If the advance payment was received before the sanctions were imposed, but the fulfilment of the contract is no longer possible due to relevant sanction prohibitions, the repayment of such advance payment violates the EU Sanctions Regulation, the German Federal Ministry of Economy and Climate Protection has clarified.

The ministry pointed to the prohibition on the fulfilment of all claims related to transactions that have since been sanctioned. Against this background, the repayment of an advance payment aimed at restoring a legal relationship to the state it was in before sanctions were imposed is legally impermissible. This also applies to payment claims arising from advance payment guarantees (or the counter-guarantees related thereto), which follows from the prohibition on the provision of financing or financial assistance in connection with sector-specific export and import bans.

Previously, the Ministry had allowed the refunding of advance payments, but after consultation with the relevant working unit of the EU Commission has changed its mind.

Source: BMWK - Fragen und Antworten zu Russland-Sanktionen

In April 2022 a Russian court for the first time recognized a foreign company Pandora consulting LC registered on the island of Nevis and engaged in debt collection on the territory of the Russian Federation as bankrupt.

A Russian creditor of the company had filed the relevant application seeking to recover the fees for the bankruptcy trustee services and referring to the decisions of the Russian courts which had come into force.

The sole shareholder and the company's chief executive (a Russian citizen) stated that it was necessary to terminate bankruptcy proceedings because the company had been removed from the foreign commercial register and deregistered from tax registration in Russia at the end of 2021.

It was pointed out that based on a literal reading of the law, a Russian court is not entitled to initiate bankruptcy proceedings against a foreign legal entity. However, the size and nature of Pandora consulting LC's outstanding obligations would allow the institution of insolvency to be applied if the company were Russian, and a refusal to satisfy the applicant's claims in the case at hand would limit the creditor's right to obtain effective judicial protection.

In this connection, the court considered it possible to apply the analogy of law and to introduce insolvency proceedings with regard to the debtor's property located in or closely connected with the Russian Federation. It was also taken into account that under Nevis law, a liquidated company continued to exist for three years from the date of liquidation to assert possible claims and, if such claims were asserted, the period was extended until full discharge of obligations and settlement of disputes.

The appellate and district courts upheld the position of the court of first instance. The Supreme Court of the Russian Federation also found no grounds for reviewing the case.

According to the media, Bank Saint Petersburg has received a license from the Belgian Treasury to unblock its assets worth about $110 million frozen on the account of the National Settlement Depository (NSD) in the Belgian depository Euroclear Bank. However, the license concerns only the bank's own funds but not those of its clients.

At the end of January 2023, the Moscow Arbitration Court satisfied in full the claim of the Bank "Saint Petersburg" to recover from Euroclear 107 million dollars and 489 million euro in losses and court expenses. The Bank's funds were credited to NSD's account with Euroclear. However, the Bank wasn’t able to receive these assets because Euroclear imposed restrictions on the disposal of funds in the National Settlement Depository’s accounts. The Russian court found that the suspension of transactions was solely at the initiative of Euroclear before the official ban on cooperation with NSD was imposed.

The court ruling may have influenced the Belgian Treasury's decision to issue a license. However, there is an opinion that the Russian bank will be able to use it only after receiving approvals from the British and American agencies, since the US and the UK have imposed sanctions on the credit institution.

Until July 24, 2023, Russian investors who have not fallen under the European sanctions may submit requests to the Ministries of Finance of Belgium and Luxembourg (in respect of funds in the accounts of another major European depositary, Clearstream) to unblock their assets. It is reported that over a thousand applications have been filed to the Belgian authority alone. Previously, positive decisions have already been made with respect to certain individuals, but the issuance of a license to Bank Saint Petersburg is the first publicly confirmed case of unblocking of assets of a securities trader.

In 2022 many Russian companies were faced with the fact that their currency transfers in favour of foreign counterparties were blocked in the accounts of foreign correspondent banks.

One of such companies filed a lawsuit to the Arbitration Court of the Moscow District against its servicing bank, Alfa-Bank JSC, claiming damages. The company justified its claim by the fact that the bank had written off money from the foreign currency account, but the claimant's foreign counterparty had never received it.

