By Nicola Stoev
Editor’s note: The opinions expressed here are those of the authors. View more opinion on ScoonTV.
A huge number of companies headquartered in the E.U. and G7 countries are still operating and investing in Russia, according to recent research from Professor Simon Evenett from the University of St. Gallen, Switzerland and professor Niccolò Pisani from the International Institute for Management Development. “In effect, many firms headquartered in these nations have resisted pressures from governments, the media, and NGOs to leave Russia since the invasion of Ukraine,” professor Evenett noted in a statement.
According to the World Bank database, the foreign net assets in Russia amounted to some $708 billion at the end of 2020. They have undergone an approximately 50-fold increase from 2001 to 2020.
When Russia invaded Ukraine, 2,405 subsidiaries owned by 1,404 EU and G7 companies were operating in Russia, as per the research. In late November 2022, Evenett and Pisani found that less than 9% of the companies had divested at least one subsidiary in Russia. The divestment rates barely changed during the fourth quarter of 2022. The study shows that less than 18% of U.S. subsidiaries doing business in Russia have been completely divested since the invasion of Ukraine. Among Japanese firms, 15% of them have completely divested from Russia. Among EU firms, that percentage is just 8.3%.
Some of the world’s biggest companies such as Ford, Renault, McDonald’s, Ikea and Shell are among the Western businesses which have pulled out from Russia, according to a list compiled by Yale University.
Yet many others, such as the consumer goods giant Unilever, U.S. fast food franchise Subway, Italian pasta-maker Barilla and Ariston Group as well as Benetton, Microsoft, IBM and Nestlé have continued to operate in the country. The most numerous companies keeping their Russian businesses are Chinese, German, Italian, and Greek. The companies that withdrew from Russia are predominantly headquartered in the U.S.A. and the U.K. as they pertain often to the industrial and the IT sectors. Of the E.U. and G7 companies that remain in Russia, 19.5% are German, 12.4% are American-owned and 7% are Japanese multinational firms.
In a statement provided to MarketWatch, Swiss food giant Nestlé declared that since the start of the war, the company has “drastically reduced” its portfolio in Russia. “Our remaining activities are focused on bringing essential food to the local people,” the company said. “This aligns with our purpose of ensuring the basic right to food.”
In March, Microsoft announced the suspension of new sales in Russia. In June, the software giant said it is significantly reducing its operations in the country but would fulfill its existing contractual obligations to customers there, according to Reuters.
“Ford shares will be transferred to the Joint Venture for a nominal value,” the company announced in October. Ford is retaining the option to repurchase the shares within a five-year period should the global situation change, it added.
Exxon has $4 billion of assets in Russian limbo, according to a Reuters analysis of company statements. Citigroup possesses $10 billion of assets, the analysis also found.
Earlier in 2022, President of the Russian Defense Council Dmitry Medvedev stated that if “the fools and the idiots among the Western politicians” decide to appropriate Russian assets on the territories of their countries, Russia should inevitably respond with a seizure of assets belonging to Western companies on its own territory. He stressed also that Russia may confiscate larger volumes of assets than the “fools and the idiots.”
Together with its allies, the UK has imposed separately the most severe sanctions Russia has ever faced, designating more than 1,200 individuals, over 120 entities, and freezing the assets of 19 Russian banks with global assets of £940 billion since Russia began its illegal invasion. Some experts suggest that the total Russian frozen assets in the West should be well above a trillion U.S. dollars. It is significantly more than the value of the Western assets at stake in Russia (currently perhaps less than $708 billion after a group of big investors have already left the country. Chinese companies’ assets should not be counted).
On November 14, 2022, a U.N. General Assembly resolution calling on Moscow to pay reparations received 94 votes in favor. 14 states voted against the resolution, and 73 abstained. This resolution is not legally binding, but the U.N. General Assembly on March 2 overwhelmingly adopted an emergency resolution condemning Russia’s war, finding that Russia’s government had committed international aggression in violation of the U.N. charter. They demanded that Russia immediately stop and withdraw.
In practice, the emergency resolution was a U.N. invocation of Russian state responsibility for aggression, as long as such invocations have no established legal forms. Therefore, the state responsibility of Russia for aggression is already ascertained. Per a resolution on November 14, 2022, a one-off entity (a special tribunal) outside of U.N. jurisdiction could enforce the Russian reparations payment to Ukraine. Realistically, the reparations payment could only be enforced on account of the immobilized Russian assets in the West.
The potential loss of Russia-based assets poses steeper risks for some U.S. companies more than others. Exxon, McDonald’s, and Mondelez International are three of the U.S.’s most heavily invested companies in Russia. Some companies carry private and government-funded political insurance meant to protect them against diplomatic hostilities, Paul Stephan, a law professor at the University of Virginia’s School of Law and expert in post-Soviet legal systems noted. However, larger multinational companies, he said, tend to self-insure, and rely on treaty protection as a backup.
“Russia’s track record is to lose treaty claims, then not honor them, and it’s very hard,” he also added. “There are outstanding $70 to $80 billion worth of claims against Russia right now, as a result of treaty arbitrations, but almost none resulted in a payout.” In such a situation, Yale Law School professor Lea Brilmayer, who specializes in international courts and tribunals, said they should be sought default judgments in U.S. courts. A company, for example, could obtain a ruling against Russia’s government without its participation. Then Russian assets held by the U.S. government could be used to reimburse U.S. companies for losses.
The alternative to this approach is to apply the Russian practice against Russia itself – i.e., simply not returning the blocked Russian assets in the West (that are much more than the Western assets in Russia) and using them for reimbursement purposes. Mr. Putin and Mr. Medvedev should know of these options. Perhaps that is the main reason they still cast only verbal threats about asset confiscations nearly 10 months after a confiscation bill was submitted to the Duma, Russia’s parliament.
However, the conceptual dimension of the problem with the Western companies’ assets in Russia is buried somewhere in the critical re-thinking in the West that Russia should not be marginalized or left to disintegrate chaotically. Often this preoccupation (accompanied also by some degree of greed) is conveniently masked as a hope for Russia’s sustainable economic integration with the U.S. and the E.U. political priorities. It’s a possibility that history has repeatedly denied.Subscribe to get early access to podcasts, events, and more!
