OPINION: Business with Russia: A Dangerous Game?

In July 2023, the world’s media was shaken by news about Russia’s asset nationalization of two Western companies that were planning to exit the Russian market – Danone and Carlsberg. To do so, it deployed mechanisms instigated by Russian President Vladimir Putin's decree in response to the West’s seizure of Russian assets following the full-scale invasion of Ukraine.

However, the two cases were especially notable as the companies in question were simply gifted to members of Putin’s close circle: one was given to an old friend from years ago, and the other to the nephew of Chechen leader Ramzan Kadyrov.

These cases are not just evidence of the whims of the Kremlin – they are loud signals that doing business in Russia can be a dangerous, possibly even fatal, game.

To leave or remain in Russia?

In the months immediately following Russia’s full-scale invasion of Ukraine, many Western companies announced their withdrawal from Russia. These were brave decisions, despite the loss of significant funds and market opportunities.

For those companies that hesitated, protests and the risk of reputational damage weighed down hard. Many voices asserted unequivocally that doing business in Russia is equivalent to financing its war, which includes daily bombings of Ukrainian cities and villages, murders, kidnappings, torture, rape, and a myriad of other crimes.

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Moscow has for more than two years led an unprecedented crackdown on dissent, comparable to Soviet levels of repression.

However, not all companies were swayed by a sense of moral imperative. Some of them are not well known to the general public; some said that their goods are “necessities”, for example not wanting to leave Russian children without diapers. Others argued that they wanted to remain in Russia in the interests of their employees, or that leaving the Russian market would simply not benefit Ukraine.

As of now, according to the Leave-Russia volunteer project, 302 companies have completely left the Russian market, 506 are in the process of doing so, and 715 have ceased operations. However, a significant 1,597 continue to trade in Russia.

This isn’t just about blood money from Russian rubles but the danger potentially facing those businesses.

The case of Danone

French company Danone entered the Russian market back in 1994 and began producing products in Russian factories.

Before Russia’s first acts of aggression against Ukraine in 2014, Russia was Danone's largest national market, even bigger than that of its native France. By 2022, the company owned 13 Russian plants which it clearly did not want to risk losing by cutting ties.

However, Danone ultimately decided to leave this summer – an act which led to the Kremlin standing firmly in its way. By Putin's decree, the company's assets were nationalized and transferred to the management of Ibrahim Zakriev, the nephew of Ramzan Kadyrov. As to Zakriev’s ability to effectively manage the company, which for decades was a leading player in Russia’s consumer economy, it remains an open question, even for Russians loyal to Putin.

Carlsberg: nationalization and arrests

Since 1996, Baltika, which belongs to the Danish company Carlsberg, was the undisputed leader or the Russian beer market. Indeed, it accounted for 40 percent of Carlsberg’s global profits. Before the beginning of Russian aggression in 2014, the Danes invested $13 billion in Russia.

In July 2023, by the same nationalization decree, the assets of Carlsberg were transferred to the management of Taimuraz Bolloev, who previously managed the Baltika brewery in the 1990s. He also joined joined Putin's close circle of friends around the same time, which clearly had an impact.

In November of this year, two top managers of Baltika were arrested and sent to a Russian prison. They are accused of fraud, namely, the transfer of rights from a Russian company to Carlsberg.

Their fate and futures are unknown since it can be extremely difficult to exit a Russian prison, whilst staying there carries mortal danger.

The case of Magnitsky

Every time we talk about the risks of doing business in Russia according to the rules of the civilized world, I remember the Magnitsky case. It remains a classic example of the futility and naivety of hoping the aggressor state will play by the rules.

Serhii Magnitsky was a lawyer at Bill Browder's Hermitage Capital investment fund. He discovered and publicized a large-scale embezzlement scheme to launder $230 million in tax compensation in Russia. In 2008, Magnitsky was arrested in Moscow, and a year later died in the Matrosskaya Tishina pre-trial detention center under unknown circumstances. Human rights activists believe that Magnitsky was tortured and beaten to death.

What should those businesses considering leaving Russia do now?

With such cases to look back on, what should foreign companies that have invested heavily in the Russian market for years, and are now seriously considering leaving, do for the best?

The main thing is to have a clear and strategic exit plan. And to be prepared for the fact that it will most likely be impossible to withdraw funds.

But here we are talking about priorities, and the foundation for any business is people. Getting them out alive, unharmed, and free, should be every company's top priority.

Save your workforce and do not expect the bloody aggressor to make exception for you and your business.

The views expressed are the author’s and not necessarily of Kyiv Post.