These Laws introduce a significant number of amendments to several Russian legislative acts, including the Russian Civil, Tax, Administrative and Criminal Codes, the Federal Laws "On the Central Bank," "On Banks and Banking Activity", "On the Securities Market", "On Countering the Legalization (Laundering) of Proceeds from Crime and Terrorism Financing" and others.

These amendments affect the regulations on anti-money laundering and prevention of terrorism financing, as well as the rules for the establishment and operation of banks and other financial institutions in the Russian Federation. The new rules imposed by these laws enter into force during 2013 - 2015.

Below we provide an overview of some of the most important of these amendments.

  1.  Federal Law No. 134-FZ "On Amending Certain Legislative Acts of the Russian Federation on Combating Illegal Financial Transactions" dated 28 June 2013
  1. Bank accounts and client transactions

Amendments to Article 859 of the Civil Code allow the bank to terminate a bank account (deposit) agreement on the grounds stipulated by law by serving a 60-day advance termination notice on the customer. Immediately when such a termination notice is served, almost all operations on the customer's account may be suspended (except for interest accruals and certain tax and similar payments). If after the 60-day period the funds in the account remain unclaimed, the bank will be required to transfer them to a special account with the Russian Central Bank.

Amendments to Article 7 of Federal Law No. 115-FZ "On Countering the Legalization (Laundering) of Proceeds from Crime and Terrorism Financing " set out the grounds for such termination of a bank account (deposit) agreement by the bank (where during a calendar year the bank refused to execute two or more of the customer’s transactions on the grounds specified in the Law) and allow the bank to refuse to enter into a bank account (deposit) agreement with a customer if, in accordance with its internal control (AML) rules, the bank suspects that the account may be used for money laundering or to finance terrorism.

Banks (and other organizations engaged in transactions with cash or other assets) may refuse to execute a customer’s transaction if the customer fails to provide requested documentation, or if according to the internal control (AML) rules of such organization the transaction may be regarded as suspicious. At the same time, in a number of cases the bank (or such other organization) is obliged to suspend a transaction for a period of up to two business days until a decision is received from the authorized government body for the financial transaction monitoring. This applies, for example, to transactions where at least one of the parties has been subjected to actions under the AML legislation.

Banks are required within one business day to document and report to the authorized government body all cases of bank account agreement terminations, refusals to enter into a bank account agreement and refusals to execute customers’ transactions.

The above amendments entered into force on 30 June 2013.

  1. Information on customer bank accounts and transactions

Amendments to Article 26 of the Federal Law No. 17-FZ "On Banks and Banking Activity" and Article 86 of the Tax Code require banks to report to the tax authorities information on the opening or closing of bank accounts (deposits), a change of account details of its customers, including individual customers (natural persons), as well as information on the granting or termination of the right to use corporate electronic means of payment for companies or sole entrepreneurs.

Information on bank accounts (deposits), fund balances and customer transactions, including individual customers, may be provided by banks to the tax authorities in accordance with the procedure established by tax legislation. At the same time, information on bank accounts (deposits), fund balances and transactions of individual customers, may be requested by a particular office of the Tax Service only with the consent of its supervisory Tax Service office or the head (or deputy head) of the Federal Tax Service of Russia.

Tax authorities may request information on bank accounts (deposits), fund balances and customer transactions, including individual customers, on the basis of a request from an authorized government body of a foreign State in cases provided for in international treaties of the Russian Federation.

The above amendments to the Tax Code will enter into force as of 1 July 2014.

Information on bank accounts (deposits), fund balances and customer transactions, including individual customers, may be provided by banks to criminal investigation authorities only pursuant to a court order. In accordance with amendments to Article 11 of Federal Law No. 144-FZ "On Operational Investigative Activities" information obtained in the course of investigation activities may be passed on to the tax authorities.

  1. Amendments to the Federal Law “On Countering the Legalization (Laundering) of Proceeds from Crime and Terrorism Financing

Amendments to Federal Law No. 115-FZ "On Combating Legalization (Laundering) of the Proceeds from Crime and Terrorism Financing" introduce the concept of a "beneficial owner". According to the amendments, a beneficial owner is an individual (natural person), who directly or indirectly (through third parties), owns (has an equity interest of more than 25 percent) the company – client, or has the capability to control the actions (decisions) of the client.

