Russian Banks Are Now Responsible for the Frozen Funds On Bank Accounts of Russian Clients

21 February 2023
Ellina Izotkina

Arbitrazh court for the Moscow City issued a judgement under the claim of a Russian entity to Alfa-Bank JSC1. By this decision the court ordered the Russian bank to make a refund of the frozen funds allocated on the accounts of a correspondent bank to its client as well as charged the bank with penalties and interest for the use of its client’s money.

According to the facts of the case on 5th of April 2022 the company instructed the bank to make remittance of its funds in USD to its counterparty’s foreign bank account. The same day the funds were transferred to correspondent account of JPMorgan Chase Bank in New York.

On the following day, 6th of April 2022, Alfa-Bank JSC was listed as SDN by the US Government, therefore the American bank suspended the transaction. Meanwhile the US Ministry of Finance issued a General license No 23 allowing the American banks to carry out transactions with the Russian bank in order to rap up the ongoing transactions. The license was issued until 6th of May 2022.

The court established that Alfa-Bank JSC failed to approach the correspondent bank with a request to carry out the underlying transaction within the scope of the license or to return the money to the Russian account of the company. Therefore, the remitted funds remained frozen, and the Russian company was not able to gain access to them.

Having analyzed the provided facts, the Russian court came to the following conclusion:

‘The contract for opening and maintaining a correspondent account is, de facto, the contract for opening and maintaining a bank account, where the bank itself is the client, but not an individual or organization <…> Therefore adverse consequences of JPMorgan Chase & Co non-performance owed to Alfa-Bank JSC should not be borne by the plaintiff’.

As a result, it was the Russian bank’s responsibility to make sure that the correspondent bank fulfills its obligations and to approach it to control the transaction.

The Russian court ordered Alfa-Bank JSC to pay the Russian company the full amount of frozen funds as well as penalties and interest for the use of its client’s money. The court of appeal upheld the trial court’s decision.

1 The court of appeal upheld the trial court’s decision on 15th of February 2023.