The EU is exploring the possibility of creating a non-sanctioned subsidiary of Rosselkhozbank

The Russian part of the grain deal expiring on July 17, which includes a demand to lift restrictions on the Russian Agricultural Bank (RSHB), has not yet been completed. So the press secretary of the President of Russia Dmitry Peskov on July 3 commented on the information of the Financial Times (FT) that Brussels is considering easing sanctions against the RSHB, making it possible to connect a specially created “daughter” of the bank to SWIFT.

“So far, we have nothing to report on the implementation of that part of the agreement that concerned the Russian side. There is still some time before the deadline, but there are not so many hopes,” Peskov said. The removal of restrictions on the RSHB was one of five conditions announced by the Russian Foreign Ministry in mid-April, recognized as necessary for the extension of the grain deal. In mid-May, the agreements were extended for another 60 days, but none of the conditions were met.

The FT, citing sources, reported on July 3 that the RSHB, disconnected from the SWIFT system in June 2022, could create a subsidiary bank. And he, in turn, would be connected to the system of international financial messaging, thus fulfilling at least one requirement of Moscow for the resumption of the grain deal. Such a proposal was made, according to the sources of the newspaper, at the summit of the leaders of the EU member states, which was held in Brussels on June 29-30. Now, FT interlocutors say, the proposal is being studied by the governing bodies of the European Union for legality and chances for implementation, but the issue is complicated by the fact that the RSHB is a completely state-owned bank, the newspaper notes.

The RSHB is not subject to blocking sanctions by either the US or the EU, it is only affected by sectoral restrictions. So, concessions, including those mentioned in the leak, are possible for him, says Sergey Glandin, partner of BGP Litigation, an expert in international law. American and European restrictions prohibit the RSHB from attracting long-term financing with a maturity of more than 14 days, and also cut off from SWIFT. The newly created “daughter” of the RSHB should not be subject to sanctions by default, unless it is specifically added to the list of persons subject to restrictions, says Glandin.

It is prohibited to provide services of international financial messages (through the SWIFT system) of the RSHB in accordance with Art. 5h of EU Council Regulation 833/2014, continues Ivan Timofeev, director of the Russian International Affairs Council. The problem is that the ban also applies to subsidiaries with a 50% or more ownership stake, he says. Therefore, the creation of a subsidiary structure may be a working option if the RSHB owns less than 50% of the shares in it, Ivan Timofeev believes. Glandin emphasizes that if the legal entity of the “daughter” of RSHB is created in the EU, then the restriction on the share of ownership will not apply to it, and the restriction on control applies to the “daughter” created in Russian jurisdiction.

“Another option is to introduce into Art. 5h exceptions for transactions related to agriculture, or separately for RSHB. This option appears to be more time consuming, as the amendments would require approval by all EU member states. The creation of a subsidiary with an ownership share of less than 50% will not require such conditions,” notes Ivan Timofeev. According to him, all these actions are technically feasible and fit into EU law. But if Brussels wraps them up for political or other reasons, the grain deal is likely to end, he says.

Information about the possibility of creating an unsanctioned “daughter” of the RSHB can be thrown in to study the reaction of the leadership of the EU and Russia against the backdrop of discussing the prospects for extending the grain deal. According to Pavel Timofeev, Head of the Department of European Political Studies at IMEMO RAS, such a move is at odds with the official European rhetoric, according to which Russia’s economic contacts should be blocked as much as possible without loopholes.

If an unsanctioned subsidiary of RSHB is opened abroad, the bank will actually gain access to the SWIFT system. Then, obviously, this will concern not only the grain deal, continues Vladislav Belov, head of the Center for Country Studies at the Institute of Europe of the Russian Academy of Sciences.

Vedomosti sent a request to the RSHB.