Putin's Kremlin is not a monolithic structure when it comes to making money. Behind closed doors, Russia’s political elites constantly struggle for power, money and access to Putin.
In the informal Russian political vocabulary, the phrase "Kremlin Towers" refers to a series of factions in power that are fighting each other for influence over the economic sector. After Russia expanded its brutal attack on Ukraine, this struggle only intensified.
After February 24, 2022 foreign business began to leave Russia, influenced by a moral imperative, market optics, and pressure of sanctions. Gone are McDonald's and Starbucks, H&M and IKEA, IMD and Intel, KPMG and PwC. Renault, Henkel, and Carlsberg are selling their Russian plants.
Putin's elites perceived the exit of many companies from the Russian market as an opportunity to enrich themselves at the expense of these companies' assets. Western brands quickly became supplanted by Chinese.
"If they want to leave, let them experience certain costs," said Russian Finance Minister Anton Siluanov. He said two criteria would make the sale of foreign business possible: 1) the consent of the Ministry of Industry and Trade and 2) at least a 50% discount.
With this discount criteria, the exit from the Russian market has punitive consequences. For example, the German Dr Oetker, known for its baking ingredients, sold its Belgorod plant to its Russian management in April 2022. It does not seem that Belgorod's top managers could offer an amount that adequately reflects the value of the enterprise and its equipment. Most likely, we are talking about the actual write-off of assets.
On April 27, 2022, it became known that the automaker Renault "transferred" its 68% stake in Russia's largest car manufacturer AvtoVAZ in the Russian city of Tolyatti to an automotive research institute NAMI for one symbolic ruble, and its Renault Russia plant in Moscow — to Moscow city authorities.
Putin's elites, who are the local authorities, seized the asset. There are many such “discount” exit deals.
Yet, there are also notable exceptions. A prominent example of a suspicious deal is the sale of the Syktyvkar pulp and paper mill, which belonged to the humongous British company — Mondi Group. According to my source at the Economic Security Council of Ukraine, this deal is truly bizarre because the cost of one Mondi plant turned out to be almost three times higher than the value of all of Mondi's assets in Russia.
Russian company Augment Investments Limited and oligarch Viktor Kharitonin, close friend of the Kremlin, bought the plant in Syktyvkar for 95 billion rubles (about 1.5 billion euros). Mondi reported that its four plants in Russia were valued at €687 million a year earlier.
Ukrainian representatives, including some MPs such as Inna Sovsun of the Holos party, accuse Mondi of bypassing sanctions. Apparently, Mondi may not have been selling an asset in Syktyvkar, but rather a scheme to circumvent sanctions. In that context, the deal makes economic sense.
In Russia, there is a different opinion about Mondi.
Recall "Kremlin Towers"? They manifest themselves as the Russian elites that are focused on war with Ukraine and the ones who want to make money on the war at any price. Although the interests of the two factions overlap, they differ by way of emphasis.
Ergo, representatives of the Kremlin war faction, which openly supports full-scale military engagement with Ukraine, criticizes the Mondi deal. This criticism appeared on the pages of Readovka, a popular publication in Russia, which is the informal mouthpiece of the "party of war."
There was an overpayment for the asset. But it is caused by the fact that oligarch Kharitonin paid for the plant and Mondi's savings in rubles, which were stuck in Russian accounts due to sanctions.
"Several sources told Readovka at once that the company cost 900 million euros, and everything above is a fee for Mondi's savings in rubles. ... At the same time, the purchase of savings cost Kharitonin a 20% discount," the Russian newspaper explains.
In other words, Mondi had money that they could not withdraw from their bank accounts. Arguably, Kharitonin paid Mondi for the loss of this money (this compensation raised the deal price) and took the money stuck in Russia into the global marketplace.
The savvy oligarch knows how to handle troubled money in Russia, unlike Mondi. The compensation turned out to be less than the amount of funds stuck in Russia. In other words, Mr. Kharitonin allegedly purchased a "kickback," getting a discount from Mondi (presumably 20%).
Even though the "party of war" accuses Kharitonin of withdrawing money abroad, they do not mention the man behind the clever oligarch. Numerous investigations, including one by Transparency International, indicate that Kharitonin's business partner is Denis Manturov, the Minister of Industry and Trade of the Russian Federation. He blessed this deal in his capacity as the official responsible for the purchase of such assets. Kremlin’s war faction is also a war profiteer, but it felt slighted when Manturov cashed in.
The Ukrainians argue that Mondi sold a scheme to circumvent sanctions. The Russian side suggests Mondi entered into an informal agreement with Minister Manturov. Opinions differ. But, whatever we choose to think, the position of the Mondi Group appears immoral.
To prove the opposite, one thing is missing — the counter-narrative of the British packaging giant itself. Mondi has yet to explain the high value of the asset it sold to the Russians. This is especially curious knowing that Mondi's direct competitor in the packaging market, Tetra Pak, sold its business in Russia for a symbolic 1 euro.
Mondi and Tetra Pak examples offer valuable lessons for many multinational corporations. In the Tetra Pak case, the market participant picked a moral stance over profits. In contrast, the Mondi example shows that some western businesses will risk reputational harm to gain a pecuniary benefit by technically circumventing U.S. and European sanctions.
Yuri Vanetik is a private investor, lawyer and political strategist based in California. Read Yuri Vanetik's Reports — More Here.
© 2023 Newsmax. All rights reserved.