1. What’s behind Moscow’s strange parading of the alleged Skripal poisoners?
Television channel RT’s interview with the men accused of poisoning the Skripals, Ruslan Boshirov and Alexander Petrov, left a whole raft of questions unanswered. No one actually believed the story they told, but the main topics (which Russian propaganda is already riffing on) give some clues as to why this ridiculous circus was necessary.
- Virtually no one in Russia believes the story told by Boshirov and Petrov: even journalists loyal to the government shared doubts. We will not retell the story itself — the absence of logic is too obvious. But there are even inconsistencies in the way the interview was organized (just a day after Putin said Petrov and Boshirov had been found). The choice of RT as a platform for the two men is strange. The television channel doesn’t broadcast in Russia and is less well known to Russian viewers than abroad. But its editor-in-chief, Margarita Simonyan, who interviewed Petrov and Boshirov, is someone trusted by the deputy head of the presidential administration, Alexei Gromov, who is responsible for propaganda. The suspects said they found Simonyan’s mobile number themselves. It’s not hard to find her number if you have journalist friends, but it isn’t available to the general public. As an experiment, we asked Mikhail Maglov, a prominent investigative journalist and public source specialist, to find the number – but he wasn’t able to do so.
- Simonyan, an experienced journalist, didn’t ask Petrov and Bashirov several important and obvious questions, which any interviewer would have asked. For example: 1) How and where did you receive your passports that differ only by one digit? 2) Why did you have return tickets from London for both March 4 and March 5? 3) Do either of you have social media accounts or any other proof that Petrov and Boshirov are actually real names? 4) Have the Russian security services or the investigators looking into the attack on Yulia Skripal (a Russian citizen) contacted them?
- The Kremlin did not have an official reaction to Petrov and Boshirov’s tale. But blog posts and discussions on national television reveal two important points. The first is the “gay couple theme”. During her interview, Simonyan pretty much asked the accused if they were a gay couple, and she received a cryptic reply: “let’s not talk about our personal lives.” In homophobic Russia, it’s hard not to interpret this as silent agreement. After the interview, the sexual orientation of Petrov and Boshirov became a hot topic of discussion on Russian social media. The second point is possible links to “illegal business”. Several pro-Kremlin bloggers wrote posts (here is one and another) suggesting their behavior could be explained by involvement in illegal business, i.e. that they were smuggling sport nutrition substances from Europe, which explains their frequent trips. In all the posts on this topic, the accused are described as irrelevant small-time criminals. “The GRU doesn’t work with that kind [of person],” wrote pro-Kremlin social media manager Marina Yudenich. This would allow a connection to the criminal world to emerge, if necessary.
Why the world should care
It’s difficult to say why, instead of saying nothing, the Kremlin decided to publicize such an unbelievable version of what happened. There is no doubt that Boshirov and Petrov’s appearance was choreographed by the Russian authorities. It’s difficult to imagine any potential positive results internationally and, from the statements of British officials, it is clear this interview might push the West closer to new sanctions. Discussion of the sexual orientation of the accused men suggests one of the interview’s goals was to reach a domestic audience: the average Russian will not believe a government agent is gay. But this doesn’t explain everything.
Amid all of this, you can’t fault Russian officials for inconsistency. Up until now, the events following the attack on the Skripals are eerily similar to those after the 2003 radioactive poisoning of Alexander Litvinenko in London. Then, Andrei Lugovoi and Dmitry Kovtun, gave a press conference a week after being publicly accused of the killing. In the press conference, Lugovoi said British intelligence carried out the murder and called himself a victim. Later, Lugovoi was elected to serve as a Duma deputy and his story became an example for all security officials: the government will reward those who are loyal. Someone must have already thought of the next chapter in the Boshirov and Petrov affair. When we see how this saga unfolds, the message the Kremlin was trying to get across in the interview might become clear.
