Oligarchs, social networks and prison sentences for reposts
How an email service became an instrument of the authorities or the history of Mail.ru Group
October 2013. Mr. Usmanov looks at great baroque pillars and two Russian flags. At the centre of Kremlin’s Ekaterininsky Hall stands president Putin. He gives out state awards. Mr. Usmanov is surrounded with different people — scientists, actors, ambassadors, military men, priests, businessmen, veterans, politics and civil servants of the highest ranks. At his right — an imam, at his left — a composer. While the president is delivering his speech, Mr. Usmanov wipes his glasses. He’s calm. He knows that he’ll get a medal for service to the country. Mr. Usmanov’s wealth is valued at $18 billion. Above all, he’s the owner of Mail.ru Group.
In past recent years imprisonment for internet activism has become more frequent. Users get real prison sentence for reposts and pictures in social networks even if this information is private or used for scientific purposes. Also cases are built against oppositioneers and people speak out their citizenship. Charges are based on users’ personal data from Mail.ru Group services owned by an oligarch close to Kremlin.
What’s Mail.ru Group?
Mail.ru is a Russian internet company. Established in 2005, it is now the owner of so-called Russian Facebook — VK (Vkontakte) which has more than 97 million monthly users, mostly from former Soviet republics and Russia. Mail.ru Group (MRG) is also an owner of 16 different services with an overall monthly audience of 167.7 million users. So, if you live in Russia and use internet services, you highly likely use MRG services.
Who’s the owner of MRG?
MegaFon (Russia’s second largest mobile phone operator) owns 63% of company’s assets. Russian oligarch Alisher Usmanov, with his USM Holdings Limited, owns 56.32% shares of MegaFon directly.
In February 2017, MegaFon approved buying of MRG’s controlling stock for $740 mln. USM Holdings limited was the seller of the shares. At the time, Mr. Usmanov already had his control stock in MRG. MegaFon got a $583 million credit for the purchase from the state-owned Sberbank. Company officials announced that the purpose of the acquisition was “gaining synergies for both companies”.
Who’s Mr. Usmanov?
Mr. Usmanov is a Russian-Uzbek oligarch with a net worth of $12.5 billion as of in 2018. In 1980, he was accused of extortion and fraud sentenced to 8 years, and in 1986 was released early. Later he explained that the accusations against him were fabricated and he was just a victim of clan dispute with regional elites. The charges against him were dropped in 2000. By that time he was already an owner of Interfin Company, where British Middlesex Holdings PLS owned 40% of the shares.
Alexey Navalny, in his investigation into Usmanov’s business, found the following scheme. Boris Beresovsky [was one of the most influential Russian oligarchs — The Kharms Times] confirmed in his interview to TV channel Dozhd (TV Rain):
In 1993 Usmanov owned some shares of Middlesex (MH). In 1996, MH bought an offshore company, DRI, registered on the Isle of Man and owned by Usmanov.
DRI had exclusive right to export and sell production of the huge Oskol Elektrometallurgical Plant (OEMK). According to Navalny’s investigation, Usmanov became a vice-president of Middlesex Holdings [Alexey didn’t specify the date].
After that, in 1998, both MH and Interfin started to buy shares of OEMK. In 1997 Usmanov was appointed the CEO of Gazprom Invest Holding (GIH), an affiliate of the state-owned Gazprom company. Dmitry Medvedev (future Russian prime minister and president) was the head of Gazprom at the time.
In the late 1990s, Gazprom (via GIH) and Interfin acquired control stocks of OEMK. In 2002, GIH purchased Usmanov’s Middlesex Holdings for $23 million. Also in 2002, Interfin bought Gazprom’s stake of OEMK.
Usmanov bought stocks in other ore dressing plants with Gazprom’s money. Those stocks were combined in Gazmetall Company. Gradually became an owner of two huge plants: Lebedinsky ore dressing plant and OEMK. Then, Gazprom’s 48% stock in Gazmetall was sold — without any bid to Interfin Company — for $72 mln. If priced per share, that amount would be cheaper than Gazprom bought it from Middlesex.
In short: Usmanov bought his own shares with Gazprom money and then sold those stocks to himself for lower price.
In 2012 Mr. Usmanov was included in Forbes list with a net worth of $18.1 billion.
Chapter 1.
“For us that wasn’t any kind of business at all — just a cool thing”
Port.ru
Alexey Krivenkov developed email service in 1997 for American software company DataArt. He would go on to work in DataArt’s St. Petersburg office. Another key figure in Mail.ru’s development is Dmitry Andrianov, who added a preview function for the service and whom Krivenkov, in his article “Where Mail.ru Started”, called a “genius programmer.”