Banks (and other organizations performing operations with cash and other assets) are obliged to identify customers before agreeing to provide services to them and to subsequently monitor on a regular basis the purposes of financial and economic activities of client companies, their financial position and business reputation. Banks (and such other organizations) are also required to take justified and reasonable steps to identify beneficial owners and to update information on customers, their representatives, beneficiaries and beneficial owners at least once a year. If any doubts arise as to the reliability and accuracy of previously received information the information must be updated within seven business days of such doubts arising. (It is allowed not to perform beneficial owner(s) identification with respect to publicly traded companies that are subject to the disclosure requirements under the Russian securities laws).

Banks (and other organizations that perform operations with cash and other assets) have an obligation within one business day to freeze (block) the funds or other assets of persons or entities included in the list(s) of organizations and individuals suspected of involvement in extremist or terrorist activities. (Such lists are maintained on the website of the authorized government body for the financial transaction monitoring).

Additional grounds for documenting information on suspicious customer transactions are introduced. In particular, such information must be documented when a customer declines to carry out a transaction that caused suspicion with the employees of the bank (or another appropriate organization).

The above amendments entered into force on 30 June 2013.

  1.  Tightening of foreign exchange control rules

The Law tightens criminal and administrative liability for the violation of foreign exchange control laws. The Law changes the wording of Article 193 of the Criminal Code, which establishes liability for breach of the duty to repatriate currency proceeds (Article 19 of the Law “On Currency Regulation and Currency Control”). There are also other changes to the Criminal Code and the Administrative Code, among them:

  • the threshold for criminal liability (for a failure to repatriate the funds in a “large-scale transaction”) is reduced from 30 million rubles down to 6 million rubles. The former threshold for “large scale” will now be classified as “very large scale” and thus will trigger more severe criminal liability;
  • for the purposes of determining “large scale” and “very large scale” offences the amounts of several foreign currency transactions conducted in the course of one year may be aggregated, including under different contracts;
  • other persons apart from the CEO’s of an organization (as was the rule earlier) may be held criminally liable;
  • criminal liability is established for a breach of the duty to repatriate funds in Russian rubles, in addition to foreign currency (the previous wording of the Criminal Code had a loophole in this respect);
  • Article 193.1 “Performance of foreign currency or Russian currency transfers to accounts of nonresidents with the use of falsified documents” is introduced into the Criminal Code. According to Article 193.1, falsified documents are understood as documents that contain deliberately false information as to the reasons, purposes and details of a currency transfer. A minimum threshold amount of funds for criminal liability is not established. Thus, criminal liability will result if any amount of currency is transferred to an account of a non-resident with the use of documents that deliberately contain false information;

Amendments have been made to Article 15.25 of the Administrative Code. The changes differentiate liability for the violation of deadlines to submit or for a failure to submit statements of funds on accounts (deposits) in foreign banks to tax authorities depending on the size of delay or the number of violations. Such differentiation leads to the mitigation of liability. However, if the violation is repeated in the course of one year the possible penalty significantly increases. For legal entities it may be up to 600 000 rubles.

The above amendments entered into force on 30 June 2013.

  1. Tightening of requirements for founders (shareholders) and members of the management of financial institutions

The Law imposes additional restrictions on founders (shareholders) and individuals holding senior management positions at financial institutions. Such restrictions include, for example, a prohibition on the direct or indirect acquisition of 10% (or more) of share capital in financial institutions and/or a prohibition for individuals to hold certain management positions if they have previously been convicted or have an outstanding conviction for economic crimes or crimes against the State; individuals previously subjected to administrative disqualification; individuals holding senior management positions at financial institutions at the time when their licences were revoked, etc. These restrictions apply to professional securities market participants, insurance companies, non-government pension funds, leasing companies, investment fund management companies and microfinance organizations.

In accordance with amendments to Article 10.1 of the Federal Law No. 39-FZ "On the Securities Market" the professional market participants now have to obtain prior approval from the regulatory authority for the appointment of an individual to the positions of the head of the organizations, head of internal control, controller, head of a division/department engaged in the securities market operations (where such operations are combined with other business activities).

The above amendments entered into force on 30 June 2013.

