CFIUS Should Deny Acquisition Of Yahoo By Alibaba and DST

Yahoo may be fielding an acquisition offer by China's Alibaba Group, which is flush with new cash from Russian investment company DST Global. This isn't necessarily because Yahoo is such a wonderful asset. Microsoft raided the only thing valuable about the company a few years ago - its search engineers. Yahoo holds value for Alibaba because Yahoo owns a part of the Chinese company and Alibaba Group Chairman and CEO Jack Ma wants those shares back according to analyst Muzhi Li (Mizuho Securities). Still, this is an interesting problem from a national security perspective. Lots of U.S. federal and state government employees use free email services like Yahoo (ex-Governor Sara Palin being the most visible), as do government officials from other countries such as India. Foreign ownership of Yahoo, particularly where China and Russia are involved, makes access to those email accounts a national security matter for the U.S.

I've already documented DST-Global's many links to the Russian government. When it comes to Chinese companies, certain rules apply; the most important one being that a company must "stay within the good graces of Beijing to retain its permissions to do business". In general, here's the situation for Chinese IT companies according to Taia Global's China experts:

All Chinese IT companies are required to comply with Internet regulations and will provide user information on demand by the Chinese government.  The regulatory framework is designed for self regulation and censorship by Internet service providers and subscribers, rather than government monitoring on a daily basis.  While this collaborative arrangement may work generally and many Western analysts take this design at face value, Taia Global's analysts believe that the Chinese government still retains its own formidable monitoring capability in addition to cooperation from providers.  In this framework, national security and social stability are paramount, and the Ministry of Public Security and local Public Security Bureaus have the authority to investigate and enforce laws.  Other responsible government entities are:  the Ministry of Industry and Information Technology; the State Council Information Office; The State Administration of Radio, Film, and Television; and the General Administration of Press and Publications, Ministry of Commerce. 

So while apologists for Chinese companies like to argue that they are just another employee-owned company engaging in the global free market, the reality is more complex than that. CFIUS should take note and act to stop any foreign acquisition of Yahoo; particularly one involving Chinese and Russian companies.

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DST Global's Connections to the Russian Government

I've created a Prezi which depicts the many connections between the principals of DST Global and the Russian government. The Prezi graphical user interface allows you to zoom in to each of the connections. Sources and a description follow:

Yuri Milner
Milner currently serves the Russian government directly through several affiliations. He serves on the Presidential commission for the modernization and technological development of the Russian economy, a body on which Vladislav Surkov is deputy chairman. The commission is chaired by President Medvedev, and Sergey Sobyanin, who is Chief of Government Staff and Deputy Prime Minister, also serves as deputy chairman. [1]

The Russian Ministry of Communications and Mass Communications created three bodies to aid in its efforts to monitor Runet, all of which can be connected to Milner:

• Council on Internet Development – Mail.ru Group’s VP of Legal Affairs, M.V. Bobin is a member. [2]
• League of Internet Safety – Mail.ru Group’s CEO Dimitry Grishin is a member. [3]
• Council on Social Communications – Grishin and Milner are both members. 

In addition to his affiliations with these bodies, Milner was also specially appointed by the Ministry to monitor and analyze illegal content on Runet between 2009 and 2010.[4] Through his involvement in Ministry of Communications and Mass Communications cyber-related projects, Milner can be associated with the wider Russian cyber infrastructure, which includes:

• Ministry of Internal Affairs, Center E – suppresses extremist organizations and associations.
• Ministry of Internal Affairs, Directorate K – investigates cyber-crimes and illegal activity related to information technology.
• Federal Security Service (FSB) – responsible for protecting critical infrastructure, including communication networks [5]

Alisher Usmanov

Another key individual that links Milner to the Kremlin is Alisher Usmanov, the Uzbek-born Russian oligarch. Usmanov is co-owner of DST and is the largest shareholder of the company with a 32% stake. [8]

