Companies face ethical and logistical challenges to stay in Russia

When the US, UK and EU slapped sanctions on Russia’s banking system, Egor Bondarov faced a conundrum.

Bondarov, the owner of a small 3D-printing business, moved from Russia to the US 10 years ago but still employs a Russia-based designer. No longer able to pay his employee via his normal Russian bank account or through Western Union, Bondarov instead resorted to cryptocurrency, transferring digital coin to a Chinese crypto exchange, which could then be moved into his Russian bank account to pay the designer.

“So far it’s the only way . . . I don’t want to abandon him. He has a kid, a family,” said Bondarov, noting that all of the designer’s other foreign employers had severed their contracts with him.

One month into unprecedented sanctions against Moscow, small businesses and multinationals alike are rushing to adjust, devising creative solutions to keep money flowing in and out of the country and grappling with complex decisions about whether to suspend business until geopolitical tensions cool or leave Russia entirely.

The sanctions in response to President Vladimir Putin’s invasion of Ukraine have cut Russia off from the global financial system. They have frozen hundreds of billions of dollars worth of Russian assets and targeted some of the country’s biggest lenders, making it significantly more complicated for western companies to do business there and pay their Russian employees.

Faced with rising pressure in their home countries, many western multinationals voluntarily suspended, curtailed or closed their operations in Russia.

Visa and Mastercard have stopped processing foreign purchases from Russians, Apple and Google have halted mobile payments there and the local outlets of McDonald’s and Starbucks are shuttered.

The Yale School of Management, which is tracking the exodus, estimates that more than 450 companies have pulled back or pulled out. They range from Accenture, which laid off 2,300 employees in Russia, to Johnson & Johnson, which said it would suspend sales of personal care products while maintaining supplies of medicines.

Yale’s list of companies “digging in” runs to more than 40 brands, however, from Koch Industries to Korn Ferry. It has attracted widespread attention, including from Ukrainian officials who have accused some on the list of making “blood profits”.

Some companies that had come under pressure for maintaining their operations are reconsidering. Ball Corporation, a US can and bottle manufacturer, had pledged to “honour [its] obligations” in Russia. It changed tack last week, saying it would sell a business that contributed 4 per cent of last year’s revenues.

Advisers said the decision of how to respond had been more painful for some businesses than others.

Companies from hoteliers to food manufacturers “feel they have a responsibility to their employees and consumers in Russia”, said Constantine Alexandrakis, chief executive of Russell Reynolds. A survey of business leaders by the headhunting firm found that two-thirds of those with operations in Russia had not shut them down.

“It’s one thing if you’re Gucci selling handbags. They can already see credit cards have been turned off and high-end shopping isn’t going to take place anyway,” said another adviser to multinationals.

Companies with meaningful manufacturing operations in Russia were in a significantly more difficult position, following Putin’s threat that Moscow could nationalise businesses and assets left behind by western companies.

“If you’ve got a huge asset there, do you want it taken over by the Russian government?” the person asked.

Dale Buckner, chief executive of security group Global Guardian, which has evacuated more than 2,000 of its clients’ employees from Russia, said it had also been running “retrieval missions” to extract equipment that clients feared could fall into the state’s hands.

Buckner said he was working with eight companies on Yale’s list, many of which also feared for the security of their digital assets, including servers in Russia that could expose them to cyber attacks. Clients were now cutting off some Russian employees’ access to their digital data, he added, asking: “are they sympathetic to the company or sympathetic to Russia?”

Some western service groups have found buyers for their Russia businesses, including Cushman & Wakefield, the property adviser, which announced such an agreement last week.

Others, though, are running into roadblocks as they try to orchestrate buyouts by local management, because many of the Russian lenders that might have financed such deals have fallen under western sanctions, while many US and UK law firms no longer feel comfortable structuring the agreements.

While most companies have found ways to keep paying Russian employees despite the restrictions on sending money to some of Russia’s biggest lenders, many are struggling to get cash and other assets out of the country.

“If you have cash assets, you’re basically fucked. There is no simple way of getting them out,” said the chief executive of one company operating in Russia.

Such concerns are preoccupying executives at a moment when many of them are concluding that there will be no quick return to the Russian market.

Amir Aghdaei, chief executive of the dental supplies business Envista Holdings, told a conference last week that the company faced “tremendous” challenges in maintaining its $100mn-a-year business in Russia.

“We are able to sell what we have, but getting product into Russia has become a really difficult task for us,” he said, adding that he was not expecting a short-term resolution. “This is a challenge that we’re going to be dealing with, not only in 2022, but [over] a much longer period.”

“There’s no indication from our clients they’ll be back in a month’s time,” said Healix International, a security business that has also helped clients evacuate expats and switch off some Russian employees’ access to their systems.

That is likely to leave more companies facing similar quandaries to Bondarov, pushing some to close their Russian businesses entirely. Laying off local employees will expose them to new reputational risks when they do so, said Steven Fox, founder of political risk consultancy Veracity Worldwide. But, he added, “the public understands that there are consequences and the higher calling was to exit”.