Cross-border payments under sanctions: lawful routes

Currency settlements and cross-border payments under restrictions: legal routes and routes

A Practical Guide for International Business

Mainstream

Cross-border payment is not a choice of the bank. This is a strategy for maintaining business continuity.

The question is not how to send money today. The main question is how to build a settlement system that will remain operational tomorrow, even if the sanctions regime is tightened.

Therefore, effective alignment of international payments begins with three checks:

1. Is the route legal in terms of all applicable jurisdictions?
2. Is it safe in terms of the risk of blocking or freezing funds?
3. Is it sustainable in the long run and scalable to meet business needs?

If these three issues are not resolved in advance, the company risks frozen payments, failure of correspondent banks, blocking accounts and, as a result, the destruction of the supply chain or non-fulfillment of contractual obligations.

When it is necessary to create special payment routes

Building a complex and sustainable payment infrastructure is essential if:

• the company continues to import or export with the participation of Russian or CIS-related counterparties;
• Direct bank transfers in toxic currencies are blocked by correspondent banks.
• the counterparty is in a jurisdiction recognized as “unfriendly” or its bank has been subject to blocking sanctions;
• products or services are subject to export controls or sectoral sanctions;
• Dual-use goods, luxury goods or sub-sanctioned categories of equipment must be paid;
• payments for logistics, insurance and other related services that have also become subject to restrictions are required;
• the parent company of the group complies with EU, US or UK sanctions compliance and any violation is subject to secondary sanctions;
• business operates in several CIS jurisdictions with different currency regulations;
• It is necessary to make dividends, loans or investment payments to Russia.

The mistake most companies make

Most CFOs start with a question:

Which bank is the payment now?

That's the wrong first question.

The right question is:

What settlement structure will ensure the legality, minimum risk of blocking and continuity of business processes in the long term?

Sometimes the best result is the transition to settlements in national currencies using banks from “friendly” jurisdictions. Sometimes, it is the creation of an agent chain with a non-public intermediary. Sometimes, a complete transition to documentary instruments or digital financial assets. Sometimes - structuring a transaction through counter flows (netting). Sometimes it is a combination of several mechanisms at the same time.

Cross-border calculations under restrictions do not require a panic search for a working window, but an architectural approach.

Step 1. Audit the contract base and determine foreign exchange obligations

The first object of analysis is not a payment, but a contract.

Key provisions requiring audit:

• currency of payment and applicable law;
• currency clause and currency change mechanism;
• the procedure for changing payment instructions;
• the sanctions clause and its relevance;
• statements and guarantees of the parties on compliance with sanctions;
• the right to suspend execution if payment is impossible;
• applicable law and dispute resolution jurisdiction;
• list of permissible correspondent banks;
• conditions on the confidentiality of routes;
• Disclaimer of liability for delays caused by compliance checks.

If the contract rigidly fixes a dollar or euro payment through a specific bank without the possibility of replacement, the company finds itself in a dead end when blocking the route. Contract flexibility is a basic asset.

Step 2. Review applicable restrictions and sanctions regimes

You can't build a route without understanding the map of minefields.

Three layers of restrictions must be imposed on the transaction:

• sanctions of the Russian Federation (Presidential decrees, government decrees, the regime of accounts of type "C" and "Z");
• sanctions of the counterparty country or correspondent bank (EU, USA, UK, Switzerland, etc.);
• Secondary US sanctions (SDN lists, sectoral sanctions, Executive Orders) and similar allied regimes.

Particular attention is paid to commodity items. Even if the payment itself is not formally blocked, financing a transaction with goods from export control lists can be regarded as a violation.

Step 3. Determine the permissible currencies and payment jurisdictions

Based on the analysis of the contract and sanctions risks, a matrix of available tools is formed:

• national currencies of “friendly” countries (yuan, UAE dirham, Indian rupee, tenge, dram, etc.);
• ruble with credit to accounts of type “K” or “Z” (with a special mode of use);
• Euro and US dollar – only if you have a license (OFAC, EU Competent Authority) or through exceptions for certain categories of goods (food, medicines);
• Cryptoassets and digital financial assets (CFA) used for foreign trade in accordance with the experimental legal regimes of the Russian Federation and other countries.

The choice of currency directly determines the list of available correspondent banks.

Step 4. Select the optimal payment structure

The payment route does not always have to be direct. At this stage, all legitimate designs are considered:

• Direct interbank payment through a “friendly” bank that is not under blocking sanctions.
• Payment chain with agent: The payment from the buyer is transferred to the account of the paying agent in the third country, which in turn transfers the funds to the beneficiary.
• Letter of credit with confirmation of the bank not participating in sanctions, allowing to reduce the risk of blocking due to documentary control.
• Offsetting (netting) and clearing: when counterclaims between the parties are terminated without the physical movement of currency through sensitive jurisdictions.
• Barter and commodity exchange schemes that completely exclude cash payment.
• The use of digital financial assets (CFA) through operators included in the Bank of Russia register to tokenize liabilities.
• Bills and credit schemes drawn up in jurisdictions where such performance is recognized as appropriate.

