Hello! This week our top story is the fever-pitch speculation about a possible Russian invasion of Ukraine and why many Russian experts remain skeptical that a large-scale military conflict is imminent. We also look at the latest moves in the Kremlin’s bid to tighten control over the internet, how Russia’s ‘tax on the rich’ raised just $1.1 billion in its first year, a new media investigation into Sputnik V, and the 5-year jail sentence given to a 16-year-old boy accused of terrorism offences.
Despite US warnings, Ukraine invasion still seen as unlikely
Fears Russia is about to launch an invasion of Ukraine reached fever-pitch this weekend as the current crisis approached a moment of truth. No-one can say with any certainty what will happen Wednesday — the date of an attack reportedly given by U.S. President Joe Biden — but most independent Russian experts remain unsure a large military conflict is imminent.
- The course of events is looking more and more like real preparations for war — and less like diplomatic games. Among the more ominous developments: more than 30 countries have now recommended their citizens leave Ukraine, the U.S. embassy is relocating from the Ukrainian capital, Kyiv, to the west of the country, and the Ukrainian government has been forced to find $600 million for the insurance of foreign airlines that are facing difficulties getting insurance for Ukrainian airspace.
- Russia continues to deny that it is intending to launch a military operation against Ukraine, and accuses the West — above all the U.S. — of ‘propagandizing war’ and ‘artificially ramping up tensions’. State-owned television channels have poured cold water on the statements by U.S. officials of a Russian invasion of Ukraine, claiming the whole idea is absurd.
- But official rhetoric does not stop Russia itself from contributing to a ‘ramping up of tensions’ in other areas (apart from massing troops on the Ukrainian border). For example, state news agency RIA Novosti published a report Friday that said Russian diplomats were preparing to leave Ukraine (the text hinted that this was because of fears about a possible Ukrainian offensive launched with Western encouragement).
- As nerves frayed over the weekend, there was a highly illustrative moment Saturday when a false report of an explosion in the Eastern Ukrainian city of Donetsk was reported by multiple Telegram channels. Within minutes, the head of state-owned RT Margarita Simonyan was asking: “Has it all started?” However, within 15 minutes it was clear that no explosion had, in fact, taken place.
- The majority of experts and independent journalists in Russia and Ukraine still believe a full-scale Russian invasion is unlikely. Even experts with few ties to the Kremlin have treated the statements from U.S. officials with deep skepticism. It’s repeatedly pointed out that the source for the information that ‘invasion is imminent’ is unclear, and there is no way for the claim to be independently verified. Trust in the sources used by Western intelligence was undermined significantly in January when the U.K. government alleged Russia was planning to install Ukrainian politician Yevhen Murayev as head of a pro-Russian government following an invasion. He would have been an odd choice seeing as he was targeted by Russian sanctions following a conflict with pro-Russian lawmaker Viktor Medevedchuk, who is widely considered a close confidant of Russian President Vladimir Putin.
- The other arguments against an imminent invasion remain the same. The main ones are the irrationality of launching an invasion after giving your opponent almost three months to prepare, and the potential costs of such a move (from the loss of human life to the economic consequences of Western sanctions and the possible unpopularity of a war among ordinary Russians). And, despite an invasion supposedly being just days away, there is no sign of a propaganda campaign to prepare the population — Ukraine was mentioned on prime-time Sunday-night television shows, but there was no obvious change of tone.
- At the same time, there was some hope Monday that Putin might choose to continue a dialog with his Western counterparts. In a meeting with Foreign Minister Sergei Lavrov, Putin concurred when Lavrov told him that “there was always a chance” of reaching an agreement with the U.S. over security guarantees. Shortly after, Putin also held a meeting with Defense Minister Sergei Shoigu, who said that many of Russia’s current military exercises would be over “soon”. Earlier Monday, the Russian parliament appeared to kick a proposal to formally recognize the rebel statelets in Eastern Ukraine into the long grass (many feared such a step would be a sign of the Kremlin’s determination to further escalate the situation). Simonyan suggested Monday that the crisis might be defusing, posting on Telegram: “Is it time for everyone to go their separate ways?”
- Nevertheless, there is still no clarity about a scenario in which the Kremlin could claim a diplomatic victory. Phone conversations Saturday between Putin and Biden, and Putin and French President Emmanuel Macron appeared not to provide any new results, or obvious ways forward.
Why the world should care
Russia’s main tactical success has been to force Western countries into guessing about Putin’s real plans. But this week looks like the week that could end months of speculation. The chances of an invasion will begin to fall from Sunday when major Russia-Belarus military exercises taking place on the Ukrainian border are scheduled to come to an end.
