Foreign economic agreement and currency control of Ukrainian banks

Currency control by Ukrainian banks over foreign currency transactions is a tool that imposes certain restrictions on foreign counterparties in foreign economic activity and foreign currency transactions between Ukraine. This applies not only to companies and entrepreneurs but also to individuals.

Businesses' foreign currency transactions are subject to currency supervision: the bank requires documents confirming that the money was received legally within the timeframe for foreign economic contracts. As a currency agent of the state, the bank monitors the unjustified withdrawal of funds from Ukraine.

Foreign economic agreement ("FEA") and currency supervision are an important part of the functions and policies of the central bank of Ukraine, the National Bank of Ukraine ("NBU"), to regulate foreign economic relations and the foreign exchange market of Ukraine. This includes both setting rules for foreign exchange transactions and controlling the movement of foreign currency funds, as well as determining the exchange rate and other aspects. Banks are usually guided by the requirements set by international and Ukrainian legislation for the execution and content of foreign trade contracts. Such contracts are concluded in the language of the non-resident counterparty and Ukrainian, but the bank needs to provide a Ukrainian translation.

First of all, to make settlements under foreign trade contracts, both counterparties must open a foreign currency account with a bank and, before conducting a foreign exchange transaction, the already agreed documents (contracts) must be submitted to the bank either in the form of certified copies of the originals or in electronic form with an electronic signature.

Before submitting the documents to the chosen bank, it is worth checking with its employees about the procedure for submitting documents, as the bank has the right to postpone the settlement until the necessary documents are amended and supplemented. In case of large transactions, we recommend that you contact the bank in advance. It is worth noting that transactions under UAH 400 thousand do not fall under financial monitoring and whether or not to request documents is at the discretion of the bank's currency control. However, the payment document (invoice) should make it clear what the payment is for and based on what documents.

Secondly, the documents confirming the export of works and services from Ukraine in the field of foreign economic activity are the documents certifying their provision, in particular, the act of work performed (services rendered), invoice, etc. According to Ukrainian law, settlements and shipments under foreign trade agreements must be closed within 365 days, but the bank is not obliged to control the timing of settlements under service export transactions.

There are various reasons why a bank may refuse to conduct transactions or reject a payment:

• incorrect filling of the payment document;

• the absence of documents confirming the payment transaction (contract, invoice, the act of services rendered, etc.)

• lack of necessary documents to make the payment and pay the fee.

In any case, the bank indicates the reasons for rejecting the payment, and if they are not eliminated, the funds will remain in the distribution account and will be returned to the sender in 5 business days. Also, if the payment requires additional supporting documents and the counterparty has not provided them, the bank will not apply any penalties, but the payment will not be executed until the client provides them. The same applies if the bank has questions or comments about the payment.