INTRODUCTION
A few weeks ago I posted a brief piece detailing the ties between Alexander Yevgen’yevich Udodov — the former brother-in-law of Russian Prime Minister Mikhail Vladimirovich Mishustin, whose younger sister, Nataliya Vladimirovna Stenina, was married to Udodov from 2008 until December 2020 — and Russian businessman Alexander Petrovich Karmanov, a major oil and gas pipeline supplier and reputed associate of longtime Putin confidantes Arkady and Boris Romanovich Rotenberg. I wrote that post as a sort of prologue to the present one, which concerns an obscure legal dispute in which Udodov played a central role. This dispute arose from a promissory note agreement that Udodov concluded on 27 December 2017 with OOO Telefon 365, a low-profile company with a 19.5-percent stake in a Moscow-based broadband provider, OOO Tsifra Odin, which has obtained millions of rubles in contracts from government agencies and state-owned enterprises active in Russia’s national security sphere. These contracts situate Tsifra Odin at the center of the Kremlin’s efforts to digitalize the Russian state and economy – efforts that stand to bring about substantial economic growth while at the same time creating opportunities for new “digital” rents.
The following text presents evidence that Udodov’s lawsuit against Telefon 365 complemented an effort by agencies affiliated with senior government technocrats — including Mishustin — to bring Tsifra Odin under the control of regime insiders trusted to operate the company in line with the Kremlin’s digitalization strategies. The circumstances and outcome of this legal dispute suggest that Udodov took advantage of an investigation into a Tsifra Odin principal by Kazakhstani law enforcement to coerce Telefon 365’s owners into giving up their shares in the latter company, along with its minority stake in Tsifra Odin, to Udodov’s attorney. I argue that while the Kremlin’s tolerance of such practices may ensure the present regime’s control over the pace of Russia’s digitalization in the short run, in the long run it may draw the the formal digital transformation of the Russian state and economy in what Alena Ledeneva describes as the “modernization trap of informality” by permitting members of the Russian political and economic elite to secure digital rents through informal corporate raid tactics of questionable legality.
Corporate raiding has a rich history in post-Soviet Russia, so there exists a special term for the practice in Russian: reiderstvo. The reiderstvo phenomenon first manifested itself during the 1990s against the backdrop of the privatization of the Russian economy. Stirred by the prospect of commercial profits and unconstrained by a Russian state whose law enforcement capacities had seriously deteriorated in the wake of the Soviet collapse, early Russian corporate raiders resorted to corrupt, illegal, and occasionally violent methods to take control of lucrative enterprises or, alternatively, to eliminate their business rivals. Putin’s accession to the Russian presidency brought reiderstvo to heel by permitting its “monopolization” by loyal oligarchs, tolerating the latter’s use of similarly expropriative tactics in exchange for their bringing key sectors of the Russian economy under the Kremlin’s nominal control. Reiderstvo thus is a cyclical phenomenon, that has tended to intensify during periods of significant economic change. That Udodov’s legal dispute with Telefon 365 appears to have culminated in an act of reiderstvo suggests that the broader dispute over Tsifra Odin – of which Telefon 365 is a minority shareholder – may be a bellwether of further upheavals to come in Russia’s digital transformation. Whether this transformation will bring about genuine rule of law is questionable, as Udodov’s apparent use of reiderstvo in the Telefon 365 matter suggests that digitalization, far from being a salve for Russia’s economic stagnation, may turn out to be a poisoned chalice that unleashes a destabilizing contest for digital rents.
I have attempted to corroborate my assessments with reputable open-source materials wherever possible. In many instances, these materials provide at best an incomplete thumbnail of what appears to much bigger picture. To overcome this limitation, I have also organized my findings chronologically into numbered sections to lend a measure of order on what might otherwise appear to be a string of unrelated events. Yet because many of these events overlap with one another, it is difficult to articulate them in a neatly chronological fashion. To overcome this temporal limitation, I frequently refer backwards or forwards to previous or ensuing sections, both to convey certain continuities between ostensibly unrelated events and as a general referential anchor.
UDODOV, TELEFON 365, AND THE TSIFRA ODIN AFFAIR: AN OVERVIEW OF KEY THEMES AND EVENTS
1. RUSSIA’S DIGITAL TRANSFORMATION IN CONTEXT
The Kremlin’s digitalization strategy aims to manage potential internal and external threats posed by the proliferation of digital technologies within the Russian economy and society at large. Underpinning this strategy is the principle of “digital sovereignty”, which Putin himself has defined as the state’s capability to “independently determine the variables for regulating its information space and the corresponding infrastructure”. To this end, the Kremlin has pushed to substitute imported digital technologies with domestic analogues that reduce the country’s reliance on foreign companies, as well as passing legislation that would effectively place the infrastructure behind the Russian segment of the internet under centralized state control.
The implementation of these and other measures relevant to the Kremlin’s digitalization program promises to enrich Russia’s information and communications technology (“ICT”) sector and its participants. For example, on July 2014, Putin signed Federal Law 242, which indirectly subsidizes the Russian data center industry by compelling foreign companies to rent space on Russian servers lest they run afoul of the law’s data localization provisions. The Kremlin also promises to provide direct subsidies to the Russian ICT sector: at the time of this writing, the President’s Council on Strategic Development and National Projects plans to spend a total of RUB 768.5 million (approximately USD 10.1 million) on “information infrastructure” projects by 2024. Businesses already familiar with the intricacies of digital and economic technologies also stand to benefit from the Kremlin’s strategic digitalization efforts in the form of state subsidies. Appearing at the St. Petersburg International Economic Forum in June 2017, Putin avowed that the Kremlin would “support those companies that bring with them developments and competencies in digital technology”.
Russia’s political and business elite also stand to profit from the Kremlin’s digitalization efforts in terms of enhanced political and economic capital through their management of “digital” rents. Moscow State University professors Islam Zelimkhanovich Geliskhanov and Tamara Nikolaevna Yudina conceptualize “digital rent” as a variety of monopolistic rent that accrues to subjects who hold an exclusive right to the use of “unique and valuable information-digital assets”. Minchenko Consulting — a Moscow-based public relations firm that publishes a series of widely–cited annual reports on Russian political and business elites under the title “Politburo 2.0” — assesses in its July 2021 Politburo 2.0 report that the search for digital rents and other non-natural resource rents has taken on a new urgency inside due to instability in global commodity markets, European Union carbon taxes and global decarbonization efforts more generally, and pressure from Western governments. Mishustin himself has described digital data not just as the “oil, gold, and platinum of the 21st century” but also as a means for growing the efficiency of the Russian economy. Mishustin’s comments speak to the significance assigned by the Kremlin to digitalization as the source of a new class of commodity – namely, data – and further implies that the Kremlin intends to make sure that those who stand to profit most from digitalization will place the interests of the Russian state before their own.
To this point, Minchenko Consulting’s July 2021 Politburo 2.0 assesses that Mishustin is one of several members of the Russian political and economic elite who stand to benefit from government support for the Kremlin’s digitalization drive in the form of enhanced regulatory and tax privileges, along with Sberbank CEO German Oskarovich Gref, Rostec CEO Sergey Viktorovich Chemezov, oligarch Alisher Burkhanovich Usmanov, and Deputy Prime Minister Dmitry Nikolaevich Chernyshenko.[i] Mishustin’s former brother-in-law, Udodov, is well ahead of the curve, having invested in a number of projects in the ICT sector that stand to profit from Russia’s digital transformation.
Mishustin enjoys the Kremlin’s imprimatur in managing the digitalization of the Russian government and society. Putin himself has cited Mishustin’s efforts to modernize the FNS as the principal reason for his decision to appoint Mishustin to the premiership. Mishustin’s authority as the Kremlin’s “digitalization tsar” is apparent from his public statements:
- On 12 March 2020, Mishustin, speaking at a meeting of deputy chiefs of various federal agencies and ministries, announced his intention to set up a “digital spetsnaz” (“spetsnaz” being the Russian term for special operations forces) to manage the process of digitalizing the work of same state agencies and ministries. Mishustin estimated that this process would take three years.
