Can Russia nationalise Western companies?

More and more Western companies are leaving Russia as a result of the current conflict between Russia and Ukraine. In response, Russia is taking steps to nationalise departing companies. Alessandra Arcuri, Professor of Inclusive Global Law and Governance at Erasmus School of Law, explains to NOS what companies can do when they are nationalised.

In this case, nationalisation means that the Russian state expropriates the properties of departing companies. Companies can evade nationalisation by not ceasing their operations in Russia or by selling their assets prior to nationalisation, but that is not very profitable, and it can be a challenge to find a buyer.

Once a company has been expropriated, the question arises whether a judge could reverse this decision or whether compensation is possible. Arcuri explains that that might be difficult: “It depends on many laws. Companies can submit a complaint to an international arbitration tribunal based on a bilateral investment treaty. But if a case is brought there, it is still by no means clear whether companies can actually receive compensation.”

Arcuri warns against other consequences of starting such a procedure: “it is doubtful that such a case is strategically sound when a business might want to return to Russia in the future. In addition, it could fuel the fire of a conflict that is already volatile on its own.”

There is something else to consider. Even when a company wins the case, obtaining a favourable arbitral award, it is possible that Russia defaults on its debt. In this case,  there is a risk that different creditors start competing for Russian assets, where powerful corporations could be able to seize assets more efficiently than the Ukraine war victims”, according to Arcuri.

More information

Read the full NOS article here (in Dutch).

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