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Newsletter. Overview of Changes in Legislation. June-August 2013


The Overview of Changes in Legislation
June - August 2013

Currency and finance regulation

Federal Law on Amendment of Certain Legislative Acts of the Russian Federation in Connection with the Transfer of the Powers to Regulate, Control and Supervise Financial Markets to the RF Central Bank, dated July 23, 2013, No. 251-FZ.

As part of the financial markets management system reform (aimed primarily at enhancing state control and supervision of all their sectors) and the implementation of the long-discussed concept of creation of a mega-regulator in that area, subject to amendment are certain federal laws including the Law on Banks and Banking, Law on the Central Bank of Russia, Law on Joint Stock Companies, Law on the Securities Market, Law on Microfinancial Activity and Microfinancial Organizations, Law on State Registration of Legal Entities and Individual Entrepreneurs, the Tax Code, and other.

The Central Bank of Russia (the “CB”) has taken over the powers of the Federal Service for Financial Markets, including registration of securities issues and prospectuses; control and supervision of compliance with the laws on joint stock companies and securities; regulation, control and supervision of corporate relationships in joint stock companies; and control of compliance with the laws on counteraction to improper use of insider information and market manipulation. Now, the CB has the task to develop and ensure stability of the financial market, as well as officially record direct investments in Russia and investments abroad. The CB is also empowered to regulate, control and supervise the activity of all non-credit financial organizations (professional bidders in the securities market, investment funds, insurance companies, credit organizations, consumer cooperatives, microfinancial organizations, etc.).

The CB has acquired much broader access to informational resources. For example, according to the changes in the Federal Law on State Registration of Title to and Transactions with Real Estate and the Federal Law on State Registration of Legal Entities and Individual Entrepreneurs, the CB may require information from the Consolidate State Register of Title to and Transactions with Real Estate concerning the contents of title documents, a certain person’s rights to real estate, transfer of rights to real estate, the right-holder’s incapacity or partial incapacity, and any information from the Consolidate State Register of Legal Entities and the Consolidate State Register of Individual Entrepreneurs.

In the light of the global tendency to broaden informational cooperation in the currency and financial area, the CB has been granted the right to exchange information and documents with a foreign financial market regulator, including information constituting a bank secret (in particular, confidential information on operations, transactions of clients and beneficiaries), not only on the basis of Russia’s international treaties, but also on the basis of bilateral agreements with the foreign financial market regulator and the Multilateral Memorandum on Understanding Concerning Consultations and Cooperation and the Exchange of Information of the International Organization of Securities Commissions.

According to the changes in the Federal Law on Banks and Banking, the CB has acquired the right to require from credit organizations information about opening/closing of clients’ accounts and deposits, documents and information on operations with the accounts, transactions of legal entities, individual entrepreneurs and individuals. Credit organizations may not disclose to their clients the fact of transfer of such information to the CB.

The Federal Law on the Securities Market introduces the term “rating agency” – a commercial organization that on the basis of a financial and qualitative analysis assigns the creditworthiness and other ratings to legal entities and other formations.

The list of financial organizations for which the Federal Law on Insolvency (Bankruptcy) establishes a special bankruptcy procedure has been supplemented with bid initiators and microfinancial organizations. It is established that the powers of a financial organizations liquidator and receiver are to be exercised by Deposit Insurance Agency, a state corporation.

The majority of the changes described above came into force on September 1, 2013, and as of that date the Federal Service for Financial Markets was abolished in accordance with Presidential Decree, dated July 25, 2013, No. 645.

Order of the RF Ministry of Finance on the Approval of the Administrative Rules of the Federal Service for Financial-Budget Supervision on Control over Currency Operations Performed by Residents and Non-Residents Not Being Credit Organizations (the “Rules”), dated April 24, 2013, No. 48n, came into force on August 12, 2013.

The Rules determine the procedure for financial-budget control over compliance by residents and non-residents not being credit organizations (inspection objects) with currency laws in the course of currency operations (we remind that the said functions are performed by the Federal Service for Financial-Budget Supervision (Rosfinnadzor) being in the jurisdiction of the Ministry of Finance); describe the powers of Rosfinnadzor, the rights and obligations of inspection objects. The total duration of an inspection is limited to 12 months (or, as the Rules go, “may not exceed 253 business days”). Planned inspections of one inspection object (resident or non-resident) may be carried out once in three years only. In the course of an inspection Rosfinnadzor (or its territorial body) may require that the object of inspection provide information and documents, including those concerning currency accounts abroad, the notification of tax authorities about opening/closing of such accounts, currency operations, transactions made, etc. After an inspection, Rosfinnadzor draws up a statement of inspection and, as appropriate, a protocol of administrative offence and an order to remedy the offence.

