The first Israeli high-tech companies have frozen commercial activity in Russia due to its war with Ukraine, in light of the international sanctions imposed on Russian agencies, companies and individuals.
Wix, which provides a platform for building websites, announced that it has stopped selling its services in Russia until further notice. Stratasys, a 3D printing firm, also announced that it has frozen all commercial activity with Russia. “We’re watching the current situation with great concern and expressing solidarity with those who have been hurt by the fighting,” Stratasys CEO Yoav Zeif said.
The fintech company Tipalti has stopped transferring payments to customers in Russia. Tipalti, which transfers more than $30 billion a year in 196 countries, said in a statement, “As part of our oversight of global financial transfers, Tipalti is obligated to work with sanctions screening systems to identify financial crimes and check classification lists before every transfer of payments on the company’s platform. At this time, these systems do not enable the transfer of payments to Russia.”
Payoneer, another payments company, also announced the cessation of its activities in Russia this week. “We decided to suspend access to our services in Russia,” it said. “Payoneer won’t accept any new customers, and after fulfilling its obligations toward its existing users in Russia, in line with its service agreements, services will also be halted for them.”
Payoneer even removed income from Russia, Belarus and Ukraine from its revenue projections for 2022. The company said income from Russia and Belarus constituted three percent of total revenue in 2021, while those two countries plus Ukraine accounted for 10 percent of the total.
In explaining its decision, the company wrote, “We cannot, with a clear conscience, support an aggressive government that has disrupted decades of peace in Europe. We will continue to closely monitor the situation, which is developing rapidly, and we’ll abide by all the relevant laws and regulations.”
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The Israeli companies are following in the footsteps of a long list of global giants who have decided to halt operations in Russia. The list includes Visa, MasterCard, PayPal, Apple, Intel, Microsoft and Google.
However, legal concerns regarding compliance may not be the cause. Attorney Yuval Sasson, an expert in international law at the Meitar law firm, said the wave of companies halting operations in Russia isn’t necessarily connected to international sanctions on the country.
“Sanctions by giant corporations, which are taking a stand even though there are no sanctions or legal restrictions on them and deciding of their own accord to halt commerce in the country, is a new and interesting development,” he added.
He said there are many reasons why companies might decide to disconnect from Russia, “from pressure by employees to fear of harming their business reputation or of sanctions that might be imposed in the future," he said.
No company wants people portesting outside its offices. “The moment it’s hard to predict what each day will bring, and the implications of violating sanctions are dramatic, companies look for alternatives to ensure stability. Moreover, if the company has few customers in a given country, it may simply prefer to give them up rather than getting tangled up in the sanctions.”
Companies that sell products or services to customers in Russia have been mired in uncertainty and confusion for the last week due to fighting the sanctions imposed by various countries on Russian companies and agencies, and the restrictions on exports to Russia, sources in the high-tech industry said. Many companies have contacted their legal teams to seek clarifications on what is and isn’t allowed.
Some decided that to be on the safe side, they would temporarily freeze some of their activity with Russian customers until the future and the possible risks became clearer. Some are afraid of being fined for violating future sanctions, or of being put on the American government’s “blacklist,” as happened recently to spyware developer NSO Group and another Israeli offensive cyber firm called Candiru.
At face value, there is no legal restriction on these firms: Israeli companies are not subject to the U.S. government’s sanctions or restrictions on exports to Russia. Nevertheless, there is an indirect risk as working with organizations that are under U.S. sanctions could impair their ability to work in America in the future.
Attorney Naama Margolis, a partner in the Shibolet & Co. law firm, said that Washington has imposed a long list of new sanctions and restrictions on Russia in recent weeks and changed many restrictions. Consequently, Israeli companies risk finding themselves entangled in the sanctions net even if they are not legally bound by American sanctions.
First and foremost, high-tech companies have contractual obligations toward American investors, customers and suppliers not to do business with organizations that are under sanctions. But in addition, Margolis said, Washington doesn't want to be seen as permitting American technology to help the Russians, and it has shown both willingness and ability to enforce this in the past.
Consequently, Washington also supervises exports to Russia from countries other than America if those exports include American components or software, if American technology played a substantial role in their production, or even if they merely used servers located in the United States.
There are many complex nuances, so it’s hard to create a clear rule of thumb, Margolis said. “Every company has to look at what kind of product it has, what kind of users it has, its shareholders, what kind of business it does, what kinds of deals, who is involved in them and more,” she explained.
For instance, there’s a difference between a company that sells SaaS (software as a service), which isn’t defined as an export, and one that provides services that are defined as exports. Moreover, Margolis said, restrictions on some companies could depend on who its Russian customers are as well as what kind of products and services it sells.
According to Reuters, the European Commission has prepared a new package of sanctions against Russia and Belarus over the invasion of Ukraine, including those with implications for the tech sector.
The draft sanctions were adopted by the EU executive on Tuesday morning and will be discussed by EU ambassadors at a meeting later in the day.
The draft package will ban three Belarusian banks from the SWIFT banking system and add several more oligarchs and Russian lawmakers to the EU blacklist, the sources told Reuters. Moreover, the package also bans exports from the EU of naval equipment and software to Russia and provides guidance on the monitoring of cryptocurrencies to avoid their use to circumvent EU sanctions, the sources told Reuters.