• Usmanov co-owns mining and metallurgy company Metalloinvest with State Duma member Andrei Skoch.[9]
• Usmanov has a long-term business relationship with Yevgeny Anayev, who is a former senior officer with the 6th Directorate of the KGB.[10] Anayev is also a former head of Rosoboronexport, Russia’s arms export agency.[11] The agency is a previous shareholder of Russian automobile manufacturer AvtoVAZ, and it offered to sell its shares to Usmanov in 2007. [12] Anatoly Isaikin is the current head of Rosoboronexport.[13]
• Usmanov is the chairman of the board for Gazprominvestholdings, the investment holding subsidiary of Gazprom, Russia’s state-owned energy company.[14] President Dimitry Medvedev was chairman at Gazprom from 2002-2008.[15] Vladimir Alganov, a known supporter of global energy dominance for Gazprom, is a former SVR employee.[16] Gazprominvestholdings is a crucial funder of government organization Nashi, a youth organization founded by Surkov to support the United Russia party.[17] 
• Businessman Boris Berezovsky is a previous shareholder of AvtoVAZ (through investment fund All-Russia Automobile Alliance, or AVVA).[18] He is also a previous shareholder of Russian newspaper Kommersant, for which Usmanov is a current shareholder.[19] Berezovsky, now exiled from Russia, has been claiming part of Vasily Anisimov’s stake in Metalloinvest since 2009.[20] Berezovsky is also a former Duma member.[21] Berezovsky founded LogoVAZ, at which Georgian businessman Arkadi “Badri” Patarkatsishvili worked.[22]
• Patarkatsishvili also was the business and financial director from 1995-2006 at ORT (Obzhestvennoye Rossiskoye Televidenye, Russian Public Television), where Surkov was the first deputy general director from 1998-1999.[23]

Milner also serves on the Commission on High Technologies and Innovations, which Prime Minister Vladimir Putin chairs.[6] This commission held a meeting on 3 August 2010 at Gazprom’s VNIIGAZ research institute, which further connects him to Usmanov.[7] Neither Usmanov nor Milner are listed as official members of the commission on its government website, but this is not surprising given both men’s attempts to downplay their Kremlin involvement, especially in the Western media.

