Western companies in Russia fear further asset grabs by the Kremlin, 26 July 2023

...Consumer-goods companies from PepsiCo and Mars to Nestlé and Reckitt Benckiser—which flooded into Russia decades ago, investing millions in building factories, hiring local people and developing local brands — are at risk of losing it all.

“Western assets are not safe in Russia anymore,” says Alexandra Prokopenko, a non-resident scholar at the Carnegie Russia Eurasia Center in Berlin. “This is a new frontier in the war. If the Kremlin goes further, it’s going [back] to the ’90s: the redistribution of assets to more favorable owners.”

Putin signed a decree in April allowing the state to take temporary control of the assets of companies or individuals from unfriendly states—which include the US and its allies—in response to similar moves, or the threat of them, by those countries. Yet the seizures of Danone SA’s local business and Carlsberg A/S’s Russian beer operations last week came as a surprise to their European owners, who’d been planning to sell their Russia operations to local companies, after pressure from their Western stakeholders and governments.

Doling out valuable assets to influential Russian businessmen and political allies could shore up Putin’s power base after an embarrassing rebellion attempt by mercenary commander Yevgeny Prigozhin in June. “As part of Putin’s quest for power, he is going to divvy up many of the economic assets that are in Russia and will give them to his cronies to solidify his political position,” says William Pomeranz, director of the Wilson Center’s Kennan Institute in Washington.

Spokespeople for Carlsberg, Danone, Nestlé, PepsiCo, Reckitt and Unilever declined to comment for this story. Mondelez didn’t respond to a request for comment...

Lawyers such as David Pinsky, a partner at Covington & Burling, advise companies to make sure they hold their Russian subsidiaries through countries that have strong investment treaties with Russia. Under such thinking, Danone could try to use Russia’s bilateral investment treaty with France to claw back damages for the seized assets. Still, the prospect of pursuing litigation may be of little comfort to foreign companies, given Russia’shistory of creating roadblocks to enforcement in cases like these. The previous shareholders of Russia’s formerbiggest oil company, Yukos , were awarded a $50 billion judgment in 2014 after Moscow confi scated the asset,but Russia has challenged the jurisdiction of the tribunal and still hasn’t paid.

Remaining in Russia carries little upside. Multinationals can’t take their profits outside Russia because doing so requires Kremlin approval. Any reduction of head count or scaling back of operations could attract unwanted attention from the Kremlin. Although Carlsberg said last week that the seizure of its Baltika business was unexpected, it had warned investors in February of the risk that Russian authorities could nationalize a business to keep its workforce at pre-war levels if they suspect it’s being deliberately stripped of value...