Russia threatens to nationalize defunct US companies

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Russia is threatening to seize the businesses of Western companies that pulled out of the country after invading Ukraine, deepening the economic conflict parallel to the war itself.

Why is this important: More than 300 companies have announced they are quitting or suspending operations in Russia, according to a listing compiled by Yale Professor Jeffrey Sonnenfeld and the Yale Chief Executive Leadership Institute.

  • Companies that have pulled out or suspended operations there include some of America’s most iconic brands, such as McDonald’s, Apple and Nike.
  • If their assets are seized, it would be nearly impossible for them to return to the country if and when the geopolitical crisis subsides, likely forcing them to take losses if they haven’t already.

What they say : Russia “will expropriate foreign companies in a relatively short period of time,” William Browder, CEO of Hermitage Capital Management, told Axios.

  • “It would be inconceivable to me – if Putin is willing to tear up the rules when it comes to border countries and surveillance – that he would abide by the rules when it comes to corporate governance.”

Details: Russia’s Economic Development Ministry has drafted legislation ‘potentially laying the groundwork for nationalization’ of international companies leaving the country, RadioFree Europe reported.

  • “The draft law provides that the state-owned Vnesheconombank and the state export guarantee agency would have the right to seize the assets of foreign companies that left Russian markets on their own initiative,” according to the report.

Be smart: Nationalization efforts typically driven by economic concerns, 2020 study finds report by Baker McKenzie.

  • With Russia awash in sanctions and facing a sudden domestic economic crisis, it may see little consequence in embracing nationalization.

Rollback: Browder, a longtime Russian critic, warned in 2015 that Putin was on the path to nationalizing private companies.

And after: Browder urged US companies to act to prevent their Russian employees from becoming “hostages” to Putin.

  • “I think at this point they should just evacuate their staff as quickly as possible,” he says.

The other side: Jen Psaki, White House Press Secretary responded to Russian statementswarning that he would suffer long-term reputational damage from the business community and could also attract legal action from companies whose assets are seized.

  • “Any lawless move by Russia to seize the assets of these companies will ultimately cause even more economic suffering for Russia,” Psaki said. “This will reinforce the clear message to the global business community that Russia is not a safe place to invest and do business.”
  • “We support American companies making tough decisions about the future of their Russian operations.”

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