German and European investment funds and family offices with frozen securities
The escalating geopolitical tensions arising from Russia’s incursion into Ukraine and the ongoing conflict have resulted in a substantial freeze of Russian investors’ assets in the West, as well as the assets of foreign investors, including those from Germany, in Russia.
Consequently, Russia has initiated an asset exchange program as a potential solution to reactivate these frozen assets.
Insight into the Russian exchange program
The primary objective of the Russian “exchange program” is to unfreeze securities owned by Russian investors. This program allows Russian investors with frozen securities abroad, such as in Germany, to sell them to foreign buyers like those in Germany. Simultaneously, the program paves the way for certain assets of German investors, currently blocked in Russia, to be released.
The process utilizes “Type-C accounts”, which currently hold blocked funds belonging to foreign investors, including those from Germany, in Russia. These accounts can be employed by investors to bid for Russian securities.
Which assets are prioritized?
The program mainly targets shares traded on the Moscow Stock Exchange (MOEX). However, bonds, derivatives, and other financial instruments could also be eligible for the swap.
Legal and practical considerations
While the exchange program offers a potential solution for the release of frozen assets in Russia, it raises significant legal and practical issues for foreign investors, including those from Germany:
- Sanction compliance: The exchange program’s compatibility with existing Western sanctions requires meticulous scrutiny in each case, particularly when sanctioned Russian individuals or companies are involved in the exchange. Even if the exchange is sanction-free, participation could potentially tarnish reputations, as it may be perceived as supporting the Russian economy.
- Feasibility and participation: The success of the program hinges on the participation of both Russian sellers and foreign buyers. Limited trading periods, restricted funds in “Type-C” accounts, and a lack of transparency could make participation in the program challenging or unattractive. Furthermore, whether a German investor considers the exchange successful largely depends on the Russian securities on offer and their appeal.
How can German investors participate?
Individuals and companies with blocked assets in Russia should acquaint themselves with the exchange program.
- Ascertain that you possess a “Type-C account” in Russia housing your blocked funds. However, for some time now, investors from states deemed “unfriendly” by Russia have been unable to open such an account. In this scenario, the investor must find alternative routes. We would be pleased to advise you on this.
- Educate yourself about the Russian securities available for exchange and their valuation. Carefully evaluate the opportunities and risks. Consider whether you wish to acquire these securities at all.
- Adhere to the deadlines and formalities set by the Russian authorities for successful registration.
Please get in touch with us if you wish to discuss your individual situation and determine whether you are affected by the exchange program. We are here to help.
