Type C Accounts in Russia: Who Owns the Funds, What Discharges the Debt and How Can the Money Be Used?

A Russian debtor says: “We have paid.” The foreign creditor replies: “But we cannot withdraw or transfer the money.”

Both statements are legally correct.

A Type C account separates three issues that are normally treated as one: payment, ownership and access to funds. A debt may be discharged under Russian law; the credited money may legally belong to the foreign creditor; and yet the creditor may remain unable to convert, transfer or repatriate it.

A Type C account is therefore not an escrow account controlled by the debtor. It is a statutory payment mechanism combined with a restrictive account regime.

The main regime is established by Presidential Decree No. 95 of 5 March 2022. In its current version, including amendments effective from 1 June 2026, it applies to certain obligations arising from:

• credit agreements;
• loan agreements;
• financial instruments; and
• bank deposits.

It generally concerns obligations owed by Russian residents and Russian public entities to specified foreign creditors connected with states classified by Russia as taking “unfriendly actions”, as well as certain persons controlled by such foreign persons.

The creditor’s status is not determined only by its country of incorporation. Its place of business, place of profit generation, ownership structure and direct or indirect control may also matter.

A Type C account is not, however, the universal payment route for every debt owed to a foreign company. An ordinary payment under a supply, services or construction contract does not automatically fall under Decree No. 95.

The Russian Supreme Court confirmed this distinction in its review approved on 17 June 2026: a supply receivable was not covered merely because the creditor was from an “unfriendly” jurisdiction. Other categories of payments may instead fall under different special regimes. For example, certain intellectual-property payments must be made through a Type O account.

The underlying obligation must therefore be classified before any conclusion is reached.

The special procedure generally applies where covered obligations exceed RUB 10 million in a calendar month (or the foreign-currency equivalent calculated at the official Bank of Russia rate on the first day of that month).

The threshold is calculated in aggregate. The debtor must consider all covered obligations owed during the relevant month to all covered foreign creditors, rather than examining each contract or creditor separately.

Once the aggregate exceeds RUB 10 million, payments to individual covered creditors during that month must follow the special procedure even where a particular payment is below the threshold.

Artificial payment splitting is not a safe solution. The Supreme Court has stated that dividing a payment or using sham assignments to avoid the special-account regime may constitute abuse of rights and result in the relevant arrangements being treated as void.

Yes, provided that the obligation is covered by the special regime and the prescribed procedure has been followed correctly.

The Bank of Russia has formally clarified that Decree No. 95 determines the method of proper performance for the obligations within its scope. A payment made through the statutory procedure cannot be treated as improper merely because the creditor cannot freely use or repatriate the money.

The Supreme Court’s June 2026 review supports the same conclusion from the opposite direction: where the Type C procedure was mandatory, a direct payment made outside that procedure could be contrary to the public interest and void.

A debtor relying on a Type C payment should nevertheless prove that:

• the obligation fell within the relevant decree;
• the creditor was covered by the regime;
• the monthly threshold was exceeded, where applicable;
• the account was opened in the correct creditor’s name;
• it was formally designated as a Type C account;
• the required amount was actually credited;
• the correct exchange rate was used;
• the payment was made on time; and
• the amount was properly allocated between costs, interest, principal and penalties.

A payment instruction or an application to open the account is not sufficient. The safest evidence is a bank statement or certificate confirming the actual credit, its date, amount, account holder and Type C status.

Article 408 of the Russian Civil Code provides that proper performance terminates an obligation.

Accordingly, where a covered debt is fully and correctly paid through a Type C account, the obligation is discharged under Russian law to the extent of the amount properly credited and allocated.

This is not merely a temporary suspension of enforcement. Nor is it simply an offer of payment that the creditor may reject. The special legislation determines the legally permitted method of performance.

However, several qualifications apply.

First, only the amount actually and properly paid is discharged. If the debtor uses the wrong exchange rate, deducts unauthorised charges, pays the wrong entity or fails to include accrued interest, part of the debt may remain outstanding.

Second, the relevant date is normally the date of the actual banking credit, not merely the date on which the debtor issued its payment order.

