Immigration legislation amendments

The immigration legislation amendments have come into force in August 2013. These amendments were introduced by Federal Law No. 224-FZ dated 23 July 2013 and by Federal Law No. 207-FZ dated 23 July 2013 and concern strengthening liability for violating the immigration legislation, entering the territory of Russia, issuing permit for temporarily and permanent residence.

AMENDMENTS TO THE CODE OF ADMINISTRATIVE OFFENCES OF THE RUSSIAN FEDERATION

1. Liability has been added for failure to notify the competent authorities on employment of foreign citizens in the prescribed procedure and (or) format. Previously, liability was imposed only for failing to notify the competent authorities, whereas untimely notification was not considered an offence. Since 9 August 2013, it is also an administrative offence to violate the notification procedure and (or) format. In other words, an employer may now also be subject to administrative liability for not submitting the notification in a timely fashion.

2. Article 18.15 is supplemented by part 5, making employers liable for failing to notify the competent authorities of employment of highly qualified specialists (hereafter "HQS") or to do so in the prescribed procedure and (or) format.

3. Article 18.8 is supplemented by a new part establishing liability combined with mandatory expulsion from the Russian Federation for foreign citizens and stateless persons who commit specified offences.

4. Federal Law No. 207-FZ sets special, enhanced liability for the specified offences if committed in Moscow, St Petersburg, the Moscow Region or the Leningrad Region.

AMENDMENTS TO FEDERAL LAW NO. 114-FZ “ON THE PROCEDURE FOR DEPARTURE FROM AND ENTRY INTO THE RUSSIAN FEDERATION”

1. The aim of the amendments is to clarify the grounds on which entry by foreign citizens and stateless persons into the Russian Federation is forbidden or may be refused.

2. Entry may be refused if the foreign citizen was held administratively liable in the Russian Federation repeatedly (twice or more) during the previous three years. The given three-year period runs from the date when the last act on administrative liability came into force.

3. The amendments also establish the grounds on which entry by foreign citizens and stateless persons into the Russian Federation is forbidden.

AMENDMENTS TO FEDERAL LAW NO. 115-FZ “ON THE LEGAL STATUS OF FOREIGN CITIZENS IN THE RUSSIAN FEDERATION

Federal Law No. 224-FZ broadens and clarifies the list of grounds on which foreign citizens may be denied a permits to temporarily or permanent residence or previously issued permits cancelled

AMENDMENTS TO THE URBAN DEVELOPMENT CODE OF THE RUSSIAN FEDERATION

Federal Law No. 207-FZ amends Article 55.7 of the Urban Development Code, which is important for construction companies: the law sets additional grounds for terminating membership in a self-regulatory organisation (hereinafter – SRO). For instance, if a company is prosecuted repeatedly, in the course of a year, for violating the immigration legislation, this constitutes independent ground for terminating its membership of an SRO.

The Integral Real Estate Complex as a New Type of Real Estate and Other Amendments to the Regulation of the Subject-matter of Civil Law Rights

Federal Law of 2 July 2013 No. 142-FZ “On Amending Subsection 3, Section I of the First Part of the Civil Code of the Russian Federation” has been adopted (the “Law”).

1. The Law introduces a new type of real estate: the integral real estate complex (new Article 133.1 of the Russian Civil Code). It is defined as a set of buildings, structures and other properties that serve the same purpose and are physically or technologically inseparable, including linear facilities (railways, electricity transmission lines, pipe-lines, etc.) or are located on the same land plot, provided that the title thereto is registered in the Realty Register (EGRP) by specifying this entire set of properties as a single piece of real estate. Moreover, the integral real estate complex should also be treated as indivisible real estate.

This legal development is primarily aimed at simplifying turnover of various infrastructure facilities (for instance, energy, transport, communications, utility facilities, etc.) and classifying them as real estate. These facilities may consist of a number of various properties, both movable and immovable, and previously it was only possible to register rights to each piece of real estate constituting part of such facilities but not to a facility as a whole.

The success of the new concept of the integral real estate complex will mostly depend on the harmonisation and quality of other immediately affected legislative provisions. A number of amendments will be required to the law on state registration of real estate rights and transactions, the law on the state real estate cadastre, the land and town-planning legislation, the rules for maintaining the Realty Register and various other laws and regulations. Following introduction of the integral real estate complex, a relevant draft law on amendments to certain legislative acts has been submitted to the State Duma for consideration.

2. The Law introduces the presumption that products, benefits and profits derived from things should belong to their owners, unless the law, the contract or the nature of the relations determines otherwise. Previously, the general rule was that persons using things legally were considered to be the owners of the products, benefits and profits gained.

