False colors: European paint companies are still working in Russia despite claims of withdrawal

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Tikkurila's Russian operations

Finnish paint manufacturer Tikkurila was among the first European brands to set up a business in the former Soviet Union. As early as 1995, the company built its first paint and coating plant on Russian soil. The brand has a subsidiary in Russia, OOO Tikkurila, which is wholly owned by Finland’s Tikkurila Oyj. (An OOO is a type of Russian legal entity similar in structure to a limited liability company.) The company owns two production sites in St. Petersburg and manufactures products under the Tikkurila, Tex, Finncolor, and Leningradskiye Kraski brands.

A few weeks after Russia began its full-scale invasion of Ukraine, the parent company condemned the war and pledged to donate $450,000 to humanitarian NGOs helping Ukrainians. PPG Tikkurila (the company resulting from the 2021 acquisition of Tikkurila Oyj by PPG) also announced plans to suspend sales to sanctioned Russian government agencies and to curtail almost all of its Russian operations, with supplies to food and beverage packaging manufacturers being the exception.

However, Tikkurila is still importing foreign components for paint production into Russia, and it is preparing paperwork for the purchase of equipment. On December 23, 2022, the company issued EAEU declaration N RU D-ES.RA08.V.73747/22 for the import of the Spanish automatic paint dosing line FLASH-5000-COMPACT.

Tikkurila is also still running marketing campaigns in Russia. Last October, the brand was an official partner of the Moscow Interior and Design Week, and last September it participated in City Build Russia 2023, the nation’s largest construction exhibition. One of Tikkurila's recent marketing campaigns was a collaboration with Tinkoff Bank, which promised increased cash back for buyers of premium paints. The bank is under U.S. and Canadian sanctions.

Tikkurila does not appear to be in any hurry to shut down its Russian business. The company is currently advertising five open positions in Russia, including a brand manager whose duties are set to include planning for events and exhibitions and contributing to the development and launch of new products.

No donations for Ukraine after all

Tikkurila’s pledge to donate its Russian net profits to humanitarian organizations supporting Ukraine was not fulfilled. In 2022, the Russian branch OOO Tikkurila earned a profit on sales — minus advertising and administrative expenses — of approximately $31.3 million. However, the subsidiary somehow closed the year with a large net loss. Why? OOO Tikkurila spent $67.7 million on the “restructuring of the Russian business of Tikkurila PPG,” buying out three Russian enterprises from Tikkurila's French subsidiary, PPG Industries Europe Sarl: OOO Revokot Mastiki, OOO PPG Industries Lipetsk, and OOO PPG Industries.

Had Tikkurila's Russian subsidiary not spent such a fortune on restructuring its parent company's business, the firm would have had to honor its promise and donate millions of dollars from its net profit to help Ukraine. The Insider sent an inquiry to Tikkurila PPG asking whether the company plans to direct the 2023 profits from its Russian subsidiary to nonprofit organizations, but had not received a response at the time of publication.

OOO Tikkurila’s 2023 profits are likely significantly larger than those shown after the company’s buying spree of 2022. Shortly after purchasing the three entities mentioned above, Russia's Tikkurila resold the three companies to Atomstroycomplex, a group of construction firms owned by Valery Ananyev and Pavel Kuznetsov.

Tikkurila's sanctions risks

In July 2022, the European Union banned the sale, supply, transfer, or export to Russia of several components for the production of paints and coatings. However, on August 8, 2022, the Russian Tikkurila subsidiary was still able to import 1,800 kilograms of silicone defoamer from Tikkurila Oyj, manufactured by the German Byk-Chemie GMBH. Customs documents for these goods contain HS codes indicating that they fall under the EU sanctions package.

Even worse, the company supplies paints to contractors that work with sanctioned entities, including several that operate in the occupied areas of Ukraine. Since April 2022, Russian government agencies have entered into 161 contracts with various construction companies that use Tikkurila paints. These customers include:

• Simferopol International Airport
• Center for Logistics and Service Support of the Department of the Ministry of Internal Affairs of the Russian Federation in Sevastopol
• Center for Financial and Legal Support of the Administrative Directorate of the President of the Russian Federation
• Main Directorate of the Ministry of Internal Affairs of the Russian Federation for Krasnodar Krai

Dulux and Pinotex. AkzoNobel's Russian operations

The Dutch company AkzoNobel ranks among the world's five largest producers of coatings and paints. Its Russia-based production facility in Orekhovo-Zuyevo, launched in 2007, made AkzoNobel Russia's largest producer of powder coatings within a year. The Russian branch has regional offices in St. Petersburg, Nizhny Novgorod, Orel, Novosibirsk, Omsk, Yekaterinburg, Chelyabinsk, and Krasnodar.

The Dutch company operates in Russia through three legal entities. Its flagship paint brand is Dulux, but it also produces a variety of other well-known brands: Sadolin, Pinotex, Marshall, Hammerite, Tytan, and Synteko.

