by Matthijs Verheijen & Hannes Meissner, L&M PRISK Business Brief (Vol.2, January 2025)

Major Western support for Ukraine in the form of possible EU membership and the high level of financial support for reconstruction are raising hopes of a democratic Ukraine that guarantees maximum security for companies through the functioning rule of law and whose economy is booming thanks to the influx of external funding and FDI. With Donald Trump's inauguration, hopes are growing among many companies that there will soon be a stable peace-agreement with Russia and long-term stability will return. However, major uncertainties remain. The current L&M PRISK Business Brief analyses three different future scenarios for Ukraine and the associated opportunities and risks for companies and investors, discusses their probability and derives recommendations. To read the business brief, please follow this link.

Drawing on our deep insights and confidential sources, our business briefs provide macropolitical risk analysis and strategy recommendations on current topics. The aim is to provide our customers with a quick guide to current events and trends in post-Soviet countries and their implications for business. The business briefs are free of charge, but access requires registration.

Webtalk of the Friedrich Naumann Foundation with Hannes Meissner and Ute Kochlowski-Kadjaia

Since its official foundation on 1 January 2015, the Eurasian Economic Union (EAEU), to which Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia belong, has promoted economic cooperation in the post-Soviet region with the main purpose of creating a single market. However, it has also been criticised as an instrument of Russian geopolitical power.

On the10th anniversary, the Friedrich Naumann Foundation organised a webtalk. The following questions were discussed: What economic successes has the Eurasian Economic Union achieved in the last ten years? What role does the EAEU play for the member states in an increasingly multipolar world order? How does Russia's dominance influence the economic and political balance within the Union? What impact do geopolitical tensions such as the Ukraine war have on the future of the EAEU? How great is the potential for an enlargement or deepening of the Union?

Hannes Meissner was joined in the discussion by Ute Kochlowski-Kadjaia, Project Manager Russia & Central Asia at the Friedrich Naumann Foundation. The webtalk, which was moderated by Andreas Christ, is available at the following link.

Article by Johannes Leitner in the journal “Compliance Praxis”

The widespread expectation is that the sanctions against Russia will be lifted quickly under the new Trump administration. In fact, the sanctions will be part of the leverage Trump intends to use to negotiate peace in Ukraine. Regardless of whether the negotiations are successful, Trump will act from a position of maximum strength. In the short and medium term, we must expect a tougher stance and increased enforcement of sanctions. In the context of geopolitical power struggles, sanctions will be part of the new reality in the long term, even if the focus will shift.

Please follow this link to the full article (in German).

Article by Hannes Meissner and Johannes Leitner in the Russian Analytical Digest (RAD), No. 322: “Russia and the South Caucasus.”

In the current geopolitical climate, an analysis of economic cooperation between Russia and the South Caucasus cannot be separated from geopolitics. Contrary to views that Russia is losing influence in the South Caucasus due to the Ukraine war, the authors argue that Russia is pursuing a long-term security and economic strategy that aims to extend Moscow’s control over the region through hybrid warfare, leveraging the Soviet legacy, cultural ties, economic dependencies, and business networks. Russia’s growing influence in Georgia and Azerbaijan, driven by security and economic interests, threatens Western control over the trade corridor from the Caspian Sea to the Black Sea and the Mediterranean. Moscow’s ultimate goal is to push the West out of the region, as none of the three countries have the resilience or political will to oppose Russia in the long term.

This is the link to the full article.

Hannes Meissner recently discussed the current situation in Abkhazia with KevinSchulte, NTV. You can listen to the insights shared in the NTV Podcast “Wieder was gelernt”. The unrest was triggered by a possible investment agreement between Russia and the pro-Russian de-facto state of Abkhazia that is part of Georgia according to international law. The local opposition (Abkhazia is a relatively free country) feared a sell-out to Russia. However, the protests were in any way the result of any fundamental criticism of Russia. The region on the BlackSea lives from Russian transfer payments and Russian tourists. And Russia secures the independence of Abkhazia from Georgia. In the podcast, Hannes Meissner also highlights that the fears in Abkhazia are also related to the geopolitical changes in the South Caucasus. As Russia is gaining control over Georgia under the influence of oligarch Bidzina #Ivanishvili and the governing party Georgian Dream, controlled by him, Abkhazians fear a rapprochement between Tbilisi and Moscow, which could undermine their sovereignty.

