How Putin Turned a Western Boycott Into a Bonanza

Mr. Putin’s economic counterstrikes have helped to fortify support among the elites profiting from the war and to blunt the effects of Western isolation. While Ukraine is preoccupied with short-term imperatives like shoring up international support, the relative resilience of the Russian economy has enabled Mr. Putin to play a long game.

Previously undisclosed documents, financial statements and interviews with dozens of deal makers in Russia and across Europe — many of whom spoke on condition of anonymity for fear of retribution — show that Moscow now micromanages practically every exit. Companies must navigate an opaque system to win approval to sell. In some cases, Mr. Putin’s friends have appealed directly to him to intervene.

“Those who are leaving are losing their position,” Dmitri S. Peskov, the Kremlin spokesman, told The Times. “And of course, their property is being bought at a serious discount and taken over by our companies, which are doing it with pleasure.”

Still, the wave of departing companies has stung. It has sent a global signal that Russia is a business pariah. The economy is strained and at risk of overheating. Mr. Putin’s handling of Western departures has only reinforced Russia’s image as a dangerous place to do business. Even some top Russian officials admit that decreased competition and foreign investment will hurt everyday Russians and the economy in the long term.

The Kremlin says it prefers that companies remain in Russia. But Mr. Putin scoffs at the notion that leaving will hurt. “Did they think everything would collapse here? Well, nothing of the kind happened,” he said this month. “Russian companies took over and moved on.”

Not every deal is a windfall. Some buyers will face steep obstacles to make their new businesses profitable.

Hanging over the exit process for Western firms is the threat of intimidation and force. The Russian authorities have investigated departing companies, interrogated workers and arrested local executives.

Last summer, Mr. Putin seized the Russian arm of the Danish brewer Carlsberg, along with roughly half a billion dollars in cash, and put them under the temporary control of one of his friends.

At least four other companies have similarly lost control of their operations this year to effective state seizures.

Today, Mr. Putin is at the helm of a fraught exit process that works to Russia’s advantage. But it began in the early days of the war with the urgent goal of simply keeping the Russian economy alive.

Blocking the Exits

Speaking from the White House two weeks after the invasion, President Biden boasted that the West was crushing the Russian economy. “The list of businesses and international corporations leaving Russia is growing by the day,” he said.

Things looked bleak for Mr. Putin. The stock exchange in Moscow was closed and the ruble had crashed. If Russia lost all the jobs, production and cash of Western companies, the effects would be devastating.

But Mr. Putin was preparing his financial rejoinder. He restricted the movement of money abroad and required that companies from “unfriendly nations” win approval before selling their businesses.

Mr. Putin was putting the brakes on just as Western executives faced pressure to accelerate. In the United States, there was perhaps no more vocal figure than the Yale University management professor Jeffrey Sonnenfeld. He appeared on cable news programs, criticizing companies that remained in Russia.

Professor Sonnenfeld recalled that it was corporate boycotts — more than sanctions — that helped abolish apartheid in South Africa. He transformed his office into a sort of war room, with a Yale team grading companies on their efforts to sever Russian ties.

The question of who would end up with those companies was of little concern.

“If Putin thinks he can do better at the deep fryer, let him have at it,” he said in an interview. “We really don’t care. The important thing is to not have the endorsement of a renowned global brand.”

Professor Sonnenfeld’s list and others like it added to pressure from shareholders, Ukrainian activists and everyday consumers.

Some executives worried what would happen to their Russian employees, factories and technology if they walked away. Others were reluctant to abandon their investments over a war that might prove short-lived.

But some quickly announced intentions to go. Heineken and Carlsberg said that they would leave once they found buyers. The Canadian gold mining company Kinross did the same, and within days announced a deal for $680 million to sell its Russian operation to a local buyer.

OBI, a German hardware store chain, went a step further, saying that it would close all 27 stores in Russia until it found a buyer.

Mr. Putin’s government, though, was already erecting hurdles.

On March 17, 2022, the Russian Trade Ministry sent a letter to local OBI managers. The letter, reviewed by The Times, urged managers to defy the company and keep the stores open, citing consumer-protection laws. There was no “economic reason” for closing, the ministry wrote.

OBI, the ministry warned, needed to fulfill “obligations to its consumers, workers and counterparties, including suppliers.” That prompted a days-long cat-and-mouse game as local employees tried to reopen stores and executives in Germany tried to stop them.

The Russian authorities also demanded that OBI officials testify about their plans. Prosecutors visited a store and inspected its computer system, the company told The Times.

OBI struck a deal that spring, ultimately selling for the symbolic price of a few dollars.

The buyer, a businessman named Josef Liokumovich, passed the company’s background checks and was not on any financial blacklists. But as OBI soon learned, Western companies have no control over who ultimately takes over their operations.

In less than a year, OBI’s Russia operation changed owners four times, ultimately landing with associates of the Russian senator Arsen B. Kanokov, who is under U.S. Treasury sanctions. At one point, an ally of the Chechen strongman Ramzan Kadyrov appeared in the ownership register.

Such redirection is why diplomats and experts say it is too early to understand the changing landscape. The true new owners of some businesses might not be known for years, if ever.

