accounts in Russia. Also, these entities may not transfer money from their accounts in Russia abroad until 1 October 2022.

All payments of dividends on valuable securities (ценные бумаги) of Russian joint-stock companies to their foreign shareholders are currently suspended.

With regard to Russian limited liability companies, the following should be considered:

The Russian Government has declared bankruptcy moratorium for all Russian legal entities starting from 01.04.2022 till 01.10.2022 upon creditors’ application (this means that self-application on bankruptcy is still allowed).

Profit distribution or dividends payment of any Russian legal entity is prohibited for this period. If your company wishes to distribute the profit or pay dividends till 01.10.2022, it should make the public announcement in the state information system Fedresurs on waiving the application of bankruptcy moratorium. Should the company make payments on profit distribution or dividends without such publication, the payments can be declined by Russian banks which are authorized to check the relevant publications.

Decree №254 of 04.05.2022 establishes a temporary procedure for profit distribution for those LLCs controlled by legal entities and individuals from "unfriendly" countries.

It is similar to the procedure of repayment of loans to “unfriendly” countries. For payments exceeding RUB 10 million per month or its equivalent at the exchange rate on the first day of the month, settlement through the special "C" account is required. Settlements in such an account can only be done in roubles, and the money can only be used by a foreign company for a number of purposes, such as paying taxes, bank commissions, buying federal loan bonds, etc.

The Decree provides that it is possible to apply to the Ministry of Finance for special permission and not follow the temporary procedure, but we believe that in practice it will be extremely difficult to obtain such permission.

We cannot not exclude the possibility that some banks will apply an expansive interpretation and require the "C" account for transfers of less than RUB 10 million per month, which would require additional negotiations with the bank.

• Russian legal entities.
• Russian citizens, 
• Foreign citizens and stateless persons having permanent residence permit in Russia and 

The Russian currency residents engaged into foreign economic operations (i.e. Russian legal entities) must sell (convert into RUB) 80% of all foreign currency received under all foreign trade contracts obtained as a result of payment for goods, works and services in the period from 01.01.2022 to 28.02.2022, by 03.03.2022 inclusive. Then starting 01.03.2022 80% of all the currency received for goods, services or intellectual property sale should be converted into RUB within three working days as well.

The obligation on mandatory sale of currency does not apply to representative offices or branches of the foreign legal entities.

From 19.04.2022 to 01.09.2022, companies-exporters have had the deadline for selling revenues increased from 3 to 60 working days. Although the Central Bank of the Russian Federation has not officially specified which exporters are subject to this easing, in practice some banks apply the extension only to foreign trade contracts for the supply of certain goods under the TN VED lists.

It is advisable to clarify the bank's position in advance if it is planned to sell the revenues within more than 3 business days.

The companies are allowed to apply to the Central Bank of Russia in order to delay or in certain rare cases avoid foreign currency sale.

The obligation on mandatory sale of currency does not apply to representative offices or branches of the foreign legal entities.

According to the clarifications issued by the Central Bank of Russia on 02.03.2022, the currency can be sold in parts, but in any case, the whole amount must be sold within three, and from 19.04.2022 in some cases within 60, business days. The currency must be sold at the market exchange rate. The obligation to sell the currency applies to all types of foreign currency (not just EUR or USD).

The 80% of the currency to be sold should be calculated by the legal entities by themselves from the amount of the balance of the foreign currency located on its bank accounts (including transit currency accounts, settlement accounts, deposit accounts) as of 28.02.2022 and received from the export activities from 01.01.2022 till 28.02.2022. The legal entity must provide to its bank confirmation that the relevant amount is the balance of the export income (in particular, by bank account excerpts).

The above clarifications contain discrepancy to the original text of the Order of the President No. 79 dated 28.02.2022 which has established the mandatory sale of the currency. According to the Order, the whole export income and not just balance thereof remained on the accounts must be sold. We tend rather to follow the clarifications of the Central Bank, as they appear reasonable and were already submitted to all banks. However, we cannot rule out that new clarifications may follow or that some banks interpret the Presidential Decree differently.

