CURRENCY REGULATION IN THE RUSSIAN FEDERATION

GENERAL PROVISIONS

Currency Regulation in the Russian Federation, which until recently was founded on the principle that permits are required to perform a wide range of currency operations, underwent a certain amount of liberalisation with the entering into force on 18 June 2004 of the Federal Law On Currency Regulation and Currency Control #173-FZ of 10 December 2003 (hereinafter, the Law on Currency Regulation).
In general, currency operations between residents and non-residents may now be performed without restriction. Moreover, the currency control authorities are not permitted to require that residents and non-residents receive individual approval on the performance of certain currency operations, as was established by previous currency legislation.
The use of foreign currency in settlements in the Russian Federation is only permitted in the cases specified by law or in accordance with the procedure stipulated therein. Foreign citizens may exchange foreign currency for currency of the Russian Federation in special exchange offices.

GENERAL CONCEPTS OF RUSSIAN CURRENCY LEGISLATION

The Law on Currency Regulation establishes the following general concepts:
Residents for the purposes of currency law are (1) citizens of the Russian Federation, except those who are considered to be permanent residents of a foreign state in accordance with the legislation of that state; (2) foreign nationals and stateless individuals who are permanent residents of the Russian Federation on the basis of a Russian residency permit; (3) Russian legal entities, as well as their branches, representative offices and other subdivisions located outside the Russian Federation; (4) diplomatic representative offices, consular establishments and other official representative offices of the Russian Federation abroad, as well as permanent representative offices of the Russian Federation under the auspices of international and intergovernmental organisations; (5) the Russian Federation and its constituent subjects and municipal entities.
Non-residents for the purposes of currency law are (1) foreign nationals and stateless individuals (with the exception of those permanently resident in the Russian Federation on the basis of a Russian residence permit); (2) citizens of the Russian Federation who are considered to be permanent residents of a foreign state in accordance with the legislation of that state; (3) foreign legal entities and other organisations incorporated under the laws of a foreign state and located outside the Russian Federation, as well as Russian branches, permanent representative offices and other separate or independent subdivisions of such legal entities and organisations; (4) diplomatic representative offices accredited in the Russian Federation, consular establishments and permanent representative offices of foreign states under the auspices of international and intergovernmental organisations, as well as international and intergovernmental organisations, their branches and representative offices in the Russian Federation; (5) other individuals and entities not classified as residents.
Domestic securities are securities denominated in the currency of the Russian Federation, the issuance of which is registered in the Russian Federation, as well as other securities confirming the right to receive currency of the Russian Federation and issued in the Russian Federation.
Foreign securities are securities, including in undocumented form, which are not classified as domestic securities in accordance with currency legislation.
Currency valuables are foreign currency and foreign securities.
Currency operations are (1) the acquisition and alienation of currency valuables, as well as their use as a means of payment in settlements between residents; (2) the acquisition and alienation of currency valuables, currency of the Russian Federation and domestic securities, as well as their use as a means of payment in settlements between residents and non-residents; (3) the acquisition and alienation of currency valuables, currency of the Russian Federation and domestic securities, as well as their use as a means of payment in settlements between nonresidents; (4) the import and export of currency valuables, currency of the Russian Federation and domestic securities into and out of the customs territory of the Russian Federation; (5) the transfer of foreign currency, currency of the Russian Federation, domestic and foreign securities from an account outside the Russian Federation to an account of the same party in the Russian Federation and vice versa; (6) the transfer by nonresidents of currency of the Russian Federation, domestic and foreign securities from an account in the Russian Federation to another account in the Russian Federation.

CURRENCY OPERATIONS BETWEEN RESIDENTS AND NON-RESIDENTS

Methods of currency control
Currency legislation establishes that currency operations between residents and non-residents may be performed without restrictions, except for operations specifically stipulated in the Law on Currency Regulation.
In July 2006 the procedure for currency operations between residents and non-residents was significantly liberalized. The amendments to the Law on Currency Regulation take away the ability of the currency control authorities (the Government and the Central Bank of the Russian Federation (hereinafter, the CB RF)) to establish reservation requirements. Since the CB RF abolished all of its previous requirements on using special accounts from 1 July 2006, their use in performing currency operations is not currently mandatory.

