Sanctions against Russia: frequently asked questions

11/05/2022


Sanctions against Russia: frequently asked questions
The EU and US have introduced various restrictive measures against Russia in response to the crisis in Ukraine. Legal environment regulating the situations is rapidly changing, causing multiple questions. Below we have summarized the practical experiences of our clients, foreign businesses operating in Russia, in the short question-answer form. The FAQ is constantly being updated to adapt to new changes and provide practical guidance and recommendations on risk mitigation. Stay updated for Sanctions. Examples. Solutions at our Telegram channel.

SANCTIONS

In general there are two different type of sanctions that apply to the banks:
Blocking sanctions - relate to prohibitions of transactions with property, as well as cooperation with persons from the sanctions-list. If a person or legal entity is included in the blocking sanctions-list, its property is blocked. Any transactions with persons included in the blocking sanctions list are prohibited (with some exceptions which are individually allowed by responsible authorities of sanctioning states). For the entire duration of the sanctions, funds are “frozen”.
Sectoral sanctions - are measures that are applied to organizations in certain sectors of the economy and restrict transactions with them. For example, US sectoral sanctions restrict access to borrowed funds and investments in Western markets, prohibit foreign companies from cooperating with Russian residents from the fuel and energy complex, exploration and production of hard-to-reach oil.
We recommend to check with your bank the current status of the restrictions on making settlements with certain bank.
Changes to the sanction’s lists are made on a regular basis, EU, USA, Canada, Japan, Australia and other countries have different lists of sanctioned banks, also different types of sanctions could be applied to same bank in different countries 
We recommend that you check with your bank the existing restrictions on making settlements with a certain Russian bank.

MARKET PRESENCE

The Russian market has always been and will continue to remain attractive for foreign producers, despite increased economic pressure from sanctions. The reason is the market’s dependence on foreign imports in a wide variety of industries. 
Examples of these include FMCG products, where in 2021 more than 75bn USD had been imported from abroad. Another example is the Russian mining industry, in which in some machinery categories, no domestically produced alternatives are available and henceforth 100% of the required machinery to ensure the industry’s operation is procured from foreign manufacturers.
A view back to the development after the introduction of sanctions in 2014 also demonstrates, that despite Russian countersanctions in the area of food stuff, foreign manufacturers of agricultural machinery and food processing were able to substantially participate in the lasting boom of Russia’s agricultural industry. 
We see that currently many companies officially declare suspension of business in Russia. In practice we expect that this suspension is a temporary one and many of these companies will resume their activities after several months under same brands or after structural changes in order to comply with applied sanctions or corporate policies. Moreover, Russian Government has already announced possible establishment of external management for such companies (law is not adopted yet) which might also lead to resuming or restructuring of the activities of such companies on the Russian market. SCHNEIDER GROUP offers various business solutions for companies in case they wish to suspend or restructure their operations (please see 7 scenarios for restructuring your business in Russia for more details).
At SCHNEIDER GROUP, we are able to advice every client on the best possible way to serve the market and guide our clients through every step of the way. This includes a comprehensive review of sanction risks, the counseling on structures to ensure unobstructed export to Russia, as well as a review and advice to guarantee the unhindered flow of capital across borders.

SWIFT

SWIFT is a monopolist global provider of secure financial messaging services. It is a member-owned cooperative company under Belgian law connecting more than 11,000 banks worldwide.
As Belgian company SWIFT has to comply with EU sanctions regulations to disconnect specific sanctioned banks. 

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.
Most probably, if a bank is completely disconnected from SWIFT, no exceptions shall apply. However, foreign mother companies will be able to use other options to transfer money, e.g. via non-sanctioned Russian banks using SWIFT, banks using alternative financial messaging services or third countries which did not impose sanctions. 

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.

We are prepared for actual and potential restrictions for foreign and Russian businesses and have a backup plan to receive and perform payments via bank accounts within our group in any currency that is allowed in a particular country, or using alternative bank accounts of our group. SCHNEIDER GROUP is also ready to support cash flow of our partners through agent agreements and via any office of the group. We also have an action plan available in case of worst-case scenario if Russia is fully disconnected from the SWIFT system.

FORCE MAJEURE

SHORT ANSWER: 
Russian courts decide on force majeure on case-by-case basis. In the past they were reluctant to recognize sanctions (especially foreign sanctions), financial crisis, exchange rate fluctuations and even military actions as force majeure. Embargoes can be recognized as force majeure only if they directly affect supply under an international trade agreement, otherwise Russian court might review whether relevant goods could be supplied from other countries not affected by embargo (e.g. China). In any case we recommend to check the force majeure provisions in the existing agreements and consider informing the counter parties of force majeure event even if the relevant event might be not later recognized as force majeure by Russian court. Each case should be reviewed and decided individually.

