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Putin says he won’t nationalize markets, but here are three tactics federal prosecutors are using to seize Russians’ assets

Source: Meduza

Russian lawmakers made headlines last month when they advanced legislation that would allow the confiscation of property owned by individuals convicted of crimes related to anti-war behavior. Since the full-scale invasion of Ukraine, the Kremlin has attracted global attention by nationalizing assets owned by foreign enterprises like the French food-products corporation Danone and the Danish brewer Carlsberg. In these past two years (with far less fanfare or public uproar), the Prosecutor General has also seized the privately owned assets of Russian business owners. Meduza explains how officials are rewriting the country’s property rules by rolling back post-Soviet privatizations, twisting the law to treat Russian entrepreneurs as foreigners, and using corruption charges to meet quotas and win bribes.

Since Moscow’s army rolled into Ukraine nearly two years ago, business owners in Russia have faced more frequent threats of nationalization. The state’s wartime intimidation began with actions against foreign companies that announced they would leave Russia, then turned to Russian businessmen who left the country, then to domestic enterprises that failed to fulfill government defense contracts, and most recently to major foreign corporations like Danone and Carlsberg. 

The invasion of Ukraine also accelerated a less publicized, two-decades-long campaign by Russia’s Prosecutor General and (to a lesser extent) the Federal Antimonopoly Service to confiscate the assets of domestic business owners, typically through lawsuits filed with arbitration courts that invariably rule in the state’s favor. Studying judicial records and media reports between the latter half of 2022 and January 2024, Meduza counted more than 20 enterprises that were either nationalized in this manner or are in the process of being nationalized. According to a legal expert who spoke to Meduza on condition of anonymity, the number of seized private companies could be much higher, given that nationalizations are also possible through compulsory bankruptcy, which is far harder to track.

Rolling back privatization, statute of limitations be damned

The most common justification for seizing privately owned assets in Russia today is to challenge their privatization in the 1990s. Meduza counted seven lawsuits brought by the Prosecutor General in just the last 18 months demanding the return of companies sold off by the state in the Yeltsin era.

Officials developed this legal strategy in their case against the Bashkir Soda Company in 2020, following protests in Bashkortostan by local environmentalists against the company’s mining work. The drawn-out confrontation in Bashkortostan led to the intervention of President Putin, who criticized Bashkir Soda Company’s shareholders for failing to invest their profits back into the business and the community. “Where’s the money? We know where: in an offshore,” Putin told the media. He then ordered the Prosecutor General to determine how the state “lost control.”

Within two years, the agency filed a lawsuit against the company, contesting the privatization of its constituent parts in the 1990s. In a trial that lasted just three months, prosecutors argued that the regional officials who approved the sale of the two firms that later formed the Bashkir Soda Company failed to obtain the federal government’s approval for the deal. The court agreed, and the company’s shares became state property.

Russia’s Prosecutor General now uses this formula whenever contesting privatizations, even though the statute of limitations in such cases doesn’t exceed three years. A legal expert told Meduza the three-year period begins when a person, company, or the state whose rights have been violated first learns about the offense. In the case of privatizations, however, the state was aware of these sales when they happened, and the Prosecutor General’s reinterpretation of those transactions decades later shouldn’t have any bearing on their legitimacy, at least in theory. In reality, Russian courts have sided with federal prosecutors, leading to the expropriation of defendants who bought assets long after they were privatized. 

The government’s campaign has affected not just businessmen with large stakes in companies but also minority shareholders who made small stock-market investments. For example, when the Prosecutor General went after the Solikamsk Magnesium Plant, it sued for the controlling shares of four stakeholders who acquired their assets in the 2010s (two decades after they were privatized). Officials claimed that the federal government had no designs on the remaining minority shares, but they demanded these assets, as well, as soon as the agency won its initial case. 

The lawsuit against Solikamsk Magnesium Plant’s minority shareholders is still underway, and their assets haven’t yet been seized, but the authorities have withheld 187 million rubles ($2.1 million) in dividend payments on the grounds that releasing the money “would harm the Russian Federation.” The case is so extreme that even Moscow Exchange managing director Elena Kuritsyna spoke out in defense of the minority shareholders in December 2023, calling the attempted seizure of their assets a violation of Russia’s property laws. But Kuritsyna’s criticism has had no impact on the legal proceedings.

