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- The process is underway: Russians were able to unblock more than half of their assets
In two years, Russian investors have managed to unblock more than 60% of their frozen assets - that's about 3.6 trillion rubles. However, the further potential has been largely exhausted, as the most obvious schemes have already worked. For example, the lion's share of unblocking came from securities of Russian companies denominated in foreign currency. Now investors can only hope for netting, which is carried out by Russian and foreign depositories, lawyers, including those assisting in unblocking assets, told Izvestia.
How to unblock frozen assets
Last year, it was possible to unblock the assets of Russian investors for about 570 billion rubles and it affected 1.5 million people, Central Bank head Elvira Nabiullina said this week. Another Br3 trillion was released in 2023, according to the report of the Bank of Russia. Thus, the total amount of unblocking can be estimated at almost Br3.6 trillion. Since the Central Bank estimated Br5.7 trillion in assets frozen abroad at the end of 2022, it can be stated that most of them (about 63%) have already been returned.
However, unblocking the remaining funds will be extremely problematic, as the most obvious and simple, if one can put it that way, options have already been used. The Central Bank's press service explained to Izvestia that in 2024 the exchange of frozen assets, payments on foreign securities, and substitution mechanisms were used.
If we talk about 2023-2024, it was mostly possible to recover funds at the expense of securities of Russian companies denominated in foreign currency. First, it is the conversion of depositary receipts into shares.
- The Central Bank's report for 2023 spoke of 3 trillion unblocked assets of Russian investors. At the same time, a significant share came from ordinary shares received by investors when converting depositary receipts of Russian companies and transferring the accounting of rights to Russian infrastructure," confirms Roman Kuzmin, Counsel at Pen & Paper.
Secondly, a significant volume of unblocking was provided by the issue of substitute bonds on Eurobonds. Thus, at the end of the year the market of such securities exceeded Br2.2 trillion. Also, the Central Bank and the Ministry of Finance launched and held two stages of exchange of blocked assets, when Russian investors could release funds up to Br100 thousand. But this scheme has managed to unfreeze a little - less than Br11 billion.
The process will be further and further slowed down, no doubt a representative of a brokerage company, who spoke to Izvestia on condition of anonymity.
- All the cream has already been collected. This is evidenced by the fact that in 2023 the volume of unlocks was more than five times higher than in 2024. And what we're going to see next is a slowdown. As in weight loss, when a person dynamically sheds weight, and then reaches a plateau and the arrow of the scale freezes on the spot, - he said.
No big schemes are being discussed now, but the regulator is trying to support possible mechanisms in order to restore the absolutely legal rights of Russian investors, said Elvira Nabiullina.
How the system of netting between depositories works
With the exhaustion of obvious options, Russian investors are not left with many possibilities to recover their assets. One can, of course, apply for a license to unlock assets held with Euroclear or Clearstream (European clearing cents providing depository services). But without a residence permit in other countries, a brokerage account in Europe and a local guarantor, it is almost unrealistic. It is possible to sue, but it is very expensive abroad, and the decisions of Russian courts are not enforced.
Nevertheless, lawyers, including those involved in helping investors to unblock assets, note another mechanism, which is not particularly common to talk about in the public space. Although it is the one that leaves hope for further unblocking. Thus, according to Andrey Gusev, Senior Partner at Nordic Star Law Office, it is about netting with foreign depositories.
- The National Settlement Depository (NSD) actively cooperated with foreign partners for mutual write-off of liabilities, which made it possible to return a significant part of frozen funds, but these figures are not disclosed," he said.
Assets held on accounts with systems such as Euroclear or Clearstream, where ownership of financial instruments is recorded, could also be included in the unfrozen funds. This allows transactions to be conducted through settlement mechanisms without the need to physically move funds, also noted Andrei Simonov, a leading lawyer in the International Structuring and Sanctions Compliance practice of Lemchik, Krupsky & Partners.
How does this correlate with the fact that foreign depositories declare that interaction with NSD (under European sanctions since mid-2022) is a hindrance to obtaining an unblocking license?
- Yes, formally such platforms as Euroclear declare a ban on interaction with NSD. But in reality, everything happens through a chain of intermediaries that allow them to bypass these restrictions. This is a manifestation of pragmatism - neither party is interested in a complete breakdown of relations, especially when it comes to hundreds of billions of rubles or dollars," explained Andrei Gusev.
He is sure that this approach is an example of how international financial institutions are looking for compromises under the sanctions pressure. The mechanism of netting is not a violation of the rules, but the use of existing legal instruments to minimize losses of all parties, the lawyer stressed.
- Modern inter-depository systems and clearing mechanisms make it possible to conduct transactions with assets without violating sanctions regimes due to automated systems that combine data from Russian and European depositories, which makes it possible to conduct reconciliation and mutual settlements almost in real time, - added Andrei Simonov.
Moreover, he said, mutual settlements through depositories can be carried out through digital platforms, where changes in the status of assets are recorded in registers without the actual movement of funds. This is especially important in conditions where direct settlements may be complicated by sanctions restrictions.
- This approach demonstrates a comprehensive review of legal and technical procedures, which ultimately provided access to previously blocked assets," Andrei Simonov.
The Central Bank did not answer the question about the contribution of such a mechanism to unblocking. NSD refrained from commenting.
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