Kremlin Cash Behind Billionaire’s Twitter and Facebook Investments

Facebook, Twitter and different social media websites have change into a significant focus of federal investigations into Kremlin interference within the 2016 election. Federal prosecutors and congressional investigators are inspecting how Russians linked to the Kremlin turned the websites into backyard hoses of bogus information tales and divisive political adverts, and whether or not they coordinated with the Trump marketing campaign.

No one has advised that Mr. Milner or his firms had any connection to the propaganda operation. For his half, Mr. Milner stated in a pair of current interviews that the Russian authorities cash was no totally different from the financing he had acquired from his many different buyers world wide.

A Russian Billionaire Investor’s Stake in American Technology Companies






The Kremlin controls Gazprom Investholding and VTB Bank.

Gazprom Investholding lent a whole lot of hundreds of thousands of to Kanton Services.

Kanton Services owned

DST USA II, which was used to put money into Facebook.

VTB Bank gave $191 million

to DST Investments three

for its stake in Twitter.

The enterprise capitalist Yuri Milner based DST Global, which managed DST USA II and DST Investments three.





Even so, his use of the state-directed equipment employed by so many Russian oligarchs to counterpoint themselves exhibits how the Kremlin has prolonged its lengthy monetary arm not solely to his firm however to a few of America’s expertise giants.

“Kremlin-connected institutions make investments with strategic interests in mind — not just commercial interests but state interests as well,” stated Michael Carpenter, the National Security Council’s Russia director within the Obama administration, who’s now senior director of the Penn Biden Center for Diplomacy and Global Engagement. “They go hand in hand.”

Mr. Carpenter added, “Oligarchs who receive significant amounts of financial support from Russian banks like VTB or Sberbank or Gazprombank have to pbad above a political threshold, meaning such support requires the explicit or tacit approval of those at the top of Russia’s crony capitalist system.”

There is nothing unlawful about international state-owned establishments investing in American firms. VTB and Gazprom stated the transactions had been each sound investments, not motivated by political concerns.

As Mr. Milner sees it, the story is equally easy — “nothing more than business,” he stated, including: “We are getting money, and we are putting them in Facebook and Twitter. We are making money for our limited partners, and we are giving money back to them. For me, it’s a commercial arrangement.”

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The Path to Silicon Valley

Mr. Milner, 55, studied theoretical physics at Moscow State University earlier than transferring to the United States, the place he attended the Wharton School on the University of Pennsylvania within the early 1990s after which labored for the World Bank in Washington.

He returned to Russia and within the late 1990s and labored as an govt at Bank Menatep, which was based by Mikhail B. Khodorkovsky, the oil tycoon who was stripped of his firm, prosecuted and imprisoned after a televised confrontation with President Vladimir V. Putin.

Mr. Milner finally teamed with Alisher Usmanov — an Uzbek-Russian oligarch near the Russian prime minister, Dmitri A. Medvedev — and a former Goldman Sachs govt to construct a big stake in Mail.ru, a Russian web firm that now trades on the London Stock Exchange.

Mr. Milner’s preliminary American investments got here as he served on an innovation fee arrange in 2009 by Mr. Medvedev, who was Russia’s president on the time and is one thing of a tech fanatic, famously touring Apple’s headquarters in Cupertino, Calif., with Steve Jobs.

In May 2009, Facebook introduced an funding of roughly $200 million by Mr. Milner’s firm, Digital Sky Technologies, and stated the corporate deliberate to spend no less than $100 million shopping for extra inventory. Eventually, Mr. Milner’s new enterprise capital agency, DST Global, additionally ambaded a big stake in Facebook.

Photo

Mr. Milner, proper, with Mark Zuckerberg, the chief govt of Facebook. The firm, together with Twitter and different social media websites, has change into a significant focus of investigations into Russian interference within the 2016 presidential election.

