US Payments to Russians for Embassy in Moscow 'Help Finance' War in Ukraine

The U.S. government has paid Russian companies over $8 million to maintain its embassy in Moscow since the war in Ukraine began, a Newsweek investigation has found, with one company that was awarded a contract later placed under sanction by Canada.

Shortly after launching its invasion of Ukraine in February 2022, Russia was slapped with economic sanctions by the United States and its allies around the world. The U.S. went on to seize approximately $300 billion of Russian Central Bank assets as well as $30 billion of assets of officials close to President Vladimir Putin.

The embassy contracts have drawn criticism from campaign groups, some who say the deals help finance Russia's war machine, and politicians, including Idaho Republican Congressman Russ Fulcher.

"Even if these contracts are relatively small, I voted on legislation to halt American investments into Russia, and providing jobs for their citizens is doing just that," he said. The U.S. ceased using certain Libyan-owned products and businesses for its diplomatic mission in Tripoli, a source who used to work in government told Newsweek, when the North African nation was under sanction following the fall of the Gaddafi regime. This had led some Russia watchers to wonder why the same cannot be done in Moscow.

The U.S. government, however, has suggested it is not possible.

Can using Russian workers and resources be justified as the price of maintaining a diplomatic presence in the country? Newsweek investigates.

'Significant Income for Russia'

According to a Newsweek analysis of procurement data, the government has awarded 41 contracts amounting to $8,054,780.36 in value to 12 Russian companies.

Three contracts estimate potential ongoing work, meaning the total funding of Russian companies since the outbreak of the war in Ukraine could rise to $13,12,938.25. The companies provide services such as landscaping, painting, management consulting, repair maintenance, transportation and janitorial work. The contracts Newsweek analyzed began after Russia's invasion of Ukraine, though the U.S. has procured Russian companies to work on its embassy since before the war. The business relationships last for varying durations, with some spanning years. Some contracts were open to competition, while others were not. Forty of the contracts were awarded by the Department of State, with one by the Department of Agriculture.

One contract, worth $26,847, which lasted between March 2022 and September 2023, was with Russia's second-largest telecommunications company, VimpelCom, which was sanctioned by Canada in July 2023.

The company, also known by its commercial service brand name Beeline, was sold by its previous owner, Dutch company VEON, in November 2022 and became fully owned by Russian management in October 2023. While it is not sanctioned by the U.S., the government has imposed numerous rounds of sanctions on Russian elites, financial institutions and other industries to weaken Putin's war machine, with President Joe Biden signing an executive order in December 2023 to target Russia's military supply chain.

A U.S. government official said the department does due diligence to ensure contracts are not linked to sanctioned individuals. But campaign group War & Sanctions has called on countries to, like Canada, add VimpelCom to its sanction lists.

A statement on the group's website said VimpelCom is "a significant source of income for the government of the Russian Federation." It added the company "supports actions aimed at violent change, overthrow of the constitutional order, seizure of state power, changes in the boundaries of the territory or state border of Ukraine, encroachment on the territorial integrity and inviolability of Ukraine which undermines democratic processes and institutions in Ukraine, threatens its peace, stability, security, sovereignty and independence."

The campaign group Leave Russia has also criticized the company for its alleged links to the Kremlin.

A statement on the Leave Russia website said: "Former VEON asset, PJSC VimpelCom, actively cooperates with the Russian government, as the Russian officials themselves say. In particular, it helped to establish a connection in the Ukrainian territories occupied since February 24, 2022, providing national roaming services. Moreover, at the request of the government."

It added: "VimpelCom PJSC openly demonstrates support for Russia's geopolitical aggressive policy."

While he is not subject to international sanctions, the President of VimpelCom, Aleksandr Aleksandrovich Pankov, has links to the Russian Federation, according to sanctions database OpenSanctions.

According to Russian reports, he has previously held Russian government roles, including in the Federal Agency for Government Communications and Information and the Ministry of the Russian Federation for Communications and Infomatization.

Newsweek contacted VimpelCom by email for comment.

