As Sanctions Bite, Russia Goes On The Offensive

Russian President Vladimir Putin has reacted to the ongoing mass withdrawal of companies from his country over its invasion of Ukraine. On Thursday he endorsed a plan to nationalize foreign-owned businesses that flee the country.

The Russian government has been alarmed over job losses and other economic pain the exodus is inflicting.

Putin’s approval of the plan, scheduled to be discussed in Russia’s parliament, came as Goldman Sachs said it was “winding down” its business in Russia, following hundreds of other Western firms that have closed or suspended operations.

During a meeting with government officials Thursday, Putin said Russia must “introduce external management” on departing companies “and then transfer these enterprises to those who want to work.”

This is an endorsement of a legislative proposal that would create a pathway for the government to take over and eventually sell businesses that quit the country.

McDonalds is one of the companies that has left Russia

Russian President Vladimir Putin said on March 10 that Russia would emerge stronger after overcoming the difficulties caused by the West’s sanctions.

Late Thursday, the White House warned Russia against nationalizing assets.

“Any lawless decision by Russia to seize the assets of these companies will ultimately result in even more economic pain for Russia,” White House press secretary Jen Psaki said in a tweet, adding that such measures “may also invite legal claims from companies whose property is seized.”

Putin on Thursday told his cabinet that “the economy will, without doubt, adapt to the new situation.”

US President Joe Biden

The nationalization proposal would allow the government to request a court order to impose external management on the factories, shops and other facilities that departing companies leave behind to “prevent bankruptcy and preserve jobs,” Putin’s party, United Russia, said in a statement this week.

External management would last for three months, after which the government would put the businesses up for auction, the party statement said.

The rule would apply to companies in which “unfriendly nations” own more than 25 percent and which “stop operations” in Russia, Putin’s political party said.

Companies will be able to halt the nationalization process if they restart their businesses within five days of the court order or sell their assets in a manner that preserves the business activity and jobs, the party said.

The proposal is one of several that Russia has floated or approved in recent days to retaliate against “unfriendly nations.” One government decree issued this week essentially allows Russian entities to violate Western patents, a step Russia could take to try to produce “devices and technologies that disappear from the Russian market or will be in short supply,” the law firm Baker McKenzie said.

More than 330 foreign companies have announced their withdrawal from Russia, according to Yale School of Management, putting thousands of jobs in jeopardy.

The companies have cited several reasons for fleeing, including outrage over the Ukraine invasion and difficulties processing payments and importing supplies into Russia because of Western sanctions.

McDonald’s, which is temporarily closing 850 restaurants, will continue to pay its 62,000 Russian employees and make lease payments on its locations in the country, Kevin Ozan, the company’s chief financial officer, said in a meeting with analysts this week.

He estimated those payments and other costs associated with closing down business will total $50 million a month.

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