For­eign res­i­dents seek es­cape from Ukraine’s oner­ous cur­rency con­trols

Kyiv Post Legal Quarterly - - Contents - By Matthew Kupfer kupfer@kyiv­post.com

Hakan Yazici is just one of nu­mer­ous busi­ness­peo­ple work­ing in cen­tral Kyiv. He runs a print and copy shop pop­u­lar with stu­dents of Taras Shevchenko Na­tional Univer­sity, and also op­er­ates a small on­line store on Ama­zon.com, de­sign­ing and sell­ing drink coast­ers in the United States.

But Yazici dif­fers from most of the en­trepreneurs around him in one way: he is a Turk­ish cit­i­zen liv­ing in Ukraine on a tem­po­rary res­i­dency per­mit. And that makes cer­tain as­pects of his work a chal­lenge.

Yazici has dis­cov­ered that, in prac­tice, he can­not eas­ily de­posit money on his Ukrainian bank ac­count. He has also had prob­lems trans­fer­ring funds — even amounts that, glob­ally, are quite small.

That predica­ment is not unique: Many for­eign tem­po­rary res­i­dents in Ukraine have strug­gled with the coun­try’s byzan­tine cur­rency and bank­ing rules.

But a new cur­rency law that en­tered into force in July has some hop­ing the sit­u­a­tion may im­prove. It’s still in a tran­si­tional pe­riod and has not been en­tirely im­ple­mented, but some bank­ing an­a­lysts sug­gest the law looks bet­ter on pa­per than it ac­tu­ally is.

For­eign ex­change

Yazici has lived in Ukraine for five years. He has a wife and a child — they are his le­gal ground for res­i­dency. He is also regis­tered as a “phys­i­cal in­di­vid­ual-en­tre­pre­neur,” more fre­quently ab­bre­vi­ated in Ukrainian as FOP. Despite bu­reau­cratic dif­fi­cul­ties and the high in­ter­est rates on loans, Yazici has man­aged to open a suc­cess­ful busi­ness.

But as a tem­po­rary res­i­dent, he can­not de­posit prof­its in his bank ac­count — un­less he can prove where they came from. That poses a chal­lenge for a man whose shop of­ten car­ries out rel­a­tively small ty­pog­ra­phy jobs fre­quently paid for in cash.

“There’s a con­flict be­tween the gov­ern­ment giv­ing you the right to have a com­pany (and not giv­ing) you the chance to take (pay­ment) in cash or put cash in your bank ac­count,” Yazici says.

Most sur­pris­ingly, cur­rency con­trols have also af­fected Yazici’s Ama­zon store. Re­cently, he wanted to send money to a Chi­nese man­u­fac­turer to pro­duce a batch of coast­ers.

How­ever, the cen­tral bank would not al­low the trans­fer, sug­gest­ing that Yazici was an im­porter and thus needed a spe­cial li­cense — even though the prod­uct would never reach Ukrainian shores.

Ul­ti­mately, Yazici found a work­around. He gave the money to his wife and she de­posited it in her Pri­vat­bank ac­count (as a Ukrainian cit­i­zen, she could do that). Then, us­ing Pri­vat­bank’s money trans­fer ap­pli­ca­tion, she sent the money to Yazici’s Turk­ish bank ac­count. From there, it took only a few min­utes for him to con­vert the money to dol­lars and send it to China us­ing a stan­dard SWIFT trans­fer. A few days later, his man­u­fac­turer had the money and could start mak­ing the coast­ers.

All’s well that ends well, but this isn’t good for Ukraine, Yazici be­lieves. In SWIFT trans­fers, the banks in­volved of­ten make money off cur­rency con­ver­sions and levy fees on the trans­ac­tion. But if that trans­fer never touches Ukraine, the Ukrainian econ­omy is los­ing money.

“Now the Turk­ish bank gets money from SWIFT,” Yazici says.

The Nige­rian way

Yazici is not the only one adapt­ing to cur­rency op­er­a­tion prob­lems. Nige­rian Michael Ak­wara has also seen and ex­pe­ri­enced the chal­lenges peo­ple from his coun­try — who of­ten come to Ukraine to at­tend med­i­cal school — face fi­nan­cially.

He ar­rived in Ukraine to study elec­tri­cal en­gi­neer­ing at Luhansk State Univer­sity in 2012. Less than two years later, he found him­self in the midst of a war zone when Rus­sia in­vaded the Don­bas.

