Enforcement proceedings: How can foreign individuals and legal entities get their money from Russian debtors?
We would like to address the question of how foreign individuals and legal entities can recover their funds from Russian debtors.
It is important to note that winning in court is only the first step for a claimant to recover their funds from the debtor. For the majority of foreign persons, it is becoming increasingly difficult to obtain their money in Russia, as the transfer of funds abroad to the accounts of these foreign persons is no longer a viable option. This has led many to seek alternative solutions.
What can be done in this situation? Please find below a brief analysis of the proposed options. It should be noted that we do not analyse debt transfer (assignment) and other similar transactions, which still remain an option, but are not always applicable to a particular case.
- Direct transfer from a debtor's bank account to a foreign account of a foreign person – unfortunately, this is not a viable option, as such direct transfer abroad of money from debtor to creditor was banned by Russian lawmakers in 2023 (even though it was extremely difficult to do in the past as well).
- Transfer to a special “trust” account of Russian lawyers representing the interests of the claimant. This is a wide-spread solution in many foreign jurisdictions, and our clients often ask us about sending money to such “trust” account. Unfortunately, there are no such special accounts in Russia, and they are not provided by the law.
- Another option was to transfer money to Russian lawyers' ordinary current bank account (and the lawyers would then transfer the money to the client abroad: such transactions are still possible). This sometimes worked in the past, and there were hopes that, in a recent case in 2024, the Supreme Court of Russia (SC RF) would confirm that this does not violate the current legislation.
However, the SC RF recently ruled that the legislation does not provide for the relevant right of the claimant to ask the state bailiffs’ service (or the bank) to transfer the money to an account of a representative of the client (even though such powers may be indicated specifically in the power of attorney). This means that the money should be transferred directly to the creditor's account. On case of foreign claimants – to the account of the foreign creditor, without any intermediaries.
Our clients have enquired as to whether a foreign creditor would be unable to recover their funds from a Russian debtor – taking into account the recent developments.
Fortunately, there is an option that still allows for a positive outcome:
- Opening a bank account in Russia.Opening a bank account for foreign individuals or legal entities in Russia is still possible. This includes Russian subsidiaries of various European and Asian banks. We believe that there should not be any problems for foreign persons to use money received into this account in Russia – namely, in business activities (payments to the Russian counterparties, transfers to the different Russian banks, etc.). Transfers to the various foreign counterparties are also possible.
With this in mind, we hope that opening a bank account in Russia may help to solve various problems for foreign creditors which are entitled to receive money from Russian debtors and are looking for the opportunity to collect them.
MAGENTA Legal would be delighted to assist you with the opening of such an account.
Check out our Telegram channel for more useful articles and the latest news.