Rafael Zahralddin Authors Article For Business Law Today On Russia’s Countersanctions Strategy

Wilmington, Del. (September 25, 2023) – Wilmington Partner Rafael X. Zahralddin recently wrote an article for the American Bar Association's (ABA) Business Law Section publication Business Law Today entitled “The Emerging Indirect Expropriation Strategy under Russian Sanctions, Tax, and Bankruptcy Laws,” that explores in depth Russia’s current countersanctions regime amid the ongoing conflict with Ukraine.

Mr. Zahralddin opens the article with a recap of the recent history of the Russia-Ukraine conflict, leading up to the Russian invasion in February 2022. He then observes that numerous other countries’ decisions to impose sanctions on Russia have been met with Russian countersanctions focused “on indirect expropriation as leverage to punish or control foreign investment in its borders, using the countersanctions framework to extract assets and value from foreign investors.” This countersanctions regime, Mr. Zahralddin writes, is “implemented in a manner reminiscent of the Russian government’s long-standing use of bankruptcy and taxation law to punish corporations that fell out of favor or ran into conflict with the government.”

The article continues with a detailed examination of Russia’s countersanctions strategy and the historical underpinnings of its tactics. Mr. Zahralddin writes that the “hallmark of these government efforts by the Kremlin and the Russian legislature is a revitalization of the tactic of expropriation — especially indirect expropriation — which harkens back to familiar tactics utilized by the Soviet Union, but adapted to modern global economic and political norms.”

Mr. Zahralddin notes that the “accumulating volume and complexity of U.S. sanctions create serious risks for U.S. businesses with respect to both their own vulnerability to sanctions violations and concerns over retaliation from governments involved in the conflict.” He writes that, “proper redress at a later stage for losses incurred due to direct or indirect expropriation will depend on preservation of evidence and strategic planning in anticipation of which forums will be used to recover value from the consequences of the Ukraine conflict.”

The article further observes that Russia has justified its use of “government power against foreign companies, who have invested time, technology, and funds in Russia, by conveniently equating them and aligning them with their home countries, and then completely divesting their assets in the process under the color of law.” Mr. Zahralddin concludes that this “tactic, disguised as a legitimate exercise of government power, particularly within its borders, was questioned by some, and was criticized early on.”

Mr. Zahralddin is a member of Lewis Brisbois’ Corporate, Bankruptcy, Complex Business & Commercial Litigation, Digital Asset, and Ukraine Conflict Response Practices. He is a skilled business lawyer and litigator with significant experience advising clients in corporate and commercial litigation, insolvency, distressed M&A, compliance, corporate law and entity formation, corporate governance, commercial transactions, cyber law, regulatory actions, and cross-border issues.

Read the full Business Law Today article here.