Negotiating settlements in sanctioned environments requires a careful mapping of applicable restrictions before any substantive discussion with a counterparty can begin. In Russia, the convergence of Western asset freezes, export controls, secondary-sanctions risk and domestic countermeasures has fundamentally altered the mechanics of pre-litigation and out-of-court resolution. Firms that understand this altered landscape early are better positioned to protect value and avoid inadvertent compliance breaches during the negotiation process itself.
The Sanctions Architecture That Shapes Every Negotiation
Since early 2022, coordinated sanctions regimes imposed by the European Union, the United States, the United Kingdom and allied jurisdictions have introduced asset-freeze obligations, transaction prohibitions and licensing requirements that directly affect the enforceability of settlement agreements involving Russian counterparties. These measures do not merely restrict payment flows; they redefine what a party can lawfully agree to, commit to and ultimately perform.
At the same time, Russia has enacted its own countermeasures. Presidential decrees and Government Commission approvals (issued under the framework of the Russian Government Commission on the Control of Foreign Investment) now govern whether a Russian entity may lawfully make payments to residents of "unfriendly states." This creates a two-layer compliance problem: a foreign creditor seeking settlement must navigate restrictions at home and the approval requirements that its Russian debtor faces before any transfer can proceed.
Key intersecting instruments include:
- EU asset-freeze and transaction prohibitions under successive Council Regulations, extended periodically since 2014 and significantly broadened after February 2022.
- OFAC general and specific licences governing wind-down transactions, certain legal fees, and payments related to debt instruments.
- UK financial sanctions administered by OFSI, with licence categories that may permit settlement of pre-existing contractual obligations in defined circumstances.
- Russian domestic countermeasures, including the requirement for Government Commission consent for transactions involving counterparties from designated "unfriendly states," the use of Type-C escrow accounts (счета типа «С»), and restrictions on cross-border capital movements.
No negotiation strategy in this environment is complete without a thorough sanctions-compliance analysis conducted before the first formal communication with the other side. If you are assessing how to protect a commercial claim or recover value from a Russian counterparty, our team at Ferraz & Whitmore is available to discuss your specific situation at info@ferrazwhitmore.com.
Pre-Litigation Tools and Their Sanctioned-Environment Limitations
Letter Before Action
A letter before action remains the conventional opening move in pre-litigation commercial disputes. In a sanctioned environment, however, the substance and timing of that letter require careful calibration. Sending a letter that implicitly acknowledges a debt or proposes specific payment mechanics may itself trigger questions about whether the communication constitutes a step in a prohibited transaction. Legal advice privilege and the delineation between "legal services" (often licensed) and "commercial facilitation" (often restricted) is a live issue in multiple regimes.
Where a Russian counterparty is itself subject to asset-freeze measures, any acknowledgement in the letter that you will accept payment in kind, through an intermediary or into a non-standard account may inadvertently structure a prohibited transaction. The letter must be drafted with full awareness of the creditor's own licensing position.
Standstill Agreements
A standstill agreement – under which parties agree to suspend the running of limitation periods and to refrain from commencing proceedings for a defined period – can be a valuable tool when the primary obstacle to resolution is regulatory rather than commercial. In Russia, the general limitation period under the Civil Code is three years, subject to specific rules for different claim types, and standstills are recognised as a matter of contract law.
The challenge lies in execution. For a standstill to bind a Russian counterparty effectively, it must be properly executed under applicable law, which may require Government Commission approval if its performance involves any monetary element or if it modifies obligations under a contract already subject to countermeasure restrictions. Where the agreement is purely procedural, the approval requirement is less certain, but Russian law does not provide an explicit safe harbour, making this an area of genuine open legal question.
Payment Plans and Deferred Settlement Structures
A payment plan – structured repayment of a commercial debt over an agreed schedule – is legally straightforward in ordinary conditions but presents layered difficulties in the current environment. Under Russian countermeasures, payments to creditors from "unfriendly states" generally require routing through Type-C rouble accounts or obtaining specific Government Commission approval for conventional foreign-currency transfer. This means that the economic value to the foreign creditor of any payment plan denominated in roubles may be uncertain until the creditor obtains regulatory permission to convert and repatriate those funds.
