Restrictions on Foreign Currency Operations

Lately the National Bank of Ukraine (the "NBU") has introduced restrictions on certain operations with foreign currency in order to stabilize the situation in the currency market and prevent a further devaluation of the national currency.

In particular, on 23rd February 2015 the NBU issued Resolution No. 124 "On Peculiarities of Certain Currency Operations" ("Resolution 124"), taking effect on 24th February 2015. By means of Resolution 124 the NBU has enacted a ban on buying foreign currency by the banks for their clients at the expense of the client's borrowed funds.

Resolution 124 also imposes the following currency restrictions on importers:

• No advance payments are allowed under import contracts for amounts over USD 50,000 (or its equivalent in other currencies based on the official NBU exchange rate) without prior approval of such payment by the NBU. Approved payments will be processed by the authorized banks no earlier than the fourth bank working day after submission of the information by the authorized bank to the NBU. Only one such payment between the same parties may be approved by the NBU on one bank working day.
• Advance payments under import contracts for amounts over USD 500,000 (or its equivalent in other currencies based on the official NBU exchange rate) may be conducted only via letters of credit confirmed by the banks with ratings no lower than the investment class (according to the ratings issued by top international rating agencies). Foreign currency may be acquired only as security for the letters of credit and for payment of the service fees of the foreign banks confirming the letters of credit. Release of payment is made upon due submission of the confirmation documents. According to the Resolution 161 adopted by the NBU on 3rd March 2015 (defined below) these requirements are not applicable to import operations involving the purchase of vital goods (life-sustaining goods) until 3rd April 2015.

The NBU also extends the above respective restrictions to the following import contracts:

• import contracts not providing for a total amount, if the aggregate amount of the payments already conducted under the same contract together with the pending payment exceeds USD 50,000 or USD 500,000 (or its equivalent in other currencies based on the official NBU exchange rate);
• import contracts entered into before 24th February 2015 for a total amount exceeding USD 50,000 or USD 500,000 (or its equivalent in other currencies based on the official NBU exchange rate) under which payments are due but have not been conducted as of 24th February 2015; and
• all import contracts entered into with the same supplier, if the aggregate amount of monthly payments under such import contracts exceeds USD 50,000 or USD 500,000 (or its equivalent in other currencies based on the official NBU exchange rate).

Therefore, taking into account the above restrictions, the importers shall be ready to bear additional costs related to the letters of credit (if applicable) and make revisions to existing contracts in order to reflect respective regulation of the advance payments.

On 3rd March 2015 the NBU issued Resolution No. 160 "On Resolving the Situation in the Monetary and Foreign Exchange Markets of Ukraine" ("Resolution 160") with effect from 4th March 2015 until 3rd June 2015 inclusive. Resolution 160 extends the existing and introduces several new restrictions on operations with foreign currency. The restrictions extended are the following:

• 90-day term is established for payments and settlements under export and import contracts;
• mandatory sale of 75% of proceeds in foreign currency transferred by non-residents to the accounts with Ukrainian banks;
• prohibition of early repayment of loans in foreign currency, payment of dividends to non-residents, transfer of funds outside Ukraine as a result of sale by non-resident of shares or participatory interest in Ukrainian companies;
• prohibition of payments abroad under the individual licenses previously issued by the NBU (with certain exemptions).

By Resolution 160 the NBU introduced verification of all payments outside Ukraine in addition to earlier established verification of advance payments under import contracts and has introduced the following new restrictions:

• the list of prohibited foreign currency operations is supplemented with transfer of foreign currency as a result of decrease of a Ukrainian company’s charter capital or withdrawal of non-resident participant / shareholder from a Ukrainian company;
• the banks are prohibited to buy foreign currency for the clients (except for individuals), if the amount held by such clients at the accounts with Ukrainian banks exceeds USD 10,000 (in equivalent at the official rates of corresponding currencies on the day of the application for purchase of foreign currency). When calculating the mentioned threshold the amount of pledged funds and deposits placed before 4 March 2015 as well as funds at the accounts opened with banks, which have been declared insolvent, shall not be taken into account;
• the banks are prohibited from providing loans in UAH (including by means of extension of existing credit facilities), if such loans are to be secured by pledge of foreign currency at the client's bank accounts.

If a client submits application to a bank for purchase of amount in foreign currency exceeding the equivalent of USD 50,000, certain additional documents shall be submitted to the bank:

• for import operations, a certificate from the State Fiscal Service of Ukraine certifying that the client has no outstanding debts on taxes, levies and payments;
• for sale of debt securities by non-resident at the stock exchange, a confirmation from the National Securities and Stock Market Commission on the non-fictitious nature of operation; and
• for sale of the state bonds acquired by non-resident at the stock exchange after 4 March 2015, a confirmation regarding purchase out of funds obtained as a result of sale of foreign currency and/or state bonds or receipt of interest or retirement of bonds.

In addition, on 3rd March 2015 the NBU adopted Resolution No. 161 "On Amendments to Certain NBU Regulations" ("Resolution 161") introducing the following changes to regulation of foreign currency operations. As mentioned, Resolution 161 amended Resolution 124 and suspended requirement to use the letter of credit as payment method in case of settlements under import contracts for the total amount exceeding USD 500,000 until 3rd April 2015, if the contracts were concluded regarding life-sustaining goods (i.e. as oil, gas, electricity, coal, petrol, diesel fuel, pharmaceuticals for haemodialysis and oncology treatment, international humanitarian aid, and military defence products.).

In addition, according to Resolution 161 a special evaluation act from relevant state authority is now required for the payment of services purchase price for the amount exceeding EUR 25,000 (previously, EUR 50,000).