Segregation is not what it seems – Kommersant FM

Israeli banks began to restrict transactions with Russian securities. Due to the instructions of the international depositary Euroclear, large credit institutions allocate investment accounts owned by citizens or tax residents of Russia into a separate group. The measures apply even if you have an Israeli passport. You cannot withdraw funds or sell securities from such segregated accounts, but you can withdraw coupons worth up to €100 thousand per year.

As financial consultants and lawyers told RBC and Forbes, almost all of Israel’s largest banks have already introduced similar restrictions. Clients were notified orally of the new measures. Many of them managed to withdraw their accounts from Euroclear, notes Israeli lawyer Eli Gerwitz:

“Many people knew about the innovations before they came into force. Therefore, those for whom it was very critical that their securities were not listed on Euroclear could and did take the necessary actions for this.

In practice, we have a ban on transactions with these securities. But people can receive coupons worth up to €100 thousand in cash. Therefore, for this restriction to really work, you need to have a lot of money in your accounts.

There are hundreds of thousands of people who have Israeli and Russian citizenship. The number of owners of foreign securities, I think, is measured in thousands. And those who have such amounts that restrictions on the withdrawal of coupons of more than $100 thousand are significant for them, and at the same time they have not transferred their assets from Euroclear to another place, only a few, or at most tens.

Is there any way to appeal these actions? From my point of view, certainly, from at least two points of view. First: if people are simultaneously citizens of the Russian Federation and tax residents of Israel, and they earned money without any connection with Russia, then punishing them for having a Russian passport is quite ridiculous.

And second: the only thing that protects the spread of these restrictions, oddly enough, is tax residency in Europe. If people who have a residence permit in the European Union are exempt from restrictions, but those with Israeli citizenship are not exempt, then, from my point of view, this is completely illegal and, if necessary, can be challenged. We will see how these restrictions work in practice and will respond if necessary.”

In the EU and Switzerland, restrictions on Russian assets have been in effect since 2022. Russians who do not have a local passport or residence permit cannot receive more than €100 thousand into their bank accounts. The measure is also observed by depositories: if a Russian investor’s portfolio exceeds this amount, it is prohibited to credit him with bond coupons, dividends or proceeds from the sale of securities. Instead, they go to a separate blocked account.

Israel did not join the sanctions, so local banks expect to get Euroclear to soften their position, says Alexey Kovalenko, managing partner of the Israeli law office Kovalenko and Partners. According to his information, the matter has not yet reached the point of actual blocking of accounts:

“There is no panic, and we don’t see any particular problem. Israel has not joined the sanctions package, so each bank acts at its own discretion. At the moment, this is a legal dispute between Euroclear and the Israeli banks, which do not want to agree to the terms of the depository. Israel insists that if a person is a tax resident of Russia, let us treat him as such.

If we are talking about a tax resident of Israel, then having a Russian passport should not interfere with his investment activities. The dispute has been dragging on since July and is not over yet. In Israel, they know how to delay such issues in order to give clients the opportunity to buy other assets. At this time, no assets have been frozen.

One bank has already warned clients, people are selling securities and purchasing others. Israel has enough instruments for investment – the Tel Aviv Stock Exchange, the American Stock Exchange, Israeli funds, investment banks. There are a lot of instruments on the local market that Russian investors can work with.

What is the policy of Israeli banks towards Russians? Let’s distinguish two categories. First: people who repatriated have Israeli citizenship and are tax residents of Russia. The second is Russian citizens. Both can open accounts in Israel.

Each bank acts at its own discretion. At one time, the Central Bank of Israel issued a warning to financial institutions to be careful. Many chose other jurisdictions instead of Israel, all individually. Ordinary banks are more conservative, so it’s more difficult with them. With investment ones everything is much simpler.”

European depositories began to demand segregation of accounts of Russians and outside the EU at the beginning of 2023. In April, after a request from Clearstream, the second largest bank in the United Arab Emirates, Emirates NBD, introduced such a measure. Later, investors managed to unfreeze and transfer to other storage facilities the securities of American issuers and the funds that they contributed on their own.

In May, the Kazakhstan Stock Exchange demanded that the assets of Russians be separated from brokers. The measure affected instruments for which settlements took place in Euroclear and Clearstream. The decision was explained by the need to comply with sanctions. It will be difficult to negotiate with Israeli banks on the unblocking or withdrawal of assets, investment banker Evgeniy Kogan is sure:

“Probably the only option for working with Israeli banks is to write letters to them. I am faced with a very unpleasant situation when Israeli bankers say: we have nothing to do with it, contact Euroclear. The Israelis themselves do not fully understand all this.

In order to find out how to unblock, you must first find out what criteria exist, but there are no clear ones.

Much depends on the goodwill of a particular bank. The ratings may be high, but the level of service is cavernous. There are options to withdraw assets from Euroclear, there is always such an opportunity, for example, to exchange bonds for various ETFs, that is, for ones that are similar, say, in ideology, in meaning. Then we immediately leave Euroclear, which has begun to hunt for Russians.”

Israeli financial consultants clarify that if the measure applies to all investors with Russian origin, up to 300 thousand accounts in local banks will be segregated.

Forbes sources claim that Euroclear is now sending requests for the allocation of accounts to organizations around the world, where, according to the depository, there may be a large number of clients from Russia.

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Elizaveta Skobtsova