Austria Faces EU Tensions Over Raiffeisen and Russian Sanctions Dispute

The European Union has introduced 18 rounds of sanctions against Russia since the country's military incursion into Ukraine in 2022. While Austria has generally supported these measures, its stance has recently shifted due to issues involving the Raiffeisen Bank International (RBI) and its relationship with Russian interests.

The current focus is on the EU's proposed 19th sanctions package, which seeks to increase pressure on Russia by targeting its so-called shadow fleet of oil tankers and preventing the circumvention of existing sanctions. However, discussions among EU ambassadors have stalled, largely due to Austria's insistence on addressing the challenges faced by RBI regarding its financial ties to Russian oligarch Oleg Deripaska.

An investment entity, Rasperia, holds a significant stake--24.1 percent--in the Austrian construction company Strabag. Although officially the ownership structure is unclear, it is widely understood that Deripaska ultimately benefits from Rasperia. Since Deripaska was added to the EU sanctions list in 2022, his assets have been frozen and he has faced travel restrictions in the bloc.

Meanwhile, RBI has been seeking to withdraw its business from Russia, as instructed by the European Central Bank due to the EU's sanction policies. However, this exit has been complicated by Russian authorities. RBI, alongside Italy's UniCredit, remains one of the last Western banks operating in Russia with access to the SWIFT financial messaging system, from which most Russian banks have been excluded.

Recent developments have seen the Russian judicial system impose a substantial fine on RBI's Russian subsidiary, coinciding with the value of Strabag shares held by Rasperia, amounting to approximately EUR2.1 billion. These funds have already been debited from RBI's correspondent account with Russia's central bank.

Austria has advocated for a tailored exemption in the EU's sanctions regime that would permit the release of the Strabag shares to RBI, ensuring that Rasperia would not directly benefit from the transaction, as the proceeds are already withheld following the Russian court's ruling. This proposal, however, has encountered skepticism from other EU member states, who are concerned about setting a precedent that could be exploited by Russia in the future, as well as the appearance of favoring corporate interests in the context of ongoing conflict.

Despite RBI's stated intention to exit the Russian market, the bank previously benefited significantly from its Russian operations even after the onset of hostilities in Ukraine in 2014. The present challenges underscore the risks companies face when operating in markets subject to geopolitical tensions.

The EU ambassadors are scheduled to reconvene for further negotiations, with the outcome uncertain. It is possible that Austria's position could result in a compromise that creates an exception for RBI and the Strabag shares. Even if this occurs, the process would remain subject to approval by the Russian central bank, which retains close ties to the Kremlin and has limited access to its reserves in the EU due to sanctions.

Furthermore, new legal actions are underway in Russia, with Rasperia seeking additional compensation from RBI related to withheld dividends and capital reductions. This ongoing legal uncertainty presents additional risks for RBI, which cannot expect further modifications to EU sanctions policy to compensate for potential future losses.

The situation highlights the broader challenges facing Austria as it balances national economic interests with EU solidarity and sanctions enforcement. With Austria's economy under pressure and the need for support from its European partners, its current stance could impact its standing within the EU at a critical time.