Raiffeisen Bank International AG, Austria’s largest lender with significant operations in Russia, has been found to be profiting from companies supplying critical materials to the Russian military.
According to a report by Bloomberg, the bank’s Russian subsidiary received more than 62 million roubles (€606,660) in service fees from Russian chemical company Unichim in 2023.
Unichim has been involved in supplying sanctioned companies with components essential for manufacturing military systems. Following the release of the Bloomberg report, Raiffeisen Bank’s shares fell by 6.4% on the Vienna Stock Exchange.
Financial Transactions Involving Sanctioned Entities
Raiffeisen Bank has been facilitating financial transactions for Unichim using accounts in sanctioned Russian banks, including Sberbank, VTB, and Solidarnost. These institutions have been subjected to international restrictions due to their links with the Kremlin’s defence and industrial sectors.
In addition to this, Unichim has supplied acids to Russian company Rawenstvo, which is also under international sanctions. Rawenstvo has been involved in projects aimed at developing and modernising launch platforms and munitions, including multiple rocket launcher systems and glide bombs.
According to the U.S. Department of the Treasury, Rawenstvo specialises in the development of navigational radar systems and operates as a subsidiary of the sanctioned Russian conglomerate Granit-Electron. The latter is a key manufacturer of missile system components. Furthermore, Rawenstvo has had business ties with Proletarsky Zavod, part of Russia’s state-owned United Shipbuilding Corporation, the country’s largest shipbuilding enterprise, which has been producing vessels for the Russian Navy.
Additional Defence-Linked Transactions
Reports also indicate that Raiffeisen Bank has processed transactions for Totalelectro, a Russian company that has supplied electrical cables to the Smolensk Aviation Plant, another sanctioned entity linked to Russia’s aerospace and defence sectors.
The extent of the bank’s dealings with other entities connected to Russia’s military-industrial complex remains unclear, but analysts suggest that Unichim and Totalelectro are unlikely to be the only such clients.
Profits and Capital Constraints
Despite the geopolitical risks associated with its Russian operations, Raiffeisen Bank continues to generate significant revenues from the country. In the first three quarters of 2023, the bank earned more than €1 billion in profit from its Russian operations, accounting for approximately 50% of the group’s total earnings. During this period, it paid €277 million in taxes to the Russian government.
However, the bank faces challenges in repatriating these earnings. Capital controls imposed by Russian authorities have prevented Raiffeisen from transferring funds back to its Austrian headquarters, resulting in the accumulation of €4.4 billion in surplus capital within Russia. This amount has been effectively frozen, leaving the bank unable to access its earnings while remaining deeply entrenched in the Russian financial system.
International Scrutiny and Future Challenges
Raiffeisen Bank has faced growing pressure from Western governments to reduce its exposure to the Russian market. European and U.S. regulators have urged the institution to expedite its withdrawal from Russia, citing concerns over its financial entanglements with sanctioned entities.
While Raiffeisen has stated that it is exploring ways to wind down its Russian business, including a potential sale or separation, its continued involvement in transactions linked to the country’s defence sector raises questions about its commitment to compliance with Western sanctions.
A potential sale of Raiffeisen’s Russian unit would require approval from Russian authorities, including President Vladimir Putin himself. Furthermore, regulatory hurdles from the European Central Bank (ECB) and the U.S. Office of Foreign Assets Control (OFAC) complicate any attempt at divestment. Any sale would likely involve a significant financial loss due to Russian-imposed restrictions, including a requirement to sell at a steep discount and pay a 35% exit tax.
The bank’s inability to divest has led to a regulatory dilemma: holding onto its Russian operations risks deeper entrenchment in a war economy, while a forced exit would result in heavy financial losses. Meanwhile, other European banks, such as Societe Generale and ING, have successfully exited Russia, while others, including UniCredit and OTP Bank, remain.
As scrutiny intensifies, Raiffeisen may face additional regulatory consequences, reputational damage, and potential restrictions on its broader operations in Europe. The ongoing developments will likely shape the future of Western financial institutions still operating in Russia under the current geopolitical landscape.
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