The courts of the first and appellate instances allowed the claim and recovered the losses from the bank. The cassation court, however, overturned their decisions and remitted the case for reconsideration. The Court of Cassation indicated that the plaintiff itself should have asked the OFAC for the license to unblock the funds. The actions of the intermediary banks were beyond Alfa-Bank's reasonable control.

In practice, Russian companies which are not under sanctions normally manage to obtain OFAC licenses and return the funds blocked in the accounts of intermediary foreign banks. However, the waiting time might amount up to one year from the date of submission of the relevant application to OFAC.

On April 25, 2023, a Presidential Decree was published allowing to introduce a provisional administration in respect of property and property rights of foreign “unfriendly” entities located in Russia. According to the text of the document, this measure can be applied in response to the seizure of Russian assets abroad and restrictions on property rights.

The external manager of foreign assets will be the Federal agency for state property management (Rosimuschestvo) or another person appointed by the Russian President. The temporary manager will exercise ownership powers, conduct an inventory of the property and ensure its safety, but will not have the right to dispose of it. The decision on the termination of temporary management will also be made by the head of state.

Currently, external management has been imposed on the shares of two energy companies, Unipro and Fortum. The foreign owners of these PJSCs announced their intention to leave the Russian market back in the spring of 2022, but later these companies were included in the list of fuel and energy companies, transactions with shares of which require a special order.

According to Rosimuschestvo, external management is imposed on assets that are of paramount importance for the stable functioning of the Russian energy sector to ensure the uninterrupted operation of companies that are significant to the national economy. Besides, this measure helps to preserve the investment climate in Russia and reduce capital outflow from the country.

The agency stressed that the decree “does not concern ownership issues and does not deprive owners of their assets”, but only means that “the original owner has no right to make management decisions” on a temporary basis. In addition, Rosimuschestvo does not rule out the expansion of the list of externally managed enterprises.

The Bank of Russia will consider a proposal by deputies to pay off exiting foreign companies with special Central Bank bonds tied to frozen reserves instead of currency.

According to the initiative, the special bonds should be issued in the amount of Russian assets frozen in the West (approximately $300 billion). This measure should stabilize the exchange rate and help to protect frozen assets; however, on the other hand, it would mean the disclosure of information about Russian reserves, as well as the structure of the Central Bank's assets abroad, which is undesirable, according to the Head of the Bank of Russia Mrs. Nabiullina ^[1]. First of all, such option is considered as an alternative to type "C" accounts.

[1] www.rbc.ru

Lately, Russian authorities have been discussing the introduction of a windfall tax to supplement the budget. The bill “On the tax on excess profits of previous years” is currently not publicly available, although it has been sent to major taxpayers for comment.
According to the media, the obligation to pay this one-time tax will fall on companies whose profits in 2021-2022 exceeded those for 2018-2019, and the difference was more than 1 billion rubles. The rate of windfall tax will amount to 5% of the difference.

The taxpayers are expected to be both Russian and foreign companies with permanent representation in Russia, including foreign firms leaving the Russian market. Alternatively, the latter will be able to take this fee into account in the price of the exit transaction, although they will still need to pay a contribution to the budget of at least 5% of the value of the shares or stock.

Small and medium-sized businesses, as well as enterprises of the oil, gas and coal industries will be exempt from windfall tax. In addition, investments under capital investment protection and promotion agreements (CIPA) can be deducted from the new tax base.

The relevant amendments to the Tax Code of the Russian Federation are supposed to enter into force in 2024. However, companies will be entitled to transfer to the budget half of the amount of tax already in 2023, in which case the amount of tax to be paid the following year will be reduced by the previously made payment.

The Office of Foreign Assets Control (OFAC) of the USA has clarified that the contribution to the Russian budget paid by foreigners from unfriendly countries making transactions with regard to shares and stocks of Russian legal entities, can be made only after obtaining a license.