Af­ter many sleep­less nights filled with the sounds of gun­fire and ex­plo­sions, Ak­wara fled to Vin­nyt­sia, and then to Ternopil, where he con­tin­ued his ed­u­ca­tion. Af­ter grad­u­at­ing, he moved to Kyiv to pur­sue a master’s de­gree in in­no­va­tion.

Now, he is in­volved in an in­no­va­tive project: help­ing Nige­ri­ans in Ukraine by­pass the coun­try’s oner­ous cur­rency con­trols.

Most Nige­rian stu­dents face sig­nif­i­cant chal­lenges in Ukraine. Re­ceiv­ing a visa to come and study in the coun­try is not easy, some­thing Ak­wara at­tributes butes to cor­rup­tion.

“You def­i­nitely need to get some­body in­side be­fore you will ll be is­sued a visa. If you don’t have an in­sider, der, for­get it,” he says. “And hav­ing an in­sider sider en­tails money — some­times mes $3,000 to $4,000 just to get a visa.”

Once in­side Ukraine, stu­dents of­ten strug­gle le to cover tu­ition, and fail­ing to o pay on time can re­sult in ex­pul­sion. n. If the stu­dent does not re-en­roll in the next seven days, he or she is re­sid­ing in Ukraine il­le­gally. Ak­wara es­ti­mates that 40 per­cent of Nige­rian stu­dents are no longer legally regis­tered.

There are also many Nige­ri­ans work­ing in Ukraine, both legally and off-the-books. They have achieved sig­nif­i­cant suc­cess in im­port­ing Nige­rian foods to Ukraine to cater to the needs of the over 10,000 of their com­pa­tri­ots liv­ing in the coun­try, Ak­wara says. And they of­ten want to send money home to sup­port their fam­i­lies.

For all these rea­sons, mov­ing money to and from Ukraine and avoid­ing high ATM with­drawal fees is of para­mount im­por­tance to lo­cal Nige­ri­ans.

Ak­wara be­lieves he is part of the so­lu­tion. He is a man­ager at Key­com On­line So­lu­tions, an e-com­merce com­pany that helps Nige­ri­ans trans­fer money more ef­fi­ciently, and has also branched out into bit­coin and pro­vid­ing in­vi­ta­tion let­ters to Ukraine.

The tech­nique is sim­ple. The com­pany has bank ac­counts in both Nige­ria and Ukraine. A Nige­rian in Ukraine can trans­fer money from a per­sonal Nige­rian bank ac­count into the com­pany’s Nige­rian ac­count. Then, he or she will re­ceive that money in Ukrainian hryv­nia or dol­lars (cal­cu­lated ac­cord­ing to the black mar­ket ex­change rate) from the com­pany’s bank ac­count in Ukraine.

The money never ac­tu­ally crosses a border, al­low­ing the sender and the re­ceiver to avoid the dif­fi­cul­ties and costs of reg­u­lar money trans­fers.

“We have a web­site, every­thing is very trans­par­ent,” Ak­wara says. “If we’re deal­ing with Nige­ri­ans, we have to be trans­par­ent. If you’re not trans­par­ent, they’ll prob­a­bly think you’re fraud­u­lent.” Change? While Ak­wara ap­pears to have found a so­lu­tion to Nige­ri­ans’ cur­rency woes in Ukraine, Yazici is hop­ing for more mun­dane help: the coun­try’s new cur­rency law.

Signed by Pres­i­dent Petro Poroshenko in July, the law is part of Ukraine’s as­so­ci­a­tion agree­ment with the Euro­pean Union. It aims to lib­er­al­ize cur­rency trans­ac­tions, at­tract in­vestors to the coun­try, and make it eas­ier for Ukraini­ans to in­vest abroad.

One par­tic­u­lar pro­vi­sion is of in­ter­est to Yazici: for­eign eco­nomic trans­ac­tions that do not ex­ceed Hr 150,000 — or roughly $5,340 — will no longer be sub­ject to cur­rency con­trols. The funds that Yazici strug­gled to send to China were def­i­nitely be­low that limit.

But while that sounds good, the cur­rency law may not be as straight­for­ward as he thinks. Ukraine Ukraine’s s old cur­rency law law, which dates back to 1993, is of a re­stric­tive na­ture na­ture: every­thing that isn’t ex­pressly le­gal is pro­hib­ited.

