When a Russian counterparty becomes subject to international sanctions, recovering outstanding debts or frozen assets requires navigating an intersection of Russian procedural law, export-control restrictions, and rapidly evolving domestic measures that may block access to foreign courts. The scenario below is an illustrative composite drawn from patterns typical of cross-border disputes involving sanctioned entities in Russia; it is not a specific client matter, and no real amounts, outcomes, or identifying details are presented. The transferable lessons are, however, directly applicable to companies and funds facing comparable situations today.
Client Profile and the Challenge
The hypothetical client is a mid-sized European trading company that supplied industrial equipment to a Russian counterparty on deferred payment terms. Shortly after delivery was completed, the Russian buyer was added to an EU, UK, and US sanctions list as a designated entity. The immediate consequences were threefold.
- The client's bank blocked outgoing wire transfers to service any Russian account, but also restricted the client's ability to enforce payment through normal banking channels.
- The Russian counterparty cited the sanctions regime as grounds for non-payment, invoking force majeure clauses in the supply contract.
- The contract contained an international commercial arbitration clause under the rules of a Western arbitral institution, which the Russian side immediately sought to neutralise.
The unpaid invoice had been outstanding for several months before the client engaged Ferraz & Whitmore to assess the realistic recovery pathways and associated risk profile. The core legal question was stark: could any effective enforcement of judgment be achieved against a sanctioned entity inside Russia, and under what procedural framework?
If your organisation is facing a comparable situation, our team can review the specific contractual and sanctions framework at the earliest stage. Please contact us at info@ferrazwhitmore.com or visit our contacts page to arrange an initial consultation.
Strategy and Rationale
The overarching strategy rested on a dual-track approach: preserving the client's ability to litigate in Russia while simultaneously monitoring whether an out-of-court settlement or asset transfer could be licensed through the relevant sanctions authority.
Understanding the Russian Procedural Landscape
Two provisions of the Russian Arbitrazh Procedure Code (APC RF) defined the procedural terrain. Article 248.1 confers exclusive jurisdiction on Russian Arbitrazh courts over disputes involving sanctioned parties, effectively allowing the Russian side to argue that only a Russian court is competent to hear the matter. Article 248.2 goes further: it permits a sanctioned Russian party to obtain an anti-suit or anti-arbitration injunction from a Russian Arbitrazh court, with financial penalties up to the full value of the claim if the foreign party continues proceedings abroad.
For the client, this meant that pressing ahead with the international arbitration clause without first obtaining a sanctions licence or securing a Russian court strategy carried the risk of significant penalties being imposed on any Russian assets the client might otherwise have used as leverage, as well as reputational and enforcement complications if the Russian party counter-claimed.
The Government Commission Route
Russian law provides a mechanism – administered through the Government Commission on the Control of Foreign Investment in Russia – by which payments to foreign creditors from sanctioned counterparties may, in principle, be authorised. The strategy included preparing a detailed application to this body, documenting the supply chain, the pre-sanction contractual relationship, and the absence of any ongoing dual-use or restricted-technology dimension to the equipment supplied. This route is neither fast nor certain, but it preserves the possibility of a compliant cash transfer.
Debt Collection Proceedings Before the Arbitrazh Court
In parallel, the team advised filing a payment order application (prikaz) and, in the event of opposition, converting it into a full Arbitrazh court claim for the unpaid invoice plus late payment interest calculated under the applicable contractual provisions and Russian law. Obtaining a Russian enforcement of judgment domestically would create a legally recognised claim that could be executed against the counterparty's Russian assets should the Government Commission or any future sanctions-relief mechanism permit the funds to move. It would also strengthen the client's position in any negotiated settlement.
Crucially, the strategy had to account for the position taken by Russian courts on asset freezing. Interim measures – including the freezing of a debtor's Russian bank accounts or property – are available under APC RF but require the court to be satisfied that enforcement would otherwise be frustrated. In a sanctions context, courts have sometimes been reluctant to grant such measures where the underlying dispute has a strong international dimension.
Milestones in the Illustrative Scenario
- Initial assessment: Review of the supply contract, the applicable sanctions designations, and the APC RF jurisdictional position, leading to a written risk memorandum for the client's board.
- Arbitration clause analysis: Formal advice that pursuing the Western arbitration clause without licensing risked triggering Article 248.2 penalties; recommendation to apply for a Russian court forum in parallel with any sanctions-authority engagement.
- Government Commission filing: Preparation and submission of an authorisation application with full supporting documentation; the process is lengthy and subject to discretionary review.
- Arbitrazh court proceedings: Filing of a debt collection claim in the competent Arbitrazh court; service of process on the sanctioned entity in accordance with Russian procedural rules; preparation for a contested hearing given the counterparty's force majeure defence.
- Interim measures application: An application to freeze the counterparty's identifiable Russian assets, supported by evidence of dissipation risk.
- Judgment and enforcement phase: Obtaining a judgment and enforcement writ (ispolnitelny list); engagement with the Federal Bailiff Service for execution, subject to any sanctions-related payment restrictions remaining in force.
Complications: The Constitutional Court Ruling and the Article 248 Debate
A significant complication in matters of this type arose from the evolving judicial interpretation of Article 248.1. Some Russian courts had been applying the provision automatically, treating any sanctions designation as sufficient to establish exclusive Russian jurisdiction and to block foreign proceedings. This raised the risk that the client's prior participation in any Western arbitration – even preliminary steps – could be used to justify an Article 248.2 penalty.
