The right to cash: the US Treasury allowed to close accounts in sanctioned banks in Russia

Julia Suntsova

The Office of Foreign Assets Control of the US Department of the Treasury (OFAC) has allowed transactions to close individual accounts in sub-sanctioned Russian banks, follows from the license published on the agency's website.

The operation can be carried out against a person who is not under sanctions imposed in connection with the military conflict in Ukraine.

As noted in the document, transactions necessary to close individual accounts in financial institutions that are subject to US anti-Russian sanctions (regardless of their location) will not be considered a violation of the sanctions regime.

In addition, this license gives the right to transfer funds from accounts in such financial institutions to banks that are not under sanctions. It is noteworthy that the license does not expire.

Meanwhile, the license does not allow the opening and maintenance of correspondent or settlement accounts in the interests of authorized persons and the conduct of operations prohibited by sanctions.

What do these permitted transactions mean for Russians who still have accounts in sanctioned banks? Are these the next sanctions and punishment for Russian citizens by foreign institutions or, on the contrary, the organization of financial "humanitarian corridors" for "good Russians"?

We decipher together with financiers, bank analysts and economists.

Vladimir Sagalaev, financial analyst of CMS group of companies:

- The US Department of the Treasury and the Office of Foreign Assets Control at the end of last week, August 19, announced their decision to allow previously prohibited transactions related to the closure of accounts of individuals in banking institutions that fell under anti-Russian sanctions restrictions. Also, the US Treasury made another exception for those receiving a Russian pension - it also removed them from sanctions.

In my opinion, this easing of restrictions against Russia is primarily aimed at making life easier for US citizens, other non-residents, and individuals not living in Russia.

Let me remind you that the United States imposed sanctions on several Russian banks after the start of a special operation in Ukraine. Correspondent dollar accounts in American banks were blocked, which closed the possibility of making transfers in American currency abroad. The result was the freezing of funds for non-residents and persons residing outside of Russia, clients could not use these funds. In fact, they became hostages of the situation - the sanctions against Russia had a negative impact on individuals who were not involved in political events.

They are now able to close the account and withdraw any remaining cash and other assets to an account with another non-sanctioned financial institution. Also, the US Treasury allowed planned transactions that are necessary for pension payments to persons who are not US citizens and do not live in Russia. Previously, such payments were only allowed to US citizens.

The initial sanctions were hastily imposed, and it was difficult to calculate their scope and who they would affect. Now the West is correcting its mistakes.

Artem Tuzov, Executive Director of the Capital Market Department of IVA Partners LLC:

- Sanctions have been eased to some extent. But it does not apply to ordinary savers, as it relates to difficult savers who are subject to regulation by the US Treasury. The story is that, together with banks, all their depositors fell under the same sanctions. Those who were in the ruble zone were not affected. But, for example, multinational companies or US citizens who had accounts with Sberbank faced a problem: they lost the opportunity to enter into relations with the bank, even just sell their assets, withdraw them from the account and close this account in the sanctioned bank became impossible. Here are the innovations we are discussing that solve these problems. You can also pay off the debt, if there is one and it prevents you from closing the account - to add the required amount and close in the future.

- NI: Is there a solution for security holders whose assets are also stuck in banks?

- There is no such decision yet. These exceptions cannot be applied to the release of securities stuck due to a broken bridge with NSD. In any case, the unblocking of Russian securities should be carried out not by the United States, but by the European depository. Europe has its own sanctions, and, of course, they act with caution. So far, there are no hints of an unlock. But these are the first steps that the US Treasury has now taken, inspire hope for positive changes in the future. The more sanctions are lifted, the better it is for our banking system.

But, I repeat, now with these targeted decisions, the US Treasury is more likely to solve the problems of US citizens than Russians. This is not a gesture of goodwill towards the citizens of Russia, but still it is a kind of easing of sanctions.

Igor Nikolaev, Doctor of Economics, Chief Researcher at the Institute of Economics of the Russian Academy of Sciences:

- If earlier account holders in sanctioned banks could not do anything with their assets, now they have given the opportunity, at least, to close this account. That is, now you can unfreeze the account with the condition of its closure, this is also important. For example, you have a dollar bank account, which, along with your bank, also fell under sanctions. This money could not be cashed out, since a ban was introduced on the use of correspondent accounts.

Definitely, this is the easing of sanctions. Recently, the transfer of pensions to Russian citizens living abroad has also been resumed. Since they received their pension from Russia by transfers in dollars, such transactions became impossible with the termination of correspondent relations. The payments just stopped. They came up with various workarounds, tried to transfer to banks that did not fall under sanctions. These people themselves, as it were, were under sanctions. On this line, the US Treasury eased the sanction.

- NI: How can the US Treasury still influence the accounts of Russians, say, in the sanctioned Sberbank?

- Blocking transactions does not mean that you can remotely do whatever you want with the accounts of Russians in Russia. The account is opened in a Russian bank. The US Treasury can only affect transactions in the title currency, in dollars.

By and large, nothing has changed, you can withdraw 10 thousand dollars if you had them on your accounts before March 9, 2022, everything else will be given to you in rubles. If you have more than 10 thousand dollars, you will be given more in foreign currency with the condition of closing the account. The $10,000 limit was due to the termination of correspondent relations. Relatively speaking, we will find ten thousand. But if you have more, two million dollars, where do we get them from? And now these two million will be transferred to you upon closing the account, they will be. Now, to close accounts, correspondent relations are unblocked. Now there are no obstacles for the Russian side to pay not 10 thousand, but at least two million. These dollars will be, as the restrictions have been lifted.

- NI: If cash is no longer imported into the country, where will cash dollars suddenly come from?

- Americans should be allowed to import these amounts. This import ban should be reviewed, otherwise how to close accounts? On our part, we need to cancel the decision on the limit of 10 thousand dollars.

Dmitry Potapenko, economist, entrepreneur:

- The decision means the possibility of closing accounts in foreign currency. As a rule, this is the permission to exit the cache. And for many investors, this will also be a gift. If they manage to cash out everything that they bought out, there will be happiness.

By and large, the total value of currencies and securities is already more or less clear, the market has stabilized, and the volume of investors that are on Russian sites is insignificant. I think this is a negotiating position that shows that the US Treasury is ready to take certain steps towards working with certain instruments.

However, since everything is in the field of regulation, it is an illusion to count on the fact that you own something on the exchange if you are not some kind of big player. You still fall under this or that degree of regulation, and if you fall under this or that regulation, then by and large, with your accounts, with your money, with your assets, you can do whatever they see fit.

This is neither a punishment nor a financial "humanitarian corridor". It's about a little relief. The Russian foreign exchange and investment market is not that big, and you shouldn't overthink that we are important. This is not about “good Russians”. Most of the securities belong to officials of various levels.