Western companies that stayed in Russia continue to support the country with their taxes
According to the Kyiv School of Economics, more than 40% of the approximately 1,500 international public companies that were operating in Russia before the start of the military conflict in Ukraine continue to work there and pay taxes to the Russian budget.
The companies that stayed in Russia are increasing their revenue. For example, the Japanese–Swiss company Japan Tobacco International (JTI), which owns four production facilities in Russia, boosted its sales in the country by 26% to $7.4 billion last year. PepsiCo, which produces not only soft drinks but also yogurts in Russia, increased its net revenue in the country by 20% to $4.1 billion last year. Russian sales are also growing for companies like Mars, Unilever, Mondelez, and others.
From the study’s findings, it can be inferred that some of the companies that had declared their intention to exit the Russian market did, in fact, opt to stay. Some are unwilling to divest their Russian assets at significant discounts, while others argue that they provide Russians with “essential goods” and, therefore, cannot exit the market.
In such a scenario, how do these international companies differ from Russian private businesses whose top managers and owners have faced sanctions imposed by Western countries?
Under the European Union’s personal sanctions, dozens of private Russian businesspeople were targeted, including Vadim Moshkovich, the chairman of the board of directors of the agricultural producer Rusagro; Dmitry Konov, the CEO of the petrochemical company SIBUR; Alexander Shulgin, the head of the online marketplace Ozon; Vladimir Rashevsky, the CEO of the fertilizer manufacturer EuroChem; and several top managers from the technology company Yandex. All of them resigned from their positions in 2022 following the imposition of sanctions. Nevertheless, the restrictions against them, such as the freezing of bank accounts and a ban on entry into the EU, remain in place.
The grounds for sanctions against these individuals, and many others, were based on the fact that the companies where they were employed made significant contributions to the Russian budget, which in turn funded military operations in Ukraine. Furthermore, many CEOs and owners of Russian companies who were sanctioned attended meetings with Vladimir Putin and the country’s business leaders.
Using the same rationale, sanctions could also be imposed on the leaders of international companies like JTI, PepsiCo, Glencore, and many others. These companies continued attending meetings with Vladimir Putin and foreign business leaders even after 2014, when Russia annexed Crimea from Ukraine, in violation of international law. Additionally, when considering the contribution of foreign companies to the Russian economy, according to estimates from the Kyiv School of Economics, their corporate income tax payments alone amounted to $3.5 billion last year.
However, for some reason, the EU and the US have not imposed sanctions on the top managers of international companies who indirectly support Vladimir Putin’s regime. Apparently, they do not regard them as members of the Russian elite capable of influencing Putin’s policies. But do Russian top managers and entrepreneurs really possess such influence? In reality, not all Russian businesspeople have ties to Putin or wield influence over him.
The research firm Macro-Advisory believes that Russian business leaders can be categorised into three main groups. The first group comprises top managers of state corporations and government-controlled companies. The second group includes individuals close to Putin who enriched themselves during his tenure by fulfilling state contracts for projects such as the construction of pipelines, roads, and bridges. The third group consists of private businesspeople who have no influence over the state. If they attend meetings with officials, it is often to seek relief from excessive industry regulations.
It appears that Western politicians are gradually beginning to discern these distinctions. In September, for instance, the European Union lifted sanctions on former Ozon CEO Shulgin. He successfully argued in court that he had ceased to be an “influential businesspeople” upon leaving the company. Several other former Russian top managers who resigned from their positions have also succeeded in having EU, UK, and US sanctions lifted from them. It is good to see that some of the mistakes made when imposing sanctions are now being rectified. Such corrections are making sanctions a more balanced and effective instrument of influence.