A State Department spokesperson told Newsweek that all diplomatic missions in foreign countries rely on local companies to provide basic services. Meanwhile, a separate U.S. government official said the contracts were practical because it is difficult to bring U.S. or third country contractors to Russia. They, however, acknowledged there would always be security risks with awarding such contracts.

'Business Dealings Are Heavily Disguised'

Some experts have raised concerns about the contracts. While the contracts apart from VimpelCom that Newsweek analyzed are not directly linked to sanctioned companies, some experts have suggested it is difficult to ensure this.

Robert Barrington, professor of anti-corruption practice at the Centre for the Study of Corruption at the University of Sussex in the U.K., said those sanctioned use a web of anonymized offshore companies to disguise their ownership.

Therefore, it is "very hard to answer" whether companies contracted by the U.S. may have an ultimate beneficial owner (UBO) who is a sanctioned individual, he said.

"Oligarchs' business dealings are often very heavily disguised through this web of shell companies and anonymous owners."

Meanwhile, regardless of potential links to sanctioned individuals, it has been argued that any injection into the Russian economy boosts it, and therefore helps Putin.

Mark Temnycky, a Ukrainian-American journalist and non-resident fellow at the Atlantic Council's Eurasia Center, said: "Russia should be punished for its invasion of Ukraine. Continuing to operate in Russia undermines the effects of sanctions as this business helps stimulate the Russian economy. This indirectly helps Russia finance its war. It also suggests that these business endeavors do not take international sanctions seriously, and it falsely implies that Russia can continue operating with the West while it is waging its war. This informs other authoritarian governments that 'business is normal' and falsely implies that they can do as they please because the West will continue to do business with them."

Michael A Witt, professor of International Business and Strategy at King's Business School in the U.K., said: "Any additional income that Russian firms and workers receive as a result of these contracts helps stabilize the Russian economy. And since firms and workers pay taxes, it also helps the Russian government finance the war." However, he added it "may well be money well spent" when analyzing the benefits a diplomatic presence in Russia brings.

Meanwhile, Michael Allen, former special assistant to the president and senior director at the Nat Sec Council, and staff director of the house intel committee, said operating in Russia also sets a bad example to private companies still operating in the state. Since the war began, over 1,000 companies have publicly announced they are curtailing operations in Russia to some degree, according to Yale School of Management's Chief Executive Leadership Institute (CELI). But hundreds remain, and in doing so have opened themselves up to criticism.

As well as the economic impact of the contracts, the procurement arrangements have reignited concerns about the potential for Russian personnel in the U.S. embassy to spy on America.

'They Are Going to Put Bugs Everywhere'

If this happens, it would not be for the first time. Construction on the U.S. embassy began in 1979 with the help of Russian labor. But in 1982, security experts found that the building was riddled with eavesdropping systems built into its structure. In August 1984, the State Department removed the Soviets from the construction site but in 1989, after the embassy continued to find spying devices, the government decided that the building should be destroyed and rebuilt from the ground up. At a cost of $240 million, the building reopened in 2000.

Congressman Fulcher expressed concerns about spying happening again and said reconstructing the embassy had "wasted tax dollars and time." "Let's not repeat history here," he added.

Allen said the U.S. would not employ Russian staff if it was not absolutely necessary but said "they are going to put bugs everywhere."

"It strikes me as a counter-intelligence issue from the get-go," he told Newsweek.

Steve Myers, who formerly served on the U.S. Department of State Advisory Committee on International Economic Policy, said: "Count on the Russians to spy on our embassy to the maximum extent possible." But he added the U.S. has developed "very effective processes and countermeasures to safeguard classified communication and information." The U.S. government official said the U.S. had learned from spying issues from the 1980s.

The revelation of the contracts comes as the appetite for the U.S. to continue providing aid to Ukraine falters. The Biden administration is locked in a stalemate with the House of Representatives over a military aid package that includes $61 billion to the country. Some Republicans are concerned with the level of spending in the bill and have called for changes to security at the southern border in return. A December poll of 5,203 Americans by Pew Research Center found that 31 percent of Americans say the U.S. is providing too much assistance to Ukraine, while 29 percent think the amount is about right and 18 percent think it is not enough.

