(Feb. 15, 2019) Ukraine’s Law on Foreign Exchange and Foreign Exchange Transactions (Foreign Exchange Law) was adopted by the Verkhovna Rada (Ukrainian legislature) on June 24, 2018, and took effect on February 7, 2019. (Law on Currency and Currency Transactions (Foreign Exchange Law), June 24, 2018, No. 2473-VIII, GOLOS UKRAINI [VOICE OF UKRAINE] (official publication of Verkhovna Rada, in Ukrainian).) The purpose of the Law is to “ensure unified state policy in the field of currency transactions and free exercise of currency transactions” (id.), and to bring the Ukrainian foreign exchange regime in compliance with its obligations under the EU-Ukraine Association Agreement signed on April 29, 2014. (Association Agreement Between the European Union and Its Member States, of the One Part, and Ukraine, of the Other Part, art. 144, 2014 O.J. (L 161) 3, European Commission Directorate-General for Trade website.)
In addition, the National Bank of Ukraine (NBU) adopted eight implementing regulations that establish a new framework for currency transactions in Ukraine. (Press Release, National Bank of Ukraine, NBU Approves New System of Currency Regulation, Publishes Roadmap of Currency Liberalization (Jan. 4, 2019), NBU website.)
The Foreign Exchange Law is replacing an outdated currency regulation decree from 1993. (Decree of the Cabinet of Ministers of Ukraine on the System of Currency Regulation and Currency Control, 1993, CIS Legislation website.)
Principles of Currency Regulation
As stated in article 2 of the Foreign Exchange Law, residents have the right to enter into contractual relations in foreign currency. This includes opening accounts in financial institutions of other countries, acquiring foreign currency abroad, and transferring currency across borders. Nonresidents have the same rights with respect to currency transactions as residents. (Foreign Exchange Law art. 4.) The Law generally guarantees freedom of currency operations. Restrictions on currency transactions are to be imposed during times of monetary and economic distress, for reasons of national security, and in order to prevent money laundering. (Id.)
Trade in Currency Values
Trade in currency values is to be carried out by authorized agents in the foreign exchange markets of Ukraine and in international currency markets. (Id. art. 6.) The Law also stipulates that the cross-border transfer of currency values is to be carried out through authorized institutions. (Id. art. 7.) Any transboundary movement of currency in excess of approximately €10,000 (about US$11,000) must be declared in writing to the central executive body (Ministry of Finance), which has competencies over tax and customs policy. (Id. art. 8.)
Licensing
Banks require a banking license to carry out foreign currency transactions. Nonbank financial institutions must obtain a license issued by the NBU specific to the type of transaction in order to carry out currency transactions. (Id. art. 9.) The NBU’s license is valid indefinitely. Non-issuance, suspension, or revocation of a license can be challenged in court (Id. art. 9.)
Monetary Supervision and Protection Measures
The Law stipulates that foreign exchange oversight is to be carried out by the currency oversight bodies and currency oversight agents accountable to the NBU. (Id. art. 11.) It also grants the NBU the right to introduce protective measures when financial and monetary distress seems to threaten the integrity of the financial system as a whole. (Id. art 12.) The Board of the NBU has the right to introduce such protective measures for a period not exceeding six months, with the right to extend these protection measures for up to six months. The total period of protection measures cannot exceed eighteen months within a twenty-four month period. (Id.)
The Foreign Exchange Law obligates the NBU to present to a Verkhovna Rada committee a detailed impact-assessment report outlining the effectiveness and results of the protective measures within three months after the protective measures have been extended or terminated. This report is considered a public document and must be published on the official website of the NBU and made available indefinitely. (Id.)
Deadline for Settlement of Import and Export of Goods
The Federal Exchange Law also gives the NBU the right to set a deadline for the settlement of export and import transactions, as well as to establish exceptions and minimum limits for such transactions. (Id. art 13.) Violations of the terms of a settlement period are punishable by a fine for each day of delay in the amount of 0.3% of outstanding cash under the contract.
Disciplinary Measures for Violation of Currency Legislation
The Federal Exchange Law grants the NBU a number of punitive tools to apply in cases of currency-legislation violations. Such tools include restricting, suspending, or terminating certain foreign exchange transactions, or revoking licenses for foreign exchange operations (Id. art. 14.) According to the Law, punitive measures may be applied within six months after the violations have been detected, but no later than three years after the violation has been committed. For each violation only one measure is to apply. (Id. art. 15.)
Impact of New Foreign Exchange Law
The governor of the NBU, Yakiv Smolii, speaking of the potential impact of new Foreign Exchange Law, noted that “the Law on Currency and Currency Operations will create favorable, transparent and safe conditions for doing business in Ukraine and open doors to foreign investors. Ukrainians in their turn will have the right to invest in securities on global markets and deposit funds to bank accounts in any bank in the world.” (Press Release, National Bank of Ukraine, Verkhovna Rada of Ukraine Approved the Law on Currency and Currency Operations in the Second Reading and as a Whole (June 22, 2018), NBU website.) However, according to Alexander Okhrimenko, president of the Ukrainian Analytical Center, the NBU still wields considerable intervention tools under the new Law “[to keep] the currency market under control,” and thus he believes the enacted Law is not radical enough. (Yuriy Hryhorenko, Law “On Currency”: Pros and Cons of Currency Liberalization, 112.UA (July 4, 2018).) Others are of the opinion that liberalization of transboundary currency transactions under the new Federal Exchange Law will create favorable conditions for the outflow of Ukrainian capital abroad. (Id.)