Weekly 21 September 2018

Election Drama in the Far East challenges the whole Russian political system

1. Election drama in the Far East shakes the  foundations of the Russian political system

Photo credit: Anton Balashov/TASS

What happened

The Russian government is having serious trouble with elections, and the problems are more significant than when we wrote about it last week. Governor elections in the country’s Far Eastern region of Primorsky Krai have become a national scandal. The ruling party candidate only beat the Communist Party candidate with the help of obvious, widespread ballot stuffing. And then, for the first time in modern Russian history, the election results were annulled.

  • During the first round of voting in Primorsky Krai’s governor elections on September 9, the incumbent governor, Andrey Tarasenko, defeated his challenger, Andrey Ishenko, emphatically (46.5% to 24.6%). But during the second round of voting (50% is needed in the first round to avoid a runoff), several hours before polling stations closed, exit polls showed the Communist candidate had won by up to 68%. After this, ballot stuffing began in Tarasenko’s favor. It was extremely sloppily executed, even by Russian standards. After 95% of the votes had been counted, Tarasenko was losing by 6% but, when 99% of votes were in, he was declared victorious.
  • Two days later, the Central Election Commission annulled the results and announced there would be a new election in three months time. This decision was the first of its kind in Russia’s post-Soviet history, but for the Kremlin it was the lesser of two evils. The governor elections were reinstated in 2012, as an apparent concession, amid mass anti-Putin protests. Local authorities can exploit their media monopoly, demand that state employees vote for the “right” candidate and, if needed, add 2% or 3% more votes via ballot stuffing. However, blatant electoral fraud is considered a violation of the rules of the game. Since the government’s approval ratings began to fall earlier this year in the wake of unpopular pension reforms, more unconventional methods have been required.
  • No-one in Primorsky Krai would have dared carry out mass electoral fraud without Moscow’s approval. In this case, the Kremlin has two important reasons to prevent the opposition candidate, Ishenko, from winning. Firstly, Primorsky Krai is too important a region to become a platform for political bargaining. It is Russia’s frontier with China and the Pacific Ocean and always closely controlled by Moscow. Secondly, and most significantly, after the first round of voting, Putin met with Tarasenko, and conferred a personal endorsement. Putin’s support is the ultimate weapon in Russian politics. It is not used often and should guarantee a candidate’s victory. Tarasenko’s loss was, therefore, interpreted as a personal defeat for the president — even annulling the election is better than this.

Why the world should care

The Primorsky Krai elections were a serious test for the Kremlin’s domestic political system in the context of falling approval ratings sparked by unpopular pension reform. The Kremlin’s response indicates that the authorities were not up to the challenge. However, we can only draw real conclusions after September 23 when there will be a second round of governor elections in three more regions.

2. To end the leaks, Russia will invest $1 billion in a secure mobile network for officials

What happened

The Russian government appears to be trying to put an end to leaks of sensitive information from its most valuable employees — security officials, bureaucrats and soldiers. A special mobile phone network costing over $1 billion will be created for government officials and law enforcement employees. And those serving in the military will be forbidden from posting any information about themselves on social networks.

  • The plan to build a separate mobile network for officials is included in the government’s Digital Economy program. Construction will cost 70 billion rubles ($1.1 billion) and Russia’s fourth largest mobile operator, Tele2, is likely to be the operator. Tele2 is controlled by state-owned bank VTB and telecoms giant Rostelecom. The military will not have its own mobile network, but a draft law was published this month proposing a ban on those serving in the military posting any information about themselves online.
  • Unintentional information leaks via social networks have become a serious problem for Russian officials. Much of the material gathered by investigative outfit Bellingcat, which proved the presence of Russian forces in eastern Ukraine and tied Russia to the shooting down of flight MH17, was taken from social media posts made by Russian troops using geolocation tags and photographs. Last year, the Ministry of Defense tried to fight against such leaks with propaganda posters.
  • The reason for a mobile phone network for government officials is not as obvious, but it’s likely linked to attempts to block Telegram, the messenger service used by almost all of Russia’s most important government figures, including Putin’s press secretary, Dmitry Peskov. Officials use Telegram because it had a reputation as a secure messenger, which intelligence agencies couldn’t spy on — and the ban has so far failed.

Why the world should care

The Russian authorities have been trying in vain for years to adopt the Chinese model of total control over the Internet. The decision to focus on controlling the most vulnerable users is logical  — but we’ll see if it is possible to stop leaks to Bellingcat with $1 billion budget.

3. Russians are withdrawing cash from banks amid fear of sanctions and threats to foreign currency deposits

What happened

New data has shown that the falling ruble, fear of new sanctions and a rumored freeze of foreign currency deposits pushed Russians to withdraw large amounts from their bank accounts last month. Customers took out rubles (to exchange for foreign currency) and dollars (to hold in cash).

