Russia Seeks Sanctions Tit for Tat

The Russian Parliament on Wednesday took the first major step to authorize the Kremlin to seize foreign assets and use them to compensate individuals and businesses being hurt by Western sanctions over the Ukraine crisis.

Legislation that passed its first round stands to arm the government of President Vladimir V. Putin with a remarkable weapon of retribution, effectively allowing the government to compensate the same insider businessmen and other elite who Western leaders had hoped would persuade the Russian leader to reverse course in Ukraine.

Although its full parameters were still unclear and it faces several hurdles, the legislation has the potential to ensnare large multinational corporations that have invested heavily in Russia. Global companies like McDonald’s, Pepsi and ExxonMobil hold tens of billions of dollars of assets in the energy-rich country.

The sanctions imposed by the United States, the European Union and others in varying phases since March had been intended to bring Russia to heel. But Mr. Putin pushed back. In August, Russia announced that it would ban many imports of food and agricultural products from Europe and the United States.

Russian news media have taken to calling the latest proposal the Rotenberg Law, after Arkady Rotenberg, a former judo-sparring partner of Mr. Putin, turned wealthy industrialist. Last month, the Italian authorities seized a reported $40 million in real estate, connected in part to Mr. Rotenberg, who has been sanctioned.

After that, United Russia, a political party loyal to Mr. Putin, reintroduced the bill. It had first been rejected by the government last spring.

The legislation must be approved two more times by the lower chamber of Parliament, or Duma, and the Russian senate, then signed by the president to become law. The initial passage could well be saber-rattling but is still an alarming sign that Russia will not take the sanctions lightly. Even early discussions of the rule in Parliament precipitated a stock sell-off late last month, given the stakes for international corporations.

In the past, the Russian government has made no bones about taking apart private assets, dismantling the once-largest domestic oil company, Yukos, and jailing its former owner, Mikhail B. Khodorkovsky, for a decade. Last month, a court ordered another Russian billionaire, Vladimir P. Yevtushenkov, placed under house arrest.

American companies with large investments in Russia have been apprehensive about possible retribution or losing business to Asian competitors, Alexis Rodzianko, the director of the American Chamber of Commerce in Russia, said in an interview. Russia, he said, now has a “hierarchy of procurement” putting Asian businesses first.

The only seeming swipe has been at the American corporate icon McDonald’s. Russian authorities closed several of its restaurants in Moscow in August, citing health concerns. But the timing prompted worries that it was payback for the sanctions.

So far, those actions appear largely symbolic, with most McDonald’s restaurants remaining open. Still, the symbolism was ominous. The opening of the first McDonald’s restaurant in 1990 on Pushkin Square marked the dawning of a new era of post-Soviet business opportunities for Western corporations.

Others followed. Ford operates an assembly plant for Focus compact cars outside St. Petersburg. A Russian forge stamps nearly half the titanium pieces as measured by weight used in the airframe of the new Boeing 787 Dreamliner airliner. Alcoa operates an aluminum smelter.

PepsiCo first came to the former Soviet Union after offering a taste sample to the general secretary at the time, Nikita S. Khrushchev, in 1959. The company has invested heavily in Russia during the oil boom and now owns one of the country’s largest dairies.

Even without such rules, multinational companies are facing headwinds, as the country’s economy flirts with recession. Ford has said weakening Russian demand for cars, amid all the uncertainty here, is hurting its global earnings.

Yet other multinationals have inadvertently benefited from Russia’s attempts to punish Western business. The ban on European dairy imports, for example, became an unexpected boon for Pepsi’s local milk and yogurt business.

The legislation, though, is amplifying corporate concerns. Russia’s minister of economy, Aleksei Ulyukayev, said just last week that “there is no better way to create capital outflow than passing or even discussing such legislation.”

Still, the law passed with 233 votes in favor and 202 against. It would allow Russian citizens to who suffer from an “unlawful court act” of a foreign government to appeal for compensation in Russia, ultimately by seizing foreign assets here, even those covered by immunity such as diplomatic real estate.

The Western sanctions were intended to dissuade Mr. Putin from invading Ukraine. The United States Treasury Department has called some of the targets the “inner circle” of Mr. Putin, or longtime acquaintances who would presumably have his ear.

But the sanctions appear to have had an unintended consequence. Critics of the compensation law say this group of insiders instead used its position to lobby for a payout from the budget.

“I have never heard of anything more cynical,” Boris Y. Nemtsov, a former deputy prime minister and longtime critic of the Putin government, said of the law in a telephone interview. “I call it the Rotenberg villa law,” he added, in reference to the seized Italian real estate.

Mr. Rotenberg, in an interview on Rossiya state television, denied he had lobbied for the law and said he would not seek compensation for his Italian real estate, now snared by sanctions. The law’s intention is to shield Russian businesses, he said, dismissing the Italian seizure as the mere “loss of a house.”

NY Times