Hilary Ingham, professor in economics at the University of Lancaster, in the U.K., said that people are also questioning whether Ukraine can defeat Russia.

With this conflict ennui prevailing, Congressman Fulcher, who has previously voted against aid packages to Ukraine, questioned the U.S.'s financing of Russia.

"We should hire American contractors and use this as an opportunity to create American jobs in maintaining the American Embassy," he said. "I understand good relations, but in this case, we should not be rewarding the economy of a country behaving badly. Besides, we are heavily in debt which is increasing by the day. We don't have the resources to pour money into other countries, especially Russia."

Temnycky also rejected the idea of carrying on business as usual and suggested diplomatic relations with Russia be scaled back because of the war.

"Scaling back diplomatic relations with countries is not a new phenomenon," he said. "Countries may withdraw embassy staffers from countries they deem to be unsafe. Countries may also scale back diplomatic ties with adversaries.

"In the case of the Russian invasion of Ukraine, the Russian Federation has clearly shown that it has no interest in ending its war. Russia is also not interested in negotiating an end to the war. In this case, how can diplomacy with Russia proceed if it is disinterested in acting diplomatically?"

'Taxpayer Money To Support Embassies Is Essential'

Despite causing controversy, Newsweek spoke to experts who agreed with the U.S. State Department's assertion that the contracts are routine and unavoidable.

Myers said: "First, the U.S. State Department routinely contracts with local companies and individuals for support everywhere in the world.  It is impractical to hire American contractors for most services, even at the enormous increase in required cost.

"Every country in the world, including the U.S., requires their affirmative approval for noncitizens to work in their country. Also, every country in the world controls the number of visiting nation personnel who can work at embassies or consulates. The names and responsibilities of every person must be approved by the host government.

"The Russian government is not going to give permission to import U.S. workers for tasks that could be done by locals. Occasionally dust-ups do occur between nations over such issues. But it's in neither country's interests to promote petty conflicts like this. They amount to little more than unserious distractions."

He added: "Taxpayer money to support embassies is essential to conducting effective foreign policy. It's a constitutional prerogative of the President.

"Without people on the ground who understand the mindset of host nation leaders we can't hope to develop rational foreign policy."

Tyler Kustra, assistant professor of politics and international relations at the University of Nottingham in the U.K., agreed. He said that while Putin might benefit from the investment because of money entering the Russian economy "the sums are so small, and the potential intelligence is so valuable that the latter outweighs the former."

David Lewis, professor at the Department of Social and Political Sciences at the University of Exeter, U.K., said the contracts ensure the normal functioning of the embassy and were "a minuscule cost in the grand scheme of things."

Of the VimpelCom contract specifically, he said: "This probably represents expenditure on mobile phone use in Russia by US diplomats and staff or associates. They will inevitably use Russian telecoms companies while operating in Russia, so this is probably the only practical solution to ensure that they can do their work in the country."

Meanwhile, contracting Russian companies by no means makes the U.S. a pariah. Other countries like the U.K. have continued to employ Russian companies to work on their embassy.

Myers disagreed with the notion that the U.S. should end its diplomatic relationship with Russia to avoid contracting Russian companies. He said: "Removing an embassy is the ultimate insult to a host nation," he said. "It promotes conflict. Does nothing to ameliorate it. Eventually we'll need to reset our relations with Russia."

Ingham said: "Once the war does end the U.S. and Russia will eventually come to some sort of truce, as will EU countries. Russia is an important country whether one likes it or not."

What appears less in dispute is that however necessary these contracts are, they could create an optics headache for the State Department.

Nick Reynolds, research fellow for Land Warfare at the Royal United Services Institute, said the contracts were "essentially inevitable" but said "the optics are bad."

Allen added that he was more concerned about optics than the amount of money going to Russia. "I'm worried about the symbolism of it," he said. "It's an optics enforcement problem."

Update 2/21/24 11:57 a.m. ET: The headline of this article has been changed.