Foreign currency restrictions at maximum or the Resolution of the NBU No.591 as of 22.09.2014 (updated according to the Letter of NBU No. 29-209 / 53878 of September 23, 2014)
From September 23, 2014 the National Bank of Ukraine (NBU) introduced1 the following foreign currency restrictions:
The new list of operations under ban covers the following foreign currency payments:
- payments under import contracts, under which the goods were imported on the territory of Ukraine and the customs clearance accomplished based on the customs declaration, which was dated back more than 180 days. [we understand that this rule covers the payments for the goods, made after 180 days pass from the date of customs clearance. In other words, if under the payment conditions the delay of payment for the importing goods is more than 180 days from the day of their customs clearance, the non-resident supplier will have to wait for the payment. As it says: “count on Force Majeure”];
- the repatriation of the funds, received by the foreign investors from the sale of the securities of Ukrainian issuers outside stock exchange, except for the state bonds of Ukraine;
- the repatriation of the funds, received by the foreign investors from the sale of the corporate rights in Ukrainian legal entities issued not in the form of securities;
- the repatriation of the dividends to the foreign investor (except the cases of the dividends paid under the securities traded on the stock exchange); [In other words, if you are the enterprise with the foreign investments, other than joint-stock-company, shares of which are traded on the stock-exchange, for the period of restrictions you may forget about the payments outside of Ukraine of both dividends and payments for own shares in case of buyout or other decrease of share capital].
- payment under import transactions without goods entering the territory of Ukraine;
- based on the individual licenses of the National Bank of Ukraine (except for the cases of the transactions according to the individual licenses for placing the currency assets on accounts outside the Ukraine, issued by the National Bank of Ukraine to the legal entities).
The currency purchase limit for one person during one transaction day within one banking institution has been reduced to 3000 UAH. The exceptions are provided for the obligations in a foreign currency on repayment of loans in foreign currency under agreement with banks.
The validity period of the amended resolutions remained the same, hence the aforementioned restrictions will remain till 04.12.2014 (The Resolution #540 is effective starting from September 4 and until December 4, 2014).
The amendments regarding the mandatory sale of foreign currency proceeds may hardly compensate the above restrictions. Namely, “only” 75 % of the foreign currency proceeds must be sold. The rest of the proceeds remain in the possession of the entity.
The Resolution in question came into force on the day next to the day of its publication, which was done on September 22, consequently according to the NBU these amendments are effective from September 23.
Besides, there is a set of questions to this Resolution. Namely, it may be argued that the Resolution must have been registered in the Ministry of Justice (as the regulatory act) to have any mandatory force as well as that it contradicts legislation, including by breaching the guarantees to foreign investors that are established in the Law “On Foreign Investment’s Regime”.
However, these are all legal arguments, but in practice the banks would likely follow the Resolution in order not to make the regulator angry, at least if this resolution is not contested by the brave business entities in the court.
It also should be noted that in the letter № 29-209/53878 of September 23, 2014 the National Bank of Ukraine submitted the clarification of applying of resolution provisions № 540, that concern prohibition of conducting payments in foreign currency under import transactions without importation of the goods in Ukraine.
It is explained in the letter that provisions on prohibition do not cover the transactions of :
- payments for travel, transport, communication services by residents (upon availability of appropriate permissions);
- payment for transport services by resident forwarding agents ;
- payments by the banks of own obligations towards the correspondent banks, international telecommunication systems for using their services;
- payments by the banks of own obligations related to their membership in international payment systems.
It should be noted that the question of payment for the services is not that trivial as it might seem at the first glance, because in practice banks have begun to refuse in payments for the services of non-residents with reference to this provision of the resolution. Such an approach may be explained by the circumstance that in normative acts on currency control the term “goods” includes inter alia works and services.
In our opinion, it is quite clear that the Resolution concerns only payments for the goods in common meaning rather than in the meaning prescribed to it by the currency control acts. The letter of the National Bank of Ukraine also accepts this conclusion. Yet, it is not clear why only particular kinds of service are mentioned in it. What about other services?
The abovementioned restrictions, in particular, on the capital flow (the prohibition on the dividends payment and repatriation of investments in case of sale of shares in Ukrainian enterprises, corporaterights and other securities sale) violate both certain regulations of domestic legislation regarding the protection of foreign investments and the international agreements of Ukraine.
Thus, article 4 of the Law “On the protection of foreign investments” (the Law is dated back to 1991) stipulates as follows:
“Foreign investors are guaranteed the repatriation of their incomes and other amounts in the national or foreign currency, received on the legal grounds”.
Regarding the international obligations. For example, article 5 of the Agreement between Ukraine and Federal Republic of Germany on mutual promotion and protection of investments stipulates as follows:
Each Contracting Parties shall guarantee to citizens and companies of the other Contracting Party the transfer of payments related to investments and returns, in particular:
a) capital and additional amounts to support or increase the invested amounts;
c) loans payment (repayment);
d) profit, received due to the final or partial liquidation or alienation of the investments;
e) compensations covered by article 4 of this Agreement”.
It means that these guarantees cover the payment of dividends and incomes from alienation of in-vestments, including shares, other securities or corporate rights in Ukrainian companies.
The most of the other agreements of Ukraine for promotion and protection of the foreign investments, which Ukraine has signed with the number of countries, have similar provisions.
By imposing the restrictions in question the National Bank of Ukraine breaches mentioned guarantees. Respectively, the investment disputes and claims to Ukraine could not be excluded.
The main point is that the National bank of Ukraine undermines credibility and worsens the in-vestment climate of Ukraine, because who would like to work in the country with such an unpredictable “regulator”, which easily allows itself to breach not only the legislation, but also the commitments of the country under international agreements. It is difficult to gain the credibility quickly.
Therefore, we are likely to feel the adverse consequences of the current administrative restrictive measures of the National Bank of Ukraine for quite a long time.
The above commentary presents the general statement for information purposes only and as such may not be practically used in specific cases without professional advice.
1 Regulation “On Amending of Certain Normative Acts of the National Bank of Ukraine” as of September 22, 2014 No. 591. Amendments are introduced to the regulation as of August 20, 2014 No. 515 “On Situation at the Foreign Currency Market of Ukraine” and regulation as of August 29, 2014 No. 540 “On Introduction of Additional Mechanisms for Stabilization of Monetary and Foreign Currency Markets of Ukraine”. Regulation comes into force from the day next to the day of its publication, and it was published on September 22, in other words one may understand that according to NBU these amendments are effective from September 23.
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