Introduction to Frozen Russian Assets
The EU is currently debating whether frozen Russian assets should be used to pay war reparations to Ukraine. In addition to the Russian Central Bank’s funds, European depository institutions also hold frozen securities of millions of Russian private investors who are not on Western sanctions lists. Legally, these investors have the right to reclaim their assets, but in practice, very few have succeeded.
How Were Russian Assets Frozen?
The custody of Russian securities at depository banks is carried out through Russia’s central securities depository – the National Settlement Depository (NSD), a subsidiary of the Moscow Stock Exchange. However, for foreign securities that Russians could buy with just a few clicks on domestic brokerage apps before the war in Ukraine, the NSD acted merely as an intermediary. The securities themselves were held primarily at two European depository institutions: Belgium’s Euroclear and Luxembourg’s Clearstream.
Many Russian investors only realized how the depository system worked in the spring of 2022, when they suddenly found themselves unable to carry out transactions. Their securities were frozen, as were Russia’s state reserves and the assets of individuals and organizations subject to sanctions. Euroclear and Clearstream cut ties with NSD shortly after the war began in March 2022 in response to the Russian Central Bank’s decision to ban Russian brokers from selling securities on behalf of foreign clients.
Number of Affected Russian Investors
Neither Russian nor European authorities have published data on the amount of private assets frozen, and the depository institutions themselves have not provided figures. Only the total value of frozen assets in Europe is known, including Russian state reserves, which account for the majority of the total. According to Reuters, the total amount is around 210 billion euros, of which 185 billion euros is held by Euroclear.
Russian authorities estimate that the frozen assets of Russian legal and natural persons worldwide amount to about 5.7 trillion rubles – equivalent to about 12 billion euros at current exchange rates – of which about 20% belong to private individuals. The exact number of investors is also unknown. Russian Finance Minister Anton Siluanov said 3.5 million people, while central bank officials say the number is closer to 5 million.
Reclaiming Frozen Assets
Investors can try to recover their assets if they are not on sanctions lists. To do this, they need a license from the Belgian Ministry of Finance, which regulates Euroclear. If Clearstream’s assets are frozen, they must submit an application to the tax authorities in Luxembourg. In practice, however, this is almost impossible without legal advice. In addition, litigation costs typically far exceed the average value of the frozen assets.
According to Nemtsova, one investor who managed to get his funds released from both Euroclear and Clearstream said that the process cost him 60,000 euros. A senior investment adviser at Moscow-based asset management firm Alfa Capital told that as a first step, a lawyer would need to "find or act as a guarantor." The guarantor must then confirm that the applicant owns the assets, is not under sanctions, and that no sanctioned person is benefiting from the transaction for which the license is being sought.
Perspectives of Those Affected
The first step is to draw public attention to the problem, as European officials often do not “understand the full consequences of their sanctions policies” and the issue is rarely covered in the European media. As a next step, it is proposed an inventory of all frozen assets to determine which belong to private investors who are not on sanctions lists. The authorities in Belgium and Luxembourg should then develop a simplified procedure for investors who cannot afford expensive lawyers.
It is admitted that only people with Western residency permits or citizenship would likely benefit from such changes. Everyone else will probably have to wait until the war ends and sanctions are finally lifted. The fate of the Russian Central Bank’s frozen assets lies in the hands of the European Commission. When asked whether the EU executive was also thinking about the future of private investors’ assets, a Commission representative declined to comment, saying in a statement only that it was a "hypothetical scenario."
Unfreezing US-Based Assets
Although the details of the frozen assets have not been disclosed, it is clear that they are mainly American securities popular with Russian investors. To unfreeze US-based assets, a license from the US Treasury Department’s Office of Foreign Assets Control (OFAC) is required. OFAC has sanctioned both the Moscow Stock Exchange and NSD. According to lawyers representing Russian investors, OFAC has not yet issued a single such license. Shares in the US companies Alphabet, Apple, Boeing, Intel, MetaTrader, Microsoft, and Tesla, as well as the Chinese companies Alibaba and Baidu, were most in demand.
