How Non-Sanctioned Assets Become Immobilized in the Custody Chain
For foreign institutional and private investors with no ties to the Russian state, the immobilization of securities and funds in European financial infrastructure often comes as an unexpected shock. The root of this issue lies in the mechanics of the international multi-tiered custody chain rather than the status of the ultimate beneficial owner. In a standard cross-border investment model, rights to securities are recorded electronically across several layers: an investor holds assets through a local broker, which opens an account with a local depository, which in turn interacts with the Russian National Settlement Depository (NSD). The NSD maintains accounts with International Central Securities Depositories (ICSDs) such as Euroclear in Belgium and Clearstream in Luxembourg. When a disruption occurs at any single node in this chain, the flow of assets and corporate actions halts entirely.
The assets of non-sanctioned foreign investors became trapped because European regulations mandate the freezing of all funds and economic resources belonging to, owned, held, or controlled by designated entities. When the NSD was added to the European Union’s sanctions lists in early June 2022, and subsequently to the United States’ SDN list in June 2024, the legal status of its accounts changed overnight. Because the NSD acts as the transit link holding the accounts at Euroclear and Clearstream, any securities or cash balances recorded on those specific accounts were legally classified as frozen by European authorities. The regulatory framework does not automatically distinguish between assets owned by the sanctioned entity itself and assets it holds in custody for third parties.
From the perspective of Euroclear and Clearstream, strict adherence to European and American sanctions law supersedes the interests of ultimate beneficial owners. As technical operators of the global financial market processing massive volumes of transactions, these institutions prioritize their own corporate stability and compliance. In practice, both ICSDs ceased executing instructions involving the NSD as early as March 2022—months before official designations—citing internal risk management and conflicting directives from the Russian central bank. For an ICSD, the primary legal relationship exists only with the direct account holder. The mere presence of a sanctioned entity in the custody chain renders the entire account immobilized, regardless of the clean compliance profile of the foreign investor at the end of that chain.
This creates a profound disconnect for foreign investors who argue that the NSD acts merely as a nominee or trustee. While the European General Court has acknowledged in recent litigation that the NSD holds client assets on a fiduciary basis, this recognition does not exempt the accounts from sanctions enforcement. The strict liability nature of European sanctions compliance dictates that institutions must freeze the accounts based on the designated entity's control or holding of the assets. Consequently, the ultimate beneficial owner’s lack of sanctions exposure is irrelevant to the ICSD's immediate obligation to block the account. The assets remain stuck until a competent national authority explicitly authorizes their release.
Investors seeking to hold European infrastructure accountable for the freeze will find that the institutions are heavily insulated from civil liability. European regulatory bodies and courts consistently interpret the blocking of assets as a force majeure event or a direct consequence of overriding mandatory rules of public law. Because the immobilization is mandated by state sanctions against a transit depository, Euroclear, Clearstream, and European custodian banks do not bear financial responsibility to foreign clients for the inability to dispose of their property. The legal burden therefore shifts entirely to the foreign investor, who must navigate the administrative processes of national competent authorities to extract their assets from the frozen institutional accounts.
The Position and Legal Obligations of International Depositories
For a foreign investor with no ties to the sanctioned state, the immobilization of assets in international central securities depositories often appears as an administrative error. However, from the perspective of institutions like Euroclear and Clearstream, the freeze is a strict statutory obligation dictated by the architecture of the custodial chain. In a multi-tiered holding system, European depositories do not interact with the ultimate beneficial owner. Their direct counterparty is the transit depository. Under European regulations, any asset held, controlled, or passing through the accounts of a designated entity must be frozen. Because the transit institution was designated, the entire omnibus account became immobilized. In fact, the depositories ceased executing instructions involving these accounts as early as March 2022, citing internal risk management and foreign central bank directives, well before the formal designations were published.
Investors attempting to hold these European institutions financially accountable for the loss of access to their property face a formidable legal barrier. European courts and regulatory bodies consistently limit the civil liability of international depositories and custodian banks toward end-investors in disputes related to immobilized assets. The freeze is treated as a direct consequence of overriding mandatory rules of public law. In legal terms, the sanctions regime constitutes a force majeure event that supersedes private contractual obligations. Consequently, a foreign investor cannot successfully claim damages from a European depository for the inability to manage their portfolio, as the institutions are deemed to be acting in mandatory compliance with European law.