Creditors should therefore consider whether to negotiate the payment plan simultaneously with the approval process, or to use the payment plan as a framework within which approval is sought as a condition precedent to each payment tranche. Each approach carries timing and enforceability risks that must be weighed against the underlying commercial objective.
Mediation as a Structured Path Through Regulatory Uncertainty
Mediation in commercial disputes involving Russian parties has historically been underused relative to court proceedings, but the current environment has increased its practical relevance. A mediated settlement agreement can be drafted with greater flexibility than a court judgment, including conditions precedent tied to regulatory approvals, alternative performance mechanisms, and phased release of obligations.
Russian law recognises mediation under Federal Law No. 193-FZ on Alternative Dispute Resolution Procedures (the "Mediation Law"), and a settlement reached through mediation can be approved and rendered enforceable by an Arbitrazh court or general jurisdiction court. The approval by an Arbitrazh court transforms the mediated agreement into an enforceable judicial act, which is a meaningful tool if subsequent enforcement proceedings become necessary across jurisdictions.
For cross-border mediations involving both Russian and non-Russian parties, the choice of institution, seat and applicable procedural rules will affect the degree to which the resulting agreement can be enforced in third-country jurisdictions. Parties should ensure that any settlement agreement is structured to satisfy enforcement requirements in every jurisdiction where assets may be located.
The Arbitrazh Court Framework and Domestic Settlement
When pre-litigation efforts do not produce an agreement, the Russian Arbitrazh court system – the network of commercial courts operating under the Arbitrazh Procedural Code (APC RF) – provides a structured environment in which parties may still reach a settlement during proceedings. Under the APC RF, parties may conclude a settlement agreement (mirovoye soglasheniye) at any stage of Arbitrazh court proceedings, including during execution. The court must approve the agreement, verifying that it does not violate the rights of third parties or the law.
The Supreme Court of Russia has issued guidance on the requirements for court-approved settlement agreements, including conditions on specificity of obligations, mechanisms for performance and permissible subject matter. Compliance with that guidance is necessary for a settlement to receive court approval and therefore to acquire the enforceability that distinguishes it from a purely contractual arrangement.
A critical practical consideration is that even a court-approved Arbitrazh settlement agreement may not be directly enforceable in EU, UK or US courts due to the erosion of mutual enforcement frameworks following the geopolitical rupture of 2022. Cross-border enforceability must therefore be built into the structure of the agreement, not assumed on the basis of pre-existing bilateral arrangements.
For a broader analysis of negotiation leverage in cross-border commercial disputes, see our analytical piece on negotiation leverage in cross-border commercial disputes.
Cross-Border Implications: Structuring Agreements That Can Actually Be Performed
The most common error in sanctioned-environment negotiations is treating the settlement agreement as the end point, when it is in fact only the beginning of a performance chain that must itself be compliant. A settlement agreement that cannot be performed without a licence is not worthless, but its value is contingent on obtaining that licence – and licence applications take time, may be refused, and may impose conditions that alter the economic substance of what was agreed.
Practical structuring considerations include:
- Condition precedent clauses: performance obligations should be expressly conditioned on the obtaining of all necessary regulatory approvals, with clear provisions on what happens if approval is refused or materially delayed.
- Alternative performance mechanisms: where direct foreign-currency payment is blocked, parties may negotiate alternative settlement in permitted assets, services or third-country transactions, subject to careful sanctions-law analysis of each alternative.
- Escrow and holding structures: use of Type-C rouble accounts as an interim holding mechanism for agreed sums may preserve the settlement while regulatory approvals are pursued, but the creditor's ability to access and repatriate those funds remains subject to Russian countermeasures.
- Governing law and jurisdiction: selecting a governing law that is neither Russian nor from an "unfriendly state" may reduce, though not eliminate, some approval requirements. However, enforcement consequences of that choice must be mapped across all relevant jurisdictions.
