Weekly 23 November 2019

Russia expands use of ‘foreign agent’ label

Hello! This week our top story is an explanation of a new ‘foreign agent’ law that could be applied to thousands of ordinary Russians. We also look at the deal internet giant Yandex struck with the Kremlin, the highlights of The Bell’s investigation into Orthodox tycoon Konstantin Malofeev, a ranking of Russia’s top Instagram earners, Gazprom’s discount share sale, and the client who received a message to ‘kill Jews’ from his bank.  

New law means individuals can be labeled ‘foreign agents’

The Russian parliament passed a new ‘foreign agent’ bill Thursday that means the derogative Soviet-era label can now be applied to individuals, as well as organizations. The bill also included new rules for media outlets deemed ‘foreign agents’, which face the possibility of being blocked online and incurring fines of up to $75,000. It is expected to be signed into law by President Vladimir Putin in the coming weeks. 

The bill was originally introduced to the State Duma in late 2017 and was seen as a logical continuation of earlier legislation that meant media outlets could be deemed foreign agents. However, after it passed its first reading in January 2018 it was dropped and quietly forgotten. It only resurfaced this month, passing its second and third readings in a matter of just two weeks. The timing and the speed are a mystery — although we do know that the Kremlin wants to control the flow of information ahead of 2021 parliamentary elections. 

Under the 2017 law allowing media outlets to be designated foreign agents, any publication can be labeled a ‘foreign agent’ if it receives funding from abroad. But in practice only publications financed by foreign governments — specifically Radio Free Europe/Radio Liberty and Voice of America — have, so far, been targeted.

The most important points about the new law: 

  • Reporting requirements for ‘media foreign agents’. Within a month of being designated a foreign agent, media outlets must register a separate legal entity in Russia which will report income, expenses and employee roll to the Ministry of Justice. If these rules are broken, the outlet’s website can be blocked. A law is also under consideration that punishes violations by fines of up to 5 million rubles ($75,000). 
  • Individuals can be deemed ‘media foreign agents’. It’s unclear who is at risk of this, but many assumed it will be used against influential bloggers. The head of the Duma’s Committee on Information, Leonid Levin, told The Bell it will not affect Russian citizens in Russia. 
  • Individuals can also be made straight-up ‘foreign agents’. This is perhaps the most significant change. To qualify as a ‘foreign agent’, you must both “distribute” (the term is not defined) materials produced by ‘media foreign agents’ and receive financing from abroad. The definition of “foreign funding” is defined in the broadest possible terms, including both foreign governments and foreign citizens. If taken at face value, it means a person can be declared a ‘foreign agent’ if they work for a Western company and share a Radio Free Europe/Radio Liberty article on social media. 
  • Penalties for individual foreign agents unclear. The consequences for individuals declared ‘foreign agents’ have not yet been determined. Levin suggested they will have to report to the Ministry of Justice about how they spend their foreign money.  

Why is this necessary? Deputies said the law was a response to Western governments who deemed Russian television channel RT a foreign agent. But, in reality, it gives the authorities a lever to make life difficult for foreign media outlets, Russian journalists who work for them, and opposition-minded bloggers. Experience shows it’s not hard for the authorities to ‘uncover’ foreign funding if necessary. Moreover, foreign agent status is a real stigma in Russia, particularly outside Moscow and St. Petersburg. 

Why the world should care

Ten international human rights organizations, including Amnesty International, Human Rights Watch and Reporters Without Borders, said in a statement that the law is a threat to independent journalism And if the political situation in Russia gets more repressive, more and more foreign journalists are likely to be officially deemed ‘foreign agents’. 

Malofeev’s millions: where does Russia’s ‘Orthodox tycoon’ get his money?

This week The Bell published a big investigation into businessman Konstantin Malofeev, who is known for his monarchism, devout Orthodoxy and support for rebels in eastern Ukraine. You can read the full article on our site, but to whet your appetite we have a summary below.

  • Malofeev is a monarchist, but when he talks about monarchy, it’s not an abstract concept. “Of course, those people who love [President] Vladimir Putin see the continuation of his power in an imperial, monarchal light. I share those values,” he told a conference last year.
  • Keen to enter politics, Malofeev has been in negotiations with both the struggling pro-Kremlin A Just Russia Party and the nationalist Rodina party. In March, he joined A Just Russia and reached an agreement to be appointed deputy leader and given carte blanche to impose his agenda — in return for sponsorship. But the deal collapsed, partly because of concerns within A Just Russia, partly because of Malofeev’s attitude, which was described (Rus) as “like a customer at a vegetable stand”. 
  • When asked about his business interests, Malofeev said they were limited to Tsargrad, a holding vehicle for about 20 companies. But an investigation revealed that not only do these companies have very few assets, but most run a loss — and several are bankrupt. The most unprofitable is Tsargrad’s media arm, which lost about 1 billion rubles ($15.7 million) between 2014 and 2018.
  • This all begs the question: where does Malofeev get his money? Since the 2013 sale of an estimated $1 billion stake in state-owned telecommunications giant Rostelecom (most of the profits were assumed to have gone to settling debts), Malofeev has not made — at least publicly — a major investment. And in 2014, he was targeted by Western sanctions, limiting his options. Malofeev said he lives off his savings.
  • Perhaps the most curious aspect of the businessman’s story is a link to a $450 million theft from defunct crypto-currency exchange BTC-e. Wex, a successor exchange to BTC-e, was last summer sold to Dmitry Khavchenko, who fought with Russian-backed rebels in eastern Ukraine and is reportedly close to colleagues of Malofeev. In a recent article, the BBC Russian Service claimed Malofeev helped broker the transfer of $450 million stolen from Wex to officers from Russia’s Federal Security Service (FSB). A spokesperson for Malofeev denied the allegation.