2. Putin’s former bodyguard challenges opposition leader Navalny to a duel
One of Russia’s most influential security officials, Viktor Zolotov, a former bodyguard of President Vladimir Putin and current head of the National Guard, has challenged opposition leader Alexei Navalny to a duel in a video filled with crude insults.
- The formal reason for Zolotov’s video was Navalny’s claim that the leadership of the National Guard is stealing money from contracts for food supplies. The video itself is surreal: in his full dress uniform Zolotov looks like the leader of a tinpot dictatorship. He spends 7 minutes listing his objections, promising to turn Navalny into “tenderized meat.” It’s a shame, Zolotov says, that “no one has yet hit him [Navalny] in the ass hard enough so he will feel it in his kidneys.” Explaining his anger, Zolotov says he’s a Russian officer, and won’t stand for any insults. He then demands a duel. The whole thing looks more than a little stupid; not least because Navalny can’t respond until the end of September (he was jailed for a month at the end of August for planning an unsanctioned rally).
- The video was posted the website of the National Guard, which Zolotov runs. This is a new security force, often known as Putin’s Praetorian Guard, created in 2016. There are about 170,000 people serving in the National Guard, which reports directly to the president. Its main purpose is to maintain domestic order: for example, by breaking up unsanctioned protests like those organized by Navalny. Zolotov himself served in the KGB in the 1980s and was a bodyguard for Soviet leaders, including Boris Yeltsin. Famously, Zolotov can be seen in a photo where Yeltsin is speaking to Muscovites from atop a tank during the failed military coup of 1991. Zolotov has known Putin since at least the early 1990s, when Zolotov was the bodyguard of Putin’s boss, St. Petersburg mayor Anatoly Sobchak. Between 2000 and 2013, Zolotov was the head of Putin’s personal security service.
- The most interesting part of Zolotov’s rant was not the insults, but the fact that such a senior security official addressed Navalny as an equal: Zolotov even described Navalny as “a person with presidential ambitions”. Navalny has never before been legitimized by those in power. Remember Putin makes a point of never using Navalny’s name in public.
- The Bell’s sources in the government could not say if the video was Zolotov’s own idea, or if he sought Kremlin approval in advance. But a source inside the National Guard told The Bell that Zolotov himself decided to call out Navalny because of Navalny’s investigation. In his muckraking research, Navalny highlighted Zolotov’s children’s expensive apartments and claimed their father uses his children to hide his own wealth. “He doesn’t like personal attacks and attacks on his family. This was a personal insult, a defamation, therefore Viktor Vasilevich [Zolotov] responded personally,” a source in the National Guard told The Bell.
- As strange as it might seem, these explanations sound like the truth. All investigative journalists in Russia know that articles about the families or children of influential officials elicit a very aggressive reaction. This was the case after articles about Putin’s daughters or about his supposed former son-in-law, Kirill Shamalov. After Shamalov’s marriage to Putin’s daughter, Katerina Tikhonova, Shamalov joined the Russian Forbes list. After the divorce Shamalov is expected to leave the list. Investigating official corruption is accepted as normal within the elite and such investigations can even used as a way to attack one’s enemies, but children are off-limits. This phrase has been heard over and over again from Kremlin officials by The Bell’s editors.
Why the world should care
General Zolotov’s monologue looks so strange that it is tempting to come up with some kind of conspiracy theory. These have ranged from a budding coup to a special operation to promote Navalny (the second analysis is very popular among Moscow-based conspiracy theorists). But not everything in Russia can be explained by secret Kremlin orders. The most simple explanation, that the general was upset by those who broke the rules of the game to which he was accustomed, seems also to be the most probable one.
3. The ruling party has its worst electoral performance for years, but Putin’s best managers show their effectiveness
In the context of unpopular plans to reform the pension system, the ruling party had its worst performance in regional elections for 11 years. However, this should not be interpreted as a sign that Putin’s regime is weakening.