- On 9 July 2020, Mishustin opined in a speech before the plenary session of an IT industry forum in Kazan that the digital transformation of Russia offered the country a chance to attain a higher level of development, adding, that Russia “cannot allow itself to occupy a place among secondary states […] we must move forward and be leaders in this sense”.
- On 5 February 2021, Mishustin spoke out in favor of the member states of the Eurasia Economic Union (“EAES”) adopting a common digital platform to facilitate economic exchanges with one another, warning that countries which lacked their own digital platforms risked becoming “informationally, politically, and economically dependent upon fоreign digital solutions”.
- On 23 June 2021, Mishustin argued before an economic forum in Chuvashia that digitalization was a prerequisite for economic growth, social development, and improvement of the quality of Russian citizens’ lives, adding that he approved of the attention paid by the forum’s organizers to digitalization and digital solutions for companies and information security.
The above citations indicate that Mishustin has staked his political credibility on successfully implementing the digital transformation of Russia’s government and economy. The notion of Mishustin concerning himself with issues of political capital may strike some as novel, as many commentators have depicted Mishustin as a “technocrat” who, because he ostensibly operates outside of “traditional clans”, is thus unconcerned with the palace intrigues among informal Kremlin elites. Yet just because Mishustin is a technocrat does not mean that he is unconcerned with his reputation: multiple sources, including “businesspeople, journalists, publicists, Mishustin’s friends, and other state officials”, reportedly told Meduza special correspondent Farida Rustamova that Mishustin is “fanatically obsessed with his own reputation and image in the media”.
Mishustin’s concern with his public image in managing the Kremlin’s digitalization agenda may be further compounded by the fact that he owes much of his cachet to his success in digitalizing the work of the Federal Tax Service. (“FNS”) Thus, Mishustin’s professional reputation would suffer considerably were he to mismanage or be perceived to have mismanaged the implementation of the Kremlin’s digitalization agenda, a situation that could open him up to attacks — including, potentially, trumped up charges of corruption — from competition for digital rents by potential rivals within and outside of the Russian elite.
2. UDODOV’S INVESTMENTS IN THE RUSSIAN ICT SECTOR
Udodov is known to have invested in at least three ICT companies. One such company is OOO GDTs Energy Group (“GEG”), which operates a data center, GreenBushDC, near Moscow. GEG was originally incorporated on 17 July 2007, though Udodov’s shares in the company were first registered on 30 June 2014. Several days earlier, on 23 June 2014, Udodov was registered as a 45-perecent shareholder of another data center operator, OOO Inforesurs Sankt-Peterburg, (“ISPB”) which was first incorporated on 24 June 2009. GEG and ISPB were registered in special economic zones (“SEZs”) outside of Moscow and St. Petersburg. This is notable insofar as Mishustin headed the federal agency responsible for overseeing Russia’s SEZs from 2007 to 2008, (see Section 6.1.1) although there is no evidence that Mishustin used this post to provide preferential treatment to either GEG or ISPB.
The timing of Udodov’s entry into GEG and ISPB was fortuitous, as less than a week later the State Duma passed a set of provisions that required Russian as well as foreign companies to use servers located inside the Russian Federation for collecting and processing the personal data of Russian citizens. These provisions — which Putin formally enacted into law on 21 July 2014 — promised to enrich data center companies like GEG and ISPB, which operate colocation facilities that rent out space for servers, networking equipment, and other ICT services to corporate clients.
Though information regarding GEG and ISPB’s clientele is scarce, the available evidence indicates that both companies have secured business from several important SOEs. In November 2020, GEG won a RUB 46.8 million (approximately USD 606,396 per contemporary exchange rates) data center services contract from AO Unified Electronic Trading Platform (“Roseltorg”), of which the Moscow City Government and state-owned PAO VTB Bank are 51.82- and 48.18-percent shareholders, respectively. Media citations indicate that ISPB’s data center project at one time reportedly attracted customers ranging from Gazprom to the partially state-owned telecommunications company Rostelecom.
Even so, neither GEG nor ISPB appear to be particularly successful ventures. Financial records obtained by independent Russian media outlet OpenMedia.io show that GEG lost almost RUB 430 million (approximately USD 6-7 million per contemporary exchange rates) in 2019 alone. Separately, between 2017 and 2018, multiple media citations reported that the St. Petersburg city government (“PSB”) was preparing to pursue civil litigation aimed at ejecting ISPB from the St. Petersburg SEZ after an audit discovered that the company had not performed work in accordance with the terms of its status as an OEZ resident. On 9 January 2018 the PSB’s Committee for Industrial Policy, Innovations, and Trade (“KPPIT”) filed a breach of contract claim seeking RUB 1 million (approximately USD 17,555 per contemporary exchange rates) in damages from ISPB in the Arbitration Court for the City of St. Petersburg and Leningrad Oblast. The court initially ruled against KPPIT, though KPPIT’s claim against ISPB was upheld by the Supreme Court of the Russian Federation following a series of appeals on 19 September 2019.
Despite these issues, Udodov has continued to invest in Russia’s digital development. Multiple media citations report that Udodov has entrusted money with Alexander Vladimirovich Galitsky, a Russian entrepreneur with investments in numerous ICT projects — including a public-private initiative aimed at curtailing the circulation of contraband and counterfeit goods through “smart label” technologies. Separately, Russian corporate records show on 19 February 2021, Udodov obtained a 12.5-percent stake in OOO Prime Group, an IT services company whose clients include Gazprom, Lukoil, PAO Norilsk Nickel, and the Central Bank of the Russian Federation. Notably, Udodov acquired these shares in Prime Group one day after the company secured a RUB 24 million (approximately USD 324,184 per contemporary exchange rates) IT consulting contract from the Ministry of Economic Development. In August 2021, Udodov reportedly sold his 12.5 percent stake in Prime Group to former Deputy Information Technology and Communications Minister Dmitry Alexandrovich Milovantsev, who already held at 25-percent stake in Prime Group.
3. TSIFRA ODIN, NIK RAZVITIE, AND TELEFON 365 — BACKGROUND INFORMATION
One of Udodov’s lesser-known investments is Telefon 365, which, as noted above, is a 19.5-percent shareholder of Tsifra Odin. According to its corporate website, Tsifra Odin is a Moscow-based internet services company that specializes in providing broadband services to corporate clients and households.The remaining 80.5-percent of Tsifra Odin’s shares belong to Eurasia Investments, a closed-end investment fund managed by financial services firm OOO Holding Company NIK Razvitie; the latter company’s beneficiaries include a former Soviet intelligence agent who purportedly served alongside Putin in the KGB and a non-profit fundraiser affiliated with the pro-Putin United Russia party.
3.1. TSIFRA ODIN: A MOSCOW-BASED BROADBAND PROVIDER WITH TIES TO ELITE KAZAKHSTANI BUSINESS AND POLITICAL FIGURES
Tsifra Odin was incorporated on 30 January 2009. The earliest recorded shareholder of Tsifra Odin is Trivon Communications Ltd., a Cypriot company whose 100-percent stake in Tsifra Odin was registered on 3 February 2016. Information regarding Trivon Communications is scarce, although US law firm Akin Gump claims to have advised Trivon Communications on its acquisition of Tsifra Odin.
On 18 November 2016, Trivon Communications’ shares in Tsifra Odin were transferred to OOO Alma Group and Nadezhda Yur’yevna Ryabchevskaya, who obtained 99.99- and 0.01-percent stakes in Tsifra Odin, respectively. Limited information is available regarding this ownership change; however, ICT market sources interviewed by Russian business news daily Kommersant for a 12 January 2016 article claimed that Alma Group — which had bought a number of other Russian telecommunications companies since 2015 — was affiliated with Kazakhstani cable operator Alma-TV. Alexander Avenirovich Gadalov, the then-general director of Alma Group — after April 2017, of Tsifra Odin — and denied the existence of any formal connection between Alma Group and Alma-TV, asserting that the former was a “strategic partner” of the latter. In June 2016, however, Dmitriy Vladimirovich Pankin, the chairman of the Eurasian Development Bank (“EABR”) — a multilateral development bank affiliated with the Russian-backed Eurasian Economic Union initiative — stated that EABR had provided USD 150 million in financing to support Alma-TV’s acquisition of telecommunications companies in Russia. This suggests that Alma-TV financed Alma Group’s acquisition of Tsifra Odin and other Russian telecommunications firms.
