Magomed Gasanov

Dear Ladies and Gentlemen! The imposition of foreign sanctions against Russia also impacts the prospects of Russian judgments being recognized and enforced in "unfriendly" jurisdictions. Some even believe that these sanctions completely prevent such recognition in bankruptcy cases, as it might indirectly result in the fulfilment of obligations to Russian sanctioned companies. However, the judicial practice of which we are aware shows that foreign courts seated in "unfriendly" jurisdictions allow the recognition of Russian judgments rendered in bankruptcy cases, albeit with certain restrictions. This situation poses additional risks for foreign shareholders in enterprises that have been declared bankrupt in Russia, while also offering new opportunities for Russian creditors. You can find examples of cases heard before certain foreign courts after February 2022, where Russian judgments in bankruptcy matters were recognized, along with our recommendations [here](https://www.alrud.ru/upload/ALRUD%20upload/2024/Newsletters/ALRUD_Exporting_Russian_bankruptcy.pdf 'here').

On 25 June 2024, the Bank of Russia [published](https://www.cbr.ru/press/pr/?file=638549237200621233PNP.htm 'published') a press release indicating that in cooperation with Europlan Leasing Company it had found manipulation in bond transactions in organized trading. The inspection materials have been sent to law enforcement authorities. The ALRUD team advised and represented the interests of Europlan Leasing Company in this matter. The ALRUD team working on the case was led by White Collar Crime, Compliance and Investigations Practice Partner [Magomed Gasanov](https://www.alrud.com/people/MagomedGasanov/ 'Magomed Gasanov'), and also included Senior Associates Alexander Mikhailov and [Margarita Egiazarova](https://www.alrud.com/people/MargaritaEgiazarova/ 'Margarita Egiazarova'), as well as Associate [Arslan Maksutov](https://www.alrud.com/people/ArslanMaksutov/ 'Arslan Maksutov').

The Supreme Court has considered [the Westwalk case](https://kad.arbitr.ru/Card/47bca54d-1403-4421-a045-44cb344678d7 'the Westwalk case') and ruled that foreign companies can be legally recognized as bankrupt if there is a "close connection" with Russia. Bankruptcy of foreigners was first commenced in 2016, but for a long was applied only to individuals1. The Arbitrazh Court of the Chelyabinsk Region opened [Pandora's box](https://kad.arbitr.ru/Card/62e3188c-e1ea-468e-ae5b-f62907748814 'Pandora's box') in 2022 with respect to a company from the island of Nevis, which was only formally registered there. This approach was actively adopted by other courts, and in 2023 we saw an increase in such cases2. The court's ruling in the Westwalk case summarised the practice of the lower courts and resolved important practical issues. Who can be declared bankrupt? Foreign companies that have a close connection with Russia in the following cases: - {{(A)}} The management body, branch or representative office of the foreign company is located on Russian territory - {{(B)}} The entity has permanent economic activities in Russia that are oriented towards Russian individuals, including owning property and concluding transactions in Russia - {{(С)}} The centre of the main interests of the controlling entities is located on Russian territory What assets are covered by bankruptcy? - {{(A)}} If the centre of the debtor's main interests is located in Russia, the foreigner may be subject to main proceedings with respect to all its assets abroad - {{(B)}} If the centre of the debtor's main interests is located abroad, but there is a close connection with Russia, bankruptcy proceedings may only be initiated with respect to its Russian assets It is now safe to say that both Russian and foreign creditors can commence bankruptcy proceedings with respect to both offshore companies and legal entities that are registered and act abroad and have a close connection with Russia. For example, see Case No. [А41-72478/2019](https://kad.arbitr.ru/Card/62e3188c-e1ea-468e-ae5b-f62907748814 'А41-72478/2019'), [А28-8319/2016](https://kad.arbitr.ru/Card/a6c4d8ae-e11f-4b0d-8d7f-3199d36e57b1 'А28-8319/2016') and [А40-248865/2016](https://kad.arbitr.ru/Card/5ab3a6fc-5dd0-4262-a451-c9b8eb3be43a 'А40-248865/2016'), among others. Courts have actively started bankruptcy proceedings against foreign companies, for example, Delvenisto Investments LTD (Case No. [А40-5658/2023](https://kad.arbitr.ru/Card/db3f6641-25dc-46a0-8328-57109c6b883a 'А40-5658/2023')), Garant Bauinvestition GmbH (Case No. [А40-9555/2023](https://kad.arbitr.ru/Document/Pdf/45362b4f-4a9c-4ed6-8933-5192ad4fcf98/4bf7ce29-493c-4fa8-8f81-05123a865e4c/A40-9555-2023_20230609_Reshenija_i_postanovlenija.pdf?isAddStamp=True 'А40-9555/2023')), Retail Chain Properties (Case No. [А40-112325/2023](https://kad.arbitr.ru/Document/Pdf/45362b4f-4a9c-4ed6-8933-5192ad4fcf98/4bf7ce29-493c-4fa8-8f81-05123a865e4c/A40-9555-2023_20230609_Reshenija_i_postanovlenija.pdf?isAddStamp=True 'А40-112325/2023')), GEMONT ENDUSTRI (Case No. [А65-23218/2023](https://kad.arbitr.ru/Card/65b4726a-0a92-4fb9-8f9b-020e77bfc6ad 'А65-23218/2023')) and others.

