Hello! Our top story this week is about a Russian billionaire (based in the U.S. since the 1990s) who is so fed up of the indirect effect of sanctions legislation that he is taking the U.S. government to court. We also analyze recent difficulties in Russia’s relationship with oil cartel OPEC and have a look at some serious investment by Moscow City Hall in face recognition technology. Finally, read the first profile of our new rubric about Russians who make radical career changes: Anna Urnova went from Moscow bureaucrat to New York tech manager.
A Russian billionaire on the ‘Kremlin List’ is suing the U.S. government
In addition to U.S. sanctions, a major problem for Russian businessmen is the so-called Kremlin List. This is a group of wealthy Russians “close to Vladimir Putin” put together in January 2018 in response to a requirement of sanctions law CAATSA. The list does not mandate sanctions, but any named person automatically faces difficulty doing business. After the publication of the list (an exact copy of Forbes Russia’s annual ranking of billionaires), it was criticized for including businessmen who don’t have direct relationships with Russia. One of these individuals was the owner of American company IPG Photonics, 79-year-old Valentin Gapontsev, who hasn’t lived in Russia since 1995 and has assets in the U.S. worth some $7 billion. Gapontsev is now suing the U.S. Department of the Treasury, and Steven Mnuchin personally.
- Gapontsev’s indignation is understandable. His court filing states that the U.S. government set out to include all people trusted by President Vladimir Putin who made their fortunes through “a corrupt division of state assets.” But Gapontsev worked in a research institute in the Soviet era and left Russia in 1995, five years before Putin was first elected president. As an immigrant, Gapontsev built a business on the basis of his scientific knowledge. His company, IPG Photonics, is now valued at $6.8 billion on NASDAQ and accounts for a large part of the global market for high-performance fiber lasers. Gapontsev has met Putin only once: when he was given a state award. The court filing states that it is unfair to call him “an oligarch close to the Russian president.”
- IPG Photonics has suffered serious problems since Gapontsev was named in the list: many clients, particularly those with U.S. government contracts, have said that they can no longer work with the company. Banks began carrying out additional due diligence and a major international database, Visual Compliance, now classify Gapontsev as a potentially problematic business partner. Shares in IPG Photonics have fallen 40% since the beginning of 2018.
- The Kremlin List was hastily thrown together in January. The information about several people on the list was incorrect and the proximity to Putin of most is unproved. Atlantic Council expert, Anders Åslund, who advised the U.S. authorities, confirmed that members of President Donald Trump’s administration put the list together at the list minute. “Somebody high up — no one knows who at this point — threw out the experts’ work and instead wrote down the names of the top officials in the Russian presidential administration and government plus the 96 Russian billionaires on the Forbes list,” Åslund wrote at the time.
Why the world should care
U.S. sanctions against Russia have different levels of success, depending on who you talk to. But the Kremlin List is an exception. Those on the list are united by their wealth (assessed by journalists), not by their proximity to Putin. Many of them earn their money not thanks to the Kremlin, but in spite of it — and those who have suffered the most from the Kremlin List are the ones with the most international businesses.
Moscow’s relationship with OPEC at risk amid disagreement
For the first time in over three years of close cooperation between Russia and OPEC, serious splits have arisen between the oil-producing partners. Some analysts say Russia’s increased role at OPEC in a period of sanctions is one of Putin’s greatest foreign policy achievements, but the recent OPEC meeting in Vienna, when they decided to cut production to halt falling crude prices, dragged on for two days. The head of the Russian delegation was forced to fly to Russia to personally consult with Putin.
- OPEC members and other exporters agreed on Thursday to cut production, but the main participants couldn’t seem to come to an agreement on specific figures. Saudi Arabia insisted on a reduction of 1.2-1.5 billion barrels per day (equivalent to the current daily surplus on the world market), but Russia wouldn’t agree to its share. The climate in Russia doesn’t allow for a fast reduction in production during the winter, explained Russian Energy Minister Alexander Novak. The negotiations were so difficult that during a break on Thursday, Novak flew to St. Petersburg to consult with Putin. After this, Russia’s position remained unchanged.
- The pace of negotiations in Vienna illustrates how much OPEC has changed since 2016, when Russia became integral to negotiations within the cartel and some said the organization had turned into a club of two.
- Moscow now has a key role in OPEC. The fall in the oil price (about 30% down from recent highs) is not as critical for Russia as it is for Middle Eastern countries due to Russia’s budget surplus and the weak rouble. For Russia, it makes sense to sell as much oil as it can at any price above $40/bbl. In 2018, Russia’s oil export profits are forecast to grow by 25% in rouble terms.
- Unsurprisingly, Russian officials are satisfied with their relationship with OPEC and, despite the current problems, they are counting on a continued friendship with Saudi Arabia. The head of the Russian Direct Investment Fund, Kirill Dmitriev, has helped Putin and Novak smooth their relations with Saudi Arabia, recalled one person familiar with the situation. Dmitriev is on good terms with Mohammed bin Salman and often acts as an intermediary between Putin and the Saudi prince. In October, Dmitriev attended the Future Investment Initiative summit, despite a boycott by Western investment funds over the murder of journalist Jamal Khashoggi. The Saudis prefer to deal directly with decision makers, according to a senior Russian official and they appreciate the personal involvement of Putin and the work of Novak. The Saudis observed Novak’s access to Putin during the negotiations for the first deal between Russia and OPEC in 2016.
