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Reporting Obligations on Outgoing Transfers by EU Entities with Russian Ownership

The Cyprus Ministry of Finance has announced the commencement of the new reporting obligations relating to transfers of funds out of the EU by EU entities with a certain level of direct or indirect Russian ownership, as imposed by the 12th package of EU Restrictive Measures - Article 5r of Council Regulation (EU) 833/2014. 


The reporting obligation has a broad scope, covering all types of transfers leaving the EU/Member States’ jurisdiction, including for the purpose of profit repatriation. It is not meant to stop profit repatriation of the relevant Russian-owned companies, but to identify flows of funds, including profit repatriation.


The purpose of the new reporting measure is to give better visibility on the flow of funds related to Russian-owned entities out of the EU, without jeopardizing the activities of entities that are partly Russian-owned and operating legitimately in the EU. This will allow the National Competent Authorities to assess better whether certain types of transfers pose a risk of violation of Russia-related sanctions and contribute to mapping out Russia’s sources of revenue.


The reporting obligation applies to:

  • legal persons, entities and bodies established in the Union whose proprietary rights are directly or indirectly owned for more than 40% by a legal person, entity or body established in Russia; a Russian national; or a natural person residing in Russia.

  • credit and financial institutions.


Article 5r covers transfers of funds held in a branch of an EU credit or financial institution or an EU operator located outside the EU. First and foremost, this obligation is relevant for entities incorporated under the law of a Member State and also located in a Member State. However, branches of such entities and institutions do not have a separate legal personality, and thus the responsibility for their actions falls onto their EU main entity or institution.


The obligation to report applies to transfers of an amount exceeding 100 000 EUR or more made in one or several transfers by the same party subject to the relevant reporting requirement. There is no minimum threshold for individual transfers that are part of the sum of all relevant transfers. The cumulative amount of 100 000 EUR applies within the reporting period.


The measure includes all types of funds, regardless of the currency. In accordance with Article 1(zd), “funds” means financial assets and benefits of every kind, including, but not limited to:

  • cash, cheques, claims on money, drafts, money orders and other payment instruments.

  • deposits with financial institutions or other entities, balances on accounts, debts, and debt obligations.

  • publicly- and privately traded securities and debt instruments, including stocks and shares, certificates representing securities, bonds, notes, warrants, debentures, and derivatives contracts.

  • interest, dividends, or other income on or value accruing from or generated by assets.

  • credit, right of set-off, guarantees, performance bonds or other financial commitments.

  • letters of credit, bills of lading, bills of sale; and (vii) documents showing evidence of an interest in funds or financial resources.


The first reports for legal persons, entities and bodies are due on 1 May 2024 and should cover the period from 1 January 2024 to 31 March 2024.  The first reports for credit and financial institutions are due after 1 July 2024.  As Reporting requirements may differ from one Member State to another, we recommend ensuring compliance with local guidance.


On 12 April 2024 the Commission has published FAQs relating to Article 5r, including a reporting template. Obliged Entities should review the template and ensure they are able to submit the first report by 1 May 2024.

 

Written by Sophie Papacosta, Compliance Associate, Financial Associates International (FAI Comply)


 

If you require assistance or advice relating to any matters arising in this article, please contact us to discuss your specific requirements.

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