In 2022, AkzoNobel's Russian entities generated $176.6 million in revenue, only 3% below its figures for 2021, the last year before the start of Russia’s full-scale invasion of Ukraine. In 2022, AkzoNobel paid nearly $8 million in taxes to the Russian state.

Paints for civil aviation

When Russia began its full-scale invasion of Ukraine, AkzoNobel issued a press release promising to stop cooperation with Russia's aviation sector, freeze investments in the country, and suspend marketing activities there. The company's statement was subsequently edited to make the language more vague, and the current version of the document mentions only that “the majority of our coatings business in Russia has been suspended.”

There is indirect evidence suggesting that AkzoNobel coatings continue to be used by Russian aviation companies. S7 Airlines’ 2022 ESG report on the carrier's website (only available in Russian) states that “S7 procures paints and coatings from AkzoNobel, a key player in the aircraft coatings market and a reliable supplier that meets the necessary environmental criteria.”

It is not only S7 that continues to find AkzoNobel to be a willing business partner. Russian airlines including Aeroflot, Rossiya, Zoom Air, UTair, Ural Airlines, Veltal, and DreamJet, use the S7 Technics hangar in Mineralnye Vody to paint their aircraft.

Furthermore, Ilnur Shakhmaev, head of production at S7 Technics, referenced the firm’s ongoing partnerships with both AkzoNobel and Finnish Tikkurila in a recent interview: “We use manufacturer-approved PPG and AkzoNobel materials for painting. The same goes for special expendable materials and paint removers: we always choose manufacturer-approved ones.”

Marketing contrary to promises

In 2022, OOO Akzo Nobel Lakokraska spent nearly $5.5 million on marketing and promotion, with much of it focused on expanding the reach of its Dulux brand.

Among the AkzoNobel brands on the Russian market, Dulux has the strongest media presence. Both the news feed on the brand's website and its Telegram channel speak of the company's intention to further increase its share of the Russian paint market. The December press release on Dulux paints at Russian Interior Week 2023 suggests that the brand has a Russian ambassador: interior and fashion designer Elena Teplitskaya. The press release also reveals that the company continues to operate the Dulux Design Studio, which offers advice to designers.

In October 2023, Dulux introduced a new product for the Russian market: the Dulux Weathershield Extraflex paint for facades and plinths. In July 2023, the company proudly reported that Dulux paints were certified by the Russian quality control association Soyuzkraska, which means that they comply with Russian state quality standards.

At present, Akzo Nobel Coatings is looking to hire a Leading R&D Chemist in Russia, whose job description suggests that the company plans to produce highly water-resistant PVA glue. It is also looking for a future Sales Development Manager for the Heritage brand in order to “drive sales and promote Heritage luxury interior paints across all channels in Russia and CIS member states.” (The Commonwealth of Independent States – CIS – is a loose affiliation of former Soviet republics. Notably, the CIS membership list does not include Ukraine, Georgia, Latvia, Lithuania, or Estonia.)

Paints for law enforcement agencies

Although AkzoNobel subsidiaries do not work directly with Russian security agencies or the military sector, AkzoNobel products can still find their way to the Russian military through intermediaries and contractors.

• In July 2022, a military base in Bashkortostan purchased 375 cans of Dulux 3D White paint.
• In May 2022, Clinical Hospital No. 1 of the Russian President’s Administrative Directorate purchased Dulux Bindo interior paint.
• In March 2023, the presidential office purchased Pinotex Ultra moisture-resistant protective wood stain and Pinotex Base colorless primer for the Crimea Complex, a state-owned recreational facility near Yalta.
• In April 2023, the Federal Assembly Facility Management Directorate signed a contract for the supply of Dulux 3D White paint and Dulux Bindo Base high-permeability primer.

Comments in the chat room of AkzoNobel's official channel, which include responses from an official company spokesperson, suggest that the manufacturer is aware of the sale of its paints in the occupied territories of Ukraine. When asked about the availability of AkzoNobel products in Crimea, the official “Dulux, Marshall, Pinotex, Hammerite, and Sikkens Hotline” recommends three Crimean chains where the paint can be purchased: kraskimira.org, stroy-krim.org, and simferopol.kraski.ru.

AkzoNobel's sanctions risks

OOO Akzo Nobel Coatings, the Russian subsidiary of the Dutch manufacturer, has been receiving restricted components from abroad, including two shipments of mica-based pigments used in the production of paints.

Customs operations data show that AkzoNobel's Russian subsidiaries are still receiving large batches of paint components that are on the EU sanctions list. These components are produced by three AkzoNobel subsidiaries, among other entities. Given the size of these shipments, it is unlikely that the Netherlands-based parent company is unaware of them.

The Insider reached out to Tikkurila and AkzoNobel for clarification but had not received a response at the time of publication.

The editors of The Insider would like to thank the Data Department of the Organized Crime and Corruption Reporting Project for information support.