On 12 May 2025, the Supreme Court of the Russian Federation (the “Supreme Court”) published the full text of its ruling in the case brought by PAO Sovcombank (“Sovcombank”) against the US-based Citibank N.A. (“Citibank N.A.”) and the Russian entity JSC CB Citibank [1] (“CB Citibank”).

Sovcombank sought joint and several damages of USD 24m from Citibank N.A. and CB Citibank. The losses were allegedly caused by Citibank N.A.’s failure to perform transactions under the ISDA Master Agreement. Citibank N.A. refused to pay on them due to US sanctions imposed on the Russian banking sector. CB Citibank was not a party to these transactions.

The courts of first instance, appeal, and cassation upheld Sovcombank’s claims, concluding that Citibank N.A. indirectly owns CB Citibank, that both banks are centrally managed from the US, and that they operate in a common interest. This decision was clearly unfavourable to CB Citibank, given its lack of involvement in the ISDA transactions.

However, the Supreme Court disagreed with this line of reasoning and has sent the case back for reconsideration. In doing so, it instructed the lower courts to take into account the following points:

1. The courts must properly examine CB Citibank’s argument that Sovcombank has not definitively lost the assets in question. Under US law, Sovcombank may still have an opportunity to unblock the assets.
2. As this recovery process may conflict with Russian regulations, the Supreme Court recommended the court consider involving the Bank of Russia in the proceedings.
3. If it is determined that the assets cannot be unblocked and are irretrievably lost under Russian law, the court should evaluate the extent to which each defendant contributed to the loss.
4. The legal grounds for the claims against each defendant differ: the case against Citibank N.A. is based on an unperformed contract, whereas the claim against CB Citibank arises from a non-contractual tort. This necessitates different standards of proof.
5. Sovcombank must clearly substantiate how each defendant allegedly violated Russian public policy.
6. CB Citibank has already transferred the claimed amount to Sovcombank using funds from Citibank N.A.’s accounts. The court must consider whether this constituted de facto enforcement of the judgment by CB Citibank on behalf of its affiliate (Citibank N.A.).
7. The court should assess the degree to which Citibank N.A. exercises control over CB Citibank, and whether such control has been used to circumvent legal obligations. The Supreme Court highlighted that Russian law provides mechanisms to hold affiliated structures liable where parent companies abuse their control.

On one hand, the Supreme Court’s ruling can be seen as a rejection of the overly simplistic approach that a Russian affiliate can be held automatically liable for the actions of a foreign parent company, which infringed the rights of its Russian counterparty while acting under foreign sanctions. This potentially strengthens the defence for CB Citibank and other Russian subsidiaries of foreign businesses in similar sanctions-related disputes.

On the other hand, each of the legal issues identified by the Supreme Court could be resolved in favour of either the claimant or the defendants. Lower courts will retain wide discretion in how they resolve them. Should a court find that a Russian company has been used as a tool to implement sanctions by its foreign parent, the Supreme Court’s ruling could be cited as a basis for imposing liability. This approach could extend beyond disputes over financial instruments (as in the case of ISDA transactions) to other contractual relationships — such as those involving the supply of equipment or technology subject to sanctions restrictions.

[1] Case № А40-167352/2023

Publication is also available in Russian.

Authors:

Sergey Yuryev, Partner

Igor Sokolov, Senior Associate