New US sanctions hit mid-tier online providers

New US sanctions on the use of American software in Russia — agreed in June — have been in place since Sep. 12. The measures were designed to deprive Russian companies of access to business management, design and production tools. There were some exceptions in place to prevent undue disruption, but this has not worked as planned.

• When the measures were announced in the summer, they alarmed Russian businesses and users, with many fearing that by September all foreign services would be cut off. In reality, though, hardly anybody noticed the passing of the imposition of the Sep. 12 shutdown.
• The restrictions prevent American companies from providing anybody in Russia with IT consultancy or project management services, as well as IT support and cloud services for enterprise management software, design and manufacturing software. However, the US Treasury has issued a broad general license to allow ordinary communications to go ahead, including email, social networks, instant messengers, photo and video hosting, co-working platforms and more. The reasoning was that sanctions should have as little impact as possible on day-to-day life for ordinary Russians.
• The wording of the new rules was so vague that it caused headaches for lawyers representing many IT companies. The main problem was interpreting the terms “enterprise management software” and “design and manufacturing software”. As a result, many IT start-ups whose services are far removed from the military-industrial complex felt it necessary to abide by these sanctions, fearing they may otherwise be prosecuted. For example, collaborative working platforms that officially meet the exemption, but regard themselves as “enterprise management software,” decided to leave Russia. Moreover, several of the departing companies decided in any event to block accounts not only of users based in Russia, but of users who ever paid for services using Russian bank cards.
• It’s hard to calculate exactly how many foreign online service providers have quit Russia in the past few months because of the new sanctions as some made official statements, while others slipped away quietly. But among well-known platforms alone, The Bell found more than a dozen. They include website builders Wix and Ecwid, project management service Notion and its near equivalent Coda, cloud coworking platform Miro, and the Recraft AI service for designers. At least half of these popular services were originally founded by people from Russia.
• A week before the new sanctions came into force, Russian state media began reporting that Google had restricted the creation of new accounts in Russia to comply with sanctions. This turned out to be false but Google did introduce other restrictions. It closed its BigQuery cloud service in Russia and finally turned off Google AdSense. Other large companies responded similarly. Back in June, three days after the new sanctions were unveiled, Slack began warning users in Russia about the suspension of accounts due to the pending measures. At the start of September there were reports that Microsoft had started disabling subscriptions to cloud services for some Russian users (the company started limiting Russian business users back in 2022). But ordinary users were not supposed to be affected by this.

Why the world should care

All of these losses are painful for the Russian market. For example, Notion and Miro were very popular services that helped thousands of small businesses, most of them entirely unconnected with the war. In many respects, the exodus of IT services here is a symptom of overcompliance — many fall under the sanctions exemptions, but still felt it was better not to risk it. For the internet giants, who can afford to hire expensive sanctions lawyers, the risks are lower.