Currency regulation.

Russia abolished most currency restrictions from January 1, 2007.

The Law On currency regulation and currency control" No.173-FZ of June 29, 2004 abolishes most restrictions on currency transactions. However, the rules related to the control over and registration of the operations remain.

The earlier law "On currency regulation and currency control" of October 9, 1992 established a general prohibition on currency transactions. Residents could deal with currency values only when and in a manner prescribed by the law or the Central Bank rulings. Violation of currency regulation remained a criminal offence and could cause substantial fines. The breach of the rules could lead to a penalty of 100 per cent of revenues obtained under an illegal transaction. A bank involved in an illegal transaction could also be subjected to a penalty and even loose a bank licence. However, over the time the Central Bank authorised a wide range of currency transactions and currency legislation became more an administrative burden rather than a real impediment to international business.

The new law restricted the regulatory measures on certain 'transactions related to the movement of capital' to the requirement to make monetary reservations on the bank accounts or fulfil operations through special bank accounts. However, from the January 1, 2007 these restrictions have been abolished. Transactions between residents and non-residents can now be done freely.

However, an obligation to repatriate the revenues to the Russian bank account remains. The revenues must be paid in the Russian bank account within the period of time as established by the contract with a foreign counterpart. An important exemption for this rule is when the revenues are needed for repayment under the loan agreement with a person resident in a state, member of the Organization for Economic Co-operation and Development (OECD) or the Financial Action Task Force on Money Laundering (FATF). This provision includes the United States and most European countries but excludes 'tax havens'. It should be noted that failure to repatriate the foreign revenues remains a criminal offence.

Residents, both legal and individual persons, can open bank accounts abroad. No consent or prior registration is required. However, residents must inform the tax authorities of the foreign accounts within one month from opening the account. Residents can transfer money from their Russian banks into their foreign accounts freely. However, banks will require a confirmation that the tax authorities were informed about the foreign account.

Most currency transactions between a resident and a non-resident must be accounted for by the Russian party by means of submitting a 'passport of the deal', a document prepared for each contract, and a 'transaction statement', prepared for each incoming or outgoing payment. Forms of the documents are regulated by the Central Bank.