UK regulator rejects proposal to offset assets of Russia's Sber and its British subsidiary

MOSCOW. Nov 13 (Interfax) - The United Kingdom's Office of Financial Sanctions Implementation (OFSI) has not supported a proposal to mutually offset liabilities between leading Russian lender Sberbank and its UK subsidiary, which is under external administration

Lawyers representing the special administrators of Sberbank CIB (UK) Ltd, which is in the process of winding down operations, asked HM Treasury's OFSI back in the fall of 2022 for permission to offset some assets located in Russia against the parent bank's claims against the company.

The administrators said in their latest report that OFSI issued a refusal letter on August 24 to their license request for the net settlement proposal.

The goal of this proposal was to offset company funds frozen in Russia against money owed to Sberbank as Sberbank CIB (UK)'s largest creditor. Sberbank CIB (UK)'s net obligations to Sberbank total $95 million, while the parent bank is holding $107 million of the UK division's cash. This money, which cannot be returned to Sberbank CIB (UK) due to current sanctions, is the subject of the proposed mutual offset.

As a result, these funds remain blocked and unavailable to other creditors, the report said.

The administrators are "currently evaluating all options available to them to progress the Special Administration and, ultimately, pay a dividend to its unsecured creditors," the report said, adding that any payments are subject to approval from UK courts and/or OFSI.

However, the administrators received an additional sanctions license from the Belgian Finance Ministry in July that enables them to move additional non-USD cash balances from Euroclear. As a result, they transferred another 1.45 million euros in October, and have now recovered a total of 12.7 million euros from Euroclear.

The administrators have still not received a requested specific license from the U.S. Office of Foreign Assets Control (OFAC) to unblock U.S.-related assets totaling GBP10.5 million held in Euroclear.

But in August Global Affairs Canada approved the administrators' application to unblock CAD2.3 million in cash held at Royal Bank of Canada, and they are now discussing "the mechanics of transferring these funds."

The United States imposed blocking sanctions against Sberbank in April 2022. These sanctions include a freeze on the bank's assets in the U.S. and prohibit U.S. citizens from conducting any transactions with the bank. Some other countries, including the UK and the European Union, later imposed similar restrictions against the Russian bank.