In view of the forthcoming Christmas and New Year, we hope that you have been successful in your endeavours and now are happily proceeding to completion of your ongoing projects. As usual, the year-end bustle is speeding up, and Belarus is no exception. In this regard, we are glad to share with you the overview below of the most recent legal and business news.
Several previous months were prominent for dynamic activities by the recently appointed “free market-oriented” Belarusian Government, which has announced a new program that largely aims at maintaining the current level of economic stability and preparing the ground for growth in 2021-2025.
Relations with major trade partner, Russia, have played a significant role in the public spotlight again. At the recent Eurasian Intergovernmental Council, Belarus raised concerns about equal rules of the game for Eurasian Union member states. Later, the Belarusian President went as far as to accuse the eastern neighbour of economic pressure to surrender Belarusian sovereignty. Well, we should say we have seen various disputes between Belarus and Russia, and so expect interstate relations to go back to normal soon.
The country is looking to 2019 with hopes of sustainable economic growth along with caution due to a possible downturn in global export markets on which Belarus depends so much.
The Government Promises More Liberal Treatment of Small and Medium Enterprises
In line with the provisions of both the new and the previous Programs of Government Activities, the Government adopted the Strategy for Development of Small and Medium Enterprises for the period until 2030. The Strategy will be implemented in two stages (2018-2020 and 2021-2030) and introduces various administrative, economic, legal, informational, educational, and other measures, including the following:
- development of the “one-stop shop” principle with the concept “one typical business situation – one application”;
- publication of court decisions related to SMEs (thus far, publication of these decisions has been very limited);
- improvement of public procurement laws;
- simplification of mandatory reports.
Some of the measures envisaged by the Strategy are expected to be implemented in the near future, namely changes to the regulations on licensed activities and on administrative procedures. The Government has reported about preparing two legal acts to introduce changes to these spheres, including further shortening of the list of licensed activities and simplification of licensing requirements.
Generally, the Program appears to manifest Government policy to help grow the SME sector as a pillar of the national economy, inspired by the example of more mature markets, and also absorb the workforce gradually released from large state owned enterprises.
Amended Banking Code: Fairer Treatment of Private Lenders, Going Easier on Banking Secrecy, and New Forms of Cashless Settlement
On 29 October 2018 amendments to the Belarus Banking Code entered into force. The amendments were mainly aimed at protection of bank customers.
Bank loans and Deposits
Starting from 29 October 2019 banks will not be allowed to unilaterally increase interest rates for bank loans or decrease interest rates for deposits. Respective provisions in agreements with banks should now be considered void.
Moreover, special rules were introduced for retail lending, including additional requirements for banks regarding provision of information to retail customers, a prohibition on imposing additional paid services on them, as well as other rules ensuring better client protection.
The amendments widen the list of parties to which banks may disclose their customers’ banking secrets and allow for disclosure without customer consent. This will cover cases of disclosure to sureties and pledgers securing an owner’s obligations to a bank, assignees of bank claims against the owner, and so on.
Additionally, violation of banking secrecy will no longer cover certain cases involving disclosure of banking secrets to a court, prosecuting authorities, administrative investigators, notaries, or advocates, as well as to auditors, the National Bank, and other banks.
Registration and Liquidation of Banks
A bank may now be established in Belarus only in the form of a stock company with at least two shareholders. As a result, banks have become different from other stock companies, which are generally free to have only one shareholder.
Additionally, banks no longer need the approval of the National Bank to be liquidated upon the initiative of their shareholders. Instead, the general meeting of shareholders should notify the National Bank within five days after making a decision on liquidation.
New Forms of Cashless Settlement
Two new forms of cashless settlement were included in the Banking Code, namely direct debit and bank payment obligation. Implementing regulations in respect of direct debit will enter into force on 1 January 2019, while those in respect of bank payment obligation are already in force.
Long Awaited Regulations for Cryptocurrency Business Adopted at Belarus High Tech Park
In late November, the Belarus High-Tech Park (HTP) published a set of documents establishing sophisticated regulations on crypto- and ICO businesses. Namely, the new regulations apply to HTP residents operating as ICO organisers, crypto-platform operators, cryptocurrency exchange operators, or performing other activities with tokens, including those similar to professional or exchange activities with securities, activities of investment funds, securitisation, as well as issue and placement of own tokens.
In general, the new regulations resemble the rules existing in such spheres as banking, insurance, activities of investment funds, operations with securities, and the like. In this regard, the relevant HTP businesses will have to comply with the following general requirements:
- requirements as to officers engaged by the company, including risk manager, AML/KYC officer, system administrator / information security officer, HTP compliance officer;
- disclosure of information about company officers and beneficial owners;
- sufficient experience by the applicant, its manager, beneficial owner, owner, and/or significant shareholder in at least one of such spheres as banking, insurance, securitisation, leasing, cryptocurrency exchange, crypto-platforms, etc.;
- requirements as to the amount of the company’s authorised capital: equivalent of BYN 500,000 (approx. EUR 207,000) for ICO organisers and equivalent of BYN 2,000,000 (approx. EUR 830,000) for applicants involved in other regulated activities;
- compliance with several financial indicators;
- arrangement of internal processes and adoption of respective internal regulations in regard to risk management, HTP compliance, AML/KYC requirements, conflict of interest, outsourcing policies, cybersecurity, and procedures for disposal of tokens.
In that light, the new regulations have significantly changed the legal framework for crypto- and ICO activities, compared to the general liberal approach introduced by the “digital country” Decree No. 8. Under the new rules, these businesses are clearly associated with significant risk, and emphasis is put on the safety and stability of their operations.