Kremlin push to increase control over the internet
The Russian authorities are investing significant sums in order to extend state control over the internet, according to a media investigation published last week. At the same time, there are big changes underway at VK, the company that controls Russia’s biggest social network (Vkontakte). According to The Bell’s sources, the head of VK, Vladimir Kiriyenko (the son of an influential Kremlin official) wants to make VK the country’s most powerful media company.
- A joint investigation published last week by independent media outlets iStories (designated a ‘foreign agent’ by the Russian authorities) and Agenstvo revealed much about the Kremlin’s vision for extending control over the internet. Journalists found that there are plans to make RuTube, a video service of declining popularity controlled by state-owned Gazprom Media, into a Russia replacement for YouTube, while the little-known service Yappy is supposed to be a TikTok replacement.
- Both of the new platforms are planning to offer serious money to lure in high-profile users, according to the investigation. Successful TikTokers were offered up to 125,000 rubles ($1,700) a month — more than twice the average salary in Russia — for good content. And prominent YouTubers could earn three times the amount they get on the Western platform. However, bloggers are reluctant to risk advertising revenues and prospects in return for dubious state sponsorship.
- Rutube was launched 15 years ago, but all attempts to make it a real rival to YouTube have been failures. The officials interviewed as part of the investigation are also skeptical of Rutube’s prospects — instead, they are banking on YouTube caving into the demands from the Russian authorities (such as deleting opposition content). One official was reported as saying that economic measures could be taken against U.S. media companies: for example, prohibiting Russian businesses from buying advertisements, or slowing down their operations in Russia.
- At the same time, there are major changes underway at Russia’s second biggest internet holding, VK, which last year re-branded itself and discarded its previous name of Mail.Ru Group. This week, VK head Vladimir Kiriyenko began a company reshuffle that seems to be designed to meet a series of political goals.
- Several senior managers who worked under the previous owner, billionaire Alisher Usmanov, have left in recent weeks. In their place, Kiriyenko is appointing people who worked with him at state-owned telecommunications giant Rostelekom, where he was boss before moving to VK. The only member of the old VK team to be promoted was Stepan Kovalchuk (VK is owned by gas giant Gazprom and insurance company Sogaz, which is controlled by the family of Yuri Kovalchuk, a powerful billionaire with close ties to Russian President Vladimir Putin). Stepan’s father (and Yuri Kovalchuk’s nephew), Kirill Kovalchuk, heads the family-owned National Media Group, which controls several leading TV channels. In his position as vice-president at VK, Stepan Kovalchuk is responsible for social media content — particularly video.
- When VK was sold last year, a source told The Bell that the state was unhappy at the declining audience share of Vkontakte, a Russian-created social media network akin to Facebook. Usmanov had been reluctant to invest money in Vkontakte, preferring instead to spend on other promising assets held by VK such as taxi services and food delivery. Now, Kiriyenko’s task is to rebuild Vkontakte’s audience and increase the network’s influence, several market sources told The Bell. “He wants to build a media holding on the basis of VK,” said one source.
Why the world should care
The Kremlin is trying to make much of the Russian internet into something equivalent to state-owned TV propaganda. This approach has already enjoyed some success, which was illustrated in a recent survey by pollster Levada Center (designated a ‘foreign agent’ by the Russian authorities) about the Ukraine crisis— over 50 percent of respondents blamed the U.S. for the current situation, and less than 5 percent pointed the finger at the Kremlin.
‘Tax on the rich’ raises $1bln in first year
The Federal Tax Service released Thursday details about the first year of a ‘tax on the rich’. However, this is not a tax on billionaires. Since last year, income tax in Russia has risen to 15 percent (from a flat-rate 13 percent) for anyone earning more than 5 million rubles ($67,000) a year. The higher tax applies to all earnings above this threshold.
- Until this ‘tax on the rich’, a 13-percent flat rate of income tax had been in force since 2001. The adoption of this flat-rate greatly simplified the process of tax collections for an inefficient tax service, helped reduce the practice of ‘gray’ salaries when employees are paid in cash, and allowed the authorities to boast that Russia had some of the lowest taxes in the world (in reality, it’s not so simple — the tax burden was essentially moved from employees to businesses).
- In the end, the financial windfall from the tax change was just 82.7 billion rubles ($1.1 billion). That was a third more than planned, but still a relatively small amount when it comes to government spending. Half the funds were collected in Moscow.
- However, the goal of the tax was always less about fundraising and more to do with making a statement about social justice. Putin explained the tax increase at the time by saying that all the money raised would be donated to Circle of Kindness, a charity that pays to treat children suffering from rare illnesses. This sounded like a good idea, but, Russian bureaucracy being what it is, there were inevitable failures.
