Russia’s “Unfriendly” Deal-Making in 2025: A Legal Roadmap Through Sanctions and Restrictions

Since the introduction of the concepts of “unfriendly states” and “unfriendly persons, ” the Russian legal landscape for international business has been fundamentally reshaped. Three years of applying these rules have crystallized not only specific procedures but also significant risks that threaten any transaction with a foreign element. This article provides a detailed analysis of the entire regulatory ecosystem, based on current judicial practice and the evolving approaches of the regulatory bodies.

1. The Regulatory Foundation: Mapping the Legal Terrain

The basis for all restrictions was laid by presidential decrees issued in early 2022. These documents established a fundamental principle: conducting certain operations with persons connected to states committing unfriendly actions requires prior authorization from a special Governmental Commission.

The list of such states is officially approved by a governmental directive. It includes countries that have introduced sanctions against the Russian Federation or joined them.

The procedure is detailed in a Government Resolution, which divides all potentially restricted transactions into two fundamental categories.

Category 1: Transactions Requiring Mandatory Authorization

This group of operations is subject to mandatory approval regardless of the counterparty’s nationality, place of registration, or residency. This includes:

• Foreign Currency Loans to Non-Residents: Any extension of credit or a loan in foreign currency to a company or individual who is not a resident of Russia requires prior approval.
• Transferring Funds to Accounts Abroad: Crediting accounts and deposits held by Russian residents in banking institutions located outside the country also falls under this prohibition.
• Use of Foreign Payment Services: Transferring funds using electronic payment methods provided by foreign financial service providers.

Category 2: Transactions Requiring Authorization Only with an “Unfriendly” Counterparty

The second category of deals needs approval only if one of the parties is an “unfriendly person.” The criteria are strict and include not only formal registration in a relevant country but also factors such as:

• Citizenship of an unfriendly state;
• Place of primary business activity or profit generation;
• Being under the direct or indirect control of such persons, irrespective of their formal place of registration.

This category includes:

• Ruble-Denominated Loans and Credits: Their provision requires a permit, with an exception for a direct prohibition on such operations for residents who are themselves controlled by unfriendly persons.
• Acquisition of Property: The purchase of securities, equity stakes in charter capital, and real estate objects. An exception is made only for transactions executed on organized trading platforms with the sanction of the central financial regulator, coordinated with the Ministry of Finance.
  • The Authorization Procedure: A Labyrinth with No Clear Map

To obtain a permit, a party to the transaction submits an application to the Governmental Commission for Control over Foreign Investments. Although the application form is free-form, its content must be exhaustive and include:

• The purpose, subject, and detailed content of the planned operation;
• All material terms of the transaction;
• Proposed timelines for its implementation;
• Information on the number of votes that will transfer to the acquirer if the deal involves purchasing a stake in the charter capital.

The Core Practical Problem is the lack of clear, publicly announced criteria for the Commission’s decision-making. The regulations contain neither a list of approving factors nor specific timelines for reviewing applications. The Commission reserves the right to determine the validity period of the issued permit—it can be either indefinite or limited in time. Furthermore, it can authorize similar transactions for an indefinite range of persons with a single ruling.

• Current Court Practice

Over this period, the courts have formed consistent approaches to assessing compliance with this special regime.

1. Novation of Debt Through Collateral Enforcement = A New Transaction

Courts consistently rule that the foreclosure of collateral can be classified as the creation of a new loan obligation between the pledgor and the original borrower. If the borrower is an “unfriendly” person, such an operation is equated to providing a loan and requires prior approval. Circumventing this rule is considered an abuse of law.

Case Example: The Supreme Court confirmed that fulfilling an obligation to an unfriendly foreign bank by enforcing collateral creates a right of claim for the pledgor against the Cypriot debtor company. Consequently, such actions are unlawful without the Commission’s prior permission.

• A Sham Assignment to Bypass Prohibitions Will Not Work.

Courts meticulously analyze assignment agreements where the assignor is a foreign entity. If the terms of the deal are not market-based (e.g., lack of real payment, multiple deferrals), this serves as grounds for concluding it is a sham transaction. The goal of such an assignment is not the actual transfer of rights but creating a semblance of legitimacy for debt collection within Russia.

