Russian Counter-Sanctions and Cross-Border Disputes: Practical Issues for Foreign Counsel

Russia-related cross-border disputes rarely involve one legal system only. A foreign law firm may be advising on English litigation, Irish Commercial Court proceedings, US federal litigation, Swiss-seated arbitration, LCIA arbitration, ICC arbitration or enforcement strategy in several jurisdictions. At the same time, the facts may involve a Russian company, Russian assets, Russian bank accounts, Russian court proceedings, Russian regulatory approvals, Russian payment restrictions or Russian counter-sanctions.

For foreign counsel, the practical question is not simply whether UK, EU or US sanctions apply. That advice is essential, but it may not answer a separate question: what does Russian law do to the contract, payment, transaction, dispute or enforcement strategy?

This article explains why foreign lawyers often need separate Russian law analysis in sanctions-affected disputes, what issues should be reviewed early, and how a Russian law expert can work alongside local sanctions counsel without replacing them.

This article is not UK, EU or US sanctions advice. Sanctions advice should be provided by appropriately qualified local lawyers in the relevant jurisdictions. The focus here is Russian law analysis for foreign counsel, arbitration teams, sanctions teams and in-house legal departments.

Sanctions-affected disputes often begin with a local sanctions question: Can the client pay? Can it receive payment? Can it perform the contract? Can it provide services? Can proceedings continue? Is a licence needed?

Those questions may be governed by UK, EU, US or other sanctions regimes. For example, UK government guidance addresses financial, director disqualification, trade, transport and immigration sanctions under the Russia sanctions regime, and the guidance explains that the prohibitions apply to UK persons and UK-established businesses in specified circumstances. The EU has also progressively expanded restrictive measures against Russia since 2014 and significantly after 24 February 2022, including financial, economic and trade measures addressed to persons under EU jurisdiction. In the United States, OFAC maintains several Russia-related sanctions programmes, including Russian Harmful Foreign Activities sanctions, Ukraine-/Russia-related sanctions, CAATSA and Magnitsky-related sanctions.

But none of that, by itself, answers the Russian law questions.

A Russian company may argue that Russian law restricts payment, performance, assignment, set-off, transfer of shares, exit from a Russian asset, enforcement of a foreign award or participation in foreign proceedings. A Russian bank may refuse to process a payment for Russian regulatory reasons. A Russian court may accept jurisdiction despite a foreign arbitration clause. A Russian counterparty may rely on Russian permissions, approvals or mandatory rules as part of its defence or settlement position.

For foreign counsel, this means sanctions advice and Russian law analysis should be treated as related but distinct workstreams.

The phrase “Russian counter-sanctions” is often used as shorthand. In practice, the relevant Russian law may include presidential decrees, government resolutions, Central Bank rules, Ministry of Finance permissions, foreign investment approvals, currency control rules, special payment regimes, restrictions on dealings with persons from “unfriendly” states, Russian court jurisdiction rules and procedural mechanisms such as Article 248 of the Russian Arbitrazh Procedure Code.

The precise rule depends on the transaction and the facts. A payment obligation may raise different Russian law issues from a share transfer. A Russian-law contract may raise different issues from an English-law contract with Russian performance. A sanctioned Russian defendant in arbitration may raise different risks from a non-sanctioned Russian debtor with assets in Russia.

That is why a useful Russian law opinion should be case-specific. It should not merely describe “Russian counter-sanctions” in general terms. It should answer: which Russian rules may apply, to which party, to which obligation, at which time, and with what procedural or commercial consequence?

A common question in sanctions-affected disputes is whether a Russian party was able or required to perform.

The contract may involve goods, services, financing, insurance, leasing, software, intellectual property, shipping, commodities, aviation, banking or energy. The governing law may be Russian law, English law, New York law, Swiss law or another law. But Russian law may still matter if performance, payment, licensing, regulatory approval or assets are connected with Russia.

Foreign counsel may need Russian law analysis on issues such as:

• whether Russian mandatory rules affected performance;
• whether a Russian party had to obtain a permission or approval;
• whether Russian law restricted payment to a foreign counterparty;
• whether performance in Russia became legally or practically blocked;
• whether Russian law recognises a defence based on impossibility, force majeure, regulatory prohibition or change of circumstances;
• whether termination, suspension or non-performance had specific Russian law consequences.

The expert’s role is not to decide the whole dispute. It is to explain the Russian law consequences of the facts and assumptions supplied by the legal team.

Payment disputes are among the most common sanctions-affected issues. A foreign party may say that payment was due in euros, US dollars or sterling. A Russian debtor may say that payment was impossible, restricted, redirected or capable of being made only through a special mechanism under Russian law.

One important example is Russian Presidential Decree No. 95 of 5 March 2022, which established a temporary procedure for certain obligations to foreign creditors. ConsultantPlus records provisions applying to obligations above RUB 10 million per calendar month and referring to type “C” accounts opened for the purposes of settlement. UNCTAD’s Investment Policy Monitor similarly summarises Decree No. 95 as establishing a temporary procedure for Russian residents’ obligations under loans to foreign creditors from states that adopted sanctions against Russia, with certain debts exceeding RUB 10 million per month capable of being repaid in roubles through special bank accounts in Russia.

