On 8 August 2023, the President of the Russian Federation issued Decree No. 589 "On the Special Procedure for Settlements Under Foreign Trade Contracts for the Supply of Russian Agricultural Products" (Decree 589). The document, which took effect on the date of its official publication,[1] was posted on the online legal information portal on 8 August 2023.

1   Mechanism for Settlements in Rubles

A special settlement procedure is being introduced for foreign trade transactions for the supply of agricultural products entered into through organized exchanges between Russian exporters and foreign buyers. In essence, the proposed measures create an effective mechanism for paying for Russian agricultural products in rubles, even if the relevant supply contract stipulates the price terms and payment for goods in a foreign currency.

According to Decree 589, special Z-type ruble and foreign currency accounts can be used for these purposes. The settlement process involves:

(a)  depositing foreign currency by foreign buyers into a special Z-type foreign currency account;

(b)  converting these funds into rubles (by selling the foreign currency directly to the account holding bank or through organized exchanges);

(c)  depositing the amount in rubles received from this conversion into a special Z-type ruble account opened for the foreign buyer; and

(d)  subsequent transfer of the funds in rubles to the account of the Russian seller of agricultural products on the basis of an instruction from the foreign buyer and an extract from the register of contracts entered into through organized exchanges.

It should be noted that, under Decree 589, the new settlement mechanism will start operating no earlier than 1 November 2023, when the relevant provisions of Decree 589 take effect.

2   Z-Type Account System

Foreign buyers of Russian agricultural products will be able to open such special Z-type accounts with authorized Russian financial institutions on the basis of an application. This will not require the personal presence of their representative. In turn, authorized banks will be required to establish the identity of such new customers no later than 45 days from the date of opening of the Z-type account based on documents and information available to them under the circumstances.

The Bank of Russia has yet to establish a special system for using Z-type accounts (similar to the systems for other types of special accounts, such as K-type accounts (used for gas payments) or S-type accounts (for settlements on financial obligations)). But even now Decree 589 already defines the special nature of Z-type accounts, the funds wherein are to be used exclusively for payments for the supply of Russian agricultural products.

Specifically, Decree 589 prohibits suspension of transactions on Z-type accounts, as well as distraint or writedown of funds from such accounts, unless this is related to settlements under foreign trade supply contracts. However, a number of exceptions for debiting funds from Z-type accounts of a foreign buyer may be provided for by tax and customs laws (for example, to settle corresponding obligations of the foreign buyer to the Russian treasury).

3   Powers of the Regulators

The Bank of Russia is entitled to issue clarifications on matters relating to the system of the aforesaid accounts and settlements thereon.

At the same time, Decree 589 empowers the Ministry of Agriculture of the Russian Federation to issue official clarifications on questions related to the subject matter of transactions involving settlements with the use of Z-type accounts, namely, Russian agricultural products.

The Government of the Russian Federation will define by 1 December 2023 the list of products the supply whereof is to be paid for using special Z-type accounts.

4   "Exclusive" Regulation of the Procedure for Approving Transactions of Special Entities

In addition to the new procedure for settlements under foreign trade contracts for the export of Russian agricultural products, Decree 589 stipulates separately certain special rules for the execution of a number of transactions by organizations on the list to be defined later by the RF President on the proposal of the RF Government.

In particular, transactions by these organizations will not be subject to the rules:

(a)  prohibiting gifts between commercial organizations;[2]

(b)  on advance approval by the board of directors of an agreement on making a contribution to the assets of a joint-stock company;[3] and

(c)  on approval of interested party transactions by the governing bodies of joint-stock companies and limited liability companies.[4]

We continue to monitor the legislative developments and the application of new restrictive measures.

[1]  With the exception of the key provisions of Decree 589, which will take effect from 1 November 2023.

[2]  Provisions of subclause 4 of clause 1 of Article 575 (Prohibition of Gifts) of the RF Civil Code.

[3]  The provisions of the fourth paragraph of clause 1 of Article 32.2 (Contributions to the Company's Assets That Do Not Increase the Company's Authorized Capital) of Federal Law No. 208-FZ On Joint-Stock Companies dated 26 December 1995 (the JSC Law).

[4]  The provisions of clauses 1 and 1.1 of Article 81 (Interest in the Company’s Transaction), Article 82 (Information on Interest in the Company’s Transaction), Article 83 (Procedure for Executing an Interested Party Transaction), and Article 84 (Procedure for Contesting a Transaction Executed Without Obtaining Consent) of the JSC Law and clauses 1 – 6 of Article 45 (Interest in the Company’s Transaction) of Federal Law No. 14-FZ On Limited Liability Companies dated 8 February 1998.