Current restrictions for IT business in Russia - what you needed to know by March 1

In the current conditions, when restrictions are constantly being added and changed, and their principles of operation and consequences are not yet obvious, the Versus.Legal law firm has collected up-to-date information as of March 1 about the current restrictions that IT companies operating in Russia may face.

Alina Davletshina, Senior Lawyer VERSUS.legal

Please note that this list may be incomplete due to the fact that some countries and companies unilaterally take new measures, often without widely informing all interested parties.

Payments, settlements, currency

Banks, settlements

The most serious sanctions to date have been imposed against the Russian banking system.

• The Russian banks VTB, Otkritie (together with the subsidiary Tochka system), Sovcombank, Promsvyazbank and Novikombank fell under strict restrictions. Their assets and accounts in US dollars are blocked, which means that they are effectively isolated from the dollar system.Apple Pay and Google Pay payment services will stop working for the cards of these five banks, but in practice, other banks’ cards also have problems with contactless payment.Carry physical cards with you!

• Restrictions have also been introduced against Sberbank, but in a milder version. Financial institutions are given 30 days to close any accounts of Sberbank and start rejecting any transactions involving the bank or its “daughters”.In this regard, please note that foreign partners and counterparties will not be able to make payments to the above-mentioned banks.

• At the same time, the European Union announced the disconnection of all sanctioned Russian banks from the SWIFT interbank payment system. The decision is coordinated with the USA, Great Britain and Canada. Japan and South Korea joined this decision.Disabling SWIFT will significantly complicate (but not stop) the calculations of users of banks that have fallen under such restrictions with foreign counterparties (regardless of the country of location).While we are waiting for an official document introducing this restriction.

• Ukraine has closed the possibility of settlement with Ukrainian counterparties in Russian and Belarusian rubles. Accounts of Russian residents in Ukraine are frozen. A moratorium on the fulfillment of obligations to Russian counterparties has been introduced.

• The actual bans on transfers to Russia are accepted by international payment systems: for example, since March 1, Wise announced the suspension of operations in favor of Russian accounts. Users also confirm that there are problems with PayPal – there are difficulties with linking cards of Russian banks.

Currency transfers

• Since February 28, there has been a ban on the sale of shares on Russian stock exchanges to foreign clients.

• Russian companies and sole proprietors — participants in foreign economic activity — are obliged to sell 80% of the foreign currency credited to accounts in 2022 on the basis of foreign trade contracts concluded with non-residents.This should be done with respect to the currency received from January 1 to March 1, 2022, within 3 working days from the date of entry into force of the Decree.And with respect to the currency received after March 1, it will need to be done regularly within three working days from the date of receipt of the money. The procedure for selling the currency has not yet been established, but the Central Bank is expected to adopt a new regulation soon.

  The wording of the decree is rather vague, which does not answer the question whether the requirement to sell foreign exchange earnings applies to money that was received and, for example, spent on operating activities before March 1, 2022. It is also not yet known whether this procedure will be operated automatically by Russian banks when funds are credited to the account or will require active actions (currency sales) from the account holders.

  A direct sanction is not currently established by the decree, but presumably Part 1 of Article 15.25 of the Administrative Code will be applied to this situation, which entails a fine of 75% to 100% of the amount of the illegal currency transaction, and for company officials — from twenty thousand to thirty thousand rubles.

• Also, on March 1, the adoption of a temporary ban on the withdrawal of foreign participants from Russian companies was announced. As of now, the ban has not been officially introduced, but is expected in the near future.Most likely, the tax authorities will suspend the registration of new owners of shares in Russian companies, as well as restrictions on making changes to data in the registers of shareholders.

• Since March 1, a ban has been imposed on the transfer of foreign currency loans abroad.”The ban on providing foreign currency loans to non-residents applies only to new loans, and not to servicing current debt,” the Central Bank of the Russian Federation explained.Thus, the restriction applies only to loans issued after March 1, 2022, and not to the repayment of existing ones.

• Since March 1, a ban has been introduced for Russian residents to transfer currency abroad to their accounts in foreign banks.It is about their accounts: it is still formally possible to transfer currency to other persons to their foreign account (that is, not their own).This option is provided by Article 9 of the Federal Law “On Currency Control”: it is allowed to transfer currency between residents in favor of an account in a foreign bank of one of them in amounts not exceeding $ 5,000 at the official exchange rate set by the Central Bank during one business day through one bank. And the limit on the amount does not apply to relatives.

• Since March 1, a ban on currency transfers using foreign payment systems has been introduced.We are talking primarily about foreign electronic wallets: WebMoney, Payeer, etc.A globally similar rule has already existed in Russian laws since July 1, 2021, but then, of course, its adoption passed under less public attention: in accordance with Article 12 of the 173-FZ “On Currency Regulation and Currency Control”, the use of electronic wallets (payment systems) for transfers related to foreign trade activities is prohibited.

  Now, however, the restriction is formulated more broadly and obviously concerns not only transfers within the framework of entrepreneurial activity, but in general all.

  There is an opinion that this will affect the possibility of paying for foreign services, but if you pay for their services with a card issued by a Russian bank, then you pay by bank transfer, and not through the use of a foreign payment system. So there is no formal violation.

Software

EU and US sanctions impose a ban on the import of “high-tech products” to Russia. To date, there is no clear definition of what is a high-tech product for the purposes of applying sanctions. Moreover, we are talking not only about products from the United States, but also devices that are manufactured using American technologies and patents, which may affect supplies from other regions.

There is a risk that the use of various software and services for users and customers from Russia may be restricted.

Also, foreign developers have begun to publish statements that they prohibit Russian users from accessing their developments on the condition of open licenses. In particular, such a statement was made by Florian Roth (Roth Florian), the creator of GitHub. He considered disabling free tools for Russian users, but later said he had changed his mind.

Other restrictions

As part of the sanctions, restrictions have also been imposed on other sectors of the economy that could potentially affect Russian IT entrepreneurs.

• Portugal has suspended the issuance of “gold” (investment) visas to Russian citizens.
• Several European countries have suspended the issuance of visas to Russians.
• Since February 28, 2022, the EU has stopped issuing visas under the simplified scheme.
• EU banks were banned from accepting deposits from Russians and Russian companies in excess of €100,000, selling euro-denominated securities to Russian clients and providing services for the sale of securities issued after April 12, 2022.
• European banks must provide regulators with a list of all deposits over €100,000 belonging to Russian citizens (residents) and Russian legal entities no later than May 27, 2022. The list should be updated every 12 months.
• These restrictions do not apply to Russians who have citizenship of an EU member state and persons with a residence permit, and do not apply to deposits that are necessary “for non-prohibited cross-border trade in goods and services between the EU and Russia.” But in relation to Russian persons who have obtained EU citizenship or residency through special investment programs (“golden passports”), banks still have to inform the national competent authorities about their deposits over 100 thousand euros.

We are monitoring developments and will periodically update the list of restrictions.

Take care of each other!