Western banks paid the Kremlin more than €800 million in taxes last year

The largest Western banks that continue to operate in Russia despite all restrictions paid the Kremlin more than €800 million in taxes last year, which is four times more than in the years before the invasion of Ukraine.

Raiffeisen Bank International, UniCredit, ING, Commerzbank, Deutsche Bank, Intesa Sanpaolo, and OTP are the seven largest European banks by assets in Russia and reported a combined profit of over €3 billion in 2023.

These profits were three times higher than in 2021 and were partly generated from funds that banks cannot withdraw from the country. The taxes paid by European banks, which account for about 0.4 percent of all expected non-energy budget revenues of Russia for 2024, are an example of how foreign companies that remain in Russia help the Kremlin maintain financial stability despite Western sanctions, reports the Financial Times.

More than half of the tax payments from European banks of the mentioned €800 million relate to Austrian Raiffeisen Bank International (RBI), which, of all Western banks, operates the most in Russia.

RBI’s Russian profit more than tripled to €1.8 billion between 2021 and 2023, accounting for half of the total profit of the Austrian group. In addition to regular tax contributions in 2023, Raiffeisen paid €47 million as a result of an unexpected tax imposed by the Kremlin on companies last year.

After the start of the invasion of Ukraine in February 2022, RBI repeatedly expressed its plan to reduce its operations in Russia, but despite persistent criticism from the European Central Bank, this bank has not yet reduced its influence in Russia. For instance, the Financial Times reported that RBI has posted job advertisements in Russia suggesting ambitious plans for ‘multiple expansions of the active client base’ in that country.

Transactions mostly in rubles

On the other hand, although their presence is small compared to RBI, Deutsche Bank, OTP, and Commerzbank publicly stated that they have significantly reduced their presence in Russia, while Italian Intesa Sanpaolo and UniCredit have not yet commented on their operations in Russia.

Despite closing corporate and retail operations, American Citigroup, according to data from the Central Bank of Russia, has become the fourth largest taxpayer among Western banks in Russia. In addition to Citigroup, the American giant JPMorgan is also omnipresent in Russia, although it has been trying to leave the country since 2022, but is now facing a multi-million lawsuit from its former Russian partner VTB.

Western lenders have profited from the imposition of sanctions on most of the Russian financial sector, which have denied access to the international interbank payment system Swift. This has made international banks a financial lifeline between Moscow and the West, and sanctions have also contributed to an increase in net income from fees and commissions for Western banks. Furthermore, according to foreign media reports, Russian and Western banks now often settle cross-border payments in rubles ‘to reduce the risk of sanctions’ and ‘speed up the process’ of payments.

Combined data on revenues, profits, and taxes of international banks have fallen since 2022, but are still much higher than pre-war results. Banks have also benefited from rising interest rates with the key rate of the Russian central bank at 16 percent, which is almost twice as high as before the war.

Interest rate increases have helped lenders achieve large revenues from their variable-rate loans and accumulate additional income from funds trapped in Russian deposit accounts.

Banks cannot access cash in Russia due to regulatory restrictions imposed in 2022 that prohibited the payment of dividends from Russian subsidiaries to companies from ‘hostile’ Western countries. This locked cash represents a significant obstacle to exiting Russia. Since the beginning of 2022, banks have also required personal approval from President Vladimir Putin to sell their Russian operations. Only seven out of a total of 45 Western banks have received such approval.