Weekly 2 November 2019

Sberbank wants your personal data

Hello! This week our top story is about how state-owned banking giant Sberbank’s acquisition of a stake in a major internet company will give it even more access to the personal data of ordinary Russians. We also look at the ‘sovereign internet’ law that came into force Friday, a demand by Putin to tighten anti-narcotics legislation, a factory mothballed because of U.S. sanctions that may become a bitcoin mining hub and why NHL star Evgeni Malkin could face prosecution over an unwise business investment.

Sberbank amasses personal data with stake in Mail.ru

After several bruising failures to enter a partnership, state-owned banking giant Sberbank and IT-company Yandex (known as the Russian Google) severed most of the ties over the summer. This week it was announced that Sberbank has moved on very quickly: it has bought 20 percent of Mail.ru, one of Yandex’s major competitors. This means Sberbank is now not only Russia’s biggest bank, but will also become the number one player on the personal data market. 

  • Mail.ru now has an impressive list of owners. As a result of the deal, Sberbank acquired a 35 percent stake in MF Technologies, which, in turn, holds 59 percent of the voting rights in Mail.ru. The other owners of MF Technologies are companies controlled by metals and mining billionaire Alisher Usmanov and President Vladimir Putin’s former KGB colleague Sergei Chemezov
  • All three men are heavily involved in the state’s plans to ‘digitalize’ the Russian economy. Gref was entrusted (Rus) by Putin with a task of expanding the technological success of Sberbank to the whole country; Usmanov made billions investing in Facebook in the 2010s and is now responsible for developing equipment that will provide the security services with access to phone and internet traffic; while Rostec, the state conglomerate that Chemezov heads, is developing 5G and artificial intelligence projects for the state. 
Herman Gref

Herman Gref

  • You might not want to share all your secrets with these men, but both Sberbank and Mail.ru own dozens of popular online-services and mobile apps that mean Sberbank now has access to the biggest stash of personal data in Russia. In addition to the banking apps of over 50 million people, Sberbank will know everything about your online behavior (it has Russia’s three biggest online shops among its assets), your movements (via apps like Сitimobil taxis), your food preferences (Mail.ru owns Russian top food delivery application Delivery Club) and your social media activity (Mail.ru has stakes in Russian Facebook-analogue sites Vkontakte and Odnoklassniki). 
  • What makes all this alarming is that Sberbank made (Rus) headlines twice last month because of large data leaks. Both times, databases with the personal details of tens of millions of Sberbank customers appeared online. The size of the data hauls were smaller than claimed by the thieves, but were still significant. 

Why the world should care

The oddest thing about the recent personal data leaks is that most Russians dare not bothered (if you are, be careful using services from Sberbank or Mail.ru). There are many different explanations for this indifference: from the legacy of omnipresent Soviet-era surveillance to digital literacy. One way or another, a lack of concern among Russians means Sberbank’s hunt for personal data has faced few obstacles.

 

Unease as ‘sovereign internet’ law enters force

Russia’s controversial ‘sovereign internet’ law came into force Friday, bringing state control of the internet a step closer. While there were no immediate changes, The Bell has learned that testing of equipment needed to implement the law has caused local internet blackouts.

  • The legislation, signed by Putin in May, will force all internet traffic through state-controlled infrastructure and give significant new powers to internet watchdog Roskomnadzor, including the ability to block websites and services (previously they had to order internet providers to take such action) and seal off the Russian internet from the rest of the world in case of an emergency. The passage of the legislation was widely seen as a major victory for hawkish security officials — it was first proposed by three lawmakers including Andrei Lugovoi, a Duma deputy suspected of poisoning ex-FSB officer Alexander Litvinenko in London in 2006. Officials say that such a new architecture for the internet will increase cyber-security.
  • In order to fully implement the law, the authorities need to develop equipment that network operators will then be obliged to install. This equipment, known as Deep Package Inspection, has recently been undergoing testing in the Urals region of central Russia, where it caused network blackouts, according to three staff members at network operators and two officials. “When the equipment was tested at night, the network failed,” one source told The Bell. Roskomnadzor declined to comment.
  • It is unclear when the equipment to be ready, but sources told (Rus) media outlet RBC that the pilot testing phase will be completed by the end of the year. A source told The Bell that there is pressure from the Kremlin to speed up the process of rolling out the new system so it is fully functional ahead of Russian parliamentary elections in 2021. It is unknown how much the implementation new law will cost: estimates range from $300 million to as much as $1.6 billion.