- United Russia, the party of power, suffered a serious setback by Russian standards: in the 26 regions where governors were up for election, 4 United Russia candidates didn’t win in the first round (meaning they received less than 50% of the vote). These regions were Primorsky Krai and Khabarovsk Region in the far east, Khakasia in Siberia, and Vladimir Region, which is near Moscow. Putin returned governor elections (they were halted in 2004) in 2012 and since there has been only one other occasion when a runoff vote was needed.
- Another big shock was United Russia’s defeat in three of the 17 regions where local parliamentary elections were held — Irkutsk Region, Khakasia and Ulyanovsk Region in central Russia. The Communist Party took first place in all three regions. This is United Russia’s first defeat in local party elections since 2007.
- In comparison, the elections in Moscow were ceremonial. For Moscow Mayor Sergei Sobyanin, the challenge wasn’t the votes (he won more than 70%), but the turnout. In the last mayoral election in 2013, Sobyanin went up against opposition leader Navalny and there was lots of interest in the election. This time, there wasn’t a single other well-known candidate and it was entirely predictable. Nevertheless, turnout barely fell: it was 30.9% this time compared to 32% last time. Sobyanin achieved this thanks to two technicalities: he opened special polling stations outside the city, where Muscovites usually spend Fall weekends, and extended voting by two hours, to 10pm. To create this “dacha” polling station network, Moscow city government spent $5 million on research about Muscovites’ movements using big data collected by mobile phone operators. Voter turnout at these suburban stations on average exceeded 60%.
- The regional elections result was not good for the Kremlin, but it could have been worse — this summer, Putin’s personal rating fell 18% because of pension reforms plans.
Why the world should care
It is common to think elections in Russia don’t decide anything; and it is true results are usually always predictable. But, for the Kremlin, elections are a way of assessing the competence of officials – only a really ineffective regional leader is unable to ensure his own election victory under the current rules of the game. The governors who performed badly in their elections will now be threatened with retirement. In contrast, Sobyanin has affirmed his reputation as an effective technocrat and a potential successor to Prime Minister Dmitry Medvedev.
4. New U.S. sanctions may mean Russian depositors see their foriegn currency holdings forcibly converted into rubles
New U.S. sanctions might force Russians to soon remember the catastrophic 1998 financial crisis. Andrei Kostin, the head of Russia’s second largest bank, VTB, said this week that if the U.S. bans dollar payments for Russian state-owned banks, Russian owners of foreign currency accounts will be forced to withdraw rubles “at the technical exchange rate.”
- This is a very scary scenario for deposit holders. Russians hold money in foreign currency deposits not because of their interest rates, which are low (1-3% annually) compared to those on ruble deposits (about 7%). Russians save in foreign currency accounts in order to hedge the risk of a sudden fall in the value of the ruble. In other words, if there is compulsory conversion, the risk from which depositors are trying to protect themselves will become reality. Losses will depend on the exchange rate at which their deposits will be converted: the banks could begin to pay out deposits on the day the Americans freeze correspondent accounts, or they could do this weeks or months later. In Russian history, there is one similar example of such forced conversion: after the default and crash of the ruble in 1998. Then, foreign currency deposits with failing banks were converted to Sberbank ruble deposits at the rate of 9.3 rubles to the U.S. dollar (the real exchange rate at that time was 15 rubles to the dollar). In other words, if a Russian has $10,000 in dollars, in this scenario, he might lose $3,000.
- Kostin’s warning might come true if Russian state-owned banks (which control 67% of the banking market) are added to the Treasury Department’s sanctions list. Such a suggestion is included in the draft version of new anti-Russian sanctions, the DASKA Act, put forward by Senators Bob Menendez and Lindsey Graham. Under the legislation, all U.S. assets and correspondent accounts of Sberbank, VTB, Gazprombank, Rosselkhozbank, Promsvyazbank and VEB would be frozen. If this happens, these banks will not be able to borrow dollars abroad or conduct transactions outside Russia. In fact, they won’t even be able to send dollars to other banks in Russia as these operations take place via the United States.