For foreign counsel, the practical questions may include:

• Was the payment obligation within the scope of a Russian special payment regime?
• Did the debtor attempt to pay through a Russian mechanism?
• Was that payment legally effective under Russian law?
• Does the foreign governing law or foreign forum treat that payment differently?
• Did the creditor have any practical ability to access or use the funds?
• Was a Russian permission needed to pay outside the special regime?

These issues require careful separation. Russian law may explain what a Russian debtor was permitted or required to do domestically. Local sanctions counsel must separately advise whether the foreign creditor could lawfully receive, process or deal with the payment.

Many Russia-related disputes involve corporate exits, asset sales, share transfers, dividend payments, debt restructuring, settlement agreements or assignments. These transactions may require Russian approvals or may be restricted when persons from “unfriendly” states are involved.

For example, Presidential Decree No. 520 of 5 August 2022 introduced restrictions in financial and fuel-and-energy sectors. UNCTAD summarises the measure as including prohibitions on transactions that directly or indirectly result in acquisition, modification, termination or encumbrance of rights in securities, participatory interests or participation interests in certain Russian legal entities, affecting strategic enterprises, fuel and energy companies, banking-sector entities and subsoil users, subject to presidential approval.

Foreign counsel should not assume that a commercially agreed settlement or exit can be implemented without Russian law review. The Russian law analysis may need to address:

• whether the target asset falls within a restricted category;
• whether a Russian government, presidential, Central Bank or Ministry of Finance permission is required;
• whether the parties are treated as connected with “unfriendly” states;
• whether a transaction may be void, blocked or practically impossible without approval;
• whether Russian corporate actions can be registered;
• whether settlement mechanics can be performed in Russia.

This is especially important where the client is negotiating under time pressure. Settlement terms that ignore Russian approval requirements may be difficult to implement later.

Sanctions-affected disputes may also trigger Russian court proceedings.

Article 248 of the Russian Arbitrazh Procedure Code has become a major issue in international arbitration and cross-border disputes involving sanctioned Russian parties. In simplified terms, Articles 248.1 and 248.2 may be invoked to argue that Russian arbitrazh courts have exclusive competence over certain disputes involving persons affected by restrictive measures, and to seek orders restraining foreign court or arbitration proceedings.

Article 248.2 provides that a person against whom proceedings have been initiated in a foreign court or international commercial arbitration outside Russia, or where there is evidence that such proceedings will be initiated, may apply to a Russian arbitrazh court for an order prohibiting the initiation or continuation of those foreign proceedings in disputes referred to in Article 248.1. The provision also allows the Russian court, on request, to award a monetary amount in case of non-compliance, not exceeding the foreign claim amount and legal costs.

For arbitration counsel, the risk is practical. A contract may contain an LCIA, ICC, SCC, SIAC, UNCITRAL or other arbitration clause. The foreign claimant may start arbitration in the agreed forum. The Russian party may then ask a Russian court to restrain the arbitration or to assume jurisdiction. This can create parallel proceedings, competing orders, costs pressure and enforcement complications.

Freshfields has noted that Russian courts have relied heavily on Article 248 in sanctions-related disputes, including anti-suit and anti-arbitration injunctions backed by fines up to the amount in dispute. The EU’s 15th sanctions package included a ban on recognition or enforcement in the EU of rulings issued by Russian courts based on Article 248 of the Russian Arbitration Procedure Code.

That EU response may be important for EU parties, but it does not remove all risks. It does not by itself prevent Russian proceedings, protect assets in Russia, solve non-EU enforcement issues or answer how a Russian court order should be analysed under Russian procedural law.

Enforcement risk should be analysed early, not after judgment or award.

A foreign claimant may obtain a favourable arbitral award or court judgment but later face Russian law obstacles if the counterparty’s assets are in Russia. A Russian party may also obtain a Russian court order or judgment and seek to use it domestically or strategically in settlement negotiations.

A Russian law expert may help foreign counsel assess:

• whether the counterparty has assets or receivables in Russia;
• whether assets are held through Russian subsidiaries or affiliates;
• whether Russian insolvency proceedings are pending or likely;
• whether a Russian court order affects foreign proceedings;
• whether enforcement of a foreign judgment or award in Russia is realistic;
• whether Article 248, public policy, sanctions or parallel proceedings create additional risk;
• whether Russian procedural deadlines, appeals or cassation stages matter.

The expert should not guarantee enforcement outcomes. The proper role is to explain Russian law, identify risks and help foreign counsel integrate Russian law analysis into a broader enforcement strategy.

Settlement is often attractive in sanctions-affected matters, but it can be legally complex.

A settlement may require payment to or from a Russian party, release of claims, transfer of shares, amendment of a contract, recognition of debt, assignment of receivables, withdrawal of proceedings, termination of arbitration, release of security or restructuring of obligations.

