Arbitration Labyrinth. The Sanctions Quest of Russian Companies in the European Financial System.
On May 30, 2024, Alina Kalanda, Senior Partner at C Cases, participated in a roundtable discussion on the topic: "International Arbitration: Current State and Development Prospects," held under the auspices of the Russian Lawyers Association.
Under the leadership of the Chairman of the Russian Lawyers Association's Commission for International
Cooperation, Evgeny Olegovich
Budyakov, and the Chairman of the Association's Commission
for Arbitration, Petr Andreevich Ilyichev, pressing issues of arbitration for Russian participants
in international business under current conditions, the protection of rights and legitimate
interests of sanctioned individuals/entities, arbitration in BRICS and EAEU countries, and many others were discussed.
Participants' attention was drawn to the presentation by Vladislav Petrovich Sorokin on the topic of enforcement of court decisions at various levels and, in particular, the issue of paying for the services of representatives defending the interests of Russian individuals/entities in foreign courts, as well as the problem of paying arbitration fees in European banks.
Payment Issues
Problems with Russian companies paying arbitration fees in European banks and arbitral tribunals arise for several reasons:
1. Sanctions and Restrictions
Many European banks refuse to process transactions with Russian companies due to sanctions imposed on Russia. This creates difficulties for Russian companies when attempting to transfer funds to the accounts of arbitral tribunals in Europe.
2. Tightened Financial Controls
European financial institutions have increased scrutiny over transactions involving Russia. This leads to delays and rejections of payments, as transactions may be deemed suspicious.
3. Account Freezes
Accounts of Russian companies, or even funds held in arbitration court accounts, may be frozen in European banks as part of sanctions policies. This complicates the process of fulfilling financial obligations to arbitration courts.
4. Reputational Risks
European banks may avoid conducting transactions with Russian companies due to the risk of reputational damage, fearing potential repercussions from regulatory bodies and the public.
5. Currency Conversion Issues
Currency restrictions and difficulties in converting Russian rubles to euros also create additional obstacles for paying arbitration fees. Specifically, after the restrictions imposed on the Moscow Exchange (MOEX), it has become more challenging to determine the ruble's exchange rate against the dollar and euro.
6. Legal Complexities
Some European arbitration courts may not accept payments from Russian companies due to legal restrictions or concerns about violating sanctions regimes.
These challenges require Russian companies to seek alternative ways to fulfill their financial obligations, including using intermediaries, cryptocurrencies, or creating special schemes to circumvent sanctions and financial restrictions.
Possible Solutions
There are several examples of Russian companies using alternative methods to pay arbitration fees under sanctions and financial restrictions:
1. Intermediaries and Agencies
Russian companies use the services of international intermediaries or agencies that can make payments on their behalf. These intermediaries may be located in countries not subject to sanctions, which facilitates transactions.
2. Correspondent Accounts
Some companies use correspondent accounts in banks located in countries with less stringent sanctions regimes. This allows transactions to be conducted through more friendly financial systems.
3. Cryptocurrencies
Given limited access to traditional financial services, some companies are turning to cryptocurrencies for international payments. Cryptocurrency transactions can be conducted without bank involvement, which helps bypass sanctions barriers.
4. SWIFT System and Alternative Systems
In some cases, alternative financial systems are used, such as China's CIPS (Cross-Border Interbank Payment System) or Russia's SPFS (System for Transfer of Financial Messages), which operate in parallel with the international SWIFT system.
5. Payments via Third Countries
Payments can be made through third countries not subject to sanctions, which helps circumvent direct restrictions on transactions between Russia and European countries.
6. Barter Deals and Offsetting
In some cases, companies may use barter deals or offsetting to minimize the need for international financial transfers. For example, a Russian company might agree with a European partner to supply goods or services in exchange for cost compensation.
7. Legal Consulting and Optimization
Companies seek legal advice from international lawyers to develop schemes for optimizing financial flows, ensuring compliance with legislation and avoiding sanction risks.
These alternative methods require thorough legal review and may involve additional costs and risks; however, they offer opportunities for fulfilling financial obligations in European arbitration courts and beyond.
C Cases recommends seeking qualified legal assistance to determine and implement the most suitable approach for making payments to Europe.
In lieu of a postscript.
It's important to note that similar payment issues also arise when foreign lawyers are needed to represent Russian companies in court.
Sanction measures leading to these problems should be considered an obstruction of the right to a fair trial.