If you’re holding canceled Russian ADRs, the certificates no longer trade on any US exchange, but you still have a beneficial claim to the underlying Russian shares. Those shares sit inside Russia’s financial system, blocked by US sanctions on the institutions that custody them and ring-fenced by Russian counter-sanctions that trap any dividends in restricted accounts. Recovery is, for most US holders, not currently possible. What you can do is meet your sanctions reporting obligations, decide whether and when to claim a capital loss, and keep the records you’ll need if the situation ever changes.
Why the ADRs Were Canceled and Where the Shares Went
Russian Federal Law No. 114-FZ, signed on April 16, 2022, required every Russian company with an active depositary receipt program to terminate its agreement with its foreign depositary bank unless the Government Commission on Monitoring Foreign Investment granted a specific exemption.1MTS PJSC. Cancellation of ADR Program A handful of issuers received temporary carve-outs. Most did not. Gazprom applied for an exemption and was rejected on April 28, 2022.2PJSC Gazprom. Termination of the Depositary Receipt Programmes in Relation to Shares in PJSC Gazprom Programs were wound down, the ADRs were delisted from US exchanges, and BNY Mellon, JPMorgan, and Citibank were left holding assets in a custody chain that had suddenly lost its far end.
Cancellation of an ADR certificate did not extinguish the investor’s beneficial ownership. The corresponding Russian shares still exist on a Russian register somewhere, and the US depositary bank maintains records linking each former ADR holder to a specific share count. The problem is what happened to the register itself.
The NSD Designation and Decree 840
On June 12, 2024, OFAC designated the National Settlement Depository (NSD), the central clearinghouse through which most underlying Russian shares were held for foreign depositary banks, as a Specially Designated National under Executive Order 14024.3U.S. Department of the Treasury. Russian Harmful Foreign Activities Sanctions Any property in which the NSD had an interest became blocked. US persons could not transfer it, receive payments through it, or otherwise deal with it without specific OFAC authorization.
Russia responded with Presidential Decree 840 in October 2024, ordering that securities previously held through the NSD be withdrawn and deposited directly with local Russian registrars.4President of Russia. Executive Order on the Temporary Procedure for Accounting Certain Securities OFAC treated this as sanctions evasion and cautioned that transfers made under Decree 840 “may be considered null and void” under its regulations.5Office of Foreign Assets Control. Office of Foreign Assets Control FAQ 1197 On November 21, 2024, OFAC designated more than 40 of those local Russian registrars as SDNs.6Office of Foreign Assets Control. Issuance of Russia-related General Licenses and Frequently Asked Questions Securities held at those registrars, and any income received through them, must be treated as blocked.
For a US holder, the underlying shares are now in one of two places, and both are dead ends: nominally still through the NSD (blocked), or moved under Decree 840 to a designated registrar (also blocked).
Type C Accounts
Russia’s counter-sanctions add a second layer. Dividends on Russian securities owned by investors from “unfriendly” jurisdictions, which includes the United States, 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 Funds deposited into a Type C account cannot be repatriated, cannot be freely reinvested, and are subject to strict use limitations. Even where the Russian issuer continues to pay dividends on the underlying shares, the US holder’s share of those dividends accumulates in an account they cannot practically reach.
The result is formal ownership without economic access. Shares sit on a register in your name or your nominee’s. Dividends may be piling up. Nothing can be sold, transferred out, or converted to cash that leaves Russia.
Can You Still Convert ADRs to the Underlying Shares?
Some investors tried to convert their canceled ADR certificates into direct ownership of the Russian shares, either to position for a future thaw or to establish a tax loss. The window for doing this cleanly has largely closed.
p>Conversion starts with the US depositary bank, which provides a Letter of Instruction directing surrender of a specific number of ADRs and designating where the underlying shares should be credited. The investor supplies proof of beneficial ownership and certifies compliance with US sanctions. The depositary banks set tight internal deadlines for these requests, and holders who missed them had limited recourse.
Conversion also requires an account at an authorized Russian depository or custodian able to receive the shares. Few Russian institutions will open accounts for US persons given the sanctions risk, and applicants typically need specialized Russian legal counsel to try. Even if an account is opened, the transfer path runs through the NSD or a local registrar, both now SDN-designated. The depositary bank is legally required to block any transaction that would violate OFAC rules, and OFAC has stated that transfers under Decree 840 may be void. In practice, the pathway most investors would have used no longer exists.
Sanctions Reporting You Still Owe
Blocked property does not sit quietly. US persons holding it have affirmative reporting duties.