Higher Penalties for Unpaid Taxes and Customs Duties, Breach of Currency Exchange Rules
The end of October 2018 was marked by the entry into effect of most of the provisions introduced by a new law changing administrative and criminal liability for some violations, as well as some issues of criminal and administrative procedure:
- exclusion of criminal liability for restriction of competition and unlawful use of a competitor’s goodwill;
- alignment of the provisions of the Code on Administrative Violations with Presidential Decree No. 114 adopted in 2012 and with the new Law on Combating Monopolistic Activities and Development of Competition. In general, the updated provisions encompass a greater number of violations, including unlawful coordination of economic activities, restriction of competition, unfair competition;
- significant increase in penalties for violation of currency exchange regulations;
- major increase in penalties for several violations related to failure to pay taxes and customs duties.
- Solutions to Belarus-Russia Migration Problems Are on the Way, and Local Formalities to Be Simplified
The Russian authorities are working on creation of an international crossing point at the Belarus-Russia border. The crossing point should solve most of the problems for foreign travellers who currently cannot legally cross the border and have to make a detour via neighbouring countries. As recently reported, the governments of Belarus and Russia already have a draft treaty on reciprocal admission of visas that may be signed in the nearest future. The treaty should solve existing problems with the border crossing.
Further on the topic of migration, the Belarusian Ministry of Internal Affairs announced the launch of an online temporary stay registration service for foreign visitors. The procedure is mandatory for foreigners who are staying in Belarus for more than 5 days (citizens of some countries, including Russia and Ukraine, enjoy longer terms of unregistered stay). Currently, registration requires a foreign visitor to attend the local migration authority in person. With introduction of the new service, the procedure should become more convenient for travellers and decrease the number of violations of migration requirements.
Online registration is expected to be launched in January 2019. The new service will be free of charge.
The Ministry of Internal Affairs also reported about plans to extend the default deadline for temporary stay registration to 10 days after entering the country. Hence, most travellers will at least not have to worry about compliance with part of the migration requirements. The prolongation is likely to be introduced in 2019.
Recently Closed Deals
International software house Helmes acquires majority stake in Belarusian SolbegSoft
Helmes, an international software development company based in Estonia with an R&D office in Minsk, acquired a majority shareholding in Belarusian outsourcing IT company SolbegSoft, a resident of the High Technology Park with about 250 employees globally. SolbegSoft is known for offering a wide range of software solutions and consulting services for a variety of industry sectors.
Sorainen provided full scope legal assistance to the investor during the project. The team conducted legal due diligence, prepared transaction documents, represented the client during negotiations on legal aspects of the deal, and assisted with signing and closing procedures. The transaction became one of the first and largest projects to take advantage of Belarus’ nascent Digital Country regime introduced by Presidential Decree # 8 in March 2018.
The Sorainen team led by partner Maksim Salahub and senior associate Viktoryia Mikhnevich, included senior associate Kirill Laptev, associates Aliaksei Vashkevich and Tatsiana Zubarava, and other team members.
EBRD lends USD 15 million to Modern-Expo group
Sorainen Belarus advised the European Bank for Reconstruction and Development (EBRD) on Belarusian law matters in connection with lending USD 15 million to Modern-Expo group. A seven-year loan will be used to increase production volumes at the two principal manufacturing sites in Lutsk (Ukraine) and in Vitebsk (Belarus), as well as to restructure the group balance sheet.
Modern-Expo group, founded in 1993, is now is one of the largest manufacturers and suppliers of fixtures in Central and Eastern Europe. The list of its clients includes such major international retailers as Auchan, Carrefour, Billa and Nestlé. The Belarusian company in the group is a resident of the free economic zone "Vitebsk".
The EBRD is an international financial institution that supports private sector and entrepreneurial initiative in 38 countries on three continents and is the largest institutional investor in the economy of the Republic of Belarus. From the commencement of its activity in Belarus in 1992 the bank has invested more than EUR 2 billion in projects in various sectors of the Belarusian economy.
Sorainen specialists assisted in structuring the deal, conducted legal due diligence of Belarusian enterprises in the borrower`s group, advised on the terms of the loan agreement from the Belarusian law perspective, drafted part of the security documents, as well as consulting the lender on other financing-related issues. The Sorainen Belarus team consisted of senior associates Ann Laevskaya and Aliaksei Daryin, legal assistant Artem Melnikovich and country managing partner Kiryl Apanasevich.
Russian-Belarusian Venture Capital Fund invests in Belarusian startup RocketData.io
Russian-Belarusian Venture Capital Fund (RBF Ventures), formed as an investment partnership by the Belarusian Innovation Fund (Belinfond), RVC and RVC Infrafund, acquired a minority stake in Belarusian innovation company Data Delivery LLC, developing a platform for managing online business - RocketData.io. Six business angels co-invested in the company, along with Belarusian media-portal TUT.by, which was the first investor at the pre-seed stage. Funding raised in this investment round is about KUSD 500, with total valuation of about MUSD 3.
The Sorainen team consisting of partner Maksim Salahub and senior associate Viktoryia Mikhnevich provided full-scope legal support to RocketData.io in connection with the transaction.
The target is a resident of the Belarus High Technologies Park, which helps in preparing and executing the transaction fully under Belarusian law, taking advantage of Belarus’ nascent Digital Country regime introduced by Presidential Decree No. 8 in March 2018. This is the first venture capital transaction involving direct equity investment in a Belarusian startup structured within the new Belarusian legal framework. RocketData.io is the first Belarusian project in RBF Ventures’ portfolio.