ARBITRATING WITH RUSSIAN PARTIES IN THE CURRENT ENVIRONMENT
Since 2014, sanctions have become a common aspect of dealing and arbitrating with Russian parties. However, this year has seen an unprecedented number of sanctions imposed against various individuals, entities and sectors of the Russian economy. These sanctions have not only affected business with Russian companies but also the resolution of disputes involving them. This article looks at ways sanctions against Russian individuals may affect international arbitration involving them.
International arbitration and the effect of sanctions
Generally speaking, sanctions may affect international arbitration on different levels.
The most obvious, and indeed the most problematic, effect of sanctions is the inability of sanctioned persons to pay for proceedings. Those included in the Specially Designated Nationals and Blocked Persons List (SDN List) or similar lists cannot transfer money within the jurisdiction that imposed sanctions, because all of their assets are subject to the asset freeze. Those affected by sectoral sanctions should, at least in theory, have no problem transferring money unless the transaction is connected to restricted activities. In practice, however, many banks would refuse to effect payments from any persons subject to sanctions, because they would not want to risk being subjected to secondary sanctions or similar measures.
Following commencement of Russia’s military operation in Ukraine, the difficulties associated with making payments increased. Many banks around the world refused to work with Russian individuals and to handle Russian money, as a preventive measure to reduce potential compliance risks. On top of that, many Russian banks were disconnected from the Society for Worldwide Interbank Financial Telecommunications (SWIFT), making international money transfers to and from Russia even more difficult.
Jan-Mar 2023 issue
Allen & Overy LLP