Dear Ladies and Gentlemen, We would like to update you on recent precedent-setting judgements by Russian courts in matters involving foreign businesses that decided to leave Russia. On 17 October 2023, the Arbitrazh court of Moscow city sustained the claim by Russian bank PJSC Sovkombank against Citibank N.A. (a US company) and its Russian subsidiary JSC KB Citibank concerning the joint recovery of US$24m in losses1. On 21 December 2023, an appeals court upheld the judgement. As follows from the judgement, in 2017, Sovkombank and Citibank N.A. concluded a general agreement that served as the basis for further transactions between the parties. Following several transactions and mutual offsetting, Citibank N.A. incurred debt to Sovkombank. Citibank N.A. acknowledged the debt and informed Sovkombank that the money would be credited to an account that had been blocked based on sanctions. In these circumstances, Sovkombank never received the money. Sovkombank, being governed by Russian anti-sanctions procedural rules2, filed a claim in Russian court stating that Citibank N.A. had failed to perform its obligation and also held Citibank’s Russian subsidiary liable as a co-defendant, citing the fact that it belongs to CITIBANK Group, even though the Russian subsidiary never had any agreements with Sovkombank. The Russian court acknowledged its jurisdiction despite the arbitration clause and refused to apply English law. After considering the case, the court ruled that Citibank N.A. had violated its obligation and abused its right since it had transferred money to a frozen account without trying to perform the obligation alternatively, i.e. it should be held liable for tort rather than for breach of contract. The court also ruled that Citibank N.A. and JSC KB Citibank should be held jointly liable as their joint actions caused damages to Sovkombank. The judgement states that both Citibank N.A. and JSC KB Citibank aimed to embezzle the money despite attempting to restructure relations with Sovkombank and ensure the performance of the obligation (e.g., to change the debtor from Citibank N.A. to the Russian subsidiary). The Russian court ruled that even though the only party to the contract was Citibank N.A. and that Citibank N.A. and JSC KB Citibank are different legal entities, they should be jointly liable since they constitute an economic group, which acts as a single enterprise. The same approach was taken in the recent cases of Russian Railways v. Siemens3 and another (confidential) сase based on a claim by a Russian bank against another foreign bank and its 100% Russian subsidiary. This shows that Russian courts not only acknowledge that complying with anti-Russian sanctions should be considered as an abuse of rights and violation of the Russian public order per se, but also tend to hold Russian subsidiaries liable for the debts of their parent companies even though they are not parties to the disputed relations. Case No. [А40-167352/23](https://kad.arbitr.ru/Card/0bc95653-db00-44dc-97a7-03c58001f0a7 'А40-167352/23') You can read more on this regulation in our previous newsletters [here](https://www.alrud.com/publications/5efb161c8b4b1e5752512f2a/ 'here') and [here](https://www.alrud.com/publications/5fe3056b5bc6294014023c8b/ 'here'). Case No. [А40-195006/22](https://kad.arbitr.ru/Card/d36d5248-7369-4b59-8eb0-024b43fba372 'А40-195006/22')

