By Amin Bagheri
Businesses worldwide have reacted by voluntarily cutting trade ties with Russia over Russia’s invasion of Ukraine. Although economic sanctions imposed by the European Union, Britain, the United States, Japan, and other major powers have been rapid and widespread, the conscious choice of the business community to eagerly separate itself from Russian-related deals has further strengthened the collective reaction force. Since the embargoed countries have banned a wide range of private sector activities in relation to Russia, Businesses are mobilized to end operations, cancel projects, divert resources, and scrutinize. They re-evaluate risk reduction processes and efforts to maintain compliance with sanctions. But in parallel with these adaptation initiatives, commercial companies have voluntarily distanced themselves from the Russian economy, even in areas outside the sanctions zone. This self-sanction reflects the growing dynamism of the economic war.
International business actors have become accustomed to sanctions in recent years because of regulatory measures targeting North Korea, Syria, and Venezuela. Contemporary sanctions techniques applied by government officials include restricting private sector activities under threat of punitive measures such as financial penalties, seizure of assets, blacklisting, and criminal prosecution. These actions may be taken directly against individuals named primary targets, such as those blacklisted by the US Treasury Department’s Special Citizen List. In addition, those who trade with entities named in the immediate sanctions are subject to secondary sanctions. The potential threat of these indirect sanctions obliges business actors to protect themselves extensively against the possibility of unintentional infringement, which requires comprehensive customer inquiries and thorough pre-transaction checks when trading near sanctions regimes.
These deliberate efforts have led to the perception that businesses are over-complying with sanctions and beyond explicit orders imposed by regulators. Companies spontaneously distance themselves from venturers in each sector and geographic area to reduce the likelihood of being exposed to secondary sanctions. This over-compliance may also be created by private companies that have the potential to delay trading in anticipation of a new round of sanctions. This strategy avoids the risks of swift action by regulators, which act as the basis for a sanctions regime in the event of an escalation of geopolitical disputes.
Although over-compliance with sanctions may be a sensible business strategy, it is not always considered positive. Some kind of over-adaptation is already apparent in the prospect of new Russian sanctions. Since Russia invaded Ukraine on February 24, 2022, regulators in major industrial economies have imposed coordinated sanctions. These include extensive restrictions on trade with Russia, including blacklisting political elites and state-owned companies, banning certain financial services, restricting imports of significant goods, and, to a lesser extent, regulating imports of energy products. Due to Russia’s deep ties with the world economy, especially its oil and natural gas exports, the European Union has been reluctant to limit Russia’s energy imports. However, private companies are rapidly moving beyond self-regulatory sanctions. These decisions may be due partly to attitudes of over-compliance in the prudent response to anticipating the next round of sanctions. But the public stance taken by business leaders shows that corporations have also seceded from Russia as a moral response to the war.
International companies such as Boeing, Deloitte, Ikea, Volvo, and more than 700 other companies have withdrawn from operations in Russia or announced plans to suspend cooperation with Russia. Profitable energy market companies are among the most prominent companies voluntarily separated from Russia. Just days after the offensive began, BP announced plans to sell its stake in a $ 25 billion project in Russia. According to BP, this was not because of the sanctions but because it was the right thing to do.
However, some companies have been reluctant to leave Russia voluntarily due to humanitarian concerns, although they have been careful to explain their decisions publicly. Technology companies such as Meta (Facebook, Instagram, etc.) have resisted leaving Russia because of concerns that it could impede access to credible information about the war. Pharmaceutical companies such as Johnson & Johnson, Bayer, and Pfizer have also continued to supply drugs to Russia because they consider it immoral not to do so.
In conclusion, these strategic business decisions regarding the transfer of capital to Russia or the continuation of the route appear to be driven by factors beyond compliance with sanctions, including ethics, security, logistics, and, of course, public perception. The phenomenon of self-sanction raises wide-ranging questions about what these layers of voluntary action will mean for a potential solution to the war. On the other hand, since one of the advantages of using sanctions as a geopolitical technique is the use of the withdrawal perspective as a bargaining chip in diplomatic negotiations; If private companies resort to sanctions after weighing their ethical and strategic compasses, will governments and multilateral corporations suffer from a reduced capacity to reinstate meaningful sanctions that would otherwise leverage them by providing a balance of economic participation again? Against private companies? On the other hand, while sanctioning authorities can urge private companies to refrain from engaging with target countries under the threat of sanctions, they do not have the power to impose trade investment despite sanctions positively. And as a result, given that businesses are now deciding when it’s time to leave Russia, they may still be counting their profits and losses in trying to find a solution.