The Return of Foreign Business to Russia: Challenges and Prospects
Why Foreign Companies Struggle to Regain Control of Their Assets
At the end of March 2024, the Russian president lifted temporary state control over the Russian subsidiary of Italy’s Ariston Holding N.V. This marked the first instance where a foreign company regained its assets without selling them to local investors. However, experts doubt this will become a widespread practice, as the process is complicated by unclear regulations, the need to restore management, and the challenge of navigating both Western sanctions and Russian countermeasures.
How Temporary State Management Works
In April 2023, Russia introduced a mechanism for temporary state management of assets belonging to companies from “unfriendly” countries. This was a retaliatory measure against similar Western actions targeting Russian assets abroad. The appointed manager (e.g., Rosimushchestvo) cannot sell the business but has the authority to replace management and make operational decisions.
Abroad, such measures are often seen as de facto nationalization. For example, Germany and Poland placed the assets of Rosneft and Gazprom under external management, while Canada and the U.S. confiscated funds and property belonging to Russian businessmen. However, Russian authorities insist that temporary management does not equate to expropriation, as owners theoretically retain the right to regain control.
Challenges in Reclaiming Business Operations
- Restoring Management
Once temporary management is lifted, companies must rebuild business processes, address staffing issues, and reestablish supply chains that may have shifted to Asian markets during the sanctions period. - Legal and Financial Complications
Assets may have depreciated, lost trademarks, or accumulated debt under state control. Additionally, any dividend payments or corporate restructuring now require approval from Russian authorities. - Sanctions Pressure
Foreign firms must balance compliance with Western sanctions and Russian countermeasures. For instance, Ariston stated it would adhere to restrictions while continuing operations in Russia.
Which Companies Might Return?
So far, cases of revoked temporary management have been rare. Previously, this occurred only ahead of asset sales to Russian investors (as with Danone and Baltika). Experts suggest that companies that never announced their withdrawal from Russia and maintained loyalty to local authorities may have a chance to return. However, a mass return is unlikely—each case likely involves undisclosed agreements between businesses and the government.
Additional Risks: Regulatory Uncertainty
Another major obstacle is the unpredictability of Russia’s regulatory environment. Authorities have not disclosed clear criteria for imposing or lifting temporary management. For example, the decision regarding Ariston was made without public explanation, creating legal ambiguity for other firms. Moreover, the risk of renewed state intervention persists, especially if geopolitical tensions escalate. Under these conditions, many foreign investors prefer a complete exit rather than reinvesting in a business that could again fall under government control.
While the Ariston case offers hope for other foreign companies, the process of reclaiming assets remains complex and uncertain. The lack of transparent rules, ongoing sanctions, and the need for business restructuring make Russia an unattractive prospect for most players.