LONG ANSWER:
In accordance with Russian legislation a party to a contract is not liable for the breach of contractual obligations if it proves that non-execution or undue execution of these obligations was caused by circumstances of force majeure nature. 
There is no firm list of circumstances that are automatically considered as force majeure. Thus, each event must be assessed individually. Russian courts are rather reluctant to recognize sanctions and military conflicts as force majeure, unless such events directly affect the performance of a relevant contract (e.g. delivery of particular goods was prohibited due to express export or import ban).
Under Russian law, a circumstance can be treated as force majeure if it is simultaneously:
  • Extraordinary, and 
  • Inevitable in particular situation.
In each case the party affected by force majeure circumstances has to prove the occurrence and duration of such circumstances, as well as causal connection between obligations that the party is unable to fulfill and the event itself.
As force majeure cannot be recognized the breach of obligations by counterparties of the debtor, lack of necessary goods on the market as well as lack of money funds.
Direct mentioning of war or sanctions in a contract among the list of force majeure events is not binding for the court if the abovementioned criteria are not met.
For both military actions and sanctions a certificate on force majeure issued by the Russian Chamber of Commerce and Industry (“ICC”) can serve as an evidence in case of dispute. According to the Regulations of ICC on the issuance of such certificates both types of discussed events may be regarded as force majeure. However, practical application of such certificates is rather limited since ICC may only certify events that occur inside Russia. It is also important to mention that chambers of trade and commerce in some countries (including Germany) do not issue the certificates on force majeure.
In the past Russian courts were reluctant to recognize the financial crisis and significant exchange rate fluctuations as force majeure.
Russian courts might not consider Russian military actions as a “war” since it has not been officially declared. However, if in a particular situation a court recognizes that due to such military actions a party was unable to perform obligations, and that these events were extraordinary and inevitable, force-majeure may apply. Nevertheless, a party will not be exempt from liability if military actions did occur, but had no impact on the contract performance. 
In the past Russian courts have denied to recognize military actions in Russia (Chechnya) or in Donbas as force majeure. Here are some interesting cases:
1) In 2014 Russian company CJSC “Evalar” (company selling dietary supplements) has delivered goods to its customer LLC “BAD-Altaj” located in Donetsk, Ukraine. On 7 April 2014 the customer has informed CJSC “Evalar” that it is unable to pay for the delivered goods due to lack of money and force majeure events. As force majeure event the customer has indicated that on 7 April 2014 the National Security Counsil has declared the start of the counter-terrorist operation in Donetsk Region, where the customer was located. As a result of this notification CJSC “Evalar” has reduced the price for already delivered goods by 50% (additional agreement was concluded) and declared the outstanding 50% as non-recoverable debt. This declaration CJSC “Evalar” was challenged by Russian tax authorities. 
The case was finally resolved by the Russian Supreme Court. The court has stated that in this situation the military actions in Donetsk Region cannot be considered as force majeure for the following reasons: (i) the lack of money funds cannot be recognized as a force majeure event; (ii) the customer has moved its registered seat to Kiev in September 2014 and therefore the force majeure event has ceased to exist. The court has explicitly stated that existence of emergency state due to the military actions in Donetsk in April 2014 cannot be recognized as sufficient ground for declaring the debt as non-recoverable (1).

2) In 2005 Russian military unit in Dagestan transferred large amount of the fuel for storage to Russian agricultural company located in Dagestan, Russia.  Later as the depositor has claimed the fuel back from the custodian the latter has returned only part of the fuel. The custodian has explained that the remaining fuel was stolen during military actions in Dagestan. The court has decided that these circumstances do not release the custodian from liability for non-return of the fuel, as the custodian has not proven that it has taken all necessary reasonable measures to safeguard the fuel. Moreover, the defendant could not prove that the stolen fuel belonged to the depositor and not to the defendant or some third parties (which was probably impossible to prove, as the depositor’s fuel was not stored individually) (2).

3) In 1995-2000 one Russian state company delivered oil products to another Russian state company, both companies were located in Chechnya. The buyer failed to pay and claimed that for a long time it was located in Chechnya, its property was stolen and therefore, it was unable to pay for the delivered oil products. The court of first instance has decided that the buyer is obliged to repay the debt and interests for delayed payment despite of claimed force majeure circumstances. The court of second instance has not reviewed the application of law in this case. Finally the court of cassation instance has reversed the previous court judgements and sent the case back to the first instance. It has declared that the courts should re-consider the application of force majeure provisions to this case .

