The tightening of Russia's approach to foreign exchange regulation and control in recent years has led to greater use of criminal law measures to combat capital outflows to foreign jurisdictions. In particular, Article 193.1 of the Russian Criminal Code has been applied more extensively, having remained largely dormant during the first decade following its introduction in 2013.

This provision establishes criminal liability for foreign exchange transactions involving transfers of funds to non-residents' bank accounts where documents relating to those transactions are submitted to a credit institution acting as a currency control agent and contain information known to be false concerning the grounds for, objectives and purposes of the transfers.

The growing risk of criminal prosecution stems from a fundamental shift by investigative authorities and courts away from a literal interpretation of this provision towards a broader reading of its scope. This increasingly blurs the distinction between a technical breach of foreign exchange regulations (Article 15.25 of the Russian Code of Administrative Offences) and conduct constituting a criminal offence.

An analysis of recent investigative and judicial practice suggests that, in addition to submitting falsified documents to currency control agents, the following circumstances may give rise to risks of criminal prosecution under Article 193.1 of the Russian Criminal Code:

• Advance payments for goods or services that are subsequently not supplied or provided in full;
• Payments for goods or services at prices that differ from prevailing market prices;
• Payments for goods or services supplied or provided, in whole or in part, from Russia. Particularly significant risks arise in relation to intellectual property and information products, for which a clear geographical connection may be difficult to establish;
• Purchases of goods or services through an intermediary (conduit) company that conducts no other financial or business activities;
• Transfers of funds to a non-resident company that is not a party to the relevant foreign trade contract;
• Intra-group transactions (including breaches of dividend payment requirements) and transfers involving payment agents.

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