Credit
Kimberly White/Getty Images for Breakthrough Prize

“A number of firms approached us, but DST stood out because of the global perspective they bring,” Mark Zuckerberg, Facebook’s chief govt, stated on the time.

The paperwork reviewed by The Times reveal that DST introduced one thing else as effectively: a connection — by a succession of shell firms — to the Kremlin.

Ties to the Russian State

In these years, as a part of its diplomatic “reset” with Moscow, the Obama administration was encouraging Russia to study from the American expertise business. Importing tech data, the speculation went, would ease Russia’s dependence on exporting oil and fuel.

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For the Facebook deal, it was Gazprom, the state-controlled natural-gas big, that grew to become the bridge. The firm, a significant element of the Putin authorities has employed its monetary subsidiary, Gazprom Investholding, to reclaim property privatized through the 1990s.

Gazprom Investholding is “used for politically important and strategically important deals for the Kremlin,” stated Ilya Zaslavskiy, a contributor to the Kleptocracy Initiative, a challenge of the Hudson Institute, a conservative badume tank in Washington. Both VTB and Gazprom Investholding’s father or mother, Gazprom, are below United States sanctions stemming from Russia’s help of separatists in jap Ukraine in 2014.

Over a number of years, Gazprom Investholding and a subsidiary made a whole lot of hundreds of thousands of in loans to an organization referred to as Kanton Services, based on information from the Panama Papers, the trove of leaked paperwork from the regulation agency Mossack Fonseca. Kanton, in flip, owned one of many DST funding autos used to purchase shares of Facebook. While it’s unclear exactly when Kanton first acquired its stake within the DST entity, Kanton acquired $197 million of the Gazprom Investholding loans three months earlier than Facebook introduced its first cope with Mr. Milner, the information present.

Kanton, based mostly within the British Virgin Islands, had quite a few ties to Mr. Milner’s backer, Mr. Usmanov.

Kanton was owned by a longtime Usmanov enterprise affiliate, and was managed by Matthias Bolliger, a director of quite a few subsidiaries of Mr. Usmanov’s most important holding firm, USM Holdings, based on an Appleby memo and the Panama Papers. And an e mail despatched by a belief firm on the Isle of Man utilized by Mr. Usmanov referred to Kanton as a “private investment company, (facebook and twitter).”

In the interviews, Mr. Milner stated his buyers’ identities weren’t usually public info. And he sought to distance his firm from Mr. Usmanov. “I had no knowledge of him using state funds to invest with us,” he stated. What’s extra, he stated, Mr. Usmanov had many potential sources of financing, making it not possible to know whether or not cash from Gazprom Investholding was even used to finance his stake in Facebook.

Photo

President Vladimir V. Putin of Russia, proper, with Mr. Milner’s backer, the Uzbek-Russian oligarch Alisher Usmanov.

Credit
Michael Klimentyev/Sputnik, through Agence France-Presse — Getty Images

To reveal this, Mr. Milner set out a sequence of clear plastic cups with labels like “Alleged Russian government funds,” “Mr. Usmanov” and “Facebook.” He pulled out a big bag of inexperienced M&M’s, stuffed a number of cups and proceeded to shift the M&M’s from one cup to a different. “Money is fungible,” he defined, including, “You can’t just say that this specific dollar went all the way to Facebook.”

A spokesman for Mr. Usmanov, Rollo Head, didn’t deal with particular questions. But in an announcement, he insisted that there are clear streams of cash that don’t mingle. Mr. Usmanov, he stated, “did not borrow from or use state or quasi-state funds to make investments in Facebook.”

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Lucrative ‘Synergies’

The Facebook deal was a case examine in the way in which Russia’s oligarchs have combined private and non-private roles for their very own, and their authorities’s, profit: Even as he was investing in Facebook, Mr. Usmanov was basic director of Gazprom Investholding.

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In reality, Mr. Usmanov had usually intertwined his authorities place together with his private offers, based on a report by the worldwide investigations and safety agency Kroll. Kroll described these preparations as “synergies.”

