The Kremlin has a plan: confiscate and you will conquer

The Kremlin has turned expropriations into a weapon by 2024. It threatens to keep Western assets in Russian territory if the United States and the European Union in turn seize Russian assets frozen by the invasion of Ukraine;

and at the same time pressures its own citizens to appropriate their assets if they are convicted of criticizing its army or evading the draft.

Paradoxically, this confiscatory policy coincides with a wave of partial privatizations with which the Kremlin tries to squeeze as much money as possible to pay for its war and with which it will reinforce the support of its beneficiaries, the Russians who showed their loyalty to President Vladimir Putin.

The US Senate Foreign Committee approved this Thursday the REPO act, the law that would allow frozen Russian assets to be allocated to Ukraine, and the Kremlin has promised to give a mirror response to the West if it definitively 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 remain trapped in Russian accounts will definitively remain 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, for example, the withdrawal of funds obtained from the sale of a company without the express authorization of the Ministry of Finance was prohibited.

A state news agency, Ria Novosti, estimated this week that Western assets in Russian accounts are valued at about $288 billion.

However, they are numbers that must be taken with caution: of the 223 billion attributed to European countries, 98.3 billion come from Cyprus, one of the favorite tax havens of Russian magnates, an island from where they are currently evading some sanctions.

Germany, to give an example of Russia's major trading partner until the war, only has about 17.3 billion.

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 over the assets of foreign companies in Russia.

That day, the federal agency for the management of state property, Rosimushchestvo, replaced the directors of two energy companies, the subsidiaries of the German Uniper and the Finnish Fortum.

In total, 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, Dmitri 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 its progress difficult.

In December 2022, he imposed that the sale of assets had to have a 50% discount compared to their market value, and three months later he established that at least 5% of this valuation must finance his budget.

Finally, the Russian president signed another decree in June by 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 category of bad companies.

What we do with their assets after that is our business,” Peskov said then.

The most striking cases in recent months have been that of the Danone subsidiary;

that of one of the largest car dealerships in the country, Rolf, and that of the Baltika brewery, of the Carlsberg group.

The management of the subsidiary of the French food company was transferred last summer to the nephew of the president of Chechnya, Ramzan Kadyrov.

In addition to taking control of that succulent business, Yakub Zakriyev, 33, is also Minister of Agriculture of the Caucasus Republic.

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 were managed by the Russian authorities without paying any compensation.

It is the same manual as that of the Baltika case, 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, considered until recently a great rival of Google.

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 for this year a program of partial privatizations in 30 companies where the State would not lose its majority participation.

He did not name any and set a modest income target, around 1.2 billion rubles, about 12 million euros at the exchange rate.

But there is a catch: in 2023 the goal was similar, although the final income was 16 times greater, up to 300 million euros.

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 their combination It can provide stability to the political system.”

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 (consumer market, especially) will be redistributed to 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,” she summarizes.

Russian authorities have also used confiscations as a weapon to intensify internal repression.

The speaker of the State Duma, the Russian lower house, Viacheslav Volodin, and the leaders of parliamentary factions presented this week 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 spreading “deliberately 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 to demonstrate 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 his property,” Volodin said.

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