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(1) Ruling of the Supreme Court of the Russian Federation dated 18.01.2018 No. 304-КГ17-20561 in case No. А03-21154/2016.
(2) Resolution of the Arbitration Court of the North-Caucasian District dated 30.11.2005 No. F08-5709/2005.
(3) Resolution of Arbitration Court of the North-Caucasian District dated 19.11.2003 No. F08-3736/03 in case No. А18-1878/2002. 
Russian court practice is controversial and mostly depends on discretion of the judge and evidences provided. The most recent court cases tend not to regard sanctions as a force majeure event, unless such sanctions directly prevent the performance of a contract (e.g. delivery of some goods to Russia is banned). It is also important, that sanctions may be recognized as force majeure only with regard to the contract, which was directly affected and not with regard to the subsequent contracts. 
Embargoes can be recognized as force majeure if they directly affect the international trade contract. One of the examples is the delivery of goods by foreign supplier to Russian purchaser, which in its turn re-sells the goods to the Russian end-customer. In this case supply ban may be considered as force majeure only for the first contract between the foreign supplier and Russian purchaser, whereas for the second contract it is likely that sanctions would not be recognized as force majeure. For instance, Russian courts would examine whether the Russian purchaser was able to purchase similar goods in other countries, e.g. in China (4). Another example – if a foreign company decides to close its office in Russia due to sanctions imposed against Russia by the country where its mother company is located, this would be likely not recognized as force majeure or termination ground for a lease agreement (5).
Importantly, sanctions imposed by foreign states might not be recognized as force majeure by Russian courts in cases initiated against foreign companies. In contrast, Russian courts are likely to recognize sanctions imposed by the Russian Government as a force majeure event in a case against a Russian party to a contract. Furthermore, Russian courts (6) and antimonopoly authorities may even recognize the compliance of a Russian company with sanctions imposed by foreign states against Russia as violation of anti-monopoly law. In the past, Russian Parliament has even debated whether such compliance should be considered as administrative offence or even crime. Hopefully these debates will not be reopened.

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(4) Resolution of the Supreme Court dated 22.6.2018 No. 305-ES187696 in case No. A40-39224/2017; Resolution of the Supreme Court dated 20.8.2018 Nr. 307-ES1811373 in case No. А56-89542/2016.
(5) Resolution of the Supreme Arbitration Court dated 23.5.2017 No. 301ES16-18586 in case No. A39-5782/2015
(6) Resolution of the Arbitration Court of Moscow District dated 27.6.2018 No. F05-8233/2018.

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.


CURRENCY OPERATIONS

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.

The Russian currency residents are: 
  • Russian legal entities.
  • Russian citizens, 
  • Foreign citizens and stateless persons having permanent residence permit in Russia and 
Non-residents are all the rest entities and citizens (including representative offices and branches of foreign companies in Russia)
The currency residents are not to be mixed up with tax residents, for whom other criteria (in particular, duration of staying in Russia) apply. Please note, that foreign citizens of “unfriendly countries” having permanent residence permit in Russia, Russian legal entities having foreign shareholders, Russian citizens living abroad and some other persons having link to “unfriendly countries” may be in some cases treated as “non-residents” under new Russian restrictions. Each case should be reviewed individually.

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.

Loans granted to foreign companies:

According to the clarifications issued by the Central Bank of Russia on 02.03.2022 the payments in currency from the currency residents to the currency non-residents under both new and previously concluded loan / credit agreements are prohibited. 
On the other side payments in currency from the currency non-residents to the currency residents are allowed. This means that if a Russian company has earlier granted the loan to its mother company, then the mother company is allowed to repay such loan.

Loans received from foreign companies:

Russian residents are allowed to repay the received loan or interests in foreign currency, but some limitations were introduced: in case the amount of payment in respect of so-called “residents of unfriendly countries” exceeds 10 million RUB (or equivalent) per month the rest of the amount is allowed to be paid via special bank account (S-account) in RUB.