Since 16.04.2022, the Central Bank of Russia has allowed residents participating in foreign economic activities to reduce the mandatory sale of 80% of revenues in foreign currency by the following expenditures and other payments to execute foreign trade contracts:

• payment of transport, insurance, and freight forwarding fees;
• payment of customs duties and charges;
• payment for the purchase of food, fuel and lubricants (bunker fuel), logistical supplies and other goods for the operation, maintenance and repair of transport en route or at intermediate stops (parking points) outside the Russian Federation;
• payment for international telecommunication services, including international roaming.

We believe that the clarification refers to expenses that a company incurs also in foreign currency.

However, the Central Bank of Russia has not clarified how to calculate the amount of expenses by which the obligation to sell revenues in foreign currency can be reduced. It is not clear for which period and under which contracts the expenses can be considered.

We recommend that you check with your bank how to calculate the amount of expenses that can be deducted from the revenue sales obligation.

Starting from 1 March 2022, the Russian currency residents – legal entities are prohibited to transfer currency to their accounts in the banks located outside of Russia. There is no information whether the restrictions concern obtaining payments for goods, services or loans on foreign bank accounts in currency. We recommend taking a conservative approach and avoiding debiting currency on foreign accounts.

Moreover, the Russian currency residents are prohibited to provide loans in currency to non-residents. Current currency loans can be paid without obstacles.

Starting from 2 March 2022, the export of cash foreign currency from the Russian Federation is limited to the amount of 10,000 USD or its equivalent at the exchange rate on the date of export.

Russian citizens are also restricted in the cash amounts in foreign currency which they can take from their bank accounts. Currently Russian citizens are allowed to take only up to 10 thousand USD or EUR equivalent (from 11.04.2022), regardless the original currency of their bank account (this amount applies to the whole period till 9 September 2022, and is valid only to the currency which was already accumulated on the settlement bank accounts prior to 9 March 2022). All amounts above 10 thousand USD or EUR equivalent (from 11.04.2022) could be withdrawn only in RUB. This restriction will be valid till 9 September 2022.

Starting from 14 March 2022, Russian currency residents (individuals) are allowed:

• to transfer foreign currency from one foreign bank to another foreign bank if these accounts were disclosed to Russian tax authorities and were opened before March 1, 2022.
• to receive salary, rent payments, interests and some other payments in foreign currency on their foreign accounts but only from non-residents.  Each case of salary payment should be reviewed individually by labour law experts.

Starting from 31.03.2022, the Central Bank of the Russian Federation set up for the next 6 months  new thresholds on the sums of transfers from accounts in the RF to foreign accounts.

Based on this order, we conclude that there are no restrictions on money transfer abroad from the accounts of non-resident legal entities from friendly countries. This information was also orally confirmed by representatives of some banks.

Below are the restrictions imposed by the Central Bank’s order:

1. The following natural persons:

• Residents
• Non-residents from the "unfriendly" countries working in Russia under an employment or civil law contract
• Non-residents from the countries that do not support sanctions
• are allowed to transfer funds outside the RF to their own accounts or to other natural persons abroad with the following restrictions:
• not more than USD 10,000 (or equivalent) per calendar month, if the transfer is made from the natural person’s personal account in a Russian bank;
• not more than USD 5,000 (or equivalent) per calendar month, if the transfer is made without opening an account.

2. The following non-residents:

• Natural persons from the "unfriendly" countries and not working in Russia
• Legal entities from the "unfriendly" countries

will not be able to transfer funds outside the Russian Federation (with or without opening an account) for the next 6 months.

In addition, from 18.04.2022, the Bank of Russia resumes the opportunity for banks to sell cash foreign currency to Russian citizens, but only those amounts which have been received by banks since April 9, 2022.