3. The Law excludes work from the subject-matter of civil rights and it now specifies that only work products, not work itself, should be treated as the subject-matter of civil rights. As for services, the Law clarifies, in contrast, that it is the process of rendering services that constitutes the subject-matter of civil rights.

4. The Law also provides clarifications on the legal treatment of indivisible things and refers to securities and their types by establishing requirements on certificated and non-certificated securities. It also refers to intangibles and their protection, as well as to protection of personal privacy.

Federal Law No. 142-FZ comes into force from 1 October 2013.

Recent developments in the Russian legislation affecting operations of banks and other financial institution

The Federal Law No. 134 “On Amending Certain Legislative Acts of the Russian Federation on Combating Illegal Financial Transactions” dated 28 June 2013 and Federal Law No. 146 “On Amending Certain Legislative Acts of the Russian Federation” dated 2 July 2013 have been recently enacted.

These Laws introduce a significant number of amendments to several Russian legislative acts, including the Russian Civil, Tax, Administrative and Criminal Codes, the Federal Laws "On the Central Bank," "On Banks and Banking Activity", "On the Securities Market", "On Countering the Legalization (Laundering) of Proceeds from Crime and Terrorism Financing" and others.

These amendments affect the regulations on anti-money laundering and prevention of terrorism financing, as well as the rules for the establishment and operation of banks and other financial institutions in the Russian Federation. The new rules imposed by these laws enter into force during 2013 - 2015.

Below there is an overview of some of the most important of these amendments.

I. Federal Law No. 134-FZ "On Amending Certain Legislative Acts of the Russian Federation on Combating Illegal Financial Transactions" dated 28 June 2013

1. Bank accounts and client transactions

Amendments to Article 859 of the Civil Code allow the bank to terminate a bank account (deposit) agreement on the grounds stipulated by law by serving a 60-day advance termination notice on the customer. Immediately when such a termination notice is served, almost all operations on the customer's account may be suspended (except for interest accruals and certain tax and similar payments). If after the 60-day period the funds in the account remain unclaimed, the bank will be required to transfer them to a special account with the Russian Central Bank.

Amendments to Article 7 of Federal Law No. 115-FZ "On Countering the Legalization (Laundering) of Proceeds from Crime and Terrorism Financing " set out the grounds for such termination of a bank account (deposit) agreement by the bank (where during a calendar year the bank refused to execute two or more of the customer’s transactions on the grounds specified in the Law) and allow the bank to refuse to enter into a bank account (deposit) agreement with a customer if, in accordance with its  internal control (AML) rules, the bank suspects that the account may be used for money laundering or to finance terrorism.

Banks (and other organizations engaged in transactions with cash or other assets) may refuse to execute a customer’s transaction if the customer fails to provide requested documentation, or if according to the internal control (AML) rules of such organization the transaction may be regarded as suspicious. At the same time, in a number of cases the bank (or such other organization) is obliged to suspend a transaction for a period of up to two business days until a decision is received from the authorized government body for the financial transaction monitoring. This applies, for example, to transactions where at least one of the parties has been subjected to actions under the AML legislation.

Banks are required within one business day to document and report to the authorized government body all cases of bank account agreement terminations, refusals to enter into a bank account agreement and refusals to execute customers’ transactions. 

The above amendments entered into force on 30 June 2013.

2. Information on customer bank accounts and transactions

Amendments to Article 26 of the Federal Law No. 17-FZ "On Banks and Banking Activity" and Article 86 of the Tax Code require banks to report to the tax authorities information on the opening or closing of bank accounts (deposits), a change of account details of its customers, including individual customers (natural persons), as well as information on the granting or termination of the right to use corporate electronic means of payment for companies or sole entrepreneurs.

Information on bank accounts (deposits), fund balances and customer transactions, including individual customers, may be provided by banks to the tax authorities in accordance with the procedure established by tax legislation. At the same time, information on bank accounts (deposits), fund balances and transactions of individual customers, may be requested by a particular office of the  Tax Service only with the consent of its supervisory Tax Service office or the head (or deputy head) of the Federal Tax Service of Russia.

Tax authorities may request information on bank accounts (deposits), fund balances and customer transactions, including individual customers, on the basis of a request from an authorized government body of a foreign State in cases provided for in international treaties of the Russian Federation.

The above amendments to the Tax Code will enter into force as of 1 July 2014.

Information on bank accounts (deposits), fund balances and customer transactions, including individual customers, may be provided by banks to criminal investigation authorities only pursuant to a court order. In accordance with amendments to Article 11 of Federal Law No. 144-FZ "On Operational Investigative Activities" information obtained in the course of investigation activities may be passed on to the tax authorities.