“Nearly at the same time Microsoft bought Hotmail for some huge amount money and of course that inspired us. So at some point we decided that we have an awesome service which provides free email for everybody. Our friends had the mail.ru domain. For us that wasn’t any kind of business at all — just a cool thing.”
Service started to grow fast after running a demo version. Krivenkov, Andrianov and Evgeni Goland, the founder of DataArt, registered Port.ru Company in Delaware. In August 1999, they attracted $940,000 of investment. The company was valued at $4.7 million. After the second investment round, Port.ru got $2.5 million and valued at $27.5 million. In addition to email, the company started 15 different services, whose software was developed by DataArt.
In February 2000, Mail.ru reached 1 million registered email accounts — an unbelievable amount at that time.
It was then that Krivenkov left Port.ru due to conflict with other shareholders. As he later explained, there were two main reasons for his decision. “DataArt did all the technical work. I didn’t agree with it, actually that’s why the conflict with other shareholders happened.”
“In 2001, when markets finally started to grow [after an economy bubble burst out in March of 2000 — The Kharms Times] and the company was going to grow to another level, this story had finished for me. I had a conflict with other shareholders and I was suspended. Around this time Port.ru got an offer from Yuri Milner to unite with his List.ru service (who merged it with Netbridge before that). I didn’t like this way, that’s why I took my share of money and left the project. The rest, I think, everybody knows.”
NetBridge
In February 2001, Port.ru and netBridge made an agreement about merging. NetBridge was a company aimed at shifting into the Russian segment of the internet via successful American online business models and schemes. Yuri Milner was the initiator of that project.
After Port.ru and netBridge’s merge, the brand was called after its most successful service — Mail.ru.
Yuri Milner is an Israel-Russian billionaire with a net worth of $3.7 a billion. He’s one of the world’s most influential tech investors, with stocks in Facebook, Twitter, Alibaba, Xiaomi and Airbnb.
Digital Sky Technologies
Yuri Milner and Grigory Finger ($450 million net worth) established Digital Sky Technologies (DST) in 2005 as investment fund and business incubator for perspective internet and tech projects. They united their shares in Mail.ru and got a 52% controlling stock. Usmanov bought 35% of DST in 2008.
In 2010, DST bought other shareholders’ stocks and consolidated 99.9% of Mail.ru. South African company Naspers gave up its 39.3% of Mail.ru to DST for $388 million. In the same year, DST gained control over Russia’s second-most social network — Odnoklassniki (RBK reported that in 2017 the amount of active users reached 71 million monthly) and over ICQ messenger (11 million users monthly in 2014).
DST then went on to acquire Facebook and Twitter shares in 2009–2010. After publishing of Paradise Papers in 2017 revealed the following scheme: DST Global I purchased about 10% of Facebook’s shares (at the time, FB was valued at approximately $10 billion). Usmanov’s USM Holdings was one of the investors. In May 2012, Facebook held its IPO, where it was appraised at over $100 billion. DST then sold a part of share and got $2 billion.
Gazprom Invest Holdings (of which Usmanov was the CEO until 2014) was also an investor. GIH provided funds (“hundreds of millions of dollars”) for buying shares via an offshore company called Kanton Services. The Guardian reported the cost of the operation at about $920 million. Kanton Services sold its stock, before an IPO, to Usmanov’s company (The Guardian didn’t reference which).
In autumn of 2010, DST announced that it would divide its investment and operating assets. All Russian operational assets were renamed Mail.ru Group foreign ones were now called DST Global.
Yuri Milner became the Chairman of MRG and the managing director of DST Global. Vedomosti reported that in March 2011, Milner and Usmanov established DST Global 2, a fund of several hundred million dollars. In September 2011, Usmanov had about 10% of MRG after selling part of his stock share (0.8%) for $60.7 million.
Back to Mr. Usmanov
In 2006, when the confrontation between Boris Beresovsky and Kremlin reached its highest point, the oligarch sold his publishing house, Kommersant, to Mr. Usmanov for about $300 million.
“That deal would be a sort of PR move for any businessman in Russia, I think — the ownership of that kind of publishing house like Kommersant”, — said Mr. Usmanov in his interview.
“I told that I’d never restrict critics of the authorities, never restrict some business structure and would never interfere in [the workings of Kommersant]. I still keep that promise. And for me it’s now easier to live as I know that everybody knows about it.”
There were many suspicions that the purchase of Kommersant (one of more or less independent newspapers) by an oligarch with such close ties with the authorities could have been made for one reason only — the interests of the Kremlin.
Chapter 2.
