Russia presents significant opportunities for businesses due to its vast market and natural resources, but it also comes with high risks, including political instability, sanctions, corruption, and legal unpredictability. Companies operating in Russia must take proactive steps to safeguard their assets, reputation, and operations.
This guide outlines key risks and practical strategies to protect your business in Russia.
1. Understand the Major Risks
Before entering or continuing operations in Russia, businesses should assess the following risks:
A. Political & Regulatory Risks
- Sudden policy changes (e.g., new laws on foreign ownership, forced asset sales).
- Arbitrary enforcement of regulations (tax audits, licensing delays).
- Nationalization threats (government seizures of foreign assets).
B. Economic & Financial Risks
- Sanctions (U.S., EU, UK restrictions on trade, banking, and technology).
- Currency volatility (ruble fluctuations, capital controls).
- Inflation & supply chain disruptions.
C. Legal & Corruption Risks
- Weak rule of law (biased courts, contract enforcement issues).
- Bribery & extortion (especially in procurement and customs).
- Corporate raiding (hostile takeovers using corrupt officials).
D. Reputational Risks
- Association with war or sanctions evasion.
- Public backlash for continuing operations in Russia.
2. Key Strategies to Protect Your Business
A. Legal & Compliance Measures
✔ Sanctions Compliance
- Regularly check OFAC, EU, and UK sanctions lists.
- Avoid transactions with sanctioned entities (banks, oligarchs, state firms).
- Use blockchain or third-party screening tools to track supply chains.
✔ Strong Contracts & Dispute Resolution
- Include international arbitration clauses (e.g., ICC, Stockholm Chamber).
- Avoid Russian courts where possible—enforce judgments abroad.
- Keep contracts short-term and flexible to adapt to sudden law changes.
✔ Intellectual Property Protection
- Register trademarks and patents early (Russia is a first-to-file system).
- Monitor for counterfeiting and trademark squatting.
B. Financial Safeguards
✔ Diversify Currency Exposure
- Hold earnings in USD, EUR, or CNY to reduce ruble risk.
- Use escrow accounts for high-value transactions.
✔ Repatriate Profits Carefully
- Russia restricts dividend payments to foreign owners—plan accordingly.
- Consider reinvestment in local operations if cash extraction is difficult.
✔ Political Risk Insurance
- Get coverage from MIGA (World Bank), Lloyd’s, or Euler Hermes against:
- Expropriation (government seizure of assets).
- Currency inconvertibility (trapped profits).
- Political violence (unrest, war-related losses).
C. Operational & Security Measures
✔ Local Partnerships & Due Diligence
- Vet local partners, suppliers, and distributors for sanctions exposure.
- Avoid shell companies and firms linked to oligarchs or the Kremlin.
✔ Cybersecurity & Data Protection
- Russia has strict data localization laws—ensure compliance.
- Protect against hacking and corporate espionage (common in Russia).
✔ Exit Strategy Preparedness
- Have a contingency plan for rapid withdrawal if needed.
- If selling assets, negotiate with government approval to avoid forced takeovers.
3. Case Studies: Lessons from Businesses in Russia
✅ McDonald’s – Sold its business to a local operator (now “Vkusno & Tochka”) but retained buyback rights.
✅ Unilever – Reduced operations but faced criticism for staying in Russia.
✅ BP & Shell – Exited early but took multi-billion-dollar write-offs.
4. Future Outlook: Should You Stay or Leave?
- Staying? Focus on sanctions compliance, local partnerships, and risk mitigation.
- Exiting? Prepare for asset losses, legal hurdles, and slow negotiations.
- Entering? Weigh risks carefully—consider joint ventures with trusted local firms.
Conclusion
Protecting a business in Russia requires vigilance, adaptability, and strong risk management. Companies must:
✔ Stay updated on sanctions and laws.
✔ Secure legal and financial safeguards.
✔ Prepare for worst-case scenarios.
While opportunities exist, the risks are high. Businesses must decide whether the rewards outweigh the potential losses—and act accordingly.
Need a tailored risk assessment for your industry? Let’s discuss your specific challenges.