The control procedure for foreign currency operations by individuals connected with loans is once again undergoing changes. Anastasia Kuzmina, Head of the Tax group at Capital Legal Services, tells us what this means.

Starting from November 20, banks will begin exercising control over loans granted by Russian individuals to any foreign entities. That is, an individual giving a loan to his/her foreign company or foreign partner will need to provide the bank all the information on this transaction. Firstly, you will need to provide the bank with a loan agreement. Secondly, in the event the loan amount exceeds 3 million rubles, you will need to notify the bank about the planned deadline for funds to be returned to the lender’s account in Russia. Thirdly, when the foreign entity returns the funds, you will once again need to notify the bank that this is the loan being returned and not something else.

It is interesting that this rule and liability for not following it, have always applied to organizations and individual entrepreneurs. At the same time, the penalty for failure to return funds to Russia is quite substantial – from 75% to 100% of the total loan amount. That is where a gap occurred: the obligation for individuals to ensure the loan return has been introduced, but liability for failure to comply has not. The Administrative Offences Code of the Russian Federation has not been amended in this regard. In other words, with banks having actual control, there is still no mechanism for holding individuals liable. Although this is probably just a matter of time.

Most likely, banks simply will not allow a payment in the absence of information on the loan, and will take their own measures against individuals if they do not return the borrowed funds from abroad in time.