Russian prosecutors are warning major Western technology companies that they may face new charges and asset seizures in the wake of US sanctions on Russia. The move comes as an astonishing escalation of tensions between Moscow and Washington following recent tit-for-tat diplomatic expulsions, which have left US diplomats struggling to find a country willing to take them in. Experts say it’s likely that other nations will soon follow suit by targeting American firms with similar measures.,
According to persons acquainted with the situation, Russian prosecutors have sent warnings to Western corporations in Russia, threatening to imprison corporate executives who criticize the Kremlin or take assets of companies that leave the country.
Last week, Russian President Vladimir Putin announced support for a measure that would nationalize the assets of foreign corporations that leave the country as a result of the country’s invasion of Ukraine. According to persons familiar with the situation, the prosecutors’ warnings were intended at corporations in a variety of industries, including technology, food, fashion, and finance.
According to some of the sources, the threats have caused at least one of the targeted firms to restrict connections between its Russian business and the rest of the corporation, fearing that emails or text conversations between workers may be intercepted.
According to other persons acquainted with the situation, several corporations have moved to transfer executives out of Russia.
Spokespeople for Coca-Cola, IBM, P&G PG -1.19% and McDonald’s declined to comment. A Yum spokeswoman declined to comment beyond the restaurant company’s past statements on its decision to pause operations at its KFC and Pizza Hut restaurants in Russia.
On Saturday, KFC opened at a Russian retail mall.
Maksim Konstantinov/Zuma Press photo
A request for comment from the Russian Embassy in Washington was not returned on Sunday.
Following Mr. Putin’s invasion of Ukraine and Western government sanctions, a slew of corporations have declared intentions to halt or curtail their activities in Russia.
Many businesses, notably shops and manufacturers, have said that their shutdowns are just temporary. Some said they were forced by the supply chain disruptions caused by sanctions. Others have made the decision to leave for good.
According to sources informed on the situation, companies are also considering their operations in Russia in a new light as a result of the economic uncertainty and anticipation that circumstances would remain turbulent for some time. Despite the prosecutors’ warnings, a number of the enterprises have decided to withdraw or halt operations, according to the sources. One of the participants said it would be difficult for corporations to successfully shift operations to Russia if the government tried to impose its own management.
On Friday, the Russian prosecutor general’s office said it will verify that enterprises that have announced they are stopping or ceasing operations do so in accordance with Russian labor regulations. According to the Yale School of Management, more than 350 international firms have announced that they are leaving or temporarily stopping operations in Russia.
Wall Street banks such as Goldman Sachs Group Inc., consumer-goods companies such as Coke, retailers such as Levi Strauss & Co. and tech giants such as Apple Inc. have announced plans to pull back. Energy giants such as BP PLC and Exxon Mobil Corp. said they would exit Russian operations.
Mr. Putin has approved a proposal introduced by a senior member of his ruling United Russia party last week to nationalize the operations of foreign corporations leaving the country. According to Andrei Turchak, secretary of the United Russia party’s general council, such a step would assist minimize job losses and protect Russia’s capacity to create products locally.
A push for nationalization has been slammed in Washington.
“Any illegal move by Russia to take the assets of these enterprises would eventually result in even greater economic misery for Russia” and might result in legal action, according to White House press secretary Jen Psaki.
Coca-Cola said last week that its activities in Russia will be halted. In 2021, Coke’s operations in Russia and Ukraine accounted for around 1% to 2% of the company’s operational sales and profits. As of December 31, the firm owned about 21% of Coca-Cola HBC AG, Coke’s bottling and distribution partner in the area.
Yum said last week that it will temporarily down its 70 company-owned KFC restaurants and that it had reached an agreement with its Pizza Hut franchisee to suspend operations at its 50 sites. According to the corporation, it was also stopping all investment and restaurant expansion in Russia.
According to the spokesperson, Yum Brands is “focused on the safety of our workers in the area and will continue to assist our staff in Ukraine while examining the ways Yum Brands can have a positive influence in the country.”
In a blog post last week, IBM Chairman and Chief Executive Arvind Krishna announced that the corporation has halted all operations in Russia. “Our primary concern is the safety and security of IBMers and their families in all places touched by this situation,” he stated.
McDonald’s said last week that it would temporarily down its 850 locations in Russia but would continue to pay its 62,000 employees. The firm said it couldn’t say when the restaurants will reopen in Russia and that it would look into if any extra procedures were needed.
McDonald’s estimates that closing the locations would cost the corporation $50 million per month in salaries, rents, supply-chain, and other expenses.
P&G, PG -1.19% maker of Pampers diapers and Crest toothpaste, said it would halt spending in Russia on capital investments, advertising and promotions while selling only products that focus on basic health, hygiene and personal care. P&G said that Russia and Ukraine combined account for less than 2% of annual revenue. The company said it employs 2,500 people in Russia.
—This article was co-written by Sharon Terlep.
Jennifer Maloney, Emily Glazer, and Heather Haddon may be reached at [email protected], [email protected], and [email protected], respectively.
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