The investment ban comes after more than 600 multinationals announced plans to leave Russia voluntarily as the country becomes less attractive to those companies wanting to stay. At least 155 companies have fought back is calling for its operations there to be halted or scaled back while another 96 hold back on new investments or try to buy time, according to Jeff Sonnenfeld, a Yale professor who tracks business investments in Russia.
“You don’t have to eat at McDonald’s to feel the effects of the closure,” said Aaron Klein, a senior fellow at the Brookings Institution. “For the average Russian, Western brand companies leaving Russia send a message that they are in danger of returning to Soviet-era society.”
US expands sanctions on Russia as questions about effectiveness mount
Intel’s exit comes after more than two decades of business collaboration at a research and development facility near Moscow, where teams of engineers worked on advanced chip technology for global use.
The company says it is ceasing operations there “effective immediately” in response to Moscow’s unprovoked attack on neighboring Ukraine, according to a statement on its website Wednesday. It halted 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 in this difficult situation, including our 1,200 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 sanctions, the Treasury Department also said it would block US banks from processing Russian debt payments in dollars, bringing the country closer to default. If early sanctions were intended to sever Russia’s ties to the global business community, those announced on Wednesday should make that split permanent.
“Today’s ones [executive order] will ensure the permanent weakening of the Russian Federation’s global competitiveness,” said a White House fact sheet on the new measures.
The investment ban is ambiguous for many American companies that continue to operate factories and other facilities in Russia. Over time, maintaining these facilities will require the kind of investment that could force the United States to question individual company decisions, said Ariel Cohen, a nonresident senior fellow at the Atlantic Council, a think tank.
“Is the investment in the modernization of existing production lines? If you need to replace machine parts or even entire machines, does that fall under those sanctions?” asked Cohen. “The answer lies between Treasury and the legal interpretations on a case-by-case basis.”
Koch Industries, which operates a large glass-making company there, has already suspended new capital investments but has refused to close it.
In a statement emailed on Wednesday, company spokesman David Dziok said Koch would comply with “all applicable sanctions, laws and regulations” in relation to its operations and 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 closing his glass factories in Russia would do “more harm than good” by exposing employees to prosecution or harassment by Russian authorities . Also, he added, Moscow will confiscate the facilities and still keep them open.
“When [Koch] If they moved away from these glass factories, it would give the Russian government full control over the assets, which we believe would keep them running and reap 100 percent of the financial benefit,” Robertson wrote.
In the letter, Robertson also said the company “condemns the heinous actions of the Russian government in Ukraine.”
Some legal experts believed the Biden administration intentionally left the definition of “investment” ambiguous to force companies to make their own determinations about how much legal risk they are willing to take by continuing their Russian operations. Many companies are likely to play it safe, said David Szakonyi, an assistant professor of political science at George Washington University.
“Companies doing business in Russia will need to devote significant time and resources to fully understand this new investment rule, which in turn could create enough motivation to withdraw from the Russian market entirely to avoid conflict or the Cross a border. ‘ said Szakonyi.
“The executive order prohibits new investments so that they do not affect existing facilities,” the finance ministry said in a statement. “As is customary with the implementation of other executive orders, the Treasury Department’s Office of Foreign Asset Control will issue additional public guidance for the private sector. Each company is dealing with different circumstances and we are in close contact with the private sector to clarify individual questions.”
Sonnenfeld said the investment ban is likely to have minimal impact on companies’ long-term plans, as few multinationals are looking to attract new Russian investments at this time. Some may be trying to redefine what counts as a new investment as opposed to a capital increase designed to sustain existing operations.
The White House continued to grant exemptions to companies that support sectors critical to humanitarian activities, including food and agricultural commodities, medicines, and telecommunications services that connect the Russian people to the outside world.
Several US corporations invoked this exemption to justify further sales there, including Cargill, one of the world’s largest agricultural companies. All investments in Russia were suspended last month, but it said it would employ about 2,500 people there to continue providing “essential groceries” such as bread, baby food and cereal.
For other companies, the decision to withdraw from Russia is complicated by contracts with business partners. Major US hotel chains, including Hyatt and Hilton, continue to operate third-party owned hotels in the country.
Todd Davis, a Hyatt spokesman, said his company is “assessing the new measures and continuing to evaluate our existing agreements with the third-party companies that own Hyatt hotels in Russia.” Meg Ryan, a spokeswoman for Hilton, said the company will continue to comply with all applicable trade sanctions.