Nikita Deynega has commented for RBC on NSD’s arguments in the dispute over the legality of sanctions against it

On 23 January 2024, the Council of the European Union and the National Settlement Depository (NSD) exchanged arguments in a dispute over the legality of sanctions against NSD. According to the EU authorities, NSD supports the Russian government, including because it is almost 100% owned by MOEX (Moscow Exchange), which in turn is “highly controlled” by the Russian goverment. The depository insists that its relationships with government-related organisations are market-based commercial relationships, indistinguishable from transactions with any other client. NSD also points out that the influence that the exchange can exert on it is limited by the shareholders’ agreement, and that Moscow Exchange itself is not controlled by the Russian government.

However, as Nikita Deynega, Partner, Head of Tax & Administrative Law Practice at Maxima Legal, explained to RBC, the lack of formal government control over the sanctioned entity in the current situation does not play a decisive role in assessing the validity of imposing sanctions. “A lot of persons, both companies and citizens, are subject to sanctions restrictions without regard to whether they have a legal connection with the Russian government,” the expert said.

In addition, as part of one of its arguments, NSD states that sanctions against it “disproportionately affect the fundamental rights of its customers who are unable to dispose of their securities held on a fiduciary basis in accounts with the EU depositories.

Nikita assessed that under the EU law, sanctions should really be imposed against specific individuals.”Blocking all securities accounted for at NSD without exception, without regard to who is their ultimate owner, without ascertaining whether there are (lack of) grounds for his (the owner’s) authorisation, does not fall under any of the criteria [for imposing sanctions].It seems that when adding NSD to the sanctions lists, the EU Council did not fully take into account the status of the depositary and the fact that it stores other people’s assets, not its own,” the expert pointed out. “The EU Court of Justice may come to the conclusion that it is necessary to protect the rights of private investors.This may happen without completely excluding NSD from the sanctions lists, but through the court’s explanation of the legal consequences of NSD’s authorisation – blocking only the depositary’s own assets, not those of which it is not the ultimate owner,” Nikita Deynega did not rule out.

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