  1. Federal Law No. 146 “On Amending Certain Legislative Acts of the Russian Federation” dated 2 July 2013
  1. “Banking groups” and “banking holdings”

Amendments to Article 4 of the Federal Law No. 17-FZ "On Banks and Banking Activity" revise the definition of a "banking group" and a "banking holding". For example, as newly defined a banking group may be formed not only by credit organizations but also by other legal entities that are under the control or influence of the parent credit organization of the banking group. A banking holding is now understood to mean a group of legal entities (including a controlled credit organization), provided that banking accounts for no less than 40% of its business.

The Law establishes additional reporting requirements for banking groups and banking holdings and introduces new grounds for their respective parent companies to bear liability.

The above provisions will enter into force as of 1 January 2014.

Amendments to Article 26 of the Federal Law No. 17-FZ "On Banks and Banking Activity" allow credit organizations to transfer their customer transaction data to parent companies of their banking groups, banking holdings and other groups with the participation of the credit organization for the purposes of consolidated reporting and risk management. The transfer of such 3 data to parent companies located outside the Russian Federation is also permitted, provided certain standards of data protection (confidentiality) are met.

Article 51 of the Federal Law No. 86-FZ “On the Central Bank of the Russian Federation” allows for information on banking groups and banking holdings to be exchanged between the Russian Central Bank and the supervisory authorities of foreign countries where banking groups and banking holdings operate.

The above amendments will enter into force on 2 October 2013.

  1. Acquisition of shares of credit organizations

Amendments to Article 11 of Federal Law 17-FZ "On Banks and Banking Activity" and Article 61 of the Federal Law No. 86-FZ "On the Central Bank of the Russian Federation" lower the threshold for the prior consent of the Central Bank to the direct or indirect acquisition of shares in credit institutions from 20% to 10% and set out the requirements for obtaining the Central Bank’s prior consent to an increase in the participation in the capital of a credit organization upon reaching certain thresholds (e.g., more than 25%, more than 50%, etc).

The Russian Central Bank has the right to refuse to give its consent to the direct or indirect acquisition of more than 10% of share capital of a credit institution, including on the ground that a person planning to make such an acquisition has an unsatisfactory business reputation. (See below).

If the Central Bank identifies non-compliance with the requirements set for the financial condition or business reputation of persons holding directly or indirectly more than 10% of share capital of a credit organizations, the Russian Central Bank will have the authority to order that the shareholding be reduced to a level not exceeding 10%.

The above amendments will enter into force on 2 October 2013.

  1.  Requirements for members of the management of credit organizations

Amendments to Article 11.1 of the Federal Law 17-FZ "On Banks and Banking Activity" establish the requirements for determining the business reputation in respect of persons holding senior management positions within credit institutions. Furthermore, such individuals must meet the requirements as to qualifications and business reputation both when the Central Bank approves their nomination and throughout their entire term in office.

Requirements as to business reputation are defined by Article 16 of the Federal Law 17-FZ "On Banks and Banking Activity". In determining the business reputation of a person account is taken of such facts as, for example, previous criminal convictions; an individual’s involvement in the bankruptcy of a legal entity; participation in the management of a credit ogranization which had its licence withdrawn; prior disqualifications; commitment of certain administrative offenses, etc.

The above provisions will enter into force on 2 October 2013.

  1. Additional authority of the Russian Central Bank

New Article 57.3 of the Federal Law No. 86-FZ "On the Central Bank of the Russian Federation" grants the Central Bank the authority to assess the compensation system of a credit organization (including the terms of deferred compensation, and adjustment of the size of incentive payments to employees), and to require the credit organization to make change to this.

Amendments to Article 74 of the Federal Law No. 86-FZ "On the Central Bank of the Russian Federation" grants the Central Bank the authority to restrict the payment of dividends by credit organizations and to impose caps on the rate of interest set by the credit organization for customer deposits.

New Article 61.1 of the Federal Law No. 86-FZ "On the Central Bank of the Russian Federation" provides the Central Bank with the right to verify personal data, for example, in respect of individuals holding senior management positions at credit organizations and candidates for such positions. For these purposes the Central Bank may request necessary information from other government agencies.

The Central Bank is also authorized to include personal data of senior management of credit organizations in its official analytical and statistical publications on the banking system (including their date of birth, educational background and previous work experience).

The above provisions will enter into force on 2 October 2013 (Article 61.1 and Article 74) and on 1 January 2014 (Article 57.3).