Per Forbes Kazakhstan, Dinmukhamet Appazovich Idrisov – a Kazakhstani millionaire and shareholder of Kazakhstani bank AO Bank RBK, acquired a 100-percent stake in Alma-TV from Dariga Nursultanqyzy Nazarbaeva, the eldest daughter of Kazakhstani President Nursultan Äbishuly Nazarbaev, in May 2014. Kazakhstani businessman Zhomart Zhadygerovich Ertaev, who reputedly managed Dariga Narazabaeva’s assets until 2016, appears to have served as Alma Group’s honorary president. Research did not identify any evidence that Ertaev represented Dariga Nazarbaeva’s fiduciary interests as Alma Group’s honorary president.
3.1.1 TSIFRA ODIN’S WORK FOR ENTITIES INVOLVED IN SENSITIVE NATIONAL SECURITY PROJECTS
According to public procurement data compiled by the Civic Initiatives Committee, a non-profit organization co-founded by Russian Accounts Chamber head and former Finance Minister Alexei Leonidovich Kudrin, Tsifra Odin had obtained at least RUB 742 million (approximately USD 13.3 million per contemporary exchange rates) in ICT-related contracts from federal and local government bodies by January 2018. Many of these contracts were awarded by entities actively in engaged in activities of concern to Russia’s national security, including:
- PAO Rostelecom — A publicly-traded telecommunications company of which the Kremlin’s Federal Agency for State Property Management was a 35.91-percent shareholder as of 31 December 2020. According to the Civic Initiatives Committee’s data, Rostelecom has also awarded Tsifra Odin several multimillion-ruble contracts, including a 1 April 2017 deal for the provision of “wired telecommunications systems” worth RUB 1.35 million (approximately USD 23,997 per contemporary exchange rates) and a similar contract for RUB 4 Million (approximately USD 65,496 per contemporary exchange rates) from 23 December 2016. Tsifra Odin’s transactions with Rostelecom are notable to the extent that the latter company plays a major role in Russia’s cybersecurity strategy: in September 2018, Rostelecom signed an agreement with the FSB to cooperate in “identifying, preventing, and liquidating computer attacks”. In December 2019, Mintsifry awarded Rostelecom RUB 364.55 million (approximately USD 5.73 million per contemporary exchange rates) in state subsidies to set up a “cyber proving ground” designed to conduct wargames of cyberattacks on “key sectors of the Russian economy”. Although there is no evidence of Tsifra Odin’s direct involvement in these efforts, Tsifra Odin’s provision of services pertaining to Rostelecom’s telecommunications infrastructure implies that the former had some exposure to the latter’s more sensitive cybersecurity efforts.
- N.L All-Russian Scientific Research Institute of Automation (“VNIIA”) – A branch of the state-owned nuclear energy monopoly Rosatom responsible, inter alia, for the design and development of Russia’s nuclear warheads. One such agreement, concluded on 8 December 2017, saw VNIIA award Tsifra Odin RUB 1,440,000 (approximately US 24,357 per contemporary exchange rates) for the creation of a back-up communications channel, presumably for the purpose of ensuring the flow of communications in the event of disruptive event such as a cyberattack; a supplementary contract from 29 December 2018 shows that VNIIA contracted this work to Tsifra Odin.
- Chief Military Investigations Department of the Investigative Committee of the Russian Federation (“GVSU-SKRF”) — A section of the Investigative Committee (“SKRF”) — an independent law enforcement agency directly subordinate to the office of the Russian President — responsible for investigating criminal activity within the Russian armed forces. On 16 June 2016, GVSU-SKRF awarded Tsifra Odin a RUB 1,399,406 contract (approximately USD 21,553 per contemporary exchange rates) to service the section’s internet infrastructure.
3.2. NIK RAZVITIE: A DE FACTO AUTONOMOUS SUBSIDIARY OF UNITED RUSSIA-AFFILIATED FUNDRAISING BODY WITH POSSIBLE TIES TO THE RUSSIAN SECURITY SERVICES
On 24 May 2017, Alma Group and Ryabchevskaya’s shares in Tsifra Odin were re-registered under the ownership of Eurasia Investments, a closed-end investment fund managed by NIK Razvitie. 47-percent of NIK Razvitie’s shares belong to OOO National Innovation Company (“NIK”), a wholly owned subsidiary of the National Foundation for Regional Cooperation and Development (“NFPR”), a fundraising body affiliated with the United Russia party, which has historically maintained a close relationship with President Putin. Court records indicate that Eurasia Investments’ investors included Alma Group honorary president Ertaev. (See Section 14)
Russian corporate records identify an entity known as the Interregional Civil Fund for the Support of All-Russia Party “UNITY and FATHERLAND” — United Russia (“MOFP-VRP-EiO-ER”) as the sole beneficiary of NIK Razvitie’s majority shareholder, NIK. A 7 October 2016 United Russia press release indicates that MOFP-VRP-EiO-ER was subsequently renamed to NFPR. NIK’s tax registration documents list MOFP-VRP-EiO-ER’s tax identification number (“TIN”) as 7709312370; research determined that NFPR shares the same TIN as MOFP-VRP-EiO-ER.
According to the Organized Crime and Corruption Reporting Project (“OCCRP”), NFPR collected funds for United Russia until the passage of a law in 2014 that barred outside fundraising for political parties. OCCRP estimates that NFPR contributed RUB 400 million (approximately USD 5.42 million) to Putin’s 2017 presidential re-election campaign. A 0.005-percent stake of NIK Razvitiye’s shares belong to its cofounder, Kirov Oblast governor and former Federation Council representative for the Komi Republic Igor Vladimirovich Vasil’yev. In addition to his gubernatorial role, Vasil’yev currently sits on United Russia Supreme Council. According to his official profile on United Russia’s website, Vasil’yev managed investments on behalf of the party’s Central Executive Committee in 2004. During this period, Vasil’yev reportedly also served as the vice-president of an entity called the Interregional Civil Fund for the Support of United Russia, (“MOFP-ER”) which appears to be a successor of MOFP-VRP-EiO-ER.
Multiple media citations, as well as Vasil’yev’s own website, report that he served alongside Putin in the KGB’s foreign intelligence service during the 1980s. In a 2004 interview with a Komi Republic-based media outlet, Vasil’yev — whom the outlet described as a former intelligence officer — confirmed that he had served in the “same [KGB] directorate” as Putin, adding that their acquaintance was “not one-sided”. A member of the Civil Chamber for the Komi Republic interviewed for a 23 August 2016 Meduza article commented that Vasil’yev may still be associated with the Russian security services, which, if true, would suggest that NIK Razvitie itself is exposed to the influence of same security services.
3.2.1. NIK RAZVITIE AUTONOMOUS OF NFPR
NFPR purportedly exercises limited influence over NIK Razvitie’s commercial operations. Speaking to OCCRP, NFPR President Oleg Viktorovich Polozov maintained that this organization had “not owned commercial companies for a long time”, adding, “It’s possible that the company [NIK] was established at the dawn of the fund’s formation when there was an idea to finance it through participation in business”. Polozov further asserted that NFPR was not controlled by United Russia: however, corporate records reviewed by OCCRP indicate that the fund’s main office is located at the same Moscow address as United Russia’s Central Executive Committee. Polozov also has his own page on United Russia’s website, indicating that Polozov and NFPR are at least superficially affiliated with the party.
3.2.2. EURASIA INVESTMENTS AND ERTAEV OBTAIN STAKES IN TROIKA-D BANK
Several weeks before it integrated Tsifra Odin into its holdings, Eurasia Investments and Ertaev reportedly acquired 46- and 5-percent stakes in AO Troika-D Bank from its owner, Vladimir Movlidovich Akaev. In August 2017, Eurasia Investments expanded its stake in Troika-D to 95-percent. Ertaev, who media reports identified as the chairman of Troika-D’s board of directors, retained his 5-percent stake in the bank.
