Seize profits of multinationals that stay within Putin’s borders
I‘The weaker the Russian economy gets, the harder it will be for the military machine to be maintained’
t is too expensive to get out, according to the tobacco giant Philip Morris. It is too complex, according to the French hotels conglomerate Accor, and risks enriching local oligarchs. Or it is impossible to find a lawyer, or transfer staff, or the chief executive’s dog ate the paperwork, according to multinationals ranging from the normally sanctimonious Unilever to BAT. Carlsberg has even raised the possibility of going back one day, once it finally gets around to selling its unit in the country. A year on from Vladimir Putin’s brutal invasion of Ukraine, many of the world’s biggest companies are still operating inside Russia.
We all understand there are challenges to getting out of a major country. And it is a market where the weakness of the local competition means that there are easy profits to be made. But with the war potentially dragging on for years, there is no excuse for remaining. And there is a simple solution at hand.
Ukraine needs money for reconstruction, and companies need punishment for helping to fund the war. The United States, the European Union, Britain, Japan and other leading Western powers should put in place a sanction-and-seize regime: tax Russian profits and pass the money to Kyiv. With that in place, it would be surprising how quickly they managed to get out.
Over the last week, most of the civilised world has marked the first anniversary of the invasion. Pledges of arms have been beefed up. Money has been found to help its suffering victims. Candlelit vigils have been held in New York and London, while in Paris the Eiffel Tower was lit up in the now-familiar blue and yellow of the Ukrainian flag.
Some of the world’s biggest companies, however, have found a less edifying way of marking the occasion: a fresh round of excuses for why they are still trading in Russia. This week, Jacek Olczak, chief executive of Philip Morris International, which sells the company’s cigarette brands outside the US, argued that it was so difficult to sell its Russian unit that he might end up just keeping it. Apparently the Kremlin is imposing such strict terms that a sale could be impossible. Well, there’s a surprise, Jacek. Who could have guessed Putin’s regime would make withdrawing so difficult?
Sébastien Bazin, the boss of Accor, which owns brands such as Novotel and Ibis, told The Daily Telegraph there was “no legal basis” for pulling out of Russia – and, even worse, it might “enrich local oligarchs”. From Colgate
to Unilever, BAT, L’oreal and Procter & Gamble, plenty of the world’s biggest brands are still there.
The excuses that companies are giving for remaining in Russia are pitiful, pathetic and shameful. We all understand the challenges of exiting the country. Evidently, under the circumstances, it is hard to get much of a price. You are a forced seller, and it is not as if the Kremlin is exactly worried about its reputation for respecting international law right now. Putin’s gangster cronies are the only people likely to get their hands on your business, probably in a rigged deal. Staff and suppliers deserve some protection, and any sale will take a while. Even so, a year is surely long enough. Russia is conducting a murderous campaign, and slaughtering innocent civilians as well as its own conscripts. It has turned into a war of attrition, and those are expensive to fight. The weaker the Russian economy gets, the harder it will be for the military machine to be maintained, and the sooner its forces will collapse.
It is not hard to work out the real reason so many companies are still there: money. With 140m people, Russia remains a major market, especially for consumer brands. And of course, once local units are sold, it will be hard to ever get back in again; the prices will be higher, and whoever bought your business will be a rival. It is tempting to play for time, hoping that the war will end one way or another, and everything will quickly get back to normal.
Ukraine desperately needs to keep its own army equipped, to keep the country alive, and to pay for the vast amount of reconstruction that will be needed. The IMF estimated in December that the country needs $5bn a month just to keep going. At the same time, there needs to be some form of punishment beyond condemnation, and potentially consumer boycotts, for the companies that remain.
The solution? Sanction and seize. If the G20 economies can come up with a global minimum tax, and most major economies can impose windfall taxes, it is hardly impossible to come up with a levy on Russian profits. Estimate the amount that each multinational is making in Russia, double it, and then impose a one-off charge on each one, and donate the proceeds to the government in Kiev.
The likes of Philip Morris and Accor can huff and puff if they want to. They can complain that it is too hard to sell local assets, that there is not enough time, or that they can’t get the right price. They can drag their heels, and come up with spurious reasons for remaining.
But here’s a prediction: If all the money they were making was confiscated, they would start to get a move on – and the scandal of major Western companies remaining in Russia would soon be over.