- Currency and valuation risk: where settlement sums will be held or paid in roubles over an extended period, the agreement should address how the value of those sums is determined if conversion and repatriation are delayed.
If you are working through the structural options for a settlement that involves Russian assets or a Russian counterparty, our commercial negotiations team is available to assist. Reach us at info@ferrazwhitmore.com or visit our contacts page.
Insolvency Considerations and the Intersection with Restructuring
In some scenarios, a negotiated settlement is not achievable because the Russian counterparty is insolvent or approaching insolvency. In those cases, the settlement negotiation merges with restructuring and insolvency strategy. Russian insolvency law provides its own mechanisms for creditor arrangements, including creditor committee voting on restructuring plans and the approval of settlements within bankruptcy proceedings.
Foreign creditors participating in Russian insolvency proceedings face specific challenges: they may be treated as creditors from "unfriendly states" for the purpose of countermeasure restrictions on distributions; their claims may be denominated and paid in roubles; and their ability to challenge decisions through Russian courts is practically constrained by the current geopolitical environment. Early engagement with specialist counsel is essential before the insolvency threshold is crossed, as options narrow significantly once formal proceedings have been initiated.
For a more detailed examination of restructuring and insolvency mechanisms in Russia, including creditor protections and cross-border recognition issues, see our bankruptcy and restructuring practice for Russia.
Strategic Recommendations for Foreign Creditors and Commercial Parties
The following principles reflect the current landscape and the approaches that tend to preserve optionality for foreign parties involved in Russian commercial disputes:
- Begin with a sanctions and countermeasures audit. Before any formal communication, map every restriction that applies to your entity, to your counterparty and to the specific transaction. This includes outbound restrictions in your home jurisdiction and inbound restrictions under Russian law.
- Preserve limitation periods. Sanctions-related uncertainty is not, by itself, an accepted basis for extending limitation periods in most jurisdictions. Do not allow a standstill agreement to remain unsigned while negotiations drift; enforce the standstill or issue proceedings to protect your position.
- Document every step. In a regulatory environment where the lawfulness of each communication and payment may later be scrutinised, contemporaneous records of the legal basis for each action – and of licence applications and approvals – are essential.
- Build flexibility into the settlement agreement. Rigid payment schedules and conventional currency provisions are unlikely to survive contact with the current Russian regulatory environment. Draft for adaptability while protecting economic substance.
- Consider parallel proceedings strategically. Commencing proceedings in an Arbitrazh court or in an agreed arbitration forum can create leverage, establish a formal record of the claim, and open procedural pathways to court-approved settlement, without precluding continued negotiation.
- Monitor the regulatory environment continuously. Sanctions and countermeasures are subject to amendment, interpretation and judicial challenge on an ongoing basis. A structure that is compliant today may require adjustment as the legal landscape evolves.
Outlook
The legal environment for settling commercial disputes involving Russian counterparties is unlikely to simplify in the near term. Western sanctions regimes have renewal and expansion mechanisms that suggest the current restrictions will persist in substantially their current form for the foreseeable future. Russian countermeasures have similarly been embedded in regulatory instruments that do not have automatic sunset provisions.
This does not mean that settlement is impossible. A significant number of transactions continue to proceed under appropriate licences, Government Commission approvals, and carefully structured alternative mechanisms. The parties that navigate this environment most effectively are those that engage specialist legal advice early, approach negotiations with a clear understanding of each party's regulatory constraints, and design settlement agreements around those constraints rather than ignoring them.
Comparative experience from other complex regulated environments – including the approaches developed in French cross-border commercial negotiations – may offer useful procedural and structural analogies. Our colleagues working on commercial negotiations in France have documented techniques in multi-party, multi-regulatory negotiations that translate to the Russian context with appropriate adaptation.
If your organisation is engaged in or anticipating a settlement negotiation that involves Russian parties, assets or jurisdiction, Ferraz & Whitmore can provide an initial assessment of the regulatory and strategic landscape. Please contact us at info@ferrazwhitmore.com or through our contacts page to arrange a discussion.
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.