Tikkurila allegedly conceals profits, continues shipments to Russia while claiming compliance with sanctions

The Insider has uncovered seven discrepancies between tax and customs documents and the public statements made by PPG and Tikkurila. The following claims are drawn from tax reports of Tikkurila LLC for the year 2022, audit findings of JSC Technologies of Trust - Audit, tax records of the companies acquired by Tikkurila LLC, and data from the customs aggregator ImportGenius.

According to PPG, the company sold its industrial paint production business in Russia in 2023 and intends to divest its trade and construction paint production as well. However, despite an 18-month wait, the company has yet to obtain a license for the sale from Russian authorities.

The Insider was unable to uncover any independent verification of this transaction. By every indication, Tikkurila LLC remains Tikkurila's subsidiary in Russia. According to Russia’s Unified State Register of Legal Entities, as of February 16, 2024, the Russian entity is fully owned by the Finnish company Tikkurila Oyj, registration number 0197067-4. The value of the company's non-current assets surged by 104% in 2022, from 1.623 billion rubles ($17.9 million) to 3.318 billion rubles ($36.6 million). Documents indicate that the company comprises five distinct divisions, but these lack legal status, bank accounts, or separate balance sheets.

PPG claims that the company's decision-making and management occur exclusively at the local level in Russia, precluding any external interference. A fact check reveals that PPG's subsidiaries sold three Russian entities from the Revocoat group to the Russian branch of Tikkurila. PPG oversaw both sides of the transaction, resulting in European PPG structures receiving 6.219 billion rubles ($68.5 million).

An examination of the previous owners of the three entities that Tikkurila LLC acquired in 2022 suggests that the relationship between the Finnish company and the Russian subsidiary has not ended.

• Litum LLC, Moscow (Tax ID 7715544379, formerly known as PPG Industries LLC) was previously owned by PPG Industries Europe Sarl, Switzerland (99%) and PPG Holding Limited, United Kingdom (1%) until August 10, 2022.
• Litum LLC, Kolomna (Tax ID 5022094957, formerly known as Revocoat Mastics LLC) was fully owned by Revocoat Holding SAS, France until August 24, 2022.
• Litum LLC, Lipetsk (Tax ID 4802024540, formerly known as PPG Industries Lipetsk LLC) was previously owned by PPG Industries Europe Sarl, Switzerland (99%) and PPG Europe B.V., Netherlands (1%) until August 10, 2022.

The financial statements of Tikkurila LLC show that the company spent 6.219 billion rubles on acquiring three entities of the Litum group. The funds were received by the aforementioned European companies. At the time of purchase, all of them were owned by PPG, which a year later claimed that it had no control over this transaction.

Tikkurila Oyj, a part of PPG, continued to make a series of deliveries to Tikkurila LLC after the start of the war. It is important to note that as the sole owner, Tikkurila Oyj has full legal authority to appoint managers of the Russian company, replace them, and direct their activities. Furthermore, no external management has been introduced in the company.

PPG claims that its Russian division does not have the right to manufacture and sell products under the Tikkurila brand in Russia.

In reality, Tikkurila LLC continues to own the Tikkurila brand in Russia and produces paint under this label. Tikkurila LLC is the rights holder of the trademark TIKKURILA with identification number 453093, valid until February 3, 2031, and the trademark TIKKURILA with identification number 147261, valid until July 13, 2025. After the start of the full-scale war, Tikkurila LLC received five new certificates of conformity from Rosaccreditation (Federal Accreditation Service of the Russian Federation) for products manufactured under the Tikkurila brand:

• RU C-RU.ПБ58.В.00747/22 dated March 30, 2022, for Tikkurila Facade Acrylate paints
• RU C-RU.ПБ58.В.00755/22 dated April 13, 2022, for Tikkurila Perfecta paints
• RU C-RU.ПБ58.В.00781/22 dated October 26, 2022, for Tikkurila Perfecta paints
• RU C-RU.ПБ58.В.00817/23 dated April 28, 2023, for Tikkurila Prof Euro 3, Prof Euro 7, Euro Power 7 paints
• RU C-RU.ПБ58.В.00818/23 dated April 28, 2023, for Tikkurila Prof Euro 3, Prof Euro 7, Euro Power 7 paints

PPG asserts that PPG and the PPG Foundation provided humanitarian aid to Ukraine totaling over $820,000, but that they were unable to donate the promised net profit of the Russian branch in 2022. This inability is attributed to the fact that the profit was not realized due to the winding down of operations in the country and unfavorable market conditions. Additionally, PPG claims that The Insider's statements regarding its profits and transactions that allegedly helped it conceal its profit are completely inaccurate.

