THE BELL WEEKLY: The Sanctions Paradox

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Now, back to the news. This week, our main story is about how the EU’s sanctions policy continues to throw up paradoxes. Last week, the European Commission without any explanation lifted sanctions from a man who purchased media organizations on behalf of a friend of Putin. At the same time European officials earned positive coverage for cracking down on Russian cars, when tourists have long been unable to visit anyway. Also, we’ll look at why Russia’s authorities started talking about blocking WhatsApp.

EU bans Russian-registered cars while lifting sanctions on the oligarch who helped Putin’s friends seize the media

The EU’s sanctions policy continues to throw up paradoxes. Following last week’s scandal around the confiscation of personal items that Russians bring into Europe, the EU confirmed a ban on driving Russian-registered vehicles into its member states. At the same time, the European Commission lifted sanctions on three Russian businessmen — the first such decision in 18 months of war. Among them was Grigory Berezkin, who spent the last 15 years helping Putin’s friend Yury Kovalchuk assume control of Russia’s media.

• After last week’s panic, the European Commission edited its sanctions FAQ to promise that smartphones and clothing would not be confiscated at its borders. But vehicles face tougher restrictions. During the week, all the countries that share a land border with Russia (Lithuania, Latvia, Estonia, Finland and Poland) imposed a complete entry ban on Russian-registered vehicles.
• It’s important to understand that this is not about tourists. For a long time, no EU country bordering Russia has issued Schengen tourist visas to Russian citizens. The new ban will affect dual nationals, relatives of EU citizens and Russians leaving for Europe on work visas. This writer alone has two acquaintances affected: one will have to sell the car with which he planned to move from Georgia to Europe; the other will no longer be able to visit his family in Estonia by car.
• Meanwhile, 18 months after they were introduced, the first European sanctions against Russian businessmen are starting to be lifted. Many experts in the West, and in Ukraine, have long called on the European Commission to create a system to lift sanctions in the hope it would encourage powerful businessmen to condemn the war. At present, more than 1,500 Russians are on the list. Several of them were arguably unlucky to be sanctioned. Recently, however, the European Commission’s policy has started to look even more confusing.
• Last week, the Commission lifted sanctions from three Russian businessmen: former CEO of the Ozon online marketplace Alexander Shulgin, former Nortgaz co-owner Farkhad Akhmedov, and ESN group owner Grigory Berezkin. The first two do not come as a big surprise. The European court ruled in Shulgin’s favor, while Akhmedov, who sold his Russian business in 2013 and has long lived in London, obviously ended up on the list by mistake. Berezkin’s case seems very different and the news that his sanctions were lifted surprised many.
• Berezkin is not a particularly major player among Russia’s ultra-wealthy (Forbes values him at $750 million). His biography is typical for a first-generation Russian businessman who started operations during the perestroika years. He came from a scientific background and started as an IT supplier for oil companies. From there, he went on to trade oil and copper before amassing a 10.5% stake in state energy company RAO UES in the early 2000s, becoming its largest private shareholder. Later, Berezkin sold that stake to Gazprom and got involved in wholesale electricity sales, first to Gazprom and then to Russian Railways. Berezkin’s acquaintances always described him as a man who knows how to schmooze and make himself useful to large state companies.
• For the past 15 years, Berezkin has been best known as an investor in the media. Almost all his deals have links to Yury Kovalchuk, a close friend of Russian President Vladimir Putin. Within the president’s inner circle, Kovalchuk is responsible for keeping the media under control. For example, he owns Channel 1, one of the two pillars of Russian state television propaganda.
• Berezkin started buying up media organizations in 2007. Then he became the owner of Komsomolskaya Pravda, Russia’s biggest tabloid newspaper which is said to be Putin’s favorite read. The Finnish publisher Sanoma had sought to buy the title from billionaire Vladimir Potanin. However, when the Kremlin found out about the proposed deal, it asked Potanin not to sell “the people’s paper” to foreigners. Gazprom was set to become the new owner. But at the last moment, Berezkin acquired the newspaper. The whole thing was orchestrated by the Kremlin. Within a year, Berezkin handed the newspaper to St. Petersburg media magnate Oleg Rudnov, who represented Kovalchuk’s interests. In 2017, Berezkin acquired the influential Petersburg business title Delovoi Peterburg for Kovalchuk (officially, NMG bought the newspaper from Berezkin in 2020). Together, Berezkin and Kovalchuk took over the Metro freesheet, which is handed out on the subway.
• Only one of Berezkin’s major deals has nothing to do with Kovalchuk. In summer 2017, he bought Russia’s largest business news outlet, RBC, from fellow billionaire Mikhail Prokhorov. A year before, Prokhorov had run into serious problems with the Kremlin over the site’s political coverage, and the authorities themselves proposed Berezkin as the buyer. The deal was financed by the VTB state bank, which now holds RBC as collateral.
• Berezkin is one of the more active participants in meetings with Putin which all businessmen are expected to attend. At one such meeting in 2017, he proposed the idea of issuing state foreign currency bonds to make it easier for Russian businessmen to return funds from abroad; the idea failed — the bonds were issued for $4 billion, but Russian businessmen were not interested in buying them.

