Businesses have found it increasingly hard to justify continued operations in Russia as troubling images of death and despair filter out of Ukraine and Western governments take steps to further isolate Russia economically.
Chip-making giant Intel is the latest global corporation to halt business in Russia, saying in a statement on Wednesday (Thursday AEST) that it was calling for “a swift return to peace”. The same day, the White House announced a new sanctions package that includes a ban on new investment in Russia by any American – a measure that legal experts said could hasten the departure of many more companies lingering in the country.
The investment ban comes after more than 600 multinational companies announced plans to voluntarily exit Russia, while making the country less attractive to those businesses that plan to stay. At least 155 companies have resisted demands to exit or reduce activities there while another 96 are holding off on new investments or trying to buy time, according to Jeffrey Sonnenfeld, a Yale professor who is tracking corporate investments in Russia.
“You don’t have to eat at McDonald’s to feel the impact of its closure,” said Aaron Klein, a senior fellow at Brookings Institution. “For average Russian people, seeing name-brand Western companies exit Russia is a message that they are at risk of returning to the Soviet era of society.”
Intel’s exit comes after more than two decades of business collaboration at a research and development facility near Moscow, where teams of engineers would work on advanced chip technology for use around the world.
The company said it is halting business operations there “effective immediately” in response to Moscow’s unprovoked attack on neighboring Ukraine, according to a Wednesday statement on its website. It stopped all shipments to Russia and Belarus on March 3, and has previously issued statements condemning the violence.
“We are working to support all of our employees through this difficult situation, including our 1200 employees in Russia,” the company wrote in an unsigned statement. “We have also implemented business continuity measures to minimize disruption to our global operations.”
In announcing the new sanction measures, the Treasury Department also said it would prevent US banks from processing Russian debt payments in dollars, pushing the country closer to default. If early sanctions were meant to sever Russia’s ties to the global business community, the ones announced Wednesday were meant to make that split-up permanent.
“Today’s [executive order] will ensure the enduring weakening of the Russian Federation’s global competitiveness, ”reads a White House fact sheet on the new measures.
The ban on investments is not clear-cut for many American businesses that continue to operate factories and other facilities in Russia. Over time, maintaining those facilities will require some form of investment, which could force the United States to scrutinize individual company decisions, said Ariel Cohen, a nonresident senior fellow at Atlantic Council, a think tank.
“Is the investment to refurbish existing production lines? If you need to replace machine parts, even whole machines, is it caught in those sanctions? ” Cohen asked. “The answer is between Treasury and the legal interpretations on a case-by-case basis.”
Koch, Cargill, Hyatt
Koch Industries, which operates a large glass-producing business in Russia, has already suspended new capital investments but has balked at closing.
In an emailed statement on Wednesday, company spokesman David Dziok said Koch would “comply with all applicable sanctions, laws and regulations” concerning its operations, and that it would “closely monitor the situation and modify our decisions as circumstances warrant.”
In a March 24 email to employees, president and chief operating officer Dave Robertson said abandoning its glass plants in Russia would “do more harm than good” because it would leave employees open to prosecution or harassment by Russian authorities. Plus, he added, Moscow would seize the plants and keep them open anyway.
“If [Koch] were to walk away from these glass facilities, it would give full control of the assets to the Russian government, who we believe would keep them running and capture 100 percent of the financial benefit, ”Robertson wrote.
The White House has continued to grant exemptions for businesses that are supporting sectors important to humanitarian activities, which it specified to include food and agricultural commodities, medicine and telecommunications services that connect the Russian people to the outside world.
Several US corporations cited that exemption to justify continued sales there, including Cargill, one of the world’s largest agricultural companies. Last month it suspended all investments in Russia but said it would maintain a staff of about 2500 there to continue providing “essential food” such as bread, infant formula and cereal.
For other companies, the decision to pull out of Russia is complicated by contracts with business partners. Major US hotel chains, including Hyatt and Hilton, continue to operate hotels in the country that are owned by third-party companies.
Todd Davis, a spokesman for Hyatt, said his company is “currently assessing the new measures and [continues] to evaluate our existing agreements with the third-party entities that own Hyatt hotels in Russia. ” Meg Ryan, a spokeswoman for Hilton, said the company would continue to comply with all applicable trade sanctions.