Documents show that the unfavorable market conditions in 2022 did not prevent the Russian-based Tikkurila LLC from earning a record-level gross profit. While the company did demonstrate a cumulative net loss for the year, this was the consequence of the Russian company's acquisition of three entities within the parent conglomerate. Tikkurila LLC's audit report explicitly states that the company spent 6.129 billion rubles ($67.5 million) to acquire three mastics producers from PPG. Four months later, these companies were devalued by 4.281 billion rubles ($47.2 million).

According to the published 2022 financial statements of Tikkurila LLC, the company's gross profit increased by 25% year-on-year, from 4.287 billion rubles ($47.2 million) in 2021 to 5.380 billion rubles ($59.3 million) in 2022. Profit from sales grew by 136%, from 1.2 billion ($13.2 million) to 2.834 billion rubles ($31.2 million). The net loss is explained by Tikkurila LLC's investment of 6.129 billion rubles ($67.5 million) in the acquisition of three Revocoat group entities from PPG.

Although PPG oversaw both sides of the transaction and had full information about them, Tikkurila LLC devalued the new assets by 4.281 billion rubles ($47.2 million) soon after the acquisition. The value of the three companies decreased by two-thirds four months after the sale. A quote from the explanatory note to Tikkurila LLC's 2022 balance sheet states: “In 2022, as part of the PPG group's business restructuring in Russia, the Company acquired equity interests in the following companies:

• Revocoat Mastics LLC - 545.4 million rubles ($6 million).
• PPG Industries Lipetsk LLC - 61.4 million rubles($676,628).
• PPG Industries LLC - 5,519.3 million rubles ($60.8 million).”

Four months after the purchase, Tikkurila LLC prepared to write off two-thirds of the recent investments from its balance sheet. Item 19 of the explanations to the Tikkurila LLC balance sheet states: “Other expenses in the reporting period increased by 4,804,730 thousand rubles ($52.9 million), or by 1005.9% compared to the previous period. The increase was primarily due to the creation of a reserve for the depreciation of financial investments.” The depreciation of investments in subsidiaries amounted to 4.281 billion rubles ($47.2 million).

PPG asserts that Tikkurila Oyj complies with all sanctions.

Tikkurila Oyj made two deliveries under customs codes listed in the EU sanction regulations. Tikkurila LLC had a joint project with Tinkoff Bank, which had been sanctioned by the US Treasury Department four months prior. Regulation (EU) 2022/576 of April 8, 2022, prohibits the sale, supply, transfer, or export, directly or indirectly, of goods to any individuals or entities in Russia. And yet, Tikkurila LLC received the following shipments from Tikkurila Oyj under the following customs codes included in Annex XXIII to the regulation:

Two shipments of styrene copolymer dated September 27, 2022, weighing 19,950 kg each, from Akripol Kimya Sanayi Ticaret Ltd. Sti., HS 3903909000.

1,800 kg of silicone defoamer from Byk-Chemie Gmbh dated August 8, 2022, HS 3824999208. The intermediary in the transaction was the Finnish company Tikkurila Oyj.

2,993 kg of hydrophobized polyether from Ashland dated August 8, 2022, HS 2909430009. Tikkurila Oyj acted as the consignor in this case as well.

11 kg of styrene-acrylic copolymers and 7 kg of acrylic copolymers from Organik Kimya San. Ve Tic.A.S. on December 24, 2023, HS 3903909000 and HS 3906909007, respectively. 5,250 kg of styrene polymers from Organik Kimya San. Ve Tic.A.S., HS 3903909000.

On July 20, 2023, the US Department of the Treasury's Office of Foreign Assets Control (OFAC) placed Tinkoff Bank on the SDN List, imposing the most severe restrictions on the financial institution.

In November 2023, Tikkurila LLC posted an announcement on its website about its collaboration with Tinkoff Bank. Participants were offered to purchase Tikkurila paints, which the Russian company purportedly did not have the right to sell, and activate up to 12% cashback in the Tinkoff Bank app. After The Insider reported this fact back in January, Tikkurila removed the announcement from its website; however, information about it remains available on the kraskitorg, kraski-show-ru, and color-studio websites, as well as on Tikkurila's Yandex Maps page. PPG, the U.S. entity owning Tikkurila, is a publicly traded company listed on the New York Stock Exchange. This means that it and its subsidiaries are directly prohibited from interacting with sanctioned individuals and entities.

In March 2022, PPG announced that it would halt all investments and limit the operations of its Russian branch to supplying food packaging manufacturers.

Contrary to this statement, Tikkurila LLC's business expenses aimed at increasing sales — i.e. marketing activities — amounted to 1.614 billion rubles, or $22.95 million as of the reporting date in 2022. This is 28 times the amount PPG donates to humanitarian organizations, including the sum resulting from personal donations by company employees.

PPG asserts that it does not direct the activity of its Finnish branch's subsidiary.

Tikkurila Oyj, part of PPG, remains the sole owner of the Russian company and supplies it with components for the production of varnishes and paints.