This liability shield holds even when the legal nature of the asset ownership is undisputed. European jurisprudence has acknowledged that the sanctioned transit depository held the securities and cash on a purely fiduciary basis on behalf of non-sanctioned clients. Nevertheless, this fiduciary reality does not alter the compliance obligations of the international depositories. For the institutions operating the clearing systems, the primary determinant for a freeze is the identity of the account holder in their own ledgers, not the identity of the underlying economic beneficiary. The presence of a designated entity anywhere in the clearing chain taints the entire holding, shifting the burden entirely onto the non-sanctioned investor to seek administrative relief from national regulators.
The prioritization of institutional stability over end-investor access was further solidified by legislative developments leading into 2025, which granted depositories the right to utilize certain frozen funds. European law now permits institutions to release cash balances from the accounts of designated entities if the depositories themselves suffer losses due to foreign state confiscations. In the spring of 2025, regulatory authorities authorized the release of a substantial pool of these frozen funds to compensate Western corporate and financial entities for their losses in the sanctioned jurisdiction. While the exact identities of the institutions receiving these compensations remain undisclosed according to press reports, the legal precedent is clear: depositories are permitted to offset their jurisdictional losses using the frozen transit accounts, further complicating the landscape for the private foreign capital trapped within them.
Despite these rigid compliance frameworks, international depositories remain obligated to facilitate the release of assets once an investor successfully navigates the regulatory process. The depositories act strictly upon the presentation of valid authorizations from the relevant national competent authorities. Furthermore, institutional compliance policies are not entirely static and can adapt when regulators provide sufficient legal certainty. A notable shift occurred in late 2025 when Euroclear, coordinating with regulators, adjusted its internal procedures to drop the requirement for a concurrent US authorization for assets lacking a direct US nexus. Provided there is absolutely no involvement of US persons or institutions in the unblocking transaction itself, the depository will now process the transfer based solely on European regulatory approval. This indicates that while the depositories will not assume legal risk on behalf of an investor, they will execute transfers when their own regulatory exposure is definitively neutralized.
When OFAC Jurisdiction Applies to Foreign Investors
For foreign investors holding assets in European depositories, the involvement of the United States Office of Foreign Assets Control often comes as an unexpected jurisdictional hurdle. OFAC jurisdiction does not apply universally to all frozen assets in Europe; it is triggered strictly by a US nexus. This nexus exists if the proposed transaction involves the US dollar as the currency of settlement, includes US persons anywhere in the custodial chain such as correspondent banks or brokers, or involves securities of US origin. The US regulatory perimeter became a critical barrier for all foreign holders on June 12, 2024, when the primary Russian financial infrastructure, including the central depository, was added to the Specially Designated Nationals list. From that point, any asset with a US nexus passing through that infrastructure became subject to US blocking regulations, regardless of the non-sanctioned status of the ultimate beneficial owner.
Initially, foreign investors could rely on general authorizations to untangle their positions, but those avenues have closed. Following the blocking designations, OFAC issued General Licenses 99A and 100A, which temporarily permitted non-US persons to wind down operations, divest debt or equity, and convert currency involving the sanctioned Russian infrastructure acting solely as a depository or clearing house. These licenses expired on October 12, 2024. Since that expiration, securities held or controlled by US persons in the sanctioned custody chain, along with any associated dividends or income, are strictly blocked. Furthermore, OFAC has explicitly warned in its published guidance that attempts to bypass these restrictions through local workarounds, such as transferring assets to local registrars under Russian domestic decrees, may be treated as null and void. The registrars facilitating such transfers have subsequently faced blocking sanctions themselves, eliminating the viability of relying on expired general licenses or unilateral local transfers.
Consequently, releasing assets with a US nexus now requires a specific license from OFAC. Applications must be submitted through the agency’s portal with an exhaustive description of the transaction, the custody chain, and the origin of the funds. There are no statutory deadlines for OFAC to process these requests. The agency states that it reviews applications on a case-by-case basis, a process that frequently mandates complex interagency coordination. In practice, foreign applicants regularly encounter prolonged inaction or receive denials that lack detailed substantive reasoning. The only recent procedural simplification applies strictly to administrative errors; guidance issued in October 2024 allows for a compliance release without a specific license solely in cases of erroneous blocking, such as false name matches, rather than structural custody issues.