- One striking case emerged earlier this month. Before Circle of Kindness was set-up, the only way for Russians to access the world’s most expensive medication — Zolgensma — was via private donations (one Zolgensma injection can cure a child with spinal muscular atrophy). Late last year, four-year-old Mark Ugrekhelidze was among those fortunate enough to raise the required sum without state support.
- But red tape interfered. New prescription rules mean that Ugrekhelidze is no longer eligible for treatment. And Circle of Kindness (which is now the only entity that can purchase Zolgensma) insists that Russia’s criteria for Zolgensma are among the most lenient in the world, pointing out that unauthorized use can be life-threatening. It’s worth noting that lifelong treatment of spinal muscular atrophy with other drugs (some of which are also provided by Circle of Kindness) can, ultimately, be far more expensive than a single injection of Zolgensma.
Why the world should care
Dismantling Russia’s 20-year tax status quo to create the ‘tax on the rich’ has not raised a huge amount of money, although it has — with some exceptions — helped very sick children. It could be used as a template for future tax changes.
Media investigation of Sputnik V reveals litany of errors
An investigation published Thursday by independent media outlet Meduza (designated a ‘foreign agent’ by the Russian authorities) and The Bell looked in detail at Russia’s coronavirus vaccine, Sputnik V. Throughout vaccine development, pressure to beat international competitors seems to have forced error after error — despite the vaccine itself clearly being effective. Here are some of the key takeaways from the investigation:
- The developer of Sputnik – Moscow’s Gamaleya Center – came up with an effective vaccine only months after the emergence of the coronavirus, but only under laboratory conditions. Russian pharmaceutical companies were forced to work out how to mass produce it at their own expense. “Everyone was in the dark: the vaccine didn’t work, whole batches were disposed of, money went down the drain,” writes Meduza, citing a source at one pharmaceutical company.
- Cross-contamination of the two vaccine doses (Sputnik V is administered in two jabs) turned out to be an unexpectedly serious problem, and production sites for different components had to be strictly separate. Even now, cross-contamination issues have not been completely eradicated — one of the reasons why the World Health Organization (WHO) refused to recognize the vaccine in 2021, according to Meduza.
- Problems also emerged with the second, more complex, Sputnik V dose (unlike the AstraZeneca vaccine, for example, the first and second doses of the Russian drug use different adenovirus vectors). According to Meduza, this problem has not been completely eradicated and cropped up recently during production in India. About 10 million first doses were exported to Argentina last year, but the contract was almost canceled due to a shortage of the second dose.
- A big Sputnik V contract with Brazil was probably lost last year because of problems with the second dose. Meduza reported that, in October, Russia’s Foreign Ministry tried to link the re-opening of flights to Brazil with the country’s recognition of Sputnik.
- Russia was not prepared for the registration procedures at the WHO and the European Medicines Agency (EMA). “It was purely a gamble,” said one individual familiar with Russia’s attempt to register Sputnik V with the EMA. The results from the final stage of Sputnik V’s clinical trials have not yet been released.
- The man appointed to promote and sell the vaccine was Kirill Dmitriev, head of the Russian Direct Investment Fund. Dmitriev has few doubts that Sputnik V will, eventually, be recognized outside of Russia. “When nobody believed us, when everyone said it wasn’t true, when they wrote prejudiced comments which, among other things, undermined confidence in the vaccine in Russia, we suffered for it,” he told Meduza. “[But] we managed to find and invest in the world’s best vaccine.”
Why the world should care
The Sputnik V story is a cautionary tale about how lobbying cannot replace strict observance of procedure. Regardless of Dmitriev’s confidence that Sputnik V will soon be internationally recognized, in reality this is still months away at best.
Minor jailed for 5 years in ‘Minecraft’ case
Nikita Uvarov, a 16-year-old schoolboy from the Siberian town of Kansk was sentenced to five years in jail Thursday on charges of illegal weapon possessesion and undergoing training to commit terrorist activities. Uvarov maintains his innocence. The case became notorious because investigators initially highlighted how Uvarov planned to blow up a Federal Security Service (FSB) building in online game Minecraft.
Uvarov and two other schoolchildren were arrested in 2020 (at the time, the youngest of them was 14) after posting flyers in support of Azat Miftakhov, a mathematician implicated in an arson attack on the offices of the ruling United Russia party. Uvarov’s two friends were given suspended sentences after cooperating with investigators. Uvarov told the court: “I have nothing to be ashamed of. I never planned to blow anyone up.”