Claims for $35 million. How Russian banks sue foreigners
The sanctions forced banks to defend their interests on outstanding loans and frozen assets in courts. Their main strategy is to seize the assets of foreigners in RUSSIA. Why there are few such cases and what these courts give - in the material of RBC
Russian banks in courts demanded that foreign banks and their structures return at least $ 35 million, follows from the data of the filing cabinet of arbitration cases studied by RBC. More than 200 billion rubles. constitute claims of credit institutions, management companies and private investors against the international depositary Euroclear, were evaluated by RBC Investments.
Some plaintiffs have already secured the Russian assets of Credit Suisse and Goldman Sachs and are seeking to extend the same restrictions to Citibank and Nordea.
RBC figured out for what reasons and how successfully Russian banks are suing.
Main causes of claims Default on syndicated loansThe first COURT case between a Russian bank and a foreign bank due to sanctions was the lawsuit filed by Transcapitalbank (TKB) against Swiss Credit Suisse in June 2022. The plaintiff tried to recover €10.04 million from the defendant on a syndicated loan. Such loans are issued by a pool of banks to finance large projects, TKB joined the syndicate in March 2021 and lent money to Uzbekistan's largest car manufacturer, Uzauto Motors. Credit Suisse acted as a credit agent in this transaction, which distributes loan payments among all creditors. The borrower had to repay the debt by April 19, 2022, and did so by transferring the money to Credit Suisse so that it would already make a transfer in favor of TKB. But the Swiss bank did not make the payment. On April 20, TKB came under US blocking sanctions , involving the freezing of his DOLLAR assets and property.
Read PIONERPRODUKT .by Top 10 global companies with growth prospects. Choosing a BLOOMBERG Relocant Guide: How to Buy a Home in Israel How to Protect Your Savings from the Fall of the Ruble: Stocks, Bonds or Deposits Three Years Under the Risk of a Criminal Case: What Troubles Does Parallel Imports Bring
In a Russian court, the plaintiff first secured the assets of Credit Suisse in Russia (money in the accounts and shares of its subsidiaries - Credit Suisse Bank ( Moscow ) and Credit Suisse Securities), and then won the case. In order to remove interim measures, Credit Suisse eventually settled with TKB.
A similar lawsuit against Credit Suisse and UBS (figures as the assignee of CS) was filed by Zenit Bank in May 2023. He also faced default on a $13.6 million syndicated loan issued in 2021 to the Luxembourg trading company Intergrain SA After Zenit fell under US and UK sanctions in February 2023, Credit Suisse, as a loan agent, warned the Russian bank that will not transfer funds to him. Zenit is also seeking the arrest of Credit Suisse assets in Russia and was able to partially do this in August on another - bankruptcy - lawsuit. The court imposed interim measures on Credit Suisse Bank (Moscow) and Credit Suisse Securities, but did not seize funds for the amount of claims on correspondent accounts in Credit Suisse's subsidiary.
“Stuck” money on correspondent accountsRussian banks that have fallen under the sanctions are also trying to claim through the courts the money that was kept on their correspondent accounts abroad. For example, in April this year, Sberbank filed a lawsuit in Russia against Deutsche Bank for €7.2 million. On March 10, 2022, after Sberbank fell under EU sanctions, the German bank notified the Russian bank about the forced closure of its correspondent account. Sberbank demanded to transfer money to another account, but the counterparty refused to do this, referring to the EU sanctions regulation , which prohibits such transfers. In July, the court of first instance ruled to recover the amount with interest from Deutsche Bank, the case continues to be considered on appeal.
Sovcombank is also trying to get money from correspondent accounts abroad. In the spring of this year, he filed claims for 1.7 million rubles. and $751.3 thousand to JP Morgan Chase and $1.2 million to Citibank (1, 2, 3, 4). In the case cards, the essence of the claims is not disclosed in detail, but there are demands for the recovery of funds placed on correspondent accounts, including correspondent accounts in precious metals. Consideration of claims on the merits has not yet begun. The representative of Sovcombank declined to comment.
Blocked securities in Euroclear
13 lawsuits were filed in Russian courts against the international depositary Euroclear, or rather, against the Belgian Euroclear Bank SA / NV controlled by it. The reason for the claims is the same - the blocking of securities. After the start of the Russian military operation in Ukrainein February 2022, Euroclear stopped interacting with the Russian National Settlement Depository (NSD), and in June 2022, NSD came under EU sanctions. As a result, Russian investors, whose rights to securities were recorded in Euroclear through NSD, lost the opportunity to dispose of their assets. In total, the assets of Russian individuals and organizations “hung” in foreign infrastructure for 5.7 trillion rubles. Lawsuits are filed by both private investors and management companies (for example, MC Pervaya) and credit organizations (Bank Saint Petersburg). The total amount of claims for such claims has already exceeded 200 billion rubles.
In February 2023, the court granted the appeal of Bank Saint Petersburg and ruled to recover $107.1 million from the depository. And in April, the Belgian Treasury (Euroclear regulator) issued a license to the bank to unlock assets frozen in NSD's Euroclear account in the amount of about $110 million.
Lost Credit RatingsAnother reason for litigation between Russian banks and foreigners is the unissued ratings from the Big Three international agencies. In the spring of 2022, Fitch, Moody's and S&P refused to continue working in Russia and withdrew the already assigned ratings of Russian issuers, including credit institutions.