As Azerbaijan hosted the COP 29, Hannes Meissner hand an interview Andrea Sellmann (NTV) about politics, economics and the business environment of Azerbaijan. In the NTV Podcast "Wirtschaft, Welt & Weit", Hannes Meissner explians that due to rampant corruption and clientelism, foreign companies only have a chance in Azerbaijan if they can offer Western technology and expertise. The country maintains close relations with Russia. A post-Soviet, Russian-speaking elite dominates the country and shares business interests. In the current geopolitcal conflict with the West, Russia can rely entirely on Azerbaijan's support. The war in Ukraine has made Azerbaijan more important to the European Union as an alternative gas supplier to Russia. It is striking that following the conclusion of the gas agreement with the EU, Azerbaijan also concluded an agreement with Russia on the supply of Russian gas to the Azerbaijani pipeline system. This is the link to the podcast.

New article by Johannes Leitner in the journal “Compliance Praxis”

Companies are experiencing a dramatic increase in government intervention such as economic sanctions, embargoes and export controls. In this environment, modern trade compliance management can provide a significant competitive advantage. Today, companies are increasingly confronted with the question of how to run a successful business while complying with sanctions regulations. In particular, managers are faced with the conflicting issues of how to implement sanctions regulations in their day-to-day business and what standards they must adhere to. The purpose of modern and effective trade compliance management is to create an operationalizable framework within which business can be conducted in compliance with sanctions. The article describes the most important steps that need to be implemented for modern trade compliance management. Please follow the link to the article (in German).

As part of a trade compliance project, the L&M PRISK team visited Moldova and Bulgaria this summer. Both countries are considered high-risk countries in terms of possible sanctions evasion.

This applies in particular to Moldova, which has no control over the pro-Russian region of Transnistria. Pro-Russian actors can also be found in Gagauzia in particular. However, the entire country is politically divided between pro-Russian and pro-European forces. The country is also suffering from sanctions and the interruption of supply chains as a result of the war in Ukraine. The high political risks are preventing urgently needed investment in the industrial sector and are therefore hindering economic development. Emigration and brain drain continue to pose a major problem, even if the negative effects are mitigated by the immigration of Ukrainians.

Bulgaria, on the other hand, shows far fewer political risks. However, the country is suffering from the fact that no government has yet been formed after six parliamentary elections. As a result, there is a backlog in EU funding reserved for Bulgaria. High inflation, falling approval ratings among the population and the unclear political constellation are jeopardizing accession to the eurozone in January 2025. Moreover, although the country is a member of the EU and NATO, there are still hidden trade flows to Russia, also encouraged by the pro-Russian stance of many entrepreneurs.

The Russian church "Sveti Nikolay Mirlikiiski" in Sofia. The country maintains close cultural and hidden business relations to Russia, despite of EU and NATO membership. (Source: Own Photo)

New Eastblog article by Johannes Leitner and Hannes Meissner in the Austrian daily newspaper “Der Standard”.

Despite far-reaching sanctions and geopolitical risks, many international companies remain active in Russia. An empirical analysis of company data from the Kyiv School of Economics shows this. Of the 3945 international companies surveyed that were active in Russia in 2022, 423 companies had completed an exit from Russia by September of this year. This corresponds to just under eleven percent of all companies recorded in the database. This raises the question of why more than 3,500 companies are still present in Russia? The article shows that legal uncertainty and expropriation risks are increasing, but that the market remains lucrative. At the same time, the reputational risks only have a weak impact. Please follow the link to the article (in German).

The GCM Parker conference “21st Business Ethics Anti-Corruption Compliance and Fraud Prevention Strategies in CEE” took place in Prague from September 26 to 27. L&M PRISK contributed with a presentation on “Firm Level Response to Sanctions and Anti-Corruption Compliance”. Moreover, Hannes Meissner took part in a panel discussion on “Sanctions Compliance and Screening”.

