Three ways Russian business leaders can avoid Western sanctions

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Western sanctions are trapping many Russian business leaders, some of whom say they are being unfairly targeted. Can those in the private sector reduce their appointment risk? Perhaps, if you make difficult choices.

In the year In 2014, most wealthy Russians were silent about the invasion of Ukraine and the illegal annexation of Crimea. Some in the West saw silence as complicity. Moscow’s renewed belligerence has reached a more serious level. Questions are being asked about how Russian business leaders weigh loyalty to the Kremlin and long-term or international interests. And what about the civic responsibilities of business leaders?

Wealthy Russians enjoy Western benefits, from secure banking to quality schools, safe living and European vacations. But some in the West may see them as lacking the courage to speak out against Russia’s aggression in Ukraine and its massacre of civilians.

The upheaval will help bolster Western support for sanctions that could have a powerful impact in capital-hungry Russia. Businesses may be cut off from Western capital markets for new equity or debt financing. For many, this may not have an immediate effect, but in the medium and long term, such access may be necessary.

Some may say that the US is slow to impose sanctions on individuals. In the year In March 2014, President Obama authorized sanctions against individuals responsible for violating Ukraine’s sovereignty and territorial integrity or stealing the property of its people. Earlier sanctions targeted President Vladimir Putin’s former KGB officers, Rosneft CEO Igor Sechin and Rostec CEO Sergei Chemezov, who run several officials and state-owned companies.

As the violent conflict in eastern Ukraine drags on, America’s patience is wearing thin. In April 2018, the US began banning private sector business leaders. The first were Oleg Deripaska, owner of aluminum and motor vehicle companies, and Viktor Vekselberg, owner of a conglomerate that includes aluminum, oil, energy, telecom and other assets. A leaked U.S. diplomatic memo called Deripaska, who Putin frequently rotates with, “among 2-3 oligarchs.” But Vekselberg did not appear to be very close to the Russian president, a hint that the US sanctions policy could cast a wide net.

As such, last March the United States declared that pro-Putin “intellectuals and family members” … or “enriched themselves at the expense of the Russian people … elevated family members to high positions of power…” (or ) sat on Russian large companies … provide resources to support the invasion of Ukraine.

In July, the US singled out three private sector business leaders: Andrey Melnichenko, owner of Eurochemical fertilizer and SUEK coal companies, Alexander Ponomarenko, chairman of the board of Russia’s largest airport, and Dmitry Pamyansky, a producer of pipelines and railway equipment.

More Russian business leaders may be sanctioned for no particular reason. Instead, they may be caught up in what is becoming an all-out economic war. As a result, business leaders are less likely to assess penalty risks, but can still mitigate them. Here’s how.

Criticize the war. Some business leaders have. In February, banker Mikhail Fridman said war “can never be the answer,” Deripaska urged negotiations “as soon as possible,” and metals official Alexei Mordashev said the deaths of Ukrainians and Russians were “horrific.” In March, global steel magnate Vladimir Lisin said the loss of life was “unjustifiable”. “We are against this war,” said senior banker Oleg Tinkov in April. He was soon forced to sell the bank at a huge discount.

Blame the Kremlin. Criticizing the war may not be enough. Despite Mordashev’s criticism, the US and EU have imposed sanctions on him. Business leaders can be bold if they are dangerous. They may blame the Russian authorities or be willing to support the war effort. No prominent business leader seems to have done this. Tinkov’s punishment can be defensive.

Help Ukraine. Russian business leaders may look for ways to help Ukraine or its people. They or their organizations may support Ukrainian refugees. You can stop collecting debts in Ukraine. They can help in countries like Central Asia where collateral is harmed by sanctions.

Some Russian business leaders may think they are caught in a perfect storm. The Kremlin demands loyalty, but the war has destroyed unprecedented trade value. A military collapse and economic collapse could weaken or change the Kremlin’s leadership. If new leaders come to power, they may seek economic relief through better relations with the West, but sanctioned companies may lose ground. If a peace settlement is reached, sanctioned businesses could lose much of their assets in the West to fund Ukraine’s recovery.

Russian business leaders have a duty to employees, owners, suppliers and customers. They must make reasonable efforts to protect the benefits. Although business leaders fear the Kremlin’s power, they may recognize that Russia’s war, isolation, and economic erosion pose threats to their businesses. The choice is theirs.

William Courtney was an associate senior fellow at the nonprofit, nonpartisan RAND Corporation and the U.S. ambassador to Kazakhstan and Georgia. He was a corporate executive.

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