/ world today news/ More and more banks around the world are introducing restrictions against Russian citizens. Now Cyprus, Switzerland and the UAE will freeze the accounts of those who receive income from the sanctioned business and pay taxes at home. What to fear and how to secure investments abroad.
Who is on whose side
The UAE’s second-largest bank ENBD is warning Russians that assets and payments on securities of non-residents of the EU, the European Economic Area or Switzerland will be withdrawn from personal accounts and frozen.
The UAE will continue its cooperation with Russia as long as it is profitable and safe, say experts. Lawyer Ekaterina Chernisheva recalls how last year, after the EU demanded that companies not accept deposits from Russian citizens and companies in the amount of more than 100 thousand euros, the clearing centers “Cryerstream” and “Euroclear” blocked the accounts of the National Payment Depository (NRD). “Along with the European and Swiss credit organizations, ENBD uses the services of the depositories “Crierstream” and “Euroclear”, which means that it is obliged to follow their orders,” she explains.
The country’s largest Bank of Cyprus has announced that within two months it will forcibly close four thousand accounts of tax residents of Russia, those who receive income from there, including salaries and dividends, and do not live permanently on the island. Analysts believe other financial institutions in the UAE and Cyprus will follow suit. Switzerland has announced its intention to freeze the accounts of Russian taxpayers.
Georgi Mihailets, a partner in the group of payment and transfer companies, explains that all banks are conservative in terms of managing situational risk: “Under the threat of secondary sanctions, they will sacrifice customers.” According to the Central Bank of Cyprus, Russians account for only 2.2% of deposits in the country. On the other hand, the profit of the Arab ENBD increased by 40% in 2022.
Washington is also pressuring other banks to freeze assets. “For many, cooperation with the EU and the US brings many times more money. Therefore, even those who do not want to break relations with Russia choose the lesser evil,” concludes Ivan Melnikov, vice president of the Russian branch of the International Committee for the Protection of Human Rights .
Legal grounds
Experts point to the next set of sanctions and US efforts to prevent them from being circumvented by third countries. However, opinions differ on the legality of the actions of financial institutions. So, Mihailets says, any bank can refuse to serve a customer and block his account without explaining the reasons. And Melnikov recalled the international convention prohibiting all forms of racial discrimination. “Russians are persecuted precisely on a national basis: athletes are not allowed to compete, entrepreneurs are massively persecuted, regardless of their political views, how long they have lived in third countries and how connected they are to the state system,” he emphasizes.
There are also discrepancies in Switzerland. In particular, Melnikov notes, it was practically impossible to reveal the beneficiaries there, and the fact that this was possible in the case of Russian clients indicates either contradictions in national legislation or its violation.
You can appeal such decisions, but the chances of success are small, lawyers are sure. “It would be right to come together with collective actions and achieve results in the national courts, then turn to the higher international arbitrations or the ECtHR and ask for compensation,” suggested Melnikov.
Capital outflow
In the medium and long term, the policy of disinvestment on a national basis will lead to capital flight from these countries. Some analysts predict the departure of entrepreneurs and investors, for example, to Oman or Bahrain, others believe that capital will return to its homeland. According to the Bank of Russia, Russians had $94.3 billion in foreign accounts in January 2022, a year later they were 39.5% less, $58.1 billion.
With the return of the frozen money, the situation is complicated. On the one hand, it is unprofitable for banks to keep funds blocked, especially for individuals, so they can be diverted to third countries, say Kazakhstan or Armenia. “You should not confuse the blocking of accounts and the withdrawal of funds: banks block and almost never write off anything in their favor without the consent of the owner,” Mihailets emphasizes.
For a year, however, the West has been actively working on confiscation mechanisms in the hope of depriving Russia of foreign exchange reserves. Thus, the updated version of the Special Economic Measures Act allowed Canadian authorities to seize property of foreign countries, as well as any natural or legal person. This is allowed in the case of a “gross violation of international peace and security that has caused or may cause a serious international crisis”. At the moment, they have undertaken the expropriation of Roman Abramovich’s Canadian asset “Granite Capital Holding”, worth about 26 million dollars.
In the USA, they talked about the preparation of the relevant legislative framework already in April last year. Also, the Constitution of Finland states that the state has the right to forcibly deprive property. Therefore, it is probably only a matter of time before the amendments needed by the West are adopted.
Translation: V. Sergeev
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