Weekly 23 March 2019

A twist in the Baring Vostok case could reduce the role of UK law in Russian business

Hello! This week our top story is a legal precedent that could mean businesses in Russia can no longer rely on UK courts in the case of disputes. We also look out what implications the power transition in Kazakhstan could have for Russia, the rollout of internet giant Yandex’s new social network and what happened when a senior law enforcement officer was pictured examining his computer screen with a magnifying glass.

A twist in the Baring Vostok case could reduce the role of UK law in Russian business

What happened

Artyom Avetisyan, the businessman assumed to be behind the arrest of U.S. investor Michael Calvey, has demanded that a dispute over Vostochny Bank involving Calvey’s Baring Vostok be heard in Russia — even though the shareholders agreement says all disagreements will be tried in the United Kingdom. If Avetisyan is successful, this will threaten all Russian businesses that refuse to trust Russian courts and rely, instead, on UK law to solve corporate conflicts.

Avetisyan this week went on the offensive. On Tuesday, he filed a lawsuit in a court in Russia’s Far East against Baring Vostok, demanding 9.99% of Vostochny Bank’s shares.

  • Avetisyan received an option for a 9.99% stake in Vostochny Bank in 2016 when it merged with his Uniastrum Bank. But in 2018, Baring Vostok refused to uphold the agreement, claiming Avetisyan moved asset stripped ahead of the merger. This disagreement is what lies at the heart of the Baring Vostok case.

The most important detail is not the lawsuit itself, but the fact it was filed in Russia. The shareholder agreement between Avetisyan’s companies and Baring Vostok states that all conflicts regarding Vostochny should be heard in The London Court of International Arbitration (LCIA). But the shareholder agreement contains another arbitration clause: if LCIA does not meet the Russian judicial standards, then each side of the conflict can choose another court. In his Russian filing, Avetisyan argues that the British court’s decision will be “impossible to execute” in Russia. This might have very serious consequences.

  • In a Russian court, Avetisyan has a high chance of success. He has the support of the security services, and President Vladimir Putin has de facto supported his position. Moreover, ignoring the rulings of foreign courts very much fits the trend in legal politics.
  • It is impossible to prevent a Russian court from making a decision about a transaction involving the shares of a bank registered in Russia.
  • But such a decision could call into question the shareholder agreements of almost every company in Russia. Most major deals in Russia in the last 20 years have been structured using offshore companies, and one of the benefits of this was that offshore companies are governed under U.K. law.

Why the world should care

The ruling in Avetisyan’s lawsuit could set a precedent allowing businessmen with good connections to move legal disagreements to corrupt Russian courts. This would be particularly dangerous for foreigner companies that don’t stand much of a chance in proceedings against influential Russian partners in Russian courts.

Will the power transition in Kazakhstan become a model for Putin?

What happened

The resignation of Kazakh President Nursultan Nazarbayev, who is trying to retain control while handing power to a designated successor, is a very important moment for the Kremlin. Nazarbayev, 78, is the last remaining leader of a post-Soviet country who has been in power since the fall of the USSR in 1991. The Kremlin will closely monitor events in Kazakhstan as Putin decides whether to remain in power, or hand power over to a chosen successor.

The Bell asked (Rus) political experts how Nazarbayev’s resignation might impact the post-Soviet world and if it could be a model for Putin. Here is a short summary of what they said:

  • Nazarbayev discussed his decision with Putin ahead of time. The official version is that the conversation took place several hours before the Nazarbayev went public, but it is likely Putin knew before then. In the fall of 2018, Putin and Nazarbayev met twice in one month, and have spoken by phone three times since then.
  • If Nazarbayev is successful, it will be the first example of a controlled handover of power in the post-Soviet space since Boris Yeltsin’s resigned to make way for Putin. Another example is Azerbaijan, but Haydar Aliyev gave control to his own son.
  • Nazarbayev’s exit is not good for the Kremlin because it creates certain expectations in relation to Putin. If even absolute rulers like Nazarbayev step down, then what are we waiting for? In order to avoid such comparisons, the Kremlin might try to stress parallels between Nazarbayev and Yeltsin, suggesting Kazakhstan is lagging far behind Russia.
  • Putin’s inner circle will definitely watch the political transition in Kazakhstan, but it is unlikely that they will use it as a model in 2024, when Putin’s current term as president comes to an end. Not only is the Russian elite very different to the Kazakh elite, but the situation in Russia is less stable: for example, Kazakhstan doesn’t have powerful regional leaders, like Ramzan Kadyrov in Chechnya. No one knows how Kadyrov would react if a such a transition was launched in Russia.