The strictness of the US nexus requirement has historically been compounded by the compliance posture of European depositories, which often demanded an OFAC license even for non-US assets out of institutional caution. However, institutional policies have shown signs of adapting to regulatory boundaries. By late 2025, European clearing infrastructure adjusted its internal procedures regarding US-origin securities. If a proposed unblocking transaction and the subsequent reorganization of assets occur entirely within the European depository's closed system and completely exclude the participation of any US persons or financial institutions, the depository may process the transfer without a specific OFAC license. According to market participants, a small number of unblocking transactions have been successfully executed by brokers under this revised compliance approach, provided the respective European national competent authority has already granted its authorization.
When an OFAC specific license is mandatory but the agency fails to act or issues an unreasoned refusal, foreign investors possess limited but defined avenues for judicial recourse in the United States. Direct litigation is not an initial option; the investor must first exhaust administrative remedies by formally applying for the specific license. If the application is met with unreasonable delay, the applicant may file a lawsuit in a US federal court under the Administrative Procedure Act, seeking a writ of mandamus to compel the agency to make a decision. Alternatively, if OFAC denies the license, the applicant can challenge the decision as arbitrary, capricious, or procedurally deficient. A federal judge will not step into the shoes of the agency to issue the license directly, but the court holds the authority to mandate that OFAC review the application again in accordance with lawful administrative standards.
Recent Procedural Changes in Euroclear Compliance
For international central securities depositories like Euroclear and Clearstream, the freezing of assets is a matter of strict adherence to overriding mandatory rules of public law, rather than an assessment of the ultimate beneficiary. From a compliance perspective, the depositories prioritize the status of the entity in whose name the account is directly opened. Because a sanctioned transit institution sits in the custodial chain, the entire account is treated as frozen, regardless of the non-sanctioned status of the foreign investor holding the underlying economic interest. European courts and regulatory bodies generally shield these depositories and European custodian banks from civil liability toward end investors, treating the immobilization as a force majeure event. Consequently, the institutions holding the assets bear no financial responsibility for the inability to execute transfers, though they are expected to facilitate unblocking once the appropriate regulatory authorizations are secured.
Historically, the unblocking process for foreign investors was severely delayed by the necessity of navigating parallel sanctions regimes, often resulting in a requirement for dual authorizations. Any transaction containing a connection to the United States—such as settlements denominated in US dollars, the presence of American financial institutions in the custodial chain, or the involvement of US-issued securities—triggered the need for a specific license from the Office of Foreign Assets Control. This dual-track requirement created a significant bottleneck, as foreign investors found their assets paralyzed by the conservative risk management policies of European depositories, which demanded clearance from US authorities even when the investor and the primary jurisdiction of the assets had no direct ties to the United States.
A notable shift in institutional compliance occurred in the latter half of 2025. Euroclear, in coordination with relevant regulatory authorities, adjusted its internal policies regarding the necessity of US authorizations. The depository ceased demanding a specific license from the Office of Foreign Assets Control for unblocking transactions involving US-origin securities, provided there is an absolute absence of US involvement in the execution of the transfer itself. If no US citizens, US correspondent banks, or American financial institutions participate in the specific unblocking transaction, the depository may process the request relying solely on the authorization granted by the Belgian regulatory authorities.
Under this adjusted framework, the transfer of assets requires the reorganization to take place entirely within the Euroclear system, ensuring that no US jurisdictional triggers are activated during the movement of the securities. According to market participants, a limited number of brokers successfully executed unblocking transactions using this mechanism shortly after its implementation. The specific identities of the foreign investors and the intermediaries who navigated this route remain undisclosed in public sources, and the exact volume of assets cleared through this specific procedural corridor cannot be independently verified.
