Russia will provide extraordinary powers to confiscate the assets of “fraudulent” Western companies to prevent them from leaving the country, Financial Times journalists write, citing an official document from the Kremlin and President Vladimir Putin’s spokesman.

The FT’s sources say that last week the Kremlin secretly ordered a bill to seize the assets of foreign companies with minimal compensation, while discussing even tougher measures, including outright nationalization of businesses that want to leave Russia.

The FT notes that a team of Kremlin economists wants the threat of nationalization to be part of a “whip and gingerbread” approach to punish Western countries that grab Russian assets and reward those who play the Kremlin’s games.

An official Kremlin decree obtained by FT journalists gives the Russian state the preemptive right to buy any assets of Western companies on its territory at a “significant discount” so they can be sold at a profit.

Vladimir Putin’s order to his cabinet now also requires that all private Russian buyers of Western assets be wholly owned by Russia, further complicating any exit process.

The Kremlin condemns “naughty” foreign companies

Kremlin spokesman Dmytro Peskov told the FT that Western investors and companies are “more than welcome” in Russia, but some of them have stopped paying salaries altogether or simply decided to leave the country with huge losses.

“If the company does not fulfill its obligations, then, of course, it falls into the category of naughty companies,” Dmytro Peskov said.

“We say goodbye to these companies. And what we do with their assets after that is our business,” he defiantly added.

Stopping the outflow of Western companies after the start of the “special military operation” last year is a pressing issue even for high-ranking Russian officials.

For example, the head of the Central Bank of Moscow, Elvira Nabiullina, was one of the loudest campaigners for measures to limit the departure of international economic agents, worried that the outflow of foreign capital would weaken the ruble and limit opportunities for Russian investors.

But the Minister of Finance of the Russian Federation, Anton Siluanov, was less concerned about the situation, seeing it as an opportunity to withdraw money into the Russian state budget.

Did Russia’s finances go to shit?

Russia is facing a record budget deficit due to military spending on the war in Ukraine and other economic problems caused by the start of the invasion on February 24 last year.

Between January and April of this year, Russia ran a deficit of 3,400 billion rubles (40.6 billion euros), according to the Ministry of Finance in Moscow, a huge amount, considering that a deficit of 2,900 billion rubles was planned for the whole of 2023.

This limit was exceeded only a month later.

Moreover, in comments made in late May, Andriy Nechaev, Russia’s first economy minister since the collapse of the Soviet Union, said that the country’s finances, now led by Vladimir Putin, had gone “to shit.”

“[Problema] It’s not that we’re in shit, but that we decided to sleep in it,” Nechaev said at a financial forum organized in Russia.

Russia’s former economy minister said Moscow had enough reserves to cover the deficit for a year, but after that it would have to borrow.

How Russia is trying to extort money from companies that want to leave the country

A month before the publication of data on the budget deficit, journalists from Vedomosti, one of Russia’s largest financial newspapers, wrote that the Ministry of Finance in Moscow had prepared a new tax for foreign companies that want to leave the country.

According to Vedomosti sources, the Russian government intended to apply a 10% tax on “surplus profits” received by foreign companies in 2021-2022. The tax will apply to business entities with a profit of more than a billion rubles, while Bloomberg notes that no company that wants to sell its business in Russia will be exempted from it, as the country’s budget needs money.

The draft law related to the introduction of this measure was developed by the ministry headed by Anton Siluanov, which must give permission for any operation for the sale of assets of large foreign companies present in the country.

It is not yet clear whether this plan will be replaced by a new decree signed by Vladimir Putin. The ministry headed by Siluanov already requires foreign economic entities to sell their assets to local companies at a 50 percent discount to approve the deal.

“I believe that nationalization is inevitable. It’s only a matter of time,” the businessman, who is currently selling his Russian assets, told the FT. “The state will need money,” he emphasized.

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