3.3. TELEFON 365
Telefon 365 was incorporated on 19 June 2015 by an individual named Vasily Sergeyevich Yevseyenko. Third-party aggregators of Russian company data show that on 22 December 2016, Yevseyenko’s shares in Telefon 365 were divided between one Yelena Vladimirovna Scherbakova (a/k/a Yelena Vladimirovna Luzanova), who received a 51-percent stake in the company, with the remaining 49-percent of Telefon 365’s shares being distributed to Konstantin L’vovich Antonevich. Antonevich acquired Scherbakova’s 51-percent stake on 4 June 2019, with his 49-percent block of shares being passed to one Vasily Rinatovich Kutliakhmetov.
Telefon 365 entered the ranks of Tsifra Odin’s shareholders a few months after the latter company announced its intention to partner with Swedish telecoms company Tele2 AB in providing mobile virtual network (“MVN”) services. Russian business news daily Vedomosti attributed this announcement to Alma Group and Tsifra Odin Gadalov in an article published on 28 August 2017. On 9 November 2017, Eurasia Investments ceded a 19.5-percent stake in Tsifra Odin worth RUB 245.65 million (approximately USD 4.14 million per contemporary exchange rates) to Telefon 365. Research was unable to determine whether Telefon 365 was in any way affiliated with Tele2.
NIK Razvitiye may have financed Telefon 365’s stake into Tsifra Odin, as according to a 25 January 2018 article published by The Moscow Post, NIK Razvitiye held a lien on Telefon 365’s shares in the internet services provider. Scrutiny of Telefon 365’s accounting records reveal that the company borrowed RUB 770.16 million (approximately USD 1.11 million per 31 December 2018 exchange rates) between FY 2017-2018. A portion of these funds may have come from NIK Razvitiye; however, research did not turn up any corroborating documentation to this effect.
3.3.1. TELEFON 365 INKS AGREEMENTS WITH NIK RAZVITIE AND UDODOV ON SAME DAY
Court records indicate that on 27 December 2017, Telefon 365 issued a series of promissory notes to Udodov in return for a RUB 556,791,480.50 loan (approxiamtely USD 9.63 million per contemporary exhange rates) . Court records for a separate matter indicate that on that same day, NIK Razvitie signed an agreement with Telefon 365 whereby the latter committed to pay NIK Razvitie a total of RUB 280 million (approximately USD 2.84 million per contemporary exchange rates) in two installments — the first, a RUB 230 million tranche, to be paid within three working days, and the second, for RUB 50 million , to be paid by no later than 14 May 2018 — as a security deposit in exchange for being permitted to conclude a future share purchase agreement for a 18- to 32-percent stake in Tsifra Odin with an unspecified counterparty. This agreement allegedly obliged NIK Razvitie to repay the security deposit to Telefon 365 if the share purchase agreement was not finalized by 28 May 2018.
4. TELEFON 365 CEDES SHARES IN TSIFRA ODIN TO KARMANOV-AFFILIATED MEDIA PRODUCTION COMPANY TWO WEEKS AFTER SIGNING AGREEMENTS WITH UDODOV AND NIK RAZVITIE
On 18 January 2018, a little over two weeks to the day that it signed the aforementioned promissory note and security deposit agreements with Udodov and NIK Razvitie, respectively, Telefon 365 transferred a 12.295-percent stake in Tsifra Odin out of its own shares to OOO Solaris Promo Production. (“SPP”) 62.5-percent of SPP’s shares belong to OOO Eurasian Pipeline Consortium (“ETK”), of which Karmanov is a 95-percent shareholder and general director. Udodov is reportedly a member of ETK’s board of directors. SPP is best known for producing Dom-2, a long-running reality show broadcast by the Gazprom-controlled TNT television network.
SPP stood to profit from its stake in Tsifra Odin, which, as noted in Section 3.1.1, had obtained hundreds of millions of rubles in public contracts, including from SOEs and government agencies involved in national security matters. Nonetheless, SPP’s interest in Tsifra Odin proved short-lived, however, as third-party corporate data aggregators indicate that Karmanov’s company returned its shares in Tsifra Odin back to Telefon 365 on 28 June 2018. Although research identified limited information regarding SPP’s rationale for exiting the ranks of Tsifra Odin’s shareholders, examination of contemporary media reports reveals that its withdrawal followed a flurry of law enforcement activity targeting Ertaev, the honorary president of former Tsifra Odin owner Alma Group.
5. Ertaev arrested and extradited to kazakhstan on embezzlement and money laundering charges
Russian police arrested Ertaev in Moscow on 5 May 2018. More than a month later, on 29 June 2018 — the day after Telefon 365 regained its shares in Tsifra Odin from SPP — the Prosecutor General’s Office of Kazakhstan (“PGO-KZ”) announced that it had initiated formal procedures to extradite Ertaev from Russia. Moscow’s Presnensky District Court approved the PGO-KZ’s extradition request in November 2018. On 15 March 2019, PGO-KZ announced that it had finally extradited Ertaev to Kazakhstan.
А relevant PGO-KZ press release claims that between 2011 and 2017, Ertaev embezzled KET 144.3 billion (approximately USD 330 million per contemporaneous exchange rates.) from Kazakhstani AO Bank RBK, through a series of improper loans approved by complicit members of the bank’s board of directors, to which he was purportedly an advisor. These principals included former Bank RBK board chairman Igor Sharipkanovich Mazhinov, who is the son-in-law of Kazakhstani billionaire and reputed Nazarbaev confidante Vladimir Sergeevich Kim. Per Informburo.kz, Kazakh prosecutors allege that Ertaev appropriated a portion of the money embezzled from Bank RBK to acquire stakes in Tsifra Odin and several other Russian telecoms operators in the Moscow region, as well as in Troika-D.
Ertaev pleaded guilty to embezzlement and money laundering in January 2020. In November of that same year, Almaty’s Almalinsky District Court sentenced Ertaev and Mazhinov to 11- and 8-years’ imprisonment, respectively, for their role in the aforementioned scheme. An Alamty appellate court reportedly reduced Ertaev’s sentence to 10 years in May 2021.
6. russia’s central bank strips troika-d of banking license for violating money laundering laws
On 17 April 2019, Russia’s Central Bank (“TsBR”) revoked Troika-D’s banking license for allegedly violating federal anti-money laundering and terrorism financing regulations. On 4 July 2019, the Arbitration Court for the City of Moscow (“ASGM”) placed Troika-D under involuntary bankruptcy and appointed ASV to act as Troika-D’s bankruptcy custodian at the request of TsBR. Although the Kazakhstani state alleges that Ertaev used funds embezzled from Bank RBK to purchase shares in Troika-D, research did not identify any information indicating that Ertaev laundered any criminal proceeds through Troika-D.
6.1 asv’s institutional ties to tsbr
ASV maintains a close working relationship with TsBR in its capacity as the primary liquidator of financial institutions placed under involuntary bankruptcy by TsBR. This institutional relationship is further evidenced by the fact that TsBR Chairwoman Elvira Sakhipzadovna Nabiullina heads ASV’s board of directors.
6.1.1 tsbr chairwoman nabiullina and mishustin’s prior work for former economic development and trade minister gref
Nabiullina maintains longstanding professional ties to former Minister for Economic Development and Trade and current Sberbank CEO Gref, an economic liberal who worked alongside Putin in the St. Petersburg Mayor’s Office during the early 1990s. Gref headed Russia’s Ministry for Economic Development and Trade (“MERT”) between 2000 and 2007; Nabiullina was First Deputy Minister for Economic Development and Trade from 2000 to 2003. Nabiullina also served under Gref as the Vice-President of the Center for Strategic Research (“TsSR”), a liberal policy think tank, between 1999 and 2000. She succeeded Gref as TsSR President in 2003, remaining in that role until 2005. Nabiullina succeeded Gref as MERT head in 2007. Multiple media sources refer to Nabiullina — somewhat ironically — as Gref’s “right hand man”.
Gref appointed Mishustin to head MERT-affiliated agencies between 2004 and 2008. According to Forbes Russia, Gref personally invited Mishustin to head the MERT’s newly established Federal Agency for Real Estate Cadastre in March 2004. Gref later appointed Mishustin to head another MERT body, the Federal Agency for the Management of Special Economic Zones, (“RosOEZ”) in December 2006. Mishustin appears to have remained in this role after Nabiullina succeeded Gref as MERT’s head in September 2007, ultimately resigning from RosOEZ in February of the following year. Media reports quoted Mishustin as saying that he left RosOEZ voluntarily in order to work for a “major financial investment company”; the company in question appears to be United Financial Group, which reportedly hired Mishustin on unusually generous terms.
