The driving service provider Uber, sporting goods manufacturer Reebok, and the mineral oil company BP are among over 1,000 companies that have exited Russia since February 24, 2022. Austrian companies such as Kapsch Trafficcom, Banner Batteria, and the Uniqa insurance group have also withdrawn their operations from Russia. More than three years after the start of the war, attention is now focused on companies that continue to operate in the war-torn country, including Raiffeisen Bank International (RBI), the energy drink manufacturer Red Bull, Egger Holz, and Agrana, the company behind the “Wiener Zucker” brand.

Legal and Financial Hurdles for Companies Seeking to Exit

Stefan Paulmayer, a lawyer specializing in banking and financial law at the Vienna Practice Group Corporate Transactions of the CMS law firm, notes that companies still operating in Russia face significant challenges. “Anyone who is still working in Russia will no longer be exit,” Paulmayer warns. He was part of a team that assisted the packaging manufacturer Mayr-Melnhof in its withdrawal from Russia in 2022, a process that has become increasingly difficult over the past three years due to Putin’s regime.

Vasily Astrov, an economist at the Vienna Institute for International Economic Comparative (Wiiw), observes that the Kremlin has tightened the screws for companies looking to migrate. “If we look at the dynamics over the years, most companies have withdrawn in 2022. In 2023 it was much less and less again in the previous year,” Astrov says. The number of companies exiting and the amounts of such sales have significantly decreased because Russia has tightened the rules for company withdrawals during the war.

Increasing Regulatory Barriers

Initially, the criteria for exiting Russia were relatively unregulated. However, every time the EU imposed sanctions, the Kremlin responded with counter-sanctions. “Free arbitrariness became standardized arbitrariness,” Paulmayer summarizes the hurdles for company exits. The process begins with finding a potential buyer, which can be challenging due to the regulatory environment.

For example, Raiffeisenbank Russia is currently in a legal dispute with the Russian Strabag shareholder Rasperia, preventing Raika from selling its Russia business. Istvan Tiborcz, one of the richest men in Hungary and son-in-law of Hungarian Prime Minister Viktor Orbán, has reportedly shown interest in the bank’s Russia business. However, the specific details of this interest remain unknown.

Paulmayer explains the procedure: “If a company has found potential interested parties who would buy the company, the documents for the application for approval by the Governmental Commission must be prepared.” For transactions worth more than 50 billion rubles (around 500 million euros), the Governmental Commission in the Russian Ministry of Finance requires the signature of Vladimir Putin.

Economic and Financial Implications

Companies seeking to exit must hire a valuation appraiser from a state-run list. The Kremlin has determined that the purchase price may be a maximum of 40 percent of the company value determined by the evaluator, meaning the seller must forgo around 60 percent of the company’s value. “The seller has greater chances of approval if the purchase price is even lower,” says Paulmayer. This results in buyers acquiring companies at a significantly reduced price.

Additionally, the Russian state imposes an “exit fee,” initially considered a recommendation but now a mandatory charge. This fee has increased from 5-10 percent to 15 percent and finally to 35 percent in October 2024. “In most cases, the buyer bears these costs, because if the seller would still bear that, there would be almost nothing left,” Paulmayer explains.

Future Prospects and Strategic Considerations

Vasily Astrov suggests that the future of Western companies in Russia depends on the outcome of peace negotiations. “If these negotiations fail between Putin and Trump and the war continues, there will hardly be western companies that leave Russia,” Astrov predicts. He believes that the withdrawal of foreign companies from Russia will come to a standstill if the conflict persists.

For companies like Red Bull, Rhi Magnesita, and the crane manufacturer Palfinger, the decision to exit Russia hinges on the success of peace negotiations. If a deal with the USA and Donald Trump is reached, it is conceivable that the retreat criteria will be relaxed, allowing companies to finally draw a line under the chapter Russia.

Case Studies and Real-World Examples

Consider the case of Unicredit, a major Italian bank. Andrea Orcel, head of Unicredit, stated in an interview with the Financial Times, “If I am not forced, I will not sell the Russia business for one euro or another prize that is not fair.” This sentiment reflects the broader challenges faced by Western companies in exiting Russia.

In the U.S., companies like ExxonMobil and Chevron have faced similar dilemmas. While they have not exited Russia entirely, they have scaled back operations significantly. The regulatory and financial hurdles in Russia mirror those faced by companies in other sectors, highlighting the universal nature of these challenges.

Counterarguments and Criticisms

Some argue that companies should continue operating in Russia to maintain a presence and influence. However, the ethical and legal implications of doing business in a war-torn country cannot be overlooked. Companies must balance their financial interests with their corporate social responsibility.

Moreover, the economic sanctions imposed by the U.S. and EU have made it increasingly difficult for companies to operate in Russia. The counter-sanctions by the Kremlin further complicate the situation, making it nearly impossible for companies to exit without significant financial losses.