How to overcome payment problems with Russia
A large number of companies from Europe and Asia do business with Russia. Bearing in mind that Russia is a large market and a large number of companies are engaged in the trade of goods, transport, sale of goods, and other activities and receive payments for goods and services from Russia or make payments to Russia.
1. About SWIFT and Banking Sanctions against Russia
The SWIFT ban against some Russian banks is one of the 2022 sanctions against Russia imposed by the European Union and other Western countries, aimed at weakening the country’s economy to end its invasion of Ukraine by hindering Russian access to the SWIFT financial transaction processing system.
SWIFT is used by thousands of financial institutions in more than 200 countries, including Russia, and provides a secure messaging system to facilitate cross-border money transfers.[2]
According to the Russian National SWIFT Association, around 300 banks use SWIFT in Russia, with more than half of Russian credit institutions represented in SWIFT. Russia has the second-highest user base after the United States.
If Russia were to be excluded from SWIFT, its interbank payment transactions will become significantly more complex, and the country’s ability to trade goods and exchange currencies would be significantly reduced, making the payment only possible in cash.
The European Union, United Kingdom, Canada, and the United States finally agreed to remove seven Russian banks from the SWIFT messaging system:
- Bank Otkritie,
- Novikombank,
- Promsvyazbank,
- Rossiya Bank,
- Sovcombank,
- VEB,
- VTB.
EU ambassadors have decided not to impose restrictions on the country’s largest bank, Sberbank, which is partly owned by Russian gas giant Gazprom. Gazprombank was also not sanctioned.
On 31 May The EU removed Sberbank from SWIFT as part of the 6th package of sanctions.
Who controls SWIFT?
The National Bank of Belgium
Swift is overseen by the G-10 central banks (Belgium, Canada, France, Germany, Italy, Japan, The Netherlands, United Kingdom, United States, Switzerland, and Sweden), as well as the European Central Bank, with its lead overseer being the National Bank of Belgium.
Why is SWIFT important?
The Society for Worldwide Interbank Financial Telecommunications (SWIFT) system powers most international money and security transfers. SWIFT is a vast messaging network used by financial institutions to quickly, accurately, and securely send and receive information, such as money transfer instructions.
What is the difference between SWIFT and IBAN?
Identification. The main difference between an IBAN and SWIFT BIC code lies in what they’re used to identify. A SWIFT code refers to a bank, while an IBAN will identify a specific bank account. Basically, a SWIFT number tells you where to pay, and an IBAN tells you who to pay.
What is Swift?
Founded in 1973, Swift is a global provider of secure financial messaging services. Swift was founded to replace the telex. It is a member-owned cooperative connecting more than 11,000 banks, financial institutions, and corporations in more than 200 countries and territories.
Swift operates internationally with 26 offices located across the world and is headquartered in Belgium. As a strategic international financial messaging service provider to the financial industry, Swift is overseen by the G-10 central banks.
2. Register LLC in Serbia and open Business Bank Account in Serbia, and overcome the problem with Swift and payments to and from Russia
In the current situation with the sanctions imposed on Russia, a large number of companies that cooperate with Russian companies have found themselves in a problem, because they cannot make payments to Russian companies and cannot receive payments from Russian companies, because they do not have a functional SWIFT, due to Banak Sanctions against Russian Banks.
2.1 Register LLC in Serbia
Bearing in mind that Serbia is not in the European Union and has not introduced sanctions against Russia, this opens the possibility for companies from the European Union and companies from Russia that do business with each other to register an LLC in Serbia and to open a business bank account in Serbia in order to make payments to Russia and Russian companies or to receive payments from Russia and Russian companies.
