NBU Extends Currency Control Restrictions

Baker&McKenzie, Kyiv, Ukraine
Thu, March 12, 2015

The National Bank of Ukraine hasextended certain existing currency control restrictions to 3 June 2015 andintroduced some new currency controls.

What Measures Apply?

1. The NBU has extended,inter alia, the application of the following measures:

(a) settlements under transactions for the export/import of goods are tobe conducted within 90 days;

(b) the mandatory requirement for legal entities and representativeoffices to sell 75% of the foreign currency proceeds received from abroad;

(c) the restriction on repaying cross-border loans prior to their maturitydate (subject to certain exceptions).

(d) the limit on the maximum amount of foreign currency that one bank cansell in cash per capita per day, which is the equivalent of UAH3,000. This restrictiondoes not apply if the foreign currency is purchased to repay loans denominatedin foreign currency.

2. NBU clarified the earlierprohibition concerning certain transactions in foreign currency and confirmedthat the following transactions are prohibited:

(a) repatriation of proceeds from (i) the sale of securities of Ukrainianissuers (except for sales of sovereign bonds conducted on a stock exchange),(ii) the sale of corporate rights (other than shares) or (iii) decrease of thecharter capital of a legal entity or exit of a foreign investor from the same;

(b) repatriation of dividends to foreign investors; and

(c) payments permitted by individual licenses issued by the NBU subject tocertain exceptions.

3. NBU introduced additional restrictive measures, including:

(a) additional limitations were introduced for interbank market foreigncurrency and bullion purchase transactions which are subject to “tod”, “tom”,“spot” and “forward” terms and authorized banks were prohibited from carryingout their own derivative transactions on a stock exchange where the underlyingasset is a foreign currency or its exchange rate. At the same time,non-deliverable currency transactions are no longer restricted;

(b) banks were prohibited from providing clients with loans in UAH(including under existing facilities or by way of prolongation of loans issued earlier) secured by pledge over property rights to foreign currencyfunds in bank accounts;

(c) authorized banks were prohibited, subject to certain exceptions, frompurchasing foreign currency for clients that are legal entities or individualentrepreneurs if they have available foreign currency in bank accounts with anyUkrainian bank;

(d) authorized banks were prohibited from purchasing foreign currency uponclients’ instructions using clients’ funds in UAH received as a loan except forthe purpose of repayment of a consumer loan by an individual received from thebank in foreign currency; and

(e) authorized banks, with certain exceptions, need the prior approval ofthe NBU to process cross-border advance payments in foreign currency underimport contracts in excess of USD 50,000. In addition, if a payment under sucha contract exceeds USD 500,000 the authorized bank may process such paymentonly pursuant to a letter of credit which meets the requirements set byResolution No. 124.

These measures were implementedwhen on 23 February 2015 and 3 March 2015 the National Bank of Ukraine (the"NBU") adopted new regulations (“Resolution No. 124”) and(“Resolution No. 160”) accordingly with effect from 24 February 2015 and 4 March2015 respectively, which introduced new currency control restrictions andextended the application of certain existing currency control restrictionspreviously set by NBU Resolution No. 758, dated 1 December 2014.

Conclusion

The extension of these currency control restrictions andintroduction of the new controls was prompted by the high volatility of the UAHand is aimed at preventing capital flight from the Ukrainian financial system.

If you would like to discuss any aspect of the new measuresplease feel free to contact us.

Additional notes

ThisLEGAL ALERT is issued to inform Baker & McKenzie clients and otherinterested parties of legal developments that may affect or otherwise be ofinterest to them. The comments above do not constitute legal or other adviceand should not be regarded as a substitute for specific advice in individualcases.