THE BELL WEEKLY: Squeezing influencers
Hello! This week our top story is about the high-profile arrest of top social media influencer Yelena Blinovskaya and whether Russia is looking for innovative ways to boost tax revenue. We also look at how Russia is trying to revive its problem-hit electric car program and the Kremlin’s decision to nationalize two foreign companies.
Russia looks to ensure social media influencers pay tax
The Russian authorities appear to be continuing in their quest for ways to maximize tax revenue amid Western sanctions and rising military expenditure. Now, even the country’s social media stars are in their sights. Police last week carried out a very public arrest of Yelena Blinovskaya, a self-styled “personal growth trainer” who has been accused of racking up 1 billion rubles ($12 million) in unpaid taxes. She’s not the only hugely popular social media influencer to face criminal charges in recent months — the Russian tax service has reportedly even set up a special department to prosecute such cases.
- Blogger and “personal growth trainer” Blinovskaya was detained Thursday in dramatic fashion. A criminal case was opened against her the previous day but she was apparently warned that she could be arrested by influential acquaintances. In a cloak-and-dagger operation, she booked a flight to Tashkent, Uzbekistan, before jumping in her Maybach and making a dash for the Belarusian border in the middle of the night. But the police were waiting for her. The arrest itself was filmed and widely broadcast by state-run media. News reports focused on Blinkovskaya’s wealth and the luxurious escape car she was driving.
- The blogger is accused of tax evasion – almost 1 billion rubles ($12 million). If found guilty on the tax evasion and attendant money laundering charges she could be jailed for up to 10 years. Prosecutors claim that Blinovskaya abused a preferential taxation program and her income, which amounted to 5 billion rubles ($60 million) over the last three years, was derived from 18 shell companies that pay a reduced tax rate. This is a simple but popular tax dodge in Russia.
- Blinovskaya is a leading figure in Russia’s popular “personal growth” market — a profession that boils down to motivational speaking. She has 5.3 million followers on Instagram (which was banned in Russia after the invasion of Ukraine), and sells a range of courses as part of a programme she calls “the marathon of desire.” On signing up for a course, customers are urged to identify their desires, “stop being afraid of them” and work to achieve them. Taking part in such a “marathon” costs anything from $100 to $12,000 (depending on the level of interaction with Blinovskaya herself). This kind of course became popular in Russia in the late 2010s and U.S. motivational speaker Tony Robbins has been the role model for many local bloggers. In 2018 Robbins came to Moscow, where his show – with tickets starting at $500 – was a major event, attracting 26,000 people to the vast Olympiysky sports complex.
- State-run media is dropping not-so-subtle hints that Russia is serious about collecting taxes from people who do business via social media. In March, police arrested fitness blogger Valeriya Chekalin (more than 10 million followers) and her husband over allegedly failing to pay 300 million ruble ($3.5 million) in taxes. Instagram promotions coach Alexandra Mitroshina (4 million followers) was accused of a $2 million tax fraud last year but she managed to avoid arrest by fleeing to Dubai. Baza, a publication known to have good contacts in the security services, claimed recently that the Federal Tax Service has established a special department to look into the tax affairs of high-profile bloggers. And pro-Kremlin Telegram channels have circulated a hit-list of tax-evading influencers.
Why the world should care
Social media-based businesses have long been a substantial segment of the Russian economy – even five years ago analysts reckoned that peer-to-peer trade on social networks could be worth $10 billion. Now, when Russia’s revenues cannot cover the country’s military expenditure, the tax authorities appear to be using criminal cases against celebrity bloggers to intimidate those involved in this sector to pay their dues.
State nuclear agency turns to China to build Russian electric vehicles
Despite being cut off from Western technology, the Kremlin has not given up on creating a Russian electric car. Newspaper Kommersant last week uncovered some of the details. The key to Russia’s project now, according to Kommersant, is Rosatom, the state nuclear agency, which is using Chinese technology to develop an electric motor and battery.
- Russia’s electric car is called Atom. It’s been developed by Kama, a company owned by businessmen Sergei Kogogin, CEO of state-owned truck manufacturer KamAZ (he was among the leaders of Putin’s campaign headquarters during the 2018 election) and Ruben Vardanyan, an Armenia-Russian investment banker who set up Troika Dialog. When war broke out, Vardanyan left Russia and gave up his Russian citizenship in order to take up an official post in the disputed South Caucasus region of Nagorno-Karabakh. However, he resigned earlier this year.
