Putin puts Japan Tobacco’s four Russian units under temporary management

President Vladimir Putin has ordered the assets of four Japan Tobacco companies in Russia to be placed under temporary management. The order was given last Thursday. Tokyo has protested the decision and demanded that it be withdrawn immediately, while Japan Tobacco is examining its next steps. The Japanese government holds a stake in the company.

Relations between Japan and Russia have been strained since the Russian attack on Ukraine. The tension has grown further recently over a dispute about the ownership of four contested islands and the detention of a Japanese journalist. Now a new dispute has emerged over Japan Tobacco’s business.

According to the Russian news agency TASS, the shareholdings of Donskoy Tabak, Pereslavl Tabak, JTI Yelets and Kres Neva are to be placed under the temporary management of JSC Industrial Assets.

According to JTI’s website, its production plants are located in St Petersburg, Rostov-on-Don, and the Leningrad and Lipetsk regions.

JTI has been doing business in Russia since its founding in 1999. It has been the market leader in the country’s tobacco market since 2007. It has about 4,000 employees in Russia, and the country accounts for about 10 percent of JTI’s total sales.

After Russia’s full-scale attack on Ukraine, other Japanese companies left the Russian market, but Japan Tobacco continued operating there.

The Japanese government also directly owns a stake in Japan Tobacco. The country’s finance ministry is the largest shareholder of the JT Group, holding 37.55 percent of its shares. By law, at least one-third of the company’s issued shares must remain in government ownership.

After Russia attacked Ukraine in February 2022, the United States, Japan, the European Union and other countries imposed economic sanctions and various restrictions on Moscow.

In response, Russia introduced a countermeasure in April 2023. Under it, assets in Russia belonging to companies from countries that Moscow describes as “unfriendly” can be placed under the temporary management of the government or a designated institution.

According to TASS, the measure was a response to foreign sanctions on Russian citizens and the seizure of their assets. However, no specific reason has been given for the latest action against Japan Tobacco.

Japan’s Chief Cabinet Secretary Kihara Minoru said on Friday that Tokyo has protested the decision and demanded its immediate withdrawal.

Ryosei Akazawa, minister for economy, trade and industry, said the Russian side has repeatedly been asked to protect the legitimate interests of Japanese citizens and companies.

Finance Minister Satsuki Katayama also demanded that the decision be withdrawn. She said the government will closely monitor the situation in coordination with the relevant ministries and JT and take appropriate action.

Akazawa did not give details of the diplomatic efforts, but said Japan will keep working with Moscow to protect the assets of Japanese companies in Russia.

Meanwhile, the director-general of the European Affairs Bureau of Japan’s foreign ministry lodged a protest with Nikolai Nozdrev, the Russian ambassador to Japan. According to ministry officials, he too called for the decree to be withdrawn.

The bureau’s deputy director-general, Ishigaki Tomoaki, travelled quickly to Moscow to protest. Yesterday he met Lyudmila Georgievna Vorobyova, head of the Third Asian Department of the Russian foreign ministry, and handed over a letter of protest. Senior officials of the Japanese embassy accompanied him.

Tensions between the two countries also rose in August around Putin’s visit to Etorofu island, one of the four islands near the eastern coast of Hokkaido that are controlled by Russia and claimed by Japan.

Last month, a journalist of the Hokkaido Shimbun was detained in Russia’s Far East on suspicion of espionage. According to Japanese broadcaster NHK, Japan also demanded the journalist’s immediate release at the Moscow meeting.

In a statement yesterday, the JT Group said its operations in Russia comply with all applicable laws and sanctions. The company is gathering detailed information about the decree’s effect on the four units, and is examining possible alternatives, next steps and the impact on the whole group.

Although the decree speaks of temporary management of the Russian units, it is still not clear how JTI’s operations will continue. Diplomatic efforts between Tokyo and Moscow are under way, while Japan Tobacco is gathering information to decide its next steps.