The CEE law firm PETERKA & PARTNERS was one of the first in Russia to provide legal support for the purchase and sale of shares, the payment for which was carried out in part through the transfer of funds from a Russian public deposit account of a notary to a bank account abroad of a foreign client. In this short article, we would like to share the practical experience of such payment mechanism and provide our comments, which might be valuable for those parties who are considering the involvement of Russian public notaries in payments.
From June 1, 2018, notaries began to provide the service of depositing funds. For this purpose, a notary must have a special public deposit account opened in a Russian bank. A notary provides services for accepting funds to a public deposit account in several cases, for example, for making settlements between participants in transactions for the purchase and sale of real estate or for the debtor to fulfil its financial obligations to the creditor. The transfer of funds to the notary’s deposit account is a public performance of the debtor’s obligations to the creditor.
Public deposits by notaries provide certain benefits, such as:
- safe transfer of funds (can be made via bank transfer);
- the cost of the service is lower than the fee for an escrow account;
- no payment of any interest or penalties for late debt repayment if the creditor cannot accept the funds on time;
- money is insured by the full property liability of the notary and guarantees of protection of the notary’s deposit account from bank bankruptcy.
At first glance, everything appears simple and clear, but in practice, difficulties may arise, especially if one of the participants in the transaction is a foreign company.
In our case, the purchase and sale of shares in a Russian joint stock company took place. The seller was a company registered in Poland, while the buyer was registered in the Russian Federation. The payment consisted of two instalments: 50% of the price was paid before the transfer of shares in favour of the buyer directly to the seller’s bank account; the remaining 50% was transferred to a public deposit account of a notary. After the notary was provided with official notification from the Registrar on the transfer of shares in favour of the buyer, the notary had to transfer the funds in favour of the seller.
Once the seller had fulfilled all the conditions for the transfer of shares in favour of the buyer, the notary was faced with the issues of how to transfer money to the seller’s current account opened in a bank in Poland. A number of the largest Russian banks, who were involved in the negotiations, refused to procced with the payments; the reasons were not clearly provided to the notary and the parties to the transaction, but it seems that the main issue was the absence of the clear regulation of the procedure both by the law and by the bylaws of the banks.
Nevertheless, one of the Russian banks agreed to proceed with the transfer to the seller’s account in a foreign bank; during the process of the withdrawal of funds, the following issues were discussed and resolved:
- Documents. Due to the absence in the bylaws of the bank of the relevant regulations on the exact list of documents needed to be provided to the bank, several times the bank requested additional documents, which took time both for the gathering of the documents and for their processing by the bank.
- Protective tariff. During the processing of the documents, the bank stated that a protective tariff in the amount of 20% of the transaction would be applied. In 2013, the Association of Russian Banks approved the Model Internal Control Rules for Combating Money Laundering and Terrorist Financing. In clause 6.6.3 of this document, credit institutions are allowed to apply protective tariffs on suspicious operations of their clients. However, the Supreme Court of the Russian Federation, in review of its practice, approved in December 2019, already drew attention to the fact that the legislation does not contain provisions that would allow banks to establish a special commission as a measure to counter money laundering. In this respect, the bank does not apply the protective tariff to the transaction.
- Fees. Finally, the bank stated that fees for currency control and for the transfer would be applied. However, the bank tariff bylaws provided that there was no fee for transfers from the public deposit account of the notary in Rubles. The case when a transfer is executed to a bank abroad was not covered by the bylaws, nevertheless, the bank decided not to apply any bank fees to the transaction, including the fee for currency control.
The whole transfer procedure took around 3 months.
Therefore, we would like to conclude that transfer from a public deposit account of a notary to an account in a foreign bank is possible and legal, but it may take time. A protective tariff and other bank fees shall not be applied, however this issue has to be discussed with the particular bank and based on the bylaws of the bank.
The situation described in our article took place one and a half years ago; now, the situation has improved, the practice of using the public deposit account of a notary has developed. We hope that further development from both a legal and practical point of view will allow using the public deposit of a notary in day-to-day business.
This article was prepared by Alla Geyfman, senior associate of PETERKA & PARTNERS Moscow office, and Vlad Rudnitskiy, partner and deputy director of the Moscow office of PETERKA & PARTNERS.