Certain provisions of the Federal Law on Currency Regulation and Currency Control have also been changed (in connection with the adoption of Federal Law on the Amendment of the Federal Law on Currency Regulation and Currency Control, dated July 2, 2013, No. 155-FZ, and Federal Law on the Amendment of Certain Legislative Acts of the Russian Federation in Connection with the Transfer of Powers to Regulate, Control and Supervise in the Financial Markets Area to the Central Bank of Russia, dated July 23, 2013, No. 251-FZ).

Now, residents may without limitation open accounts abroad in foreign currency and in rubles regardless of whether or not the foreign state in which the account is opened is a member of the OECD or FATF. The term “currency operations” has been broadened to include operations connected with cross-border transfers of Russian rubles between residents. Namely, recognized as a currency operation is: a transfer of Russian rubles from the resident’s account opened abroad (foreign account) to another resident’s account opened in Russia, and vice versa; a transfer of Russian rubles from the resident’s foreign account to another resident’s foreign account; and a transfer from the resident’s foreign account to its another foreign account. The said currency operations between residents can be carried out without limitation. The rule that non-residents may without limitation transfer foreign currency to each other has been extended to the Russian currency.

As of September 1, 2013, the Central Bank has taken over the power to coordinate the interaction of the securities market professional bidders other than authorized banks (previously, it was in the jurisdiction of the RF Government). The requirement to notify currency control authorities of any violation of currency laws has been extended to the securities market professional bidders other than authorized banks.

Federal Law on the Ratification of the Treaty on Cooperation of Authorized Bodies of the Member States of the Agreement for Coordinated Principles of the Currency Policy, dated December 9, 2010, Exercising Currency Control, dated July 2, 2013, No. 138-FZ (the “Treaty” and the “Agreement”) respectively.

The Treaty among Belarus, Kazakhstan, Russia and the national (central) banks of those states was signed on December 15, 2011. The Treaty had been drawn up as part of the national implementation of international understandings concerning intensification of informational exchange in the field of control over financial operations and cross-border flows of capital with the aim of stabilizing the international financial system and strengthening financial stability of each of the states. The Treaty provides for a practical cooperation of the currency control authorities of the member states of the Agreement in the prevention, detection and suppression of violation of currency laws, including exchange of information and documents on currency operations of residents of the member states carried out with violations of currency laws.

Federal Law on Amendment of Certain Legislative Acts of the Russian Federation to the Extent of Counteraction to Illegal Financial Operations, dated June 28, 2013, No. 134-FZ (the “Law”).

As intended by the authors, the Law is called to create conditions for prevention of any possibility to carry out illegal financial operations, including money laundering, terrorism financing, evasion of taxes and customs duties, and to facilitate the struggle with corruption and setting up of short-lived companies. In this connection, changes were made in a number of federal laws, including the Law on Counteraction to Money Laundering and Terrorism Financing, Law on the Organization of Insurance Business in the Russian Federation, Law on the Operational-Investigative Activity, Law on the Securities Market, Law on Non-Governmental Pension Funds, the Criminal Code, the Code of Administrative Offences, and others.

The Law, inter alia, broadens the powers of tax authorities and police to access confidential information. In particular, police have acquired the right to receive from credit organizations, upon production of a court order, statements of accounts opened by legal entities, individual entrepreneurs and individuals. Thereafter, the results of operational investigations may be used by tax authorities in the exercise of their power to control and supervise compliance with tax laws, representation of the state in bankruptcy proceedings, and in the exercise of their powers in the field of state registration of legal entities. Upon request of tax authorities, credit organizations must provide them with information about the opened bank accounts and deposits of their clients, as well as statements of such accounts.

The new rules obligate organizations dealing with money or other property (credit and insurance organizations, professional bidders in the securities market, pawnshops, payment processors, federal post, and others) to identify its client’s beneficial owner (the individual who is the ultimate direct or indirect owner of the client or “has an overwhelming interest of over 25% in its capital”, or is capable of controlling the client’s actions) before signing a contract with the client, regularly (at least once a year) to update such information, as well as document and provide to authorized bodies information about their clients’ currency-financial operations and operations with property, and about client beneficial owners, at least three business days from the date of the operation which is subject to obligatory control (operations worth 600,000 rubles and more). Previously, such information was provided with respect to the beneficiaries of client’s transactions. If a credit organization is unable to identify any of the client beneficial owners, then the client’s individual executive body may be recognized as such.

