- The documents requested by banks have not been submitted;
- Invalid documents have been submitted.
- The following grounds will also apply from May 14, 2018:
- Residents are in breach of provisions on their obligations, transactions between themselves and use of accounts in foreign banks as set out in the currency regulation law;
- The documents submitted to the bank do not meet the requirements of the law.
Amendments to currency regulation law and Russian Administrative Code to enter into force on May 14, 201814 May, 2018
Article 19(1.1) as amended of Federal Law N 173-FZ On Currency Regulation and Currency Control entered into force on May 14, 2018 and provides that the parties to currency relations must now regulate and fulfill the conditions of the contracts between them more consistently.
Changes in the execution of transaction documents
Article 19 of Federal Law No. 173-FZ requires residents to specify in contracts entered into between residents and non-residents the time periods for performance of obligations by the parties to foreign trade contracts.
Elena Rybnikova, Head of Internal Audit, Expertise and Methodology Department, comments: “The cardinal difference between the old and new version of the law is that the parties to contracts must now determine a clear deadline, i.e. a specific date for fulfillment of their obligations. These deadlines must be passed on to banks rather than expected dates for receipt of money or transfer of what is performed under the contract as now.
Companies will also be required to notify their bank of the dates for return of advance payments to be transferred to non-residents.
This requirement is quite difficult to apply in real business situations as the dates for transfer of money vary from one to three (or more) days depending on the banks. It is therefore not always possible to set a specific date for work performance, and even force majeure such as system failure can also occur.”
Grounds for transaction suspension by banks
Banks may decline to carry out certain currency transactions if they are not in line with the new requirements of Federal Law No. 173-FZ, and this could make it more difficult for companies.
There are now two grounds for declining transactions:
Banks are to notify in writing that they decline a transaction, and this should be done no later than the next business day following the adoption of such decision.
It should also be noted that the penalties for breach of currency law requirements provided under the Russian Code of Administrative Offenses are quite high. In particular, a fine of 100% of unreceived revenues is provided for offenses related to the repatriation of monetary funds.
From May 14, 2018 onwards, company officers will be liable for:
- Unlawful currency transactions;
- Failure to comply with the requirements for repatriation of money for goods, work, services provided to a non-resident;
- Non-return of prepayment if the resident has not received goods, work, services.
Up until May 14, 2018 penalties for the violations listed above were provided only for legal entities and individual entrepreneurs.
Recommendations in view of new changes:
- We recommend reviewing currency contracts to determine the deadlines for fulfillment of obligations;
- We recommend specifying clear deadlines for work performance subject to force majeure circumstances;
- We recommend providing for gradual delivery also subject to some conditions to minimize the risk of claims from the Federal Tax Service, banks as well as the imposition of penalties.
We are ready and look forward to assisting you in reviewing your company’s currency contracts or providing any advice you may require.