Ukraine Fights for $48 million in Assets of Nationalized Russian Bank Subsidiaries

The Ukrainian Deposit Guarantee Fund (DGF) is seeking to seize Hr.2 billion ($48 million) that belonged to Russian bank subsidiaries it nationalized after the 2022 full-scale invasion that is blocked in foreign jurisdictions.

The sum includes funds in euros and dollars held in bank accounts around the world and in the payment systems of Visa and Mastercard, the DGF press service exclusively told Kyiv Post.

After Ukraine liquidated Russian bank subsidiaries in conformity with its laws, it became their rightful owner and began compensating clients for the resulting bankruptcies. This included recovering the banks’ foreign assets – though some Western companies still question the legitimacy of the liquidation. The DGF is waging a financial battle – fighting to reclaim every last hryvnia held abroad with the aim of channeling the funds it recovers back into Ukraine’s war-scarred budget.

How it all began 

On Feb.25, 2022, the day after the start of Russia’s full-scale invasion, Ukraine’s central bank – the National Bank of Ukraine – decided to revoke licenses and liquidate the banks controlled by the Russian Federation. 

They included: 

• Russian-owned banks Prominvestbank – Joint Stock Commercial and Industrial Bank (Prominvestbank PJSC) where 99.77% of the capital belonged to State Development Corporation VEB.RF. 
• The MR Bank, or International Reserve Bank JSC, owned by Sberbank of Russia PJSC (holding 100% of the bank’s capital) and previously known as Russian Sberbank in Ukraine. 

The financial state of both banks had started to worsen for almost a decade following Russia’s attempt to annex Ukraine’s Donbas in 2014. 

Sberbank and Prominvest bank had provided loans to many of Ukraine’s largest private and state companies.

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But in response to Russia’s aggression, many companies stopped paying for the loans to Sberbank, according to a Kyiv Post source familiar with the situation who wished to remain anonymous due to the sensitivity of the issue. 

Prominvest Bank became subject to the US Office of Foreign Assets Control sanctions and could not legitimately proceed in operations in Ukraine or abroad. 

In 2023 Ukraine’s central bank revoked the licences of the Russian subsidiary Bank Forward (previously named Russian Standard). For a year, it was untouched by Ukraine since it did not belong directly to the Russian state, unlike the other two banks – Forward’s bank owner was a Russian citizen Rustam Tariko.But the bank’s financial state worsened and its owner failed to improve it, so in March 2023 the NBU liquidated it from the market.  

As part of the liquidation process, the banks’ assets were transferred to the DGF which now manages the recovery of the assets previously owned by Russian banks, pays deposit holders, creditors, and transfers the leftover cash to Ukraine’s budget as compensation for the war.

Transferring Russian liquidated banks to the Ukrainian DGF also means transferring the ownership from the Russian owner to the state of Ukraine. But not all Western companies believe this to be appropriate. 

A portion of the funds that belonged to Russian banks in Ukraine is stuck on accounts around the world and needs to be returned in compensation to the bank’s creditors, clients and the state budget. 

The DGF is communicating with foreign banks to return these blocked funds the, DGF Managing Director Olga Bilai told Kyiv Post. 

“This is not about recovery, but about returning the funds that were blocked as a result of sanctions to the legal holder, the State of Ukraine. As of today, the circumstances that led to the blocking of these funds no longer exist. The sanctioned owners have lost control over these banks. It is Ukraine that now owns the banks that were in Russian ownership and operated in Ukraine before the full-scale military invasion,” she sai. 

What is Ukraine is doing to recover the Russian banks’ cash?

Ukraine wants to return funds belonging to three banks:

• MR Bank (ex-Sberbank): $3,400 are held in correspondent accounts at VTB Bank Europe SE (Germany). The funds are frozen due to EU sanctions on Russian assets and the ongoing liquidation of VTB Bank (Europe).
• Bank Forward: $1.91 million of bank guarantee deposits held in Singapore and the US. They are frozen due to sanctions by the OFAC of the US Department of the Treasury on Russian assets.
• Prominvestbank: £18,500 ($24,600), frozen in the correspondent account at London’s Citibank which remains blocked due to OFAC sanctions.

Since different banks are being liquidated in different ways, different procedures are needed to unblock the funds from their accounts. 

In Prominvestbankʼs case, foreign banks responsible for transfer of the funds received the request from Ukraine and are checking whether they can transfer the cash, DGF told Kyiv Post. 

As for Bank Forward, Ukraine sent a request to the US OFAC to receive authority to formally end the bank’s relationships with VISA and MasterCard and to retrieve any funds that may have been frozen or blocked due to sanctions.

OFAC has imposed sanctions against Russian banks, while Visa and Mastercard  have suspended operations inside Russia after Russia’s invasion. 

MR Bank (ex-Sberbank) cash is blocked at the local court in Frankfurt am Main, Germany, as Europe also put Russian banks under sanctions. Ukraine applied to Frankfurt’s court to transfer the funds to its account in Ukraine.