Weekly 29 June 2018 Weekly 29 June 2018

Russia calls the Putin-Trump summit the event of the year, but doesn’t expect real results

Four most important stories on Russia this week

1. Russia calls the Putin-Trump summit the event of the year, but doesn’t expect real results

Photo credit: Interpress/TASS

What happened

Vladimir Putin and Donald Trump have set a date for their second formal meeting — Helsinki, 16 July, just the next day after Moscow will be hosting the finals of the triumphant soccer World Cup. Comments from Russian authorities would suggest that the summit’s results will be similar to the meeting between Trump and Kim Jong Un — very few real decisions, but many propaganda opportunities for both sides.

  • You probably already know what people are saying in the U.S. about the meeting between Trump and Putin. But what are the expectations in Russia? Official expectations are very high — Vladimir Putin’s advisor for foreign affairs, Yury Ushakov, who served for a decade as Russia’s ambassador to the U.S., called the summit the main international event of the sumer. Russian state television channels are using the same exact quote (but without referring to the bureaucrat by name). However, in terms of actual concrete expected results of the summit, the propaganda is quite cautious. For example, Channel One in its piece (Russian) quoted an article from The Times, stating that London is worried about a deal between Putin and Trump, but oddly doesn’t quote those fears that would be most pleasant in the Kremlin which were described by the newspaper — that Trump could recognize Crimea as part of Russia and lift anti-Russian sanctions.
  • Unofficially, Russian authorities spoke with the FT about their expectations for the summit — they sound rather pessimistic. In short: for Russia, the fact that the meeting is even taking place is already progress, and if both sides can agree on even one question, it will be a victory. Most likely, both sides will try come to an agreement on an issue of secondary importance which could serve as a starting point for further restoration of relations between the two countries.
  • Government officials on both sides say that the primary themes of the talks will be Syria and Ukraine, and this appears to be true — it’s no coincidence that Vladimir Putin today made yet another statement about withdrawing Russian troops from Syria. But it seems unlikely that the presidents will discuss the question which we would really like to know the answer to — will sanctions against Russia be lifted? During a preliminary meeting between Putin and Trumps’ advisor, John Bolton, this question wasn’t discussed, according to Yury Ushakov.
  • Actually, Russian business isn’t seriously thinking now about potential lifting of U.S. sanctions — good news would simply be confidence that the U.S. isn’t planning to add new businesses or companies to the existing list. This week, Russia’s Central Bank published data which illustrates well the effect of the latest round of sanctions: foreign investors sold 10% ($3.6 billion) of their Russian sovereign debt portfolios during April and May, although sanctions in no way threatened these securities. This was a record sell-off.

Why the world should care

Russian propaganda in some ways actually doesn’t distort reality — the meeting between Putin and Trump has become the most discussed international event even two weeks ahead of the summit. But in order for the meeting to lead to real results, one of the leaders will have to come up with unexpected moves. We do know that both are capable of this.

2. Sanctioned Russian billionaire is acquitted of money laundering and can now ask the U.S. to lift its sanctions against him

What happened

Russian billionaire Suleiman Kerimov, who since November was under investigation in France for money laundering and tax evasion, has been acquitted from all charges. The businessman who lost $1 billion in net worth since the time of his arrest had his passport returned, as well as his bail of €40 billion. Now, Kerimov has the chance to be the first Russian oligarch to try to have U.S. individual sanctions against him removed. Kerimov was one of seven billionaires included in the U.S. Treasury Department’s April list, and American accusations against him were almost totally in line with France’s charges which have now all been lifted.

  • The billionaire and member of Russia’s upper house of parliament, Suleiman Kerimov, was arrested in Nice on 21 November 2017, on suspicions of tax evasion during the purchase of luxury real estate properties on the Cote d’Azur valued at €400 million. As the investigation progressed, charges against Kerimov grew more serious — the prosecutor in Nice accussed the Russian billionaire of secretly brining €500-750 million into France, and that the money was carried in cash in suitcases. Under French law, Kerimov faced a 10 year prison sentence. The French charges against lawmaker Kerimov drew loud protests from Russian authorities and wealthy Russian residents of the Cote d’Azur saw the move as a serious threat (Russian) to their own French properties.
  • Much is still unclear regarding how the charges against Kerimov were lifted. The case against him isn’t closed — but the court of appeal of the commune of Aix-en-Provence changed the Russian billionaire’s status from suspect (French: mis en examen) to witness (French: temoin assisté). The ruling was made during a closed session, and the court didn’t provide any explanation. The representatives of France’s General Prosecutor told (Russian) Russia’s “Novaya Gazeta” that the Nice prosecutor has nothing to do with this decision and may make an appeal.
  • There might be unexpected consequences of the French court’s decision. Kerimov is one of seven Russian billionaires who came under personal U.S. sanctions on April 6. The U.S. Treasury Department linked it (in addition to Kerimov’s seat in Russia’s upper house of parliament) with the charges against him in France. A source close to the businessman believes that he will try now to get sanctions against him lifted. The rules allow for such a request, but there are no mandatory conditions for the removal of sanctions — in practice, the decision is left entirely up to the U.S. Treasury Department.
  • For Kerimov, the sanctions were not the cause of such grave problems as they were for Oleg Deripaska or Viktor Vekselberg, although Kerimov does have investments in the U.S. For example, as The Bell exclusively reported last fall, Kerimov bought a stake in Snapchat ahead of its IPO. However, according to sources close to Kerimov, none of his accounts were frozen, and there were no bans on any of transactions affecting Kerimov. Nonetheless, the billionaire’s largest asset, gold producer Polyus (officially it is owned by Kerimov’s family), lost 28% of its market capitalization on the London Stock Exchange when U.S. sanctions were announced — a fall twice as large as what the company experienced when he was arrested in Nice. Kerimov has lost roughly $1 billion in the value of his Polyus holdings over the past six months.