3. Amendments to the Federal Law “On Countering the Legalization (Laundering) of Proceeds from Crime and Terrorism Financing”

Amendments to Federal Law No. 115-FZ "On Combating Legalization (Laundering) of the Proceeds from Crime and Terrorism Financing" introduce the concept of a "beneficial owner". According to the amendments, a beneficial owner is an individual (natural person), who directly or indirectly (through third  parties), owns (has an equity interest of more than 25 percent) the company – client, or has the capability to control the actions (decisions) of the client.

Banks (and other organizations performing operations with cash and other assets) are obliged to identify customers before agreeing to provide services to them and to subsequently monitor on a regular basis the purposes of financial and economic activities of client companies, their financial position and business reputation. Banks (and such other organizations) are also required to take justified and reasonable steps to identify beneficial owners and to update information on customers, their representatives, beneficiaries and beneficial owners at least once a year. If any doubts arise as to the reliability and accuracy of previously received information the information must be updated within seven business days of such doubts arising. (It is allowed not to perform beneficial owner(s) identification with respect to publicly traded companies that are subject to the disclosure requirements under the Russian securities laws).

Banks (and other organizations that perform operations with cash and other assets) have an obligation within one business day to freeze (block) the funds or other assets of persons or entities included in the list(s) of organizations and individuals suspected of involvement in extremist or terrorist activities. (Such lists are maintained on the website of the authorized government body for the financial transaction monitoring).

Additional grounds for documenting information on suspicious customer transactions are introduced. In particular, such information must be documented when a customer declines to carry out a transaction that caused suspicion with the employees of the bank (or another appropriate organization).

The above amendments entered into force on 30 June 2013.

4. Tightening of foreign exchange control rules

The Law tightens criminal and administrative liability for the violation of foreign exchange control laws.  The Law changes the wording of Article 193 of the Criminal Code, which establishes liability for breach of the duty to repatriate currency proceeds (Article 19 of the Law “On Currency Regulation and Currency Control”).  There are also other changes to the Criminal Code and the Administrative Code, among them:

the threshold for criminal liability (for a failure to repatriate the funds in a “large-scale transaction”) is reduced from 30 million rubles down to 6 million rubles. The former threshold for “large scale” will now be classified as “very large scale” and thus will trigger more severe criminal liability;

for the purposes of determining “large scale” and “very large scale” offences the amounts of several foreign currency transactions conducted in the course of one year may be aggregated, including under different contracts;

other persons apart from the CEO’s of an organization (as was the rule earlier) may be held criminally liable;

criminal liability is established for a breach of the duty to repatriate funds in Russian rubles, in addition to foreign currency (the previous wording of the Criminal Code had a loophole in this respect);

Article 193.1 “Performance of foreign currency or Russian currency transfers to accounts of non-residents with the use of falsified documents” is introduced into the Criminal Code. According to Article 193.1, falsified documents are understood as documents that contain deliberately false information as to the reasons, purposes and details of a currency transfer. A minimum threshold amount of funds for criminal liability is not established. Thus, criminal liability will result if any amount of currency is transferred to an account of a non-resident with the use of documents that deliberately contain false information;

Amendments have been made to Article 15.25 of the Administrative Code. The changes differentiate liability for the violation of deadlines to submit or for a failure to submit statements of funds on accounts (deposits) in foreign banks to tax authorities depending on the size of delay or the number of violations. Such differentiation leads to the mitigation of liability. However, if the violation is repeated in the course of one year the possible penalty significantly increases. For legal entities it may be up to 600 000 rubles.

The above amendments entered into force on 30 June 2013.

5. Tightening of requirements for founders (shareholders) and members of the management of financial institutions

The Law imposes additional restrictions on founders (shareholders) and individuals holding senior management positions at financial institutions. Such restrictions include, for example, a prohibition on the direct or indirect acquisition of 10% (or more) of share capital in financial institutions and/or a prohibition for individuals to hold certain management positions if they have previously been convicted or have an outstanding conviction for economic crimes or crimes against the State; individuals previously subjected to administrative disqualification; individuals holding senior management positions at financial institutions at the time when their licences were revoked, etc. These restrictions apply to professional securities market participants, insurance companies, non-government pension funds, leasing companies, investment fund management companies and microfinance organizations.

In accordance with amendments to Article 10.1 of the Federal Law No. 39-FZ "On the Securities Market" the professional market participants now have to obtain prior approval from the regulatory authority for the appointment of an individual to the positions of the head of the organizations, head of internal control, controller, head of a division/department engaged in the securities market operations (where such operations are combined with other business activities).

The above amendments entered into force on 30 June 2013.