  • The volume of Russians’ bank deposits in August fell by 0.6%. This is a lot if you consider that, during the first half of 2018, it grew by 1.8%. The last time deposits fell this year was May, but the fall was modest at only 0.2%. It was also expected: at the beginning of May, Russia has a series of public holidays and many people go traveling, withdrawing cash ahead of their vacations.
  • The content of the August withdrawals was also significant: 100 billion rubles was withdrawn from ruble-denominated deposits while $1.5 billion was withdrawn from foreign currency accounts. This is unusual: normally people withdraw money closer to the year’s end – some deposits have expiry dates and January is also vacation season. It is likely that the majority of those withdrawing funds were state-owned banks: throughout August, the market was discussing the possibility of stronger U.S. sanctions that might limit the ability of such state banks to execute payments in dollars.
  • This was not Russia’s biggest run on dollar deposits: for example, in May 2017, $95.8 billion was withdrawn from foreign currency accounts. But back then, the situation was totally different: the ruble was getting stronger, and it was profitable to withdraw dollars. Today, as the ruble is weakening, we should understand dollar withdrawals as a signal people are taking sanctions seriously and losing faith in banks.
  • In September, dollar deposit withdrawals are likely to increase: last week, Andrei Kostin, the head of VTB, Russia’s second largest bank, announced that in the event of sanctions, foreign currency deposits might be paid out in rubles “at the present exchange rate.” The Bell wrote about this in more detail in our last newsletter. Although Central Bank head Elvira Nabiullina has since sought to reassure depositors, her words are unlikely to have allayed many fears.
  • The most important question is: what will Russians do with the roughly $3 billion they took out in August? It’s hard to imagine it will all be stored under the bed. There are not many options, but they include: deposits in commercial banks (which will not be directly affected by sanctions), government bonds and equities (which few Russians invest in) and stock market investments (still thought of by many as akin to gambling).
  • It’s also getting harder to get money out of Russia. At the beginning of the year, Latvian and Cypriot banks began to slowly rid themselves of Russian depositors. Just a few days ago, Denmark’s largest bank, Danske Bank, announced the results of an internal investigation into money laundering through its Estonian subsidiary. As much €200 billion ($253 billion) of suspicious money may have passed through the bank.

Why the world should care

Russian money is now trapped: the risk of losing one’s savings in a new sanctions crisis is growing, while there are fewer and fewer ways of getting money abroad. European regulators should look out for new schemes, more complicated than those used in the Danske Bank case.

4. The mysterious poisoning of Pussy Riot activist Pyotr Verzilov

What happened

The biggest news story this week was yet another Russian poisoning — this time activist and Pussy Riot ideologist, Pyotr Verzilov. In Russia, Verzilov is best known as a participant in Pussy Riot’s dramatic protests. Together with three others, he ran onto the soccer pitch during the World Cup Final. Just like most of Pussy Riot’s recent protests – including Putin Will Teach You to Love the Motherland at the Sochi Olympics – his pitch invasion was to highlight the plight of political prisoners. Verzilov is also the publisher and chief fundraiser for popular online media outlet Mediazona, which writes about public justice issues in Russia. Despite Pussy Riot’s protests, which of course do not make the Kremlin happy, Verzilov has never been a classical opposition figure like Alexei Navalny or Boris Nemtsov. He has no political ambitions. There are, therefore, many questions about his poisoning: was Verzilov really intentionally targeted? Who could have done it? For now, there are no answers, just theories.

  • Doctors in Berlin (where he was transferred for treatment) have said Verzilov was poisoned with a naturally occuring substance. They were not able to find any traces of it in his blood – so the hypothesis is based on his overall symptoms. The drug scopolamine is one option. Tabloids call scopolamine “the most dangerous narcotic in the world” because it is supposedly capable of turning its victims into compliant zombies and erasing their memories. Russian doctors said Verzilov might have been poisoned by anticholinergics (scopolamine falls in this group).
  • Mediazona, of which Verzilov is the publisher, described his last three days before the poisoning down to the minute. But this did not give any clarity as to when he could have been poisoned: he was almost always not alone and ate the same food as those who were with him. But the poisoning symptoms came on quickly. On the evening of September 11, Verzilov started to experience eyesight problems, found it difficult to walk, had convulsions and was not able to speak or move on his own. He gained consciousness two days after being hospitalized and his condition is still critical. “He can’t remember which city he was in, he can’t interact with clarity”, Pussy Riot member Nadezhda Tolokonnikova wrote from Berlin. Tolokonnikova also said, to illustrate his bizarre behavior, that in response to a doctor’s request to touch his nose, Verzilov spoke of “the recent arrest of Igor Ivanovich Sechin.”
  • There is no answer to why this happened. One theory is it was because of an investigation Verzilov was conducting into the murder of Russian journalists in the Central African Republic. A victim of that attack was Verzilov’s close friend and he had asked Verzilov to come with him. Verzilov agreed, started to apply for a CAR visa and buy plane tickets, but he didn’t go because he was under arrest after his World Cup protest. Following the deaths, Verzilov began to investigate what happened using his own money. He asked for help from Hunter Heaney, the founder of activist organisation The Voice Project, and enlisted local journalists. “I worked for a long time in Africa, including on humanitarian missions, therefore Pyotr asked me for help,” Heaney told The Bell. “The day before Verzilov was poisoned, he received the first report with the results of the investigation.”
  • Another possible explanation is Verzilov’s activism, most obviously his recent World Cup stunt in front of Putin and the presidents of France and Croatia. The participants were handed 15 day prison sentences. While Verzilov was in jail, police officers questioned his mother and her neighbors. Later, they came to search the apartment where Verzilov himself lived: two friends who happened to be there at the time were forced to take drug tests (they were negative). The police returned Verzilov’s computers with their hard disks erased. Overall, there was a feeling Verzilov was attracting a lot of attention.
  • Verzilov is famous as an active member of Pussy Riot and its predecessor, the even more radical art group Voina. However, he is now primarily involved in the publishing business – trying to raise funds for Mediazona, which writes about prisoners, police misconduct and justice in Russia. According to a source who spoke with The Bell, Verzilov doesn’t enjoy fundraising — but he is good at it.

