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. Last Updated: 07/27/2016

Hard Currency Traders Have a Hard Job Ahead

Rumors are flying again in Moscow that the government plans to ban all foreign currency transactions, in an attempt to stem the slide of the ruble. In fact, all foreign currency retail business becomes illegal as of April 1, except by retailers with new licenses from the Central Bank which are to be issued by that date.


The prohibition and the new licensing requirement come from Instruction No. 11 of the Central Bank, dated Jan. 20 but published more recently. It applies to all transactions between companies and individuals in Russia.


According to the instruction, licensed retailers may sell for foreign currency only foreign-made goods imported by the retailers themselves or Russian foreign trade organizations. In addition, the following services may be sold according to new licenses: hotel, bar and restaurant services, certain insurance, international travel and communications and educational exchanges.


The instruction continues the requirement in effect since November 1992 that any company selling for foreign currency must also sell the same goods and services for rubles, although the ruble price may be set by the seller without regard to any exchange rate.


There are some new features to the instruction. It specifies that payments by credit card must be cleared through Russian banks. Only licensed retailers that prove their capability of receiving cash payments may obtain the right to do so.


The new instruction also contains a provision that appears to have enormous significance for certain foreign businesses in Russia. Sales in Russia by "nonresidents" are forbidden except through bonded warehouses based on international agreements.


This provision would seem to prohibit business activities by branches of foreign companies which qualify as nonresidents according to an October 1992 law. Since the prohibition comes in a single provision of the instruction, it may not have been intended to be so significant.


The new instruction sets stiff penalties for violators. They may have their licenses canceled and bank accounts blocked from receiving deposits. They may have their illegal foreign currency receipts confiscated and, for repeat offenses, may have to pay fines up to five times the value of such receipts. Ultimately, retailers may be subjected to criminal charges.


With the ruble plummeting and the government responding by restricting foreign currency sales, doing business in Russia for any money is tough going.


Alexander Papachristou of White & Case has practiced law in Moscow for four years.