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).
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