II. Federal Law No. 146 “On Amending Certain Legislative Acts of the Russian Federation” dated 2 July 2013

1. “Banking groups” and “banking holdings”

Amendments to Article 4 of the Federal Law No. 17-FZ "On Banks and Banking Activity" revise the definition of a "banking group" and a "banking holding". For example, as newly defined a banking group may be formed not only by credit organizations but also by other legal entities that are under the control or influence of the parent credit organization of the banking group. A banking holding is now understood to mean a group of legal entities (including a controlled credit organization), provided that banking accounts for no less than 40% of its business.

The Law establishes additional reporting requirements for banking groups and banking holdings and introduces new grounds for their respective parent companies to bear liability.

The above provisions will enter into force as of 1 January 2014.

Amendments to Article 26 of the Federal Law No. 17-FZ "On Banks and Banking Activity" allow credit organizations to transfer their customer transaction data to parent companies of their banking groups, banking holdings and other groups with the participation of the credit organization for the purposes of consolidated reporting and risk management. The transfer of such data to parent companies located outside the Russian Federation is also permitted, provided certain standards of data protection (confidentiality) are met.

Article 51 of the Federal Law No. 86-FZ “On the Central Bank of the Russian Federation” allows for information on banking groups and banking holdings to be exchanged between the Russian Central Bank and the supervisory authorities of foreign countries where banking groups and banking holdings operate.

The above amendments will enter into force on 2 October 2013.

2. Acquisition of shares of credit organizations

Amendments to Article 11 of Federal Law 17-FZ "On Banks and Banking Activity" and Article 61 of the Federal Law No. 86-FZ "On the Central Bank of the Russian Federation" lower the threshold for the prior consent of the Central Bank to the direct or indirect acquisition of shares in credit institutions from 20% to 10% and set out the requirements for obtaining the Central Bank’s prior consent to an increase in the participation in the capital of a credit organization upon reaching certain thresholds (e.g., more than 25%, more than 50%, etc).

The Russian Central Bank has the right to refuse to give its consent to the direct or indirect acquisition of more than 10% of share capital of a credit institution, including on the ground that a person planning to make such an acquisition has an unsatisfactory business reputation. (See below).

If the Central Bank identifies non-compliance with the requirements set for the financial condition or business reputation of persons holding directly or indirectly more than 10% of share capital of a credit organizations, the Russian Central Bank will have the authority to order that the shareholding be reduced to a level not exceeding 10%. 

The above amendments will enter into force on 2 October 2013.

3. Requirements for members of the management of credit organizations

Amendments to Article 11.1 of the Federal Law 17-FZ "On Banks and Banking Activity" establish the requirements for determining the business reputation in respect of persons holding senior management positions within credit institutions. Furthermore, such individuals must meet the requirements as to qualifications and business reputation both when the Central Bank approves their nomination and throughout their entire term in office.

Requirements as to business reputation are defined by Article 16 of the Federal Law 17-FZ "On Banks and Banking Activity". In determining the business reputation of a person account is taken of such facts as, for example, previous criminal convictions; an individual’s involvement in the bankruptcy of a legal entity; participation in the management of a credit ogranization which had its licence withdrawn; prior disqualifications; commitment of certain administrative offenses, etc.

The above provisions will enter into force on 2 October 2013.

4. Additional authority of the Russian Central Bank

New Article 57.3 of the Federal Law No. 86-FZ "On the Central Bank of the Russian Federation" grants the Central Bank the authority to assess the compensation system of a credit organization (including the terms of deferred compensation, and adjustment of the size of incentive payments to employees), and to require the credit organization to make change to this.

Amendments to Article 74 of the Federal Law No. 86-FZ "On the Central Bank of the Russian Federation" grants the Central Bank the authority to restrict the payment of dividends by credit organizations and to impose caps on the rate of interest set by the credit organization for customer deposits.

New Article 61.1 of the Federal Law No. 86-FZ "On the Central Bank of the Russian Federation" provides the Central Bank with the right to verify personal data, for example, in respect of individuals holding senior management positions at credit organizations and candidates for such positions. For these purposes the Central Bank may request necessary information from other government agencies.

The Central Bank is also authorized to include personal data of senior management of credit organizations in its official analytical and statistical publications on the banking system (including their date of birth, educational background and previous work experience).

The above provisions will enter into force on 2 October 2013 (Article 61.1 and Article 74) and on 1 January 2014 (Article 57.3).

The Law “On Amendments to Certain Legislative Acts of the Russian Federation Relating to Combating Unlawful Financial Operations” Comes Into Force

On 28 June 2013, the President signed Federal Law No. 134-FZ of 28 June 2013 “On Amendments to Certain Legislative Acts of the Russian Federation Relating to Combating Unlawful Financial Operations”, the so-called “fly-by-night company law”.

