Hello! This week we take a look at the oligarch lobby, which showed its fangs over a plan to overhaul tax residency rules. We also explain how a package of restrictive internet laws is inching closer to realisation; why some journalists objected to a New York Times article about Russian assassins; why supermodel Natalia Vodianova is advising the Russian entrepreneurs behind a new U.S. bank; the problem with Putin’s birthday pay rise; and why opposition leader Aleksei Navalny has a ‘foreign agent’ issue.
Billionaires lobby against far-reaching tax reform plans
The government has announced plans to change tax residency rules to force businessmen living abroad to pay tax in Russia. Both Russians who earn money abroad and expats living in Russia might have problems as a result of this proposal. But, never fear, a group of Russian oligarchs may yet succeed in changing the government’s mind.
- At the moment, in order to be deemed a Russian tax resident, you have to spend over 183 days per year in the country. The Finance Ministry has proposed cutting this in half, to 90 days, as well as mandating that those who spend less than 90 days in Russia but still have their “center of vital interests” in the country, also pay tax. Tax resident status in Russia requires a person to pay (Rus) income tax on global income and report all foreign-held bank accounts.
- Finance Minister Anton Siluanov has said the proposal is aimed at businessmen who go abroad with money they earn in Russia. Under the new rules “those businessmen of ours who ran away to the West will return,” he explained (Rus). However, ordinary Russians working or studying abroad will also be affected, as will foreigners working in Russia on short-term employment contracts.
- The background to this is that, in 2014, President Vladimir Putin signed a law pushing Russian businessmen to bring their businesses onshore. After that, some billionaires began to spend more than 183 days abroad to avoid declaring income in Russia.
- The prospect of big tax bills has brought the oligarch lobby out of the shadows. At a Tuesday meeting of the Russian Union of Industrialists and Entrepreneurs (which brings together Russian billionaires), members had a “rather unpleasant conversation” with Siluanov, according to one businessman who was present. “Which one of us at this table do you want to punish?”, one of them asked Siluanovw with some anger. “Everyone who wants to leave has already gone, and everyone left behind will suffer from these changes,” a participant at the meeting told The Bell.
- Following the meeting, Siluanov suggested that the reform could be delayed until “better days” and promised to continue a conversation with business leaders.
Why the world should care
This is a case when the interests of some of Russia’s wealthiest men coincides with those of a wider group. The tax reform would directly affect foreigners working in Russia for short periods: from executives with multinational corporations to private investors. And if you are deemed a Russian tax resident, you will have to spend a long time explaining to the tax authorities why you don’t pay Russian tax on income earned in your home country.
Yandex shares plunge as Kremlin pushes new internet restrictions
Despite protests from business, Kremlin officials including domestic policy tsar Sergei Kiriyenko are demanding support for three major pieces of legislation to limit internet freedoms, The Bell reported Thursday. The legislation looks likely to be brought before the Duma in the coming months. The most controversial part is aimed at Yandex (‘Russia’s Google’) and it could force changes to its ownership structure. The news had an immediate effect — Yandex shares fell by almost 20 percent in New York.
- The proposals are formidable: one law would forcibly identify all email users, another would pre-install Russian software on all internet-devices (a strange idea not least because Apple, for example, doesn’t allow non-Apple software).
- The third law is particularly important because it suggests limiting the share of foreigners who can own “significant information resources” to 20 percent, a provision that seems squarely aimed at Russia’s largest internet company, Yandex (which has a U.S. free-float of 85 percent of its shares)
- This draft legislation has broad support, including from the ruling United Russia party, and all the agencies involved in internet regulation (with the exception of the Communication Ministry). This is no coincidence: Kremlin officials have demanded support for the legislation, sources told The Bell (later confirmed by Bloomberg). Yandex “is a company of national importance and should be owned by Russian citizens,” a Kremlin official said.
- Yandex shares dropped 18 percent Friday, its biggest decline in a year. This is not the first time Yandex’s shares have reacted to the news of this legislation: when the bill was first discussed the company’s shares fell 7.4 percent.
Why the world should care
Yandex is a homegrown Russian company that has an impressive track record: it was built entirely without state money and is continuously expanding (today it works in everything from rapid grocery delivery to medical services and hardware). One of the company’s projects, Yandex.Taxi, is currently preparing to IPO. Even if the draft legislation does not pass (this seems increasingly unlikely), just the discussion of such plans is a blow to the company.
Investigative journalists criticize NYT scoop on elite Russian spy unit
The New York Times published a scoop Tuesday claiming to have identified a top-secret unit within Russian military intelligence (GRU) charged with carrying out a “campaign to destabilize Europe” including via assassination and sabotage. The story quickly spread around the world, but there was less attention given to several prominent Russian investigative journalists who questioned the U.S. newspaper’s findings.
- The NYT article by reporter Michael Schwirtz, who tracks the activities of Russian spies, said Unit 29155 was formed a decade ago and has been involved in high-profile operations in Europe including a failed coup in Montenegro in 2016, a “destabilization campaign” in Moldova, the attempted nerve agent poisoning of Sergei Skripal in the U.K. in 2018, and attacks on Bulgarian arms dealer Emilian Gebrev. For his story, Schwirtz cited “intelligence officials in four Western countries”, and later said reporting had “involved more flights than I can remember.”