Sources:
[1] “Russia Launches Initiative To Police The Internet”, Radio Free Europe / Radio
Liberty website, 08 Feb 2011
[2] “RIPN Representatives Joined Internet Development Council in the Ministry of Communications of Russia,” Russian Institute for Public Networks, accessed September 28, 2011, http://www.ripn.net/press/en/2009/internet_sovet.html.
[3]  Kevin O'Flynn, “Russia Launches Initiative to Police Internet,” Radio Free Europe Radio Liberty, February 8, 2011, accessed September 29, 2011, http://www.rferl.org/content/russia_laimches_initiative_to_police_internet/2301671.html.
[4] Vladislav Novy, “Yuri Milner Will Clean Up The Internet," Infox.ru, May 13, 2010, accessed September 29, 2011, http://infox.ru/business/net/2009/12/09/Milnyer_budyet_borot.phtml.
[5] InfoFox.ru "Yuri Milner will clean up the Internet", 13 May 2010
[6] William F. Jasper, “Facebook: Are You Interfacing with the Russian Mafia & KGB?,” The New American, August 18, 2010, accessed September 29, 2011, http://thenewamerican.com/usnews/politics/4346-facebook-are-you-interfacing-with-the-russian-mafia-a-kgb.
[7] “Prime Minister Vladimir Putin chairs a meeting of the Government Commission on High Technology and Innovations at the Gazprom VNIIGAZ research institute for natural gas and gas technologies,” Prime Minister of the Russian Federation, August 3, 2010, accessed September 29, 2011, http://premier.gov.ru/eng/events/news/11611/.
[8] Madhav Chanchani, “All You Wanted to Know about Digital Sky Technologies,” Moneycontrol.com, January 14, 2011, accessed September 27, 2011, http://www.moneycontrol.com/news/business/all-you-wanted-to-know-about-digital-sky-technologies_513293.html.
[9] “Andrei Skoch - Forbes,” Forbes, last updated March 2011, accessed September 28, 2011, http://www.forbes.com/profile/andrei-skoch/.
[10] Ian Cobain, “Usmanov's responses to Guardian questions,” The Guardian, November 18, 2007, accessed September 28, 2011, http://www.guardian.co.uk/world/2007/nov/19/russia.football.
[11] Staff Writers, “Ex-Arms Exporter Wanted in Italy,” The Moscow Times, June 24, 2004, accessed September 28, 2011, http://www.themoscowtimes.com/business/article/ex-arms-exporter-wanted-in-italy/230492.html.
[12] “Russia's Mordashov, Usmanov eye AvtoVaz stake: Ifax,” Reuters, September 26, 2007, accessed September 29, 2011, http://www.reuters.com/article/2007/09/26/us-avtovaz-russia-rosoboronexport-idUSL2668638720070926.
[13] “Anatoly Isaikin Named as Head of Rosoboronexport,” RZD-Partner, November 26, 2007, accessed September 28, 2011, http://www.rzd-partner.com/news/2007/11/26/315498.html.
[14] “ALISHER USMANOV - Founder of the Holding,” Metalloinvest, accessed September 28, 2011, http://metinvest.com/eng/metalloinvest/rykovodstvo/founder/.
[15] “Profile: Dmitry Medvedev,” BBC News, last updated May 7, 2008, accessed September 29, 2011, http://news.bbc.co.uk/2/hi/europe/7136556.stm.
[16] Neil Barnett, “From Poland to Hungary, Gazprom Takes Stealth Route to Domination,” The Independent, January 8, 2006, accessed September 28, 2011, http://www.independent.co.uk/news/business/analysis-and-features/from-poland-to-hungary-gazprom-takes-stealth-route-to-domination-522003.html.
[17]  Jeffrey Carr, “The War that We Don't Recognize is the War We Lose,” Forbes, July 13, 2010, accessed September 28, 2011, http://www.forbes.com/sites/firewall/2010/07/13/the-war-that-we-dont-recognize-is-the-war-we-lose/.
[18] Alla Startseva, “AVVA Positions to Swallow AvtoVAZ,” The St. Petersburg Times, December 5, 2000, accessed September 29, 2011, http://www.sptimes.ru/index.php?action_id=2&story_id=13557.
[19] Nabi Abdullaev, “Metals Oligarch Buys Up Daily Newspaper,” The St. Petersburg Times, September 5, 2006, accessed September 29, 2011, http://www.sptimes.ru/index.php?action_id=2&story_id=18717.
[20] Alexandra Terentyova, “Metalloinvest Co-Owner Vasily Anisimov May Sell His Stake,” The St. Petersburg Times, October 29, 2010, accessed September 29, 2011, http://www.sptimes.ru/index.php?action_id=2&story_id=32843.
[21] David Hoffman, “Russia Vote Returns Tycoon to Spotlight,” The Washington Post, December 23, 1999, accessed September 29, 2011, http://www.washingtonpost.com/wp-srv/WPcap/1999-12/23/076r-122399-idx.html.
[22] “Background Briefing: Arkadi “Badri” Patarkatsishvili,” The Georgian Daily, accessed September 29, 2011, http://georgiandaily.com/repository/Badri%20Patarkatsishvili%20background%20-%2012-07-07.pdf.
[23] “SURKOV, Vladislav Yuryevich,” RussiaProfile.org, last modified August 26, 2010, accessed September 29, 2011, http://www.russiaprofile.org/bg_people/resources_whoiswho_alphabet_s_surkov.html.

