Continuing Sanctions Against Russia Mark ‘Tectonic’ Shift
Russia’s invasion of Ukraine a year ago prompted a series of tough sanctions from the US and its allies, a historic use of economic measures that will likely have lasting consequences for business.
Economic crime experts widely agree that the imposition of large sanctions packages by the US and other countries on Russia marks a watershed moment in the use of economic measures as a foreign policy tool. The US and allies have pioneered a new kind of sanctions strategy: targeted, coordinated and aimed at inflicting maximum pain on a globally important economy.
“We’ve never had such a major economy hit with such significant sanctions at such speed,” said Daniel Tannebaum, a former U.S. Treasury official who is a partner at consulting firm Oliver Wyman LLC.
More than 1,000 businesses have curtailed their operations in Russia since the invasion on February 24, 2022, according to data compiled by researchers at the Yale School of Management.
Businesses have found that the government’s approach of relying on economic levers rather than other government tools, such as direct military intervention, has put them at the forefront of Western foreign policy pushback.
The penalties were not extensive and left many businesses with roads to continue their operations. Hundreds of companies, however, pulled out, figuring the looming threat of sanctions and reputational risk justified an exit.
“The tectonic plates have really shifted here,” said Jeffrey Sonnenfeld, a Yale researcher who has tracked the exit of companies from Russia, about the widespread decision by businesses to leave. “There is nothing like it, not just in recent history or in our lifetime.”
Professor Sonnenfeld said around six times as many large businesses had cut operations in Russia than in South Africa during the apartheid-era collective boycotts of the 1980s in response to economic measures and the attendant reputational risks. of staying in the country. he said.
Professor Sonnenfeld and Mr Tannebaum have been personally sanctioned by Russia, which has accused critics of engaging in a “Russophobic” campaign.
Debate continues over whether sanctions are effective. Deputy Finance Minister Wally Adeyemo said earlier this week that the US has managed to undervalue Russia’s military industrial complex, pointing to a range of economic and other metrics. Regardless, the increase in the volume of sanctions compared to previous conflicts is undeniable. Corporate compliance staff have faced what many see as an unprecedented expansion of their sanctions-related workload.
In the weeks following the Russian invasion, nearly 2,400 entities were hit with Russia-related sanctions by authorities in the US, European Union and UK, according to data from analytics firm LexisNexis Risk Solutions. During the same period in 2021, approximately 150 entities were added across all sanction categories.
The numbers are steadily increasing. The Biden administration said on Friday it would add more than 200 people and entities to US sanctions watch lists, further tightening the economic net around Russia.
Anatoly Antonov, Russia’s ambassador to the US, said on Friday that the US had failed to isolate the country. “Washington and its allies are not succeeding in their efforts to ‘suffocate’ Russia with sanctions,” he said. “We have learned to live under economic and political pressure.”
Although the US has a long history of imposing sanctions targeting geopolitical rivals, including Cuba, Iran and Venezuela, the current measures are unique in that they have arguably banished an economically powerful country from the global economy. Russia was only in 2014 a member of the Group of Eight, a political forum for the world’s major high-income countries.
Russia since the push for sanctions in 2022 has effectively been relegated to a much smaller role in the global economy, particularly as European companies have realigned their supply chains, said Lindsay Newman, head of geopolitical thought for S&P Global Market Intelligence.
Sanctions have enjoyed broad political support, including bipartisan support in the US, in part because they allow countries to pursue their foreign policy goals relatively cheaply and without committing their military to combat, Dr. Newman said.
“The defining feature of this geopolitical landscape is this growing interdependence between the economic and security sectors,” he said. “Countries continue to rely on these tools for foreign policy. The business remains to navigate it.”
Although governments draw up the sanctions lists, businesses and their advisers bear the brunt of the actual costs of enforcement.
“I call sanctions an outsourced, outsourced tool of foreign policy,” said Adam M. Smith, who advised the U.S. Treasury Department’s Office of Foreign Assets Control during the Obama administration and now is a partner at the law firm Gibson Dunn & Crutcher LLP.
The Russia sanctions acted as a “wake-up call” to the C-suite, Mr Smith said.
“Russia is just a new ball game,” he said.