- Some of the details about the electric car emerged in the tender documentation released by Rosatom, which is developing power systems for the vehicle. These documents suggest the car will come in four varieties: a single seat Delivery, the two-seater Duo, a four-seater Taxi and the five-seater Family. Each will have a range of 500 km on a single charge and top speeds will range from 130 kilometers an hour to 170 kilometers an hour. Production is due to start in December next year and there are plans to build 75,000 vehicles a year for sale in the former Soviet Union and China.
- According to Rosatom, the car will be built using Chinese technology. In the documents, shipments for battery components are priced in yuan and payments due to go to an assembly line in China. Meanwhile, the University of Nanjing has officially confirmed a future partnership with Kama.
- Kogogin and Vardanyan set up Kama in 2021, investing a total of 720 million rubles. In the fall of 2022, television channel RTVi reported that the company was in talks to attract $150 million in financing from a pool of investors and had already signed a preliminary agreement with Rosatom. The initial name for the vehicle was due to be “Kama”, but this was later changed to “Atom.”
Why the world should care
Car manufacturing is a sector in which Russia is lagging particularly far behind most Western countries. Ironically, three days before the invasion of Ukraine, we published a newsletter about how Russia’s electric vehicle revolution was making little progress. Now, the state is trying to jump-start the project with the support of China and the relatively-well regarded Rosatom. We can expect some kind of result from this tie-up, but it’s hard to imagine the finished product will enjoy much success anywhere outside of Russia.
Russia opts for nationalization of foreign firms
More than 14 months after launching the invasion of Ukraine, the Kremlin has begun to nationalize the assets of foreign companies. A presidential decree published Tuesday bestowing the new powers said they were in response to the nationalization of Russian assets abroad. The first targets were Finland’s Fortum and Germany’s Uniper, two of the biggest investors in Russia’s power industry. The Kremlin’s actions show that the war of sanctions between Russia and the West is moving to a new level.
The decree is a framework that allows ample scope for creativeness: a list of target companies will be drawn up by the government and can be expanded. However, President Vladimir Putin picked out two companies whose assets were immediately under the management of the Federal Property Management Agency. These were the electricity assets of Finnish company Fortum (53.03% owned by the Finnish government) and 83.73% of Unipro JSC, which operates five power plants and is owned by Germany’s Uniper (nationalized by the German authorities in 2022).
“This decree is a response to the aggressive acts of unfriendly nations, which are aiming to create a regulatory framework for the actual seizure of Russian assets abroad,” said presidential press spokesman Dmitry Peskov. If any frozen assets are seized, Russia will follow the principle of “an eye for an eye,” Dmitry Medvedev warned.
What’s it apparently in retaliation to?
State-owned gas giant Gazprom was one of the first Russian companies to be targeted in the European Union — in particular, Gazprom Germania, which operated 14% of gas networks and 28% of gas storage in Germany, was put under external management. In September. Germany also transferred state-owned Rosneft's 54.17% stake in an oil refinery in Schwedt to the control of a German federal agency.
Rosneft made a legal challenge, but last month a court in Leipzig took the side of the German authorities. The ruling noted that Rosneft’s assets had not been nationalized, but that external management was essential to ensure their smooth operation.
Who will take charge of the assets?
The transfer of Fortum and Unipro’s assets to the Federal Property Management Agency is a technicality. Deputy Finance Minister Alexei Moiseyev said Thursday that, in reality, they will be given to Russian companies that have had assets frozen in the West.
The day after Putin’s decree was published, the board of Fortum’s Russian business fired Alexander Chuvayev, who has been in charge since 2009, on the orders of the Federal Property Management Agency. He was replaced by Vyacheslav Kozhevnikov, ex-deputy chief power engineer at Rosneft’s Bashneft-Dobycha. On the same day, Vasily Nikonov took over at Unipro, having previously held a top job at Rosneft.
Several analysts confidently predicted Sechin’s Inter RAO would ultimately take charge of Fortum and Uniprо. Indeed, Putin’s decree enables any Russian company — including Inter RAO — to become an external manager. However, there are additional sanctions risks to such a step — and it is easier to control a company by appointing loyal managers.
Why the world should care
It’s entirely possible that these tit-for-tat expropriations between Russia and the West will end now. Major Russian state companies have no more major assets in the EU. It’s unlikely Russia will seize private foreign companies so as not to jeopardize the assets of Russian companies abroad. That means there is little reason to fear the nationalization of foreign banks in Russia, for example.
However, it’s too early to relax. The Kremlin last year refrained from direct nationalization of foreign-owned assets for two reasons. Firstly, it would have been a negative signal to investors from Asia and the Middle East, upon whom Russia is now counting. Secondly, many technocrats were still pinning their hopes on a return to business as usual. The decision to “nationalize” assets is a new step in the sanctions war — and it looks like the Kremlin would be willing to escalate further.