Israeli banks began segregating accounts of Russian investors

Israeli banks have begun to limit transactions on securities accounts of Russians, specialized consultants told RBC. Restrictions apply even if you have an Israeli passport. But some clients managed to sell their assets

Large Israeli banks, due to the instructions of the Belgian depositary Euroclear, began to segregate (isolate) accounts with securities that belong to Russian citizens or Russian tax residents, Mark Oigman, the founder of the international financial company SmartGen Ltd, told RBC.

The president of the Israeli Russian-speaking bar association, lawyer Eli Gerwitz, is also aware of the beginning of the segregation of accounts of Russians. He told RBC that this Euroclear requirement came into force on November 13. Three more lawyers are aware of the discussion of segregation of Russian accounts.

“This week there has been widespread blocking [of Russians’ accounts with assets in the chain that include Euroclear]. According to our information, most Israeli large banks have already taken steps to freeze assets,” Oigman said. The clients themselves reported about the blocking, and this information was also confirmed by the banks, the expert specified. So far, we are talking only about the segregation of assets accounted for through Euroclear, Oigman notes, but does not rule out that Luxembourg Clearstream will also join the measures.

Euroclear has sent financial institutions in Israel a request to limit transactions for investors - citizens of RUSSIA for the purchase of any financial instruments recorded in the depository, Igor Kuznets, partner of the ITSWM multi-family office, told RBC. “The potential possibility of introducing in the future “segregation” of accounts of Russian investors in Israel according to the model that was recently used in a similar situation in the UAE was also mentioned,” the expert adds. There is information about pressure from Euroclear, and banks recommend clients to close positions on securities, confirms Alexey Korol, a lawyer in the International Structuring and Sanctions Compliance practice at the law firm Lemchik, Krupsky and Partners. Lawyer Alex Zernopolsky also told RBC that several people received notifications from the bank/broker who recommended selling their portfolios just in case.

RBC sent inquiries to large Israeli banks, as well as to the European depositories Euroclear and Clearstream.

Will the accounts of Russians with Israeli passports be subject to segregation?

All investors with Russian citizenship are subject to segregation, even if at the same time they have an Israeli passport, for which an account with securities was opened, Oigman clarified. “Having an Israeli passport does not help to avoid segregation if a person has a Russian passport. Having a European passport may be a lifesaver, but each bank independently decides which European citizenships the client’s accounts do not fall under segregation. However, this decision is not related to the instructions of Euroclear, but is a business decision of each bank. So far we are talking specifically about the citizenship of some countries, not about a residence permit [residence permit], although Euroclear [in its documents] uses the word “residents”. Maybe later [Israeli] banks will talk about residence permits or permanent residence [permanent residence],” RBC’s interlocutor clarified. Israeli citizens who are tax residents of Russia also fall under segregation, but now there are very few such people, the expert added.

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Gerwitz also notes that segregation requirements apply to all clients of Israeli banks who have Russian citizenship. “Regardless of the presence of Israeli citizenship, and also regardless of Israeli or Russian tax residence,” the expert emphasizes.

“Based on current information, such investors ( Russians with Israeli citizenship. -), if they do not have citizenship or at least a residence permit of one of the EU countries , will also be subject to restrictions from Euroclear and will not be able to carry out transactions with most financial instruments, which is clearly not is the goal of the measures under consideration,” adds Kuznets.

Similarly, the principle of segregation previously worked in the largest bank in the UAE - Emirates NBD. But the situation in Israel is fundamentally different: in the UAE, the majority of Russian investors are not simultaneously citizens of the UAE, but only have a local residence permit and often do not live in the UAE permanently; in Israel, the absolute majority of investors - Russian citizens are also citizens of Israel, permanently live and work in Israel for several years, notes Kuznets. “Israeli financial institutions are actively negotiating with Euroclear to clarify the situation and detail the exceptions to the proposed ban,” the expert says.

“European sanctions legislation excludes a ban on the provision of depository services, as well as on the acceptance of deposits, if a person has citizenship or a residence permit of an EU member state, Switzerland, Norway, Iceland or Liechtenstein. Israeli citizenship, provided that Russian citizenship is retained, does not exclude the application of this ban,” notes Delcredere Bar Association lawyer Arem Kosumyan.

If you look at the experience of segregating accounts of Russians in the EU, it can be noted that initially it was about the segregation of all accounts, but over time, the position of regulatory authorities and banks shifted towards a certain mitigation of the situation for persons with citizenship of an EU country or Switzerland, the King recalls. “With regard to Israel, we believe that persons who have Israeli and Russian passports and who permanently reside in Israel are less at risk than those investors who, after receiving a darkon (Israeli passport) and making investments through foreign sites, returned to Russia,” says RBC’s interlocutor.

At the same time, a significant difference between the EU and Israel is the factor of hostilities, which seriously affects the Israeli economy in general and the stock market in particular, the King continues: “We are ready to admit that the presence of a stress factor will reduce the willingness of professional participants in the securities market to understand in detail specific situation."

Will Russians be able to continue investing in Israel?

“You cannot withdraw funds from segregated accounts and sell securities, but you can withdraw coupons if the volume of such transactions does not exceed €100 thousand per year per account,” explains Oigman. Previously, the EU introduced restrictions on deposits in European banks for wealthy Russians and Russian companies in the amount of €100 thousand per credit institution.

Gervits also confirmed that “segregation means a ban on the disposition (making transactions and transfers. -) of securities, but coupons are allowed to be charged on them,” so not all investors began to withdraw securities from Euroclear accounts as soon as information about the planned separation of accounts appeared.

“Israeli banks began verbally warning some of their clients - most likely many - last week about the risks of blocking. Many people last week sold everything they could sell to avoid segregation. According to my estimates, few securities were blocked, since a lot of work was done , and at least private banking clients, wealthy Russians, managed to sell assets subject to segregation,” Oigman estimates.

For those whose assets turned out to be segregated, different options for solving the problem are being considered, the expert said. For example, through local funds. “But for now, banks are testing these options,” Oigman noted. In addition, it remains possible to work through the Tel Aviv and American exchanges, where various foreign assets are represented.

With regard to Israeli investment agencies and other professional intermediaries in the securities market, the chosen method of structuring assets is a significant factor, adds the King. “If securities are accounted for in the general account of a foreign company and are perceived by the securities markets as belonging to this organization, then the risks are lower,” he believes.

Experience of Kazakhstan and the UAE

Earlier, the Kazakhstan Stock Exchange (KASE) announced the need to segregate the accounts of Russians and Belarusians. The separation affected assets “denominated in a currency other than the tenge, and for instruments for which settlements are carried out through the international settlement depositories Euroclear and Clearstream,” noted local broker Halyk Finance.

Also, the accounts of Russians with European and American securities, at the request of Clearstream, were segregated by Emirates NBD, the second largest bank in the UAE. Later, investors managed to unblock and withdraw to other depositories securities of American issuers, as well as funds that investors had previously credited to their accounts themselves.