Cross-Border Netting via Assignment of Claims: Still Legal
What is it about?
In international settlement practices, when bank payments get "stuck" for technical reasons (rather than due to direct bans), we often use a scheme involving the assignment of claims. For example, Russian company A owes money to German company B for goods, and German company B owes money to an Indian supplier C for goods. Then, the German company assigns the right of claim to the Indian supplier C and declares a set-off. Bank employees colloquially often call this "cross-border netting."
For this reason, when Russian courts in one case suddenly declared assignment illegal, we were very concerned—and wrote about it (see post here).
As we hoped, the higher cassation court overturned the rulings of the trial and appellate courts.
The Court Case: MMK v. KhZPTO
The Russian Magnitogorsk Iron and Steel Works (MMK) was unable to transfer 69 million rubles to a Ukrainian supplier, the Kharkiv Plant of Hoisting and Transport Equipment (KhZPTO). KhZPTO assigned the claim to an Indian citizen (incidentally, at a 90% discount, as stated in the court ruling).
Two instances declared the assignment invalid, believing that the funds might end up with an "unfriendly" person.The cassation (Arbitration Court of the Ural District) on October 28, 2025, overturned these decisions and sent the dispute for a new trial. No appeal was filed with the Supreme Court, so the cassation's conclusions are highly likely to stand.
Position of the Cassation Instance
- Supplies are not prohibited. Supply contracts are not included in the list restricted by Decrees No. 79, 81, 95, etc.; settlements under them are permissible.
- Assignment is not prohibited. Cession itself is not included in the list of operations whose settlements are blocked by special regulations.
- No automatic invalidity of assignment without the debtor's consent. Even if consent is required, its absence does not invalidate the assignment if no intent to cause harm is proven.
- Set-off under Art. 412 of the Civil Code of the Russian Federation remains valid. The debtor can discharge the debt with a counterclaim of the same type even after the change of creditor.
- The court proposed involving the Prosecutor's Office and Rosfinmonitoring. In a number of disputes we are currently handling, there is also an alarming trend of involving government bodies in private legal disputes (Prosecutor's Office, Rosfinmonitoring, FAS, etc.).
Practical Conclusions for Business
- The "assignment + netting" scheme remains operational
- Document everything: counterclaims for set-off, notifications to parties, and the business purpose of the assignment (not related to circumventing restrictions).
- Assess the public profile of the transaction: with heightened interest, an active position from supervisory authorities is possible.
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