Third, discharge under Russian law does not automatically determine the result in a foreign court. A foreign court may separately consider:

• the governing law of the contract;
• its conflict-of-laws rules;
• overriding mandatory rules;
• sanctions legislation;
• public policy; and
• the treatment of foreign exchange restrictions.

That is, under Russian law, the obligation was discharged to the extent of the amount properly credited and allocated through the Type C account.

It is usually too broad to state that the debt has ceased for every purpose in every jurisdiction.

From the moment the funds are credited to a Type C account opened in the foreign creditor’s name, they belong to the creditor. The Russian debtor no longer owns or controls them and has no general right to reclaim them.

In technical private-law terms, the creditor acquires a restricted monetary claim against the Russian bank. The balance is not a segregated pile of cash, but a bank-account claim held by the creditor.

The correct distinction is:

• the debtor has transferred the relevant value;
• the creditor owns the account claim;
• the creditor’s ability to use that claim is restricted by law.

The fact that the funds cannot be freely transferred abroad does not mean that they remain part of the debtor’s assets.

The special regime also provides certain protections. In specified circumstances, funds in Type C accounts are protected from attachment and enforcement measures. If the servicing bank becomes insolvent, the balance is excluded from its bankruptcy estate and must be transferred to another designated Type C account.

Not before the payment is made.

The Russian debtor may apply to a Russian credit institution for a Type C account to be opened in the foreign creditor’s name. The creditor does not need to sign a bank-account agreement before the debtor credits the funds.

When the creditor later approaches the bank to use the money, the bank-account agreement is concluded between the bank and the creditor.

The bank may not close the account merely because the creditor has not contacted it or impose an arbitrary deadline for signing the agreement.

However, before giving effective instructions, the creditor will normally need to complete the bank’s identification and anti-money-laundering procedures. The bank may request:

• corporate and registration documents;
• an up-to-date commercial-register extract;
• documents confirming directors and representatives;
• powers of attorney;
• beneficial-ownership information;
• tax information;
• evidence concerning the underlying payment; and
• legalised or apostilled documents with Russian translations.

Failure to complete KYC may prevent the creditor from using the balance. It does not normally revive a debt that has already been properly discharged under Russian law.

The creditor must also consider whether dealing with the relevant Russian bank is permissible under the sanctions laws applicable to the creditor, its directors, banks and advisers.

The debtor cannot generally reverse a completed Type C payment simply because:

• the creditor has not contacted the bank;
• the creditor refuses to sign banking documents;
• the creditor cannot repatriate the balance;
• the creditor disputes the legal effect of the payment abroad; or
• commercial negotiations have broken down.

A return to the payer is generally possible only where:

• the underlying obligation has been lawfully performed or terminated by another permitted method; or
• the money was credited by mistake.

An erroneous credit may include a duplicate payment, payment to the wrong creditor or another properly documented banking or payment error.
A contractual clause giving the debtor an unrestricted right to recall the money cannot override the mandatory Type C debit regime.

Where a payment is lawfully reversed as erroneous, the discharge analysis must be reconsidered. A fully reversed payment will not normally continue to discharge the debt unless the obligation was separately terminated by another lawful method.

A Type C account is not an ordinary account subject to a temporary administrative hold. Permitted debit operations are determined by the Bank of Russia, and the list is exhaustive.

Depending on the applicable regime, the funds may generally be used for:

• Russian taxes, duties and other mandatory payments;
• purchases of Russian federal loan bonds;
• transfers to other Type C accounts;
• transfers to permitted Type C brokerage, trading or clearing accounts;
• authorised bank, broker and depositary fees;
• certain narrowly defined payments to Russian residents;
• refunds following lawful alternative performance; and
• correction of erroneous credits.

The funds generally cannot be used to:

• withdraw cash;
• transfer the balance to an ordinary Russian account;
• send the money to a foreign bank account;
• convert it freely into foreign currency;
• pay an ordinary foreign supplier;
• make unrestricted payments to affiliates; or
• repatriate the proceeds.

Moving the funds from one Type C account to another does not remove the restrictions.

An individual permission relating to the underlying transaction also does not necessarily create an operational route for releasing money that has already been credited to a Type C account. Where the parties seek an unrestricted payment route, the required permission and its precise banking mechanics should normally be established before the Type C credit is made.

The additional securities-related mechanisms introduced by the Bank of Russia in June 2026 did not create a general right to transfer ordinary Type C bank balances abroad.

