Russia exits – Russian Prosecutors go after Russian Managers of foreign Subsidiaries?

On 16 November 2023 the former management of the Russian Baltika brewery (“Baltika”) - a subsidiary of Carlsberg, which the Russian authorities have placed under external management and thus de facto expropriated in July 2023 - has been arrested in Russia.

The prosecution is apparently related to trademark licenses granted by Baltika to foreign companies affiliated with Carlsberg before Baltika was placed under the external management. One of the licenses is alleged to have been executed retroactively. As reported, the criminal proceedings were initially commenced under Article 165 of Russian Criminal Code (causing property damage by deceit or breach of trust), but subsequently requalified to fraud (Article 159 of the Criminal Code).

This seems to be the first reported case when the management of a Russian subsidiary of a western investor actually faces severe criminal penalties for business restructuring measures implemented after 24 February 2022. Until now we had observed only a few attempts of the Russian prosecution authorities to put pressure on the CEOs of Russian subsidiary held by foreign investors - often with the goal to prevent or soften staff redundancies in the relevant Russian subsidiaries.  Moreover, these attempts were regularly unsuccessful and did not lead to the formal initiation of criminal investigations.

It is likely that the criminal proceedings against the former Baltika managers are a part of a broader dispute between Carlsberg and the Russian authorities, therefore, as such, they do not indicate an increase of the overall risk for the management of Russian subsidiaries. However, further development of prosecution practice in Russia should be carefully monitored and, where appropriate, personal risks mitigation measures for the local management should be adopted. These can include the physical relocation of the subsidiaries’ management to the seat of head office, i.e. to a place outside Russia.