In Constitutional Court Ruling No. 999-O (29 April 2025), the Russian Constitutional Court addressed this tendency. The ruling confirmed that Article 248.1 jurisdiction is not automatic: it requires a genuine finding that the sanctioned party faces real obstacles to accessing justice through the originally agreed forum. Mere designation, without a demonstration of actual procedural barriers, is insufficient to trigger exclusive Arbitrazh jurisdiction. This was a materially important clarification: it limited the scope for opportunistic invocation of Articles 248.1 and 248.2 by counterparties seeking to neutralise contractual arbitration clauses.
For further analysis of how Constitutional Court Ruling No. 999-O constrains the use of Article 248, see our alert at Constitutional Court Russia – Limits on Automatic Use of Article 248.
The subsequent Supreme Court Thematic Review No. 8/2026 (June 2026) consolidated the emerging practice across Arbitrazh courts, providing clearer guidance on the evidentiary standard required for an Article 248.1 application and narrowing the circumstances in which anti-suit injunctions under Article 248.2 can be granted. For creditors, this development improved the predictability of dual-track strategies that maintain both Russian court proceedings and foreign arbitration rights, at least where the foreign forum remains genuinely accessible.
Outcome Category
In scenarios of this type, outcomes fall into one of three broad categories, and the realistic range should be communicated clearly to any client board before committing to a full litigation budget.
- Negotiated settlement with Government Commission approval: The counterparty, faced with an active Arbitrazh court claim and the risk of a domestic judgment and asset freeze, agrees to a structured payment that is then authorised through the Government Commission mechanism. Recovery is partial or phased and subject to ongoing compliance review.
- Judgment obtained, enforcement deferred: A Russian court issues a judgment in the creditor's favour, but enforcement against cash is blocked pending sanctions relief. The judgment is preserved for future execution and strengthens the creditor's position in any multilateral sanctions-unwinding process.
- Protracted stalemate: Neither settlement nor effective enforcement is achievable within the current sanctions environment; the proceedings preserve legal rights for a future window without generating near-term recovery.
No specific outcome is guaranteed in any individual matter. The appropriate strategy depends on the counterparty's asset profile, the nature of the sanctions designation, and the evolving regulatory environment in both Russia and the relevant home jurisdiction of the creditor.
Our sanctions and trade team works closely with our debt recovery practice to model the range of likely outcomes before any filing. If you would like a frank assessment of where your matter is likely to fall, write to us at info@ferrazwhitmore.com.
Three Transferable Lessons
1. Act Before the Arbitration Clause Becomes a Liability
The window between a counterparty's designation and a Russian court issuing an Article 248.2 injunction can be narrow. Early legal review – before any procedural steps are taken under a Western arbitration clause – is essential. Constitutional Court Ruling No. 999-O and Supreme Court Review No. 8/2026 have improved the position, but they have not eliminated the risk. Companies should instruct lawyer Russia-qualified counsel immediately upon learning of a counterparty designation, rather than waiting for the first missed payment to become a formal dispute.
2. Russian Arbitrazh Proceedings Serve a Preservation Function Even When Enforcement is Delayed
Obtaining a domestic Russian judgment through the Arbitrazh court system is not futile even if immediate cash recovery is impossible under sanctions restrictions. A judgment creates a legally enforceable claim that survives any future sanctions-relief window, establishes priority over other creditors in any insolvency scenario, and provides concrete leverage in negotiated settlements facilitated through the Government Commission. The cost of inaction – allowing limitation periods to expire or the counterparty to dissipate assets into unsanctioned subsidiaries – frequently exceeds the cost of maintaining active proceedings.
3. Dual-Track Strategy Requires Co-ordinated Sanctions Compliance at Every Step
Filing in a Russian Arbitrazh court, instructing a Russian law firm Russia correspondent, paying Russian court fees, and engaging with Russian state authorities each carry potential licensing implications under EU, UK, and US sanctions regimes. The client's home-jurisdiction compliance team must be involved from the outset to ensure that litigation activity itself does not create a sanctions violation. This is an area where a firm with both a sanctions and trade capability and a debt recovery practice working in co-ordination provides a material advantage over instructing separate specialists who may not communicate sufficiently on compliance constraints.
For an overview of our debt recovery work in Russia, including procedural pathways and enforcement options, see Debt Recovery – Russia. For guidance on the intersection of sanctions compliance and Russian litigation, see Sanctions and Trade – Russia.
How Ferraz & Whitmore Can Assist
Our Moscow-correspondent network and Lisbon-based international disputes team have worked on illustrative matters of the type described above across multiple sectors, including industrial supply, financial services, and real estate. We can assist with early-stage risk assessment, drafting and filing Arbitrazh court claims, Government Commission applications, interim measures strategy, and co-ordination with home-jurisdiction sanctions counsel.
To discuss how the framework described in this scenario applies to your specific situation, please reach out to our team at info@ferrazwhitmore.com or use our contacts page. We aim to respond to initial enquiries within one business day.
Disclaimer: This publication is provided for informational purposes only and does not constitute legal advice. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Ferraz & Whitmore assumes no liability for actions taken or not taken based on the contents of this material. For advice regarding your particular situation, please contact info@ferrazwhitmore.com.