Weekly 12 June 2020

Referendum, referendum, referendum

Hello! This week our main story is about the upcoming constitutional referendum for which the Kremlin is doing everything it can to secure a ‘yes’ vote. We also look at the case of famous actor Mikhail Yefremov whose drink-driving caused a fatal car accident and the arrest of the head of Russia’s leading state-financed venture capital fund.

Kremlin puts constitutional referendum above all else

Lockdown in Moscow was lifted suddenly this week. The explanation is simple: the government wants people to have a breather before a constitutional referendum scheduled for July 1. Amid rising social disaffection, every weapon in the Kremlin’s armory has been deployed to secure a ‘yes’ result. All the constitutional changes at stake are a formality except one — ‘re-setting’ President Vladimir Putin’s term count allowing him to remain president until the mid-2030s.  

  • Moscow Mayor Sergei Sobyanin unexpectedly announced Monday the end of the city’s lockdown. The system of digital passes was scrapped, stores and beauty salons were allowed to open, and restaurants and cafes given the green light to begin operating from next week. Only the requirement to wear masks and gloves was retained, but this isn’t actually being enforced on the streets. 
  • The decision was odd. At the end of May, Sobyanin said (Rus) Muscovites would only be allowed to go outside when the daily increase in new cases dropped to the hundreds — but it has been between 1,800 and 2,000 since early June. And this only includes those showing COVID-19 symptoms, not those who have just tested positive for the coronavirus. 
  • The reason for Sobyanin’s abrupt change of heart is the constitutional referendum, sources told media outlets including The Bell (Rus). According to Open Media’s sources (Rus), Sobyanin changed his mind under pressure from Kremlin officials, while Meduza reported (Rus) Putin himself intervened. A source at a prominent company told The Bell that the Kremlin wants employees to return to workplaces to foster an atmosphere of normality. Officials realize lifting restrictions may lead to a spike in coronavirus cases but will attribute this to a ‘second wave’, sources told The Bell. 
  • The government’s nervousness is not unfounded. According to independent pollster Levada Center, 28 percent of Russians are ready (Rus) to take part in protests, the strongest appetite for direct action in 18 months. And trust in Putin has reached (Rus) a historic low of 25 percent (compared to 59 percent in November 2017). 
  • The Kremlin is aiming (Rus) for a 55 percent turnout for the referendum, and for 60 percent of the electorate to vote ‘yes’. This is not ambitious: in the last presidential election, the target was a 70 percent turnout and a 70 percent vote share for Putin. Voting will take place over 7 days — from June 25 through July 1. Home voting has been significantly expanded, and in some regions, there will be online voting. In Moscow, the authorities are giving away 2 billion rubles ($30 million) worth of gift certificates to voters. 
  • A huge PR campaign is underway to persuade people to vote ‘yes’ (the ballot will contain only two options ‘yes’ or ‘no’). The main trick so far has been to hide what is at stake. The main constitutional change – re-setting Putin’s term count – was initially omitted from the referendum’s website, and then buried among the other proposals. 
  • A lot of emphasis in the Kremlin’s campaign has been on how the changes will preserve ‘traditional values’ (the changes include a new constitutional definition of marriage as the “union of a man and woman”). City streets have also been flooded (Rus) with posters bearing the slogan ‘We will defend the memory of our forefathers’ — a reference to the enshrining the sacred nature of the Soviet victory over Nazism in the constitution. Opposition leader Alexey Navalny inadvertently gave the authorities a PR opportunity by calling (Rus) celebrities in an RT video backing the changes traitors — not realizing war veterans were also featured. Pro-Kremlin media outlets gleefully ran multiple reports about how Navalny had “insulted a veteran”. 

Why the world should care There is little doubt the constitutional changes will be approved in the referendum — even if support is lacking, electoral fraud will be easy to organize because of the home voting and online voting provisions. But this is not the most important issue. If the Russian political and business elite realize real support for the changes is weak, it will undermine their faith in Putin’s system and put pressure on the regime. This may open the door to those seeking real change.

A famous actor’s lethal drunk driving splits Russia’s elite

A fatal car crash took place late Monday in downtown Moscow when a jeep drove into oncoming traffic and hit a van at high speed. The driver of the van died in hospital. The man behind the jeep’s wheel was Mikhail Yefremov, a famous actor who has not shied away from criticizing the authorities. His political opinions meant this human tragedy became a mud-slinging match. 

