Russia Monitor: Rip Tides & Hidden Currents Challenge Corporate America’s Role In Russia


By Dan Peak
The Commoner Call (7/17/17)

Dear Readers,

With all the news, rumors and jack-in-the-box surprises regarding the multiple Russian roles and characters popping up in the Trump White House one can’t help but wonder about the role and relationships of American corporations moving into the growing Russian market.

It’s an issue Forbes Magazine recently explored in a provocatively titled story American Companies Thriving In Russia: Is There Something To Be Ashamed About?

“Ever since the Democratic National Committee decided to turn their disdain for Bernie Sanders into disdain for Russians and Donald Trump, the New York billionaire has been seen as being in bed with Russian oligarchs and longing to cut deals in Moscow. Since when was it so bad to want to do business with the Russians?”

Is it wrong for US corporations to do business in Russia? Do these corporate interests dictate US-Russia policy or succeed in spite of the tense current political climate?

Transnational Corporate Interests

Simple answer: It is not wrong for US companies to do business in Russia – they do and they will. US-Russia politics at any point in time can make that easier or more challenging.

For a decade business analysts have talked about the BRIC nations – countries representing unusual growth opportunities for business and investment – Brazil, Russia, India and China. Forbes mentions Pfizer, Boeing, Ford, PepsiCo, Proctor&Gamble, McDonald’s and more American companies.

There are ample examples of Russian regulatory crack-downs, hacking, expulsions and any number of ways that business can be shaken down, threatened and disrupted if running afoul of official Russian opinion and favor.

Major US transnational corporations have a strategy for each of these markets – Russia, but also Brazil, India and China. The opportunities are significant and the risk – and challenges – for each nation are unique and, often, high.

Do these companies somehow dictate US foreign policy with regard to these countries? They certainly have an opinion that is expressed through lobbying; they are at the table. It is a strong voice individually and collectively. They certainly have more influence than you or I individually or, even, collectively, but at any moment in time these business interests are also at the mercy of larger events – like the current US-Russia political climate.

Transparency International (TI) and Russia – Corruption Rating

Transparency International offers an annual ranking of the challenges of corruption in each of 176 countries. The least corrupt country is Denmark, the United States ranks 18th and the most corrupt country is Somalia at 176.

 Russia comes in at 131st, tied with Kazakhstan; Brazil, India and China are tied at 79th.

US corporations are held to legal and protection standards for business conduct in foreign countries. The two most influential protection standards are the Foreign Corrupt Practices Act (FCPA) and Anti-Money-Laundering protections. Many countries operate with similar commitment and enforcement; the United Kingdom is one good example.

TI points out: there is no ‘perfect’ country and certainly there are few perfectly uniform transnational businesses. GE is an example of a company that went so far as to NOT do business in select countries because in their view it was impossible to operate without running afoul of corruption.

If a company gets this wrong they face significant penalties and bad press. For example, in 2008 Siemens was fined a record (at the time) penalty of $800 million. By the time the total cost of fines and compliance were tallied it was estimated to run closer to $2 billion. More recently, in 2012 the British-Hong Kong held HSBC banking and financial services behemoth was fined $1.92 billion for knowingly laundering huge amounts of Mexican drug money.

Business conduct in Russia is additionally challenging given US sanctions enacted against Russian individuals and entities including some Russian banks.

A Unique Russian Challenge: The Brutal Reiderovsky Method

Given the conduct and personalities of the current White House, there are unique, and ever shifting challenges for foreign business conduct in Russia these days. Writing in Rolling Stone journalist Matt Taibbi details the unseen rip tides and hidden currents related to questions raised by the recently revealed June 2016 meeting of Donald Trump Jr., Jared Kushner and then campaign manager Paul Manafort and what seems to be a continually evolving cast of Russian characters, including a ‘former’ Russian intelligence officer.

The Magnitsky Case was typical of the Russian reiderovsky methodology. Russian oligarch raiders first forced Hermitage Capital Management to pay an exorbitant tax bill, then raided Hermitage’s offices and stole documents they later used to reassign ownership of three of Hermitage’s subsidiaries to themselves. They then claimed for themselves a $230 million tax “rebate.” When Magnitsky uncovered this fraud/theft, he was tossed in jail, bounced from one prison to another and then beaten to death.

Much has been written about Hermitage Chief Executive Officer and co-founder William Browder and Sergei Magnitsky. The Magnitsky Act sanctioned a group of Russian individuals as punishment for their criminal attack on Hermitage and Magnitsky. The Meeting with Donald Jr. and company with the cast of Russians involved the Magnitsky Act.

Similarly, more recent sanctions were imposed for Russian annexation of Crimea and involvement in eastern Ukraine.

Does Boeing face a similar risk as Hermitage? No. But if you follow the news there are ample examples of Russian regulatory crack-downs, hacking, expulsions and any number of ways that business can be shaken down, threatened and disrupted if running afoul of official Russian opinion and favor.

Is business risk unique to Russia? No, but a corruption ranking of 131st puts the challenges faced in perspective.

I don’t believe US multinational corporations dictate US foreign policy though they are at the table with a strong voice. They cannot operate with impunity though this has to be considered within a climate of leadership at the Department of Justice for enforcement at any point in time. Corporate interests desire stability – political risk is not in their best interest.

Certainly the captains of corporate America have the ear of senior government officials. Certainly JP Morgan CEO Jamie Dimon can get anyone to answer his phone call. While he was a (supposed) Trump candidate for Treasury Secretary he is also a current critic who declares he is sick of America’s “stupid shit”.

Politics and business are interconnected but also have their independent arcs at any point in time. Cargill doesn’t agree with Trump’s stance on trashing NAFTA as an example.

Trump’s Department of Justice under Attorney General Jefferson Beauregard Sessions III is on record against enforcement of US multinational business conduct. But businesses know they are subject to enforcement by other countries, or possibly future administrations and any statute of limitations is long – proceed at your own risk.