Currency Laws: Administrative Liability Changed

19.08.2020

Legal Update No 786

Bryan Cave Leighton Paisner LLP, formerly Goltsblat BLP in Russia, advises that Federal Law No. 218-FZ dated 20 July 2020 “On Amending Articles 3.5 and 15.25 of the Code of Administrative Offences of the Russian Federation” was published on 20 July 2020.  The Law comes into force on 31 July 2020.

The Law makes a number of significant amendments to the Russian Code of Administrative Offences (the CAO) concerning liability for currency offences.  Below is an overview of the amendments we believe to be the most important.

Changes to the Rules Governing Liability for Failure to Repatriate Foreign Currency Revenues

1. For the first time, individuals are indicated as a separate category of persons that may be held liable under Part 4, Article 15.25 of the CAO. The previous version of the rule established liability only for legal entities, corporate officials and sole traders. In this context, individuals providing, for example, loans or services to non-residents must ensure that such non-residents comply with their counter-obligations in order to avoid administrative liability.

2. Special rules on liability of professional participants in foreign trade to be introduced.

You might remember that, in December 2019, this category of residents was mentioned in the Russian currency legislation for the first time.

The status of professional participant in foreign trade might reduce the risk of being held liable for failure to repatriate foreign currency revenues under foreign trade contracts.

For instance, the sanctions under new Parts 4.2 and 5.2, Article 15.25 of the CAO covering only professional participants in foreign trade do not establish liability for delay in non-residents crediting (repatriating) foreign currency revenues under foreign trade contracts.

Liability is established only for actual failure to credit (repatriate) foreign currency revenues under such contracts. Professional participants in foreign trade, be they legal entities or sole traders, may be issued a warning or a fine ranging from 3 to 5 per cent of the uncredited (unrepatriated) funds and officials of corporate professional participants in foreign trade - a warning or a fine ranging from RUB 20,000 to 30,000.

Please note that with respect to provision of loans to non-residents, the position of professional participants in foreign trade does not differ from that of other residents.

Given the above, it should be borne in mind that the status of professional participant in foreign trade is subject to a company or sole trader being put on the relevant list of professional participants in foreign trade.

The procedure for maintaining the list, including the criteria for obtaining the relevant status, has already been developed by the Russian Ministry of Finance and is expected to be approved by the Russian Government in the very near future. The current draft of the document is available at the following link regulation.gov.ru.

3. Certain fines for failure to repatriate revenues have been reduced considerably.

Fines imposed on individuals, businesses and entrepreneurs for failure to credit foreign currency revenues will amount to 3-10 per cent of the uncredited funds, if the amount of the obligation under the foreign trade contract is denominated in Roubles and Roubles are indicated as the payment currency under the contract.

If funds are not credited under other foreign trade contracts or loan agreements, the fine for such persons will range from 5 to 30 per cent of the uncredited funds.

Under Part 5, Article 15.25 of the CAO, a similar ranking of fines is introduced for sole traders and legal entities if they fail to repatriate foreign currency revenues under foreign trade contracts.

At the same time, the procedure for calculating the administrative fines for delay in crediting (repatriating) foreign currency revenues remains the same: - one hundred and fiftieth of the key rate of the Russian Central Bank on the funds credited (repatriated) to the Russian Federation in breach of the set term for each day of delay in doing so.

In future, this could trigger paradoxes when failure to credit (repatriate) foreign currency revenues might be of more benefit to residents than any substantially delayed repatriation.

4. An insignificant delay (up to 45 days, inclusive) in crediting (repatriating) foreign currency revenues does not entail liability for failure to repatriate foreign currency revenues.

5. A similar term of 45 days is granted for a resident to eliminate its violations relating to making settlements under foreign trade contracts bypassing accounts with authorised banks in cases not specified in the currency legislation of the Russian Federation. The resident will not be held liable under Part 1 or Part 4, Article 15.25 of the CAO, if, within 45 days of the funds being credited to its account with a foreign bank, it remits the full amount to its account with the authorised bank. If part of the amount received is credited to an account with the authorised bank within the term specified, then only the funds remaining on the account with the foreign bank will constitute the subject matter of the offence.

6. The Russian CAO provisions on failure to repatriate are supplemented with offences. Liability is introduced for residents failing, within the established term, to discharge a duty relating to fulfilment or termination of obligations under a foreign trade contract with non-residents if the currency legislation allows foreign currency revenues not to be credited to accounts with authorised banks.

The sanction under the new rule provides for punishment in the form of a warning or a fine ranging from 5 to 30 per cent of the funds due to the resident from the non-resident for legal entities and entrepreneurs and a warning or a fine ranging from 20,000 to RUB 30,000 for corporate officials.

Liability Mitigated for Delay in Submitting Accounting and Reporting Statements on Foreign Currency Transactions and Supporting Documents

7. From now on, if the deadlines are not met for submitting accounting and reporting statements on foreign currency transactions (statements on supporting documents), supporting documents and information in relation to a foreign currency transactions, this constitutes an offence only if the delay exceeds 90 days.

Legal entities will be punished for the offence with a fine ranging from RUB 40,000 to RUB 50,000 and their officials - a fine ranging from RUB 4,000 to RUB 5,000.

Administrative Offence Rules Cover Residents’ Accounts with Foreign Financial Market Organisations

8. Residents will be held liable for conducting foreign currency transactions bypassing accounts with foreign financial market organisations other than banks if use of such accounts is provided for by the currency legislation of the Russian Federation. At the same time, liability is introduced for foreign currency transactions using funds unlawfully credited to accounts with such organisations. The standard sanction of a fine ranging from 75 to 100 per cent of the amount is stipulated for an unlawful foreign currency transaction in both cases.  If the offence is committed by an official, the fine will range from RUB 20,000 to RUB 30,000.

9. Control over use of residents’ accounts with foreign financial market organisations other than banks is also tightened. Failure to comply with the deadlines and/or manner for notifying tax authorities about opening or closing of such accounts and any changes in their details is also an offence now. The Russian CAO is also supplemented with provisions on liability for non-compliance with the procedure and deadlines for submitting cash flow reports on accounts with such organisations.

Recommendations

As the Law in general significantly mitigates the liability for violation of the currency legislation, many of its clauses will apply retrospectively. In this context, residents now subject to administrative offence proceedings may refer to the Law to have the proceedings initiated against them terminated or their liability mitigated. Equally, the Law may be invoked in challenging resolutions that have been passed in administrative offence cases but have not yet come into effect.

In contrast, the rules of the Law aggravating residents’ position must apply to foreign currency-related legal relations arising only after the Law comes into force.

Contact details

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