Foreign exchange regulation

Operations with natural persons

Most of the Review concerns transactions with non-resident individuals. The Supreme Court of the RF restated that receiving cash in settlements with non-resident individuals for non-retail transactions constitutes an illegal currency transaction.

Case 1: A joint stock company (resident) sold a used KAMAZ vehicle to a foreign citizen (non-resident). Payments were made in cash.

Case 2: The company (resident) entered into an agreement as the seller for the purchase and sale of an apartment with a foreign citizen (non-resident) and received payment under the agreement in cash.

Chain of transactions

The Supreme Court of the RF confirmed the possibility of recharacterizing a chain of formally compliant transactions aimed at circumventing the law and imposing a fine based on an implied transaction (clause 3 of the Review).

Case: A resident organization issued an interest-free cash loan to a non-resident individual. Subsequently, the individual’s obligations to repay the loan were offset against the debt of the lending organization under the lease agreement to a foreign company on the basis of a tripartite agreement. The court confirmed the interpretation of these transactions as actual payment by a resident organization of rent to a non-resident in cash, which is prohibited by law.

Inaccurate documents

The Supreme Court of the RF focused on the fact that the submission of invalid or fictitious documents (including in situations where there is reason to believe that the real relationship between the parties differs from the declared one) is indicative of the illegality of the currency transaction being performed.

Case: A transfer of funds took place from a resident to a non-resident in payment for services whose provision was not documented, and there is reason to believe that the disputed services were performed by the resident himself.

Exemption from liability for non-repatriation of foreign currency

One of the factors taken into account when exempting a resident from liability for the repatriation of foreign currency is whether the resident has taken all measures within his power to return funds paid to a non-resident for goods not imported into the Russian Federation, including the possibility of pre-trial settlement of the dispute, going to court, etc. The inaction of a resident (for example, forgiveness of a debt to a non-resident in the form of an unreturned advance in the event of non-delivery of goods without attempting to ensure the return of this advance) will lead to administrative liability (clause 10 and clause 13 of the Review).

Case: The company sent letters to the embassies of the non-resident country and to the corresponding trade mission of the Russian Federation. The company filed a lawsuit and achieved a positive decision.

Statute of limitations

Once again, the Supreme Court of the RF confirmed that the statute of limitations is calculated from the date of the illegal currency transaction and not from the moment of its discovery. Noting that if the period for repayment of the advance payment is not established by the contract, but the delivery period has been established, the statute of limitations begins to run at the end of this period. (clauses 16 and 17 of the Review).

Key takeaways

• Scrutinize every transaction involving natural persons with particular regard to cash settlements
• Do not attempt to concoct “schemes” to transfer funds using questionable documents. Instead, structure the payments taking into account the current court practice. In most cases, there are legal methods available to solve your problems
• Act in good faith when requesting funds from foreign counterparties
• Upon receiving requests from a regulator, carefully examine the statute of limitations in your case