Why the world should care
Apart from nuclear weapons, influence at OPEC is one of the few main global arenas still open to the Kremlin. Friday’s negotiations show that, despite internal arguments over the cartel’s position, Russia’s influence remains strong.
Moscow is expanding its use of face recognition technology
Russian authorities continue to adopt the Chinese model of tracking citizens. Moscow City Hall promises to install a system of CCTV cameras in the city in 2019 with facial recognition technology. To date, $120 million has already been spent on this system. The first experiments with the technology were carried out during opposition protests.
- The first 1,500 cameras with facial recognition technology were tested by the mayor’s office in 2017. As the IT department of the city of Moscow learned, the experiment primarily used “street cameras to provide security during mass protests”. They were used for the first time during protests led by Alexey Navalny on 12 June 2017. After this, the photos and personal data of participants in the protest were published by an anonymous blogger and made openly available on the internet. Then, the cameras with facial recognition technology were tested during the World Cup in 2018. The police described 180 people at the time who were wanted by the authorities. Police officers were given smartphones which received notifications when the cameras identified faces matching those on wanted persons notices.
- The technology FindFace was used in the experiments; it was developed by the Russian company, NTechLab. The company’s investors include billionaire Roman Abramovich and state-owned Rostec, as well as internet businessman Alexey Goreslavsky who has, since 2017, worked for the Presidential Administration. The company’s first well known project was the FindFace service which allows for searches using photos from social media profiles. In June 2018, NtechLab announced that it was closing the service for private users, explaining that the company is focusing on developing products for government and corporate use. According to a company representative, the service identifies individuals from photographs with 95% accuracy.
- The CEO of NTechLab, Mikhail Ivanov, with whom The Bell spoke, says that the company’s portfolio of clients is now divided 50/50 between state and private corporate clients. He said that the government does not ask the company to analyze the data of opposition protest attendees or of other dissenters: “We are developing principal solutions which allow to identify people in streams or databases. And none of these streams or databases belong to us,” he said.
Why the world should care
Russian officials traditionally copy their technological solutions from the Chinese, but Russia still doesn’t have internet censorship, nor a system for monitoring citizens’ activities as in China. The reason is the nonexistence of total government control, and Russian corruption (one of the earlier Moscow video surveillance systems had fake cameras), as well as in the shortcomings of technology (the best example of this is the unsuccessful attempt to block Telegram). But in facial recognition technology, Russian companies are global leaders.
Anna Urnova: from Moscow City Hall to tech manager in New York
The Bell is launching a new series about Russians who are not afraid to turn their lives upside down and change profession. Anna Urnova, 29, had an important position in Moscow City Hall but left a successful career to study in the U.S., where she was so broke she had to save money on bus tickets. Urnova now runs the New York office of a major VoIP company.
- Urnova never dreamed of working for the government. Having graduated with a law degree, she joined Ernst & Young and then worked for Clifford Chance, relocated and received her LLM degree. However, in 2012, she was invited to work for City Hall. After turning down the offer several times, she finally took her friends’ advice not to be a “fool” and accepted the position. Urnova became an advisor to Moscow’s deputy mayor and developed the rules, still in place today, governing how events are organized. Later, Urnova was responsible for legal advice regarding the installation of new memorials and the development of pedestrian zones and parks. At the beginning, the work was interesting but by the mid-2010s, City Hall stopped coming up with new projects, and Urnova’s boss Sergei Kapkov, a former top manager for billionaire Roman Abramovich, resigned. Urnova decided to leave Russia.
- She said it was very scary to leave. “It is easy to drop everything when things aren’t going well, but everything was going well,” she recalls. Nevertheless, she was accepted to Georgetown University in 2016 to study culture, communications and technology. She had to save every cent: “I often walked three kilometers to save the $1.50 I would have had to pay for a bus ticket”. After graduating, Urnova wanted to stay in the U.S. and work there (a F1 visa allows for this), but sending out 50 CVs a day didn’t lead anywhere. “Then I thought that I’m worthless. I had only one thought — ‘I’m shit’ — English isn’t my native language, locals know the market better,” she said. Urnova switched from emailing to networking, and met with lots of people: in the end, she was offered a job running the New York office of a major VoIP company. Now she has 12 people in her team, some of whom work remotely.
- The company is not yet public, but has been valued at about $120 million. “The office in New York is a kind of show-room which is also responsible for North and South American sales. Plus, while the office is working, we offer technical support around the world, and then we transfer all requests to Australia, then they pass on to Europe, and finally, to the Philippines,” she said. The global goal is to IPO the company in a few years, and Urnova’s contract is directly linked to the result of going public.
Peter Mironenko contributed to this newsletter. Translation by Tanja Maier, editing by Howard Amos.
This newsletter is supported by the Investigative Reporting Program at UC Berkeley