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Currency controls: the new rules for dealing with banks

Victor Petrov, Head of Litigation practice

Ilya Shengeliya, Project manager Southern directorate

In November 2017, two regulatory acts were published that made significant adjustments to the mechanisms for banks to control hard currency. The first one is Guideline Manual No. 181-И, issued by the Bank of Russia (the Central Bank), that must be followed starting January 1st, 2018 to record and furnish reporting on operations with hard currency[1] (hereinafter Manual No. 181-И). The Manual is supposed to loosen currency controls by decreasing the burden borne by residents. The second act has the opposite effect, and is geared toward tightening currency controls. This is Federal Law No. 325-FZ, which, when it enters into force on May 14th, 2018, will make it easier for banks to respond to any violations of currency law, and draws distinctions between the types of administrative liability in this area[2].    

The main changes in reporting

The most noticeable new change is that starting on January 1st, 2018 there will be no need to file a currency transaction report form. Instead of that, banks will register contracts. However, in essence, this is just a cosmetic change. Currency controls will not disappear, and it is just that the reporting documentation will be recorded differently - the bank, instead of the resident, will register the information needed for recordkeeping. 

In order to do this, it is enough to present a contract (or an extract from one) and some other information necessary to register the statements for internal control to the bank. Export contracts can be registered solely on the basis of information that is contained in them, even though later on the document itself has to be provided to the bank.   

Starting in 2018, it will also be unnecessary to record a currency transaction report form and give it to the bank. The letter of verification used to confirm documents that is called for under existing regulations will be used as a unified form for recording and reporting purposes – the only thing that will change is its format.

A novelty that is more significant and expected is raising the hard-currency liability's threshold over which a contract must be registered. The threshold will only be raised for export transactions, and will be 6 million rubles – that is the equivalent of approximately double what the current threshold is now, the one that needs to be reached before recording a currency transaction report form becomes mandatory (the equivalent of 50,000 USD).

For contract involving imports and credit agreements, the threshold will remain more or less the same – three million rubles, which is almost 50,000 USD at the current exchange rate.

The changes will also affect transactions where currency control will be accomplished in accordance with simplified procedures, without the necessity to provide documents to the bank that have to do with performing hard-currency operations. According to Manual No. 181-И, agreements between residents and non-residents will be categorized this way if the price of the liability under them does not exceed 200,000 rubles, which is three times more than the current threshold of 1,000 USD at the current exchange rate. For these kinds of transactions, when transferring foreign currency to the resident's transit currency account, or deducting foreign currency from the settlement account, just providing the bank with information about the code for the type of operation will be sufficient.

Positive sides

Manual No. 181-И will decrease the kinds of grounds that can be used to impose administrative penalties on a resident. Since starting on January 1st, 2018 banks will start the recordkeeping procedures, a resident just needs to furnish all the necessary documents on time. The negative consequences linked to mistakes that are overlooked when the currency transaction report form is recorded will no longer arise.

The raise in the threshold for liability under transactions that will be overseen in accordance with simplified procedures will allow saving time and money across a much wider range of operations than is now possible.

In addition, it will be possible to go through the official procedures that are associated with registering the transaction more swiftly. According to current rules, the bank has three days to accept the transaction report form for processing and register it. According to Manual No. 181-И, the bank is mandated to register the transaction no later than on the work day following the day when the resident provides the documents necessary to do this.

All of this should enhance the speed with which residents can perform commercial activities that involve other countries.

The consequences for violations

Manual No. 181-И does not spell out the grounds that the bank can use to refuse to register a contract. If a resident provides all of the necessary documents, the bank is obligated to register the transaction and issue statements for internal control.

This does not mean that the banks will lose their ability to oppose unlawful hard-currency operations. At present, if the resident furnishes truthful documents, the bank can refuse to perform the hard-currency operation only if suspicion arises that the operation is being done to legalize criminal funds or finance terrorism[3].

However, on May 14th, 2018 the Federal Law 325-FZ will empower banks to block a hard-currency operation if it violates the provisions in currency regulatory acts. Also, the bank can reject a hard-currency operation if it is given documents that do not comply with legislative requirements.

As one of those requirements, Federal Law 325-FZ establishes that agreements signed as part of transnational trade between a resident and a non-resident must, stating May 14th, 2018 specify the time frames for the parties to fulfill their responsibilities. Non-compliance with this requirement will be considered testimony that the transnational transaction is not formalized[4].

Besides that, Federal Law 325-FZ makes amendments to the Russian Federation Code of Administrative Offenses that will permit imposing administrative liability on company officials for illegal hard-currency operations or violations in the procedures for repatriating funds. The amount of the administrative penalty for them will be from 20,000 to 30,000 rubles. A repeat violation of the requirements for hard currency will result in disqualification for the company official[5].

Transitional period

Currency transaction report forms that clients do not manage to close out before January 1st, 2018 will automatically close, even if the bank does not mark off that it was closed, and the relevant contracts will be registered in accordance with Manual No. 181-И.

The same will happen with a contract where the bank does not manage to make up its mind by January 1st, 2018 whether to issue a currency transaction report form: the contract will be registered under the new rules on the basis of documents that have already been received, and the resident will not have to go to the bank again.

Letters of verification concerning confirmation documents and any materials attached to them which the bank fails to check until January 1st, 2018 will not be given back if it turns out that they suffice for the bank to accept them in accordance with the new laws. 

This means that starting on January 1st, 2018 Manual No. 181-И will be applied to all transactions and hard-currency operations.  

[1] Guideline Manual No. 181-И, issued by the Bank of Russia on August 16, 2017 “On the Procedure for the Presentation of Supporting Documents and Information by Residents and Non-Residents to Authorized Banks When Carrying Out Currency Operations, and Concerning the Unified Forms for the Recording and Reporting of Currency Operations and the Procedure and Time Limits for Submitting Them” // “Bank of Russia Bulletin”, No. 96-97, dated November 16, 2017.

[2] Federal Law No. 325-FZ “Concerning the Introduction of Amendments to Articles 19 and 23 of Federal Law “On Currency Regulation and Currency Control” and Code Of Administrative Offences Of The Russian Federation” dated November 14, 2017 (Law No. 325-FZ).

[3] See  Section 5, Article 23 of Federal Law No. 173-FZ dated December 10th, 2003 “On currency regulations and currency control” in the version that existed up to January 1st, 2018, as well as Clause 11, Article 7 of Federal Law No. 115-FZ dated August 7th, 2001 “On opposing the legalization (laundering) of funds received by criminal behavior, and financial terrorism” .

[4] See Clause 1, Article 432 of the Russian Federation Civil Code.

[5] See Sections 1, 4, 4.1, 5, and 5.1 in Article 15.25 in the Russian Federation Code of Administrative Offenses in the version of the Law No. 325-FZ.

VEGAS LEX_Валютный контроль_новые правила взаимодействия с банками_11.2017

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