Why the world should care

The decision to lift sanctions from Berezkin seems strange. But the European Commission never explained its reasoning. Most likely, Berezkin, like other Russian businessmen, had support from Hungary. But that doesn’t fully explain it: Budapest is lobbying on behalf of a variety of rich Russians. In summer 2022, Western media (particularly Forbes and Politico) published articles that described Berezkin as the owner of the last independent media source in Russia — RBC — which could be shut down at any moment for its honest coverage of the war in Ukraine. This was not true: RBC is not a propaganda site, but it carefully follows all the rules laid down by the Russian authorities and maintains relations with the Kremlin. It wasn’t hard to uncover the writers’ connections with international lobbying groups.

We don’t know the reasons for this. But the key signal that Russia’s elite will take away from the EU’s decision will be that escaping sanctions is possible. There’s no need to help Ukraine or speak out against the war if secret lobbying and corruption can succeed. There is no other explanation for the removal of sanctions from a man who purchased media organizations on behalf of a friend of Putin. Meanwhile, European officials earned positive coverage for cracking down on Russian cars, when tourists have long been unable to visit anyway.

Russia’s authorities are talking about blocking WhatsApp. What would this mean in reality?

For the first time in 18 months of war, Russian authorities alarmedWhatsApp users with talk of blocking the popular messaging app. Along with YouTube, it is one of two international services that the Kremlin has long wished to switch off, but fears a public backlash too much to follow through. WhatsApp is still the most popular messenger in the country. What’s changed, and what will happen to WhatsApp next?

• On Thursday, Russian officials launched a veritable verbal crusade against WhatsApp. The trigger was the messenger’s launch of a channel creation function — a one-way broadcast tool that could transform WhatsApp into a genuine mass media source. This is a well-known technique in Russia — it’s exactly how Telegram, the country’s second-most popular messenger, operates. For its Russian users, Telegram has long replaced traditional media as a favored news source. All of the recent Russian media wars have played out there.
• This unsurprisingly concerns the Kremlin. They fear that WhatsApp owner Meta, which Moscow regards as a weapon of American hybrid warfare, is starting to turn Russia’s most popular messenger into a propaganda tool. The following day, at least two dozen officials, led by State Duma deputy Anton Gorelkin, started to talk about blocking WhatsApp. Gorelkin is the man who directly expresses the Kremlin’s position on internet bans.
• Meta’s other key services —  Facebook and Instagram — were blocked in Russia in spring 2022 in retaliation for the Western blocking of Russian state media. But WhatsApp remained untouched. The official explanation said WhatsApp is “a service for communication, not for spreading information.” In reality, the Kremlin did not want to risk upsetting WhatsApp’s large user base in Russia. The app is most popular among a middle-aged, apolitical audience that also forms the core of Putin’s support base.
• Eighteen months after the invasion of Ukraine, WhatsApp remains Russia’s most popular messaging app. But Telegram is catching up fast. Since 2022, the WhatsApp user base is up 10%, to 76 million active users per day. Telegram grew twice as quickly, from 25.5 million to 48.8 million users. Some experts predicted that Telegram could become the market leader by the end of 2023.
• Telegram founder Pavel Durov lives in Dubai and always declares that he will protect users from any government interference, be it from the White House or the Kremlin. In 2018, Russia unsuccessfully tried to block Telegram. However, unlike Mark Zuckerberg, the authorities feel they can at least understand Durov. In 2020, Telegram’s boss spoke in the same session as Prime Minister Mikhail Mishustin at a Russian IT conference. During the last pre-war elections in 2021, Telegram blocked a “Smart Voting” bot that coordinated the campaign tactics of Alexei Navalny’s supporters.
• Most likely, the authorities are not yet ready to block WhatsApp in Russia. They are waiting for Telegram to match its size and significance among the Kremlin’s target audience. For now, the Kremlin continues with targeted bans: officials have long been prevented from using WhatsApp and this week brought talk of banning doctors in state medical institutions from messaging via WhatsApp.

Why the world should care

Although Russia’s authorities always act cautiously, they do act. WhatsApp won’t be blocked tomorrow. But it will be blocked. When this happens, Russians will have lost yet another way to communicate reliably with the wider world. This spring, Russia’s independent media (including The Bell) urged the world’s leading tech companies to think of creating something that could prevent this from happening. Now is a good time to revisit that idea with greater urgency.