Foreign interests everywhere

Another tactic the Russian authorities use to seize private assets is to declare owners “foreign investors.” Since 2008, Russia has enforced laws that require foreign nationals to obtain the approval of a special government commission before buying a controlling stake in a company with “strategic significance” to national security — a term that applies to more than just the military-industrial complex and the oil and gas industry but spans dozens of sectors, including television and radio broadcasting, fishing, and more. Even enterprises in non-strategic industries acquire strategic status if they hold a big enough market share. Meanwhile, since February 2022, approval from the federal commission that adjudicates these purchases has also been needed for any deal involving the assets of a company from one of the dozens of nations Moscow now designates as “unfriendly” (even when the buyer is a Russian national). 

Technically, Russian law makes an exception for sales that place assets under the control of foreign entities, so long as the final beneficiary is a Russian citizen and local tax resident (though officials recently introduced new restrictions that prohibit beneficiaries from holding foreign residence permits). Nevertheless, Russia’s Federal Antimonopoly Service and Prosecutor General have started equating domestic owners with foreign investors and then seized their property on charges that they failed to obtain the special government commission’s permission to buy their assets. Meduza found at least six lawsuits filed in the last 18 months against companies and their shareholders on these grounds.

Antitrust officials filed one of the first such cases in August 2021 against the owners of the Murmansk Sea Fish Port. At first, the agency concealed its goal of expropriation, and shareholders didn’t realize the government’s true intentions until almost a year later, a source familiar with the lawsuit told Meduza. The state’s key argument in the case was that the port’s beneficiary, businessman Alexander Romanov, lost his Russian tax residency in 2020 after spending more than 182 days of the year abroad. A source with knowledge of the trial told Meduza that the court ignored that the law requires beneficiaries to be tax residents only at the time of purchase and that the Federal Antimonopoly Service lowered Russia’s tax residency requirement from 182 to 90 days in 2020 (at the height of the coronavirus pandemic). 

Anticorruption work in balance

For years, Russian state prosecutors have seized the assets of entrepreneurs accused of corruption and fraud, but the Prosecutor General started using this approach more actively in 2023, a lawyer in Russia with experience in arbitration disputes told Meduza. The agency has even pursued litigation demanding the confiscation of property that defendants have owned openly and uncontested for many years. Last year alone, officials filed at least eight such lawsuits. Most of these cases are continuations of long-standing criminal investigations, such as trials involving former cabinet minister Mikhail Abyzov and former Komi Republic Governor Vyacheslav Gaizer.

The most recent confiscation case targets one of Russia’s biggest car dealerships, ROLF, which belongs to the family of former State Duma deputy Sergey Petrov (through the Cypriot company Delance Limited). The ROLF case is unique insofar as the state is seizing the company’s assets in two separate legal actions at once. In December 2023, President Putin placed the entity under the Federal Property Management Agency’s “temporary administration” — a status that technically preserves the owner’s claim on the property but effectively amounts to nationalization. 

Five days after Putin’s executive order, Russia’s Prosecutor General sued Rolf, demanding the seizure of the company, contending that ROLF founder Sergey Petrov violated anticorruption rules by continuing to manage the business while serving in the State Duma from 2007 to 2016. Petrov denies these allegations and told Meduza that he sold off his foreign assets and stopped managing ROLF while in office. 

A lawyer who spoke to Meduza argued that the campaign against ROLF represents how “lobbyist groups” have infiltrated the Russian state’s confiscation agenda: 

Meduza interviewed a leading expert on Russian law enforcement who explained on condition of anonymity that police agencies in the country have learned to balance corruption with the quota system that guides much of their work. In practice, this means the authorities are opportunistic. For example, officials under orders to reduce the number of bankruptcies in their jurisdiction will likely turn away a businessman who approaches a local prosecutor’s office with a proposal to bankrupt a rival enterprise. Conversely, if there are orders to pursue certain cases, prosecutors might seek out competitors who would be interested in acquiring those assets (later on). 

According to Meduza’s source, it’s important to distinguish these two phenomena. The first example concerns officials acting out assignments from above. Prosecutors are told to focus their work in a certain direction, and a year later, they file reports documenting a greater number of such cases per those instructions. Meanwhile, the latter category of “anticorruption” law enforcement can involve prosecutors acting on their own initiative, though a lack of data makes it impossible to say which kind of policing is dominant now.

Vladimir Putin has insisted repeatedly that Russia will not undertake a mass nationalization of businesses or commence a “deprivatization.” At the same time, he’s also praised the Prosecutor General’s work “with certain companies.” “After all,” the president said in a speech last September at the Eastern Economic Forum, “law enforcement agencies have the right to judge what is happening in the economy in specific cases.”