Sanctions or creative escape?: “Russia has taken the Raiffeisen Bank hostage”

Raiffeisen Bank has screwed up with everyone. With Ukraine. With the USA. With the EU. A good two years after the start of the war, the Austrians are still earning well in Russia and are trying to do the impossible: leave the country without losing their money.

When the cash registers ring, the call doesn’t matter – that’s how the Austrian Raiffeisen Bank can be described. Even two years after the start of the Russian attack on Ukraine, she has not left the country. That’s why it’s a good thing for Ukraine international sponsor of the war.

The USA is also not a fan of the bank. At the beginning of March, a top official from the US Treasury Department visited the Vienna headquarters. Anna Morris specializes in illegal money flows from countries such as Russia and suspects that Raiffeisen Bank is helping Russian oligarch Oleg Deripaska to evade sanctions. The EU Commission has similar suspicions.

Why is Raiffeisen Bank putting itself through this trouble? It is allowed to earn more money in Russia than any other bank, as Russian economist Vladislav Inozemsev said in the ntv podcast “Learned something again” explained. “Currently, if $200 is transferred to your account at Raiffeisen Bank in Russia, Raiffeisen Bank tells you that you will only receive $50 because the commission is $150. That’s what Raiffeisen Bank does Businesses. No Russian bank can even think of introducing such commissions and fees, but in the case of Raiffeisen Bank, the Russian Central Bank and the Russian Antitrust Authority are doing nothing.”

Monopoly on Western transactions

“Thanks to the controversial Russian business, the Austrian financial institution Raiffeisen Bank International (RBI) is seeing billions in profits,” it said on ntv.de a good year ago. At that time, the small bank from Vienna announced that it had made a profit of almost 3.5 billion euros in the first year of the war. According to experts, almost half of this came from the Russian subsidiary in Moscow. According to the Russian ambassador to Austria, it was even 60 percent. Raiffeisen Bank is the only western bank to be on the list of 13 systemically important credit institutions in Russia.

The Viennese financial institution has a kind of monopoly in Russia for all transactions with Western banks. “It is a link between the Russian and Western banking systems and can therefore make a lot of money in Russia,” says economist Inozemsev. There is just one problem: After the attack on Ukraine began, the Russian central bank imposed capital controls to prevent Western companies in particular from fleeing abroad with their belongings. This also affected and continues to affect Raiffeisen Bank’s Russian income to this day.

Anyone who wants to go can go

The bank’s management commented rather taciturnly on the predicament. For months after the start of the war, all that was said was that all strategic options would be examined with a view to a controlled exit from Russia and Belarus. It was not until March 2023 that Raiffeisen boss Johann Strobl spoke publicly for the first time about a possible sale of the Russian subsidiary – of course for a corresponding price.

That’s the big problem, says Inozemsev. Anyone who wants to go can go. At any time. Other Western companies have done this. But if you leave, you risk losing everything. Like Carlsberg and Danone recently.

Putin’s ambassador promises pain

It probably dawns on the Raiffeisen Bank that the outrageously high commissions were just a lure to blackmail them. The Russian ambassador to Austria warned in December that a possible withdrawal of the bank from Russia could jeopardize the group’s stability and would “not be painless for Austrian taxpayers.”

Economist Inozemsev becomes clearer: “Russia has taken the Raiffeisen Bank hostage,” he says in the podcast. The bank has already contacted the Russian central bank several times and asked for advice. “But the Russian central bank cannot work out conditions for the withdrawal. Things work differently in Russia. Here there is a commission for foreign investments that reports to the government. So in the end it is President Putin who decides.”

Ultimately, the bank has exactly two options. She can stay in Russia, make a lot of money like she used to and accept her bad reputation in the West, or she can leave and give up her most lucrative business. Or maybe not?

Dubious exchange transaction

Raiffeisen Bank may have found a third way to save at least part of its Russian income abroad: a swap deal with the Russian company MKAO Rasperia. She owns 28.5 million shares in the Austrian construction group Strabag. This corresponds to a good 24 percent of the company – currently worth almost 1.1 billion euros.

In December, Raiffeisen Bank announced that it wanted to buy these shares from Rasperia. Presumably they would then be transferred to the Viennese parent as a form of dividend in kind. Not a single ruble would have left Russia. Each kopeck would be transferred from one Russian account to another Russian account. The Russian central bank’s capital controls would have been circumvented.

The Russian oligarch

But behind MKAO Rasperia is the Russian oligarch Oleg Deripaska. He owns the Strabag shares. However, shortly after the start of the war, Vladimir Putin’s close confidant was subjected to sanctions by the EU and the USA. Brussels and Washington now suspect that he would personally benefit from the Raiffeisen Bank swap deal, which would be a violation of the sanctions.

That’s why Anna Morris, the top official at the US Treasury Department, announced herself at the Raiffeisen Bank headquarters in Vienna at the beginning of March. That’s why the EU Commission also seems to be losing patience with the bank. Talks about punishments for the Austrians themselves are already making the rounds.

Who controls Illiadis?

The swap deal, however, is sophisticated: MKAO Rasperia itself has also had a new owner since the end of March. The company, along with the Strabag shares, was transferred to a company called Illiadis. Strabag has that himself communicatedafter the Austrian group of Illiadis and also Deripaska were informed about the deal.

The reason seems obvious: Unlike Rasperia, it is unclear at Illiadis who owns the company. A sanctions review cannot therefore take place, says Strabag in the statement. The group claims that it “cannot assess whether the transaction will have an impact on Raiffeisen Bank’s intended acquisition of the Strabag shares.”

However, Strabag is exercising caution: “The company continues to assume that the Strabag shares in MAKO Rasperia are frozen in accordance with the EU Sanctions Regulation.”

Wait and hope

Raiffeisen Bank sees it differently. Where Strabag has doubts, the Viennese bankers say so in a statement convincedthat the planned purchase of the shares “complies fully with all applicable sanctions regulations.” So was the transaction the final step in a sophisticated plan to get one’s own assets out of Russia?

“It would be the best possible result,” believes Vladislav Inozemtsev. He keeps his fingers crossed for Raiffeisen Bank that the plan will work. But the economist still doubts whether the Austrian managers are aware of who they are dealing with here: “The Russian government will set conditions for this deal,” he warns. “Because as I have understood the situation over the past two years, Moscow will not allow Raiffeisen Bank to leave on its terms.”

The economist therefore brings up a fourth option in the podcast: do nothing. As at the beginning. “I could be wrong,” says Inozemtsev, “but I think Raiffeisen Bank will wait and hope that the war will end and they can continue doing business in Russia.”