As we reported in a recent alert, on 12 May 2025, the Supreme Court of the Russian Federation (the “Supreme Court”) published its position in the case brought by PAO Sovcombank (“Sovcombank”) against the American bank Citibank N.A. (“Citibank N.A.”) and the Russian bank AO СB Citibank (“CB Citibank”)[1]. Sovcombank’s claim concerned Citibank N.A.’s failure to perform transactions under the ISDA Master Agreement in connection with US sanctions. The lower courts upheld the claim against both defendants, even though СB Citibank had no contractual relationship with Sovcombank and was not involved in the execution of the transactions.

The Supreme Court ruled that the case should be sent for retrial. It instructed the lower courts to assess whether CB Citibank is under the control of its US-based affiliated company, Citibank N.A. The courts must also verify that Sovcombank has definitively lost the funds, frozen in the US, as far as Russian law is concerned.

Although the review of this case is only just beginning, the Supreme Court’s position has already been implemented in other, similar disputes. On 10 June 2025, the Moscow Arbitrazh Court published its decision in the case brought by PJSC SDM-Bank (“SDM-Bank”) for the joint and several recovery of losses from Citibank N.A. and CB Citibank. The losses resulted from the freezing of rights to bonds held with Citibank N.A.

The Moscow Arbitrazh Court referred to the Supreme Court’s new position, noting that CB Citibank was neither involved in the securities transactions nor responsible for blocking the assets. The court also found no evidence that CB Citibank is controlled by Citibank N.A[2]. Consequently, there were no grounds for holding the Russian bank liable.

At the same time, the court upheld the claim against Citibank N.A. It found that the mechanism for unfreezing funds in the US is part of the sanctions regime and, therefore, contrary to Russian public order. Consequently, SDM-Bank is not required to attempt to unfreeze assets in the US before bringing a claim in Russia. The possibility that sanctions may be lifted in the future does not negate the violation of SDM-Bank’s rights.

This new ruling marks a shift from the previous practice of automatically holding Russian companies jointly and severally liable for the actions of their affiliated foreign entities involved in enforcing anti-Russian sanctions. However, it also highlights the courts’ tough stance towards foreign defendants. Russian courts continue to maintain that domestic claimants are not required to attempt to resolve sanctions-related issues abroad — such as unfreezing funds or obtaining licences — before bringing a damages claim in Russia.

[1] Case № А40-167352/2023

[2] Case №А40-23712/2024

Publication is also available in Chinese, Japanese, and Russian.

Authors:

Sergey Yuryev, Partner

Igor Sokolov, Senior Associate