Why the world should care

While Malofeev’s monarchist political projects have enjoyed limited success so far, the businessman is ambitious and generous with his money. He is one to watch.

Yandex cuts a deal with the Russian state

Under the threat of a bill that would have destroyed its shareholder structure, Russia’s largest internet company Yandex has reached an agreement with the Kremlin. According to the terms of the deal announced Monday there will be a non-commercial foundation, filled with university rectors and other public figures, involved in the management of the company. Yandex is now much more vulnerable to the whims of the Russian authorities.

When Yandex announced its new management structure, sources told The Bell it had been agreed at the highest level. Indirect confirmation of this was provided when, the same day, Duma deputy Anton Gorelkin withdrew a bill, widely considered to be aimed at Yandex, which banned foreigners from owning more than 20 percent of major internet companies. 

Shareholders were thrilled by the news: investment banks published reports proclaiming the end of the company’s problems with the authorities and Yandex’s shares rose by 12 percent in a single day. This is how the new arrangement will work: 

  • A non-commercial Public Interest Foundation will be created in the Russian offshore zone of Kaliningrad. The foundation will not own Yandex shares, but receive some management rights. It will get two of the 12 seats on the board of directors and vote on the nomination of another four. Two directors from the foundation, together with Yandex founder Arkady Volozh, will join a special committee responsible for Yandex’s decisions related to national security. 
  • Yandex’s ‘golden share’, which has been owned by Sberbank since 2009, has been passed to the foundation and its power increased: now the golden share can block any transactions involving more than 10 percent of Yandex’s stock. 
  • In extreme cases (for example, changes to the law in the Netherlands where Yandex is registered) when the foundation is blocked from operating, it will receive the temporary right to appoint the company’s CEO. 
  • The foundation’s members will be made up from five universities (one from Moscow, one from St. Petersburg, and three specialist universities with which Yandex has joint projects); three public institutions (Skolkovo business school, the fund supporting Moscow’s top math school, and the Russian Union of Industrialists and Entrepreneurs); and three Yandex executives.

The deal looks positive for Yandex: it is a much better outcome than the other options on the table, including Sberbank’s offer to buy 30 percent of the company and the bill that would have forced Yandex to de-list from NASDAQ. It could even yield some competitive advantages for the company: for example, the ‘law against Apple’, which was passed this week, is being referred to by some officials as a “gift to Yandex.” But even if it is an elegant solution, it shouldn’t be seen through rose-tinted glasses: the Russian government controls all the public institutions that provide the members for the new foundation. 

Why the world should care

Yandex’s new structure will allow it to remain an attractive proposition for foreign investors, but those doing business with the company, or using its apps, must remember how much influence the Kremlin now wields over its operational decisions.  

IN BRIEF

Russia’s top Instagram earner makes $1.6 million a year

The first-ever ranking of Russia’s most financially successful Instagram bloggers published Wednesday was topped by TV presenter and socialite Ksenia Sobchak, whose father was Putin’s political mentor in the 1990s. According to the research (Rus) by Forbes magazine, Sobchak makes $1.6 million a year from advertising on the photo-sharing site. Her major clients include luxury brand Dior, vodka manufacturer Beluga, and Audi cars.

Others who made it into the top-15 included TV stars, singers and actors. In second place was TV presenter Regina Todorenko, with $860,000 a year, while singer and celebrity Olga Buzova placed third, also making $860,000 a year. The highest earning man, car blogger Alan Yenileev, was in fourth place and makes $850,000 a year.

Gazprom’s secret buyer

There has already been one huge, opaque share deal this year involving Russia’s biggest company Gazprom — this week saw another. The gas giant sold 2.9 percent of its treasury shares in July and another 3.6 percent Thursday. Together, these purchases were worth $5 billion, and both were carried out at a discount (5.4 percent in the first case and 13.9 percent in the second). While they were the largest single transactions in recent years on Russia’s equity market, ordinary investors were not able to take part. The buyers remain anonymous and it’s likely the deals were constructed in this way for the explicit purpose of ensuring secrecy. After the first sale, Bloomberg reported that billionaire Arkady Rotenberg, a personal friend of Putin, could have been among the buyers and Rotenberg’s name was also raised by traders Thursday. Gazprom equity might indeed be a good way to make a profit: the company is paying record dividends and its shares are up 58 percent this year.

Sberbank mistakenly urges client to ‘kill Jews’

One Sberbank customer was shocked this week to receive a credit offer from the state-owned banking giant with the password CRYVKILLJEWS. Alexander Shishov posted a screenshot of the message on Facebook, accompanied by the words “WHAT IS THIS?”, from where it spread across social media. On Twitter, Sberbank’s official account suggested the image was photoshopped. But then Shishov was contacted by a bank representative who apologized and said the password had been created by a computer. “Our code-generator didn’t want to offend anyone,” the representative wrote under Shishov’s post.

Peter Mironenko, Howard Amos