The Law came into force on the date of its official publication, i.e., 30 June 2013, except for certain provisions with other effective dates. Below is an overview of the issues we believe to among the most important.

TAX LEGISLATION

Recovery of tax arrears from subsidiaries/parent companies

The list of cases when tax audits might result in additional taxes being recovered from related /head organisations (subsidiary / shareholder companies) in a court of law has been expanded (sub-clause 2, clause 2, article 45, of the Russian Tax Code):

•          transfer of funds or other property to the head/related organisation after a tax audit has been initiated;

•          proceeds have been transmitted or funds or other property have been transferred to head/related organisations via a combination of related operations or in favour of the taxpayer's related parties.

Arrears will be recovered pro rata the share of proceeds received from sold goods (works, services), the share of funds transferred, the value of other property, subject to the tax authorities having proved a connection between such actions and the tax payment arrears.

New grounds for the tax authorities to request documents, including within the scope a chamber tax audit

The tax authorities will be entitled to demand that a taxpayer provide source and other documents and analytical tax ledgers during a chamber tax audit on the basis of a revised tax return reducing the tax amount or increasing losses, submitted after expiry of two years. Moreover, the tax authorities will be able to request transaction-related documents from the parties thereto or other persons holding relevant documents, including banks, beyond the scope of tax audits, subject to reasonable necessity to do so.

New grounds for the tax authority to suspend operations on a bank account

New grounds for suspension of operations on a bank account have been added: a corporate taxpayer's failure to fulfil its obligation to provide the tax authority in a timely fashion with a receipt confirming receipt of a request for documents, a request for explanations and/or notice of summons to the tax authority's office (received via electronic communication channels).

Possibility for the tax authorities to use the results of investigative activities

The Federal Law “On Investigative Activities” has been amended to allow the tax authorities to use the results of investigative activities in exercising their powers of control and supervision over compliance with the legislation on taxes and levies and their powers relating to ensuring representation of state interests in bankruptcy cases, as well as in exercising their powers in the sphere of state registration of legal entities.

Tax authorities obtain bank account statements relating to individuals and individual entrepreneurs

Among other things, the amendments to a number of legislative acts have provided the tax authorities with an opportunity to request that banks provide them with letters of information relating to bank accounts, bank deposits and/or account, deposit cash balances, statements on operations on bank accounts, deposits of organisations, individual entrepreneurs and unincorporated individuals, as well as statements on e-money balances and e-money remittance, on the basis of a substantiated request. The tax authorities may make such a request, including beyond the scope of tax audits, subject to reasonable necessity. In this event, the tax authorities require the approval of a higher tax authority or Head/Deputy Head of the Federal Tax Service of Russia.

LEGISLATION ON REGISTRATION OF LEGAL ENTITIES

Amendments to the legislation on state registration of legal entities

The given Law amends the legislation relating to state registration of legal entities. The most significant amendments are the following:

•          the law establishes a legal entity's obligation to reimburse other participants in civil turnover for losses caused by failure to provide, delayed provision or provision of unreliable legal entity-related data to the Unified State Register of Legal Entities (the “Companies’ Register”);

•          the law establishes an individual's right to send to the registration authority his/her written objections against an entry being made in his/her respect into the Companies’ Register. In the event of the objections specified above, registration should not be performed in relation to such an individual;

•          the law obliges the registration authority to verify data to be included in the Companies Register.

LEGISLATION ON COMBATING MONEY LAUNDERING

The beneficial owner concept has appeared

The Federal Law “On Combating Money Laundering and Financing of Terrorism” introduces the concept of a “beneficial owner”. The beneficial owner is an individual, who, directly or indirectly (via third parties), ultimately owns (holds a dominant share of at least 25% in the capital) a corporate client or is able to effect control over the client. Clients of organisations conducting operations with cash funds or other property will be obliged to provide such organisations with information about their beneficiaries.

CRIMINAL LEGISLATION

Criminal liability for money laundering

Articles 174 and 174.1 of the Russian Criminal Code are amended to change the sanctions for such crimes and, in a number of cases, make the punishment for laundering money obtained through crime more stringent. In accordance with the new amendments, the laundering-related articles will apply when crimes relating to funds involve evasion of tax, customs payments and non-repatriation of foreign currency funds (the clause relating to exclusion of the crimes provided for in articles 193, 194, 198, 199, 199.1 and 199.2 of the Russian Criminal Code has been deleted).