CURRENCY OPERATIONS BETWEEN RESIDENTS. RESIDENTS' BANK ACCOUNTS

Currency operations between residents
Currency operations between residents are prohibited except in the cases specifically stipulated in the Law on Currency Regulation. The following types of currency operation may be performed between residents:
• operations between agents and principals when the former render services related to the conclusion and execution of contracts with non-residents on the transfer of goods, performance of work, rendering of services or the transfer of information or the results of intellectual activity, including the exclusive rights thereto;
• operations under contracts on freight forwarding, transportation and chartering when a freight forwarder, transporter or charterer renders services connected with the transportation of cargo imported into or exported out of the Russian Federation, transit transportation of cargo within Russia, as well as under insurance contracts for such cargo.
Certain currency operations between residents and authorised banks may also be performed without restrictions. For example:
• receipt and repayment of loans;
• deposit of monetary funds to bank accounts;
• operations connected with the provision of bank guarantees and the fulfillment of obligations by residents under surety and pledge agreements;
• acquisition by residents from authorised banks of promissory notes, their submission for payment, receipt of payment thereunder, as well as the alienation by residents of such promissory notes to authorised banks.
Residents' accounts with authorised banks in Russia
In accordance with the general rule, residents have the right to open foreign currency accounts with authorised banks without restrictions.
As a rule, settlements between resident legal entities when performing currency operations usually take place via accounts held with authorised banks.
Settlements between resident individuals when performing currency operations take place via accounts held with authorised banks, although the Law on Currency Regulation stipulates several exceptions. For example, when performing currency operations, resident individuals have the right to transfer out of Russia foreign currency or currency of the Russian Federation in an amount not exceeding the equivalent of USD 5,000 in the course of one day, without opening an account with an authorised bank. In addition, the purchase from or sale to an authorised bank by resident individuals of foreign currency cash and the exchange of foreign bank notes may also be performed not via bank accounts.
Residents may perform settlements via their bank accounts in any foreign currency.
Residents' bank accounts outside the Russian Federation
Residents must notify the appropriate state authorities at the place of their registration of opening and closing accounts (deposit accounts) in foreign banks. The notification must be performed in the format approved by the Federal Tax Service of the Russian Federation.

CURRENCY OPERATIONS BETWEEN NON-RESIDENTS

Non-residents have the right to transfer foreign currency to other non-residents from bank accounts outside the Russian Federation to bank accounts inside the Russian Federation held with authorised banks and vice versa without restrictions.
Non-residents have the right to transfer without restrictions foreign currency and the currency of the Russian Federation from their bank accounts held with banks outside the Russian Federation to their bank accounts held with authorised banks in the Russian Federation, as well as to transfer foreign currency from their bank accounts held with authorised banks in the Russian Federation to their bank accounts held with banks outside the Russian Federation.
Currency operations between non-residents in the Russian Federation in the currency of the Russian Federation must be performed via bank accounts opened in the Russian Federation. Non-residents in the Russian Federation are only entitled to open foreign currency accounts and accounts in the currency of the Russian Federation with authorised banks.
Currency operations between non-residents involving domestic securities in the Russian Federation must be performed in accordance with the requirements established by Russian antimonopoly legislation and legislation on the securities market.

REPATRIATION AND OBLIGATORY SALE OF A PORTION OF CURRENCY PROCEEDS. REQUIREMENT ON TRANSACTION PASSPORTS

The Law on Currency Regulation retains the requirement on repatriation by residents of foreign currency and currency of the Russian Federation when performing foreign trade activity, as well as the requirement on the compilation by residents of a transaction passport in an authorised bank when performing currency operations between residents and non-residents. Until 1 January 2007 it was possible to establish a requirement on the obligatory sale by residents of a portion of currency proceeds on the domestic currency market. However, such sale is not currently obligatory.
Repatriation of foreign currency and currency of the Russian Federation
The Law on Currency Regulation retains the requirement on 100% repatriation by residents of foreign currency and currency of the Russian Federation when performing foreign trade activity.
In accordance with the general rule, when performing foreign trade activity residents are obliged to ensure the receipt from non-residents, within the timeframe established by the relevant foreign trade contracts, of foreign currency or currency of the Russian Federation for the transfer of goods, performance of work, rendering of services, transfer of information or the results of intellectual activity, including exclusive rights thereto, on their bank accounts held with authorised banks. Residents are also obliged to ensure the receipt of reimbursements of monetary funds paid for goods not actually imported into the Russian Federation, work not actually performed, services not actually rendered, or information and the results of intellectual activity not actually transferred.
The Law on Currency Regulation also stipulates a closed list of exceptions when residents have the right not to post the foreign currency or currency of the Russian Federation to their accounts held with authorised banks of the Russian Federation.
Transaction passport
The CB RF establishes rules on the compilation by residents in authorised banks of transaction passports when performing currency operations between residents and non-residents.
Transaction passports must contain the information necessary to ensure the accurate accounting for and reporting on currency operations between residents and non-residents. This information is recorded in the transaction passport on the basis of the supporting documents in the residents' possession.
Transaction passports may be used by the currency control authorities and agents for the purposes of performing currency control.

LIABILITY FOR VIOLATION OF THE RULES FOR PERFORMING CURRENCY OPERATIONS

In connection with the adoption of the Law on Currency Regulation, definitions of new violations and measures for imposing liability for violations of currency legislation have been introduced to the Code on Administrative Violations of the Russian Federation.
The penalties for violations of currency legislation depend on the type of violation committed and can entail a large administrative fine (for example, from 75 to 100% of the amount involved in the illegal currency operation, or from RUB 500 to RUB 100,000).