The first step is to register an LLC (“Limited Liability Company”, in Serbia it is “DOO”) in Serbia, and we recommend that you authorize a lawyer through a special power of attorney (which you will certify at a notary in your country and confirm with an apostille if necessary, Serbia has several international agreements and in some countries it is sufficient to certify only a power of attorney at a notary (Cyprus, Russia, Algeria, Austria, Belgium, Belarus, Bosnia and Herzegovina, Bulgaria, Czech Republic, Slovak Republic, France, Greece, Croatia, Italy, Iraq, Cyprus, Hungary, North Macedonia, Poland, Romania, Russian Federation, Montenegro, Ukraine, Slovenia, Mongolia) to register a company in Serbia, bearing in mind that this is the best and fastest solution, saving the client’s time and money.
2.1.1 Business Activities that LLC can engage in Serbia
When registering a company, the client determines the main activity that will be engaged in. The good thing is that even though it is registered as a dominant activity, only one client can engage in other activities that do not require special permits (pharmaceutical trade, tobacco trade, alcohol trade…)
2.1.2 Content of the Founding Act of the LLC Company in Serbia
In Serbia, the Founding Act of an LLC (Limited Liability Company) is commonly referred to as the Memorandum of Association. The Memorandum of Association outlines the essential details and provisions related to the establishment and operation of the LLC. While the specific content may vary depending on the company and its requirements, here are the typical elements included in the Memorandum of Association for an LLC in Serbia:
- Name and Registered Office: The full legal name of the LLC is stated, along with its registered office address, which serves as the official address for communication and legal purposes.
- Founders and Members: The names, addresses, and other relevant details of the founders and initial members of the LLC are provided. The minimum number of members required to establish an LLC in Serbia is one.
- Business Purpose: The specific business activities that the LLC will engage in are described. This section outlines the primary objectives and scope of the company’s operations.
- Capital and Ownership: The total registered capital of the LLC is stated, along with the value of each member’s contribution. The ownership structure and the percentage of ownership held by each member are detailed.
- Management and Representation: The management structure of the LLC is defined, including whether it will be managed by one or more directors. The roles, responsibilities, and decision-making processes are specified. Additionally, the authority and representation of the LLC, both internally and externally, are outlined.
- Profit Distribution and Reserves: The method of profit distribution among the members of the LLC is described, including any provisions for reserves or reinvestment.
- Decision-Making and Voting: The procedures for decision-making and voting within the LLC, including the majority required for various resolutions, are outlined.
- Duration and Termination: The duration of the LLC, which is typically stated as “indefinite,” and the conditions under which the LLC can be terminated or dissolved are specified.
- Amendment of the Memorandum of Association: The process and requirements for amending the Memorandum of Association, including the need for unanimous or majority approval from the members, are explained.
- Other Provisions: Additional provisions related to the company’s operations, such as restrictions on member transfers, non-compete clauses, dispute resolution mechanisms, and other relevant matters, may be included.
It is important to note that the Memorandum of Association must comply with the relevant laws and regulations of Serbia, including the Company Law and other applicable legislation.
2.1.3 Electronic Signature of Director in Serbia
After registering the LLC, the director is obliged to obtain an electronic signature from one of the authorized companies in Serbia, and we can schedule the client to obtain an electronic signature in one day.
In Serbia, the use of electronic signatures is regulated by the Law on Electronic Signature (“Official Gazette of RS”, No. 135/2004, 111/2009, and 27/2018). This law enables the recognition and use of electronic signatures as legal means to authenticate electronic documents.
Here are some key points related to electronic signatures in Serbia:
Definition of Electronic Signature: An electronic signature is defined as data in electronic form that is attached to other electronic data and serves as a means of identifying the signatory and confirming the authenticity of the data.
Legal Effect of Electronic Signatures: The law recognizes the legal effect of electronic signatures, which is equivalent to a handwritten signature, provided that the signature is created in accordance with the law and the authenticity of the signature is guaranteed.
Accredited Certification Authorities: The law establishes accredited certification authorities that issue certificates for electronic signatures. These certificates verify the authenticity of the electronic signature and are issued based on the verification of the signatory’s identity.
Types of Electronic Signatures: The law recognizes three types of electronic signatures: simple electronic signature, advanced electronic signature, and qualified electronic signature. A qualified electronic signature has the highest level of legal recognition and is subject to specific requirements and procedures.