In his presentation on L&M PRISK's experience, Hannes Meissner emphasized that companies' anti-corruption strategies are increasingly shifting from retrospective damage limitation to proactive, forward-looking trade compliance management. The reason for this is the fact that the world is facing a multiple crisis. De-globalization, geopolitical conflicts and hybrid warfare between the West and the emerging bloc of authoritarian countries, sanctions regimes, terrorism and cyber risks are forcing Western countries to introduce more and stricter sanctions and trade compliance regulations. At the same time, law enforcement is on the rise. As enforcement agencies increasingly turn to experts to investigate the full picture of compliance violations, companies must respond appropriately. In this context, Hannes presented a best practice strategy for trade compliance risk management. He also illustrated this L&M PRISK approach using three current consultancy cases.

The panel discussion was moderated by Zoard Gazmar (Head of Compliance, OTP Bank). Other panelists were Nora Sljukic (Chief Compliance Officer and MLRO, UniCredit Bank Hungary) and Antonio Stoyanov (Senior Vice President, AlixPartners). In our discussion, we came to the conclusion that the circle of sanctions continues to escalate, driven by the ongoing geopolitical conflicts. However, while in the first phase after the Russian attack on Ukraine the pace of imposing sanctions was high, the strategy has now shifted to closing loopholes. This is characterized by secondary sanctions and attacks on individual targets responsible for the loopholes and identified by trade compliance authorities. As a next step, enforcement will become increasingly important. As we concluded, there are currently still far-reaching deficits here.   

L&M PRISK participated in this year’s Transform Finance Conference that took place in Frankfurt on 5 September. The conference revealed three major trends in political risk analysis and management. Firstly, against the backdrop of escalating geopolitical tensions and the global threat of terrorism, political risks for companies and banks are currently increasing massively. Political risk factors and constellations must be considered in their entirety. Secondly, KYC screenings must be carried out thoroughly and comprehensively before signing contracts and onboarding. Software checks alone and superficial checks to just meet legal obligations are no longer sufficient. In fact, this traditional approach is associated with massive risks, today. Thirdly, companies need comprehensive risk analysis and management models. It is no longer enough for individual company departments to simply collect and save data and view risks separately from one another. As panelists emphasized, the work of political risk managers will thus increase significantly and become more interesting in the coming years. Interpretations and comprehensive assessments by experts will be more important than ever before.

At the conference, Hannes met Josephine K. Vanek, CB -Trade Finance & Lending (TF&L) Operations - Embedded Risk Management at Deutsche Bank.

On the NTV "Wirtschaft Welt & Weit" podcast, Hannes Meissner discusses Moldova's EU accession prospects and the opportunities and risks for foreign investors in the country with Andrea Sellmann and Ludwig Graf Westarp. How successful is Moldova in terms of rule of law reforms? Will the economic situation improve? What opportunities does the country offer for Austrian and German companies? What is the impact of Russian plans to overthrow the government? Please follow the link to find answers to these and other questions.

The war in Ukraine and the sanctions against Russia are having a major impact on European companies. Many are looking for alternative markets, including in Central Asia. At first glance, gas-rich Turkmenistan seems particularly promising, and not just for energy companies. However, as Hannes Meissner emphasizes in the article “'Alles Walzer' in der Wüste” by Simone Brunner in "ZEIT ONLINE", political risks in Turkmenistan are high and require a special management strategy. Here is the link.

A war in Molodova is becoming more likely. Following his re-election, Putin is signalling his willingness to further escalate the geopolitical struggle aimed at re-establishing Russian hegemony in the entire post-Soviet space. For the time being, however, Moscow will continue to rely on hybrid warfare in an attempt to further destabilise the situation in Moldova in order to undermine Moldova's EU rapprochement process. There is no sign of any willingness to compromise. The sole aim is a pro-Russian change of government. Transnistria is a decisive lever here. While the local political and business elite in the separatist region has no interest in this, the decision lies solely with Moscow.
Please listen to the new podcast on Transnistria with Kevin Schulte from NTV.

Drawing on our deep insights and confidential sources, our business briefs provide macropolitical risk analysis and strategy recommendations on current topics. The aim is to provide our customers with a quick guide to current events and trends in post-Soviet countries and their implications for business. The business briefs are free of charge, but access requires registration.

