Paradise Papers: Leaked Papers tell a story about the Kremlin’s evolving methods of manipulating the internet

A new trove of leaked documents, the so-called Paradise Papers, have revealed that Yuri Milner, a Russian businessman with extensive investments in Silicon Valley, used funds from two Kremlin-controlled—and now U.S.-sanctioned—banks to make large investments in Facebook and Twitter. Both stakes have been sold off, but Milner’s path to Silicon Valley, where he continues be a power player and lives in a $100 million compound, was paved with the Kremlin’s money and a mutually beneficial relationship.Milner’s story illuminates the very beginnings of Moscow’s efforts to establish a foothold in Silicon Valley, back in the days when the American president was pushing a thaw with Russia. It was a moment that set the conditions of the current one, in which the Russians’ use of social media and other digital tools to undermine America’s election has driven U.S.–Russia relations to their lowest point in decades. And it’s revealing of the Kremlin’s evolving methods in learning to control and manipulate the internet to advance its own interests—first at home, and then abroad.Back in 2009, when I was first reporting on Milner in Moscow, his investment fund, called Digital Sky Technologies, was buying up shares in seemingly every company in Russia’s burgeoning tech sector. DST raised eyebrows at the time for several reasons. First, it had a very unusual approach: It invested in competing companies. It bought stakes in VKontakte, the Russian Facebook analog, as well as in Odnoklassniki and MoiMir, two other Russian social-networking sites. “If an industry is in the early stage with no obvious leaders, we want to sponsor all potential leaders,” Grigory Finger, DST’s co-founder, told me at the time. This strategy allowed DST to corner the Russian web market almost completely. By 2010, the company was publicly bragging that 70 percent of Russian page views—and 50 percent of the time spent by Russians online—originated on DST-funded properties. (Milner would not comment on the record for this story.)
Second, DST had been founded in 2005, just three years before the 2008 world financial crisis laid waste to many Russian fortunes. Yet by 2009, Milner and Finger were going on a shopping spree that included some $500 million to buy 5 percent of Facebook as well as a chunk of the American online gaming company Zynga. Where did they get all of that money? Milner and Finger had started DST with their own funds, and the returns on their early investments, though very successful, were just a fraction of those sums, pocket change compared with the money they were throwing around by 2010. (At the time, a banker close to DST, who wished to remain anonymous because he was not authorized to speak on the record, told me that the returns on DST’s other investments “haven’t been sufficient to cover the Facebook and Zynga deals.”)The funds, it turned out, came largely from Alisher Usmanov, an Uzbek-born billionaire who made his fortune in the mines of Central Asia. Usmanov, who owns a stake in the English football club Arsenal, was then-president Dmitri Medvedev’s patron; Usmanov had advised Medvedev when he served as head of Gazprom, and had been one of the first oligarchs to support Medvedev’s succession. A recent exposé by the opposition leader, Alexey Navalny, said that Usmanov bought luxury villas for Medvedev. (Usmanov sued Navalny for defamation in a Moscow court, and won.) Usmanov also had a fearsome reputation. He was known alternatively as “the hard man of Russia” and a “devourer of websites.” His biography includes a jail sentence from the 1980s for fraud and embezzlement, though a Soviet court later overturned the conviction, as well as a lawsuit in the United States, later dismissed, in which DeBeers claimed that Usmanov was part of a scheme that cheated it of $800 million in profits.More importantly for the Kremlin, however, Usmanov had a long track record of buying properties—including paintings, publishing houses, and gas fields—on behalf of Kremlin interests. This time, Usmanov bought a 35-percent stake in DST, and was, by all accounts, Milner’s cash cow. “Usmanov’s stake is completely passive,” the banker told me in 2010.  “He provides all the cash.”

DST made some legitimately lucrative investments for Usmanov. He reportedly made $1 billion on the $200 million he invested in Facebook. The Russian companies that DST invested his money in also did quite well, but that was only half the point. The other half was to give the Kremlin a way to control these new and very influential companies, to make sure there was a receptive person there when the Kremlin called with a demand.

“What is DST? DST is the main government internet company,” said one Russian tech executive, who wished to remain anonymous for fear of government reprisals, when I put this question to him in 2010. He was not the only one. In the tech community, another Russian executive told me at the time, “Usmanov”—and, by extension, DST—“is interpreted as a person who, on the Kremlin’s instructions, buys up various Russian [internet] properties.” Interviews with other prominent players in the booming Russian tech sector—local executives as well as Western investors—revealed that this was the near-unanimous understanding of DST’s role in the Russian tech marketplace; people’s equally unanimous reluctance to go on the record showed the sincerity of their belief. According to these insiders, DST’s links to the Kremlin, though close, were less than transparent. “It’s just not clear who, exactly, they represent and so not everybody wants to have them as an investor,” said one American investor I interviewed in 2010.

But it wasn’t that DST operated purely at the Kremlin’s behest. In 2009, it was rare to find a Russian businessman who would buy an unprofitable business for the Kremlin’s sake—nor would the Kremlin ask him to. (This was before the days when an oligarch would be “asked” to build an Olympic stadium at Sochi or a bridge to Crimea at a massive loss for the sake of the glory of the state.) This was the age of the Kremlin and all its attendant power structures making money wherever and however they could. The web was an objectively attractive investment. At the time, the internet audience in Russia was growing faster than anywhere in Europe, and Russians were spending more hours on social media than any other nationality. “We don’t have a single unprofitable company in our portfolio,” DST partner Verdi Israelian told me then. Facebook and Zynga’s audiences were also growing rapidly, and investing in popular Silicon Valley companies made good business—as well as PR—sense. The Russian elite was integrating its money into Western markets and their children were settling there. Investing in popular Western companies, moreover, put distance between them and the way they earned their money in the often bloody privatization battles of the 1990s.For its part, the Russian government was starting to recognize the strategic value of the internet and wanted to establish some measure of control over such an influential space. Until Medvedev became the titular president, Vladimir Putin was preoccupied with reestablishing Russia’s stature abroad and drowning in revenues from oil and raw materials at home, and he largely ignored vibrant world of the Russian web, particularly its blog-like centerpiece, LiveJournal.

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