The U.S. Treasury Department has reminded that the U.S. persons are prohibited from carrying out any direct and indirect transactions with the Russian Central Bank or the Ministry of Finance of Russia. Under this description also falls the so called “exit tax” (budget contribution in the amount of 5 to 10 percent of the assets value to be sold, established by the Russian Governmental Commission).

Thus, in order to pay it, U.S. companies and individuals will have to obtain a license, providing the OFAC with the information regarding the amount of the payment and the amount of taxes that would be paid to the Russian budget if the business continued in the Russian Federation. In addition, while requesting the license, one will have to assess how the company's exit from the Russian market would affect the employees and the Russian economy as a whole.

The OFAC promises to consider such requests on an expedited individual basis.

Recently, the District Court of Frankfurt am Main considered a case of illegal import of cash euros into Russia ^[1].

A citizen of Kyrgyzstan flew from Frankfurt am Main via Istanbul and Moscow to Kaliningrad for medical treatment. To this end, he was carrying 11,000 euros in cash. During customs control at the airport almost all the money was confiscated, leaving only 500 euros for personal needs of the accused.

The court confirmed the lawfulness of the customs' actions and explained that the exception allowing cash to be brought into Russia for personal needs should be interpreted narrowly and covers only transportation and food expenses during the trip according to the average standard, so an amount of 500 euros is quite sufficient. Money for medical treatment does not belong to personal needs. In addition to the confiscation of the money, the offender was also fined 4,500 euro.

As a reminder, it is currently prohibited to export cash in euros from the European Union to the territory of the Russian Federation. The exception is money for personal use of citizens travelling to Russia or members of their families travelling with them ^[2].

At the same time, the EU legislation does not regulate the amount of currency allowed for export. According to the Ministry of Foreign Affairs of Germany, in case of doubt, travellers must convincingly justify (for example, on the basis of hotel reservations) the need to export a specific amount of cash at the EU external border. Polish and Lithuanian border guards check very careful, though not systematically, the validity of euro currency exports when crossing the border with Kaliningrad. Thus, some time ago Lithuanian border guards limited export of euro to Russia to 60 euro per person.

[1] District court of Frankfurt am Main, judgment of 31.01.2023, file number 943 Ds 7140 Js 235012/22; Keine Ausnahme vom Bargeld-Ausfuhrverbot nach Russland für geplante medizinische Behandlungen | Ordentliche Gerichtsbarkeit Hessen

[2] Art. 5i of Council Regulation (EU) No 833/2014 of 31 July 2014

Starting January 1, 2024, administrative liability may be established for violations of Russian counter-sanctions measures. Anti-sanctions legislation (counter-sanctions measures) refers to prohibitions and restrictions established by the President, the Government, and the Central Bank of Russia to “influence (counteract) unfriendly actions of the USA and other foreign states” and ensure the financial stability of the country.

In particular, a new article 15.25 “Failure to comply with measures of influence (counter-measures) aimed at ensuring financial stability of the Russian Federation” may appear in the Code on Administrative Offences. The corresponding bill was published on the federal portal of projects of legal acts.

The bill establishes fines for individuals, individual entrepreneurs and legal entities ranging from 20 to 40 percent of the amount of the transaction (operation) carried out in violation of countermeasures or the amount of transaction (operation) not carried out in accordance with the established measures. The penalty for the officials is from 20 to 40 percent of the amount of the transaction (operation) but no more than 30,000 rubles.

If non-compliance with the established measures has no monetary value (for example, performance of gratuitous transactions, opening of special accounts, etc.), the penalty is from 4.000 to 5.000 rubles for individuals; from 40.000 to 50.000 rubles for officials; from 800.000 to 1.000.000 rubles for legal entities.

If a company eliminates violations within a certain period of time, no liability measures are applied.

Administrative cases will be considered by the Federal Tax Service and the Federal Customs Service, and in relation to officials of credit and insurance organizations - by the Bank of Russia. These bodies may request documents and information on compliance with counter-sanctions measures.

The limitation period for bringing to liability amounts to two years from the date on which the offence was committed.