The Kroll report — a “reputation audit” — had been commissioned by Mr. Usmanov as he got down to burnish his picture a yr earlier than his cope with Mr. Milner to put money into Facebook. Kroll investigators, counting on public information and interviews, detailed an extended and colourful historical past: time in jail in Uzbekistan (he was later exonerated) and previous badociations with alleged Russian organized crime figures, based on a draft copy of the report reviewed by The Times.

The investigators additionally recounted a dizzying variety of offers — involving mining, media and expertise firms, usually with the help of the Kremlin and Mr. Medvedev. “Usmanov looks set to end the Putin era as the ‘most improved’ oligarch over the past eight years,” one supply advised Kroll.

Kroll investigators discovered that, for some investments, Mr. Usmanov turned to Kanton, the corporate that may be part of Mr. Milner’s Facebook funding.

A Facebook spokeswoman, Vanessa Chan, declined to reply particular questions in regards to the cope with DST, calling it a “pbadive investor” and noting that the corporate had invested and cashed out a number of years in the past.

Gazprom Investholding referred to as the loans “prudent,” saying they had been “provided for general corporate purposes” at above-market charges. The firm didn’t reply a query about what position, if any, Mr. Usmanov performed within the loans, besides to say that as its basic director, he “operated in accordance” with the corporate’s constitution.

To full the Facebook deal, DST used a pair of attorneys based mostly in Cyprus and Britain who’ve additionally arrange offshore entities for Russian oligarchs near Mr. Putin, based on the Panama Papers, United States securities filings and information from Appleby. DST didn’t reply questions on the way it got here to make use of the 2 attorneys.

After the Facebook deal, Mr. Milner grew to become a fixture in Silicon Valley, spending about $100 million on a 25,000-square-foot home in Los Altos Hills and investing $7 billion in additional than 30 firms, together with Spotify, Airbnb and Groupon.

Photo

A house in Los Altos Hills, Calif., that Mr. Milner purchased for $100 million after investing in Facebook.

Credit
Paul Sakuma/Associated Press

In interviews, he has referred to his shut relationship to administration on the firms during which he invests. Mr. Milner and Mr. Zuckerberg grew to become buddies and met month-to-month. Still, regardless of his firm’s sizable stake, Mr. Milner didn’t take a board seat or voting rights.

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At the 2010 expertise convention in San Francisco, Mr. Milner was requested if he offered administration with recommendation alongside together with his money. “I think it’s actually the opposite,” he replied. “I sometimes get informal advice from them.”

Obscure Financial Maneuvers

Mr. Milner’s roughly $380 million funding in Twitter was instantly backed by one other instrument of Kremlin energy: Russia’s second-largest financial institution, VTB.

Sixty-one % of the financial institution is owned by the Russian authorities. VTB’s president, Andrey L. Kostin, is a former Soviet diplomat; Matthias Warnig, on the financial institution’s supervisory council, is a former East German spy who served in Dresden whereas Mr. Putin was stationed there with the Ok.G.B.

VTB has operations internationally, together with within the United States. In current years, it has been concerned in numerous politically delicate offers, together with a mortgage that financed the Russian authorities’s murky privatization of 19.5 % of the oil big Rosneft.

Last yr, the Panama Papers revealed Cyprus financial institution owned by VTB was used to switch a whole lot of hundreds of thousands of to accounts related to Sergei Roldugin, a cellist and shut pal of Mr. Putin. It was unknown what the cash was for, however some speculated that he was working as a frontman for Kremlin insiders.

Mr. Roldugin didn’t reply to messages for this text, however stated on the time that his wealth got here by donations from wealthy businessmen for the acquisition of musical devices. VTB referred to as the account within the Panama Papers “unsubstantiated.”

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An organization owned by a Russian financial institution that supported Mr. Milner’s Twitter deal transferred a whole lot of hundreds of thousands of to accounts linked to Sergei Roldugin, a cellist some speculated was a frontman for Kremlin insiders.

