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Reforming Foreign Exchange Regulation and Foreign Exchange Control in Russia
Reforming Foreign Exchange Regulation and Foreign Exchange Control in Russia

Reforming Foreign Exchange Regulation and Foreign Exchange Control in Russia

Russia’s current foreign exchange regulations are largely rooted in Soviet period, when the state had the exclusive right to carry out transactions with foreign exchange assets and held the monopoly on foreign economic activity. Today, despite partial liberalization of foreign exchange regulations and control Russia still uses a host of substantial restrictions.

Unlike in foreign countries where foreign currency restrictions are applied at times of crisis and are temporary, in Russia foreign exchange control is permanent.

Overall, the Federal Law on Foreign Exchange Regulation and Foreign Exchange Control currently sets two serious restrictions that are not used in developed countries and that present challenges to foreign currency residents — both for natural persons and legal entities.

The first of these restrictions is the requirement to repatriate foreign currency revenues. Legal entities and sole proprietors must return funds that are due them under foreign economic agreements to authorized banks in Russia. The repatriation requirement decreases the competitiveness of Russian business compared to entrepreneurs from OECD members countries, where similar restrictions are not in place.

The second restriction is the exhaustive list of operations for foreign accounts. The permitted list is relatively small: it comprises six permitted transactions for all categories of currency residents, twelve for natural persons, and only five for legal entities. This makes it very difficult for Russian companies and citizens to use foreign accounts. At the same time, foreign exchange control bodies and agents have no way of monitoring compliance with the restrictions on foreign accounts due to the lack of effective instruments for international exchange of information. Beyond this, there are other problems that increase pressure on currency residents.

Given the problems described above, which are caused by needless restrictions for Russian citizens and legal entities, experts of the Center for Strategic Research put forward a set of proposals aimed at improving the situation.

The first stage involves eliminating the key barriers of foreign exchange regulations that inhibit the foreign economic activities of Russian entrepreneurs. This will require implementation of the following measures:

At the second stage, in 2019–2020, it would be possible to abolish the reporting requirement for entities with accounts in countries that automatically exchange information with Russia under the CRS MCAA. Another proposal for the second stage is to completely repeal the Federal Law on Foreign Exchange Regulation and Foreign Exchange Control while transferring needed nomenclature to other regulatory legal acts.
The proposed transformation of foreign exchange regulations will make it possible to abolish outdated foreign exchange restrictions that have already become remnants of the past in all developed countries. This will reduce costs for Russian economic agents and promote increased economic activity in Russia.

For more details on proposals by CSR experts please see the report.

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