New Federal Law Requires Repatriation of Loan Agreement Funds
Legal update No 635
Bryan Cave Leighton Paisner (Russia) LLP advises that Federal Law No. 64-FZ1(the Law) was published on 03 April 2018 and will come into effect on 14 April 2018.
1. The Law introduces new currency regulation and control requirements for residents.
From now on, residents will have to make sure that foreign and Russian currency owed to them by non-residents under loan agreements is credited to their bank accounts with authorised banks.
This means that funds extended as loans to non-residents and the interest on them will have to be repatriated.
So far, the repatriation rules have only applied to foreign trade contracts.
Residents are now also required to provide the authorised banks with information about the times non-residents are expected to repay loans under the terms of the relevant contracts.
The list of cases when residents are free not to repatriate foreign or Russian currency to their accounts with authorised banks has, at the same time, been extended.
In particular, repatriation is not required when counter-claims of the same nature under loan agreements between a resident and a non-resident are offset, providing that the counter-claim results from a loan to the resident credited to its account with an authorised bank.
Another amendment applies to the condition when residents are deemed to have fulfilled their repatriation obligation in connection with business and (or) political risk insurance payments from the Russian Agency for Export Credit and Investment Insurance. From now on, payments under an agreement insuring against non-residents failing to fulfil their foreign trade or loan agreement obligations must be credited to the resident’s bank accounts with authorised banks and (or) bank accounts in authorised banks held by a resident beneficiary under such an insurance contract. In turn, authorised banks acting as currency control agents gain the right to ask for the given insurance contracts and other related documents when performing currency operations.
2. Introduced alongside the amendments to the currency legislation is administrative liability of residents for breaching the repatriation requirements associated with loan agreements concluded with non-residents.
If a resident does not, by the set deadline, fulfil its obligation to ensure that foreign or Russian currency owed it under a loan agreement is received into its bank accounts with authorised banks, it will be held administratively liable2.
Currently, this requirement applies only to legal entities and sole traders.
The relevant fine is calculated as 1/150 of the Bank of Russia refinancing rate, for each day of delay, on the funds not credited on time to accounts with authorised banks and (or) as 75 to 100% of the funds not credited at all to such accounts.
Looking forward, 14 May 2018 will see another law3 coming into effect that changes the rules governing liability for breaching the currency legislation.
In particular, under part 4, article 15.25 of the CAO RF, not only legal entities but also CEOs and other employees fulfilling executive or administrative and commercial functions will be held administratively liable.
The relevant fine will be from RUB 20-30,000, plus they may be disqualified for from six months to three years by a general jurisdiction court ruling if they repeat their offence.
14 May 2018 will also see a new procedure come in for calculating fines on legal entities and sole traders under the same article of the Administrative Offence Code. No longer the Bank of Russia refinancing rate but its key rate will be used for determining the percentage applied for calculating fines (on sums not credited or not returned on time to accounts with authorised banks).
3. The Law’s transitional clauses provide that it will not apply to loan agreements concluded before the Law comes into effect, apart from ones including essential terms changed after this date.
We see this clause as potentially giving rise to disputes between residents and currency control bodies concerning how essential the terms of loan agreements actually are and requiring assessment of the risk of breaching the currency legislation when any amendments are made to existing agreements.
1 “On Amending the Federal Law ‘On Currency Regulations and Currency Control’ and article 15.25 of the Code of Administrative Offences of the Russian Federation”.
2Under part 4, article 15.25 of the Code of Administrative Offences of the Russian Federation (CAO RF).
3 Federal Law No. 325-FZ of 14.11.2017 “On Amending Articles 19 and 23 of the Federal Law ‘On Currency Regulations and Currency Control’ and the Code of Administrative Offences of the Russian Federation”.
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