Financial operations and other operations with funds or other property are recognised as large scale operations if they are for an amount exceeding 1.5 m Roubles and as very large scale operations - if for 6 m Roubles. Previously, an amount exceeding 6 m Roubles used to be a large amount and no very large amount was established.

Stricter criminal liability for non-repatriation of foreign currency earnings

Article 193 of the Russian Criminal Code is amended to envisage stricter punishment for evasion of repatriation of funds in foreign currency or in the currency of the Russian Federation. Large scale non-repatriation now means non-repatriation of more than 6 million Roubles during the year and the maximum sanction in this case will be up to 3 years' imprisonment. In accordance with the amendments, very large scale non-repatriation means non-repatriation of 30 m Roubles and the maximum sanction is up to 5 years' imprisonment.

Previously, a large amount used to be defined as an amount in foreign currency exceeding 30 m Roubles, and a very large amount used not to be determined, and only the head of the company was subject to criminal liability.

Criminal liability for use of false documents or fly-by-night companies in remitting funds to non-residents

The Russian Criminal Code now has a new article, 193.1, which establishes a maximum sanction of 5 years for currency operations relating to remittance of funds in foreign or Russian currency to non-residents' accounts using false documents and a legal entity incorporated for committing one or several crimes. Moreover, if such crimes are committed by a group of persons or for a very large amount, the sanction will be imprisonment for a period of from 5 to 10 years. 6 m Roubles and 30 m Roubles now constitute a large amount and a very large amount, respectively.

This is an innovation in the criminal legislation. Its purpose is quite obvious: to prevent funds from being pulled abroad under fictitious and sham transactions.

A new article “Smuggling of Cash Funds and/or Cash Instruments” has been added to the Russian Criminal Code

New article 200.1 of the Russian Civil Code establishes criminal liability for illegal transfer across the customs border of the Customs Union of cash funds and/or cash instruments, namely, traveller's cheques, notes, banker's cheques and other documentary securities relating to fund payment and not identifying the recipient. An amount equivalent to at least US$ 20 thousand is recognised as a large amount and to US$ 50 thousand or more as a very large amount. At the same time, amounts permitted for transfer without declaring in writing (i.e., the equivalent of US$ 10 thousand) or the declared portion of the amount should be excluded from the calculations.

LEGISLATION ON ADMINISTRATIVE OFFENCES (FOREIGN EXCHANGE REGULATION)

Amendments to the Russian Code of Administrative Offences tightens liability for breach of the foreign exchange legislation

New clause 6.4 of article 15.25 of the Russian Code of Administrative Offences has established a fine for repeat failure to provide information about cash flows on foreign accounts during a year, failure to comply with the procedure for providing supporting documents and information in performing foreign currency operations, breach of rules for transaction passport issue or breach of the prescribed storage periods for reporting and accounting documents relating to foreign currency transaction, supporting documents and information relating to foreign currency operations or transaction passports. Such a fine for officials may amount to up to 40 thousand Roubles and for legal entities — up to 600 thousand Roubles.

CUSTOMS LEGISLATION

New grounds for refusal to apply special simplified procedures to approved economic operators (AEO)

The amendments to Federal Law No. 311-FZ “On Customs Regulation in the Russian Federation” have established that the special simplified procedures (being the key purpose of obtaining the AEO status) will not apply to an AEO if it imports goods dispatched by off-shore companies or pays for imported goods via off-shore zones.

Financial operations with off-shore companies as a new reason for risk management system response

In accordance with the addenda to article 162 of the Federal Law “On Customs Regulation in the Russian Federation”, the risk management system should now also be aimed at preventing breaches relating to financial operations with residents registered in off-shore zones.

CORPORATE AND FINANCIAL MARKET LEGISLATION

Liability of parties controlling the debtor in a bankruptcy case

The provisions regulating secondary liability of parties controlling a debtor have been amended. In particular, the Law determines a number of circumstances under which the debtor is presumed to have been recognised as insolvent (bankrupt) owing to actions and/or omissions by the controlling parties, this actually meaning presumption of guilt of the controlling parties.

Moreover, the given Law expands the scope of secondary liability of parties controlling the debtor. For instance, if the debtor is recognised as insolvent (bankrupt) owing to actions and/or omissions by the controlling parties, such parties, if the debtor's property is not sufficient, will bear secondary liability for all its obligations. Secondary liability previously applied only to financial obligations and/or obligations to make mandatory payments.

Obligation to notify the FSFM of acquisition of 10% or more of the shares (participatory interests) in financial organizations

The Law has introduced the obligation of a person that, directly or indirectly, individually or together with other persons related to it on grounds listed by the given Law, has the right to dispose of 10% or more of the votes attached to the voting shares (participatory interests) in the authorised capital of a qualified securities market player, insurance company, managing company of an investment fund or a microfinance institution (for the purposes hereof - the “Financial Institution”), to notify the relevant Financial Institution and the FSFM to this effect.