The Russian government has established the list of so-called “residents of unfriendly countries” which include legal entities established in or linked to the countries that have introduced sanctions against the Russian Federation, as well as with the natural persons having citizenship or residency in such countries and with any persons considered to be under control of such countries, irrespective of their place of residence or place of primary business activities.

Link to the country means having place of residence, place of primary business activities or place of primary generation of profit).

This means, in particular, that the restrictions would also apply to Russian LLCs or non-profit organizations whose founders are incorporated in the US or the EU.

Starting from March 2, 2022 operations with “residents of unfriendly countries”  are limited.

The following operations with the above mentioned “residents of unfriendly countries”  and in some cases with foreigners from “neutral” or “friendly” countries are subject to the prior special permission of the Government Commission on Control of Foreign Investments in Russia:

• Any transactions related to granting loans or credits in RUB;
• Any transactions related to transfer of ownership to securities or real estate (it is not clearly defined, whether it relates to purchase or sale of the securities and real estate, in our view both types of transactions are affected);

The Commission exists since 2008 and is headed by the Prime-Minister Mischustin. The exact procedure on issuance of the above mentioned permits as well as the list of required documents have been already established.

The above mentioned transactions with securities made on the organized on-exchange trading are subject to permit of the Central Bank of Russia.

According to the recent explanations of Russian real estate registration authority (Rosreestr) and the Commission at least following issues were clarified:

• It is not necessary to include in the real estate agreements any special wording containing representation about absence of “foreign element”.
• Individuals having double-citizenship (Russian and citizenship of “unfriendly countries”) will be treated as Russian citizens for purposes of application of the above mentioned restrictions and therefore, do not need special permit for entering into real estate transactions.
• Russian residents are allowed to sell real estate to residents from unfriendly countries.
• Russian residents are allowed to purchase real estate from residents from unfriendly countries. The amount of transaction should be paid to a special type “S” account according to the rules defined in the presidential Decree #95 from  05.03.2022.
• Russian residents are also allowed to conclude agreements on new build construction financed by the future property owners with residents from unfriendly countries and execute their obligations on such agreements.

Each case should be reviewed individually.

Any other wire transfer transactions, which are not directly prohibited or limited, are still possible.

The below listed transactions require approval of the Central Bank of Russia:

• Postponement of the deadline for the compulsory sale of currency. Although the range of applicants is not limited, we believe that in practice there is a very high probability of rejection of such applications. In addition, it is quite difficult to justify the need for a postponement, as well as to calculate the effect of its granting and the change in exchange rates within two weeks.
• Exemption from obligation to perform a compulsory sale of foreign currency. This exemption can be applied only in case when a company has a loan in a foreign currency issued by a Russian bank. Thus, this exemption could be very useful, if the revenues received by a company were planned to be used to repay foreign currency liabilities. However, it is rather unlikely that the Central Bank of Russia will approve such exemption.
• Payment of a non-resident's share, contribution to property / charter capital. This applies to situations where a Russian company plans to establish or buy out an interest in a foreign company.  It should be noted that there is no ban on setting up of a foreign company abroad for the time being, but there is a ban on financing such companies.

An application for such approval must be submitted at least 10 working days before the transaction is executed or the currency is credited to the account.

The applicant submits an extensive package of documents with a notarised translation of the documents in a foreign language. The Central Bank has to decide on the refusal or approval within a period not exceeding 10 working days from receipt of the application. The approval may be withdrawn at any time.

We need to distinguish the regulations (orders) of the EU or the USA which prohibit export of certain goods to Russia from those regulations (orders) which impose sanctions on certain individuals and companies.

Thus, the following questions should be reviewed in advance:

• Are the goods to be exported to Russia subject to embargo (export prohibition)?
• Are any transactions with the Russian customer and/or its beneficial owner still allowed?

Our experts offer quick checks regarding the lists of the goods which are prohibited for export and regarding sanctions check of the Russian companies and their beneficial owners. You may also ask your Russian partners to provide information on their beneficial owners.

In any case an advance review is recommended in order to avoid possible delays or refusals of transport and customs procedures.