Each of those steps may raise Russian law questions. For example:

• Can the Russian party make the settlement payment?
• Is a special account or permission required?
• Can the foreign party receive or use the payment under its own sanctions regime?
• Is a Russian corporate approval required?
• Does the settlement require registration in Russia?
• Does it affect Russian proceedings or enforcement measures?
• Could the settlement be challenged in Russian insolvency proceedings?
• Does it need to account for Article 248 risk or anti-suit orders?

Foreign counsel should involve local sanctions counsel and Russian law expertise before settlement mechanics are finalised. A settlement that is commercially attractive but legally unworkable may create further disputes.

The safest approach is a coordinated one.

UK counsel should advise on UK sanctions. EU counsel should advise on EU sanctions. US counsel should advise on OFAC issues. Arbitration counsel should advise on arbitral procedure, seat law and tribunal strategy. Local enforcement counsel should advise on recognition and execution in the relevant jurisdictions.

The Russian law expert’s role is different. It may include:

• Russian counter-sanctions and special economic measures;
• Russian payment and approval regimes;
• Russian corporate and transaction controls;
• Russian court proceedings and arbitrazh procedure;
• Article 248 risk;
• Russian enforcement and asset issues;
• Russian law consequences of performance or non-performance;
• Russian law input for settlement mechanics.

This division of responsibilities avoids overreach. It also gives the client a clearer picture: what is prohibited or licensed under foreign sanctions law, what Russian law requires or restricts, and how those two workstreams interact in litigation, arbitration or settlement.

Before requesting a Russian law opinion, foreign counsel should prepare a focused document pack. The expert does not need every document at the first stage, but the following materials are usually useful:

• parties and related entities for conflict check;
• short case summary;
• contracts, amendments and governing law clauses;
• dispute resolution clause;
• pleadings, notices of arbitration or court filings;
• correspondence about payment, performance, termination or sanctions;
• sanctions status summary prepared by local sanctions counsel;
• Russian corporate documents, if authority or approvals are in issue;
• Russian court documents or threats of proceedings;
• payment records, bank notices or refusal letters;
• proposed settlement terms;
• asset map, if enforcement is relevant;
• procedural timetable and urgent deadlines.

Clear instructions save time and cost. They also help the Russian law expert identify what can be answered quickly and what needs deeper research.

Foreign counsel should clarify the following Russian law questions as early as possible:

1. Is any party a Russian legal entity, Russian resident, Russian bank, Russian state-linked entity or person affected by Russian counter-sanctions?
2. Is the dispute connected with sanctions, blocked payments, performance restrictions, asset freezes, export controls, import bans or regulatory permissions?
3. Does Russian law restrict the payment, transfer, assignment, set-off, termination, settlement or corporate action under consideration?
4. Is a Government Commission, Central Bank, Ministry of Finance, presidential or other Russian permission required?
5. Does the contract involve Russian assets, Russian shares, Russian real estate, Russian receivables, Russian bank accounts or Russian performance?
6. Could the Russian party rely on impossibility, force majeure, mandatory rules, public policy or regulatory restrictions under Russian law?
7. Has a Russian court proceeding already been filed or threatened?
8. Is Article 248 of the Russian Arbitrazh Procedure Code relevant to the foreign arbitration or court proceedings?
9. Are there assets in Russia that make Russian court orders or Russian enforcement practically important?
10. Could the proposed settlement be performed under Russian law, and would it require Russian approvals or special payment mechanics?
11. Could Russian insolvency, bankruptcy or asset-freezing measures affect recovery?
12. What Russian law assumptions should be tested before pleadings, expert evidence, settlement or enforcement steps are finalised?

The best questions are neutral, precise and based on assumptions.

A poor question is:
“Please confirm that Russian counter-sanctions excuse our client’s non-performance.”

A better question is:
“Under Russian law, assuming the facts set out in the instructions, what Russian legal rules or measures may be relevant to the party’s ability or obligation to perform the payment obligations under the contract?”

A poor question is:
“Please say that the Article 248 application is abusive.”

A better question is:
“What arguments may be advanced under Articles 248.1 and 248.2 of the Russian Arbitrazh Procedure Code on the facts provided, and what Russian law objections may be available?”

A poor question is:
“Can we settle this safely?”

A better question is:
“What Russian law restrictions, permissions or implementation steps may be relevant to the proposed settlement structure, assuming foreign sanctions counsel confirms that the settlement is permissible under applicable UK, EU and US sanctions regimes?”

Good questions help the expert provide independent analysis rather than advocacy.

I assist foreign counsel, sanctions teams, arbitration lawyers and in-house legal departments with independent Russian law analysis in sanctions-affected disputes and cross-border matters.

Support may include Russian counter-sanctions analysis, payment and approval issues, Article 248 risk, Russian proceedings, enforcement risk, asset-related questions, settlement mechanics and expert opinions for litigation or arbitration.

For an initial conflict and scope review, please send the parties’ names, forum, procedural deadline, short case summary, sanctions context, relevant Russian law issue and the type of support required.