7. udodov files civil debt collection claim against telefon 365
Ertaev’s extradition to Kazakhstan in March 2019 preceded the onset of Udodov’s dispute with Telefon 365. The promissory note agreement reached between Udodov and Telefon 365 on 27 December 2017 entitled the former to call in the debt on these notes from the latter on or after 28 March 2019. Court filings state that Udodov called in Telefon 365’s debt a week and one day after that date, on 6 May 2019. Several weeks later, on 31 May 2019, Udodov filed a civil claim requesting that Moscow’s Presnensky District Court order Telefon 365 repay the RUB 556 million that Udodov had loaned the company under the 27 December 2017 promissory note.
7.1. udodov asks court to freeze telefon 365’s stake in tsifra odin
Telefon 365 responded to Udodov’s civil debt collection action over the 27 December 2017 promissory note agreement by filing a counterclaim accusing Udodov of unjust enrichment. Udodov responded with a motion requesting that the court bar Telefon 365 from registering any changes affecting its stake in Tsifra Odin’s share capital, arguing that Telefon 365’s stake in Tsifra Odin was the only asset that it could draw upon to satisfy its debt towards him. Udodov’s motion further alleged that Telefon 365 had attempted to avoid repaying the debt incurred pursuant to the 27 December 2017 promissory note agreeement by secreting its money away under the cover of repaying fictitious debts to shell companies, potentially so as to declare bankruptcy and thereby escape its obligations to Udodov under fraudulent pretexts. Court records do not specify the exact dates on which Telefon 365 and Udodov filed their respective motions; however, these records do indicate that Udodov’s request was denied twice, first by the Presnensky District Court and again by a district appellate judge.
8. udodov prevails in civil debt collection claim, telefon 365 appeals
Despite the failure of his bid to freeze Telefon 365’s shares in Tsifra Odin, the Presnensky District Court on 23 June 2020 ruled in favor of Udodov and ordered Telefon 365 to repay him the RUB 556 million principal plus RUB 2,482,679.82 (approximately USD 36,145 per contemporary exchange rates) in interest. Docket information indicates that Telefon 365 appealed the Presnensky District Court’s ruling on 7 August 2020. Telefon 365 also filed a separate civil claim on 21 July 2020 requesting that Moscow’s Kuntsevsky District Court render an order nullifying a certain unspecified agreement. Relevant court records do not specify whether the agreement under concern was Telefon 365’s 27 December 2017 promissory note agreement with Udodov.
9. asv files debt collection claim against udodov on behalf of troika-d
On 30 December 2019, ASV, acting in its capacity as Troika-D’s bankruptcy trustee, filed a debt claim in Moscow’s Preobrazhensky District Court accusing Udodov of failing to make timely payments towards a credit line which Troika-D Bank had extended to him in 2017. (Relevant court records do not specify the day and month of the credit agreement) The matter was closed on 20 July 2020 after ASV agreed to sell off Troika-D’s claim on Udodov’s debt to an unidentified third party through a descending-price auction starting at RUB 375,020,891.12 (approximately USD 5.25 million per contemporary exchange rates). For more information regarding the resolution of this matter, please refer to Section 11.
9.1. karmanov buYs out troika-d’s debt claim against udodov
Karmanov appears to have bought out Troika-D’s debt claim against Udodov, thus sparing Udodov from further litigation by ASV. Bankruptcy records cached by Google show that Karmanov successfully bid RUB 347,269,345.18 (approximately USD 4.8 million per contemporary exchange rates) to acquire Troika-D’s debt claim on Udodov through an ASV-moderated descending price auction on 28 July 2020. As noted in Section 9, ASV ended its civil debt collection action against Udodov on 20 July 2020 after agreeing to sell off Troika-D’s debt claim against Udodov to an unidentified third party; the available evidence indicates that Karmanov was the third party in question.
10. court denies telefon 365’s appeal after Tsifra Odin general director gadalov charged with organized fraud
On 12 September 2020, Moscow’s Tagansky District Court charged Alexander Avenirovich Gadalov — the then-general director of Alma Group, Tsifra Odin, and several other telecoms operators affiliated with Ertaev and Alma Group — with organized criminal fraud. Multiple media citations have inferred that charges against Gadalov were connected to the Ertaev case. Two weeks and three days earlier, on 22 September 2020, the Judicial Collegium for Civil Cases of the Moscow City Court upheld the Presnensky District Court’s 23 June 2020 verdict in favor of Udodov.
10.1. person with name similar to telefon 365 shareholder antonevich charged with organized fraud in connection to Gadalov
On 22 October 2020, the Tagansky District Court arraigned a person identified only as “K.L. Antonevich” on criminal organized fraud charges. Appellate court filings indicate that the same K.L. Antonevich was charged alongside former Alma Group and Tsifra Odin general director Gadalov. The filings further indicate that Gadalov and K.L. Antonevich were both sentenced to house arrest. Limited information is available regarding the substance of the criminal charges against Gadalov and K.L. Antonevich, though, as noted in Section 10, media citations have theorized that Gadalov was charged in connection to the Ertaev embezzlement and money laundering case.
11. udodov’s attorney assumes ownership of telefon 365
Less than one week after K.L. Antonevich’s arraignment, on 27 October 2020, both Antonevich and Kutliakhmetov’s shares in Telefon 365 were re-registered under the name of one Vyacheslav Ivanovich Yefimenko.Court records show that an “V.I. Yefimenko” acted as Udodov’s counsel in the aforementioned debt collection lawsuit against Telefon 365. All available information points to the “V.I. Yefimenko” who represented Udodov in his legal dispute with Telefon 365 being the same Yefimenko who obtained control of Telefon 365 in the wake of Antonevich’s apparent conviction. The same day that Yefimenko took control of the company, Telefon 365 filed a motion notifying the Kuznetsky District Court that it would withdraw the claim it had filed against Udodov on 21 July 2021.
Media citations depict Yefimenko as an unethical attorney who draws on his association with corrupt law enforcement officials to seize control of companies for the purpose of stripping their assets. According to a now-deleted article published on 11 August 2016 by Russian crime and corruption monitor mzk1.ru, Yefimenko is a lawyer who specializes in “reiderstvo”, an informal practice that British scholar Philip Hanson defines as the “illicit acquisition of a business or part of a business, usually with the assistance of corrupt actions by law-enforcement [sic] officers and courts”. One of Yefimenko’s purported victims has alleged that Yefimenko and his associates are protected by Russian deputy prosecutor general Viktor Yakovlevich Grin’ as well as by various current and former FSB officials.
12. telefon 365 joins claim seeking return of tsifra odin security deposit from nik razvitie, prevails after yefimenko’s takeover
In the autumn of 2020, Telefon 365 intervened in a civil complaint brought against NIK Razvitie by one Dmitry Olegovich Komarov in ASGM. Available court records indicate that Komarov sought to reclaim the RUB 230 million which Telefon 365 had paid NIK Razvitie pursuant to the security deposit agreement formalized between the two parties on 27 December 2017 — the same day that Telefon 365 concluded the promissory note agreement with Udodov. On 9 October 2020, ASGM, approved a petition from NIK Razvitie requesting that ASV and Telefon 365 be involved as third parties. Antonevich and Kutliakhmetov still controlled 51- and 49-percent stakes in Telefon 365 at the time.
Relevant court records provide an abridged history of how Komarov came to obtain Telefon 365’s claim on the RUB 230 million that it paid to NIK Razvitie under the 27 December 2017 security deposit agreement. According to these records, Telefon 365 extended the deadline for concluding the security deposit agreement six times between 28 May 2018 and 15 March 2019. On 2 March 2020, Telefon 365 reportedly ceded its right of claim on the repayment of the RUB 230 million security deposit to one Alexander Alexevich Pan’kov, who in turn transferred same right of claim to Komarov on 1 April 2020.
On 7 December 2020, ASGM ruled in favor of a motion filed by Telefon 365 — which had come under the control of Udodov’s attorney, Yefimenko, the previous October (see Section 11) — requesting to regain the right of claim to the RUB 230 million from Komarov. On 16 April 2021, ASGM ruled in favor of Telefon 365 and ordered NIK Razvitie to repay the latter RUB 230 million.
