The Russian judiciary does not recognize sanctions as a reason to shut down the business. What still worries the ABB industrial group is already giving Credit Suisse a choice: who would rather be punished by the big bank?
Red Square in Moscow: Leaving Russia is not easy for foreign companies.
Regardless of whether Western companies want to continue doing business in Russia or withdraw because of the Ukraine war, they often face a particular problem. They have to interrupt existing customer relationships because US or EU sanctions require it. The companies are not responsible for these sanctions, they are affected like force majeure.
Business contracts actually provide for extenuating circumstances for such extraordinary events beyond one’s own control. Only: “Russia does not accept the sanctions as ‘force majeure’,” Björn Rosengren, head of the industrial giant ABB, recently complained to journalists. “They are legally pursuing anyone who does not deliver to customers in Russia.”
ABB fears painful exit
This is a nuisance for the Swiss group, because it wants to give up its business in Russia. A few days ago, ABB decided to close its two manufacturing plants and several service centers in the country. 750 employees are affected. Most of them have been on leave since March anyway, because ABB is no longer accepting new orders. Nevertheless, the exit will be “very painful”, as Rosengren described it: “We have to make sure that it doesn’t end in a huge mess.”
The major bank Credit Suisse (CS) is experiencing the dangers looming. A Moscow court on Thursday banned the Swiss money house from selling shares in its two subsidiaries in Russia. It was also ordered to confiscate 10 million euros. This is reported by news agencies with reference to court documents. CS now finds itself between the chair and the bench and must decide who would rather be punished: by Russia or by the USA.
Last year, Credit Suisse brokered a loan from the Russian Transcapitalbank (TCB) to the Uzbekistan car manufacturer UzAuto Motors. UzAuto Motors made a repayment to the Swiss bank, but the bank did not pass the money on to TCB, according to court filings. On April 20, the TCB was placed on the US sanctions list. Washington said the reasoning was that the Russian bank was at the center of activities to circumvent the sanctions imposed for the attack on Ukraine.
From Blockade to Confiscation?
The US sanction makes it highly likely that Credit Suisse will no longer make a voluntary payment to TCB. Given the impact of American sanctions on the global financial system, the risk is too great. In return, the sale of the shares by the Russian subsidiaries is likely to remain blocked – and from the blockade it is not far to confiscation, at least in a state without legal certainty.
Credit Suisse had put the net assets of its two Russian branches at CHF 195 million at the end of 2021. The big bank has around 125 employees in Moscow. At the end of March, the Bloomberg agency reported that CS was shutting down its new business in Russia and helping clients to withdraw.
The bank now has one month to appeal the Moscow verdict. However, it is not to be expected that the controlled Russian judiciary will change its mind. Legislation that is intentionally flexible usually offers the courts sufficient opportunities to reach the desired verdict. On top of that, foreign banks will probably be banned in principle from selling their Russian subsidiaries. This had been agreed in the Ministry of Finance, the agency Interfax quoted the deputy minister of the department in mid-July.
Better an ending with horror
Early action pays off. The French Société Générale, which owned Rosbank, one of the largest foreign banks in Russia, had arranged the sale to a vehicle owned by the magnate Vladimir Potanin at the beginning of April and completed it in mid-May. Potanin is a major shareholder and boss of the mining giant Norilsk Nickel, but is not on the sanctions list of the EU and the USA because of the global importance of this group.
You can refer to Benjamin Triebe, Editor for Business and Business Twitter follow.