Property rights in Russia have become yet another victim of the ongoing war in Ukraine. Since the full-scale invasion, we have seen assets owned by foreigners nationalized via presidential decree; prosecutors and courts overturn decades-old privatizations to benefit members of President Vladimir Putin’s inner circle; property owned by residents of occupied Ukraine who oppose Russian rule handed to decorated Russian military veterans; and companies, land, and real estate taken off those designated as “extremist.”
Battles over some of these assets have led to dramas worthy of Shakespeare himself, characterized by the institutional dysfunctionality and informal practices that increasingly typify late Putinism. None of this is a problem for Putin himself, but it risks becoming a nightmare for his successor.
In one particularly illustrative example, business media was consumed with speculation in June over who was behind the merger of top e-commerce company Wildberries, which has an annual turnover of 2.5 trillion rubles ($29 billion), and outdoor advertiser Russ Group. The two firms have little in common: Wildberries is far bigger than Russ Group (eleven times the size in terms of revenue, 6.8 times in terms of assets). Further mystery was added by the news that the deal had Putin’s personal support.
Despite that, the merger did not go smoothly. On July 23, Wildberries co-founder Vladislav Bakalchuk publicly appealed for help to the notorious Chechen leader Ramzan Kadyrov, alleging that Bakalchuk’s wife, Wildberries head Tatyana Bakalchuk, had “left home and got mixed up with unknown people” seeking to steal the family business. Kadyrov threatened to punish those responsible, and hinted that this was none other than billionaire Suleiman Kerimov, who has been linked to Russ Group. Tatyana Bakalchuk responded by saying that no one was trying to steal the company, and that the disagreements were the result of the couple getting divorced.
Unusually, much of this back and forth was carried out in public. The intended audience appears to be Putin, who must now mediate between Kadyrov and Kerimov. As a result, it’s entirely possible that Wildberries, which accounts for about 5 percent of Russia’s retail trade, could end up in new hands. It’s significant that Bakalchuk and Kadyrov did not file a lawsuit, preferring instead to appeal directly to Russia’s principal arbiter: Putin. The most scandalous Russian corporate conflict since the invasion of Ukraine provides a rare glimpse into how the legal system and property rights in Putin’s Russia work in year three of this war—or rather don’t.
Informality is key to Russian politics. Under Russian law, there is no need to get the president’s approval for big deals, but, unofficially, it’s considered good practice. For this reason, in advance of the tie-up, Tatyana Bakalchuk and her partners penned a letter to the Kremlin in which they promised to create a ruble-based international payments system, turn Wildberries into a competitor of global players like Amazon, ramp up exports to boost Russia’s GDP by 1.5 percent, and push official talking points like “traditional values.”
More likely than not, this document reached Putin via informal channels, meaning someone with access to the president handed him the letter. Putin gave his approval, and charged his deputy chief of staff, Maxim Oreshkin, with overseeing the deal. After this, no one—not the Federal Antimonopoly Service, nor the government—was going to object.
Much of the day-to-day running of Russia comes down to having such access to Putin. This is also how it was decided to nationalize the Russian assets of French dairy giant Danone and Danish brewer Carlsberg and transfer them into private hands. At the time, Carlsberg was preparing to announce the sale of its assets and its departure from Russia—a step for which it had received official approval. But someone dropped in on Putin before the deal went through and got the necessary signature.
One way or another, Putin’s approval amounts to a formal order that must be implemented without any public discussion, interagency agreement, or other formalities. And that means that Putin personally controls a huge volume of Russian assets, combining the power to distribute property rights and informally guarantee commercial transactions. Access to Putin is thus a significant element of political capital that trumps formal institutions and procedures exercised through courts, laws, and lawyers.
While there have been conversations about reversing the post-Soviet privatization ever since Putin came to power, no formal decision to do this has ever been taken. Nevertheless, following the full-scale invasion of Ukraine, a significant amount of property has been informally redistributed, from small businesses and private apartments to enormous metals factories and power generation assets.
This generally happens in one of several ways. First, assets can be seized from former officials who now live abroad (this is how ex-senator Leonid Lebedev lost control of thermal power company TGK-2, and how the pasta manufacturer Makfa was taken from ex-governor Mikhail Yurevich). Second, individuals can be accused of supporting Ukraine (like Ukrainian tycoons Rinat Akhmetov and Yevhen Cherniak). Third, the legality of privatization agreements from the 1990s can be challenged: an approach that sets a dangerous precedent. Finally, the authorities can designate a businessperson or their company as “extremist,” which means their property can be seized (this is what happened to vodka magnate Yuri Shefler and journalist Alexander Nevzorov).
Property redistribution in Russia has now reached such a scale that it is not only spooking the business community, but even some of Putin’s close allies. German Gref, the head of state-owned banking giant Sberbank, recently complained that the prosecutor general was “undermining the stability of economic activity and the inviolability of property rights.” In addition to the general issues of the investment climate, the head of Sberbank is clearly concerned that some of the redistributed property is being pledged to his bank. The manipulations of the Prosecutor General’s Office and the actions of the new management could worsen the quality of collateral, which would ultimately affect the balance sheets of credit institutions.
Still, the process shows no sign of slowing. On the contrary, it is rapidly becoming the biggest redistribution of wealth in Russia in three decades. The idea behind privatization in the 1990s was to create a class of capitalists who would stop the country from sliding back into Communism. Now, asset transfers are designed to increase loyalty to Putin.
By dishing out property rights and acting as a guarantor on commercial deals, Putin is bolstering his position and helping to preserve the current system. In essence, he is making Russian business a hostage to Putinism. Sooner or later, however, Putin will depart the political scene, and leave behind an institutional vacuum. This will result in confusion over property rights, lawsuits from former owners, and a whole host of attendant economic problems.
