Who Would Gain From Knauf’s Russian Exit?

Knauf, the German construction giant with a substantial footprint in the U.S. market, has reportedly entered negotiations to sell its Russian assets to Gazprombank, a state-owned Russian financial institution that is sanctioned by the U.S. and the E.U. Knauf’s efforts to divest its business in Russia align with public commitments to exit the market, but the possible selection of Gazprombank as a buyer raises concerns about sanctions and the potential beneficiaries of the deal.

Gazprombank is important to Russia’s financial system. It is known to be a conduit for funding the Kremlin’s war against Ukraine. The U.S. Treasury Department has highlighted Gazprombank’s role in purchasing military equipment, paying Russian soldiers, and providing financial backing for the war. A transaction involving Gazprombank raises questions about whether it violates the spirit of Western sanctions designed to isolate Russian financial and industrial networks.

In addition, a likely beneficiary of the transaction is the Rotenberg family, a powerful clan with ties to Russian President Vladimir Putin. The Rotenbergs, who have government contracts and politically significant projects like the Crimean Bridge, have a history of leveraging state-affiliated entities, such as Gazprombank, to manage or expand their holdings. As detailed in a recent Forbes report, the Rotenbergs amassed billions by transferring assets through a series of transactions involving state-linked buyers.

Gazprombank’s involvement in this potential deal raises concerns that Knauf’s Russian assets could eventually end up in the hands of sanctioned individuals or companies associated with the Rotenbergs. This could run counter to Western sanctions policies and enrich individuals who work closely with the Kremlin.

Knauf’s Russian operations include the production of gypsum-based construction materials, which the German government has identified as dual-use goods—materials that can serve both civilian and military purposes. Allowing these assets to be transferred to entities linked to the Kremlin’s military base could inadvertently strengthen Russia’s capacity to sustain its war effort.

Moreover, the profitability of Knauf’s Russian business, with margins reportedly in the double digits, underscores the stakes of the transaction. Selling the assets to Gazprombank or its proxies could funnel financial resources into channels that enable Russia’s geopolitical objectives, possibly undermining international sanctions.

Knauf’s 2018 acquisition of USG Corp., a leading American manufacturer of construction materials, solidified its position in the U.S. market. This presence places the company under significant regulatory and public scrutiny in the United States. American stakeholders are likely to question how a company that benefits from U.S. markets could simultaneously negotiate with a sanctioned Russian entity.

The transaction merits scrutiny because of the potential for these assets to be transferred to sanctioned individuals. Sanctions are tools for isolating aggressor nations and deterring corporate complicity in their actions.

The deal could set a dangerous precedent, signaling to other multinational corporations that sanctions can be circumvented in pursuit of profit. This would erode the credibility of Western economic measures and embolden state-affiliated actors in Russia to exploit loopholes.

As the U.S. and its allies continue to support Ukraine’s defense against Russian aggression, they must ensure that their economic measures are robust and enforceable. Multinational corporations like Knauf must be held to the highest standards of compliance, transparency, and accountability, particularly when their actions could undermine global efforts to uphold international norms.

The potential sale of Knauf’s Russian assets to Gazprombank raises questions about the effectiveness of Western sanctions and the implications of enriching entities tied to the Kremlin. Beyond the immediate risks, such a deal could empower sanctioned individuals, embolden sanctions evasion, and weaken the collective resolve to counter Russia’s aggression.

Knauf should be asked to demonstrate that its divestment strategy aligns with its public commitments to ethical business practices and international norms. Anything less risks not only the company’s reputation but also the broader integrity of the sanctions regime that underpins Western efforts to uphold international law.

Eugen Iladi writes about international business and development.