Danone/Carlsberg: expropriation escalates Russia’s war on business

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Lawyers joke that a country can only break the law once. A second infringement makes law instead, by confirming a precedent. Russia has gone for that double hit by expropriating Russian businesses of France’s Danone and Carlsberg of Denmark. The beneficiaries are cronies of Vladimir Putin. Danone’s Russian assets will go to the nephew of Chechen warlord Ramzan Kadyrov.

Official expropriation represents an escalation of Russia’s retaliation against western sanctions and military aid to Ukraine. Forced sales were its previous wheeze. Meanwhile, the west has fastidiously — and correctly — ignored calls to expropriate frozen Russian state assets as war reparations. The contrast is striking.

Western businesses have been pulling out of Russia since it invaded Ukraine last year. Many have incurred steep losses: French bank Société Générale took a €3.3bn hit. Danone was expected to make a €1bn loss on selling the assets Russia has snatched instead.

Danone, whose yoghurt making was once designated a “strategic industry” by French president Jacques Chirac, could in theory seek compensation. France has an investment agreement with Russia, allowing the company to take action through international courts, notes Stuart Dutson of Simmons & Simmons.

But frosty international relations means neither company has much chance of a payout. Past disputes do not inspire confidence in the process anyway. Exxon-Mobil has received little of the $1.4bn granted after Venezuelan expropriation in 2007.

Western companies still active in Russia will wonder how safe their own assets are from covetous allies of Putin. PepsiCo, Mars, Philip Morris, Nestlé all have businesses ripe for the plucking.

Banks like Italy’s UniCredit, Intesa Sanpaolo and Austria’s Raiffeisen Bank remain too. But their genuine strategic importance provides some protection: Russia still needs financial links to the west to sell gas and process currency.

Putin, however, is happy to go it alone in the demanding technocratic field of yoghurt production.