Raiffeisen Bank clients in Russia aid Putin’s war


Money trail: Tourists at the Red Square near the Kremlin in Moscow. RBI generated more than US$1.03bil in after-tax profits from its Russian unit in the first three quarters of last year. — Bloomberg

VIENNA: Vienna-based Raiffeisen Bank International (RBI) AG is making money from firms supplying Vladimir Putin’s military, according to documents seen by Bloomberg, as the Russian army pushes forward in Ukraine.

RBI’s Russian unit received more than 62 million rubles in fees for its services from one Russian chemical company last year, bank statements and other documents showed.

That firm supplied a sanctioned company with ingredients needed for producing military systems, according to the statements.

European government officials familiar with the documents said it was “almost certain” the bank had other customers supplying Russia’s defence industry after Putin shifted his economy onto a war footing.

The dramatic re-engineering of the Russian economy since the invasion of Ukraine has sucked a large number of civilian companies into military supply chains.

Because it didn’t leave Russia straight after the invasion, RBI now finds itself essentially stuck in the country.

In response to questions from Bloomberg, a spokesman said the bank observes all relevant sanctions on Russian entities, and particularly those imposed by the European Union (EU), the United States and the United Kingdom.

“RBI has implemented monitoring and screening systems, tools and procedures to ensure that all transactions and business activities are duly monitored to be in strict compliance with applicable sanction legislation,” the spokesman said by email.

As Putin’s missile units targeted Ukrainian civilians and critical infrastructure last year, RBI generated more than US$1.03bil in after-tax profits from its Russian unit in the first three quarters.

That was nearly 50% of the profit produced by the group as a whole and more than twice what the unit had earned in the two full years before the invasion.

The bank paid US$285mil of taxes to Russia over the same nine-month period.

Yet, the bank is entangled in Putin’s war economy and unable to transfer assets to the parent company in Austria even as profits surge.

Capital controls imposed by Moscow mean RBI has not been able to access any profits for years and, as a result, has accumulated US$4.5bil of excess capital stranded in Russia.

That poses a major dilemma for executives at the bank, which has a market cap of about US$7.2bil.

They’re faced with the possible shock of losing their most profitable subsidiary on the one hand, and regulatory pressure on the other.

The local business, like all lenders operating in Russia, is regulated by the central bank in Moscow and considered a Russian entity under Russian law.

That makes it very complicated to break off ties with clients, even if they are sanctioned or working with the military, since Russia allows accounts to be shut down only in a limited number of circumstances and doesn’t recognise the sanctions imposed on its companies.

The Austrian lender said it has been trying to figure out how to leave Russia for three years. It has come under pressure from US regulators and the European Central Bank (ECB) to speed up its exit.

RBI also operates one of the largest foreign-owned banks in Ukraine where it is a key provider of financing to the agricultural sector.

UniCredit SpA and Hungary’s OTP Bank Nyrt are among several other foreign banks still operating in Russia, while Societe Generale SA accepted its losses and left shortly after the full-scale invasion in 2022.

ING Groep NV announced the sale of its unit on Jan 28, saying it expects to book a US$720mil loss.

Goldman Sachs Group Inc has obtained approval from Moscow for a deal to sell its Russian unit, Bloomberg reported on Jan 31.

Bank statements from the Russian chemical maker Unichim, which is not sanctioned, showed that it paid RBI commission fees last year as well as transfer costs, account maintenance charges and fees relating to foreign-exchange transactions.

The statements also showed that Unichim supplied acids to a sanctioned Russian firm Rawenstvo, including for a Russian government project that European government officials said is developing and modernising platforms and ammunition for multi-launch rocket systems and glide bombs.

Rawenstvo designs and manufactures navigational radar systems, according to the US Treasury.

The company is a unit of the also sanctioned state-run Concern Granit-Electron, which produces key elements of missile systems, such as automatic control systems and radio electronic warfare systems for Russia’s navy.

Rawenstvo and Unichim didn’t respond to requests for comment.

Some of the documents reviewed by Bloomberg showed that among the transactions, Unichim received a payment of 16,642.36 rubles from Rawenstvo on March 15, 2024, and another one on Feb 26 of 27,840 rubles, for the compounds.

Acids and other chemicals can be used in propellant systems for missiles.

According to the US Treasury, Rawenstvo’s parent, Concern Granit-Electron, is linked to the JSC Tactical Missiles Corp, a state-owned defence conglomerate that manufactures many of the weapon systems that Russia is using against Ukraine.

All three companies were earlier sanctioned by the United States shortly after the Russian invasion, and are also subject to EU restrictions.

Unichim was set up in 2019 in St. Petersburg and is licensed to provide chemicals used in medicine and fertiliser industries.

The vast majority of its business is with non-sanctioned entities, the documents showed.

According to the statements, Unichim received a 74,880-ruble payment for acids last February from another sanctioned company, Proletarsky Zavod, a unit of the also sanctioned United Shipbuilding Corp, Russia’s biggest ship producer.

United Shipbuilding’s business includes producing vessels for the Russian navy, which has targeted Ukrainian and international shipping in the Black Sea in a bid to shut down grain exports and deprive Kyiv of crucial trade revenue.

Proletarsky Zavod didn’t respond to a request for comment.

Western officials have deployed a barrage of sanctions and other trade restrictions in an attempt to limit Moscow’s revenue sources and its ability to get its hands on components for its weapons.

Alongside sanctions on manufacturers and suppliers, these efforts have included measures targeting intermediaries in third countries, banks and other enablers.

RBI’s Russian unit is among about a dozen lenders that Russia considers “systemically important” for its banking system.

Moscow would most likely be reluctant to see the Austrian lender leave the country.

Any departure needs to be approved by a commission and signed off by Putin himself.

It would also need the greenlight from the ECB and the Austrian financial regulator, as well as the US sanctions authority, the Office of Foreign Assets Control. — Bloomberg

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