13. tsifra odin files civil complaint demanding telefon 365 turn over accounting records
On 31 December 2020, Tsifra Odin filed a civil complaint in ASGM accusing Telefon 365 of failing to provide invoice information that would have allowed Tsifra Odin to claim value-added tax (“VAT”) deductions from the Federal Tax Service. (“FNS”) The complaint further requested that ASGM order Telefon 365 to hand over original copies of its accounts for all four quarters of 2017 and 2018 as well as the first three quarters of 2019 to Tsifra Odin. ASGM threw out Tsifra Odin’s complaint on 6 July 2021 and noted in its ruling that FNS was conducting an on-site tax audit of Tsifra Odin after the latter had failed to respond to requests for certain unspecified documents.
14. asv freezes ertaev, nik razvitie and eurasia investments’ assets – including tsifra odin
On 12 April 2021, ASGM ruled in favor of a motion filed by ASV requesting that the court freeze all cash and non-cash assets belonging to Ertaev, NIK Razvitie, Eurasia Investments — including Tsifra Odin, in which, according to ASV, Ertaev maintained a stake through its majority shareholder Eurasia Investments. Justifying its request, ASV asserted that Ertaev, his wife, and certain of his associates were investors in Eurasia Investments and through it had appropriated more than RUB 1.65 billion (approximately USD 21.3 million per contemporary exchange rates) from the fund since 2019 by stripping assets from Tsifra Odin and other telecommunications companies under Eurasia Investments’ control. The motion asserted that Ertaev’s actions legally entitled ASV to foreclose upon Tsifra Odin and other of Eurasia Investments’ telecommunications assets on behalf of Troika-D to satisfy the bank’s creditors and argued that a court-mandated freeze would prevent Ertaev and his associates from taking steps to conceal same assets from ASV.
15. ongoing civil litigation against tsifra odin by udodov and nik razvitie
Research identified several ongoing disputes involving Udodov, Tsifra Odin, Telefon 365, NIK Razvitie:
- On 29 June 2021, Udodov filed a civil complaint against Tsifra Odin in Moscow’s Kuntsevsky District Court after the Presnensky District Court declined to hear a separate complaint that he had previously filed against Tsifra Odin earlier that same month. No documents are available for this case at the time of this writing.
- On 20 July 2021, Troika-D filed a civil complaint in ASGM seeking to obtain a judgment extracting RUB 36,375,776.25 (approximately USD 488,571 per contemporary exchange rates) from Tsifra Odin and another Eurasia Investments-controlled telecoms company, OOO Company 2KOM. The sole available document for this case does not specify whether Troika-D’s complaint pertains to a breach of contract or an unpaid debt.
- On 5 August 2021, NIK Razvitie filed a civil complaint in ASGM against Tsifra Odin and its former general director, Gadalov. As noted in Section 13, Gadalov appears to have been charged with organized fraud alongside former Telefon 365 shareholder Antonevich — potentially in connection to the Kazakhstani investigation into Ertaev. The sole available document for this case, which identifies Udodov and Telefon 365 as third-parties, indicates that NIK Razvitie seeks to obtain a judgment that would nullify a certain unspecified agreement or agreements.
- On 16 August 2021, Tsifra Odin filed a civil complaint against Udodov in ASGM. Available docket information identifies NIK Razvitie and Telefon 365 as third parties. The sole available court filing for this matter indicates that Tsifra Odin’s complaint seeks to nullify a surety agreement from 27 December 2017 but does not specify whether the agreement in question is Udodov’s promissory note agreement with Telefon 365, the latter’s security deposit agreement with NIK Razvitie — both of which were signed on 27 December 2017 — or some other agreement concluded between Udodov and Tsifra Odin.
CORPORATE RAIDING GOES DIGITAL? AN ANALYSIS OF THE TSIFRA ODIN AFFAIR
16. interpreting the the tsifra odin affair as an intraelite power struggl
The legal and regulatory campaign waged against Tsifra Odin and Troika-D by ASV and FNS could betoken an emerging power struggle between modernizing bureaucrats and conservative hardliners for control over Russia’s digital transformation. According to Russian political analyst Tatiana Stanovaya, Mishustin and Nabiullina are central members of the “bureaucratic core of the Putin regime”, a faction that she describes as the “technocrats”. Per Stanovaya, Putin has granted the technocrats “a certain degree of autonomy” in realizing Kremlin digitalization policies and other modernizing reforms, an arrangement that Stanovaya claims has created the conditions for a “long-term clash” with conservative hardliners intent on “protect[ing] the system from both domestic and foreign foes”. These hardliners, whom Stanovaya calls the “protectors”, includes senior members of the Russian security services, better known as the “siloviki”. Stanovaya and other authors emphasize, however, that the siloviki are an ideologically diverse cohort, or as Stanovaya puts it: “not all protectors are siloviki and not all siloviki are protectors”.
Given Mishustin and Nabiullina’s preeminent stature within the technocratic bloc as well as their ties to FNS and ASV, it is possible to interpret the latter entities’ activities around Tsifra Odin, Eurasia Investments, and NIK Razivitie — whose cofounder is reportedly affiliated with the siloviki — as an example of the technocrats’ resorting to reiderstvo tactics to assert their preeminence over the protectors in matters related to digitalization and other modernization initiatives of concern to the Kremlin. NIK Razvitie reportedly operates autonomously of its ostensive beneficiary NFPR, which may be explained by the fact that its cofounder and .005-percent shareholder, Vasil’yev — a veteran of the Soviet KGB — is reputedly affiliated with the siloviki. As such, NIK Razvitie may be using its affiliation with NFPR to conceal that it fronts for the Russian security services. Assuming that this is the case, then NIK Razvitie’s alleged management of Eurasia Investments stake in Tsifra Odin on behalf of Ertaev and his associates presents a reputational risk for the siloviki, not least considering that Tsifra Odin’s clientele includes entities active in the national security sphere. Mishustin and Nabiullina may have exploited this vulnerability to justify seizing control of Tsifra Odin on national security grounds, an act that would simultaneously demonstrate the technocratic camp’s ability to guarantee the security of digitalization programs and other modernization initiatives and undermine the protectors’ credibility in the eyes of the Kremlin.
17. INTERPRETING the tsifra odin affair as an example of “Sistema raiding”
The close timing of Telefon 365 majority shareholder Antonevich’s arrest on organized fraud charges with the takeover of Telefon 365 by Udodov’s attorney, Yefimenko, suggests that Udodov may have orchestrated the criminal charges against Antonevich to coerce him and his business partner, Kutliakhmetov, into giving up their stakes in Telefon 365 along with the latter’s minority position in Tsifra Odin. This scenario is characteristic of “reiderstvo”, a Russian term for the informal practice of using extralegal, often coercive, measures to seize control of or “raid” a company, sometimes with assistance from law enforcement officials and members of the judiciary.According to Thomas Firestone, a former resident legal advisor for the US Department of Justice at the US Embassy in Moscow, typical reiderstvo tactics include filing civil complaints to either gather information about a target company through discovery or to obtain a court order replacing the company’s management, and “commissioning” criminal cases against a target company’s owner as a means of facilitating the takeover of same company. Ledeneva contrasts the conventional model of reiderstvo, wherein “raiders bribe the officials”, with “sistema raiding”,[ii] in which “raiders’ attacks benefit not the raiders but the officials — who are the instigators (zakazchi), the driving force behind raiding”. (Ledeneva 2013, pp 191-192)
Mishustin may have directed Udodov’s apparent takeover of Telefon 365 and its minority stake in Tsifra Odin to facilitate ongoing efforts by ASV and FNS aimed at seizing control of Tsifra Odin over concerns regarding NIK Razvitie’s dealings with Ertaev vis-à-vis majority Tsifra Odin shareholder Eurasia Investments. On 12 April 2021, ASV — whose board of directors is headed by Mishustin’s former MERT colleague, TsBR governor Nabiullina — obtained a court order from ASGM that effectively facilitated the foreclosure of Tsifra Odin and other Russian telecoms controlled by Eurasia Investments on behalf of Ertaev by freezing the assets of Ertaev, NIK Razvitie, and Eurasia Investments. In its 6 July 2021 declination of a civil complaint brought against Telefon 365 by Tsifra Odin, ASGM commented that FNS – whose current head, Daniil Vyacheslavovich Yegorov, was appointed by Mishustin after the latter left FNS to assume the premiership in January 2020 — was conducting an on-site tax audit of Tsifra Odin after the latter had failed to respond to requests for certain unspecified documents. (See Sections 13 — 14)
Placing Telefon 365 and its minority stake in Tsifra Odin under the control of a trusted custodian — namely, Udodov’s attorney Yefimenko — removed the risk of Antonevich and Kutilakhmetov complicating the aforementioned legal and administrative proceedings. Udodov’s legal dispute with Telefon 365 and Yefimenko’s later acquisition of Antonevich and Kutilakhmetov’s shares in Telefon 365 following Antonevich’s arrest may thus be interpreted as a sistema raid in support of the ASV and FNS-led campaign against Tsifra Odin. The ongoing litigation among Udodov, Tsifra Odin, and NIK Razvitie, however, suggests that the outcome of this conjectural raid remains in play. (See Section 15)
18. did udodov “torpedo” telefon 365?