“I’m glad that not so long ago I sold my VK shares to my friend Ivan Tavrin”
MRG was gradually increasing its share of VK stock in VK, beginning in 2007. By 2010, it already owned 24.99%, and by November 2010–32.49%. It all began in 2011, when Mail.ru Group, already the sole proprietor of the other Russian social network, Odnoklassniki, increased its share stock in VK to 39.99%. VK then valued at $1.5 billion.
MRG’s CEO Dmitriy Grishin, in an interview with Forbes, said this about gaining full ownership over VK: “Strategically it’d be right for us to get control on social network, and even better to buy all 100%”.
In 2007, when VK had just started to grow rapidly, its service was suddenly under mass ddos attacks for weeks. Simultaneously, Yuri Milner made an offer to invest in the site. At the time, VK received a number of investment and acquisition offers, but Milner was the first Pavel Durov (founder and CEO from 2006 to 2014, sometimes called Russia’s Zuckerberg) said “yes” to. At some of the investment meetings, Milner said that Grishin considers VK to be a competitor.
Journalist Nikolai Kononov in his book Durov’s Code, wrote: “Durov didn’t pay any attention to information about Grishin’s jealousy, as he considered competition beneficial. But once he matched the dates of Milner’s visits and the attacks on the site. The two appeared to be almost the same.
Anyway, Durov didn’t get any hard proof that the investor was stress-testing VK “
By 2011, Russia’s protest movement (for the first time since the 1990s), was in full momentum. The protests came after Dmitry Medvedev, elected president in 2008, announced that he won’t take part in the upcoming general presidential elections of 2012, signaling to many that his stint as a president was only a guise of a lawful transfer of power. After Medvedev was elected president in 2008, Putin was named the Russian prime minister. (In 2012, having successfully bypassed the constitutional clause that “no person can occupy the Presidential post for more than two consecutive terms,” Putin once again returned to the presidential seat). Those who had hoped Medvedev’s presidency would turn the country in a more liberal direction slowly became disillusioned, spurring social unrest. Following a rigged parliamentary election, mass protests broke out in major cities in December and February of 2011.
For the first time in Russian history, these mass protests were organised on social networks, mainly on VK. In December 2011, Pavel Durov said that the FSB (Federal Security Services) attempted to make VK block opposition groups, including that of Alexey Navalny. “Everything is ok. In recent days FSB asked us to block opposition groups. We don’t do it in principle. Don’t know what can happen to us, but we stand firmly [on this]”, — wrote Durov to one of the administrators of an Alexey Navalny opposition group.
When Durov finally denied the FSB’s requests, he received a summons. He refused to attend and tweeted a picture of a dog (reminiscent of VK’s logo) sticking out its tongue. “That’s the answer to prosecutor’s office”.
Below is an excerpt from the aforementioned Durov’s Code, written by Kononov about the history of VK:
Durov, who had just come back to his flat on Krestovski Island, was disturbed by doorbell. There was OMON [Russian SWAT — The Kharms Times] and likely investigators fussing at the door. Durov stepped back. Fear creeped into his body and he had to decide — let fear in, feed it with hope that it’ll be all right or throw it away from the body. He remembered school time fight with the fear before scandal and experiment with monkeys. You must accept the fact that you really don’t have anything and you won’t be scared to lose it.
Durov didn’t open the door. Carefully he looked out of the window and saw camouflages in the yard. Later, the security service told that it nearly started shooting, not letting this mask-show in. Durov listened to, opened his VK and quoted to 2.7 million Thomas Carlyle’s followers “Alas! the fearful Unbelief is unbelief in yourself.
Neither next day, nor later, were there any sanctions…
VK had four shareholders — MRG (39.99%), Durov (12%), Vyacheslav Mirashvili and Lev Leviev (40% and 8%, respectively). The former decided to sell their stocks after conflict with Pavel Durov. The sum of the deal was undisclosed, but Forbes reported VK’s net worth at $2.2 billion, and that Durov only knew of the deal from the media (this was around the same time of the St. Petersburg events described above)
An ambiguous story happened in April 2013, when some videos surfaced on the web, featuring a man similar to Durov driving a white Mercedes. He hit a police officer on the road, left the car and got out of sight. A spokesperson for VK responded: “Pavel has no car. He usually walks. Well, or takes the metro”. Later, the police reported that Durov really did hit the officer, but that it was an accident and the case was therefore closed.
In January 2014, after many of negotiations and conflict with MRG, Durov sold his 12% share to the head of MegaFon Ivan Tavrin. The social networks, which up to this point had managed to keep neutral relations with the authorities, lost that neutrality.
In a later interview, Durov said that he had to sell his VK stock as he denied to leak personal data of Ukrainian administrators of Euromaidan communities in VK in December 2013.
