The EC has recently introduced new regulations that enhance transparency regarding the flow of funds related to Russian-owned entities out of the EU.
According to Moody’s, this directive, slated for enforcement starting July 15, 2024, signifies a significant shift in regulatory oversight concerning financial activities linked to Russian entities.
Article 5r of the directive mandates reporting on funds held by EU credit and financial institutions or EU operators’ branches situated outside the EU. It stresses the responsibility of EU entities, including their branches, to report these funds as part of their balance sheets. The scope encompasses both direct transfers from an EU entity to an external recipient and indirect transfers involving intermediaries within the EU before reaching an external recipient.
Entities within the EU that are more than 40% owned, directly or indirectly, by a legal person, entity, or body established in Russia, a Russian national, or a natural person residing in Russia fall under the reporting obligation. Additionally, credit and financial institutions operating within the EU are mandated to comply with the regulation.
The regulation applies to all types of funds transfers from the EU to outside the union conducted by relevant Russian-owned companies, including transactions aimed at profit repatriation. The reporting obligation is triggered for transfers exceeding a total of €100,000 within a reporting period. For credit and financial institutions, the first report is due by July 15, 2024, with subsequent reports following a semi-annual schedule.
Entities with more than 40% ownership by Russian persons or entities are targeted by the regulation, considering aggregate ownership. This includes legal entities in Russia, Russian nationals, or residents in Russia, with ownership criteria not limited to a single individual or entity.
Institutions initiating relevant funds transfers are required to report to the competent authority of the Member State in which they are located. This reporting obligation is entity-specific to ensure localized compliance oversight.
Banks and financial institutions need to automate the process of gathering data for reporting purposes. Obtaining beneficial ownership and control data, along with tools to calculate circular ownership, is crucial for compliance within the required timeframe.
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