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“The team was recently visible advising on a number of pharmaceutical cases. Sources agree that the team is “moving in the right direction” and are particularly impressed by its work in the pharmaceutical sector”.

 

Every penny counts

02.08.2013

Author: Oleksii Khrystoforov, attorney at law, Head of Kharkiv office of Ilyashev & Partners Law Firm
Source: «Focus»

The Ministry of Justice finally registered the resolution of the National Bank prohibiting cash payments over UAH 150 thousand. It means that there is no turning back, and the document will come into effect on September 1. Cars, houses, apartments, jewelry or furniture – if the value is more than UAH 150 thousand, payment shall be made by bank transfer. Purchase and sale with participation of notary will also require a non-cash payment. In short, a house in the village can still be bought for cash, but a dacha near Kyiv cannot.
How it will affect the average citizens? Most importantly, what objectives are pursued by the government’s attempt to count money in our pockets?

The National Bank declares the aim of increasing the number of non-cash payments in the country to keep a tight hold on cash flows. However, the question if it shall be done like this remains open, because since 1994 in Ukraine it is possible to define the parties to large payment transactions using identification codes.

Further the regulatory authority’s plans to closely monitor the flow of all funds can be explained by the economic downturn. Authorities believe that it is time for the Ukrainian economy to come out of the shadow, and the increase of non-cash transactions will bring much money in the banking sector experiencing lack of funds. Another important point is that having traced non-cash payments, it is possible to establish the level of real income of parties to a transaction, and tax authorities are interested in it. To know how much money is in your neighbor’s pocket, now is not only mentality, but also is an urgent necessity for the state.

From the legal point of view, innovations introduced by the NBU raise some questions. It is possible that the rule of the Civil Code, which made it possible to introduce «cash» restrictions, will have to be verified in the Constitutional Court. As a result it may be amended, because it obviously contradicts the Basic Law. Pursuant to the new rules, the NBU is actually vested with the powers of the legislator and under the Constitution only the Parliament can act as such.

I doubt that the decision of the National Bank will be implemented. Citizens are simply not willing to disclose their real income and expenses. In addition, it is questionable whether the regulatory authority is determined to monitor carefully the implementation of own initiatives without exceptions. The country’s economy has never come across such an obvious coercion to use banking instruments. After September 1 a number of problems can arise, which neither the banking sector nor the Ukrainian economy are ready to settle.

They say you don’t bring a knife to a gunfight. The stated NBU’s goals are likely to be achieved mainly at the expense of average Ukrainians buying or selling cheap cars or apartments, who will have to share money not only with the state, but also with the bank to carry out the transaction.

Fairly speaking, people in our country do not like to share their money. Therefore, new schemes aimed at avoiding new restrictions and related costs are likely to appear. The most simple is to reduce the cost of the property being sold, or split the payment into pieces, buying on credit. Creation of various fictitious obligations will also be the way out. In some cases, loan, exchange, assignment or guarantee agreements may be concluded in a simple written form. Then property is transferred as part of performance of such agreements, and actual settlements between the parties are made in cash.

The courts comprise another remedy against non-cash payments. Taking into account legal implications of the recent financial crisis, the practice of settling such disputes can be very interesting from a legal point of view. A few years ago, when banks began to sue their borrowers, who did not return the loans, the completely opposite judicial decisions were made in identical cases. The rules explicitly stated in laws, after going through the realities of Ukrainian judicial system, were interpreted in a new and unexpected way. Similar situation, though on a smaller scale, can happen again today.

The National Bank is unlikely to succeed in restricting cash transactions severely. Significant part of financial flows is likely to be withdrawn into the shadows. It will result in creation of craftier and more sophisticated schemes to evade restrictions. The difference is that now not only businessmen, but also average citizens will be interested in it.

 
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