Russia to Nationalize Assets of Foreign Firms If They Permanently Exit

Russian authorities have already taken a series of steps aimed at easing the economic impact of Western sanctions pressure, including a requirement for companies to sell 80 percent of their foreign currency, and a presidential decree allowing overseas creditors to be temporarily paid back in rubles.

A Russian government legislative commission has put together a second package of proposed measures in support of the economy, including the creation of a mechanism for the nationalization of the property of foreign firms which decide to leave the country, United Russia, Russia’s ruling party, announced on its Telegram page on Wednesday.

The measures, designed “to support the Russian economy in the face of sanctions, provides for the introduction of a mechanism for the nationalization of the property of foreign organizations,” the party wrote in a statement. So far, while dozens of foreign companies have announced plans to "pause" or "temporarily suspend" their Russian operations, few if any have said that they intend to permanently leave the lucrative Russian market.

The proposal was introduced by Senator Andrei Turchak, who characterized the behaviour of foreign companies planning to pull out as “premeditated bankruptcy,” and suggested they were acting on the principle of “bees against honey” in light of the losses they themselves will suffer by leaving the Russian market. In the meantime, he said, Russian workers are being threatened with dismissal overnight.

“The West has unleashed a sanctions war against Russia which has included not only governments, but also private companies. Our task is to save jobs and not allow our economy and production potential to be destroyed from within. United Russia is proposing the nationalization of the production capabilities of those companies which have announced that they will be exiting Russia and closing down production during the special military operation in Ukraine. This is an extreme measure, but we will not tolerate being stabbed in the back and will protect our people,” Turchak said.

The proposed measure will allow for external administration to be introduced in cases where 25 percent or more of a company is owned by persons or entities from countries which have sanctioned Russia upon the termination of their Russia-based activities.

Under the draft proposal, persons or entities can avoid external administration within five days if they resume their operations, or sell their shares, provided that the company and its employees are preserved. If this does not take place, a court can appoint temporary external administration for a three-month period, after which the shares of the organization are put up for auction. The buyer is required to keep at least 2/3 of the workforce employed and to continue operations for at least one calendar year.

The Russian Ministry of Economic Development expressed support for the measure, saying the proposed external administration initiative is aimed at encouraging organizations under foreign ownership not to abandon their activities in Russia.

Other proposals by United Russia aimed at supporting the economy include an exemption from personal taxes on income earned from bank deposits, a freeze on the new higher rate of penalties for the late payment of taxes, a zero VAT rate for five years for hotels and services leasing or managing tourist infrastructure, the simplification of certification of foreign aircraft operated by Russian airlines, measures to increase the attractiveness of special administrative regions for companies moving from a foreign jurisdiction to Russia, and an easing of restrictions on the import of medicines. Other proposals include additional support to the agro-industrial complex, including controls on rising food prices at retail on a number of key goods, a moratorium on inspections for producers, preferential loans, concessions on railway tariffs, tariffs for fuels, lubricants and fertilizers, the creation of networks of farmers markets and measures to liquidate the consequences of the loss of foreign-sourced foodstuffs.

Scores of Western companies and brands have announced plans to temporarily suspend, pause or put on hold their sales and/or manufacturing activities inside Russia over Moscow’s ongoing operation to demilitarize Ukraine. Major companies which have announced a suspension of their in Russia operations include Adidas, Airbnb, American Express, Apple, BMW, Coca-Cola, Dell, Disney, Ford, H&M, Ikea, McDonald’s, Mercedes-Benz, Microsoft, Netflix, Nike, PayPal, Pepsi, Puma, Spotify, Starbucks, and Visa, among others.

The nationalization mechanism proposed by the government will require approval from Russia’s parliament, where United Russia has a majority of seats. However, most opposition factions, including the Communist Party (KPRF), A Just Russia and the Liberal Democratic Party have also expressed support for extensive and far-reaching emergency measures aimed at limiting the blow to the economy from sanctions.

On Wednesday, Maxim Suraykin, leader of the Communists of Russia, a KPRF splinter which has no seats in the Duma, but does have several dozen seats in regional parliaments, proposed nationalizing McDonald’s and KFC and replacing their menus with Russian dishes such as borscht and cutlets in place of burgers and French fries.

The White House has promised to “respond” if the assets of any Western companies in Russia are seized.

“On the potential seizing of private sector assets in Russia…if they were to take those actions, I’m certain there would be steps we would take. But nothing has happened at this point in time,” White House press secretary Jen Psaki said in a briefing Wednesday.