To Leave or Not to Leave? Western Companies, Banks in Russia Face Substantial Challenges

A bridge is decorated with the logo of a Bayer AG, a German pharmaceutical and chemical maker in Wuppertal, Germany, on Aug. 9, 2019. Bayer will continue supplying medications in Russia. Wolfgang Rattay/Reuters

Western businesses and banks with operations in Russia—whether they intend to exit the country or stay in business there—are facing massive difficulties as they attempt to balance international pressure to divest and potential retaliation from Moscow.

Over 400 Western companies have exited Russia since the invasion of Ukraine, leaving behind billions of dollars in assets. About 80 firms are still operating, though they have suspended new investments. Most of these companies are pharmaceutical and consumer businesses that claim pulling out from Russia will needlessly harm the Russian people.

A few are also worried their employees could face legal retaliation from the Kremlin.

“Companies believe they can’t easily abandon small Russian businesses and consumers that rely on them,” said Bruce Haynes, global co-chair of crisis communications at public relations firm SVC+FGH, according to Reuters.

SVC+FGH has been advising businesses about Russian withdrawal.

Companies such as Procter & Gamble Co., PepsiCo Inc., and Nestle have announced they will continue doing business in Russia, primarily focusing on essential nutrition and personal hygiene products such as milk and diapers.

Pharmaceutical corporations Bayer AG and Pfizer Inc. will cease nonessential operations but will continue supplying medications for illnesses such as cancer and diabetes.

The Kremlin has threatened departing foreign companies that the government could seize their assets. State prosecutors have warned businesses that if they shut down the production of essential goods, the employees could be arrested.

Meanwhile, Western banks are struggling to liquidate assets. The Moscow Exchange has been closed since Feb. 25. Big asset management firms are relying on banks to minimize losses once trading restarts in Russia. But this might require securing necessary permits, and it’s doubtful whether they would find buyers.

In the United States, selling assets to sanctioned entities requires special licenses from the Office of Foreign Assets Control. The time needed to obtain such licenses is not clear.

In the European Union, settlement systems have been blocked from carrying out transactions on bonds, stocks, and derivatives in rubles, the only currency that Russian businesses can pay with right now.

Banks only have a few weeks to close any outstanding contracts with Russian clients subject to Western sanctions, and the banks must also ensure that transactions with their remaining Russian clients don’t violate those sanctions.

Banks will likely be dealing with an increased risk of legal and regulatory trouble related to Russia for decades, Pushan Dutt, INSEAD Professor of Economics, said to Reuters. “Absent a regime change, Russia will remain cut off from the international banking system.”

Italian banking group UniCredit could end up writing off 7.4 billion euros ($8.19 billion) in its exit from Russia, and French investment bank Societe Generale has warned that Russia might confiscate its assets in the country, Reuters reported.