Currency restrictions imposed as part of the ‘counter-sanctions’ package

On 28 February 2022, the President of the Russian Federation signed an Order on Application of Special Economic Measures in Connection with the Unfriendly Actions of the United States of America and Foreign States and International Organisations which have sided with the United States (Order).

According to the preamble to the Order, the Order was adopted in connection with the actions of the US and other foreign states imposing restrictive measures against Russian citizens and legal entities.

Restrictive measures

The Order establishes the following restrictive measures:

Mandatory sale of foreign currency proceeds

Russia imposed a requirement on the mandatory sale of foreign currency proceeds of 80% of foreign currency credited to Russian residents' accounts with authorised banks under foreign trade contracts concluded with non-Russian residents for provision of goods, services and work to non-residents and for transfer of intellectual property to non-residents, including the exclusive rights to such property.

The mandatory sale of foreign currency proceeds must be carried out by the following deadlines:

• in respect of the foreign currency credited to the accounts of residents (participating in foreign economic operations) starting from 1 January 2022, within three working days after 28 February 2022; and
• in respect of the foreign currency credited to the accounts of residents (participating in foreign economic operations) on or after 28 February 2022, within three working days after the date of such receipt.

The procedure for the sale of foreign currency proceeds will be established by the Central Bank of the Russian Federation.

Restrictions on certain transactions

The Order prohibits the following transactions of Russian residents with effect from 1 March 2022:

• foreign currency transactions relating to provision of foreign currency by residents to non-residents under loan agreements; and
• residents crediting foreign currency to their accounts (deposits) with banks and other financial market institutions located outside the Russian Federation and making money transfers without opening a bank account using e-payment systems operated by foreign payment service providers.

A resident who performs such transactions in violation of the prohibition may be held administratively liable, which might lead to imposition of an administrative fine equal to between 75% and 100% of the amount of the illegal currency transaction or moneys transferred without opening a bank account using e-payment systems operated by foreign payment service providers.¹

In our view, "resident" in the Order means resident within the meaning of the Federal Law on Currency Regulation and Currency Control, including:

• individuals who are citizens of the Russian Federation;
• foreign nationals and stateless persons permanently residing in the Russian Federation under a residence permit provided under the laws of the Russian Federation; and
• legal entities established under Russian laws (except for foreign legal entities registered under the Federal Law On International Companies and International Foundations²) and the branches, representative offices and other subdivisions of such legal entities located outside of the Russian Federation.³

Relaxation of regulatory requirements on certain issues

The Order relaxes regulatory requirements on the following issues:

Buyback by a public joint-stock company of its outstanding shares

A public joint-stock company may, until 31 December 2022 inclusive, repurchase its outstanding shares (except for the repurchase of outstanding shares in order to reduce their total number) admitted to organised trading. The repurchase can take place if certain conditions are present, including if the weighted average price of the shares to be acquired (the value of the main stock market index calculated by the market operator) determined for any three months starting from 1 February 2022 has decreased by 20% or more compared to such weighted average price (the value of the main stock market index calculated by the market operator) for the three months starting from 1 January 2022.

Information on the repurchase by a public joint-stock company of its own shares doesn't have to be disclosed in the form of a statement of a material fact if so provided under a resolution of its board of directors or supervisory board on the repurchase of outstanding shares.

The Order contains a provision that certain provisions of Article 72 of the Federal Law on Joint-Stock Companies apply to the repurchase by a public joint-stock company of its outstanding shares.⁴ It appears unclear whether this implies that other provisions of Article 72 would not apply to such buybacks, for instance, the restriction on the buyback by the company of its shares if the nominal value of the company's outstanding shares will become less than 90% of the charter capital of the company.

Opening a bank account (deposit) without the individual's physical presence

The Order provides that credit institutions are entitled to open bank accounts/deposits for individuals without the need for them to be physically present in a situation where such individuals transfer funds from their bank accounts/deposits opened with one credit institution to another credit institution. This is possible if the credit institution that opens the new account/deposit is provided with the individual’s details established during their identification procedure.

We would be happy to advise you on how the provisions of this Order may affect your business.

¹ Clause 1 of article 15.25 of the Administrative Liability Code of the Russian Federation.

² Federal Law No. 290-FZ of 3 August 2018 "On International Companies and International Foundations" (as amended).

³ Subclause 6 of clause 1 of article 1 of Federal Law No. 173-FZ of 10 December 2003 "On Currency Regulation and Currency Control" (as amended).

⁴ Federal Law No. 208-FZ of 26 December 1995 "On Joint-Stock Companies" (as amended).