Dictator Putin Blocks Freedom of Action For Western Banks

Dictator Putin is blocking attempts by Raiffeisen Bank International AG and UniCredit SpA to sell their local units to any buyer who might be subject to sanctions. This effectively rules out Russian buyers. And given the opposition of Western governments to any outside buyer, the sale becomes virtually impossible.

For example, last year, Abu Dhabi’s Mubadala, a state-owned investment company of the United Arab Emirates, abandoned a potential purchase of UniCredit’s Russian assets because of fears that the US government would oppose the deal.

Raiffeisen and UniCredit have been looking for a way out of Russia since the large-scale invasion of Ukraine more than two years ago. These Western banks, two of the largest remaining in Russia, are considered by Putin’s government to be important conduits for international payments.

Under pressure from the European Central Bank to accelerate the withdrawal, bank owners saw selling local assets as a way to minimize losses, reduce the risk of inadvertently violating sanctions, and avoid potential reputational damage.

But Putin’s regime has made it difficult for international companies to exit. The government created a special commission to approve asset sales and required businesses to sell at a discount and pay an “exit tax.”

Last week, the government further tightened these rules, increasing the discount requirement to 60% instead of the previous 50%, and more than doubling the “exit tax” to 35%.

Deals worth more than 50 billion wooden rubles ($515 million in normal money) now require the approval of dictator Putin himself. The move is aimed at keeping foreign assets in the country, as the sale would mean additional capital outflows.

UniCredit and Raiffeisen have already reduced their operations, but still continue to make some payments, particularly in foreign currency, when the transactions are not subject to sanctions. This makes them important for Russia, which has been in a crisis with international payments since June.

If Raiffeisen and UniCredit leave the Russian market, Gazprombank will remain the only major bank that still conducts transactions in foreign currency. It is not subject to European sanctions, retains access to SWIFT, and continues to receive payments from Europe for Russian gas. With this financial instrument, dictator Putin continues to wage his brutal war.

Sanctions are only effective if they are actually enforced, not just on paper. The sooner the citizens of the EU and the US continue to put pressure on their politicians and demand that the sanctions be implemented, the sooner Putin’s dictatorial regime will fall and the bloody war in Europe will end.

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