How Putin Turned a Western Boycott Into a Bonanza

Soon after Russian troops invaded his country, the Ukrainian president, Volodymyr Zelensky, made a plea to Western companies: “Leave Russia,” he said. “Make sure that the Russians do not receive a single penny.”

Hundreds of companies answered the call. Politicians and activists predicted that it would help strangle the Russian economy and undermine the Kremlin’s war effort.

President Vladimir V. Putin had other plans.

Mr. Putin has turned the exits of major Western companies into a windfall for Russia’s loyal elite and the state itself. He has forced companies wishing to sell to do so at fire-sale prices. He has limited sales to buyers anointed by Moscow. Sometimes he has seized firms outright.

A New York Times investigation traced how Mr. Putin has turned an expected misfortune into an enrichment scheme. Western companies that have announced departures have declared more than $103 billion in losses since the start of the war, according to a Times analysis of financial reports. Mr. Putin has squeezed companies for as much of that wealth as possible by dictating the terms of their departure.

He has also subjected those exits to ever-increasing taxes, generating at least $1.25 billion in the past year for Russia’s war chest.

No private deal is safe. The Dutch beer company Heineken, for example, found a buyer this spring and set a price. But the Russian government unilaterally rejected the deal, people close to the negotiations said, and put the company’s Russian holdings in the hands of an aerosol-packaging titan married to a former Russian senator.

In all, Mr. Putin has overseen one of the biggest transfers of wealth within Russia since the fall of the Soviet Union. Huge swaths of industries — elevators, tires, industrial coatings and more — are now in the hands of increasingly dominant Russian players.

In some cases, that player is the state. Government-owned enterprises have acquired the assets of corporate giants like Ikea and Toyota. In many cases, Mr. Putin personally signs off on sales.

“These are good deals for us, for sure,” said Anton Pinsky, a prominent restaurateur who joined with a pro-Putin rapper and associates of a powerful senator to take over Starbucks. In an interview in Moscow, he downplayed the significance of his own deal but was clear about the effect of the Western departures.

“You screwed up, left it,” he said. “We picked it up inexpensively. Thank you.”

Today in Russia, a robust consumer world carries on, helping Mr. Putin maintain a sense of normalcy despite a war that has proved longer, deadlier and costlier than he predicted. Most foreign companies remain in Russia, unwilling to lose the billions they’ve invested there over decades.

Other businesses have been sold and now have a through-the-looking-glass feel. Krispy Kreme is now Krunchy Dream; its doughnuts come in a similar flat box with familiar flavors. Starbucks has been reborn as Stars Coffee. Its mermaid is now a Russian swan princess.

These companies can buy raw materials domestically or import them from friendly countries. And customers can still easily buy products that have supposedly been pulled from shelves. On a recent day, a Moscow supermarket offered Pepsi from Uzbekistan and Coca-Cola from Poland.

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.

Some of the Beneficiaries

Vladimir Pontanin

President of Interros, which purchased Société Générale’s assets in Russia.

Leonid Mikhelson

Chairman of Novatek, which purchased Shell and TotalEnergies energy shareholdings.

Timati and Anton Pinsky

A rapper and a restaurateur who are among the new owners of local operations of Starbucks and Domino’s Pizza.

Ivan Tavrin

Russian investor behind Kismet Capital, which has invested in Henkel, Avito and Melon Fashion Group.

Armen Sarkisyan

Businessman behind S8 Capital, which bought the operations of Otis, Kone, Continental and Bosch.

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.

But under Mr. Putin’s rules, leaving also directly benefited the government and, in turn, the war.

This year, the parent company of Ikea sold its Russian malls to a state-controlled bank. Nokian sold its operation to an oil company owned by a Russian regional government. The Russian operations of Nissan, Renault and Toyota were taken over by a state company.

The Russian government has looked to use former Western auto factories to produce vehicles for the state-owned luxury brand Aurus, according to an internal Trade Ministry document obtained by The Times.

Neither the Trade nor Finance Ministries responded to requests for comment.

Mr. Putin also found a way to bring money straight into state coffers.

Early on, foreign deals were subjected to what the government called a “voluntary tax” — required for the privilege of taking money out of Russia in a lump sum. Companies that opted not to pay the tax would receive their payouts in installments.

But by early this year, Mr. Putin had stopped giving them the choice. Companies had to pay the tax, and they still might get their money in installments.

The Kremlin also made explicit what had been implied since the Kinross deal: Companies were required to sell for at least a 50 percent markdown.

Heineken, for About a Dollar

By 2023, the landscape had become unknowable. The Kremlin constantly changed the rules and seemed to be always demanding more. Companies including Unilever announced that they would rather remain in Russia than have their assets end up in the government’s hands.

Against that backdrop, executives at Heineken and Carlsberg were still negotiating with prospective buyers this year when Mr. Putin awarded himself even greater powers.

The Russian government, he decreed in April, could seize foreign assets and put them under the temporary oversight of whomever it liked. Companies now risked being seized outright.

Heineken reached a deal that month and the buyer, a Kazakh businessman, requested government approval. Carlsberg executives followed suit, planning to sell to Arnest, the Russian aerosol maker that had recently snapped up the highly profitable drinks-packaging business of the U.S.-based Ball Corporation.

Both brewers felt confident that, more than a year after announcing plans to leave Russia, they would finally do so.

In July, Mr. Putin blindsided Carlsberg executives by seizing the company and placing it in the hands of his longtime associate and judo friend, Taimuraz Bolloev.

Carlsberg was an attractive target. The company controlled the iconic Russian beer brand Baltika and had recently valued its Russian operation at about $3 billion. Its sales application had revealed that it was sitting on a half-billion dollars in cash.

In another twist, Russian officials also rejected Heineken’s deal. According to the people close to the negotiations, the authorities steered the business toward Arnest — a consolation, perhaps, for having lost the far more lucrative Carlsberg.

The deal went through for a single euro and the promise to repay $100 million in debt.

For Carlsberg executives, the saga was far from over. Mr. Bolloev, they said, has pressured them to sign over the company permanently.

“It would require that we literally did a deal with Putin and his administration, creating a legitimate transaction where they could take over our business for basically close to nothing,” Jacob Aarup-Andersen, the Carlsberg chief executive, said in an interview last month. “We just couldn’t do that.”

Within weeks, the Russian authorities had arrested two company employees and raided their homes. This month, Russian news outlets reported, Mr. Bolloev asked the authorities to nationalize the company.

Dmitri A. Medvedev, the former president who is the deputy chairman of Russia’s security council, expressed no sympathy for companies trying to move money out of the country and take it back to the very countries arming Ukraine.

He taunted Carlsberg, thanking them for padding the Russian budget.

“A strong budget means help for the front,” he wrote last month. “In this regard, the senseless Danes also contribute to modern Russian weapons.”