An initial blocking report is due to OFAC when the 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 noted that holders who already filed initial blocking reports on NSD-held securities do not need to file amended reports solely because Decree 840 moved the shares to a different registrar, but they should update their annual reports to reflect the change.5Office of Foreign Assets Control. Office of Foreign Assets Control FAQ 1197
Separately, if you hold assets in a Russian Type C account or at a Russian financial institution, FBAR obligations may apply. FinCEN Form 114 must be filed annually by US persons with a financial interest in foreign financial accounts whose aggregate value exceeds $10,000 at any point in the year. FBAR is independent of OFAC reporting and carries its own penalty regime.
Claiming the Tax Loss
The tax treatment is the one area where a holder still has meaningful choices. Under IRC Section 165(g), when a security that is a capital asset becomes worthless during the taxable year, the resulting 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-term treatment applies if the holding period exceeded one year as of that date.
Worthlessness Is Harder to Prove Than It Sounds
A security is worthless when it has no current liquidating value and no reasonable prospect of future value. Courts have recognized events such as liquidation, surrender of the corporate charter, cessation of business, or hopeless insolvency as establishing worthlessness. Frozen Russian ADRs don’t fit any of these cleanly. Gazprom, Sberbank, and LUKOIL are still operating, still earning revenue, and still paying dividends into inaccessible Type C accounts. The worthlessness argument rests on the holder’s permanent inability to access the value, not on the absence of value. The IRS has not issued specific guidance for frozen foreign securities in a sanctions context.
Picking the right year matters. Claim the loss too early or too late and the deduction can be denied entirely. Document the identifiable events supporting the year you choose: the delisting date for your specific ADR, the June 12, 2024 NSD designation, the November 21, 2024 registrar designations, and any Decree 840 transfer affecting your shares.
Abandonment as an Alternative
Treasury Regulation 1.165-5(i) allows a holder to abandon a security by permanently surrendering and relinquishing all rights in it and receiving nothing in exchange. The resulting loss is treated the same as a worthless security loss, as a sale or exchange on the last day of the taxable year.10eCFR. 26 CFR 1.165-5 – Worthless Securities Abandonment is cleaner on timing because you control when to surrender, but it requires an affirmative act and documentation. Ignoring the position or failing to file conversion paperwork is not abandonment.
Reporting the Loss and the Recovery Risk
Whether the loss is claimed as a worthless security or an abandonment, report it on Form 8949 and carry the totals to Schedule D.11Internal Revenue Service. About Form 8949, Sales and Other Dispositions of Capital Assets Cost basis is what you originally paid for the ADRs; proceeds are zero. Individual taxpayers can deduct net capital losses against ordinary income up to $3,000 per year ($1,500 if married filing separately), with any excess carried forward indefinitely.12Office of the Law Revision Counsel. 26 USC 1211 – Limitation on Capital Losses
One caveat worth understanding before you claim: if the assets are eventually recovered, whether through sanctions relief, a settlement, or restored access, the recovery must be included in gross income in the year received. A loss claimed now is not the end of the story. Work with a tax advisor familiar with both sanctions and capital loss rules; getting the timing or characterization wrong can trigger penalties or forfeit the deduction.
What Litigation Realistically Offers
Class actions against the US depositary banks have alleged breach of contract under the depositary agreements and negligence in handling the underlying assets during termination and sanctions escalation. The theory is that the banks should have moved faster to convert ADRs before the window closed, or provided better notice of termination procedures and deadlines.
The obstacles are significant. Depositary agreements typically contain force majeure and governmental action clauses that limit bank liability when a sovereign government forces termination. The banks argue they were caught between conflicting mandates: Russian law compelling termination and US sanctions prohibiting many of the steps termination required. Claims against Russian issuers are harder still. Sovereign immunity and the Act of State doctrine shield foreign government conduct from US court review, and any judgment obtained would be practically unenforceable against assets inside Russia. Expect litigation to take years, expect outcomes from partial settlements to dismissal, and be skeptical of anyone promising quick recovery.
What to Keep and What to Watch
Keep meticulous records of your original ADR purchases, every piece of correspondence with your depositary bank, any conversion paperwork you submitted, and the dates of the key sanctions actions affecting your position. These records support both a tax claim and any future recovery.
File your OFAC blocked-property reports on time. Assess FBAR obligations separately if you have a financial interest in a Russian account. Decide with a tax advisor whether a worthless-security or abandonment loss makes sense, and in which year the claim is strongest. If you join a class action, treat it as a long-duration bet with an uncertain payoff.
OFAC periodically issues new general licenses and guidance, and a future diplomatic shift could open pathways that do not exist today. Keeping documentation and staying current on reporting is what preserves your options if that happens.