Guilty or Not Guilty?

Aleksei Vinokurov
Director of Kirov office
Yakovlev & Partners

Business activity levels of Russian participants in foreign economic activity have recently increased due to the development of civilian traffic and the liberalization of legislation in the sphere of foreign trade.

At the same time, the provisions of the existing currency legislation still place constraints on the development of this sphere, since they contain certain restrictions and prescriptions in the form of “public-legal duties,” including the repatriation of income from foreign economic transactions.

Nonperformance of contract obligations by counteragents (partners) is the most typical kind of entrepreneurship risk and can rarely be predicted. However, besides economic effects of nonperformance such as losses and nonreceipt of profit, entrepreneurs inevitably face the administrative and legal effects of counteragents failing to execute their obligations under foreign economic agreements.

The above administrative and legal effects may manifest themselves in the economic subject (whether legal entity or individual entrepreneur) being held administratively liable for the resident’s failure to execute in the required period its obligations to receive foreign currency or rubles on its accounts with the authorized banks, for goods or works delivered to nonresidents, services rendered to nonresidents, or for information or intellectual property being communicated, including exclusive rights to intellectual property (Part 4, Article 15.25 of the Administrative Code).

Taking into account that the Administrative Code provides quite severe sanctions for this offense — fines range from three-quarters to the whole of the amount that is not received from the counteragent — such entrepreneurship risks are huge, and so under the existing currency legislation, participants in foreign economic activities should be conscious of such risks and try to avoid them so as not to become currency law breakers “by accident.”

Proceeding from the existing judicial practice, the following measures taken in due time may ensure that resident entrepreneurs are not guilty of committing administrative offence (Part 4, Article 15.25 of the Administrative Code):

At the Pre-Contract Stage:

• establish the reliability and business reputation of the foreign partner through chambers of commerce, trade missions and official bodies in its country of residence;

At the Contract Stage:

• provide a way in the contract to guarantee performance of obligations, depending on reliability and business reputation of the partner (bank guarantee, penalty, surety, pledge, advance, deposit and so on);

• apply calculations in the contract that exclude the risk of nonperformance of contract obligations by the counteragent;

• develop a mechanism for settling any disputes, specifying the possible period of pretrial defense of the infringed rights and the preferred judicial body for settling any eventual disputes;

• use commercial risk insurance;

After Nonperformance or Improper Performance of Obligations by Counteragent:

• conduct claim work, correspond with the foreign party regarding the infringement of contract obligations, state the claim;

• after reply to claim or expiry of the term for reply to claim, file a case with the relevant judicial body demanding the amount due from the partner.

Whether the measures taken have been sufficient will be considered by the court in each specific case with account of all circumstances of the case. It should be noted here that there are two possible directions that judicial practice on this issue can take.

In a number of cases, even the use of measures to exclude or hugely decrease the risk of counteragents not performing their contract obligations is not considered by judicial bodies as sufficient reason for recognizing a resident legal entity as not guilty of committing an administrative offense.

To summarize, we would recommend participants in foreign economic activities to be more legally aware and to not be afraid to challenge the actions of fiscal bodies in connection with administrative liability. Besides that, it is worth being extremely attentive in observing dates set in the contract, preparing additional agreements to go with the foreign economic contracts, if needed, and re-executing the passports of foreign economic deals in case of changing their data.

We also think it is worthwhile to specify the date of payment in the foreign economic contract, which may be set both at the date of write-off of funds from the payer’s account or at the date of crediting the receiver’s settlement (transit) account. The exact specification of the date is especially important for settlements with nonresidents who have bank accounts with banks in countries known for their traditionally long-term remittance procedure. Besides, if under conclusion of a foreign economic agreement the term of payment or import of goods coincides with holidays or weekends, one should specify whether these holidays or weekends are included in the term of payment or not, also bearing in mind that nonresidents may have public holidays that do not coincide with the dates mentioned in the Russian Federation labor legislation.