Economy 30 January 2023, 8:56am

Russian firms mushroom in Hungary amidst EU sanctions

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It has become much more difficult for Russian businessmen to do business in Europe since the President Vladimir Putin launched an attack on Ukraine almost a year ago. But Hungary has become popular for many entrepreneurs: more than 10% of all Russian-owned companies registered in the country were registered in 2022.

The European Union is now on the verge of adopting its tenth package of sanctions against Russia, but in fact restrictive measures have been introduced continuously since the illegal annexation of Crimea in 2014. The most well-known are various export restrictions, such as a ban on imports of Russian coal, a ban on the trade in offshore oil, or a halt to the export of various technological equipment that could be used for military purposes. There is also much talk of Russian financial institutions being excluded from the international SWIFT interbank payment system.

However, most of the sanctions are mainly on private individuals and Russian state entities, with a total of 1,386 individuals and 171 entities already subject to an asset freeze and/or a travel ban. The list has been growing steadily since 2014, and more Russian private individuals could be added in February. The measures against them include a ban on making any funds or assets available to them, directly or indirectly. Legally, the latter possibility makes it impossible for them to start businesses in the EU, and in many cases these restrictions are also imposed on their family members.

“We have blocked €300 billion of the Russian Central Bank reserves, and we have frozen €19 billion of Russian oligarchs’ money,” European Commission President Ursula von der Leyen said in a statement on 30 November.

The amount of Russian assets frozen by Hungarian authorities jumped from €3,000 to €870 million from one month to the next (as of 25 November), which is a huge jump and a massive volume even on an EU level.

Russian firms fleeing

The restrictions affected a host of companies in the EU. According to a survey by research centre Transcrime, there were (in March 2022) almost 31,000 firms in Europe with Russian beneficial owners. 1,400 of them are controlled by 33 individuals subject to recent sanctions – the so-called ‘oligarchs’. Real estate, construction, hotels, the financial and energy sector prevail. In terms of countries, Germany, United Kingdom, Cyprus, the Netherlands, Luxembourg and Austria host most of oligarchs’ firms. (There's no data on Hungary, though.) The value of these firms is higher than 440 billion US dollars (total assets, book value).

But not all Russians have been banned from doing business in the EU, and many entrepreneurs critical of President Vladimir Putin's regime have left Russia. This allowed existing EU companies to continue operating. But interestingly, most of them fled with their assets to Serbia, where investments by foreign companies and individuals in Serbia last year exceeded €4 billion (nearly HUF 1,600 billion), approaching pre-pandemic levels.

The Serbian Agency for Business Registers told RadioFreeEurope/RadioLiberty (RFE/RL) that 1,020 Russian-owned companies were founded in Serbia in 2022 -- more than 12 times the figure of the previous year, when 82 such companies were founded.

Plenty of them in Hungary too

In Hungary, according to the Opten.hu company database, there are currently 671 operating companies whose owners are either Russian entities or Russian citizens. Of these, 24 companies have a turnover exceeding HUF 500 million in 2021, the latest data available.

The inflow of Russian companies to Hungary has been steady, with around 50-60 companies a year being established in the country since the coronavirus outbreak.

IT IS THEREFORE INTERESTING THAT 77 COMPANIES WITH RUSSIAN INTERESTS WERE FOUNDED IN HUNGARY since THE RUSSIAN-UKRAINIAN WAR BROKE OUT ON 24 FEBRUARY 2022.

This means that more than 11% of all active businesses were established in the country last year. This year, however, the momentum has slowed down so far: only 3 companies were registered by 27 January.

It is not yet known how Russian companies performed financially in 2022: the deadline for filing company reports is 31 May, when it will be clearer exactly how much revenue they generated. And the National Bank of Hungary (MNB) is expected to update its statistics on working capital inflows at the end of March.

The European Council decided on 27 January to prolong by six months, until 31 July 2023, the restrictive measures targeting specific sectors of the Russian economy.

Cover photo: Getty Images.