Our first business brief covers the topic that European companies face a rising risk of nationalization in Russia, as our independent and confidential resources from the region report. While the EU takes steps towards confiscation of Russian assets, Europe can expect an equally effective counter-response, in line with the strategy of symmetric retaliation proclaimed by the Kremlin.

Please follow this link to our new service and the policy brief “European Companies’ Risk of Nationalization Rises Substantially”.

Four key impressions remain from a personal trip to Dushanbe, the capital city of Tajikistan. In recent years Tadjikistan has become one of the most authoritarian states in the world.

Firstly, President Emomalij Rahmon is omnipresent through his personality cult. His portraits and slogans can be found on buildings and bridge overpasses in the capital and the surrounding area, as well as on large posters along the main roads.

Secondly, Dushanbe is being de facto reinvented in the course of a gigantic construction boom. The Soviet city has largely given way to new high-rise buildings. An urban middle class is present in the main streets of the city. This contrasts with the situation in the rest of the country, which remains economically weak and characterized by socio-economic problems.

Thirdly, the country appears to benefit comparatively little from the opening up of new trade routes as a consequence of the New Silk Road and the sanctions against Russia, as it is landlocked and not a member of the Eurasian Economic Union.

Fourthly, the country's business community is concerned about the EU's idea of confiscating Russian assets. They are openly asking whether the EU is sacrificing legal certainty for political goals and whether property is still safe in the EU.

Portratis of Rahmon in Hissor

Portraits and slogans along a main road

The virtual event hosted by LM Political Risk and Strategy Advisory together with “Altstipendiaten der Konrad-Adenauer-Stiftung e.V.” and its special interest network "Netzwerk Aussenwirtschaft", delved into the pressing topic of "Geopolitics is back in Europe: Russia, EU, and its impact on European companies." We would like to thank the numerous participants whose insightful questions enriched the discussion. Johannes Leitner and Dr. Laetitia Spetschinsky (OIIP & University of Leuven) discussed the impact of Russia’s war in Ukraine and EU’s sanctions strategy on businesses in Europe.

In conclusion, it is essential for business leaders to heed the following key points:

⚡ The global trade framework faces significant challenges and is undergoing transformation.

⚡ Geopolitics is making national security a priority.

⚡ In response to Russia's invasion of Ukraine, the EU has quickly adapted to the application of sanctions, signaling a paradigm shift.

⚡ Sanctions have become a permanent state of affairs and are becoming an increasingly popular diplomatic instrument.

⚡ The risk of expropriation in Russia for Western companies is on the rise and requires careful attention.

These insights underscore the critical need for proactive strategic planning and risk management strategies in navigating the evolving geopolitical landscape, safeguarding the interests of European companies amidst geopolitical uncertainties.

Strengthened by his re-election, Putin is announcing increased steps to re-establish hegemony in the post-Soviet space. Further escalation seems inevitable, not only in Ukraine, but also in Moldova. This means that another war is becoming more likely, at the end of this year at the earliest. Until then, Russia’s primary strategy remains focused on overthrowing the pro-European government of Maia Sandu by means of hybrid destabilization strategies. Transnistria remains a decisive lever for Moscow. But with Gagauzia, another conflict is now coming into the spotlight. Please listen to my podcast on Gagauzia with Kevin Schulte from NTV. Here is the link.

In early summer, the peace negotiations on Nagorno-Karabakh seemed to be close to a major breakthrough. Since then, however, the conflict positions have hardly shifted. Even more, the blockade of the Lachin corridor by Azerbaijan and the prevention of aid transports from Azerbaijan by the local government have led to a humanitarian catastrophe in the isolated region. On September 11, Hannes discussed the roots of the conflict, the geopolitical constellation in the region, and the propsects for peace with Barbara Zeithammer (Ö1 moderator), including questions from the audience. Please follow the link to the radio discussion.

Dr. Johannes Leitner will give a keynote speech on Market Entry Due Diligence and Sanctions Management at the 13th annual conference on BUSINESS ETHICS ANTI-CORRUPTION COMPLIANCE & FRAUD PREVENTION STRATEGIES IN CEE. The conference will take place in Prague on 21 Septemer. He will moreover contribute to the panel discussion on the current status of the sanctions regime and its impact on corporate activities. Please see the programme for more information on the conference.