Why the world should care

It is very tempting to suggest that events in Kazakhstan foreshadow what a future transition of power in Russia might look like. But it is not that simple. There are significant differences in political culture between the two countries — and Putin is not Nazarbayev.

Yandex launches its new social media network and is immediately accused of censorship

What happened

Last weekend, Russian internet giant Yandex launched (Rus) a test version of its own social media network, Aura. The key difference with platforms like Facebook is that your newsfeed is not made up of posts by your friends, but by an algorithm’s calculation of your interests. Aura’s interface actually looks a lot like Tinder. Currently, you can only join Aura by invitation, but this was halted several days ago (Yandex said the hiatus is temporary). And there are strict rules: Aura will delete posts containing even the most innocent slang words and has some bizarre restrictions, including posting “insects and animals whose appearance may be offensive”. For all this, Yandex has been accused of censorship.

  • When registering, Aura users select at least three topics of interest – for example, travel, electronic music, and art. On the basis of these choices, it chooses the posts to show in your newsfeed, which can be swiped like Tinder. This is not the only similarity with the popular dating app: Aura also has a function called ‘smart matching’ where users can meet other users for “relationships and communication”.
  • The first users (Rus) complained about Aura’s rules. They realised that, in addition to standard bans on insults, offensive language and images of “intimate body parts”, the service forbids the use of slang – for example, bablo (slang for money) or narkota (slang for drugs). It also bans showing someone giving birth and “illnesses and deformities”. All of this is much stricter than the limits enforced by Facebook or its Russian equivalent, VKontakte, whose users already complain about censorship. Aura’s policies have already led to jokes like “I stepped into Aura and ruined my karma”, but this hasn’t stopped people from being very keen to sign up for it.
  • This was not the only time Yandex was accused of censorship last week: Yandex.Zen, was also criticised (Rus). A platform like Google.News which accumulates media and blog content, Yandex.Zen suggested one blogger change the word ‘sex’ in an article about Netflix’s show Sex Education. And a partner program of Yandex.Zen rejected an entry due to nude images — in this case in the 18th century painting Hercules and Omphale by Francois Bouche.

Why the world should care

When Yandex, widely seen as progressive force, launches a popular social network is immediately popular despite such strict limits on what is permitted, it is a sign of the times. Both Yandex and Aura users understand that in Russia it is impossible to operate without stricter censorship than Facebook.

One of Russia’s top law enforcement officers uses a magnifying glass to look at his laptop

What happened

Photos recently released by the Investigative Committee show its head, Alexander Bastrykin, using a magnifying glass to look intently at the screen of a laptop. The images were taken during a meeting, which was heavily publicized by the Investigative Committee, one of Russia’s most powerful law enforcement bodies.

This prompted such a wave of internet memes and discussion of Bastrykin’s technical incompetence that the Investigative Committee had to offer an explanation (Rus). It turns out Bastrykin was apparently trying to examine the details of a moving image and magnifying glasses in such situations work much better than digital enlargement. This explanation, in turn, drew even more scepticism and hilarity. But there is also a serious side: the photo shows Bastrykin surrounded by his subordinates: if he didn’t know how to enlarge an image why didn’t his subordinates tell him? Perhaps they also did not know — or perhaps they were too afraid to be seen to be more knowledgeable than their boss.

Why the world should care

The photo with the magnifying glass could have a totally innocent explanation. But social media immediately decided that there was another reason: Bastrykin is technologically illiterate. This is comical in the context of regular government announcements about going digital. And the online sceptical reaction is a perfect illustration of how Russians view the Investigative Committee.

Anastasia Stognei

Peter Mironenko contributed to this newsletter. Translation by Tanja Maier, editing by Howard Amos.

This newsletter is supported by the Investigative Reporting Program at UC Berkeley

Anastasia Stognei