Additional Clarifications on Restrictions on Payments to “Unfriendly” Jurisdictions (Clauses 3 and 4)

As a follow-up to our previous publication on the Supreme Court of the Russian Federation's Review of Dealing with Foreign Individuals and Entities in the Context of Counter-Sanctions, below are further clarifications regarding loan repayments and dividend payments that may affect many foreign creditors.

All restricted payments (e.g., loan repayments and dividend payments to beneficiaries in unfriendly countries) exceeding the RUB 10 million threshold must be made through special Type "C" and Type "O" accounts. Any artificial splitting of payments to circumvent this threshold is regarded as an attempt to evade the law, and the relevant transactions may be declared invalid. This risk applies not only to new transactions structured to bypass the special economic measures, but also to transactions that have already been completed.

The Supreme Court refers to an example in which residents, through a series of sequential transactions, split a payment significantly exceeding RUB 10 million into several smaller payments made by different residents in order to circumvent Presidential Decree No. 95 dated 5 March 2022 (regulating payments under loans and financial instruments). The Court concluded that such actions are unlawful.

The same reasoning may potentially apply to all restrictive measures, not only those established by Decree No. 95. In particular, it may apply to profit distribution payments made by Russian companies to participants or shareholders from unfriendly countries (currently regulated by Presidential Decree No. 254 dated 4 May 2022). This means that any attempt to divide funds distributed by a Russian company to a participant or shareholder into amounts below the applicable threshold may be regarded by a Russian court as an unlawful circumvention of the restrictive measures.

From a practical perspective, there is a risk that Russian banks will adopt an even more conservative approach when processing payments to beneficiaries in unfriendly countries. In addition, regulatory authorities may take a more aggressive approach to transactions that have already been completed.

Given these risks, companies should consider postponing relevant payments until further regulatory clarity emerges. We also recommend reviewing affected transactions, assessing whether official clarifications can be obtained, and preparing supporting documentation to substantiate the legality of prior payments.