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LEVICK Risk and Business Strategy

October 21, 2016

Raiding and Retaliation in Russia

Once considered to be somewhat promising in the decade following the end of the Cold War, relations between Washington and Moscow have been deteriorating significantly since the 2014 Russian occupation of Crimea. Although much of the strife has been confined to the intergovernmental level, private companies have increasingly been caught in the crossfire.

After the US hit Russia with sanctions in the wake of the Crimean incursion, Russia’s response was multifaceted. First, Moscow hit back with a series of ineffective sanctions and travel bans against US government officials. In a more vindictive gesture, Russian food regulators announced investigations into more than 200 of the 440 McDonald’s locations in the country, claiming possible violations of the health code. Although only 12 of the locations were temporarily closed down, and another location was fined a mere $2,000 (USD), Russia clearly demonstrated its willingness to punish foreign companies for the foreign policy actions of their home government.

Another troubling pair of trends threatens to cause more headaches for companies. The first trend is called reiderstvo, a form of illegal corporate raiding in which a bad actor causes corrupt elements of the Russian government to seize the assets of a competitor. This is usually accomplished by accusing the competitor of having committing some sort of “economic crime,” invoking a broadly-written and ill-defined section of the Russian criminal code. Although disturbing, this trend is not a centrally-coordinated function of the Russian state. However, a second trend threatens to converge with the first in a way that could prove more ornery for foreign companies operating in Russia against the backdrop of souring Washington-Moscow relations. This is draft bill of the Rotenberg Law, which would enable Russian courts to order the seizure of assets owned by Western entities – perhaps even private companies – that are from countries that enacted sanctions against Russian citizens and use the funds to compensate those who were “victimized” by Western sanctions.

A number of more recent developments have further strained the US-Russia relationship. On October 7, US Secretary of State John Kerry called for Russia to face a war crimes investigation for the conduct of its armed forces in their intervention into Syria, including a recent attack on Syrian civilians. Additionally, the US government has officially accused the Kremlin of orchestrating a series of cyberattacks and data dumps in an attempt to intrude into the US presidential election. Obama Administration officials have indicated vaguely that Washington would prepare a “proportional” response.

It appears that this response has already begun: this month, a new round of asset freezes hit the UK bank accounts of Russia’s state-owned media organization RT (formerly known as Russia Today). Given the convergence of trends outlined above, it is quite plausible that private firms will increasingly find themselves targeted by Moscow.

For further information about LEVICK Business Intelligence’s political and regulatory risk capabilities – including obtaining a complete copy of this report or others – please visit us online at http://levick.com/practices/business-intelligence or contact us directly at LEVICKIntelligence@LEVICK.com. A complete list of our Political Risk Updates can be found under the Political & Regulatory Risk tab. 

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