 Why the world should care

Roskomnadzor was humiliated last year when it failed to block messenger service Telegram: while the installation of equipment to implement the new law is unlikely to happen for many months, when it does Roskomnadzor will be able to take a swift revenge.  

 

Putin wants to make ‘drug propaganda’ a criminal offence 

The Russian leader has ordered (Rus) the government to draw-up a new law to criminalize the “propaganda” of drugs. Experience of similar vague terms in Russian laws suggests this will be interpreted very broadly, and become yet another tool of political repression.  

  • While selling drugs or keeping them in large quantities is illegal in Russia, narcotics are easily purchased through the dark web or via channels on messenger app Telegram. When buying online, you simply transfer the money and the seller tells you where your zakladka (literally ‘treasure’) is hidden — whether under a bench or buried in the woods. Russia’s most popular dark web platform is the world leader (Rus) in the underground drug trade, Proekt reported. 
  • At the same time, many people end up in prison after tiny amounts of drugs are found on them. In more than 40,000 cases in the last decade, the amount of drugs found on people has been exactly the right amount to qualify them for a prison sentence, according to research (Rus) by newspaper Novaya Gazeta (this means police officers likely added on a few ounces to get a conviction). Sometimes — as in the famous case of investigative journalist Ivan Golunov — drugs are even planted.  
  • One recent, controversial drug-related case involved Israeli citizen Naama Issachar, who was sentenced to 7.5 years in jail last month for drug smuggling. The young woman was travelling from Delhi to Tel-Aviv with a transfer in Moscow and she was detained in the airport for having 0.3 ounces of hashish in her checked luggage. She later became a ‘diplomatic hostage’ as Moscow tried to use her to stop Israel extraditing a Russian hacker to the U.S. (the Israeli authorities have stopped the hacker’s extradition and Prime Minister Benjamin Netanyahu asked Putin to release her). Issachar is not the only tourist arrested in Russia on drug charges. 
  • If ‘propagandizing’ drugs is made a criminal offense, there are worries it could lead to the imprisonment of musicians and even journalists. At the moment, those deemed to be promoting drugs can be fined, and both rappers and reporters have fallen foul of this law (in reality, all they were guilty of was mentioning drugs).

Why the world should care

Russia’s narcotics legislation is already draconian — and easily abused. If the ‘propaganda of drugs’ is criminalized, it will give police even more opportunities to improvise false charges. Not only Russians will suffer from this, but also foreigners.

 

IN BRIEF 

Aluminium factory shuttered by sanctions to host bitcoin mining facility

Putin aide Dmitry Marinichev has announced plans to lease a mothballed factory in Russia’s north for bitcoin mining. Production at Karelia’s Nadvoitsky Aluminum Factory, owned by billionaire Oleg Deripaska’s aluminum giant Rusal, was shut-down last year because of U.S. sanctions. Internet ombudsman Marinichev told (Rus) media outlet RBC on Tuesday that his Russian Mining Company wanted to create a “digital hub” at the site, which could sell computer power to foreign customers looking to mine bitcoin. This is not the first example of bitcoin miners taking over Soviet-era plants, which often have access to cheap electricity and can use a freezing climate to help reduce cooling costs.

NHL Star Malkin risks court case in crypto-currency fraud case

Three-time NHL Stanley Cup winner Evgeni “Geno” Malkin has become embroiled in a crypto-currency scandal linked to company Mark.Space, which was developed by an old teammate and two relatives. Malkin invested $4 million in Mark.Space and the company recently completed an ICO in which they raised another $10 million. But none of the company’s legal entities (which are in Russia, Singapore and Estonia) have received any money — and now the staff are quitting, claiming their salaries are not being paid. Malkin’s former teammate is nowhere to be found, and investors are preparing for legal action. Sport website Sport.ru, which uncovered the story, concluded (Rus) there were many warning signs about the project and it is likely Malkin was simply duped. Still, the hockey star may be in trouble — as the founder of the company’s main legal entity he could be in line for prosecution. Malkin has since protested his innocence. Investing in Mark.Space is not the only controversial choice that Malkin has made: in 2017 he joined the “Putin team” movement started by another hockey player Alexander Ovechkin in support of the Russian president.

 

Anastasia Stognei, Howard Amos, with participation of Egor Fedorov