Credit
Sergey Guneev/Sputnik, through Associated Press

“VTB is really a slush fund for Putin,” stated Anders Aslund, a resident senior fellow on the Atlantic Council in Washington, and an early financial adviser to the post-Soviet Russian authorities. The financial institution, he added, is “the black cashier of the Putin crowd.”

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Mr. Milner’s Twitter deal is a posh internet of share transfers and offshore monetary entities. But its particulars might supply clues that there was a strategic motive behind VTB’s involvement.

In July 2011, VTB invested no less than $191 million in change for shares of an Isle of Man firm referred to as DST Investments three, company information present. That offshore car was used to purchase roughly half of DST Global’s stake in Twitter that month. DST Investments three additionally issued shares to Kanton, the corporate linked to Mr. Usmanov that was on the heart of the Facebook deal.

The Twitter deal had a notable function: VTB put nearly all the money into DST Investments three, filings present. Kanton contributed nearly none. It is extremely uncommon for buyers in DST funds to get stakes with out contributing money, based on an individual acquainted with the matter.

On May 7, 2014 — six months after Twitter’s preliminary public providing, when insiders had been first permitted to promote their shares — VTB transferred the majority of its stake in DST Investments three to Kanton. DST additionally cashed out its Twitter funding.

DST had one different funding from VTB, which Mr. Milner in comparison with a sovereign wealth fund. VTB was an investor within the Chinese web firm JD.com as lately as February 2015, when it transferred its stake to Kanton, Isle of Man information present.

In an announcement, VTB stated its involvement with Twitter was “solely a financial investment,” bought for a revenue, one among a number of profitable offers within the high-tech business in that interval. The financial institution added, “VTB is a solely commercial bank, we have never had any politically motivated deals.”

Twitter declined to reply a sequence of questions on VTB, however stated that as a matter of coverage it had accomplished evaluations of all pre-I.P.O. buyers.

Mr. Milner wouldn’t talk about how VTB got here to be an investor, aside from to say that the financial institution helped take Mail.ru public in 2010. According to the Kroll report, the Kremlin had beforehand ordered VTB to finance different ventures of Mr. Usmanov. The report additionally particulars the shut relationship between Mr. Usmanov and Mr. Medvedev, discovering that Mr. Medvedev helped him win a bid for a profitable copper ore deposit in Siberia.

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Beyond Social Media

Mr. Milner has additionally been energetic past Silicon Valley. He is a founding father of the Breakthrough Prize, a sequence of profitable scientific awards. And in July 2015, he was one among a number of high-profile buyers in Cadre, a New York-based actual property expertise firm based by Mr. Kushner and his brother, Joshua. (Other buyers and companions embody Goldman Sachs, George Soros and Peter Thiel’s Founders Fund.)

Mr. Milner stated he invested $850,000 in Cadre by a belief, which in flip controls DST Global Advisers, DST Global’s funding administration agency. He stated he was launched to the corporate by an early investor whose identify he didn’t keep in mind. He stated he met Jared Kushner solely as soon as, at a convention in Aspen, Colo.

Mr. Kushner and Cadre declined to remark.

Photo

Mr. Milner, whose expertise pursuits are wide-ranging, appeared with the physicist Stephen Hawking in Manhattan final yr to announce an area exploration initiative.

Credit
Timothy A. Clary/Agence France-Presse — Getty Images

In his interviews with The Times, Mr. Milner shied away from the controversy now enveloping Facebook and Twitter, his former main investments.

Growing up within the Soviet Union, he stated, “if you’re a father and you have a conversation with your son, it’s easy to say, ‘Please don’t get involved in politics.’”

That “was my principle back then and still now,” he stated, including: “I prefer just to focus on business and philanthropy. And this is plenty for me.”

Correction: November 5, 2017

An earlier model of this text misspelled the surname of a Facebook spokeswoman. She is Vanessa Chan, not Chen.

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