Freezing on a special face – Newspaper Kommersant No. 43 (7488) of 03/15/2023
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The Bank of Russia, eight months after the adoption of the relevant law, approved the procedure for transferring frozen assets and liabilities of sanctioned banks to special legal entities. This will help banks to reduce the reserves created for assets, but the opinions of experts regarding the legitimacy of the mechanism in terms of international law differ. At the same time, the banks themselves, according to Kommersant’s sources, are skeptical about the instrument.
The Central Bank announced the approval order agreeing on the list of property and liabilities to be transferred to a legal entity created as a result of the reorganization of a credit institution. Also, obligations on subordinated loans – deposits, loans, bonds – to foreign persons from unfriendly jurisdictions can be terminated ahead of schedule.
The new procedure was adopted as part of the implementation of the provisions of the law issued last summer (see. “Kommersant” dated June 21, 2022) and giving banks the right to transfer frozen assets and liabilities to the balance of specially created legal entities.
When the bill was first discussed, representatives of the banking community noted that it could help those who fell under sanctions to ease the situation with reserves created for frozen assets. According to various estimates, the volume of bank assets frozen in foreign jurisdictions can reach up to 3 trillion rubles. (cm. “Kommersant” dated May 25, 2022). Consequently, according to regulatory requirements, the reserves created by banks for them can be estimated at hundreds of billions of rubles.
Andrey Kostin, head of VTB, August 1, 2022:
“If banks are given an installment plan for the formation of reserves for loans and for the funds that were, in fact, stolen from us in the accounts of American and European banks, for a period of 7-10 years, then banks will be able to write off losses without injections from the state” .
As lawyers note, in the practice of the Russian market there have already been examples of reorganization of banks with the transfer of all problem assets to a special legal entity. According to Maria Lyubimova, head of the foreign economic activity legal support practice at the Regionservis Bar Association, a similar mechanism has now been extended to a wider circle of people. But this decision also has a downside. “For transactions with foreign counterparties structured under foreign law, such actions on the part of the Russian counterparty can be regarded as a breach of contract and result in a default,” explains Maria Lyubimova.
Kira Vinokurova, Special Advisor on Sanctions Issues at the Pen & Paper Bar Association, believes that from the point of view of international law, the envisaged reorganization procedure is not a violation, since it is regulated exclusively by the internal law of the state.
“The fact of blocking the property of Russian banks abroad does not prevent the introduction of these measures, since the regulations that imposed the sanctions have no legal force on the territory of Russia,” says Ms. Vinokurova.
In addition, the measure was introduced in response to the blocking of banks’ assets and the ban on interaction with them by foreign persons, and this, in turn, made it impossible for credit institutions to fulfill their obligations. “Singling out obligations for which execution is impossible, together with blocked assets, allows banks to some extent reduce the amount of liability to foreign persons from unfriendly countries, limiting them to the amount of funds blocked abroad,” notes Kira Vinokurova. Moreover, in her opinion, in many cases, international law allows states to introduce various measures, the purpose of which is to protect the domestic financial system.
However, so far banks have not been active in creating special legal entities. According to the vice-president of the Association of Banks of Russia Alexei Voylukov, he is not aware that any of the sanctioned banks planned to use the new mechanism.
A Kommersant source in the financial market explains the caution of banks by the fact that this mechanism was implemented differently than the credit institutions themselves wanted.
“The banks asked that the legal entity to which the frozen assets are transferred be one and belong to the state, and in return provide liquidity. As a result, it turned out that each bank should create such a legal entity on its own, ”the interlocutor of Kommersant explained. However, he admits that the mechanism will be useful to banks “in the future, during new crises.”
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