Case Example: A transaction assigning a right of claim from a foreign company to a Russian one was deemed invalid because the court found it was aimed solely at circumventing the existing prohibition, not at the actual disposal of a property right.

• Subsequent Approval Does Not Legalize a Transaction.

Submitting an application to the Commission after the operation has been completed does not demonstrate the parties’ good faith and does not cure the violation of the established procedure. The courts are unanimous: authorization must be obtained before the transaction is concluded.

Case Example: An arbitration court noted that applying for permission post-factum is evidence that the parties initially acted in circumvention of the law, knowingly ignoring regulatory requirements.

• Beneficial Owner Information Must Be Up To Date

Information on ultimate owners provided before the introduction of special economic measures (i.e., dated before 2022) is not accepted by the courts. Companies are obliged to annually confirm and disclose their current ownership structure. Using outdated data is futile for proving the absence of ties to unfriendly jurisdictions.

Case Example: A court rejected a company’s argument that its beneficiaries were Russian individuals because this information was disclosed in 2018. Meanwhile, the notes to the 2020 financial statements listed ultimate beneficiaries residing in Cyprus and the UK.

• Exceptions Do Exist: When Authorization is Not Needed

Authorization is not required if the formal foreign owner was already liquidated by the time of the transaction. Consent is also not needed for a procedural substitution of a party in bankruptcy proceedings (introducing a new entity into the creditors’ register based on an assignment). However, it is important to remember that restrictions on the actual withdrawal of funds during bankruptcy for such creditors remain in place.

Case Example: A court allowed a procedural substitution in the creditors’ register, even though the new creditor was a citizen of an unfriendly state, stating that the restrictions do not apply to the substitution procedure itself but concern the process of satisfying the claim.

• Tightening Conditions for Exiting Assets

In 2024, the conditions under which the Commission grants approval for asset sale transactions were officially updated and tightened. They now include:

• Mandatory Discount: The sale of assets must be carried out at a discount of at least 60% of their market value (previously 50%).
• Voluntary Contribution to the Budget: The buyer is obliged to transfer to the federal budget an amount constituting no less than 35% of the market value of the assets (previously 15%).
• Top-Level Approval: Transactions involving assets with a market value exceeding 50 billion rubles require the personal consent of the President of the Russian Federation.
  • Restrictions on Profit Repatriation: Type “C” Accounts

Beyond transaction restrictions, a separate mechanism blocks the outflow of funds abroad. This refers to special ruble Type “C” accounts opened for settlements with non-residents from unfriendly countries. Court practice consistently confirms the legality of restrictions on moving funds from such accounts, creating an additional barrier for investors from relevant jurisdictions.

• Strategic Business Recommendations

The established regulatory framework is rigid, imperative, and largely discretionary. Public law interests of national security and economic sovereignty unequivocally take precedence over the principle of freedom of contract.

Key risks that must be considered:

1. High Risk of Transaction Invalidity. Courts actively use mechanisms to recognize transactions as void (null and void) as being concluded for a purpose knowingly contrary to the fundamental principles of law and order.
2. Procedural Uncertainty. The lack of transparent criteria and decision-making timelines by the Commission makes the approval process unpredictable and lengthy.
3. Proving the Absence of “Unfriendly” Ties. The burden of proving that a counterparty and its beneficiaries are not linked to unfriendly jurisdictions lies with the transaction parties, requiring exclusively current data.
4. Blocking of Financial Flows. Even after a successful transaction, there is a risk that the proceeds will be blocked in special accounts.

Recommendation: In the current environment, any operation with even a remote connection to “unfriendly” jurisdictions requires the most thorough preliminary risk analysis (Due Diligence). It is necessary to:

• Check not only the direct counterparty but the entire chain of its beneficial owners down to the ultimate individuals.
• Use exclusively current and documented data.
• Allocate significant time reserves (from several months to a year) for the potential approval process.
• Approach obtaining the Commission’s permission not as a formality, but as a complex, structured project requiring extensive economic and legal justification.

Only a proactive, meticulous, and professional approach can minimize risks and find legal opportunities for doing business in the new reality.