Ukrainian Business in Russia

Data from Russian registers appeared in the YouControl system. The experts investigated how the picture of cooperation between Ukrainian and Russian companies has changed in recent years and what the situation is now.

Despite hostilities between Ukraine and Russia and numerous sanctions against Russian companies in Ukraine, as well as restrictions on the operation of Ukrainian companies in Russia, many Ukrainian companies remain linked to Russia. They either belong to the Russians or they are the founders of enterprises in Russia.

How closely do Ukrainian companies continue to cooperate with Russia? How has this situation changed in recent years? Which areas have the most companies with connections to Russia? Read  more about this in the research.

Russian Presence in Ukraine

Data from the Russian Unified Register of Legal Entities (URLE) show that there are relatively few branches of Russian companies in Ukraine – only 104. However, branches are not the only type of connection that can exist between a company in Ukraine and Russia.

According to the Unified State Register of Ukraine (USR), in June 2020, there were 12,970 companies with Russian founders or beneficiaries operating in Ukraine. At the same time, the register shows that companies were generally not concentrated in the hands of a small number of Russian companies or citizens: 12,563 unique people or companies from Russia had a stake in Ukrainian companies. Because some companies could have several Russian beneficiaries and some people could be beneficiaries of several companies, as for June 2020, there were a total of 16,844 connections between Ukrainian companies and Russian owners.

At the same time, mostly Russian companies or individuals are minority shareholders: only in 7,022 cases is the share of Russian property more than 50%, and, in 2,301 cases, their share is less than 25%. At the same time, in 2,308 cases there is no information about the share at all.

While in 14,122 the beneficial owners or founders are individuals. In 2,722 they are legal entities (companies, public organisations or the Russian state). However, in 177 cases, the final beneficiaries were legal entities, which contradicts Ukrainian law.

An economist of the Centre for Economic Strategy says that some Russian companies are hiding the real beneficiary and do not mention him on the register, although this is against the law. These companies want to “hide” from Ukrainian sanctions and continue to operate in Ukraine.

A study by the Centre for Economic Strategy based on the Orbis database on Russia’s economic presence in Ukraine shows that, considering the real, not nominal beneficiaries, in 2018, there were 1,553 companies in Russia with Russian beneficiaries with a share of more than 25%. It is worth noting that only those companies for which financial statements are available were considered. Their total assets amounted to 8.7 billion dollars; that was about 2% of the assets of all Ukrainian companies. Revenue was 8.8 billion dollars; it is 3% of all Ukrainian companies. 102,000 Ukrainians worked in Russian companies, which is about 2% of all employees in Ukraine.

At the same time, the Russian presence has declined somewhat in recent years, although it increased, at first, after the start of the war.

Where Are Most Russian Companies?

Based on research data from the Centre for Economic Strategy, we can answer this question. Russian companies are mostly concentrated in Kyiv by a wide margin. This is not surprising, since there are more companies registered in Kyiv. If you look at the regions, most of them are registered in Eastern Ukraine:

• in Kharkiv region (104 companies);
• in Odessa region (94 companies);
• in Dnipropetrovsk region (76 companies);
• in Zaporizhzhia region (58 companies), as well as in Kyiv region (75 companies).

Over the past 10 years, Russia’s presence in Western Ukraine has decreased, and it has grown most in the Transcarpathian, Sumy, Cherkasy, Kirovohrad and Chernihiv regions. But this does not necessarily indicate a systematic increase in the Russian presence. For example, in the Transcarpathian and Cherkasy regions, a key factor was the acquisition of a local regional power company by a Russian company.

Ukrainian Presence in Russia

Not only do Russian companies set up offices and open companies in Ukraine, but some Ukrainian companies also do business in Russia. We analysed data from the Russian Registry (URLE) to see how many Ukrainian companies conduct business in Russia, in which industries they are most active and from which regions they come. Thus, 618 Ukrainian companies are the founders of Russian companies or non-profit organisations (NPOs); 592 of them are active. Excluding companies located in the Crimea or Donetsk or Luhansk oblasts, 464 Ukrainian companies remain (444 of them are active).

However, it should be noted that our data include not only starting a business in Russia, but also membership in international organizations, associations or NPOs registered in Russia. Thus, NPOs are the first, most popular field of activity in which Ukrainian companies establish representative offices in Russia. NPOs include charitable foundations, associations that bring together companies operating in a particular sector, and so on. As of June 2020, 104 Ukrainian companies or NPOs were founders of working Russian NPOs.

If NPOs are not considered, most Ukrainian legal entities establish companies in Russia in the following areas:

• real estate transactions (89 companies);
• wholesale trade (73 companies);
• construction (44 companies);
• temporary catering (36 companies).

An economist of the Centre for Economic Strategy says that sometimes Ukrainian companies have no choice but to continue to supply their goods to Russia. Especially in industries such as metallurgy, where production chains have been tied to Russia since the days of the Soviet Union, and this dependence persists to this day.

Ukrainians in Russia

Most legal entities that establish companies in Russia are from Kyiv (210 companies), which is logical for the capital. Relatively many companies from South-Eastern Ukraine are also founders of legal entities in Russia. There are such companies:

• 70 in Crimea;
• 56 in Donetsk region;
• 55 in Kharkiv region;
• 48 in Dnipropetrovsk region;
• 30 in Zaporizhzhia region.

At the same time, there are almost no companies in Western Ukraine that are founders of legal entities in the Russian Federation:

• in Lviv – 5;
• in Rivne – 4;
• in Chernivtsi – 3;
• in Khmelnytsky – 2;
• in Ivano-Frankivsk, Volyn, Ternopil and Zakarpattia oblasts only one such company for each region.

In general, the study shows that although Russia’s presence in Ukraine has declined somewhat over the past 10 years, many Russian companies continue to operate in Ukraine. At the same time, Russian companies are located mainly in Kyiv, as well as in Eastern Ukraine. Ukrainian companies also continue to do business in Russia, both as members of Russian NPOs and as founders of commercial organizations in Russia.

“Each Ukrainian company decides for itself how ethical cooperation with the aggressor country is. Of course, such activities expose reputational risks. As for legal risks, they may arise when legal entities or related individuals representing their interests are subject to Ukrainian or international sanctions,” said YouControl’s Deputy Legal Director.

YouControl Expert Group