“These guys,” Urszula Nartowska, OBI’s top lawyer, said, “they have the power of what they want to take. And you have to accept that.”

In June, the Kremlin demonstrated what companies could expect: Moscow approved the Kinross gold mine sale, but with a stunning alteration. The sale price had been cut in half, to $340 million.

The buyer, Highland Gold, would later be blacklisted by British officials who said that gold provided a “significant income stream for Russia’s war effort.”

“The government realized they could dictate who buys, and maybe use that power to reward connected buyers,” said Alan Kartashkin, a lawyer for Debevoise & Plimpton who spent decades in Moscow and has negotiated the exits of Western companies.

“I remember thinking,” Mr. Kartashkin added, “once they feel they have the power to control entirely private transactions, where the government has no equity interest, they’re not going to stop.”

‘This Business Is Already Russian’

The mood was celebratory in July when the Russian minister of industry and trade, Denis V. Manturov, appeared at a St. Petersburg elevator factory.

The plant had recently belonged to the world’s largest elevator company, the Connecticut-based Otis Worldwide. Now it belonged to a firm controlled by Armen M. Sarkisyan, who had made a fortune running the Russian lottery in part thanks to government connections.

Mr. Manturov bragged that Moscow had brokered special arrangements for the sale. He gushed about a new production line and robust demand for elevators in Russian high-rises. “This business is already Russian,” he said. It was now known as Meteor.

Mr. Sarkisyan is an example of a unique creation of the war: a businessman who was politically connected enough to win such a prize and rich enough to close the deal — but not so closely linked to the Kremlin that he was subject to international sanctions.

Mr. Sarkisyan and others, almost overnight, absorbed huge corners of their markets.

When the Finnish elevator giant Kone tried to sell to its employees, the authorities rejected the deal. Once again, Mr. Sarkisyan’s holding company, S8 Capital, became the buyer.

S8 Capital also moved into the tire business, snapping up the Russian operation of the German company Continental, before buying the top Russian tire maker, Cordiant, and entering talks to purchase the Russian factory of the Japanese tire maker Bridgestone.

S8 Capital did not respond to requests for comment.

By the summer of 2022, Russia’s economy had stabilized, the ruble had rebounded and Mr. Putin’s strategy shifted.

While early in the war, companies like McDonald’s had sold to local managers or local business associates, with an option to return to Russia later, such deals soon became more difficult.

Having climbed out of crisis, the government wanted to do more than just keep the doors open. It increasingly wanted to dictate the terms of every deal.

In August of that year, Mr. Putin issued a decree requiring that companies in key industries obtain his signature before selling their Russian assets. Scores of businesses, including divisions of Siemens and Caterpillar, were suddenly subject to the whims of Mr. Putin himself.

“The government was beginning to tighten up the process, and it was becoming a lot more challenging,” said Laura Brank, a lawyer at Dechert helping Western companies to exit. “I was telling clients we’d better get moving quickly.”

The Subcommission

For most companies trying to leave Russia, the gatekeepers operate out of a gray government building near Red Square. Eleven days after the war began, Mr. Putin empaneled a special “subcommission” there to review requests to sell.

Mr. Putin’s longtime finance minister, Anton G. Siluanov, leads the subcommission, which includes officials from the Kremlin, the central bank and key ministries.

They decide whether companies can leave and under what terms.

Once a company has struck a deal with a buyer, the negotiations often begin again — this time in secret, between the buyer and one of the Russian government ministries. The seller is largely excluded. That process, lawyers say, often ends with a lower sale price and at times a new buyer. The deal then goes to the subcommission. Sometimes, deals fall through after months of silence.

Internal minutes, reviewed by The Times, show that the subcommission scrutinizes even the smallest details. In one meeting last year, the panel approved the $59,000 sale of a tiny apartment owned by the Finnish tire company Nokian.

The subcommission wields enormous power. Minutes show that it rejected a proposal by the American electronics company Honeywell to sell its factories until an assessment proved that the Russian buyer was getting a 50 percent discount.

Despite the bureaucracy, businesspeople have jockeyed behind the scenes for the most lucrative assets, often appealing directly to Mr. Putin.

Such was the case in the summer of 2022, when Mondi, a British-Austrian paper company, found a buyer for one of Russia’s largest mills and sought government approval to sell.

As the deal came together, one of Mr. Putin’s old K.G.B. buddies, Sergei V. Chemezov, appeared. He wrote a letter asking that the president steer the mill toward a group of investors, including the state-owned firm he runs. He even suggested a way to structure the deal to get around Western sanctions. The Times reviewed a copy of the letter.

Neither Mr. Chemezov nor the state-owned company responded to requests for comment.

Mr. Chemezov’s deal never happened, but neither did Mondi’s original agreement. The subcommission put the mill in the hands of a Moscow property developer for significantly less than the original price.

Abroad, Professor Sonnenfeld and others kept up the pressure. More than 200 companies had earned “F” grades on his list. Professor Sonnenfeld testified before Congress in November 2022. Remaining in Russia, he said, was tantamount to supporting the government.