Analysis-Russia is preparing to seize Western companies wishing to leave

The law, which could take effect in weeks, will give Russia extensive powers to intervene when there is a threat to local jobs or industry, making it harder for Western companies to get away quickly unless they are willing to take a major economic blow.

The law to seize the property of foreign investors follows an emigration from Western companies, such as Starbucks, McDonald’s and the brewery AB InBev, and increases the pressure on those who remain.

It comes at a time when the Russian economy, increasingly cut off by Western sanctions, is slipping into recession amid double-digit inflation.

Italian lender 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. Any business trying to leave is facing this harder line.

IKEA, which has suspended all operations in Russia, said they were following developments closely. Raiffeisen said it assessed all options, including a carefully controlled exit. 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 administrators over companies owned by foreigners in “unfriendly” countries who want to leave Russia as the conflict with Ukraine drags the country’s economy down.

Moscow usually calls countries “unfriendly” after imposing economic sanctions on Russia, which means that all companies in the EU or the US are in danger.

The European Commission on Wednesday proposed tightening its own stance by making violating EU sanctions against Russia a crime, allowing EU governments to seize assets from companies and individuals evading restrictions on Moscow.

Meanwhile, in a move that could bring Moscow closer to the brink of bankruptcy, the Biden administration announced it would not renew a dispensation that would allow Russia to pay US bondholders.

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The departure of Western companies has angered Russian politicians. Former President Dmitry Medvedev, now Vice-President of the Russian Security Council, has been particularly vocal in criticizing Western companies that have traveled, launching an attack on “enemies who are now trying to curb our development and ruin our lives” .

“The government is interested in preserving jobs and tax revenue,” said Sergei Suchanow, a risk management lawyer and compliance consultant at RSP International.

“First and foremost, the government will apply the rules to large companies. To avoid an administrator, companies must demonstrate that they are not giving up their Russian companies.”

Ulf Schneider, a consultant working with German companies in Russia and expert in the region with the German medium-sized or “Mittelstand” industrial group BVMW, said he and others are working on proposals that allow foreign companies to voluntarily hand over control. to an administrator of your choice.

It could convince Russia that they are acting responsibly while distancing themselves.

“Sale is an option, but the conditions for a sale are not good,” Schneider said.

The bill outlines how Russia could appoint an administrator for companies whose shares are at least 25% in “unfriendly” foreign hands.

It contains a wide range of intervention criteria, such as when a company plays a critical role as a local employer or provides important services. This makes it clear that the state can justify taking control for many reasons.

The bill cites the example of companies manufacturing medical devices, but also lists many other sectors such as transportation and energy as well as any company whose closure could drive up retail prices.

The state-employed administrator would also be allowed to sell the seized company, while the previous owners would no longer be allowed to do business in Russia.

A court or the Ministry of Economic Development could decide to appoint an administrator, such as the Russian Development Bank VEB, to lead.

The bill passed its first reading of the lower house of parliament, the State Duma, this week, but must undergo two more readings and a revision of the upper house before being passed into law by President Vladimir Putin.

It may take a few more weeks. Russia’s Ministry of Economy said it would only select companies in “critical cases” where it was necessary to exclude production or employment.

Dozens of foreign companies have announced that they will temporarily close their shops and factories in Russia since Putin launched a so-called “special military operation” to demilitarize and “de-Nazify” Ukraine, which Ukraine and its allies see as an unfounded pretext for the war. . done.

“Russia was already isolated and no longer interesting to investors,” said Michael Loewy of the Federation of Austrian Industries. “This law can only make it worse.”

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