Each of the options has its own thresholds in terms of amount, timing and compliance load.

Step 5. Compliance checks for all participants in the chain

No route is reliable without a thorough compliance.

It is necessary to check:

• the ultimate beneficiary of the payment and the beneficial owners;
• the beneficiary bank and all corresponding banks in the chain;
• whether the participants in the chain are related to the sanctioned persons (the rule is 50% or more);
• the absence of elements in the structure of the transaction that can be regarded as circumvention of sanctions (circumvention);
• All the links have internal AML/KYC policies and sanctions compliance.

Payment that passes through a jurisdiction with a high level of compliance control, but is “dirty” from the point of view of the beneficiaries, will be stopped. Payment with perfect compliance, but through a toxic bank, too.

Step 6. Prepare contract and payment documentation

Even a perfectly structured financial structure will collapse if it is not backed by the right documents.

The documentation should include:

• current contracts with the right to replace the payment currency, bank details and the entire route without additional approvals;
• a strengthened sanctions clause detailing the consequences of the new restrictions;
• currency clause tied to a basket of currencies or a rate at a specific date;
• statements about ultimate beneficiaries and lack of communication with sanctioned persons;
• Memorandums on the legality of the chosen route for submission to the bank;
• correctly filled invoices with indication of the codes of the HS and a detailed description of the product / service, excluding “red flags”.

It is especially valuable when the package of documents is prepared by lawyers who are able to conduct a dialogue with the compliance department of the bank in its language.

Step 7. Test the route and provide monitoring

Never send a large sum through an unverified channel.

Before starting the main stream, it is necessary to:

• make a test payment with a minimum amount;
• Ensure that the funds have passed the entire chain and are credited to the beneficiary’s account;
• fix the time of passage and request confirmation from all banks (MT103/MT202);
• to set up a constant monitoring of sanctions lists and rules for changing the status of any of the participants of the route.

A route running today may stop working tomorrow because of a single update to the SDN list. Businesses should know about this before sending money, not after.

Step 8. Provide spare (reserve) channels

A payment system is only viable if it is diversified.

Sustainable architecture involves:

• At least two or three operating routes, independent of each other;
• Pre-opened accounts in different jurisdictions
• agreed with banks limits and limits on operations;
• ready documentation for quick switch to the backup channel without renegotiating the contract.

The lack of a spare route is a business risk comparable to the lack of cargo insurance.

Step 9. Manage locks and returns: algorithm

Even with perfect preparation, blocking is possible. The key is reaction.

When blocking payment, it is necessary at the same time:

• request the bank for the exact reason with reference to the norm (SWIFT message, letter of compliance);
• prepare a legally reasoned position on the legality of the operation and the absence of sanctions violation;
• submit documents on the final appointment, beneficiaries and the essence of the transaction;
• if you have an OFAC license or a competent authority, send it to the bank;
• assess the possibility of re-routing through another bank (if the funds are not already blocked irrevocably);
• initiate an interbank inquiry and, if necessary, apply to the financial ombudsman or the court.

A delay of 2-3 days often turns a temporary suspension into a prolonged freeze.

Step 10. Integrate payment strategy into the overall sanctions risk management system

Cross-border payments should not be separated from the company’s compliance system.

It is necessary:

• to implement corporate policy on international settlements under sanctions;
• Training of employees of financial and legal departments;
• conduct regular audits of routes and counterparties used (sanctions screening);
• develop escalation scenarios in case of a complete stop of the key route;
• include payment logistics issues in the agenda of the board of directors or risk committee.

Tools and routes: pick

The choice of the tool is always determined not by the general fashion, but by the specific product nomenclature, the jurisdiction of the counterparty, the volume of operations and the risk appetite of the company.

How to strengthen your position before problems arise

The best payment strategy is laid down when signing a contract.

It is desirable to include in an international contract:

• the right to unilaterally change the payment currency if it is impossible to execute in the original currency;
• the right to replace bank details and route;
• a detailed sanctions clause with the obligation of the parties to immediately notify of the change in the sanctions status;
• the mechanism of transition to the letter of credit form of settlements;
• Confidentiality of payment instructions (non-disclosure);
• a force majeure clause explicitly mentioning the blocking of payments by the compliance departments of banks;
• the right to netting and offset counterclaims without additional agreements.

The treaty should not be written for better times, but for a period of maximum turbulence.

Common Mistakes in Cross-Border Settlements

1. Relying on a single correspondent bank, blocking this bank paralyzes the entire business.

2. A transaction that is legal from the point of view of Russian law may lead to the inclusion of the company in the SDN-list.

3. Saving on compliance today turns into criminal risks and reputation destruction tomorrow.

4. Not informing the bank about the essence of the transaction The concealment of the final recipient or destination of the goods almost guarantees a lock.