- At present, such sanctions are unlikely. Last week during Senate hearings, the Obama administration’s former sanctions policy coordinator, Daniel Fried, called this proposal risky. But Russian state banks are, nonetheless, preparing – and have been trying to attract foreign currency reserves. State banks have been far more active than private banks in increasing interest rates on dollar deposits and have boosted the amount of cash they hold in dollars. VTB head Kostin suggested measures to Putin in July aimed at moving away from the dollar and expanding international use of the ruble. This is, of course, a possible explanation as to why the head of a huge bank tried to give depositors such a scare: Kostin’s warning might be a move in negotiations with the Central Bank over measures to protect against sanctions.
Why the world should care
There is a reason why experts warn senators against drastic steps. On Wednesday, Dalip Singh, the former deputy assistant secretary at the Treasury Department, recalled why the Obama administration didn’t sanction Russian sovereign debt in 2014. “This would have been equal to a full-fledged economic crisis in Russia, which the U.S. would have created with its own hands,” he said. The same thing could be said about today’s proposed sanctions.
5. Billionaire Alisher Usmanov’s partnership with Alibaba reveals his strategy for survival in the era of sanctions
Russian oligarchs are making difficult decisions in the face of possible new sanctions. Some are trying to do everything to distance themselves from those in the Kremlin. While others are doing the exact opposite and getting as close to the authorities as they can. The best example of the latter is Alisher Usmanov, who – on his 65th birthday no less – announced a deal fully in line with the government’s aim to build economic ties with China. On September 11, telecommunications giant Megafon (partially owned by Usmanov), internet group Mail.ru Group (Usmanov owns 15% via Megafon), and the Russian Direct Investment Fund (RDIF) announced the creation of a joint venture with Alibaba Group. The Bell wrote about preparations for this deal last month.
- Aliexpress Russia will be controlled by the Russian partners (52%), while the remaining stake will be held by the Chinese (48%). It is not known how much money each stakeholder put up. The RDIF alone will invest up to $300 million, Vedomosti reported.
- Although online commerce in Russia is developing, there is no “single platform”. There isn’t a Russian equivalent of Amazon and the internet giant doesn’t even deliver goods to Russia. In these conditions, Aliexpress Russia has a good chance of success: Russians already make more than half of their foreign purchases via Alibaba’s online platform, AliExpress, which is operational in Russia. In addition, Alibaba will get access (via Mail.ru) to the country’s most popular social networks: Vkontakte and Odnoklassniki. But Aliexpress Russia will face competition from the new joint venture between Yandex (Russia’s answer to Google) and state-owned bank Sberbank. These companies have already launched a beta version of their online store. Sberbank previously tried to do a deal with Alibaba, but it didn’t work out.
- This partnership with Chinese giant Alibaba is only one part of a grand project to ‘return Usmanov to the motherland.’ The billionaire long ago sold his shares in Apple and Facebook, delisted Megafon from the London Stock Exchange (the listing officially ends on October 5) and put up for sale 30% of Arsenal Football Club, over which he had fought for the last decade. Usmanov publicly supports the “digital transformation” announced by Putin, a key part of the president’s election campaign. Together with state conglomerate Rostec and Gazprombank, Usmanov in May announced the creation of a new digital company, MF Technology. Usmanov has also talked about a joint investment fund. All of this, of course, makes Usmanov very vulnerable to sanctions. But the billionaire has likely earned what he was probably fighting for in the first place: the Kremlin’s loyalty. On his last birthday, Usmanov received a personal telegram from Putin.
Why the world should care
One of the most important questions U.S. lawmakers are now discussing is how effective new sanctions against Russian oligarchs will be. The example of Usmanov illustrates there isn’t a universal answer to this question. If Usmanov is added to the sanctions list, serious problems for his businesses will follow — but it is highly unlikely to make him abandon the Kremlin. At the moment, Usmanov sees business opportunities amid Russia’s isolation from the West.
This newsletter is made with the support of the Investigative Reporting Program at UC Berkeley.