The banks are authorized to deny all currency operations which are prohibited under existing and newly adopted currency control rules.
Fines for violating the procedure for the mandatory sale of foreign currency earnings have not yet been announced. Regarding liability for carrying out prohibited transactions, we believe that fines for transactions involving money transfer to foreign accounts and loans to non-residents could range from 75% to 100% of the transaction amount for a legal entities, natural persons and individual entrepreneurs and from RUB 20,000 to RUB 30,000 for the managing employees of legal entities involved in the relevant transactions, as execution of the prohibited currency transactions could be considered as  an administrative offence.
Fines for violating the terms and procedures for the mandatory sale of foreign currency earnings are not currently provided for in the Code on Administrative Offences RF, but are likely to be introduced soon.  
There is no general prohibition for EU citizens to make payments towards Russian nationals holding a bank account in a Russian bank. It is however important to make sure that a payment does not breach other prohibitions, for instance that it is not in favour of a natural person or entity designated under Council Regulation No 269/2014, or does not serve to settle a transaction prohibited under Council Regulation No 833/2014. Receiving money for a deposit with an EU credit institution is only prohibited under the specific case laid down in Article 5(b)(1) of Council Regulation No 833/2014, whereby: “It shall be prohibited to accept any deposits from Russian nationals or natural persons residing in Russia, or legal persons, entities or bodies established in Russia, if the total value of deposits of the natural or legal person, entity or body per credit institution exceeds 100 000 EUR.” This prohibition to accept deposits does not apply when the person making the deposit is a national of a Member State, a country member of the European Economic Area or Switzerland, or a person having a temporary or permanent resident permit in one of these countries (Article 5b(2)). Deposits with EU credit institutions which are necessary for non-prohibited cross border trade in goods and services between the Union and Russia are also allowed, even if they come from Russian nationals or natural persons residing in Russia, or legal persons, entities or bodies established in Russia (Article 5b(3)).

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.

For the consideration of the term “personal use” as provided in Article 5i, the determining factor is the non-commercial nature. The objective of the prohibition to export banknotes denominated in any official currency of a Member State to Russia is to prevent the Russian Government, its Central Bank and natural or legal persons in Russia to get access to banknotes denominated in any official currency of a Member State. Furthermore, the exception cannot be used to bring cash to acquaintances, friends or parents, because the exception is limited to those travelling. It should cover the necessities of natural persons or members of their family during their trip.

EXPORT TO RUSSIA

There is no official joint list of all goods banned for export to Russia from the EU, USA or other countries. The company shall check the relevant lists published for each exporting country. Thankfully, in most of them the HS Codes (TNVED codes) are provided, which makes the check of your products against these lists easier. Some goods are subject to restrictions only if their prices exceed particular thresholds. For example, export restrictions for clothing apply only to wholesale price above USD 1,000 (from the USA) or EUR 300 (from the EU) per unit.
There is also a list of embargoed dual-use goods. There are no HS Codes in this list, only the names of the groups of goods and products. If your goods can be considered dual-use goods, we recommend consulting with local import specialists. If the goods are/may be considered dual use goods, but are not exported for military purposes, the exporter needs to address the local competent authority for confirmation and export authorization. If your products are affected, unfortunately, longer customs clearance or even possible export refusal should be taken into account.

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.

We have information that some companies face the same issue. We recommend clarifying the reason for refusal with the customs post and alternatively try to export via other customs posts. Some customs posts may have more or less strict approach to those goods that are not directly prohibited for export but, for example, could be considered dual-usage goods.
As previously used common logistics routes and carriers may not be available now, we assume that the companies and individuals can expect increase in transportation costs and overall delivery terms until the situation is settled and/or alternative routes are worked out. We can share our practical knowledge of logistics alternatives which could be useful in your case.

EXPORT FROM RUSSIA

There are currently three Governmental Regulations No. 311, 312, and 313 which restrict or ban the export of particular goods from Russia. All of them contain HS Codes (TNVED Codes). We recommend checking your goods by TNVED Codes in these lists and also pay attention to the list of exemptions in these Governmental Regulations (for example, some goods are still allowed for export to the EAEU but prohibited for export to “unfriendly countries”, some goods require special export permit). Each case should be reviewed individually.

DOCUMENTS DELIVERIES

Air transportation corridors between Russia and Europe are mutually closed. That has direct impact on the shipment of documents and parcels that are arranged by express-freight forwarding companies. Currently, the only option of sending documents to Russia is by local post. Deutsche Post confirmed that they ship documents; however, the delivery time is longer than usual. In Russia you can send documents to partners in the EU by DHL.
For other directions, the general recommendation is to postpone the exchange of documents originals for some time and temporary replace them with scanned copies. It is important to mention that for the customs clearance purposes no originals are required since the process is arranged in electronic form.
About SCHNEIDER GROUP

SCHNEIDER GROUP has been helping businesses to expand to new geographical markets since 2003, offering a full range of business support services: from developing strategy for successful market-entry to helping arrange or optimize accounting, reporting and financial planning processes and establishing efficient IT infrastructures.

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