In June 2022, Loko-Bank demanded that Fitch return £25.5 thousand through the court for services that were not actually provided - the agency did not update the rating of the organization. The trial court sided with the plaintiff. A total of nine claims for recovery of funds have been filed against Fitch, but there are no more banks among the applicants. A similar lawsuit was filed against S&P by GPB Asset Development; there are no lawsuits against Moody's in the filing cabinet.
Features of "sanctions" claimsThe main feature of the proceedings of Russian banks with foreign structures is the transfer of disputes to Russia, and this can happen “bypassing any agreements on the jurisdiction of the dispute,” Dmitry Kletochkin, partner at the law firm Rustam Kurmaev and Partners, notes.
“The main argument is the impossibility or extreme difficulty of legal proceedings abroad due to difficulties in hiring consultants, paying fees, and so on,” the lawyer explains. He also points out that foreign courts are highly likely to recognize the imposed sanctions as sufficient grounds to release a foreign counterparty from liability. “Russian courts ignore the sanctions factor,” the expert says.
For example, in the case of Loko-Bank v. Fitch, the court decided that the clause of the agreement between the parties on the consideration of possible disputes in the London Court of International Arbitration is not applicable, because the UK imposed sanctions against Russia. In addition to technical difficulties that will prevent Loco-Bank from litigating abroad, the court highlights the risk that arbitration in London will not be “impartial”.
For sanctioned banks, a lawsuit in a Russian court may be the only way to obtain real performance of obligations from foreign counterparties, Stanislav Dobshevich, HEAD of the dispute resolution practice at Better Chance law firm, notes: “For foreign counterparties, any voluntary performance against sanctioned entities (even on the territory of the Russian Federation) can be as non-compliance with the sanctions regime and contributing to the circumvention of sanctions. Enforcement by court order reduces this risk.”
A significant part of the lawsuits filed by Russian banks against foreigners is accompanied by demands to freeze the assets of the defendants in the country. This is achieved by Zenit Bank in lawsuits against Credit Suisse and UBS, Otkritie - in a case against Goldman Sachs structures, Rosbank - in lawsuits against Citibank and Nordea. Lawyers interviewed by RBC consider this a fairly standard strategy.
Seizure of assets is needed so that they cannot be withdrawn or taken away by other creditors, Kletochkin explains. Dobshevich believes that the plans of the plaintiffs - to seek encumbrance of assets or not - often depend on whether the foreign structure has something in Russia and what is the value of these assets.
Separately, lawyers single out the desire of Russian banks to seize not only the opponent's funds in the accounts or shares of its subsidiaries, but also the already actually blocked assets. We are talking about funds and securities in special type C accounts, which were introduced by presidential decree No. 95 as a response to sanctions. Residents of unfriendly countries are prohibited from withdrawing money and assets from Russia: type C accounts are credited with funds from operations of such non-residents with securities or the securities themselves, and debiting money or assets from these accounts is limited by decree.
For example, Rosbank sought such a measure against Nordea (the court refused to arrest). And in August, the Moscow Arbitration Court seized the Russian assets of Goldman Sachs Group and the Goldman Sachs III SICAV fund at the suit of Otkritie Bank. Restrictive measures affected the 5% stake in Detsky Mir, owned by Goldman Sachs, as well as securities of Sberbank, Gazprom, VTB, and Aeroflot.
“It does not directly follow from public sources that the shares owned by Goldman Sachs organizations are in custody accounts or brokerage accounts of type C. At the same time, if seized securities are indeed placed on these accounts, since, for example, SICAV Goldman Sachs is a foreign nominal holder, then this is possibly the first case of seizure of securities on a type C account,” notes Oles Gruzdev, Associate at Forward Legal.
What are the prospects for Russian plaintiffsIn the year and a half since the introduction of large-scale sanctions against Russia, the number of such claims could have been much higher, says Zoya Galeeva, managing partner of the Center for Troubled Assets. The lawyer believes that Russian companies and banks are simply postponing court proceedings.
“This may be associated with reputational risks: Russian organizations should assume that in the future they will probably again have to cooperate with organizations from those countries that are currently considered unfriendly. Filing lawsuits in Russian courts in violation of the terms of transactions concluded with foreign organizations may become an obstacle to the subsequent conclusion of such transactions in other conditions, ”explains Galeeva.
She admits that over time the number of such cases in Russian courts will increase, "when the plaintiffs face the risk of missing the statute of limitations."
“Someone didn’t want to look for trouble, someone carefully terminated all legal relations, having received all licenses from the relevant regulators in the usa, Great Britain or EU countries,” Sergey Glandin, a partner at BGP Litigation, comments on a small number of “sanction” lawsuits in Russian courts. Successful cases with seizure of assets and decisions on recovery are “no longer exceptions, but normal judicial practice,” he states.
“There is a clear legislation on unfriendly states, a special approach to them and their residents. They have a somewhat limited amount of rights, so the judicial practice of recovering from them, resolving disputes in Russia <...> will increase, go on the rise, ”says the lawyer.
But Russian plaintiffs only have prospects for receiving money on the territory of the country or in Belarus, Glandin summarizes: “In other countries, it will be problematic to recognize and enforce such a Russian court decision. The defendant will run to his own or another foreign court, where he has assets, and will object with reference to a violation of public policy.