Circumstantial evidence derived from media reports suggests that Udodov has previously acted as a “torpedo”[iii] or undercover informant, raising the possibility that his dealings with Telefon 365 were a pretext for gathering compromising information about the company and its owners in preparation for a raid. On 16 December 2020, independent media outlet OpenMedia.io published an interview with Sergey Vladimirovich Danilochkin, whom Russian prosecutors allege helped organize a scheme to secure RUB 5.1 billion (approximately USD 69 million) through fraudulent VAT refund applications. According to Danilochkin, Udodov played “a significant role” in the scheme but was ultimately questioned by law enforcement not as a suspect but rather as a witness. Separately, officers with the Investigative Committee for the Russian Federation (“SKRF”) raided Udodov’s Moscow apartment on 6 April 2011 pursuant into an investigation into a VAT rebate fraud scheme allegedly organized by St. Petersburg liquor magnate and former Federation Council member Alexander Vital’yevich Sabadash. Investigative materials obtained by OpenMedia.iо purportedly indicate that SKRF investigators interviewed Udodov as a witness in the Sabadash case twice, first on 18 April 2013 and again on 12 December 2013, but took no further action.[iv]
Citing FSB investigative materials in its possession, The Insider on 3 June 2021 published a report alleging that Udodov had had regular contact with a colonel with the MVD’s economic security division, Dmitry Viktorovich Zakharchenko, who in June 2019 was sentenced to 13 years’ imprisonment for soliciting a RUB 3 million (approximately USD 47,411 per contemporary exchange rates) bribe from a Moscow restauranter in exchange for protection from law enforcement scrutiny. The Insider provided limited additional information regarding the substance of Udodov’s meetings with Zakharchenko, though investigative materials obtained by The Insider suggest that Udodov aided Zakharchenko in helping state-owned OAO Russian Railways avoid a RUB 16 billion (approximately USD 216-217 million) tax bill. Among said materials is a photograph, purportedly taken by an undercover law enforcement officer, of Udodov and Zakharchenko in conversation outside a Moscow hotel on 30 August 2016.
That Udodov ended up being questioned as a witness in connection to two separate VAT fraud schemes in which he was also said to be a suspect, and appears to have been surreptitiously photographed speaking with an allegedly corrupt FSB officer whom he purportedly helped in facilitating tax evasion, indicates that Udodov may have served acted as an undercover “torpedo” to bring down the authors of said schemes. However, insufficient information is available to determine whether Udodov used his business transactions with Telefon 365 as a cover for collecting evidence with which to incriminate its majority shareholder Antonevich.
TOWARDS AN ASSESSMENT OF UDODOV’S ROLE IN THE TSIFRA ODIN AFFAIR
The information presented in the preceding paragraphs suggests that Udodov’s civil complaint against minority Tsifra Odin shareholder Telefon 365 and the latter’s subsequent takeover by his counsel Yefimenko may have been a sistema raid undertaken in support of efforts by leading technocrats — including Udodov’s former brother-in-law, Prime Minister Mishustin, who sister divorced Udodov in December 2020 (media reports suggest that they separated several years earlier) — to seize control of Tsifra Odin through legal and administrative measures following Ertaev’s arrest in May 2018. Circumstantial evidence indicates that Udodov may have used the 27 December 2017 promissory note as a cover for collecting information with which to incriminate Telefon 365 majority shareholder Antonevich, who was subsequently charged in connection to Ertaev’s alleged scheme to launder funds embezzled from Bank RBK.
These assessments insofar based exclusively on information derived from by media reports, corporate records, court dockets, and other open-source materials. Insufficient information is available to corroborate whether Mishustin, Nabiullina, or any other members of the technocratic bloc directed Udodov and Yefimenko to take over Telefon 365 to facilitate the seizure of Tsifra Odin by ASV and FNS. Moreover, research did not identify any evidence that the 27 December 2017 promissory note agreement that formed the basis of Udodov’s legal dispute with Telefon 365 was designed to ensnare the latter in a web of civil — let alone criminal — liabilities, nor that these liabilities were intended to provide a legal pretense for a reiderstvo takeover. Although this legal dispute culminated in Udodov’s counsel Yefimenko seizing control of Telefon 365 shortly after its majority shareholder Antonevich was arrested on criminal organized fraud charges — charges that appear to have been connected to Ertaev’s embezzlement and money laundering scheme — there is no evidence that Mishustin or Udodov orchestrated the criminal charges against Antonevich on false pretenses in order to pressure him and Kutliakhmetov into giving up their shares in Telefon 365 to Yefimenko. No less conjectural is the notion that Tsifra Odin is the object of an intraelite power struggle between Stanovaya’s putative “technocrat” clique and “protector” cliques.
Despite this paucity of information, the available evidence does show an overlap in the circumstances behind Udodov’s legal dispute with minority Tsifra Odin shareholder Telefon 365, the arrest of Telefon 365’s majority shareholder Antonevich and the ensuing seizure of Telefon 365 by Udodov’s counsel Yefimenko, and ASV’s successful motion to freeze NIK Razvitie and Eurasia Investments’ shares in Tsifra Odin and other Russian telecoms companies that Ertaev allegedly purchased with funds embezzled from Bank RBK. This overlap is most clearly evidenced by the fact that the promissory note agreement between Udodov and Telefon 365 at issue in the aforementioned legal dispute was signed on 27 December 2017, the same day that Telefon 365 concluded a separate agreement with NIK Razvitie to pay the latter a security deposit in exchange for selling off a portion of its own shares in Tsifra Odin to a third-party — most likely Karmanov’s SPP, to which Telefon 365 ceded a 12.295-percent stake in Tsifra Odin on 18 January 2018. Court records indicate that the ownership of shares in Tsifra Odin was implicitly at issue in Udodov’s agreement with Telefon 365 and explicitly at issue in the latter’s security deposit agreement with NIK Razvitie. (See Sections 3.1.1 — 5)
I do not believe that these overlaps are random. Rather, they point to the persistent importance of informal relationships to the realization of Kremlin modernization strategies. Moreover, I argue that the whirlwind of litigation and administrative actions that have emerged around Tsifra Odin and Telefon 365 underscores the contradictory and potentially pernicious effects of relying on informal networks to realize policy.
CONCLUSION: DIGITALIZATION AND THE MODERNIZATION TRAP OF INFORMALITY
All available evidence indicates that Tsifra Odin affair originated in an effort to install a company controlled by a trusted cutout in Karmanov’s SPP as a minority shareholder of Tsifra Odin to ensure the latter’s compliance with the prerogatives of Putin’s digitalization policies in light of Tsifra Odin’s dealings with clients of consequence to Russia’s national security. The authors of this putative effort are unknown: though Karmanov has claimed that he enjoys a personal relationship with Putin confidantes Arkady and Boris Romanovich Rotenberg, research did not identify any evidence of their involvement. Whatever the case, Udodov appears to have brokered SPP’s acquisition of this stake through his 27 December 2017 promissory note agreement with Telefon 365. This agreement may have been intended to finance the security deposit that Telefon 365 agreed to pay NIK Razvitie — which appears to have managed Ertaev’s stake in Tsifra Odin through the Eurasia Investments fund — in exchange for permission to grant SPP a 12.295-percent stake in Tsifra Odin to SPP. Ertaev’s arrest in May 2018 likely provided a justification for jettisoning the contractual veneer of the formal strategy described above in favor of an more forceful approach; namely, employing a combination of formal (ASV and FNS’ legal and administrative measures against Ertaev, NIK Razvitie, and Eurasia investments) and informal tactics (Udodov’s civil complaint against Telefon 365) to effect the sale of Tsifra Odin to parties deemed trustworthy by the Kremlin.
