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. Last Updated: 07/27/2016

New Curbs on Hard Currency

The Central Bank has clamped down on foreign companies' access to hard currency, barring foreign exchange withdrawals from bank accounts as well as hard currency salary payments to employees, bankers said Friday.

The Central Bank and Finance Ministry have also started asking banks to report any cash withdrawal above $10,000 to the tax office, bankers said.

The new restrictions came into effect on Oct. 1, but bankers said that the Central Bank has yet to announce them publicly.

"The Soviet Union is dead -- long live the Soviet Union," said a senior foreign banker. "These new rules amount to confiscation. They are an attack on liberalization and a huge step backwards on reforms," he said.

"The Central Bank should know that such clampdowns can only backfire."

Under the new rules, all hard currency withdrawals by foreign companies from Russian bank accounts are banned, except when they can produce documented evidence that the money is needed for business trips abroad, bankers said. Companies may continue making hard currency payments only from accounts held at foreign banks, bankers said.

Foreign firms in Russia are barred from paying salaries or compensation to Russian and non-Russian employees from accounts held at Russian banks, bankers said.

Lawyers have said that it is still unclear whether the Central Bank order bans all forms of hard currency payments, or only cash hard currency payments. "It's incredibly badly drafted," said one Western attorney.

It has long been illegal to pay Russian employees in foreign cash, but expatriates and the Russian staff of foreign representative offices have been allowed to receive hard currency wages.

Central Bank officials were not immediately available for comment.

Bankers said the crackdown on hard currency payments was one factor behind the surge in foreign exchange demand ahead of this week's crash of the ruble, which lost a quarter of its value Tuesday but has rebounded since on Central Bank intervention.

One banker calculated that as many as 200,000 Russians and foreigners worked for foreign companies in Moscow, each earning an average $1,000 or more a month.

"Since September, we're all being paid in rubles only," said a foreign treasurer at a joint venture Moscow bank.

"Our staff have been rushing to exchange offices to convert their salaries into dollars. All other firms must be doing the same." Bankers said the new Central Bank rules applied to all resident foreign companies, even if they have converted themselves into Russian joint stock company status.

They said foreign enterprises in Moscow were an important source of hard currency.

(Reuters, MT)