Why the world should care

Not a single Russian businessman of those named in the April list has tried yet to have sanctions against him removed. Only Oleg Deripaska tried to remove his aluminum company Rusal from the list, but not himself personally. If the July meeting between Vladimir Putin and Donald Trump will actually lead to a thaw in relations between Russia and the U.S., the question of sanctions against Suleiman Kerimov might become an important precedent

3. The government puts the brakes on pension reform so that Vladimir Putin can play the “good tsar”

What happened

The unpopular decision to raise the pension age led to a record breaking fall in Vladimir Putin’s approval rating, and this weekend the opposition and unions plan to carry out the first protests against pension reform. In this context, the government decided to delay its discussion of the draft legislation until the fall. This will give the authorities time to evaluate the level of discontent, after which Vladimir Putin can play Russia’s traditional role of the “good tsar” and announce concessions to the proposed reforms, while blaming the government for its radical proposal.

  • We wrote in mid-June in detail about what pension reform and raising the pension age means for Russia. Russian authorities chose the best moment in years to announce an unpopular reform — Putin had just won the election with 77% of the vote, the opposition was quiet, and all attention was on the FIFA 2018 World Cup. But even all of this didn’t help: just 10 days after the reforms were announced, Putin’s approval rating fell to its lowest in years; it lost staggering 14 points in just two weeks, from 78% to 64%. The level of personal faith in the president as a politician fell from 47.4% to 38% in just one month, the lowest figure since December 2013. And all of these figures come from state-owned VCIOM (Russia Public Opinion Research Center), which has a tendency to produce the data the government likes to see.
  • Of course, the opposition is trying to use this moment for its own benefit. This weekend, the most popular opposition politician, Alexey Navalny, will lead the first protests in 20 Russian cities. However, Russia’s major cities will not be among these, as there is an official ban on all types of mass events in World Cup host cities during the entire month of the football championship, which was set into law by a special Presidential Order. The opposition politician decided not to take a risk. Unions will also carry out protests; one union has already gathered 2.5 million signatures on a petition demanding that reforms be stopped. Regardless of union actions, serious doubts remain. The unions are well known for their close cooperation with the government, and their protests will be beneficial for the Kremlin, as it can the authorities to better manage the protests and not hand the initiative over to the real opposition.
  • Vladimir Putin’s ratings dive might have been even deeper if the president hadn’t attempted everything possible to distance himself from pension reform. In a country in which all rational people understand that serious decisions are taken by one person, this might seem funny — but Putin’s press secretary, Dmitry Peskov, almost daily (and that’s not an exaggeration — 1,2) repeated the same phrase over and over: Putin “is not involved in the discussion of this issue”. State television channels explained in their pieces that pension reform is really useful and will improve people’s lives, but Vladimir Putin was not named in a single one of these reports.
  • In the beginning of May, it was suggested (Russian) that the law on pension reform will be passed as quickly as possible — during parliament’s spring session, which finishes at the end of July. But already after the first discussion of the draft legislation it was decided to delay voting until the fall. The Kremlin is worried about nationwide protests against an increase in the pension age, and is carefully studying (Russian) the reaction across the country, according to Vedomosti. This delay makes it possible to measure the level of protests, and if necessary, to prepare concessionary measures. These will surely be announced by Vladimir Putin himself, who never passes up an opportunity to pass the blame for unpopular decisions onto the government and by doing so, improve his own personal rating.

Why the world should care

If everything goes according to the Kremlin’s plan, Vladimir Putin will be able to carry out this necessary reform, while also preserving his high approval rating. It has been a long time since Russian authorities passed a decision which most citizens disapprove of, so this fall we will see the real show — putting into practice one of the main principles of Russian propaganda, which allows the autocrat to maintain his popularity: “good tsar, bad boyars”.

