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Russia is forcing Western companies exiting its market to make a donation to the country — and it’s making it harder for them to leave

Russian President Vladimir Putin in the southern Russian city of Volgograd on February 2, 2023.Russia is forcing Western companies exiting its market to make a donation to the country — and it’s making it harder for them to leave.

Valery Sharifulin, Sputnik, Kremlin Pool Photo via AP

  • Foreign investors exiting Russia must donate at least 10% of the sale proceeds of their assets to the state.
  • The new rule applies to investors from “unfriendly countries” that imposed sanctions against Russia.
  • There are over 2,000 applications from companies seeking approval to exit the Russian market, per FT.

More than a year into the Ukraine war, the Kremlin’s still thinking of ways to penalize foreign companies exiting the country — and it is now making the departure most expensive.  

Investors from “unfriendly countries” who are selling their businesses must donate at least 10% of the sale proceeds to the Russian budget, according to a document posted on Monday by the country’s finance ministry. “Unfriendly countries” have been defined as those that have imposed sanctions against Russia over its invasion of Ukraine.

The new ruling states that such companies have “an obligation to make a voluntary cash contribution to the federal budget” that amounts to at least 10% of what they receive from the sale, according to a Reuters translation.

This donation is on top of a previously announced 50% haircut on the sale of their assets, which has to be borne by these investors.

Russia witnessed an exodus of companies it invaded Ukraine, but some have remained — either voluntarily or due to challenges in leaving the Russian market.

While over 1,000 companies quickly announced that they were voluntarily cutting back on operations in Russia just two months after the Ukraine war started in February 2022, just 520 companies have managed to make a clean break so far, according to an ongoing study led by Jeffrey Sonnenfeld, a professor at the Yale School of Management.

About 550 foreign companies are still actively operating in the country, according to Yale’s list.  They include firms from the US, Germany, France, and Italy, among others. 

It is difficult for multinationals to pack up and leave Russia

It’s challenging for multinationals to simply pack up and leave Russia quickly, according to a Wednesday blog post from Saul Estrin and Klaus E Meyer, professors at the London School of Economics and Ivey Business School, respectively.

Chief among them is that foreign business subsidiaries need to comply with a multitude of Russian policies.

“The subsidiary would typically have many contractual and legal obligations from which it cannot simply walk away,” wrote Estrin and Meyer. “A sudden withdrawal is likely to result in legal action by business partners, or by the authorities.”

Even so, a few high-profile companies have left Russia — such as McDonald’s, Starbucks, and Goldman Sachs.

While the Russian Starbucks franchise was sold to a group comprising a businessman, a rapper, and a Russian company, the McDonald’s and Goldman Sachs assets were sold to former employees.

These options are not available to every company — especially since there would be fewer potential buyers in the first place due to sweeping sanctions against Russia, according to Estrin and Meyer.

Over 2,000 companies are seeking approval to exit the Russian market, the Financial Times reported on Tuesday, citing a person involved in an exit negotiation. But the authority handling the applications meets only three times monthly and considers up to seven applications each time, thus lengthening the exit process, per the FT.

The Russian finance ministry did not immediately respond to Insider’s request for comment.

Read the original article on Business Insider
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