Analysis: Russia prepares to seize Western companies seeking to leave

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A stop sign is seen next to the skyscrapers of the Moscow International Business Center, also known as ‘Moskva-City’, in Moscow, Russia April 14, 2022. REUTERS/Maxim Shemetov

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  • Moscow mulls sweeping powers to protect jobs and local industry
  • Exodus of Western companies, sanctions shake Russia
  • New laws would allow seizure of businesses

May 26 (Reuters) – Russia is proposing a new law allowing it to take control of local businesses from Western companies that decide to leave in the wake of Moscow’s invasion of Ukraine, raising the stakes for multinationals trying to get out.

The law, which could be in place within weeks, will give Russia sweeping powers to intervene if there is a threat to local jobs or industry, making it harder for Western companies to quickly unravel a unless they are prepared to take a big financial hit. .

The law aimed at seizing the assets of foreign investors follows an exodus from Western companies, such as Starbucks (SBUX.O), McDonald’s (MCD.N) and brewer AB InBev (ABI.BR), and increases pressure on those who are still there.

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It comes as Russia’s economy, increasingly cut off due to Western sanctions, plunges into recession amid double-digit inflation. Read more

Italian lender UniCredit (CRDI.MI), Austrian bank Raiffeisen (RBIV.VI), the world’s largest furniture brand, IKEA, fast food chain Burger King and hundreds of small businesses still have operations in Russia . Anyone who tries to leave faces this harder line.

IKEA, which has suspended all operations in Russia, said it was closely monitoring the development. Raiffeisen said it was evaluating all options, including a carefully managed 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 directors for foreign-owned companies in “hostile” countries, who want to leave Russia as the conflict with Ukraine slows its economy.

Moscow generally calls countries “unfriendly” if they have imposed economic sanctions on Russia, which means any businesses in the European Union or the United States are at risk.

The European Commission proposed on Wednesday to toughen its own stance to make it a crime to fail to comply with EU sanctions against Russia, allowing EU governments to confiscate the assets of companies and individuals who evade restrictions against Moscow. Read more

Meanwhile, in a move that could bring Moscow closer to the brink of default, the Biden administration has announced it will not extend a waiver allowing Russia to pay US bondholders.

ECONOMIC PAIN

The departures of Western companies have angered Russian politicians. Former President Dmitry Medvedev, who is now deputy chairman of Russia’s Security Council, has been a particularly vocal critic of Western companies that have left, attacking “enemies who are now trying to limit our development and ruin our lives. “.

“The government wants to preserve jobs and tax revenue,” said Sergej Suchanow, a lawyer at risk management and compliance consultancy RSP International.

“First and foremost, the government will apply the rules to big companies. To avoid an administrator, companies must show that they are not letting their Russian companies down.”

Ulf Schneider, a consultant working with German companies in Russia and an expert on the region with the German medium-sized industrial group or “Mittelstand” BVMW, said he and others were working on proposals allowing foreign companies to sell voluntarily control to a fiduciary. of their choice.

This could convince Russia that it is responsible while distancing itself.

“The sale is an option but the terms of a sale are not good,” Schneider said.

The bill outlines how Russia could appoint a director for companies with at least 25% of the shares in “hostile” foreign hands.

It defines a wide range of criteria for intervention, for example when a company plays an essential role as a local employer or provides important services. It is clear that the state can justify the takeover on many grounds.

The bill cites the example of companies making medical devices but also lists a host of other sectors, such as transport and energy, as well as any company whose closure could drive up store prices.

The state-appointed administrator would also be allowed to sell the confiscated business, while its former owners would be banned from doing business in Russia.

A court or the Ministry of Economic Development could decide to assign responsibility to an administrator, such as the Russian development bank VEB.

The bill passed its first reading in the lower house of parliament, or Duma, this week, but still needs two more readings and review in the upper house before being signed by the president. Vladimir Poutine.

This could take several weeks. Russia’s Economy Ministry said it would only select companies in “critical cases” where it was necessary to protect production or jobs.

Dozens of foreign companies have announced temporary closures of shops and factories in Russia since Putin launched what he calls a “special military operation” to demilitarize and “denazify” Ukraine, dismissed as a pretext without basis for war by Ukraine and its allies.

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

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Reporting by Reuters offices; Editing by Elaine Hardcastle

Our standards: The Thomson Reuters Trust Principles.

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