On 14 December ALRUD held the ”Internal Investigations: Personnel Liability and Best Practices” webinar on the labour, civil, and criminal law issues in the course and in the wake of internal investigations. [Magomed Gasanov](https://www.alrud.com/people/MagomedGasanov/ 'Magomed Gasanov'), Partner, ALRUD Advocate, PhD in Law, and [Anastasiya Petrova](https://www.alrud.com/people/AnastasiaPetrova/ 'Anastasiya Petrova'), ALRUD Of Counsel, explored the following topics: - What is an internal investigation and why does the business need it? - Common mistakes in conducting internal investigations - Gathering necessary evidence - Internal investigations issues related to personal data - Personnel liability resulting from internal investigations

Various types of management responsibility are not myths any longer, they have become a reality. We are glad to introduce our new guide devoted to current trends analysis – “The (non-)Myths of Management and Beneficiaries Responsibility”. We have prepared practical answers to the most frequently asked questions: “what one can be held liable for” and “what shall be done to avoid it”. We hope you find the material useful.

The Inter-Pacific Bar Association Journal ('IPBA') published an issue of «[Cross-Border Fraud, Law and Investigations](https://ipba.org/sites/main/media/normal/5962_IPBA_March_2023_web.pdf 'Cross-Border Fraud, Law and Investigations')» focusing on cross-border cybercrime with examples from various countries. [Maxim Alekseyev](https://www.alrud.com/people/MaximAlekseyev 'Maxim Alekseyev'), Senior Partner of Tax Practice, and [Magomed Gasanov](https://www.alrud.com/people/MagomedGasanov/ 'Magomed Gasanov'), Partner of Dispute Resolution Practice, prepared the article «International Fraud in Current Russian Realities» on cyber-fraud in current realities with reference to Russia. The experts gave examples of cybercrime cases encountered by Russian companies, told about protective measures, as well as shared some rules and advice on how to avoid becoming a victim of a cybercrime.

Starting from February 2022, the President of Russia has adopted several decrees restricting conclusion and performance of transactions involving foreign entities and individuals. In most cases such transactions now require approval from a special governmental commission. Today the Russian Ministry of Finance published draft law No. 02/04/03-23/00136901 on making amend-ments to the Russian Code of administrative offences that introduce liability for breach of counter-sanctions measures aimed at ensuring of financial stability of the Russian Federation (hereinafter the “Draft law”). Please find below a brief overview of the Draft law. 1. Consequences of violation of the counter-sanction measures in accordance with the Draft law As follows from the Draft law, in case of non-compliance with the counter-sanctions measures (e.g. in case of conclusion of transactions in breach of the counter-sanctions), (1) citizens, (2) individuals car-rying out entrepreneurial activities without establishing a legal entity, and (3) legal entities will be fined in the amount from 20% to 40% of the transaction amount carried out in breach of the measures (failure to conclude transactions in breach of the counter-sanctions measures is proposed to be treated on the same basis as the transaction carried out in non-compliance with the measures). It is also proposed to extend similar liability to officials (including company officials), but to limit it to RUB 30,000. In cases when non-compliance with the counter-sanction measures does not have monetary value (e.g., making a gift), it is proposed to impose an administrative fine on individuals in the amount from RUB 4,000 to RUB 5,000, on officials - in the amount from RUB 40,000 to RUB 50 000, and on legal entities - in the amount from RUB 800,000 to RUB 1,000,000. 2. Persons and entities that cannot be brought to administrative liability in accordance with the Draft law The annotations to the Draft law specify that the administrative liability established by this article shall not apply to Russian residents which are credit institutions and entities engaged in insurance business. The Draft law also provides several exceptions when liability shall not apply. According to the text of the Draft law, if it is adopted, it becomes effective from 01 January 2024. We would like to draw your attention to the fact that this Draft law is a very early version. Between 22 March 2023 and 11 April 2023 it will be under public discussion, with several more stages of consideration ahead, so by the final stage of consideration the Draft law may change significantly. Please kindly let us know if you have any questions about this Draft law and its impact on your business.

