If you’re holding frozen Russian ADRs, here is the blunt reality: the certificates were canceled under a 2022 Russian law, the underlying shares still exist on a Russian register in your name (or a nominee’s), and US sanctions plus Russian counter-sanctions have severed nearly every path between you and that equity. You still formally own something. You cannot sell it, transfer it out of Russia, or collect the dividends it may be generating. The useful moves left to you are compliance filings, a properly timed tax loss, and a clear-eyed decision about litigation.
What Actually Happened to Your ADRs
Russian Federal Law No. 114-FZ, signed on April 16, 2022, ordered nearly every Russian company with a depositary receipt program to terminate its agreement with its foreign depositary bank.1MTS PJSC. Cancellation of ADR Program A small number of issuers received exemptions from the Government Commission on Monitoring Foreign Investment. Most did not. Gazprom’s request to keep its receipts trading abroad was rejected on April 28, 2022.2PJSC Gazprom. Termination of the Depositary Receipt Programmes in Relation to Shares in PJSC Gazprom The receipts were delisted from US exchanges, briefly surfaced on OTC markets at deep discounts, and then went effectively untradable.
Termination by itself would have been manageable. Depositary agreements are written to be wound down. What made this a crisis was the layered US sanctions response under Executive Order 14024, which authorizes Treasury to block property connected to designated sectors of the Russian economy.3eCFR. Part 587 – Russian Harmful Foreign Activities Sanctions Regulations On June 12, 2024, OFAC designated the National Settlement Depository (NSD) as a Specially Designated National.4U.S. Department of the Treasury. Russian Harmful Foreign Activities Sanctions The NSD was the central clearinghouse holding most of the underlying shares. Blocking it froze the main channel between US ADR holders and their equity.
Russia’s response was Presidential Decree 840 in October 2024, which pushed securities out of the NSD and into local Russian registrars. OFAC treated the maneuver as sanctions evasion, warned that transfers under the decree may be void, and then designated more than 40 of those registrars as SDNs on November 21, 2024.5Office of Foreign Assets Control. Office of Foreign Assets Control FAQ 11976Office of Foreign Assets Control. Issuance of Russia-related General Licenses and Frequently Asked Questions Whatever route the shares took after leaving the NSD, they ended up somewhere US persons are prohibited from transacting with.
Where Your Shares Sit Today
Cancellation of an ADR did not extinguish your beneficial ownership. The US depositary bank still maintains records tying you to a specific number of underlying shares. Those shares now sit either at the NSD (blocked) or at a local Russian registrar (also blocked). The custody chain that once ran from your US brokerage through the depositary bank to the NSD has been broken at multiple points.
Russia added its own layer of restrictions on investors from “unfriendly” jurisdictions, a list that includes the United States. Dividends on Russian securities owned by these investors must be paid into a special Type C account at an authorized Russian bank.7Bank of Russia. Non-residents’ Investments in Russian Financial Market – Bank of Russia’s Decisions Money that lands there cannot be repatriated, cannot be freely reinvested, and is subject to strict use limits. So even when the underlying company keeps paying dividends, your share accrues in an account you likely cannot reach.
The net position: you own shares on paper, a registrar in Russia has your name or a nominee on record, dividends may be piling up in a Type C account, and none of it can be turned into cash outside Russia. This is a near-total loss of liquidity paired with continued formal ownership, and that distinction matters for what you can and cannot do next.
Can You Still Convert ADRs Into the Underlying Shares
Some investors have tried to convert canceled ADRs into direct ownership of the Russian shares, either to hold for an eventual thaw or to establish position for a tax claim. The path is narrow and getting narrower.
The first step is contacting the depositary bank behind your ADR program, which will be BNY Mellon, JPMorgan, or Citibank. The bank provides a Letter of Instruction, requires proof of beneficial ownership, and requires you to certify compliance with US sanctions. These banks set internal deadlines for conversion requests, often well before the outer edge of any OFAC authorization window. Investors who missed those deadlines have had little recourse.
Conversion also requires an account at an authorized Russian depository or custodian able to receive the shares. For US persons this is very hard in practice. Few Russian institutions will open accounts for US persons given the sanctions exposure, and you may need Russian legal counsel just to file the application. Even if you succeed on the Russian side, the depositary bank is legally required to block any transfer that would touch an SDN, and the SDN list now includes the NSD and dozens of registrars. OFAC has stated that transfers under Decree 840 may be considered null and void, and that securities held at newly designated registrars must be treated as blocked.5Office of Foreign Assets Control. Office of Foreign Assets Control FAQ 1197 The permissible pathways have narrowed to the point that most conversion attempts now stall.
Reporting Obligations You Still Have
Doing nothing is not neutral. US persons who hold blocked property have filing duties, and missing them creates penalties independent of anything happening in Russia.