- The article prompted a predictable denial from Kremlin spokesman Dmitry Peskov who said it was “pulp fiction”. But other criticisms were more unusual — and more serious. Investigative journalist Sergei Kanev wrote (Rus) that Unit 29155 was a well-known part of the GRU and accused the NYT of an uncritical approach to its sources. Another prominent reporter, Roman Dobrokhotov, said (Rus) Unit 29155 carried out officer training and not European operations. Finally, business newspaper Vedomosti published an article citing two GRU sources saying Unit 29155 had been a training outfit since Soviet times.
- Neither Kanev nor Dobrokhotov can be lightly dismissed. Kanev made his name in police reporting before working for independent newspaper Novaya Gazeta (the NYT profiled him in 2009) and he is currently employed by exiled tycoon Mikhail Khodorkovsky’s site Dossier. Dobrokhotov, editor-in-chief of The Insider, worked closely with investigative website Bellingcat on several major exposes of GRU activity, including revealing the identity of the agents accused in the Skripal case.
Why the world should care
Allegations of election hacking in 2016 and the attempted assassination of Skripal last year focused attention on the operating practices of the GRU, particularly among Western security officials. In this case, the shadowy espionage world means it is almost impossible to confirm the accuracy of the NYT story. But when new information about the GRU appears in public, the views of experienced Russian investigative journalists deserve to be heard.
Supermodel Vodianova consults Russians building a ‘super bank’ in U.S.
Russia emigres who own Russian venture capital fund Life.Sreda are preparing to apply for a U.S. license to open Arival bank, already valued at $ 20 million, which they hope will revolutionize the financial sector. Co-founder Slava Solodky explained his project to The Bell.
The idea: Arival’s potential customers include crypto-businesses, bloggers (who might have income in one country, proof of residence in another, and live in a third), charitable donors and politically exposed people (PEPs). Normal banks aren’t banned from working with such clients, but they avoid them because of expensive compliance requirements.
Arival has developed its own compliance system: it checks IP addresses, downloads all SIM cards and addresses the client uses, checks social media accounts and asks for information about close relatives – sometimes it may even interview financial beneficiaries or employees. This will all be updated regularly online to stop fraudsters. While the bank only offers one product (an account), everything else (e.g. loans) will be offered by its partners. The idea is a client doesn’t have to go through a compliance process for each different financial service. Arival is currently seeking a license in Puerto Rico, which will allow it to benefit from the island’s tax regime and operate in the United States.
Money: Since fall 2017, the project has attracted about $3.3 million in investment. Its last round of funding was via so-called equity crowdfunding (where professional investors were offered a stake in the company), valuing the company at $17.3 million. Arival plans to earn money from commission on transactions (between the clients and the fintech startups one will be able to access through Arival with no extra compliance) and estimates it will make a profit of $2.7 million in 2021. It already has 1,800 requests for accounts.
Vodianova: Supermodel Natalia Vodianova read about Arival in a book written by Solodky and it sparked her curiosity. Vodianova’s app Elbi (which allows people to make cross-border donations to charity) suffers from commissions on transfers and relentless checks. After a discussion with Solodky, Vodianova joined Arival as an advisor and received about 1 percent of the company.
Life.Sreda: Solodky’s fund was launched in Russia in 2012 with $40 million of initial capital. It invested heavily in the first wave of so-called neobanks: Russian ‘hipster bank’ Rocketbank, German online lending platform Fidor Bank, and U.S.-based Simple and Moven. Their first successful exit took place in 2014 when Spain’s BBVA Group bought mobile bank Simple for $177 million. Life.Sreda made about $2 million on the deal.
Why the world should care
Arival is by no means the first banking project with Russian roots to be launched abroad (the most famous example to date is Revolut). If Arival succeeds in getting a license, it will be yet another confirmation that Russia can export a lot more than just oil and gas.
Putin’s birthday pay rise
Ahead of his 67th birthday, Putin was helicoptered to a mountainous area in Siberia where he spent time walking, picnicking, off-road driving and posing for photographs with Defense Minister Sergei Shoigu. On his actual birthday Monday, he signed an order (Rus) raising his salary, as well as that of Prime Minister Dmitry Medvedev and other senior officials, by 4.3 percent (in line with inflation). Putin now gets 773,400 rubles ($12,046) a month (not including bonuses). The raise is clearly insignificant for the Russian president, whose real wealth is a source of endless speculation. But it will be enough to anger some ordinary people: the average monthly salary in Russia is 46,509 rubles ($741) and real incomes this year look set to fall for the 6th year in a row.
Now it’s official: Navalny is a ‘foreign agent’
Opposition leader Aleksei Navalny has a new problem: his Anti-Corruption Foundation has been declared a ‘foreign agent’ in Russia, a status assigned to NGOs receiving foreign funding. This doesn’t mean serious restrictions: the foundation must just publicly disclose itself as a foreign agent and report its funding structure to the Justice Ministry. A bigger problem could be that foreign agents are banned from participating in elections. Some lawyers believe (Rus) that anyone formally associated with the Anti-Corruption Foundation could now be blocked from standing from public office.
An insider view, in 5 minutes