Ongoing Sanctions Against Russia Mark ‘Tectonic’ Shift

“We’ve never had such a significant economy with such significant sanctions placed at this speed,” said Daniel Tannebaum, a US Treasury Department official with consulting firm Oliver Wyman LLC.

More than 1,000 businesses have suspended operations in Russia following 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 instead of other government tools, such as direct military intervention, puts them at the forefront of Western foreign policy.

The sanctions are not comprehensive, and leave many businesses with the means to continue their operations. Hundreds of companies, however, have decamped, calculating that the looming threat of sanctions is rising and the reputational risk must be taken out.

“The tectonic plates have really shifted here,” said Jeffrey Sonnenfeld, a Yale researcher who tracks the exodus of companies from Russia, of the widespread decision by businesses to leave. “There is nothing like it, not only in recent history, or in our lifetime.”

Prof. Sonnenfeld said about six times as many large businesses cut operations in Russia as South Africa did during the apartheid-era collective boycotts of the 1980s, a response to economic measures and the accompanying risks. the reputation of staying in the country, he said.

Prof. Sonnenfeld and Mr. Tannebaum has both personally sanctioned Russia, accusing critics of engaging in a “Russophobic” campaign.

Debate continues over whether sanctions are effective. Deputy Treasury Secretary Wally Adeyemo said earlier this week that the US has succeeded in cutting off Russia’s military industrial complex, pointing to a range of economic and other metrics. However, the increase in the number of sanctions compared to previous conflicts cannot be denied. Businesses’ compliance staff are facing what many see as an unprecedented expansion of their sanctions-related tasks.

The weeks following the Russian invasion saw nearly 2,400 entities hit with Russia-related sanctions by US, European Union and UK authorities, according to data from analytics firm LexisNexis Risk Solutions. The same period in 2021 saw about 150 entities added to all penalty categories.

The numbers keep growing. The Biden administration said Friday it would add more than 200 individuals and entities to US sanctions watch lists, further tightening the economic net around Russia. The Russian Embassy in Washington did not respond to a request for comment.

Although the U.S. has a long history of applying sanctions targeting geopolitical enemies, including Cuba, Iran and Venezuela, the current measures are unusual because they could exile a country so powerful in economy from the global economy. Russia was recently in 2014 a member of the Group of Eight, a political forum for the most important high-income countries.

Russia since the imposition of sanctions in 2022 has effectively been relegated to a much smaller role in the global economy, especially as European companies realign their supply chains, said Lindsay Newman, head of geopolitical thought leadership for S&P Global Market Intelligence.

Sanctions enjoy widespread political backing, including bipartisan support in the US, in part because they allow countries to pursue their foreign policy goals relatively cheaply and without committing their militaries. to fight, Dr. Newman said.

“The defining feature of this geopolitical landscape is the growing interdependence between the economic and security spheres,” he said. “Countries continue to rely on tools for foreign policy. Business is left with the need to navigate it.”

Even as governments compile lists of sanctions, businesses and their advisers bear the brunt of the actual costs of enforcement.

“I call sanctions a completely outsourced foreign policy tool, outsourced to the private sector,” said Adam M. Smith, who advised the US Treasury Department’s Office of Foreign Assets Control during the Obama administration and is now a partner at the law firm Gibson Dunn & Crutcher LLP.

The Russian sanctions act as a “wake-up call” to the C-suite, Mr. Smith said.

“Russia is just a whole new ball game,” he said.

Compliance officers are becoming more prominent within their organizations as leadership works to cope with the tough regulatory environment, he said. Some organizations have begun to fully map the scenarios that may affect them in the future, with many looking at the tension between China and Taiwan, and any developments that may trigger future ones. punishment.

The use of coordinated sanctions, both in Russia and as a broader foreign policy tool, does not seem to be going away, experts agree.

“The direction of travel of those sanctions is clear,” said John Murphy, senior vice president for international policy at the US Chamber of Commerce, a lobbying group that represents businesses. “It remains a case that additional penalties are possible, if not impossible.”

Mr. Oliver Wyman’s Tannebaum said he works with a number of companies looking at the future and “potential war game scenarios of China’s development in Taiwan.”

“There are a lot of companies that have been caught up in the real invasion [of Ukraine] on February 24, without really thinking it would happen, and what’s worse, without a plan,” he said. “Companies should be prepared and have a potential exit plan.”

Write to Richard Vanderford at Richard.Vanderford@wsj.com