CIS Legal Update - May 2013: New Restrictions Imposed on Russian State Officials

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On April 27, 2013 the Federal Council of the Russian Federation approved a law prohibiting certain categories of individuals from opening and maintaining accounts and cash deposits in foreign banks situated outside of Russia, as well from owning securities of foreign issuers (the “Law on Foreign Accounts”).

In a letter addressed to the Federal Assembly of Russia, dated December 12, 2012, President Vladimir Putin identified corruption as one of the main problems plaguing modern Russia and encouraged elected officials to curb its prevalence through meaningful legislation. The Law on Foreign Accounts, which was introduced in the State Duma in response to this letter, is expected to be an effective legislative tool for combating corruption among state officials.

Individuals Subject to Prohibitions

The following individuals will be prohibited from opening accounts and depositing cash in foreign banks situated outside of Russia, as well from owning securities of foreign issuers (the “Prohibitions”):

1. Individuals holding (or temporarily holding) ("Officials"):

a) public positions in the Russian Federation (including Members of the State Duma and Federal Council;

b) positions of first deputy and deputies of the General Prosecutor of the Russian Federation; 

c) a position of board member of the Central Bank of the Russian Federation;

d) public positions within the regions of the Russian Federation;

e) federal service positions that are appointed by the President, Government or General Prosecutor of the Russian Federation; 

f) positions in federal corporations (companies), funds, and other organizations establsihed on the basis of federal laws, and that are appointed by the President or the Government of the Russian Federation.

2. Spouses and minor children of the individuals listed above ("Family Members")

The Law on Foreign Accounts provides an exception for Officials and their Family Members who hold positions in diplomatic representations, consular offices, and other official agencies and federal bodies of governmental agencies situated outside of the Russian Federation.

The Officials and Family Members subject to the Law on Foreign Accounts will be obliged to close their bank accounts and deposits with foreign banks and dispose of any securities that were issued by a foreign source within three months of the legislation’s entry into force. Should the Official or his/her Family Member(s) choose to ignore this requirement, the Official will be terminated from his/her position.

Additional Disclosure Requirements

Officials occupying relevant positions, including those serving on an interim basis, will be obliged to disclose — in addition to information regarding income, property, and obligations of a pecuniary nature — information about any real estate owned outside of the Russian Federation belonging either to them or their Family Members, sources of income from which the relevant real estate was bought, financial obligations outside of the Russian Federation and any similar obligations among their Family Members.

Checking for Compliance

Officials found non-compliant with the provisions of the Law on Foreign Accounts will be subject to review by the relevant authorities. Information serving as the grounds for review can be provided (in written form) by: a) law enforcement authorities and other federal state authorities, the Central Bank of the Russian Federation and other credit institutions, and other Russian organizations, etc; b) permanent managing bodies of political parties and other Russian non-governmental organizations; c) the Public Chamber of the Russian Federation; and d) Russian mass media. Information from anonymous sources will not be considered.

Topics:  Compliance, Disclosure Requirements, Foreign Banks

Published In: Finance & Banking Updates, International Trade Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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