Frozen Assets | Legal Advice on the Russian Swap Scheme

The Russian government's proposed swap scheme offers a possible solution to unlock these frozen assets. Under this scheme, Russian investors holding frozen foreign securities can apply to sell them to foreign buyers. The key element of the plan involves the use of "type-C" accounts. These accounts, established within Russia, hold funds belonging to foreign investors that are currently inaccessible due to sanctions. The swap scheme proposes foreign buyers to utilize these "type-C" accounts to bid for the Russian-owned foreign securities.

A significant concern surrounding the swap scheme is its compatibility with existing sanctions imposed by the West. While Russia appoints a broker to facilitate the first scheme for small ticket Investors (OOO “Investitsionnaya Palata”), the utilization of "type-C" accounts raises questions about potential circumvention of sanctions. Foreign investors will need to carefully scrutinize the legality of participating in the swap scheme, ensuring it does not violate any applicable sanctions imposed by their home countries (UK or USA in this case).

The success of the swap scheme hinges on the participation of both Russian sellers and foreign buyers. Several challenges might limit participation:

• Limited trading window: The scheme operates with a strict timeline for applications and bidding, potentially hindering participation from international investors.
• Restricted funds in "type-C" accounts: The requirement for foreign buyers to utilize funds held in "type-C" accounts restricts their purchasing power and flexibility within the scheme.
• Transparency and oversight: The lack of transparency surrounding the pool of securities offered and the bidding process creates uncertainty for potential foreign investors.

International investors, particularly those based in the UK and USA, should proceed with caution and thorough due diligence before considering participation in the swap scheme. Here are some crucial steps:

• Sanctions compliance review: Investors should consult with legal counsel specializing in sanctions to ensure that participation in the swap scheme does not violate any applicable sanctions laws.
• Detailed scheme analysis: A comprehensive understanding of the scheme's mechanics, the pool of securities offered, and the bidding process is essential before making any investment decisions.
• Independent risk assessment: An independent risk assessment should be conducted to evaluate the potential financial and legal risks associated with participating in the scheme.

Investors from GCC countries should be aware of the following additional considerations:

• U.S. dollar transactions: The swap scheme might involve transactions denominated in U.S. dollars, potentially triggering scrutiny from U.S. authorities if the underlying assets or activities violate U.S. sanctions. Consulting with legal counsel specializing in U.S. sanctions is crucial for GCC investors.
• Reputational risk: Participating in a scheme with potential links to sanctions evasion could damage the reputation of GCC investors. Careful evaluation of the scheme's compliance and potential consequences is essential.
• Long-term investment strategy: The political and economic situation in Russia remains uncertain. GCC investors should consider their long-term investment goals and risk tolerance before participating in the swap scheme.

• Market volatility: The Russian stock market is experiencing significant volatility due to the ongoing conflict and sanctions. Investors from all countries should be prepared for potential losses and a high-risk environment.
• Transparency concerns: As with investors from other countries, transparency surrounding the pool of securities and the bidding process remains a concern. Investors should seek as much information as possible to mitigate risk.

As a leading German law firm with extensive experience in complex financial transactions and sanctions compliance, WINHELLER is closely monitoring the recently announced Russian asset swap scheme.

While the potential to access currently inaccessible assets holds some appeal, the scheme presents significant legal and practical uncertainties. Our team of legal professionals can assist international investors in navigating these complexities.