If the Financial Institution has not been so notified or it follows from the notice that the individual entitled to dispose, directly or indirectly, of 10% or more of the votes attached to the voting shares (participatory interests) in the Financial Institution is not qualified under the statutory requirements, such an individual will have the right to dispose of not more than 10% of the votes attached to the voting shares (participatory interests). The remaining shares (participatory interests) owned by the individual will not be counted for the purposes of establishing a quorum at a general meeting of shareholders (participants) of the relevant Financial Institution.

The above requirements do not apply to credit institutions operating as qualified securities market players.

Requirements on founders (participants), CEOs, members of management bodies and a number of other employees of financial institutions

In accordance with the given Law, persons with an outstanding conviction for an economic crime or a crime against the state are not entitled, directly or indirectly, individually or together with other persons related to them on the grounds listed by the given Law, to obtain the right to dispose of 10% or more of the votes attached to the voting shares (participatory interests) in the Financial Institution (as defined above).

The Law also introduces additional requirements on CEOs, members of management bodies and a number of other employees of qualified securities market players, insurance companies, managing companies of investment funds, microfinance organisations and non-state pension funds. In particular, the following persons may not act as such:

•          persons who performed the functions of the sole executive body of a financial institution when it committed a breach triggering cancellation (revocation) of the institution's licence;

•          persons, in relation to which the term when they are deemed to be held administratively liable by means of disqualification has not yet expired;

•          persons with an outstanding conviction for an economic crime or a crime against the state.

Additionally, this Law has amended certain legislative acts relating to combating unlawful financial operations, including the Federal Laws “On Organisation of Insurance Business in the Russian Federation”, “On Non-state Pension Funds”, “On Securities Market”, “On Investment Funds”, etc.

Russian customs formalities on personal belongings' imported by foreigners

Customs formalities in respect of personal belongings' crossing the boarders of the Customs Union by expatriates are stated in the Intergovernmental Agreement [of the Customs' Union states, i.e. Russia, Belarus and Kazakhstan ("CU")] of June 18, 2010 (as further amended on October 19, 2011).

The Agreement has as its Annexes the list of goods which can be imported into Russia for personal use without payment of import duties (Annex 3 - list of goods for personal use imported in the CU without payment of import duties and Annex 4 - list of goods for personal use, which are temporarily imported in the CU without payment of import duties). In respect of goods in both Annexes certain limitations apply (in respect of alcohol and tobacco, or depending on frequency of such imports and quantities of imported goods). The general principle is that personal belongings are exempt from levying customs duties if their customs value does not exceed 10000 EURO (in respect of the goods imported by avia) or 1500 EURO (in respect of the goods imported by other types of transport) and the total weight is under 50 kg. Importation of alcohol, beer and tobacco are regulated separately and quantity restrictions also apply. Cultural objects are exempt regardless of their value and quantity.

Annex 4 (list of second hand goods for personal use temporarily imported in the CU without payment of import duties) has 21 categories of goods with indication of their quantity. The list includes among other things jewelry, photo, video cameras, tape or digital recorders, DVD and audio players, TV, mobile, PCs, musical instruments, wheel chairs, etc. They are allowed to be temporary imported (i.e. the foreign citizen is obliged to re-export them after expiration of the period of his temporary staying in Russia) without payment of import [customs] duties if their quantity does not [usually] exceed one piece or the quantity sufficient for the period of stay or intended use. Please note that the temporary imported goods should not be transferred to the third party.

Other personal use belongings (i.e. not covered by Annex 4) can be imported into the CU with the payment of customs duties if their value exceeds the above mentioned limits on its customs value and weight. The unified customs duty in such instances is 30% of customs value of the excessive part of the imported goods, but not less than 4 EURO per one kg.

If the goods are delivered to the recipient by an international carrier (i.e. without transferring by the recipient the customs border of CU), the monthly "allowance" (per one recipient) is 31 kg with a total value of 1000 EURO.

Passenger cars can be imported into Russia temporarily for the period of the stay of the individual (but the period cannot exceed one year) without payment of the duties. In other instances the importation of cars for personal use entails payment of duties which are dependent on the car engines'

volume and age of the imported car.

Certain goods are prohibited (e.g. weapons, poison, human bodies or their organs) or restricted for importation (e.g. cryptographic devices, national archives).

