For any economy, developing or developed, the financial sector serves as a circulatory system carrying the economy’s equivalent of blood – money – to all the needed parts of its organism. But in Russia’s case, the financial sector players are literally involved in bloody business, as it is fuelling the Kremlin’s war machine with funding and enabling it to kill and terrorize civilians in Ukraine. Unfortunately, it is applicable to multinational financial institutions as much as to domestic ones.
At the beginning of Russia’s full-scale war against Ukraine, at least 199 finance and payments companies of foreign origin were operating in Russia, according to the KSE Institute, one of the B4Ukraine members. While almost half of them have curtailed their operations in the country, only four companies have completed their exit. In particular, out of around 60 foreign banks that operated in the Russian market in early 2022, only one – French Société Générale – has fully completed its exit. According to the banks’ report, after exiting the Russian market, Société Générale took a loss of €3.3 billion. But the bank’s capital didn’t take significant capital impact, and the group’s strategic developments were not handicapped by the decision. Société Générale even managed to outperform its rivals.
Despite such a successful exit from Russia by what used to be one of the most exposed foreign banks, other banks don’t hurry to pull out from the Russian market. Currently, among those with the largest exposure to Russia are six banks: Raiffeisenbank, France’s Crédit Agricole, Italy’s UniCredit and Intesa Sanpaolo, the Hungarian OTP Bank Nyrt, and finally, US-based Citi, which announced accelerating its exit from Russian operations last week.
The financial multinationals contribute to Russia’s war efforts not only by supporting its economy but also via their exposure to the Russian fossil fuel industry. The latter is one of the primary sources Russia uses to fund its war machine. State-owned companies and oil and gas-related taxes and export tariffs accounted for 45% of Russia’s federal budget revenues in early 2022.
A boycott of Russian fossil fuels can not be successful while banks and investors continue to finance Russian coal, oil, and gas companies. At the start of the war, there were 48 financial institutions with confirmed exposure to the Russian fossil fuel market, according to BankTrack, another B4Ukraine member. Their combined investments in the Russian oil and gas sector amount to $4.2 billion, and the loans they provided for the oil and gas sector-related purposes reach $18.5 billion. These are the banks from all over the world: Austria, Canada, China, Cyprus, Denmark, Finland, France, Germany, Italy, Japan, Netherlands, Norway, South Korea, Sweden, Switzerland, the UK, and the US.
So far, only 24 banks, or 50% of those exposed to the fossil fuel industry, have promised to somewhat limit their activities in Russia. “Citi, Crédit Agricole, OTP Bank and Intesa have announced intentions to exit but are dragging their heels or remain exposed to major Russian fossil fuel companies, such as Lukoil, Gazprom and Rosneft,” write BankTrack analysts.
But it is Raiffeisenbank and UniCredit whose position is the most egregious, as they still have the largest exposure of $25 billion and $8.1 billion, respectively, and yet have made no efforts to leave Russia. As BankTrack reports, specifically, these two banks support the Russian fossil fuel industry through loans, underwritings and investments while they also seem to be the ones most unwilling to leave Russia.
So far, the financial multinationals operating in Russia have been indirectly involved in the war by paying taxes to the Russian state, financing the Russian fossil fuel industry and supporting the Russian economy. But now the Kremlin’s mobilization makes them directly involved in the war as the Russian government requires businesses to assist with conscripting soldiers from the ranks of employees.
Soon after the Russian President announced the partial mobilization, the governor of Russia’s central bank, Elvira Nabiullina, promised: “The employees engaged in the critically important areas will stay at their work places so that the financial system continues operating smoothly, people receive their wages, pensions, social security benefits on time, payment cards and transfers work, and new loans are given. As a whole, so that the Russian economy and people receive the necessary supply of financial resources.” Those “essential employees” of the financial sectors include specialists responsible for the critical infrastructure, payments and settlements, cash collection, operations and protection of information systems, duty personnel, and customer and business support employees, according to the central bank of Russia.
A week later, the Bank of Russia collected and sent to Russia’s Ministry of Defense a list of the banks’ employees providing critical services, who, therefore, shall not be mobilized. The foreign banks were also among those submitting their employees for exemption, as confirmed by Raiffeisenbank in response to the BHRRC survey about the multinationals’ response to the mobilization.
Will the exemption list save international banks from complicity in the war? There are several reasons to doubt that.
First, this list can not and does not include all of the employees of the said banks. According to the Kommersant media citing the Russian central bank, such a list could include no more than 30% of the personnel of a credit institution.
Second, according to Forbes Russia, as of October 10, the Russian Ministry of Defense still hasn’t approved the central bank’s list.
And third, there are many recorded cases of mobilization of people who are not supposed to be mobilized according to Russia’s Federal Law No. 31-FZ, such as fathers to large families, severely sick people, or men with no previous military experience. Moreover, sometimes even the essential workers in the process of performing their duties can’t escape mobilization, as happened to the pilot in the Russian city of Ufa, who was taken directly from the plane to the military enlistment office.
In light of Putin’s mobilization, the B4Ukraine coalition urges all other foreign banks and other financial institutions to take into consideration the inevitable risk of complicity in Russia’s war crimes and atrocities evidenced in Ukraine during almost eight months of the unlawful war. They must leave Russia immediately and stay out until the territorial integrity and sovereignty of Ukraine are restored. This is the only way to deprive the Kremlin’s war machine of financial resources and avoid the enormous reputational and financial repercussions of being dragged into the war.