  • At the moment of the accident Yefremov, who is known to battle alcoholism, had the equivalent of a bottle of vodka in his blood, as well as traces of narcotics. A video from the site of the crash shows him barely able to stand upright and heavily slurring his words. He faces a prison sentence of up to 12 years, and a court quickly put him under house arrest until August. The actor has admitted his guilt. 
  • Yefremov is a famous actor, known and loved by many. He was a stage actor for many years in Moscow’s best theaters and has starred in dozens of films. Yefremov participated in the popular Citizen Poet project in which he read funny poems critical of Putin and the government, performing to packed auditoriums all over the country. He also cooperated with independent TV channel Dozhd.
  • Predictably, the accident was seized on by pro-Kremlin media outlets. Leading propagandist Vladimir Solovyov called a special episode (Rus) of his show ‘Citizen Murderer’ and claimed there is a “liberal crowd of alcoholics who approve of drunkenness”. Other TV shows on state controlled channels took a similar approach. 
  • Often screenshots from a few ‘liberal’ posts were used on these shows to illustrate the views of Russia’s apparently united liberal opposition. But this was particularly out of place because ‘liberals’ were deeply divided on the tragedy involving Yefremov. The discussion is not about whether or not Yefremov should be sent to prison. Many Moscow liberals know Efremov personally and expressed sympathy for his situation. Others disagreed, arguing that he understood what he was doing, and it was a crime not a tragedy (one such thread (Rus) already has  more than 600 comments). 
  • There was a great deal of argument about how to align ethics with progressive ideas and opposition to the regime. In many ways, it was all reminiscent of the discussion that arose from the recent story of sexual harassment allegations against prominent liberal Aleksei Venediktov, the editor-in-chief of opposition-leading radio station Ekho Moskvy.  

Why the world should care Neither Russia’s so-called liberal opposition elite, nor Kremlin supporters, are as monolithic in their views as it might appear from the outside. Yefremov’s case was a stark indicator of this.  

Head of state venture capital fund arrested

It emerged this week that the head of the state-owned Russian Venture Company (RVC) was under arrest on corruption charges, a body blow to the venture capital market. Details of the allegations against Alexander Povalko are still unknown, but he faces up to 10 years in prison. 

  • RVC is a state-owned fund that was set-up by the government in the mid-2000s. It received 30 billion rubles ($400 million), and was tasked with investing in tech start-ups and collaborating with investors to put together other venture funds. 
  • But this state-driven model of venture capital was a failure. Each deal was reviewed by a department staffed by security service officers, making managers fearful of mistakes and extremely cautious about investment decisions, a source at RVC told (Rus) The Bell. 
  • Even caution didn’t save Povalko. Before his arrest, his office was searched by officers from the Federal Security Service (FSB). Even though Povalko only joined RVC in December 2016, the investigation appears to be centered on deals made by RVC’s British subsidiary between 2012 and 2016. 
  • Vedomosti newspaper reported (Rus) that the charges against Povalko relate to the use of $5 million that was on the balance sheet of RVC’s subsidiary in the U.K. following RVC’s sale of a stake in U.S. company Soft Machines. The problem appears to be that Povalko didn’t immediately repatriate the funds. Instead, he reinvested the money in U.S. solar energy start-up Alion which, in total, received $22.7 million from RVC. Significantly, another investor in Alion was former cabinet minister Mikhail Abyzov (since March 2019 in prison on embezzlement charges). Although Alion is a U.S. firm, it has now been linked to two criminal cases in Russia: in 2018, a former RVC employee managing Abyzov’s money was arrested (Rus) in connection with an Alion deal. 
  • After Povalko’s arrest, RVC issued a statement that the case “catastrophically undermines confidence in state funding” for the venture capital sector. “All of this will lead to a reduction in the size of the national venture capital market and raises doubts about ambitions for a globalization of domestic technology,” RVC said. 

Why the world should care  Most people understand that, if private investments in Russia are risky, state-funded deals are even more likely to end up in a criminal case. A Silicon Valley in Russia is impossible because you need a culture of openness, in which failures are not judged, according to a professor at UC Berkeley who was invited to Russia by the government to talk about innovation. But the state isn’t giving up: at a March meeting with tech investors, Putin discussed (Rus) using state money to create yet another fund. It’s difficult to believe its fate would differ from that of RVC.