Russian Court Freezes Raiffeisen Bank Shares, Escalating Tensions with the West
In a significant development, a Russian court has frozen the shares of Raiffeisen Bank International’s (RBI) local arm, effectively blocking the sale of its unit in the country. This move has heightened the ongoing standoff between Moscow and Western nations, as the Austria-based RBI, which is the largest Western bank operating in Russia, now faces an uncertain future regarding its business there.
RBI’s Plans to Spin Off Russian Business Thwarted
Under pressure from international regulators, RBI had pledged to spin off its Russian business, which serves as a crucial payment conduit for hundreds of companies in the region. However, despite these efforts, little progress has been made over two years since the start of the war in Ukraine. The recent court decision in Russia now effectively rules out any sale of the bank’s local operations. Nevertheless, RBI assured stakeholders that the court order would not impact the bank’s ongoing activities in Russia or its compliance with the European Central Bank’s (ECB) demands to downsize its Russian presence.
“We can still appoint management and give instructions to the Russians, but we cannot sell the bank,” an RBI spokesperson stated, emphasizing that the bank would seek to overturn the court’s decision. This is the largest freeze of assets involving a Western bank in Russia to date, setting a precedent for future interactions between Russian authorities and foreign financial institutions.
A Critical Player in Russian Finance
The freeze complicates the broader exit strategies of Western banks from Russia. While Italy’s UniCredit also maintains a presence in Russia and faces similar pressure to exit, RBI’s significantly larger operations have made it a focal point in the West’s efforts to sever financial ties with Russia. The Russian authorities, however, have indicated a desire for RBI to remain, as it facilitates international payments for around 2,600 corporate clients, 4 million local account holders, and employs approximately 10,000 staff.
Since the outbreak of the Ukraine war, RBI’s Russian operations have proven to be a financial boon. In the first quarter of this year alone, Russia accounted for nearly half of the group’s profits, thanks to increased fees on foreign transactions.
Sanctions and Legal Challenges Mount
The asset freeze is linked to a recent legal claim by Russian investment firm Rasperia against Austrian construction group Strabag and its Austrian shareholders, including the RBI unit. Although RBI is not accused of any wrongdoing, the court decision has far-reaching implications. RBI had earlier aimed to buy a stake in Strabag from a company allegedly linked to Oleg Deripaska, a Russian oligarch subject to Western sanctions. Deripaska has denied connections to Strabag and dismissed the sanctions as misguided.
The U.S. Treasury identified a Russian company, Iliadis, set up to acquire Rasperia, which holds Deripaska’s frozen shares. Amid increasing scrutiny, the U.S. Office of Foreign Assets Control began investigating RBI’s Russian activities in early 2023, compelling the bank to abandon its Strabag acquisition plans.
The Road Ahead: Challenges and Opportunities
With mounting pressure from Western regulators and sanctions, RBI faces a challenging path ahead. The ECB continues to demand that the bank scale back its Russian business. Meanwhile, Russian authorities appear intent on retaining RBI, valuing its role in enabling cross-border payments for millions of Russians.
As tensions escalate, RBI’s future in Russia remains uncertain. However, it has become a critical test of Western resolve to detach from Russia’s financial ecosystem while balancing the complexities of international banking operations amidst geopolitical conflicts.