It is critical to understand that this internal policy adjustment does not constitute a universal or guaranteed solution for immobilized assets. The depositories' willingness to adapt their compliance requirements is entirely contingent upon receiving sufficient legal cover from their national competent authorities. If a proposed transaction falls outside this strictly defined corridor—for example, if a US entity must be involved to facilitate a currency conversion or settlement—the mandatory application of the US sanctions regime remains fully in effect. Every application is processed at the discretion of the holding institutions and the regulators, and foreign investors must still meet rigorous evidentiary standards regarding the origin and ownership structure of their assets to initiate the procedure.
Alternative Transactions: Swaps and Non-Resident Sales
For foreign institutions and investors seeking alternatives to the standard administrative unblocking route, recent adjustments in Russian counter-measures have formalized new transactional frameworks. In January 2025, the Russian Government Commission approved a broad exception to existing restrictions on foreign property transfers. This regulatory shift permits the direct alienation of blocked foreign securities held on National Settlement Depository accounts within Euroclear and Clearstream to foreign persons from jurisdictions classified as unfriendly, without requiring individual Russian governmental permits. From a market perspective, this creates a legal avenue for foreign funds and institutions to purchase immobilized assets, typically at a discount, directly from Russian holders seeking to exit their positions.
However, completing such a direct acquisition requires navigating the strict compliance perimeters of Western financial infrastructure. While the Russian side of the transaction may be authorized, Euroclear and Clearstream remain bound by European blocking regulations. Because the securities sit within the frozen custodial chain, the European central securities depositories will not settle the trade or transfer the assets to a non-restricted account without explicit regulatory clearance. The foreign buyer must independently secure a derogation from the relevant National Competent Authority, such as the Belgian Treasury or the Luxembourg Ministry of Finance. Furthermore, if the transaction contains any US nexus, such as US dollar settlements, US-issued securities, or the involvement of US financial institutions, a specific license from the Office of Foreign Assets Control remains a mandatory prerequisite. Following the expiration of broad general licenses for wind-down and divestment in October 2024, specific regulatory authorization is the only available route for transactions involving US jurisdiction.
A parallel framework has developed for foreign investors whose own assets are trapped inside the Russian Federation on restricted Type C ruble accounts. By late 2025, a bilateral swap mechanism emerged as an alternative exit strategy. Under this arrangement, the foreign investor transfers their locked rubles to an unsanctioned Russian counterparty domestically. In exchange, the foreign investor receives an equivalent value in foreign currency or securities from that Russian counterparty’s immobilized accounts at Euroclear or Clearstream.
This swap structure alters the compliance narrative for Western regulators. Because the transaction relies on the exchange of pre-existing locked assets and does not involve the transfer of new capital into the Russian economy, it is evaluated as an exchange of equal values outside the direct control of European authorities. While this economic rationale has been recognized by certain European regulators in their assessments, it does not circumvent the legal requirement for formal authorization. The release of the assets at the European depository level still strictly mandates a license from the relevant European authority, alongside an Office of Foreign Assets Control specific license if a US nexus is present.
Executing these alternative transactions involves significant administrative friction, and regulatory approval is never assured. International depositories prioritize their own corporate stability and strictly enforce the blocking rules, meaning they will not process direct sales or swaps without unassailable regulatory cover. Furthermore, neither European nor US authorities publish official processing timelines or approval statistics for foreign applicants utilizing these methods. Regulators evaluate applications on a strictly case-by-case basis. Applicants must provide an exhaustive paper trail detailing the source of funds, the exact ownership structure, and definitive proof that the transaction will not directly or indirectly generate economic resources for designated parties, including the payment of depository fees to sanctioned entities. Foreign investors frequently face prolonged administrative inaction or unmotivated refusals from both European and US agencies. Consequently, while direct purchases and bilateral swaps offer structural alternatives, they require coordinating simultaneous compliance across conflicting jurisdictions with unpredictable timelines and outcomes.
Administrative and Judicial Remedies in the EU and US
While the European General Court has ruled that transit depositories cannot defend the property rights of their clients, it explicitly affirmed that non-sanctioned investors are not deprived of legal protection. The court established that the fundamental right to property remains guaranteed, and regulatory bodies must apply sanctions regulations in accordance with the principle of proportionality. The core legal friction arises because assets are held on a fiduciary basis; however, from the perspective of European regulators, the presence of a designated entity anywhere in the custodial chain freezes the entire account, regardless of the ultimate beneficiary's clear status. Consequently, when a regulatory authority in Belgium or Luxembourg refuses an unblocking application, the foreign investor cannot challenge this at the European Union level. The appropriate venue for seeking administrative and judicial remedies is the national administrative court system of the respective member state.