5. Losing a large amount due to a technical compliance filter error is a typical story.

6. A hard-sewn dollar or euro is turned into a stone around your neck.

7. Not having a plan B is knowingly accepting the risk of a business stoppage.

8. Even with the perfect financial route, the goods from the checklists will destroy the entire scheme.

Checklist of the CFO/Complaincy Officer

Before you build or change the payment route, you need to answer 15 questions:

1. Has the final buyer, seller and their beneficiaries been sanctioned?
2. Are there no SDN-listed individuals or 50% associated with them?
3. Is the product or service subject to EU, US or other export controls?
4. Does the contract provide for the possibility of changing currency and bank details without penalties?
5. Is there an adequate sanctions clause in the treaty?
6. Is the selected route tested with the minimum amount?
7. Do we have a written opinion of lawyers on the legality of the chosen structure?
8. Have the contractor requested all the necessary applications for the ultimate beneficiaries and the destination of the goods?
9. Is automatic screening of all participants in the route set up in real time?
10. Are there at least two backup, pre-agreed payment channels?
11. Is the package ready in case of a request from the compliance department of the bank?
12. Have the capital restrictions and special settlement procedures established by the Presidential Decrees been taken into account?
13. Is the chosen mechanism not required to have a regulator license (OFAC, Ministry of Finance, etc.)?
14. What is the speed of the team’s response when blocking payment (is there a regulation)?
15. Is the payment practices in line with the corporate compliance policy approved by the Board of Directors?

What a reliable cross-border payment system looks like

A strong system usually includes five levels:

1. Legal & Regulatory Shell Review of contracts, sanctions regimes and currency regulation. Obtaining all necessary licenses.

2. A diversified network of accounts in clean banks in several jurisdictions with clear compliance procedures.

3. Compliance Shield – Through inspection of counterparties and cargoes, proactive preparation of reasoned compliance dossier for banks.

4. Contractual Agility Flexible contractual terms that allow you to change your route and currency without the risk of breach of obligations.

5. Operational Resilience 24/7 monitoring, ready-made blocker action algorithms and pre-deployed backup channels.

Without a fifth tier, the top four may not save a business from a cash gap.

FAQ

Is it legal to pay from Russia to Europe in euros? This usually requires an individual license from the EU regulator (e.g., on humanitarian grounds, food, medicines) or the use of an unblocked account mechanism in “subsidiaries”. There is no mass simple solution.

Which banks are not guaranteed to be sanctioned? We can only talk about a lower level of risk for credit institutions from jurisdictions that have not joined the sanctions regimes and are not involved in direct financing of the subsanction sectors. The choice of a bank requires constant monitoring.

Yes, since 2024, experimental legal regimes have been operating in Russia that allow the use of cryptocurrency and CFA in foreign trade. However, this requires work through authorized operators and full compliance with AML/CFT regulations. The legality in the jurisdiction of the foreign counterparty must be separately confirmed.

Does the “payment agent in a friendly country” scheme work? The agent should not be a “dumb” and the operation itself should not look like a sanctions circumvention. The agency contract and the economic feasibility must be documented.

Yes, foreign trade barter transactions are allowed by Russian law and are not a violation of sanctions in themselves. The key challenges are tax administration and customs assessment. However, for certain categories of products, it is one of the most reliable tools.

What to do if the corresponding bank blocked the payment and requests documents?Immediately provide a professionally prepared package: contract, invoice, documents of origin of goods, end-user certificates, sanctions clauses and, if necessary, legal opinion. Time here is a critical factor.

If the company has audited contracts in advance and opened accounts in “sleep mode” – switching takes hours. If preparations were not carried out, a launch from scratch can take from 2 weeks to several months.

Related services

• Sanctions, Export Controls & International Compliance
• International Trade, Distribution & Cross-Border Transactions
• Banking & Finance Regulatory
• Corporate Structuring & Asset Protection
• Digital Assets & FinTech
• Compliance & Corporate Investigations

Related material

• Sanctions Compliance for Russian and International Business: defense
• How to choose a bank for cross-border settlements: 20-point checklist
• Settlements in national currencies with counterparties from Asia and the Middle East
• Digital financial assets in foreign trade: legal regime and practice
• Type “C” and “Z” accounts: mode of use and limitations
• Building an agent chain for international payments without sanctions risks
• Export controls and dual-use goods: How to Avoid a Deal Lockdown
• Legal risks of using “gray” payment schemes
• International arbitration in case of blocking payment: Is it possible to force the bank to comply with

Conclusion

Currency settlements and cross-border payments under restrictions require not a one-time solution, but the construction of a diversified, legal and compliant system.

A strong position is based on auditing contracts, a deep understanding of sanctions regimes, the right choice of currency and payment instrument, end-to-end compliance, testing routes and the mandatory availability of backup channels.

In today’s international business, the winner is not the one who finds the cheapest or fastest way to send money now. The winner is the one who creates an architecture of settlement in advance, capable of weathering any political storms and ensuring the smoothness of commercial operations.