An initial blocking report is due when property first becomes blocked. An annual report of all blocked property held as of June 30 must be filed by September 30 each year through OFAC’s electronic reporting system.8eCFR. 31 CFR 501.603 – Reports of Blocked, Unblocked, or Transferred Property OFAC has said that investors who already filed initial reports on NSD-held securities do not need to amend those reports solely because Decree 840 moved the shares to a different registrar, but the annual report should reflect the current location.5Office of Foreign Assets Control. Office of Foreign Assets Control FAQ 1197
Separately, if you have a financial interest in a Russian Type C account or any other Russian financial account, and your foreign accounts in aggregate exceed $10,000 at any point in the year, you likely have an FBAR obligation on FinCEN Form 114. That filing is independent of OFAC reporting and carries its own penalty regime.
Claiming a Tax Loss
Taxes are one of the few places you actually have leverage. Under IRC Section 165(g), when a security that is a capital asset becomes worthless during the tax year, the loss is treated as a loss from a sale or exchange on the last day of that year.9Office of the Law Revision Counsel. 26 U.S. Code 165 – Losses Long- or short-term treatment depends on how long you held the security counting through that last day.
Worthlessness Is Harder to Prove Than It Looks
A security is worthless when it has no current liquidating value and no reasonable prospect of future value. Courts typically anchor worthlessness to identifiable events: liquidation, surrender of the corporate charter, cessation of business, or insolvency deep enough to make recovery hopeless.
Frozen Russian ADRs don’t sit comfortably in any of those categories. Gazprom, Sberbank, and LUKOIL are still operating, still earning revenue, still declaring dividends into Type C accounts you cannot reach. The argument for worthlessness rests on your permanent inability to access the economic value, not on the absence of value itself. The IRS has not issued specific guidance on frozen foreign securities in a sanctions context, so the argument has to be built from the facts you can document: the delisting date, the NSD SDN designation on June 12, 2024, the November 21, 2024 registrar designations, and any depositary bank communication confirming the shares are blocked.
Pick the year carefully. Claiming worthlessness a year too early or too late can cause the deduction to be denied outright.
Abandonment as an Alternative
Treasury Regulation 1.165-5(i) allows you to abandon a security. To do it, you must permanently surrender and relinquish all rights and receive nothing in exchange. The loss is then treated as a sale or exchange on the last day of the tax year, the same as a worthlessness loss.10eCFR. 26 CFR 1.165-5 – Worthless Securities
Abandonment gives you control over timing, which is its main advantage. The catch: you need an affirmative act and documentation. Ignoring the ADRs or letting paperwork lapse likely won’t qualify.
How to Report and What You Can Actually Deduct
Whether you go the worthlessness or abandonment route, report the loss on Form 8949 and carry the totals to Schedule D.11Internal Revenue Service. About Form 8949, Sales and Other Dispositions of Capital Assets Your cost basis is what you originally paid; proceeds are zero.
Individuals can deduct net capital losses against ordinary income up to $3,000 per year, or $1,500 if married filing separately, with the remainder carried forward indefinitely.12Office of the Law Revision Counsel. 26 USC 1211 – Limitation on Capital Losses A $50,000 loss with no offsetting gains will take many years to absorb.
One consequence to plan for: if sanctions are eventually lifted and the shares become accessible again, any recovery has to be included in gross income in the year received. A worthlessness deduction now is not the end of the file. Talk to a tax advisor who works with both capital loss rules and sanctions-affected assets before you commit to a year or a characterization.
Suing the Depositary Bank
Class actions have been filed against the US depositary banks, generally alleging breach of the depositary agreements and negligence in how the terminations and sanctions escalation were handled. The theory is that the banks should have moved faster to convert ADRs before the sanctions window closed, or that their notices to holders were inadequate.
These claims face real headwinds. Depositary agreements typically contain force majeure and governmental action clauses that limit bank liability when a sovereign forces the termination. The banks’ defense, not without weight, is that they were caught between Russian law requiring termination and US sanctions barring many of the steps termination would require.
Suing the Russian issuers themselves is harder still. Sovereign immunity and the Act of State doctrine block most US court review of foreign government actions, and a US judgment against a Russian company would be all but unenforceable against assets inside Russia. Russian courts have moved the other direction, freezing US bank assets held through Russian branches. Any litigation recovery, if it comes, will take years and range from partial settlement to dismissal. Anyone promising quick money should be treated skeptically.
What to Do Now
Keep every record from your original purchases forward: trade confirmations, statements, all correspondence with the depositary bank, and any conversion paperwork you submitted or received. Those records support both a tax claim and any future recovery if the sanctions picture changes.
File your OFAC blocked property reports on schedule. Assess your FBAR obligation separately if you have any financial interest in a Russian account. Work with a tax advisor to decide whether a worthlessness or abandonment loss makes sense and, if so, which tax year the argument is strongest in. If you join a class action, treat it as a long-duration bet with an uncertain payoff, not a plan.
OFAC issues new licenses and guidance periodically, and a future diplomatic shift could open pathways that do not exist today. The value of staying compliant and documented is that it keeps those pathways available to you if they open.