Filenews 26 May 2022
Russia is promoting a new law that allows it to have control over local western companies that decide to leave after Moscow's invasion of Ukraine, raising the stakes for multinationals trying to leave.
As Reuters reports, the law, which could take effect within weeks, will give Russia sweeping powers to intervene where there is a threat to local jobs or industry, making it more difficult for Western companies to untangle quickly unless they are ready to suffer a major economic blow.
The law on the confiscation of the property of foreign investors follows a flight of Western companies, such as Starbucks and McDonald's, and increases the pressure on those still there. It comes as the Russian economy, increasingly cut off due to Western sanctions, plunges into recession amid double-digit inflation.
Italian bank UniCredit, Austrian bank Raiffeisen, the world's largest furniture brand, IKEA, fast food chain Burger King and hundreds of smaller companies still have businesses in Russia. Anyone who tries to leave is facing this tougher policy.
IKEA, which has stopped all activities in Russia, said it is closely monitoring developments. Raiffeisen said it is evaluating all options, including a carefully managed output. UniCredit declined to comment, while Burger King did not immediately respond to a request for comment.
The bill paves the way for Russia to appoint managers to companies owned by foreigners from "unfriendly" countries who want to leave Russia as the conflict with Ukraine sweeps away its economy.
Moscow usually refers to countries as "unfriendly" if they have imposed economic sanctions on Russia, which means that any companies in the European Union or the United States are at risk.
The European Commission proposed to toughen its stance on Wednesday to make it a crime to violate EU sanctions against Russia, allowing EU governments to seize assets of companies and individuals who avoid restrictions against Moscow.
Meanwhile, in a move that could push Moscow closer to the brink of bankruptcy, the Biden administration announced that it would not extend an extension that would allow Russia to pay U.S. bondholders.
The departures of Western companies have angered Russian politicians. Former President Dmitry Medvedev, who is now Vice-President of Russia's Security Council, has been particularly critical of Western companies that have fled, attacking "enemies who are now trying to limit our growth and destroy our lives."
"The government is interested in preserving jobs and tax revenues," said Sergej Suchanow, an attorney at the risk management and compliance consulting firm RSP International.
The draft law describes how Russia could appoint a manager to companies where at least 25% of the shares are in "unfriendly" foreign hands.
It sets out a wide range of intervention criteria, such as when a company plays a critical role as a local employer or provides important services. It makes it clear that the state can justify taking control for a number of reasons.
The bill cites the example of companies manufacturing medical devices, but also lists a number of other sectors, such as transport and energy, as well as any company whose closure could drive up store prices.
The state-appointed trustee could also sell the seized business, while its former owners would be banned from operating in Russia.
A court or the Ministry of Economic Development could decide to take over a manager, such as Russia's VEB development bank.
The bill passed at first reading in parliament's lower house this week, but still faces two further readings and a review in the Upper House before it is signed by President Vladimir Putin to become law.
This can take several weeks. Russia's Ministry of Economy said it would select companies only in "critical cases", where it is necessary to protect production or jobs.
"Russia was already isolated and no longer interested in investors," said Michael Loewy of the Federation of Austrian Industries. "This law can only make it worse."
