Russia is threatening to seize the businesses of Western companies that have withdrawn from the country after it invaded Ukraine, escalating the economic conflict running parallel to the war itself.
Why it Matters: More than 300 companies have announced they’re exiting or pausing business in Russia, according to a list compiled by Yale professor Jeffrey Sonnenfeld and the Yale Chief Executive Leadership Institute.
- Companies that have pulled out or paused their business there include some of the most iconic American brands, such as McDonald’s, Apple and Nike.
- If their assets are seized, it would make it next to impossible for them to re-enter the country if and when the geopolitical crisis subsides, likely forcing them to take losses if they haven’t already.
What they’re saying: Russia “will expropriate foreign-owned businesses in a relatively short period of time,” Hermitage Capital Management CEO William Browder tells Axios.
- “It would be inconceivable to me — if Putin is ready to tear up the rulebook as far as border countries and oversight is concerned — that he would respect the rulebook as far as corporate governance is concerned.”
Details: Russia’s Economic Development Ministry has drafted legislation “potentially laying the groundwork for nationalizing” international businesses that are exiting the country, RadioFree Europe reported.
- “The bill envisions that the state-owned Vnesheconombank and the state export-guarantee agency would have the right to seize the property of foreign companies that left Russian markets of their own accord,” according to the report.
Be smart: Nationalization efforts are typically driven by economic concerns, according to a 2020 report by Baker McKenzie.
- As Russia is deluged with sanctions and facing a domestic economic crisis, it may see sudden little consequences in embracing nationalization.
flashback: Browder, a longtime Russia critic, warned in 2015 that Putin was on a path towards nationalizing private businesses.
What’s next: Browder urged American companies to move to protect their Russian employees from becoming “hostages” of Putin.
- “I think at this point they should just evacuate their staff as quickly as possible,” he says.
The other side: White House press secretary Jen Psaki addressed the statements from Russiawarning that it would suffer long-term reputational harm from the business community, and that it could also invite legal claims from companies whose property is seized.
- “Any lawless decision by Russia to seize the assets of these companies will ultimately result in even more economic pain for Russia,” Psaki said. “It will compound the clear message to the global business community that Russia is not a safe place to invest and do business.”
- “We stand with American companies who are making tough decisions regarding the future of their Russian operations.”