In light of the sanctions imposed, ALRUD experts have prepared an Overview of Russian Counter-Sanctions measures that have been taken in response to the actions of unfriendly countries since 24 February 2022. The overview focuses on: - Russian counter-sanctions measures - Liability - Prospects for foreign business - Recent trends in litigation and arbitration - Assumptions and limitations The review is updated on an ongoing basis. Follow the link to learn more. [Download file](https://www.alrud.com/upload/%D0%A4%D0%B0%D0%B9%D0%BB%D1%8B/2022_newsletters/%D0%A1ounter-sanctions_summary_ALRUD_21.07.2022.pdf 'Download file') [](https://www.alrud.com/upload/%D0%A4%D0%B0%D0%B9%D0%BB%D1%8B/2022_newsletters/%D0%A1ounter-sanctions_summary_ALRUD_21.07.2022.pdf) We hope that the information provided herein will be useful for you. If you or any of your colleagues would like to receive our newsletters via e-mail, please fill in the Subscribe form at the bottom of the page. Practices: [Crisis Management, Economic sanctions and Compliance](https://www.alrud.com/services/EconomicSanctionsandCompliance/ 'Crisis Management, Economic sanctions and Compliance') *Note: Please be aware that all information provided in this letter was taken from open sources. Neither ALRUD Law Firm, nor the authors of this letter bear any liability for consequences of any decisions made in reliance upon this information.

On August 25, 2021, international ranking agency IFLR1000 published the results of EMEA rankings that represent [IFLR1000's 31st 2021/22 edition](https://www.iflr1000.com/Jurisdiction/Russia/Rankings/197rankings). The rating evaluates law firms in different areas. ALRUD law firm is again top ranked for M&A, Banking, Restructuring and Insolvency, Project Finance, PPP, Capital Markets: Debt and Equity, Project development: Mining and Energy. Individual nominations in IFLR1000: [Alexander Zharskiy](https://www.alrud.com/people/AlexanderZharskiy/ 'Alexander Zharskiy'), Partner and Head of the Corporate and M&A Practice, and [Anton Dzhuplin](https://www.alrud.com/people/AntonDzhuplin/ 'Anton Dzhuplin'), Partner of the Corporate and M&A, Banking and Finance practices are “Highly regarded” in the rating. [Sergey Petrachkov](https://www.alrud.com/people/SergeyPetrachkov/ 'Sergey Petrachkov'), Partner and Head of the Dispute Resolution and Restructuring/Insolvency Practices, and [Magomed Gasanov](https://www.alrud.com/people/MagomedGasanov/ 'Magomed Gasanov'), Partner of Dispute Resolution, Restructuring and Insolvency Practices, and Head of White Collar Crime, Compliance and Investigations are nominated in the category “Rising star partner”. [Artur Chernykhov](https://www.alrud.com/people/ArturChernykhov/ 'Artur Chernykhov'), Associate of the Dispute Resolution and Restructuring and Insolvency Practices, and [Ekaterina Mayorova (Rogacheva)](https://www.alrud.com/people/EkaterinaRogacheva/ 'Ekaterina Rogacheva'), Associate of the Banking & Finance Practice, are mentioned as “Rising star” in the rating. Congratulations to the ALRUD team! *IFLR 1000 is one of the leading international legal publications. The publication's specialists annually conduct market research around the world, on the basis of which they make a rating of the best practicing lawyers and law firms.*