Russian Investors in a Financial Limbo

In the wake of the Ukraine conflict, a significant number of Russian investors find themselves in a tricky situation. Their assets, held in European depositories, have been frozen, leaving them in a state of uncertainty. The European Union is currently considering using these frozen funds, including those of private investors, to cover war reparations for Ukraine. This has sparked a debate about the fairness and legality of such a move. The frozen assets belong to millions of Russian private investors who are not on Western sanctions lists. These investors are legally entitled to their assets, but reclaiming them is a complex and costly process. Zhanna Nemzova, co-founder of the Boris Nemtsov Foundation, has been advocating for the release of these private assets. She argues that the current process is too complicated and expensive for most investors, effectively protecting the interests of the wealthy rather than making funds more accessible. The custody of these Russian securities is managed through the National Settlement Depository (NSD) in Russia. However, for foreign securities, the NSD acted as an intermediary, with the actual securities held in European depositories like Euroclear in Belgium and Clearstream in Luxembourg. When the war began, these depositories cut ties with the NSD, freezing the assets of Russian investors along with those of the Russian state and sanctioned individuals. The exact number of affected investors is unclear, with estimates ranging from 3. 5 million to 5 million people. The average amount frozen per investor is around €2, 400, which is roughly equivalent to two average monthly Russian salaries. To reclaim their assets, investors must navigate a complex legal process that often requires expensive legal assistance. This process is further complicated by the need for a guarantor and an investment account in a non-Russian country. Nemzova suggests that the first step to resolving this issue is to raise public awareness and take inventory of all frozen assets. She proposes simplifying the process for investors who cannot afford expensive lawyers. However, she acknowledges that only those with Western residence permits or citizenship are likely to benefit from such changes. The fate of the Russian central bank's frozen assets remains uncertain, with the European Commission declining to comment on the matter. The frozen assets primarily consist of American securities, which are popular among Russian investors. To release these assets, a license from the US Treasury Department's Office of Foreign Assets Control (OFAC) is required. However, OFAC has not yet issued any such licenses, leaving the future of these assets in limbo.