“In recent years, I actively got rid of my property, giving away and selling everything I had — from furniture and clothes to real estate and companies. For reaching the ideal I supposed to get rid of the biggest part of my property — 12% of VK stock,” wrote Durov.
“I’m glad that not so long ago I sold my VK shares to my friend Ivan Tavrin”.
Some experts estimated the cost of the purchase at $360–480 million.
Ivan Tavrin sold his VK shares stock to MRG in March 2014. Pavel Durov emigrated from Russia in that April. He revealed in one interview: “I’m afraid I have no way back. Especially since I denied cooperation with the authorities.”
In January 2014, two of VK’s top managers — Deputy General Manager Ilya Perekopsky and CEO Igor Perekopsky, left company. Both were replaced by employees in Usmanov’s companies.
The asset was divided into two parts: MRG got 39.99% and Ilya Shcherbovich’s UCP fund received 48%. In September 2014, MRG bought UCP stock for $1.47 billion.
Chapter 3.
“I hope that our law enforcement and security forces, able to get any information of our users’, use it for the greater good and for protection of our country…”
VK’s spokesman Evgeny Krasnikov said in June 2016:
“I hope that our law enforcement and security forces, able to get any information of our users’, use it for the greater good and for protection of our country, if leaking those messages helped to prevent serious consequences, terrorist attacks, then it maybe for the better”.
The so-called “War on Telegram” began this spring. In short, Roskomnadzor (Russia’s Federal service for supervision of communications, IT and mass media, shortened as RKN) started to block millions of IPs, VPN and proxy servers, citing that Telegram Messenger, LLC — founded and run by Durov — was using side services, including private ones, to bypass censorship. How did Roskomnadzor arrive at this information?
MRG has an IP-searching service. When RKN started to scan the internet in order to block Telegram’s proxy servers, that scanning was carried out from MRG’s IPs.
On April 13, the Moscow Tagansky court ruled on blocking Telegram on Russian territory. MRG allegedly “guessed” the day of decision and simultaneously began to promote its Telegram copycat app Tam Tam. Its ad campaign featured the slogan “the messenger with channels like in Telegram.”
The user interface is all but identical, yet Tam Tam lacks one key feature — it has no end-to-end encryption, a Telegram feature that won over millions of users around the world.
Prisoned for a repost
International human rights group Agora presents a report titled “Internet freedom” annually. According to their data, in past 10 years, there have been 214 cases of violence against Russian Internet activists, bloggers and journalists, as well as 5 murders and some attempts to murder in Russia. Currently, 1449 criminal cases are connected with internet activity.
For every prison sentence for a repost, the data was received from MRG services.
Alexander Kruze, a 24-year old student from Stary Oskol (central Russia) was imprisoned for 2.5 years for 4 reposts made in VK. The prosecutor had decided the reposts contained extremist content.
Alexander was in his fifth year of studying law, with a specialisation in criminal law. He had conducted survey for his diploma research, titled “Extremism in modern circumstances: international aspects of counteraction”.
On July 11, 2017, FSB officers visited and detained Alexander.
“They asked me about hatred towards communists, Jews, Caucasians, black people. I even lost count of what exact hatred I’m suspected of. It seemed that I was sleeping. Told about reposts (…) I explained that firstly, I’m making an scientific project and secondly — everything I’ve reposted exists on the web and is not forbidden. So, all accusations are nonsense. Then I remembered — I read that in our town there was the same occasion — one guy was imprisoned for a repost. And then I finally woke up”, — told Kruze.
Reposts contained an image of a crossed hammer and sickle with the caption: “There in trees instead of leaves communists will hang”. On another, two soldiers, a crossed star of David and the inscription: “Let’s turn fratricidal wars into liberating [ones]”. And others.
On December 28, Alexander was sentenced to 2.5 years in prison. Alexander was found guilty under article 282 (incitement of hatred or enmity or insults to human dignity) of the Criminal Code of the Russian Federation.
On April 3, 2018, prosecutors in Krasnoyarsk (Siberia) asked the judge to give a 1.5 year prison sentence to an activist of the ArtPodgotovka opposition movement [forbidden in Russia]. For photos in a private album in VK. The activist, Oksana Pohodun, was also tried under article 282 of the Criminal Code.
According to line of inquiry, the activist had posted some images in the private album which featured the Ukrainian war, clerics and president Putin. Oksana’s lawyer is sure that the defendant’s criminal prosecution is connected to her social activism.
Oksana said: “I collect in this album a number of different marginal memes that appear on the web. I believe the FSB officers hacked into my page, saw what they needed — and that’s all.”
Oksana Pohodun received 2 years on probation as punishment.