If the personal goods are imported in unaccompanied baggage its customs clearance should consist of two stages:

Stage 1.  When the individual arrives to the Russian state border checkpoint (e.g. airport) the latter should declare to the state border customs authorities that he will import the personal goods in unaccompanied baggage by filing the passenger customs declaration in two copies with usage of a special blank stated by the Federal Customs Service and by providing the respective transportation documents confirming the transportation of the goods (e.g. contract of carriage, luggage ticket, check, waybill, Bill of Lading, etc.).  The respective passenger customs declaration blanks may be provided to any interested person by the customs authorities in the state border checkpoint.  One hard copy of this passenger customs declaration stamped by the state border customs authority should be returned to the individual. It is recommended indicating in the passenger customs declaration what goods which are to be declared to the customs authorities are imported by the individual in accompanied baggage. Otherwise, it will be considered by the customs authorities that the limits on customs value an weight of the goods which may be imported without payment of the duties are used by the individuals in full and he (she) will be obliged to pay duties in respect of the unaccompanied baggage.

Stage 2. The customs clearance of the personal goods imported in unaccompanied baggage should be performed by the individual in the customs authority in the Russian state border checkpoint or in the local customs authority where this individual is temporary registered for the migration control purposes.  The individual (or his/her representative acting based on the respective Power of Attorney) should submit to the customs authority the application prepared on a special blank stated by the Federal Customs Service where, in particular name, description, weight and value of each personal goods should be indicated.  This application should be supported, in particular, by the hard copy of the passenger customs declaration stamped by the state border customs authority where it is indicated that the goods are temporary imported in unaccompanied baggage. 

Please note that in the course of customs clearance of the imported goods the veterinary, phytosanitary, ecological and/or other kinds of state control may be required to exercise with respect to the imported goods depending on their types.  Please also note that the certain types of permits should be obtained by the individuals before importation of the respective types of goods (e.g. guns, drugs/narcotics, exotic plant, protected types of flora and fauna, cultural valuables, etc.).

Amendments to the Federal Law “On the contract system in the sphere of purchases of products, work or services for state and municipal needs”

The Federal Law No. 44-FZ “On the system of public procurement contracts for products, work or services for state and municipal needs” was adopted on 5 April 2013. The main provisions of the Law will come into force on 1 January 2014. Federal Law No. 94-FZ dated 21 July 2005 “On placing orders to supply goods, perform work or provide services for state and municipal needs” has been repealed.

Summary of main changes 

Unlike Federal Law No. 94-FZ dated 21 July 2005 that only regulates how public orders are to be placed, the law on the system of public procurement contracts will regulate all stages of the public procurement process. Notable among these stages are planning, forming, placing and executing an order. The new public procurement system is based on the modern principles of conducting business: openness, competition, unification, responsibility for meeting state and municipal needs and effective spending. Besides, the Law provides for the rights and obligations of the state official who makes purchases, which creates legal background for his area of activity to be turned into a profession.

The Law suggests that open auctions must no longer be used as a form of placing public orders. As a result, the main ways for placing orders are: a tender (an open tender, a tender with a limited number of participants, a two-stage tender, a closed tender etc.), an auction (closed electronic auction), a request for quotations and a request for proposals.

The system of public procurement contracts provides for a number of antidumping measures. For instance, if a participant with whom a contract is signed proposes a price which is lower than the starting (maximum) price of the contract by 25% or more, then the contract is only signed after such participant provides collateral to secure its performance. The amount of such collateral must exceed by 1.5 times the collateral specified in the tender or auction documents. An alternative way is to provide information as at the application date confirming that such participant has been acting in good faith. This includes information from the register of contracts confirming the good-faith performance of previous contracts over at least one year before the date of the application. At the same time, the price of any of the previous contracts should be at least 20% of the price proposed by the participant. 

The Law provides for a unified information system to be created to ensure information support for the system of public procurement contracts. This system must, among other things, contain information about the terms, prohibitions and limitations on access for products originating from a foreign state or a group of foreign states, as well as the work (services) performed (provided) by foreigners. The information systems shall also include a list of foreign states that have signed international treaties with the Russian Federation mutually to apply the national regime for purchases, as well as the terms under which the national regime is applied. 

Public control over compliance with legislation about the system contracts for purchasing products via public associations and associations of legal entities that have a number of powers in this area vested in them.

The client in a public procurement contract may unilaterally withdraw from the contract. The client must take a decision to withdraw from such contract unilaterally if it is established in the course of the contract being performed that the products (work, services) being supplied do not comply with the requirements for a public procurement contract. The client may also withdraw from the contract that has been partially performed by the supplier (contractor, client). The information about such supplier (contractor, service provider) is entered into the register of bad faith suppliers.

The supplier (contractor, service provider) may withdraw from a state contract unilaterally if it is granted such a right under the state contract.