Emerging Risks in Doing Business in Russia and How to Mitigate Them

In recent years, conducting business in Russia has become increasingly complex due to a variety of emerging risks. These challenges stem from geopolitical tensions, economic sanctions, and internal policy shifts, all of which can significantly impact foreign enterprises operating within the country. Russian private investigators emphasize that understanding these risks and implementing effective mitigation strategies is crucial for businesses aiming to navigate the Russian market successfully.

Emerging Risks

1. Economic Sanctions and Regulatory Hurdles: Since the onset of geopolitical conflicts, particularly the invasion of Ukraine in 2022, Russia has been subjected to extensive international sanctions, the most recent approved in February 2025 by the European Union. These sanctions have led to a substantial decline in foreign direct investment (FDI) and have also resulted in complex regulatory environments, making compliance a significant challenge for foreign businesses.

1. Asset Nationalization Threats: Russian legislation now permits the government to seize assets of foreign companies from “unfriendly” countries. A decree issued on March 3, 2023, allows for the suspension of shareholders’ rights and the implementation of external management in companies that fail to fulfill state defense contracts under martial law conditions. This policy poses a substantial risk of asset loss for foreign investors.
2. Operational and Financial Constraints: The Financial Action Task Force (FATF) suspended Russia’s membership on February 24, 2023, urging global financial institutions to exercise extreme caution in dealings with Russian entities. This suspension has led to increased scrutiny of financial transactions, making operations more cumbersome and costly. Additionally, high domestic interest rates, currently at 21%, have escalated borrowing costs, further straining business operations.
3. Reputational Risks: Companies maintaining operations in Russia face potential reputational damage. Continuing business activities may be perceived as support for actions contrary to international law, leading to negative publicity and potential loss of consumer trust globally.

Mitigation Strategies

1. Enhanced Due Diligence and Compliance: Businesses should conduct thorough due diligence in Russia to ensure compliance with international sanctions and local regulations. This includes staying informed about evolving legal frameworks and implementing robust internal controls to navigate the complex regulatory landscape effectively.
2. Diversification of Supply Chains: To mitigate operational disruptions, companies are advised to diversify their supply chains. Reducing reliance on Russian markets and exploring alternative suppliers can help maintain business continuity amid geopolitical uncertainties.
3. Local Partnerships and Joint Ventures: Engaging in partnerships with local entities can provide valuable insights into the regulatory environment and help navigate bureaucratic challenges. However, it’s essential to ensure that these partnerships comply with international laws to avoid potential legal repercussions.
4. Exit Strategies and Asset Protection: Given the potential for asset nationalization, companies should develop clear exit strategies. This includes understanding the legal implications of asset withdrawal and exploring options to safeguard investments, such as restructuring ownership or transferring assets to more secure jurisdictions.

Trends in Foreign Investment

The landscape of foreign investment in Russia has shifted notably. While Western investments have significantly decreased due to sanctions and geopolitical tensions, Chinese companies have increased their presence. In 2024, Chinese investors accounted for 34% of all new foreign-invested company registrations in Russia, a substantial rise from 13% in 2021. This trend indicates a pivot towards Asian markets, altering the dynamics of foreign business operations in Russia.

In conclusion, while the Russian market presents potential opportunities, it is fraught with emerging risks that require careful navigation. If you are currently dealing with a Russian company stay informed, hire a competent private investigation firm in Russia to conduct a thorough due diligence, adapt to the evolving landscape, and implement comprehensive risk mitigation strategies to operate successfully in Russia’s challenging environment.

C. Wright

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