The Italian bank UniCredit has initiated legal action against an order from the European Central Bank (ECB) to reduce its activities in Russia. UniCredit, which has the second-largest exposure in Russia among Western banks, was one of several Eurozone banks that received a letter from the ECB in May, urging them to expedite their withdrawal from the country.
On Monday, UniCredit announced that it had filed a request for clarification of the ECB order with the Court of Justice of the European Union. The bank also requested not to be obliged to comply with the order during the review of the request.
UniCredit expressed concerns that the conditions of the ECB order went beyond the current legal framework. A person familiar with the matter said that UniCredit wanted to ensure that compliance with the ECB order would not violate any sanctions or laws in other countries, including Russia.
The ECB declined to comment.
Since the Russian invasion of Ukraine two years ago, Western banks have been under pressure from politicians and regulators to withdraw from the country. While banks like the French Société Générale have left the country and incurred significant financial losses, some remaining banks argue that they are winding down their activities.
UniCredit announced that since February 2022, it has reduced its cross-border exposure in Russia by 91 percent and its domestic exposure by 65 percent. Despite the increasing isolation of Russian business from the parent company, UniCredit has resumed repatriating profits from the Russian subsidiary over the past year.
To do this, UniCredit had to submit an application to the Russian authorities that allowed the payment of up to 50 percent of the subsidiary's net profits, provided local taxes were paid. Last year, UniCredit received 137 million euros from its Russian subsidiary.
The ECB urged Eurozone banks to accelerate their withdrawal plans due to concerns that they might face punitive measures from US regulators, who are taking a tougher stance on Western companies that continue to operate in Russia, reported the Financial Times.
The decision of the ECB was made by the supervisory body that oversees the largest banks in the EU. Banks that refuse to comply with the orders could, in extreme cases, lose their license under EU law.
UniCredit informed the ECB on Monday about the initiation of legal steps. The bank stated that the "unprecedented circumstances, the complexities of the geopolitical and economic scenario, as well as the lack of a harmonized regulatory framework" are forcing it to seek "clarity and certainty.
In an interview with the Financial Times last month, UniCredit CEO Andrea Orcel said: "Selling or withdrawing from Russia by selling your bank or through other measures is extremely complicated because you have to operate in an increasingly shrinking gray area, where you have to take into account both the political will and the sanctions of both sides.
UniCredit was also ordered by a court in St. Petersburg to seize 463 million euros in assets of its Russian subsidiary after a dispute with Gazprom's subsidiary RusChemAlliance.
