Western groups leaving Russia face obligatory donation to Moscow

Every western company seeking to leave Russia and sell its assets in the country will now be obliged to make a direct donation to the Russian state, a commission on foreign investments in the country has said.

The ruling, published on Monday, raises the pressure on western groups that have yet to make a complete exit from Russia since its full-scale invasion of Ukraine began 13 months ago.

Under the revised rules, any decision to quit would leave companies facing the criticism that they are funding Russia’s war effort by making direct payments to the state budget.

Nataliia Shapoval, chair of the Kyiv School of Economics’ analytics centre, the KSE Institute, said the move had been “looming” since the summer. Foreign companies seeking to sell their Russian businesses have faced a growing number of restrictions.

“It just highlights that companies should be making decisions faster, because it won’t be getting any easier in the future,” Shapoval said.

Companies should be making decisions faster, because it won’t be getting any easier in the future

Previously, companies leaving Russia could choose between making a “voluntary contribution” to Russia’s state budget — set at 10 per cent of the value of the sale — or acquiesce to having the payment from the sale deferred by several years.

“Many companies were eager to exit Russia as fast as they could, so they opted for this 10 per cent tax and cash straight away, instead of the uncertainty of deferred payment,” a person involved in a recent exit transaction said.

The tighter regime will leave executives seeking to exit with no option but to make a direct contribution to Russia’s budget. “The main difference between the new rules and the previous ones is that the companies do not have a choice any more,” said Ilya Rachkov, a partner at Nektorov, Saveliev & Partners. “It is a real property seizure.”

The decision by the commission affects hundreds of western companies that have indicated plans to withdraw from Russia but have not yet completed their exit.

The KSE Institute monitors around 1,400 foreign companies that have legal entities in Russia and revenues of at least $5mn a year. Of these, only 206 have fully sold their Russian divisions.

Some have simply chosen to stay. Many others, however, have been trying to withdraw but have been trapped in a long and convoluted process, as each transaction must be negotiated with the Russian government commission on foreign investments.

A person involved in one of the ongoing exit negotiations said that around 2,000 applications were waiting for approval.

“The commission meets three times a month and considers not more than seven applications per meeting — so you can do the maths,” the person said. The finance ministry did not respond immediately to a request for comment.

The first exit deal involving a “voluntary donation” to be publicly disclosed was by Norway’s Wenaas after the sale of its hotels in Russia to Sistema, the Russian conglomerate controlled by oligarch Vladimir Yevtushenkov, who is under UK sanctions. Sistema said in February the deal was priced at “up to €203mn, including a 10 per cent contribution to the budget of the Russian Federation”.

Other criteria of exit published by the state’s commission on foreign investment in December included accepting hefty discounts on the business value assessed by an independent appraisal company.

“We would call it criteria for rejection, not for approval. The government is not required to issue approval if the business meets all the conditions,” said Alan Kartashkin, a partner at the law firm Debevoise & Plimpton.