New currency restrictions for residents. Analysis of the Decree of the President of the Russian Federation dated 28.02.2022

Decree of the President of the Russian Federation No. 79 dated 02/28/2022 "On the application of special economic measures in connection with the unfriendly actions of the United States of America and foreign States and international organizations that have joined them" (hereinafter referred to as the Decree), which entered into force on March 1, 2022, provides for a number of currency restrictions for residents of the Russian Federation.

Special attention should be paid to paragraph 3 of the Decree. In accordance with it , from March 1, 2022, foreign currency residents of the Russian Federation are prohibited:

• To carry out currency transactions related to the provision of foreign currency in favor of non-residents under loan agreements;
• To enroll foreign currency to their accounts (deposits) opened in located outside the territory of the Russian Federation, banks and other organizations of the financial market, and also to carry out money transfers without opening a Bank account using electronic means of payment provided by a foreign payment service providers.

What will these restrictions lead in practice to?

Prior to the adoption of the Decree, one of the ways to finance foreign organizations (CFC) for most controlled entities was to issue a loan to their company/foreign structure, naturally, in foreign currency. Due to the introduction of new currency restrictions, this method is directly prohibited. However, the issue of issuing a loan not in foreign currency, but, for example, in securities, remains open. The decree does not contain any prohibitions in this part.

Analyzing paragraph b) of paragraph 3 of the Decree, it should be noted that now foreign currency residents of the Russian Federation are prohibited from crediting foreign currency to their accounts (deposits) opened in banks or other financial market organizations outside the territory of the Russian Federation. In other words, if a foreign currency resident of the Russian Federation, citizen A, has a foreign currency account in a Russian bank, and also has an account, for example, in a Swiss bank, from March 1, 2022, he is prohibited from transferring foreign currency to his Swiss account from a Russian account. Moreover, if citizen A has an account, in addition to Switzerland, and in Austria, the transfer of foreign currency from one account to another is also prohibited.

At the same time, the Decree does not contain any restrictions on ruble accounts. We believe that the ban does not apply to the transfer of Russian rubles to a foreign bank account. Also, the Decree does not prohibit reverse crediting, that is, crediting currency from a foreign account to a Russian account.

In conclusion, it should be recalled that according to the Russian law on currency control, all citizens of the Russian Federation who have a Russian passport are recognized as currency residents of the Russian Federation, regardless of the possible presence of a second citizenship.