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Russian Subsidiary May Be Held Liable for US Parent Company's Debt

Court practice

Background

Following US sanctions on Sovcombank, certain derivative agreements between Sovcombank and Citibank's US entity were terminated. Citibank, citing restrictions, was unable to transfer approximately USD 24 million owed to Sovcombank and subsequently placed the funds into a special account.
Sovcombank then sued both Citibank’s US and Russian entities, contending that the Russian subsidiary should have fulfilled the obligations. The Russian subsidiary maintains it was not part of the original agreement and therefore should not be held liable for its parent company’s debts.

Lower Courts Rulings

Lower courts ruled in favor of Sovcombank, finding both Citibank entities jointly liable. They reasoned that the US parent company indirectly owns the Russian subsidiary and that they operate as a unified corporate group. The courts suggested the subsidiary could handle the financial impact internally.

Citibank’s Appeal to the Supreme Court

Citibank is challenging these rulings before the Supreme Court, arguing that Russian law generally protects subsidiaries from the liabilities of their parent companies. The bank also notes that Russian counter-sanction regulations do not permit direct claims against the Russian subsidiary of a sanctioned US entity.
On March 26, 2025, to clarify the legal positions in the case and to fully and comprehensively consider the appeal, the Supreme Court issued a ruling to postpone the court hearing to April 23, 2025.

Potential Broader Impact

This case raises the critical issue of “reverse piercing of the corporate veil”, where a subsidiary is held accountable for its parent company’s obligations. This is relatively rare legal maneuver, typically reserved for fraud cases.
Moreover, the Supreme Court’s final decision could have far-reaching implications, potentially influencing other disputes involving international banks and their Russian affiliates.
Solstico Legal is monitoring this case closely. If you have questions about legal protection, compliance, or litigation in Russia, our experienced cross-border team is here to provide support tailored to your business needs.