Investors often consider pursuing civil claims directly against the international central securities depositories holding their assets. However, European courts and regulators consistently limit the civil liability of these institutions toward ultimate beneficiaries. The immobilization of accounts is legally treated as a force majeure event or the direct result of overriding mandatory rules of public law. Furthermore, recent regulatory frameworks permit these depositories to release frozen balances to satisfy their own legal obligations or to compensate specific entities for losses incurred in other jurisdictions. Because institutions prioritize strict statutory compliance and are legally shielded when executing asset freezes, civil litigation against a depository for failure to execute transfer instructions is highly unlikely to yield financial compensation.
Beyond national courts, foreign investors explore international investment arbitration based on bilateral investment treaties. A critical jurisdictional hurdle in these proceedings is the effective nationality test. Arbitral tribunals generally refuse to extend treaty protection to nominal holders or transit depositories, requiring the ultimate economic beneficiaries to bring claims directly. Initiating arbitration against the states enforcing the asset freezes is a highly resource-intensive process. While it provides a forum for addressing the deprivation of property rights, it requires the foreign investor to independently establish their standing and demonstrate a direct breach of treaty obligations by the host state.
For assets carrying a connection to the United States, the regulatory barrier involves obtaining a specific license from the Office of Foreign Assets Control. Applicants regularly encounter prolonged inaction or receive denials without detailed justification. Because the agency evaluates submissions on an individual basis, often requiring complex interagency coordination, and does not publish official processing timelines, the administrative phase can be indefinite. Foreign investors cannot bypass this regulatory bottleneck by proceeding directly to litigation; exhausting administrative remedies by formally applying for the specific license is a strict prerequisite for any subsequent legal action in the United States.
Once the administrative prerequisite is met, the United States Administrative Procedure Act provides a mechanism for judicial review. If the agency delays the review process unreasonably, the applicant can petition a federal court to compel the agency to act. Alternatively, if a license is denied, the investor can challenge the decision as arbitrary, capricious, or procedurally flawed. A federal judge will not independently issue an unblocking license or substitute their judgment for that of the regulator. However, the court possesses the authority to mandate that the agency issue a decision or reconsider an unlawful denial in accordance with established legal standards.
Frequently Asked Questions
How long does it take for regulators to process an unblocking application?
Neither EU national competent authorities nor OFAC publish official processing timelines for foreign investor applications. Regulators state that each application is reviewed on a case-by-case basis. Applicants frequently encounter prolonged periods of inaction.
Do I always need an OFAC license if my assets are in Euroclear?
An OFAC license is mandatory if the transaction involves a US nexus, such as US dollars, US persons, or US-issued securities. However, recent procedural updates at Euroclear reportedly allow unblocking without an OFAC license if the transaction is entirely free of any US involvement.
Can I sue Euroclear or Clearstream for freezing my assets?
European courts and regulators generally view the freezing of accounts as a direct consequence of mandatory sanctions law or force majeure. Consequently, international depositories and custodian banks are typically shielded from civil liability toward end-investors for these freezes.
What happens if OFAC ignores my specific license application?
If an application faces unreasonable delay, applicants may consider filing a lawsuit in a US federal court under the Administrative Procedure Act (APA). While the court will not issue the license itself, it can compel the agency to make a decision.
Are the expired OFAC General Licenses 99A and 100A still useful?
No. Both general licenses expired on October 12, 2024. Any transactions involving blocked Russian infrastructure now require a specific license from OFAC, and attempting to rely on expired licenses or local transfer mechanisms may result in further compliance violations.
Can I claim a portion of the funds Euroclear released for compensation in 2025?
In spring 2025, Belgian authorities permitted the release of specific funds to compensate Western corporations and banks for losses in Russia. However, there is no public mechanism or published list indicating that individual foreign investors can claim a share of this specific compensation pool.
This article is provided for informational purposes only and does not constitute legal advice regarding sanctions compliance or asset recovery.