The requirement to identify beneficial owners does not extend to state and municipal bodies and institutions, state corporations and organizations in which the state owns over 50% interest in the capital, foreign states and international organizations, as well as issuers of securities admitted to organized bids which disclosure information in accordance with Russian laws.

The Law introduces criminal liability for transfer of foreign currency or Russian rubles to non-residents’ accounts with the use of false documents and for smuggling of money and and/or money instruments, namely for their illegal movements across the customs border of the Customs Union in the amount exceeding twice the permitted one.

The said changes came into force on July 30, 2013.

Intellectual Rights Court

Information of the RF Supreme Arbitration Court and the Intellectual Rights Court, dated July 9, 2013, on the beginning of the Intellectual Rights Court’s activity and Regulation of the Supreme Arbitration Court Plenum on Amendment of its October 8, 2012 Regulation on Certain Issues Arising in Connection with the Formation of the Intellectual Rights Court, dated July 2, 2013, No. 50.

In connection with the beginning of the functioning of the Intellectual Rights Court (from July 3, 2013), the SAC gave explanations regarding the jurisdiction of that specialized arbitration court, including jurisdiction over the cases accepted for process before its formation.

According to the SAC, “cases on protection of intellectual rights are arbitration cases concerning protection of intellectual rights to any results of intellectual activity and equated means of individualization of legal entities, goods, work, services and enterprises which are granted legal protection”, including disputes over the right of before-use and the right of after-use, disputes arising out of sale (assignment) of the exclusive right and license agreements; cases concerning administrative liability for infringement of intellectual rights and unfair competition connected with the acquisition and use of the exclusive right to a means of individualization; cases concerning contestation of governmental bodies’ decisions on administrative liability in the said categories of cases, etc. The SAC lists cases falling within the jurisdiction of the Intellectual Rights Court as the court of the fist and the cassation instances. In this respect the SAC stresses that in the determination of the first instance’s jurisdiction the subject of the dispute has priority over the status of the parties involved: the Intellectual Rights Courts considers cases concerning intellectual property rights as the court of first instance regardless of who are parties to the relationship out of which the dispute arose – organizations, individual entrepreneurs or citizens. The SAC also notes that a review of judicial acts in bankruptcy proceedings, tax disputes, corporate disputes as a mater of cassation process is carried out by the federal arbitration courts of circuits in accordance with the general rules, even if in the course of consideration of the said cases certain issues of intellectual rights protection were touched upon.

Besides, the SAC Plenum gives explanations regarding cases on protection of intellectual rights which are considered by arbitration courts in administrative proceedings under the general rules on jurisdiction. Disputes over intellectual rights involving organizations that collectively manage copyrights and neighboring rights are considered by arbitration courts irrespective of the status of the parties involved and the nature of the disputed relationship.

The SAC further explains that cases in the sphere of intellectual rights protection which at the time the Intellectual Rights Court proceeded to work were under consideration by competent arbitration courts and common courts, as well as cassation appeals accepted for process by the FASO before July 3, 2013, should be considered by those courts on the merits.

Government contracts

Federal Law on the Amendment of the Federal Law on Placement of Orders for Supply of Goods, Performance of Work, Rendering of Services for State and Municipal Needs, dated June 7, 2013, No. 114-FZ (the “Government Order Law”).

The Government Order Law has been amended to give both parties of a government (municipal) contract the possibility to use the right of unilateral termination, provided that the government contract stipulates the customer’s right to make a decision on unilateral termination. We remind that previously the Government Order Law did not provide for the possibility of unilateral termination. Now, the customer is obligated to make a decision on unilateral termination, if the supplier does not meet the requirements of tender documentation or submitted doubtful information about itself.

The customer should notify the supplier of its decision to terminate the government contract by a registered letter receipt acknowledged and by other means stipulated by the law, and also publish the relevant information on its official site, within one business day following the date of the decision. Under the general rule, the date of due notification of the supplier about unilateral termination is the date of receipt by the customer of the confirmation of delivery of the notification to the supplier or the information that the supplier is absent at the address indicated in the contract. The supplier is also obligated to notify the customer of unilateral termination within one business day. Upon expiration of ten days from that date the contract is deemed terminated. The terminating party should give the other party a ten days grace period for remedying the violation. However, the said rule does not apply if the supplier violates the contractual terms and conditions for the second time.

The information on the supplier that caused termination of the contract is included in a special register of bad-faith suppliers.

The changes came into force from the date of their official promulgation, i.e., from June 7, 2013.