Exchange controls 3.0

On 18 March 2022 the Russian President signed a decree on additional economic measures that introduces new restrictions on currency transactions[1].

Specifically, the decree prohibits the following cross-border transactions from being consummated in 2022 without special permission from Russia’s Central Bank:

  • for a resident to pay for a participation interest, contribution or share in property (charter or share capital, or a co-op share fund) of a non-resident legal entity;
  • for a resident to make a contribution to a non-resident in performing a simple partnership agreement with investment in the form of capital investments (joint venture agreement).

The restrictions do not apply to instruments traded on the stock exchange. In our opinion, the decree also doesn’t prohibit the acquisition of participation interests and shares in foreign companies under sale and purchase agreements.

One of the key aspects of the new decree is the provision that allows sanctioned banks to forcibly convert their pre-sanction currency liabilities to Russian legal entities into roubles at the exchange rate on the transaction date. In other words, a sanctioned bank in its sole discretion can give a Russian company its deposit made in hard currency before 24 February 2022, for example, in the rouble equivalent when the deposit matures. However, that clause of the decree is worded very loosely and sanctioned banks could also use it for other foreign exchange transactions. For example, for transfers between a resident company’s currency accounts held with a sanctioned bank and a “clean” bank. Sanctioned banks will be able to exercise this right until 1 September 2022.

The decree also gives Russia’s Central Bank additional authority:

  •  to determine the size of permitted foreign exchange transactions with non-residents under certain types of contracts. The types of contracts restricted will be determined later;
  • to exempt residents from having to sell part of their foreign exchange earnings so the residents can fulfil their obligations to Russian banks under loan agreements, or to give them more time to sell the foreign exchange earnings;
  • to limit how much currency non-residents can buy on Russia’s domestic market.

The decree does not cancel the special economic measures introduced by the Russian President’s previous decrees.

[1] The Russian President’s Decree No. 126 “On additional temporary economic measures to ensure the financial stability of the Russian Federation in currency regulation” dated 18 March 2022.