Sanctions Fallout

After Expropriation, German Businesses Seek Restitution from Russia

Franz Sedelmayer in Munich. Source: Andreas Labes forHandelsblatt
Franz Sedelmayer in Munich.
  • Why it matters

    Why it matters

    The Russian state claimed property owned by German businesses and refused to return it despite being called upon to do so by international courts.

  • Facts

    Facts

    • Last year, trade between Germany and Russia amounted to €76 billion.
    • Direct investments in Russia by German businesses amounted to €23 billion in 2012.
    • Germany is Russia’s third-most important trade partner, and Russia is the eleventh-most important trade partner for Germany.
  • Audio

    Audio

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A businessman from southern Germany fought for 20 years to reclaim millions of euros owed to him by the Russian state.

Franz Sedelmayer now specializes in multi-asset recovery and his expertise is hard won.

In the early 1990s, Mr. Sedelmayer set up a joint venture together with the state authorities importing goods. Business boomed and he was rewarded with a property by the city of St. Petersburg, formerly Leningrad. The property was confiscated and it took Mr. Sedelmayer 140 court visits and some creative detective work to recoup his losses.

He had been given a villa in St. Petersburg and he had spent a million euros renovating it. In 1994, President Boris Yeltsin confiscated it by presidential decree. An agreement between Russia and Germany in place at the time promised to compensate German businesses.

But Russia ignored the law and Mr. Sedelmayer brought his claim to an international arbitration court in Sweden which found he was owed $2.35 million (€1.7 million) in 1998.

“Russia has never paid back any damages, it just doesn’t recognize decisions made by the arbitration court.”

Jörn Griebel, Legal Expert

It took some creative detective work to recoup his losses. He tried to impound fees paid by Lufthansa to Russia for flying through the country’s airspace. He tried to seize Russian satellite models on display at a trade fair. Now he is forcing the sale of several Russian properties in Germany and Sweden.

Mr. Sedelmayer is using his experience to help other Western businesses who fear the loss of their property if the European Union introduces sanctions against Russia.

“How else can Russia pay companies back except to hold on to what it is located in the country?” he said. “Companies in the west are worried – and rightfully so.”

Kamenny Island in Saint Petersburg, Russia. Source: Potekhin
Kamenny Island in Saint Petersburg, Russia. Source: Potekhin

 

Mr. Sedelmayer is not alone in his concerns. Rainer Lindner, chairman of the Committee on Eastern European Economic Relations, told Spiegel magazine that the German and Russian economies are so intertwined that sanctions would likely lead to retaliatory sanctions.

According to the Federal Ministry for Economic Affairs and Industry, more than 6,200 German businesses are active in Russia. A growing number of German firms have built production facilities in Russia in recent years.

Direct investments in Russia by German businesses amounted to €23 billion ($30 billion) in 2012. Medium-sized German companies in particular have set up businesses in Russia.

Last year, trade between Germany and Russia amounted to €76 billion. Russia’s exports to Germany were worth €40.5 billion and German exports to Russia amounted to €36 billion. Germany is Russia’s third-most important trade partner, whereas Russia is the eleventh-most important trade partner for Germany.

Monika Hollacher, Russia expert at the German Engineering Federation, believes Mr. Sedelmayer’s case is not typical. But she says that investments by German mechanical engineering businesses are relatively small – partly due to investors’ uncertainties about the legal situation.

“Russia has never paid back any damages, it just doesn’t recognize decisions made by the arbitration court,” said Jörn Griebel, a legal expert based in Germany.

If relations between Germany and Russia deteriorate into retaliation, this could complicate the situation for many German businesses.

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