Why the world should care

If Russian security services really had a hand in Verzilov’s poisoning, it would be the first such attack in many years inside Russia, rather than abroad. It would be particularly worrying as Verzilov is not a professional politician, like Boris Nemtsov who was murdered in 2015, nor a “traitor to his homeland”, like Sergei Skripal, who was poisoned in the UK earlier this year.

5. The Russian founder of the most popular VPN app talks business and freedom of information

David Gorodyansky, the founder of AnchorFree, was born in Moscow, but moved to Palo Alto when he was 9. Now his Hotspot Shield, a virtual private network (VPN) provider, is a top 50 app in the App Store and has more than 600 million users around the world. At the beginning of September, AnchorFree raised $295 million in a new round of financing from major Silicon Valley investment funds. The Bell founder, Liza Osetinskaya, interviewed Gorodyansky for our video project “Russians are OK!”.

Motivation

“We moved to California when I was 9 years old. But I went to Moscow every year to visit my grandmother. My grandmother was principled and full of ideas. My grandfather had been a WWII veteran, and there was always this feeling that you had to do something important for the world. Then, at university I met Muhammad Yunus, who won the Nobel Prize in 2006 for helping 100 million people on the verge of poverty. My grandmother, my grandfather and Muhammad Yunus — they made me realise I didn’t want to waste my youth, that I wanted to do something that will have a big impact. To this day, when I meet with young entrepreneurs, my first question when they tell me their business plans is: “Why are you doing that?”.”

Starting a business

“I was 23 years old when we e founded our company, AnchorFree. We had the following idea: we wanted to create something which would impact a billion people. We were students who were always working from different cafes, using Wi-Fi, and we realised it was unprotected. So we decided to make Wi-Fi protected, and free. First, we bought a bunch of Wi-Fi antennas which we used a credit card to pay for, then we made a deal with restaurants and different businesses in Palo Alto to place the antennas on their roofs and offer free Wi-Fi. We developed the Hotspot Shield app in order to protect our Wi-Fi network. But then we realized: why make our own Wi-Fi spots if we can protect Wi-Fi spots? That would be far more scalable and far more useful. Esther Dyson and Bert Roberts believed in us.”

First money in Silicon Valley

“He [Bert Roberts] flies in to see us. He has companies worth $25 billion, 80,000 employees, but he meets with us in our shed with a wolf. One of our employees had an actual wolf, not a dog. He was rather strange, but actually very kind. I was nervous Roberts would get scared and not invest. But he liked us, and we then raised $6 million from him, Esther Dyson and their acquaintances. I had a really old car, a Pontiac. When it rained, the roof leaked. I left the lawyers’ office with a check for $6 million. It was raining, it was dripping on me through my car’s roof. My first thought was how to keep the $6 million check dry.”

The business of freedom of information

“One evening, we left the office to go home. At that time our users were primarily U.S.-based. In the morning, we arrived and saw a million Egyptian users on our servers. We didn’t understand where they had come from. But it turned out that Egypt had just blocked access to social networks; Facebook and others. Users in Egypt figured found out, without our help, that they could use our app to access Facebook,Twitter and so on. Over the last 10 years, each time there is such a block, our user numbers jump. When there was the attempted coup in Turkey, two million users downloaded our app in the first two hours. During the Telegram ban [in Russia], we noticed for the first time a jump in Russian users. Thousands of people downloaded our app in order to be able to access Telegram.”

Of Putin and Russia

I haven’t met Putin, and I don’t have an opinion of him. For me, Russia is not the government, it’s the people. I’m a fan of people in Russia. People in Russia are the most heartful in the world. It’s not normal if people come here from Russia and they don;t love their country. I have lots of friends from India. India has enormous corruption, there are awful problems with drinking water, lots of problems which Russia has not had for 100 years. But I’ve never met an Indian who would hate his country. I can see a lot of problems in Russia, but I’d like more people in Russia think about building something rather than waste time on empty talk about politics.

Anastasia Stognei

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