4. A refugee from the Soviet Union, an email from Apple and a $1 billion company

What happened

Phil Libin, the son of immigrants from the USSR, moved to the U.S. in 1979. In 2007 he, together with one of the pioneers of the Russian internet, Stepan Pachikov, founded the webservice Evernote. The first investors in the company, which at first glance didn’t create anything new, were traditional friends and family. But later, Russian investors invested in the service. Evernote is now valued at over $1 billion. Since 2015, Libin has focused on financing projects in the area of artificial intelligence. The Bell founder Liza Osetinskaya spoke with Libin in her video project, “Russiye Norm!”. Libin tells (Russian) the story of how one email from Apple turned Evernote into a $1 billion company, and how another Russian expat, Yury Milner, led a revolution in Silicon Valley, as well as how to build a business along the principles of Netflix and HBO. Here are the most interesting quotes from the interview

What matters most in a successful startup

Luck is probably the most important thing. Anyone who gets any success and claims there was no luck… I don’t think that’s real. The trick is just to be prepared when it happens – put yourself in the position when you can take advantage of the lucky breaks when they happen. Apple came out with App Store right after we launched. I remember sitting in the office and we got an email from someone from Apple. We got on the call and they said: “this is really good, we really like it… we’re thinking oа launching an application store on the iPhone, a way for developers to write applications for the iPhone, would you be interested in developing an app for the iPhone? Then you could be one of the first applications on there”. They gave us less than one week, literally, they said “next Thursday” or something. And we built it. So on the first day of the App Store, we were able to have Evernote.

Is there anything special about Russian programmers

I tried very hard right from the beginning to not make Evernote a California company, or a Russian company, or anything like that. We had offices in California, in Tokyo, in Korea, Russia, we had 11 or 12 locations, specifically because we wanted to have the best people from everywhere. I think there are many brilliant Russians in Russia, and here, and everywhere else, and there’s many brilliant people in every culture. There’s a lot of myths about this, but I’ve worked with great Russian programmers, worked with lots of terrible Russian programmers. There’s a community of people that take programming and computer science seriously in Russia, it generates some very good engineers, there’s a lot of great scientific talent… But I really don’t think there’s something uniquely good or bad, it’s the same distribution of talents and abilities.

How the Russian investor Yuri Milner changed Silicon Valley patterns

Yuri and [his fund] DST have largely invented a lot of the mechanisms that allowed Silicon Valley companies to take the path they’ve taken. They actually gave some money to the people who had been working for years before they can have any money through an IPO. And they don’t take a board seat, they don’t have control of the company. In fact, they pledge their votes to the founders – they say, whatever the founder will want to do, we’ll support you on this. Yuri made venture capital very entrepreneur-friendly. That was, I think, a very smart way to invest, and by doing that he was able to make investments in the best companies and then do it much more scaleably, because he’s not sitting on many boards and having all these responsibilities.

How did a Soviet refugee feel in the U.S. in the 1980s

We came over as refugees from the Soviet Union. There was a lot of support – from the government in the US, from private charities, individuals. In the late 70s-early 80s people really wanted us here and we felt welcome. Recently there’s been a lot of anti-immigrant and particularly anti-refugee rhetoric coming from the government here, which to me is dissapointing. One of the things that I like most about America, was this idea that we let in people who need it. We don’t base our immigration system on who’s the most valuable people. When I came over with my family, of course none of us qualified for anything – none of us spoke any English, my parents were both musicians, no science degree, no Olympic medals. There was nothing to think that we would be an economically useful family in this country, but they’ve let us in anyway.

How to rebuild Russia

I left Russia when I was 8, in 1979. I didn’t really think about it for a long time, probably the next 20 years. With Evernote there were so many Russian speakers in the company, and we had an office in Moscow, so it got me thinking much more about it, but I’ve never gotten really involved in it, other than I’ve always felt that it’s a lot of wasted potential, a lot of really brilliant people that aren’t doing as much as they could, aren’t contributing to the world with their brilliance the same way that people here can. Definitely I believe in Russia as a future technological center. What’s critical to have a technological Renaissance in Russia and everywhere else – to get rid of this idea that you have to make companies. If all those required was really brilliant people and hard work, then of course there would be massive technology in Russia, and in a lot of these other places.

About his new AI startup business

We’re a studio like HBO or Netflix. We make, hopefully, an innovative product, we distribute it, sell it, as usual, but instead of TV shows or movies we make AI products. We focus particularly on practical AI, which for us means real products that solve a very down-to-earth problems, that we can make in a year. We don’t do things that take a 5 years research project. We want to get involved in the area right as the most difficult problems go from being about the engineering to being about design. Evernote didn’t succeed because we had the best technology – we had really good design.

About the future of AI and jobs

I think it’ll change the future a lot, and I think it’s important to design the future the way that we want it to be, not just let it happen and then complain about it afterwards. The goal is not to replace people, it’s to improve. If you have a robot doctor, the goal is not to save money by not having a human doctor, the goals is to have better healthcare, better outcomes. I think over the next 10-20 years, there will be a net-positive amount of jobs, but in the longer term, next 20 to 50 years, there will be fewer jobs. So I think people are worried a little bit too soon, I don’t think it’s a question about people who are professionals, who are adults right now, losing their job. It’s more about what are their kids going to be doing.

Peter Mironenko, The Bell

This newsletter is made with the support of the Investigative Reporting Program at UC Berkeley.


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