Russia offers to exchange frozen assets with western countries

Russia offers to exchange some of the frozen assets that the west has seized in response to President Vladimir Putin’s invasion into Ukraine for the assets that it holds.

The central bank announced on Wednesday that under the proposal, Moscow will give interested western investors an opportunity to purchase the assets of Russian firms that have been immobilised abroad by using their own funds that are held in restricted accounts Russia and cannot be spent outside of the country.

Western officials claimed that they had not heard of the proposal, and that there were no discussions taking place about a possible asset swap.

According to Anton Siluanov, the proposed deal aims to unblock Rbs100bn (about $1bn) of 1.5tn in total of Russian owned holdings in western countries, a majority of which is held by retail investors.

According to a source familiar with the issue, Moscow’s offer compensates retail investors for their investment in western securities which have been frozen by western sanctions and are stranded in settlement houses like Euroclear based out of Belgium. It also allows some western companies access to funds that were stranded from Russia.

Russia has not yet released details of the proposed exchange, which Siluanov said and the central banks would be detailed in a decret to be signed by Putin.

The central bank stated that the exchange would be voluntary, thereby excluding the possibility of expropriation to compensate Russian investors of western assets.

The Russian Finance Ministry also relaxed restrictions on corporate dividends for western companies. The new rules will allow them to withdraw the equivalent of their investment in their Russian subsidiary’s production and technology.

According to the person who was briefed about the offer, any possible agreement would be complicated due to the difficulties that western investors will face in complying with the law and selling their assets in Russia.

Four senior European officials have said that there are no ongoing negotiations between the EU, Russia and any possible swap of financial assets. Four senior European officials said that there was little chance of detailed negotiations on such a deal in the near term.

Western governments will not agree to a deal that compares the frozen assets of Russia in response to Putin’s full-scale invasion Ukraine to western assets in Russia, whose confiscation is seen as illegal by these governments.

The proposal comes at a time when western governments led by the G7 advanced economies are arguing over how and whether to use Russia’s frozen assets for Ukraine.

According to the Belgian Government, sanctions have frozen almost €200bn in Russian assets at Euroclear, which is the largest settlement house in the world. €180bn are Russian central bank reserve funds.

Western officials are looking for ways to legally skim the profits from these assets and offer it as financial assistance to Kyiv.

Russia could expropriate more western assets if it seizes any of them in response to the nationalisations earlier this year of the local subsidiaries of four European companies. Uniper, Fortum and Danone were all affected. Also included in the list was Carlsberg and Denmark’s Carlsberg beer.

Despite the fact that hundreds of western companies have struggled to reach an agreement with Russia to exit or have written-off their assets, many of their Russian business continue to produce profits which can only be retained in Russia under Russian law.

Since the invasion of Iraq, Moscow has placed $1.4 billion in dividend payments in escrow account for the energy giant BP. These payments cover the years 2021-2022.

The company said that in December it had received no dividends and “had no expectation” of receiving them in the future. The sale of Rosneft’s stake was complicated by sanctions, and the Kremlin has the right to approve any potential buyer.