Russia is moving forward with a new lawthat would allow the Russian government to take over the local operations of Western companies that decided to leave after the Russian-Ukrainian conflict, raising the stakes for multinationals trying to exit Russia.
The law, which could be implemented within weeks, would give Russia broad powers to intervene when local jobs or industries are threatened, keeping Western companies from "slapping their butts" unless they are prepared to take a major financial hit.
The law, which confiscates the assets of foreign investors, has increased pressure on companies still operating in Russia after Western companies such as Starbucks, McDonald's and beer maker Anheuser-Busch InBev fled.
Meanwhile, Russia's economy, increasingly hit by Western sanctions, has plunged into recession amid double-digit inflation.
Currently, UniCredit , AustrianbankRaiffeisen, the world's largest furniture brand IKEA, fast-food chain Burger King, and hundreds of smaller companies still operate in Russia.Now any business trying to leave Russia faces the tougher law.
Ikea has suspended all operations in Russia and said it is closely monitoring developments.The company said it was evaluating all options, including a carefully managed exit.
The bill paves the way for Russia to designate managers for companies in "unfriendly" countries.
Russia typically calls countries that impose economic sanctions on Russia "unfriendly," meaning any company in the EU or the US is at risk.
The European Commission proposed Wednesday to strengthen its stance to criminalize breaches of EU sanctions on Russia, allowing EU governments to seize assets from companies and individuals evading Russian sanctions.
At the same time, the Biden administration announced that it would notextenda waiver of Russian payments to U.S. bondholders, a move that could push Moscow to the brink of default.
economic pain
The departure of Western companies has angered Russian politicians.Dmitry Medvedev, the vice-president of the Russian Security Council, has been outspoken in his criticism of Western companies that have left Russia, calling them "enemies who are trying to limit Russia's development and ruin the lives of Russians."
Sergej Suchanow, a lawyer at risk management and compliance consultancy RSP International, said:
“The Russian government intends to protect jobs and taxes. First, Russia will apply these rules to large companies. To avoid being managed and controlled by Russian authorities, these companies must show that they will not put their Russian operations in trouble.”
Ulf Schneider, a consultant for German businesses in Russia and an expert in the region for German medium-sizedindustrialgroup BVMW, saidhe and others were working on proposals that would allow foreign companies to voluntarily hand over control to a trustee of their choice.
This can convince Russia that these foreign executives are responsible and that these executives can leave Russia.Schneider said:
"Selling is an option, but the terms of the sale are not good."
Government-appointed insolvency administrators will also be allowed to sell confiscated businesses, while their former owners will bebarred from doing business in Russia.
A court or the Ministry of Economic Developmentmay decide that an administrator, such as the Russian development bank VEB, is in charge.
The bill passed its first reading in Russia's Duma this week, but still faces two further readings and scrutiny by the upper house before being signed into law by President Vladimir Putin.This can take weeks.Russia's economy ministry said it would only select companies in "critical situations" where it is necessary to protect production or employment.
This may take several weeks.Russia's economy ministry said it would only pick companies in "critical situations" where production or employment needs to be protected.
Michael Loewy of the Federation of austria Industries said:
"Russia is already isolated and this law will only make things worse."