Requirements for Validity: For an electronic signature to be valid in Serbia, it must meet certain requirements specified by the law. These requirements include the use of a secure signature creation device and adherence to technical standards and protocols.
Legal Presumption: The law establishes a legal presumption that an electronic signature is valid and authentic, unless proven otherwise.
Admissibility in Legal Proceedings: Electronic signatures are generally admissible as evidence in legal proceedings in Serbia, subject to the rules of evidence and any specific requirements imposed by the court.
2.2.2. Open Business Bank Account in Serbia
Immediately after the company is registered within 5 working days, we come to the next step, which is the opening of a business bank account in Serbia. For this, we recommend that the director of the company come to Serbia to verify at the notary the documentation for opening a business account and obtain a “White card” (which is a necessary condition for opening a business bank account and is proof that the director came to Serbia and registered his stay in Serbia, this document is obtained from the police and the director must be reported by the owner of the apartment in Serbia).
2.2.2.1. The process of opening a business account in Serbia & Documentation necessary for opening a business bank account in Serbia
The process of opening an account consists of several steps. The first step is to fill out the previous documentation (account opening request, Know Your Client document, Political Exposure Statement, FATCA, and other Bank documents), and to submit this documentation to the appropriate Bank (please note that we cooperate with the only Bank that currently can open a business account and has correspondent banks through which clients can make payments to Russia and receive payments from Russia).
After the documentation is submitted, the bank’s competent service examines the entire documentation and, if necessary, asks additional questions and requests additional documentation for inspection. The Bank’s AML sector checks the company’s shareholder and company director and their financial history, whether they have participated in any suspicious financial transactions, whether they have offshore companies, whether they have offshore accounts, whether they have participated in money laundering, whether they have been involved in ponzi fraud scheme. Due to the above, we suggest clients appoint shareholders and a director who has a clean financial history in order to open the company’s business account as easily and as quickly as possible.
The next step is that after the bank receives approval for opening an account, it notifies the client and starts preparing the documentation for opening the account. The documentation for opening an account is the Agreement on opening a foreign currency account (it is a multicurrency account on the basis of which the client can pay and make payments in RUB, EUR, and other currencies of the world) and the Agreement on opening a dinar account (this is the currency in Serbia, and this is important because in order for the client in Serbia to make payments, it must be done in RSD, i.e. dinars), Signing the Box of Deposited Signatures of the Director, Application for e-banking, Application for issuing cards, namely VISA debit Business Cards (with this card, payments can be made abroad ), Dina debit business cards (this is a card only for RSD or dinars and can only be used for payments in Serbia), MasterCard business debit cards (with this card, payments can be made abroad).
The next step is for the client to access the Bank in order to sign the aforementioned documentation for opening an account after receiving access codes for e-banking on the basis of which he can make payments to companies in Europe, make payments to companies in the rest of the world, to companies in Russia.
2.2.2.2. More information on how the system of payments to Russia, all through LLC Registered in Serbia and Business Bank Account in Serbia
After opening a business bank account in Serbia, the director receives e-banking. In the bank with which we cooperate, the director receives a username and password for e-banking via email and a Serbian phone number that he must purchase, and based on that, he logs into the bank’s application on the Internet and makes payments.
When the client expects a payment from a certain country, he receives a notification on the inflow of funds by mail, which he fills out in the appropriate manner (in accordance with the invoice issued to that company and the specification of the subject of the invoice), and based on this, the Bank in Serbia approves receiving the funds to the bank account in Serbia. We especially note that we cooperate with the only bank in the world that can currently receive payments from Russia and make payments to Russia because it cooperates with several correspondent banks through which these money transfers are possible because Serbia has not imposed sanctions on Russia and the LLC established by a shareholder in Serbia, appoints a resident of Serbia.
Don’t hesitate to contact us for a consultation. We are passionate about assisting Clients and ensuring that Clients receive top-notch support.
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