Czechia struggles to mitigate risks from Russian firms

Research from international ratings agency Moody’s shows that the Czech Republic — which boasts just 2.4% of the EU population — is home to over one quarter of the 46,000 or so Russian-linked firms operating in the 27-nation bloc.
Bulgaria, with 9,500 companies, is the second-most favored residence for Russian businesses. Germany, whose economy and population dwarfs those of the top two, comes in third with 4,200.
Russians have long been keen to do business in Czechia. It’s a trend that has even thrived despite the dramatic cooling of relations between Moscow and Prague that began in 2021, and has only deepened since the invasion of Ukraine.
Political and business links forged under Communism, linguistic proximity, and loopholes in Czechia’s developing regulatory systems have encouraged Russian investors to use the country as a route into EU markets.
Russia’s war in Ukraine, meanwhile, has helped spur a rise in the number of Russian entrepreneurs, says Pavel Havlicek, an analyst at Prague’s Association for International Affairs. A business project or property purchase is now “the easiest route for Russians to secure a Czech residency permit,” he told DW.
Data from the Ministry of Industry and Trade shows there were 4,303 Russian entrepreneurs registered in Czechia in the first quarter of 2022. Two years on, their number had grown to 5,218.
“We cannot avoid a deeper discussion on how to approach those countries where Russian influence has reached a level that threatens not only the unity of the EU or NATO but also our security,” Czech Prime Minister Petr Fiala warned in late August.
However, Czech counterintelligence agency BIS has long warned of the threat from within, and recently told local media that the high number of Russian-owned companies “does not contribute” to national security.
A major concern, say analysts, is that among doubtless many genuine companies and indivduals, lurk spies or subversives. The likelihood that Russian intelligence would seek such avenues rose in 2021 when Prague expelled around one hundred staff from the Russian embassy, claiming them to be intelligence agents.
The threat of sanctions violations is another major headache. Amid complex global trade and finance networks, the EU is struggling to police the flow of funds and equipment to Russia, and Czechia has uncovered several breaches.
There’s also concern over criminal gangs hailing from across the EU’s eastern borders.
According to Transparency International CR, “the Czech Republic remains a country with favorable conditions for money laundering, especially for persons from the former Soviet Union and its satellites.”
And Czechia’s National Center Against Organized Crime (NCOZ) warned in July that significant movement of post-Soviet criminal organisations and increasing efforts to circumvent sanctions helped to deteriorate Czechia’s security in 2023.
Lukas Kraus says money laundering to the tune of billions is “helping to disrupt the economy.” In an interview with DW, the lawyer for the Czech nongovernment Reconstruction of the State organization pointed, for example, at the negative effect on the Czech housing market where property prices are out of reach for many.
The risks stemming from this mass of Russian economic interests do not exclusively affect the Czechs. An economy heavily populated by foreign capital and dependent on export helps to spread them. Links to Germany are particularly strong.
“The risk to economic partners is very clear for those in the Czech Republic,” said Havlicek, adding that “of course Germany is now realising this.”
Prague-based think tank Datlab has reported that Russian-owned companies — including many linked to sanctioned individuals — secured €2.5 billion ($2.76 billion) worth of public contracts across the EU last year despite sanctions.
Since that research was published in 2023, the Czech government — among Kyiv’s staunchest supporters — has sought to clamp down. It has been heralded for establishing its own sanctions regime, which allows it to go above and beyond EU restrictions.
However, critics say that problems persist in regulations regarding transparency, enforcement and other challenges.
Efforts to end anonymous company ownership have made progress, but weaknesses — seemingly encouraged by vested interests — make it particularly tricky for authorities to look into the opaque ownership networks behind which many Russian interests have moved.
Datlab estimates that just 35% of companies likely to be Russian-owned are correctly recorded in Czech registeries.
Havlicek says that a serious overhaul is needed to improve the state’s capacity to monitor and systemically screen firms and analyse complex ownership structures.
Reconstruction of the State calls for increased penalties for violating sanctions and tightening of money-laundering measures.
Ondrej Kopecny, head of Transparency International CR, told DW that Fiala’s government is failing to establish long-term strategic and effective solutions or improve the enforcement of existing rules in the name of promting transparency.
Asked by DW about planned measures, a spokesman at the Ministry of Industry and Trade said only that it “has been monitoring the situation … over the long term,” and in cases “where transactions pose a potential security risk the ministry reviews these investments.”
Edited by: Uwe Hessler