Moscow court annuls $142 million IKEA deal amid sanctions, confiscates funds to state budget

A commercial transaction involving OOO "Torg", the Russian entity of Swedish company IKEA, and its affiliated Irish firm Fami Limited, valued at 12.9 billion rubles ($142 million) ( for goods sold in Russia, has been annulled by the Moscow Region Arbitration Court. This amount is now mandated to be transferred to the Russian state budget, as reported by Russian-language media on Saturday, May 18.

According to reports, the court's decision in response to a lawsuit filed by the Federal Tax Service (FTS) in January was made public on April 27, but the specific details and arguments presented in court emerged only in mid-May.

The court employed a rare justification for its ruling, declaring the transaction "contrary to the fundamental principles of law and morality". "Legal experts view this as a 'dangerous precedent' that could lead to the confiscation of assets in favor of the state from virtually any transaction deemed illegal by the court," writes Kommersant.

Publications from Kommersant and the news outlet RBC explain the intricacies of the deal and the issues Torg faced with Russian authorities.

In 2016, Russian company OOO Torg received a loan agreement worth 9.6 billion rubles from the Irish company Fami Limited. In the context of Western sanctions imposed on Russia over its invasion of Ukraine, along with Moscow's countermeasures, repaying this loan became practically impossible.

"According to Presidential Decree No. 95 dated March 5, 2022, transferring funds to companies from unfriendly countries is possible only with permission of the governmental commission into type C accounts in Russian banks," notes Kommersant. "Ireland, where Fami Limited is registered, and the Netherlands (the registration country of the parent structure of both Fami and Torg) are listed as unfriendly nations, and IKEA exited the Russian market."

Following IKEA's departure from the Russian market amid the war in Ukraine, OOO "Torg" struck a deal to supply remaining inventory in Russia to another Russian entity, OOO "Market. Trade", acting on behalf of "Yandex Market". Payment for these goods, amounting to 12.9 billion rubles ($142 million), was directed on behalf of Torg into Fami's accounts at RaiffeisenBank and UniCredit Bank.

Additionally, Torg and Fami Limited signed a pledge agreement for the rights under the contract between Torg and Market. Trade. This agreement stipulated that all payments would be transferred to the accounts of the Irish company. Thus, Torg's debt to Fami was settled in March 2023.

RBC reports that the General Prosecutor’s Office of Russia and Fami Limited (as the defendant) were involved in the legal proceedings, as well as Market. Trade and RaiffeisenBank (as third parties). RaiffeisenBank submitted written explanations to the court, asserting that Torg concealed the payment's true purpose, which was to clear loan obligations, thus negating deeper scrutiny over the supply agreement.

OOO "Market.Trade" also provided written explanations, maintaining it was unaware of the payment's actual intent, believing it to be for purchasing consumer goods. Fami Limited’s representative did not attend the hearing.

In conclusion, the court determined that OOO "Torg", well-aware of the sanctions and counter-sanctions, acted "against state interests and public safety". The transaction was judged to enable significant capital flight from Russia by evading existing restrictions.

Oleg Gruzdev, a lawyer at Forward Legal, opined to RBC that we may see a rise in such cases in the near future as "regulatory and supervisory authorities will gradually uncover dishonest market practices aimed at circumventing the counter-sanction measures from 2022-2023."

  IKEA, Russia