“The new law will pro­vide for new prin­ci­ples: To get around cur­rency con­trols, money trans­fer re­stric­tions, and high ATM with­drawal fees, for­eign res­i­dents of Ukraine use a com­pany that has bank ac­counts in their home coun­try and Ukraine to trans­fer money. In this sys­tem, cur­rency never crosses the border. In­stead, the com­pany re­ceives money from the client in its home coun­try ac­count and gives the client cash from its Ukrainian ac­count, or vice versa.

every­thing that is not for­bid­den is al­lowed,” says Vik­to­ria Sy­dorenko, a man­ager in Deloitte’s taxes and le­gal depart­ment. “It’s more free­dom in cur­rency con­trol.” The old law was an “out­dated doc­u­ment” de­fined by bu­reau­cratic logic, while the new one works on mar­ket prin­ci­ples, she says. Ad­di­tion­ally, the old law — ini­tially in­tended as a tem­po­rary mea­sure — was cre­ated to pre­vent the trans­fer of vast amounts of cap­i­tal from Ukraine. It does not take into ac­count the many ways the econ­omy has changed since 1993. But while Sy­dorenko be­lieves the law is an im­por­tant pos­i­tive step, she says it is dif­fi­cult to pre­dict how ex­actly it will af­fect tem­po­rary res­i­dents like Yazici and Ak­wara. Ac­cord­ing to her, tem­po­rary res­i­dents al­ready have le­gal grounds to trans­fer their earn­ings abroad. But judg­ing by Yazici’s ex­pe­ri­ence, ac­tu­ally be­ing able to do that is an­other thing en­tirely. More­over, be­fore the new law goes into ef­fect in Fe­bru­ary, the Na­tional Bank of Ukraine has the right to im­pose cer­tain re­stric­tions, lim­i­ta­tions, and clar­i­fy­ing rules to gov­ern cur­rency op­er­a­tions. What this will look like re­mains un­clear.

And while the law will elim­i­nate cur­rency con­trol for small op­er­a­tions, there will still be cur­rency over­sight.

“We will have to see how the banks will treat these dif­fer­ent def­i­ni­tions,” Sy­dorenko says.

There is an­other crit­i­cism of the law, ac­cord­ing to Olek­sandr Savchenko, pres­i­dent of the In­ter­na­tional In­sti­tute of Busi­ness in Kyiv and a for­mer deputy fi­nance min­is­ter and deputy cen­tral bank gover­nor.

The new law does not place enough lim­its on what the cen­tral bank can do to re­strict cur­rency flows. The abil­ity to re­move cap­i­tal should be “iron­clad,” Savchenko be­lieves.

“We have the harsh­est lim­its on re­mov­ing cap­i­tal and the largest out­flow of money dur­ing eco­nomic crises,” he says. This shows that strict reg­u­la­tions “don’t work.”

But with few other so­lu­tions on the hori­zon, Yazici hopes that the new cur­rency law will at least make it eas­ier for him to send money to his coaster man­u­fac­turer. He says he loves Ukraine, but finds this cur­rency is­sue par­tic­u­larly frus­trat­ing.

Mean­while, Ak­wara isn’t hold­ing out hope. He feels that the $5,340 limit on cur­rency con­trol-free op­er­a­tions is too low. He be­lieves this will make life more dif­fi­cult for suc­cess­ful busi­ness peo­ple.

Ak­wara sug­gests a dis­tinctly lib­er­tar­ian al­ter­na­tive: “There shouldn’t be a restric­tion on the amount.”

A pedes­trian walks past a sign ad­ver­tis­ing cur­rency ex­change rates in a cen­tral Kyiv un­der­ground cross­ing on Sept. 25, 2018. Chang­ing money isn't a prob­lem in Kyiv, but de­posit­ing it in your bank ac­count or trans­fer­ring it abroad can be if you're a for­eigner liv­ing in Ukraine on a tem­po­rary res­i­dency per­mit. (Volodymyr Petrov)

Peo­ple stand in line to board buses next to a cur­rency ex­change of­fice on Sept. 25 in cen­tral Kyiv. (Volodymyr Petrov)

For­eign cit­i­zens liv­ing in Ukraine on tem­po­rary res­i­dence per­mits can­not de­posit funds in their bank ac­counts — even small sums like Hr 100 ($3.50) — un­less they can prove the ori­gin of the money. These re­stric­tions, in­tended to pre­vent cap­i­tal flight and money laun­der­ing, have proven a chal­lenge for small busi­ness own­ers.

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