ARBITRATING WITH RUSSIA: WAYS TO MINIMISE SANCTIONS-RELATED RISK
The imposition of sanctions on Russian companies and individuals has had a profound effect on the way that the legal and financial risks of doing business with Russia are perceived. This article will examine the key developments and put into perspective the practical implications for Russian companies and their counterparts. It will also propose a number of steps that the affected companies can take to manage both their legal and commercial risks in the sanctions context.
Russia’s move eastwards
Russia’s involvement with the ongoing crisis in Ukraine prompted a number of governments to impose sanctions on major state-owned Russian companies and certain individuals. The sanctions include a wide array of measures ranging from the freezing of assets to the prohibition of operations with sanctioned companies for periods exceeding 30 days. The sanctions have altered the structure of Russia’s operations with its traditional jurisdictions of interest – including the US, the UK, Canada, Australia and Japan. Major Russian businesses are moving eastwards in search of a safer and more stable business environment.
VEB, a major Russian state-owned bank, has recently opened a subsidiary office in Hong Kong, from which it now runs its investment activities in Asia. Novatek, Gazprombank and many other Russian giants have seen a rapid increase in their Asian operations. On 11 February 2015, through the signing of a Multilateral Memorandum of Understanding, the Bank of Russia made it possible for Russian securities to be listed on the Hong Kong Stock Exchange.
The sanctions have also led to dramatic changes in the arbitration landscape. Sanctioned Russian companies have lost confidence in the traditional arbitral institutions that have enjoyed administering lucrative Russia-related disputes for decades. Rosneft, one of the sanctioned companies, now refuses, as a matter of policy, to include the LCIA, the SCC, the ICC and other centres it traditionally relied on in its newly negotiated arbitration clauses.
Apr-Jun 2015 issue