The notion that Udodov’s dealings with Telefon 365 — apparently on behalf of Karmanov’s SPP — vis-à-vis Tsifra Odin and were driven both by profit motives and by considerations of Tsifra Odin’s relevance to Kremlin digitalization agenda is suggestive of the “network policymaking” phenomenon articulated by Vadim Kononenko in his introduction to the 2011 edited volume Russia as a Network State: What Works in Russia When State Institutions Do Not? Writing towards the end of Putin’s second premiership, Kononenko likened contemporary Russia to a “network state” characterized by a “symbiosis between informal groups and formal institutions of the state […] in which the elite groups foster their own special interests by infiltrating institutions, in effect merging with the state, while at the same time maintaining their own position as unaccountable to these institutions”. Kononenko further predicted that these informal elite networks would increasingly implement government policy “in parallel with the formal institutions”, adding that although this arrangement “advances the interests of domestic power groups and networks, both at home and abroad, while adhering to the rhetoric of ‘national interest’ and a strong state’ […] “the ‘national interest’ behind policy initiatives and goals becomes infused with the various ‘special interests’ of the state-private actors’”. (pp. 5-7)
Kononenko’s theories provide a possible narrative through which the circumstances of Udodov’s legal dispute with Telefon 365 might be made slightly less inscrutable. Through this lens, Udodov’s 27 December 2017 promissory note agreement with Telefon 365, which appears to have resulted in the latter granting Karmanov’s SPP a 12.295-percent stake in Tsifra Odin, was an informal exercise in network policymaking intended to bring Tsifra Odin under the watch of a reliable Kremlin insider. This agreement would implicitly serve the additional purpose of locking Tsifra Odin and its digital rents in for the benefit of pro-regime elites and conversely denying same rents to outsiders whose interests do not align with those of Putin’s Kremlin. Taken in this sense, Udodov’s legal dispute with Telefon 365 and its relationship to the Tsifra Odin affair is typical of the contradictory conflation of “special interests” with “national interests” outside of formal institutions.
According to Ledeneva, such contradictions are a feature and not a bug of the Putinist model of governance. In 2013’s Can Russia Modernise? Sistema, Power Networks, and Informal Governance, Ledeneva describes Putin’s system of governance or sistema as a constellation of informal networks populated by government and business elites whom the Kremlin relies upon to manage the execution of policy initiatives and other functions of governance in the absence of effective institutions. By delegating power to informal networks of political and economic elites in furtherance of its modernization agenda, the Kremlin effectively empowers those elites to engage in predatory rent-seeking behaviors that impede said modernization efforts. Ledeneva calls this phenomenon the modernization trap of informality: “Informal tactics for mobilising [sic] elites and allocating resources to insider networks undermine the fundamental principles of the rule of law, the separation of powers, and the security of property rights”. (pp. 252-253) Yet this may be beside the point, for Fiona Hill and Clifford G. Gaddy assert in Mr. Putin: Operative in the Kremlin that allowing elites to personally profit from their work on modernization-related projects may serve to ensure their compliance with Kremlin policy prerogatives — the implication being that non-compliance may result in blackmail-inflicted reputational ruin or criminal prosecution. (pp. 214-215)
Should the Kremlin continue to tolerate the self-serving conduct of affiliated elites in the fashion described by Hill and Gaddy, one may reasonably anticipate that the formal digitalization of Russia’s government and economy will be accompanied by increasingly aggressive informal competition for control of prospective digital rents among elite networks. This competition may not always degrade to level of out-and-out reiderstvo, as appears to have been the case in Yefimenko’s seizure of Telefon 365 following Antonevich’s arrest, the fact that reiderstvo and other informal tactics like it might remain a potential option for aspiring rentiers should cast doubt on digitalization as a viable vehicle for reforming the Russia’s economy and its formal state institutions to make them more accountable to the rule of law.
Professor Vladimir Gel’man of the European University of St. Petersburg asserts that under the prevailing governance model, which has given informal sanction to rent-seeking behaviors by elites in exchange for their shepherding national projects in accordance with the Kremlin’s requirements, Russia’s “digital transformation” will “not only fail to transform ‘bad governance’ into ‘good governance’, but it may also exacerbate the irremediable defects inherent in the current system”. Mishustin has framed digitalization as a means of restoring the perception of the Russian government and its agencies as “reliable helpers acting in good faith”. Yet this sentiment rings hollow considering that Udodov — who was brother-in-law to Mishustin for more than a decade — appears to have resorted to shady methods to seize control of a private company.
ENDNOTES
[i] Chernyshenko appears to have served on the board of directors of a “VIP” hockey tournament hosted in April 2011 by Sportima, a non-profit hockey club co-founded by Udodov and his then-wife Stenina. Mishustin and Udodov personally played in the tournament, as did the then-director of United Russia’s Central Executive Committee, Andrei Yur’yevich Vorob’yov. Chernyshenko’s fellow Sportima board members reportedly included then-Interior Minister and former FSB anti-contraband officer Rashid Gumarovich Nurgaliyev and Presidential Administration Chief of Staff Sergey Yevgen’yevich Naryshkin. Then-Finance Minister Alexei Leonidovich Kudrin handed out medals to the participating players. Sportima’s activities may be construed as a form of “hockey diplomacy”, which Yoshiko M. Herrera and Yuval Weber describe as “an informal practice of utilising amateur ice hockey for the development of personal, business, and governmental relationships in Russia”.
[ii] Ledeneva defines the “sistema” in “sistema raiding” as a “the mix of formal governance (which is the result of official hierarchies and policies) [sic.] and informal networks and influences”. Per Ledeneva, sistema is at the heart of Putin’s system of governance.
[iii] “Torpedo”, as defined by The New Yorker’s Joshua Yaffa, is a Russian term for confidential human sources who cooperate with law enforcement by agreeing to be recorded eliciting incriminating information from other suspects. Yaffa notes that in the Russian context, the use of torpedoes can sometimes “veer toward entrapment”.
[iv] Igor Ivanovich Sechin, the then-deputy prime minister for energy and chairman of state-controlled oil major Rosneft, may have steered SKRF to investigate Udodov as a way of retaliating against then-Finance Minister Kudrin for ending state subsidies to a Rosneft-operated oil and gas field in eastern Siberia. Reputed to be Putin’s “protective gatekeeper and confidant” (Foy), Sechin — reputedly a leading member of the siloviki bloc who current serves as Rosneft’s CEO and President as well as the Chairman of Rosneft’s management board — has allegedly orchestrated criminal cases against government officials and private businessmen alike in order to advance Rosneft’s business interests. Kudrin himself reportedly came under attack by Sechin in November 2007 when SKRF charged Kudrin’s subordinate, deputy finance minister Sergei Anatol’yevich Storchak, with attempted embezzlement of state funds. Sechin and his SKRF allies may have singled out Udodov for investigation because of his relationship with Mishustin, whom Kommersant once described as “Kudrin’s own man”. This theory is corroborated by the timeline of events: on 21 September 2010, less than two weeks before The Moscow Post published the first in a series of articles alleging Udodov’s involvement in VAT rebate fraud, Kudrin publicly refused to consider lowering tariffs on exports from Rosneft’s Vankor oil and gas field. Several months later, on 5 April 2011, online media outlet Republic.ru (formerly Slon), citing Reuters, reported that the government was ending tariff privileges for the Vankor field. The following day, SKRF officers attempted to search Udodov’s home amidst simultaneous raids on Chernichuk’s offices and home.
The Hall of Mirrors - Зеркальный Зал 