On 22 September 2014, the Board of the National Bank of Ukraine (the “NBU”) adopted Resolution No. 591 (the “Resolution”) which amends several existing NBU resolutions relating to the temporary currency control restrictions. In particular, the Resolution eased the requirement to convert foreign currency proceeds. The Resolution also introduced restrictions that appear to target evasive transactions aimed at siphoning funds outside of Ukraine. At the same time, such restrictions may affect certain cross-border transactions, including regular business transactions and foreign investment transactions. The new measures summarised below became effective on 23 September 2014.
The Requirement to Sell Foreign Currency Proceeds Reduced from 100% to 75%
The requirement to convert foreign currency proceeds in major foreign currencies (including US dollars and Euros) and Russian rouble was introduced by the NBU in November 2012. Since then, the NBU has modified the requirement from time to time by extending it to additional types of foreign currency proceeds and increasing the share of proceeds that had to be converted. Starting from 21 August 2014, the NBU required 100% of any foreign currency proceeds received in Ukraine by any legal entities (excluding banks) and individual entrepreneurs to be converted into national currency, with a limited number of exceptions relating to proceeds received by the government, funds of diplomatic missions, funds in correspondent accounts and deposits of foreign banks with Ukrainian banks, etc.
On 23 September 2014, the share of proceeds subject to mandatory conversion was decreased from 100% to 75% “in connection with the positive effect of anti-crisis currency control measures adopted by the NBU and the existing condition of foreign exchange market in Ukraine”. The types of proceeds captured by the mandatory conversion requirement remain unchanged.
Restrictions on Payments Under Import Transactions
According to the Resolution, Ukrainian importers are prohibited to make the following foreign currency payments until 2 December 2014:
In this regard the commodity traders are recommended to thoroughly consider the structure of their activities in Ukraine in order to avoid repercussions of implemented restrictions.
Restrictions on Repatriation of Investments in Ukrainian Companies
Until 2 December 2014, the Resolution prohibits the following foreign currency transactions related to investments in Ukrainian companies:
In practice, this means that, at least until 2 December 2014,a foreign investor will not be able to physically return its debt or equity investments (other than investments in government bonds and securities disposed of via the stock exchange). Although the above restrictions should not affect the transfer of title to shares and other equity interests as such, any proceeds from such transactions will have to remain in Ukrainian bank accounts. Implementation of the Resolution will have a direct impact on structuring of the M&A transactions in Ukraine, as long as the restriction is effective.
Prohibition of Foreign Currency Transactions Made on the Basis of the NBU Individual Licences
Until 2 December 2014, the Resolution prohibits foreign currency transactions under the NBU individual licenses (except for individual licenses issued to legal entities for placement of foreign currency in foreign accounts).
In practice, this means that during the period of effectiveness of the restriction most of transactions which are subject to the NBU individual licensing regime will not be performed by Ukrainian banks. Such transactions include certain cross-border payments by Ukrainian companies and individuals (e.g., payments under guarantees issued in respect of obligations of non-residents) and foreign investments by Ukrainian residents. The wording of the restriction suggests that it extends to payments on the basis of individual licences that have been received prior to 23 September 2014.
Restrictions Applicable to Purchase of Foreign Currency by Individuals
Finally, the Resolution decreased the maximum amount of foreign currency cash which one individual may purchase in one bank during one banking day. The amount was decreased from the equivalent of UAH 15,000 to the equivalent of UAH 3,000. One exception to this limitation is the case when an individual repays a foreign currency loan to a Ukrainian bank. In this case the bank has the right to sell to the client an amount of foreign currency not exceeding the amount of due payment, provided that this foreign currency will be immediately returned to the bank towards loan repayment. This restriction is also expected to last until 2 December 2014.