The creditor’s inability to use the balance freely does not, by itself, mean that the debtor remains in default.

Ordinary interest

Ordinary or remunerative interest normally accrues until the legal repayment date. If principal and accrued interest are correctly credited to the Type C account on time, further ordinary interest should not continue merely because the creditor cannot repatriate the funds.

Article 395 interest

Default interest under Article 395 of the Civil Code generally accrues until proper payment. A timely and compliant Type C credit should therefore stop further default interest on the amount discharged.

If payment was late, interest may accrue until the date of actual credit. If payment was partial, interest may continue on the outstanding balance.

Contractual penalties

The same principle generally applies to contractual late-payment penalties:

• timely proper payment prevents further delay;
• penalties accrued before payment are not automatically cancelled;
• partial payment stops future accrual only on the discharged amount; and
• accrued penalties survive unless paid, waived or reduced.

Allocation of payment

An insufficient payment is not necessarily allocated according to the wording used by the debtor in its payment instruction.

Under Article 319 of the Civil Code, payment is generally applied first to recoverable costs, then to ordinary interest and only then to principal. Article 395 interest and contractual penalties ordinarily rank after principal.

A payment labelled entirely as “principal” may therefore leave part of the principal outstanding if costs and ordinary interest were due. Settlement agreements and expert reports should contain a detailed allocation schedule.

A settlement involving a Type C account should distinguish between:

1. performance by the debtor under Russian law;
2. ownership of the balance by the creditor;
3. restrictions on the creditor’s use of the funds; and
4. the possible treatment of the payment in foreign proceedings.

The agreement should not state that the creditor has received freely available money unless that is factually correct.

Before commencing proceedings, a foreign creditor should verify:

The nature of the debt. Is it a loan, financial instrument, deposit, supply debt, licence fee, dividend or another obligation?
The applicable version of the law. The rules in force on the payment date may differ from those applicable in 2026.
The creditor’s status. Incorporation, place of business, beneficial ownership, control and any Russian-control exception must be examined.
The monthly threshold. All covered obligations owed by the debtor during the month must be aggregated.
The chain of title. Assignments, nominees, trusts and changes of holder should be reviewed for possible anti-circumvention issues.
Regulatory permissions. Their issuing authority, amount, payment route, conditions and validity period must be confirmed.
The account. The creditor’s full name, account number, Type C designation, servicing bank and opening date should be verified directly from banking evidence.
The actual credit. The statement must show the value date, amount, payer, payment purpose and any later reversal.
The calculation. Principal, ordinary interest, Article 395 interest, penalties, costs, taxes, charges and statutory allocation must be recalculated.
The date default ended. A valid but late payment may still leave accrued interest and penalties outstanding.
Security and foreign judgments. Guarantees, pledges, parent-company undertakings and foreign judgments may require separate governing-law analysis.

The creditor must also avoid double recovery. It cannot ordinarily retain the full economic benefit of a Type C balance while recovering the same discharged debt again elsewhere without accounting for that balance.

A Type C account separates payment from liquidity.

The debtor may have properly performed. A valid Type C credit can discharge the obligation under Russian law. The creditor owns the balance — the funds do not remain the debtor’s property. But the creditor may still be unable to use the money freely; ownership does not create a right to withdraw, convert or repatriate the funds outside the permitted regime.

The debtor performed through a statutory restricted-payment mechanism; the debt was discharged under Russian law to the properly paid extent; the creditor acquired the corresponding restricted claim against the Russian bank; and the use of that claim remains governed by the Type C account regime.

This article states general legal information as at 14 July 2026. The result in a particular case depends on the nature of the obligation, the payment date, the parties’ status, the governing law, applicable permissions and the law of the court hearing the dispute.

If you are dealing with a payment through a Type C account, disputing whether a debt has been discharged, trying to access restricted funds, or preparing a settlement or expert evidence for foreign proceedings, do not hesitate to contact me for tailored legal assistance.

I can review the underlying transaction, determine whether the Type C regime applies, verify the payment and account documents, calculate the remaining debt and interest, negotiate with the Russian debtor and bank, draft settlement terms, and prepare a Russian-law opinion for use before a foreign court or arbitral tribunal.