The EU is currently debating whether to use frozen Russian assets to pay war reparations to Ukraine. In addition to the funds of Russia’s central bank, European depositories are also holding frozen securities belonging to millions of Russian private investors who are not on Western sanctions lists.
Legally, these investors are entitled to reclaim their assets, but in practice, very few have succeeded.
Zhanna Nemzova, daughter of murdered Russian opposition leader Boris Nemtsov and co-founder of the Boris Nemtsov Foundation, has been drawing attention to this issue for months. Speaking with DW, she argued that private investors’ assets should be released and has proposed a number of steps to make that possible.
How were Russian assets frozen?
The custody of Russian securities in depository banks is handled through Russia’s central securities depository — the National Settlement Depository (NSD), a subsidiary of the Moscow Exchange.
However, for foreign securities that Russians could buy with just a few clicks through domestic brokerage apps before the war in Ukraine, the NSD acted merely as an intermediary. The securities themselves were held mainly at two European depositories: Belgium’s Euroclear and Luxembourg’s Clearstream.
Many Russian investors only realized how the custody system worked in the spring of 2022, when they suddenly found themselves unable to carry out transactions. Their securities were frozen just like the Russian state reserves and the assets of individuals and organizations subject to sanctions.
Euroclear and Clearstream cut ties with the NSD shortly after the war began in March 2022, in response to the Russian central bank’s decision to prohibit Russian brokers from selling securities on behalf of foreign clients.
In June, the European Commission legally codified Euroclear’s and Clearstream’s decisions. The EU’s sixth sanctions package included an explicit ban on European entities cooperating with the NSD.
How many Russian investors are affected?
Neither Russian nor European authorities have published data on the amount of frozen private assets, and the depositories themselves have provided no figures. Only the total value of frozen assets in Europe is known, including the Russian state reserves, which account for the bulk of the total.
According to news agency Reuters, the total stands at around €210 billion ($243 billion), of which €185 billion are held by Euroclear.
Russian authorities estimate that the worldwide frozen assets of Russian legal entities and individuals amount to about 5.7 trillion rubles — equaling roughly €12 billion at current exchange rates — about 20% of which belonging to private individuals.
The exact number of investors is also unknown. Russian Finance Minister Anton Siluanov cites 3.5 million people, while central bank representatives say the number is closer to five million.
The discrepancy may be due to the higher estimate including not only direct holders of foreign securities but also those who invested indirectly, for example through investment funds.
In broken down figues, the average frozen amount per investor comes to around €2,400.
A Russian broker told Zhanna Nemzova that most of his clients have about that amount frozen — around 200,000 rubles, or a little more than two average monthly Russian salaries.
How can investors reclaim their assets?
Investors can try to recover their assets if they are not on sanctions lists. To do so, they must obtain a license from Belgium’s Ministry of Finance, which regulates Euroclear. If the assets are frozen at Clearstream, they must apply to the Luxembourg financial authorities.
In practice, however, doing this without legal assistance is almost impossible. Moreover, the legal costs usually far exceed the average value of the frozen assets.
According to Nemzova, one investor who managed to secure the release of his funds from both Euroclear and Clearstream said the process cost him €60,000.
Aleksey Klimyuk, senior investment adviser at Moscow-based asset management company Alfa Capital, told DW that in a first step an attorney must find a “guarantor or serve as one.”
The guarantor must then confirm that the applicant owns the assets, is not under sanctions, and that no sanctioned person benefits from the transaction for which the license is being requested.
In addition, the applicant must have an investment account in the EU, Switzerland, the UK, or the US, since transfers to accounts in Russia are not permitted. Without a residence permit, opening such an account is impossible.
According to the news platform Brussels Signal, Belgium received 1,214 license applications last year, of which 232 were approved. Most applicants were investors with dual citizenship — Russian and another European nationality.
“You might think I’m defending the interests of the rich, but I’m not,” says Zhanna Nemzova. “The current process actually protects their interests. What I want is to make them [funds] more accessible.”
What are the prospects for those affected?
According to Nemzova, the first step is to draw public attention to the problem, as European officials often fail to “grasp the full consequences of their sanctions policies” and that the issue is scarcely covered in European media.
As a next step, she proposes taking inventory of all frozen assets to determine which belong to private investors not on sanctions lists. After that, authorities in Belgium and Luxembourg should design a simplified procedure for investors who cannot afford expensive lawyers.
Nemzova admits that only people with Western residence permits or citizenship would likely benefit from such changes. Everyone else will probably have to wait until the war ends and sanctions are lifted eventually.
The fate of the Russian central bank’s frozen assets is in the hands of the European Commission. When asked by DW whether the EU executive is also considering the future of private investors’ assets, a Commission representative declined to comment, saying in a statement to DW only that this was a “hypothetical scenario.”
Even though the details of the frozen assets have not been disclosed, it’s clear that they mainly consist of American securities popular among Russian investors.
According to broker data reviewed by DW at the end of 2021, the most sought-after shares were those of US companies Alphabet, Apple, Boeing, Intel, MetaTrader, Microsoft, and Tesla, as well as the Chinese firms Alibaba and Baidu.
To release US-based assets, a license from the Office of Foreign Assets Control (OFAC) of the US Treasury Department is required. OFAC has sanctioned both the Moscow Exchange and the NSD. According to lawyers representing Russian investors, as reported by the Russian news outlet RBC, OFAC has not yet issued a single such license.
This article was originally written in Russian.
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