The Kremlin has a plan: confiscate and conquer

Putin threatens to keep numerous Western assets while accelerating privatization and bestowing his blessing on the new millionaires who support him

Russia's President Vladimir Putin
Russian President Vladimir Putin at an event in the city of Chelyabinsk on February 16.ALEXANDER RYUMIN (AFP/GETTY IMAGES)
Javier G. Cuesta

The Kremlin has turned expropriations into a new weapon for 2024. The Russian government has threatened to confiscate Western assets in its territory if the United States and the European Union in turn seize Russian assets frozen by the invasion of Ukraine. At the same time it is putting pressure on its own citizens through appropriating their assets if they are convicted of criticizing the Russian army or evading the draft.

Paradoxically, this confiscatory policy coincides with a wave of partial privatizations the Kremlin is using to try to squeeze as much money as possible out of the state to pay for its war with Kyiv. This new revenue will also be used to reinforce support from the Russians who have benefited from openly displaying their loyalty to President Vladimir Putin.

Last Thursday the U.S. Senate Committee on Foreign Relations approved the REPO act, the law that would allow frozen Russian assets to be allocated to Ukraine, to which the Kremlin has promised to make a tit-for-tat response if the West ultimately takes that step. The European Union and the United States have not yet made a decision due to the scarcity of foreign capital that this measure could entail, but Moscow warns that billions of Western assets that are still trapped in Russian accounts will remain permanently in the hands of the Kremlin.

The Central Bank of Russia introduced the so-called Type C accounts at the beginning of the war “to prevent the withdrawal of funds and assets from Russia by residents of hostile countries.” Transactions between residents and non-residents were transferred to these accounts in order to keep that money in Russia until further notice. Among other restrictions, a ban was placed on the withdrawal of funds obtained from the sale of a company without the express authorization of the Ministry of Finance.

State news agency Ria Novosti estimated recently that Western assets in Russian accounts are valued at about $288 billion. However, they are numbers that must be read with caution: of the $223 billion attributed to European countries, $98.3 billion come from Cyprus, a favorite tax haven for super wealthy Russians. The oligarchs are currently using the island to evade some of the West’s sanctions on them. Conversely, Germany — Russia’s major trading partner until Putin invaded Ukraine — only has about $17.3 billion of trapped assets.

On April 25, 2023, one year and two months after launching his offensive on Ukraine, Putin signed a decree authorizing his government to “temporarily” take the helm of foreign companies’ assets in Russia. Also on that day, the federal agency for the management of state property, Rosimushchestvo, replaced the directors of two energy companies — the subsidiaries of the German company Uniper and the Finnish company Fortum, which account for a dozen thermal plants and the largest gas power plant in the country.

“The objective of the decree is to create a compensation fund for the possible adoption of retaliatory measures against the illegal expropriation of Russian assets abroad,” Putin’s spokesman Dmitry Peskov warned at the time.

Western companies that did not flee in the first months of the war have found themselves in a cage since last year. Many companies, such as McDonald’s and Inditex, chose to transfer their subsidiary to Russian partners and suppliers at reduced prices with the option of returning in the future, a decision that “is still on the table,” according to industry sources.

However, the Kremlin has made progress difficult. In December 2022, the Russian government decreed that the sale of assets had to have a 50% discount compared to their market value, and three months later established that at least 5% of this valuation must finance its budget. Finally, the Russian president signed another decree in June through which the government has the right to buy any Western assets “at reduced prices” if it considers that they have left Russia with significant losses or their management has worsened.

“If a company does not fulfill its obligations, then it falls into the bad companies category. What we do with their assets after that is our business,” Peskov stated.

The most striking cases in recent months have been that which affected a subsidiary of Danone; Rolf, one of the largest car dealerships in the country; and Baltika brewery, part of the Carlsberg group. Management of the French food company’s subsidiary was transferred to the president of Chechnya, Ramzan Kadyrov’s nephew, last summer. In addition to taking control of the lucrative business, 33-year-old Yakub Zakriev is also the Caucasus republic’s Minister of Agriculture.

For its part, control of Rolf was transferred to Rosimushchestvo. Theoretically, the company’s shares still belong to its parent company based in Cyprus, but its assets are being managed by the Russian authorities who have not paid any compensation. The same playbook is being followed in the case of Baltika, whose owners refuse to negotiate with Moscow.

“They have stolen our business in Russia and we are not going to help them legitimize it,” Carlsberg director Jacob Aarup-Andersen told reporters in the fall. The company has reclassified its subsidiary's new revenue as money owed to it by the Russian government.

In parallel, the Kremlin has taken control of other Russian giants thanks to the fact that their owners decided — or the authorities made them decide — to get rid of their companies and leave the country. Among others, the Tinkoff bank and the technology company Yandex, which was considered until recently one of Google’s great rivals. Interestingly, the Russian government has also reversed some privatizations from the 1990s. A court ruled in September 2023 that one of Russia’s largest methanol production plants, owned by Metafrax, had been irregularly acquired more than three decades ago.

Change of hands

The Russian Finance Minister, Anton Siluanov, announced a program of partial privatizations for this year among 30 companies where the state would not lose its majority status. He did not say which companies, and set only a modest income target, around 1.2 billion rubles (about $13 million at today’s exchange rate). But there is a catch: in 2023 the goal was similar, although the final income was many times greater, up to $326 million.

In the opinion of Ekaterina Kurbangaleyeva, an expert at the Carnegie Center, “this nationalization and privatization 2.0 — she compares it with the processes experienced in the years after the disappearance of the Soviet Union — seem mutually exclusive, but in reality they can be quite compatible and combining them can provide the political system with stability.”

The analyst shares the concept of “quasi-nationalization” proposed by the former Minister of Finance and now head of Yandex, Alexei Kudrin. While key companies will be absorbed by state banks, non-strategic assets (the consumer market, especially) will be redistributed at bargain prices among the nouveau riche, the upper middle class, and the regime’s administration and security forces. “Those who remained in Russia in the hope of benefiting from a mass exodus (...) and will become a source of patriotic support,” he summarizes.

Russian authorities have also used confiscations as a weapon to intensify internal repression. This week, Vyacheslav Volodin, the speaker of the State Duma (the Russian lower house) and the leaders of parliamentary factions introduced a bill to seize the assets of citizens who criticize the war against Ukraine.

The initiative provides for the confiscation of money, valuables, and other property of those accused of deliberately spreading “false information about the use of the Russian armed forces,” including criticizing the deaths of civilians in bombings, and “publicly calling for extremist activities.” That is, calling for demonstrations in the street.

“Anyone who tries to destroy Russia, who betrays it, must suffer his well-deserved punishment and compensate for the damage caused to the country at the expense of their property,” Volodin said.

Sign up for our weekly newsletter to get more English-language news coverage from EL PAÍS USA Edition

More information

Archived In

Recomendaciones EL PAÍS
Recomendaciones EL PAÍS