Freedom Finance Falls Under NSDC Sanctions
"Some expected this, and it happened."
Freedom Finance has officially come under NSDC sanctions.
The decision was enacted by Ukrainian President Volodymyr Zelensky on October 19, 2022, as per Decree No. 726/2022.
N | Identification data (full name and details of the legal entity) | Type of restrictive measure (in accordance with the Law of Ukraine "On Sanctions") | The term of application |
| 1313 | Limited Liability Company "Freedom Finance Ukraine". Information according to the Unified State Register of Legal Entities, Individual Entrepreneurs and Public Organizations of Ukraine: identification code of the legal entity - 21654295. Location of the legal entity 01010, Ukraine, m. Kyiv, str. Moskovska, bldg. 32/2. | 15) termination of trade agreements, joint projects and industrial programs in certain areas, in particular in the field of security and defense; 16) prohibition of transfer of technologies, rights to objects of intellectual property rights; 17) other sanctions that correspond to the principles of their application established by this Law (prohibition of carrying out financial transactions related to the acquisition and/or acquisition of property rights by other specified subjects in relation to bonds of the internal state loan of Ukraine, bonds of the external state loan of Ukraine and the prohibition of accounting for the transfer of rights ownership of securities for the specified operations in the depository accounting system of Ukraine). 1) blocking of assets, temporary deprivation of the right to use and dispose of assets belonging to a natural or legal person, as well as assets, in relation to which such a person can directly or indirectly (through other natural or legal persons) perform actions identical in content to the exercise of the right of disposal 2) restriction of trade operations (complete termination); 3) restriction, partial or complete suspension of the transit of resources, flights and transportation through the territory of Ukraine (complete suspension), 4) prevention of withdrawal of capital outside the borders of Ukraine, 5) suspension of the fulfillment of economic and financial obligations; 6) cancellation or suspension of licenses and other permits, the receipt (presence) of which is a condition for carrying out a certain type of activity, in particular, cancellation or suspension of special permits for subsoil use; 7) prohibition of participation in privatization, lease of state property by residents of a foreign state and persons who are directly or indirectly controlled by residents of a foreign state or act in their interests; | five years. |
Why Were These Sanctions Imposed?
The company’s work with Ukrainian government bonds, despite its Russian roots, may have raised several concerns. The sanctions list includes notable restrictions, particularly in points 4 and 5:
- Preventing the outflow of capital from Ukraine.
- Suspension of the fulfillment of economic and financial obligations.
It is evident that Russian LLCs and financial companies within the group are also prohibited from engaging with Ukrainian bonds.
Here’s a screenshot of the decision text (it can be found as an annex to the NSDC decision, listing sanctioned legal entities):
What Does Freedom Finance Do?
Freedom Finance is a business founded in Kazakhstan and Russia by 34-year-old Russian Timur Turlov, who likely still owns the majority of the company’s shares. The industry has often debated whether "fronting" might be at play here. Some might hypothesize about Mr. Turlov’s connections with influential figures in Kazakhstan and Russia, but, of course, nothing is officially known.
The holding company comprises numerous subsidiaries, including licensed firms in the US, Cyprus, Russia, Kazakhstan, and until recently, Ukraine.
After the full-scale war began, Timur Turlov announced plans to change his citizenship to Kazakh and stated that Russian-licensed LLCs would be removed from the group.
The holding allows customers to buy shares on international financial markets, primarily in the US, and provides access to bond markets. Its key feature and market advantage had been access to the IPO market. Just two to three years ago, the IPO market in the US was experiencing a historic boom. The company leveraged this by offering investors access to pre-IPOs, which boosted its reputation and significantly increased its client base. The company employed aggressive marketing tactics, including metro ads and opening numerous physical offices.
In one interview, Timur mentioned that the group invested $5 million in the Ukrainian subsidiary. Whether these investments paid off is unknown. However, the holding's capitalization currently fluctuates around $3.2 billion.
Physical offices have mostly closed, likely due to changing market conditions. The IPO market is no longer attractive to investors, and the company's commission rates and trading platforms leave much to be desired. Consequently, over the past two years, Freedom Finance has not demonstrated significant competitive advantages.
What Should Freedom Finance Clients Do?
While the NSDC decision will significantly impact the company’s ability to operate in Ukraine, it is unlikely to collapse the entire holding. However, Ukrainian clients may face difficulties accessing their funds.