The Russian State Duma is considering amendments to Federal Law “On Measures (Countermeasures) in Response to Unfriendly Actions of the USA and (or) other Foreign States” (“Law on Countersanctions“) dated June 4, 2018.

On July 24, 2019, Draft Bill proposing additional Russian countersanctions (“Draft“) was approved by the Russian State Duma in the first reading. The amendments to the Draft will be presented till August 22, 2019. The second reading of the Draft has not been scheduled yet.

The Draft proposes the following principal provisions as regards to the settlement of disputes between sanctioned Russian persons and their foreign counterparties:

  1. Unless the parties entered into an arbitration agreement subjecting contractual disputes to the jurisdiction of courts, arbitral tribunals or international organizations outside Russia, such disputes shall be settled by Russian courts.
  2. Claims against a sanctioned Russian person shall be filed with a competent court in Russia.
  3. Sanctioned Russian persons are entitled to claim termination of court proceedings outside Russia in a competent Russian court. Non-compliance of foreign persons with the decision of Russian court on termination of such court proceedings will result in a court fine in the amount of the claim and legal costs incurred by a sanctioned Russian person in the proceedings.
  4. If a sanctioned Russian person can not appear before a court, international organization or arbitral tribunal located outside Russia due to the sanctions imposed, such sanctioned Russian person can unilaterally amend a valid arbitration agreement subjecting settlement of disputes in foreign states in favor of courts or arbitral tribunals located in Russia. Non-compliance of a foreign counterparty with such unilateral amendment grants a Russian sanctioned person the right to claim penalty in the amount of the claim.

The Draft also proposes a broad definition of the term “restrictive measures” to be introduced in the Law on Countersanctions, which includes the measures that limit:

  1. the rights of Russian persons to possess, use, or dispose of the property located in foreign states, to use or dispose of the property rights in foreign states, to make financial transactions in funds in a currency of foreign states;
  2. an ability of any person to enter into transactions, execute or accept execution under transactions involving a sanctioned Russian person, property (property rights) of such person, or securities issued by such person.

The Draft is purported to regulate certain issues that are not within the scope of Russian jurisdiction, that is why its practical application is questionable. As of today, there are strong doubts regarding the approval of the Draft in its current wording. The Draft in our view will likely be amended prior to its approval, if any. We will be closely monitoring status of this Draft.