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Questions about Yuri Milner, the KGB, and the Influence of Foreign Governments

Yuri Milner during a session of the Presidential commission
 on Modernisation of Russian Economy held in MISIS* 

As discussed at the recent Suits and Spooks conference, social networks are contributing to revolutionary changes taking place worldwide and as a result they've become an indispensable platform for offensive operations as well as intelligence collection. One of the world's most sophisticated investors in social meda is Yuri Milner. As co-founder and CEO of DST Global (formerly known as Digital Sky Technologies), he leads a multi-national social media investment powerhouse staffed by many ex-Goldman Sachs employees and fueled with investment by Tencent (China) and Naspers (South Africa). Combined, these three companies have significant ownership interest in some of the largest online properties in the world including Facebook, Twitter, GroupOn, Zynga, Riot Games, Astrum Online Entertainment, Mail.ru, QQ, ICQ, Ibibo, Alibaba, and many more.

From a national security perspective, this raises a number of red flags (no pun intended). One of the biggest is the question of what Yuri Milner's relationship was and is with the Russian government., This isn't a question born out of pure speculation. Yuri Milner spent the 2nd half of the 1990's in a senior position at Bank Menatep.  According to Congressional testimony, Bank Menatep started as a front for Russian money-laundering and was reportedly controlled by the KGB. This came out in testimony before the U.S. House of Representatives, Committee on Banking and Financial Services on September 21, 1999. A few select quotes follow:

YURI SHVETS (former KGB agent). Yes, Mr. Chairman, Menatep was one of the largest Russian banks, the most heavily penetrated by the KGB, starting with the former KGB Chairman, Ivanenko. There were different factions within the KGB before the collapse of the Soviet Union, after collapse of the Soviet Union. So Menatep apparently worked more closer with the faction of the KGB which supported Boris Yeltsin in his fight against so-called ''Gigashipa'' in August 1991, and it basically fits the pattern of the KGB-penetrated financial institution. 

Chairman LEACH. Do you have any comments on Menatep, Ms. Williamson?

 ANN WILLIAMSON (author of "Contagion: The Betrayal of Liberty; Russia and the United States in the 1990's"). Well, it was known as a gangster bank in Moscow. And one thing about the KGB involvement, though, is that the CPSU banked at the Vnesheconomobank, which in the trade is known as V-Bank; and account number one belonged to CPSU, and it was actually KGB that handled the money transfers and so forth for the Communist Party under the Soviet Union. So their moving into Menatep was also a certain capturing of professionalism.

But I do know that Income Bank employees used to complain vociferously, because they said there is no end to the money Menatep can get; they constantly were refilled, they told me. 

Chairman LEACH. Yes, I know.

Some of the most damning testimony about Menatep Bank from the 1999 Russian money-laundering hearings came from Ms. Karon von Gerhke-Thompson, VP at First Columbia Company, Inc.:

STATEMENT OF KARON von GERHKE-THOMPSON, VICE PRESIDENT, FIRST COLUMBIA COMPANY, INC.
In April of 1993, I volunteered my services as an unpaid intelligence asset to the CIA on a CIA operation to penetrate what the CIA, FBI and Department of Justice knew was a KGB money laundering operation that had tentacles that reached into the Kremlin to Boris Yeltsin. The target of the operation was Alexandre Konanykhine, the U.S. Vice President of Menatep Bank and President of Greatis USA, a public relations and advertising firm that he alleged represented Menatep Bank, the European Union Bank and Greatis Russia, among others.
Konanykhine was a known KGB asset running a KGB money laundering operation with stolen funds that were passed through Khodorkovsky of Menatep Bank as a KGB-controlled front firm. The money was being laundered through Menatep Bank that is also alleged to be KGB-owned and controlled, as is Menatep's wholly-owned subsidiary, Yukos Oil.
In April of 1994, I was advised by two CIA intelligence officers that the operation had been compromised by convicted spy Aldrich Ames.

While this particular CIA operation ended in 1994, Milner joined the bank in 1995. The KGB had become the FSB and Bank Menatep continued to function until it lost its license in 1999 after the bank failed during the August 1998 Russian financial crisis.  Bank Menatep was one of the Russian banks where the International Monetary Fund deposited the $4.8 billion loan to support the Russian government.  As Nobel Prize winning economist Joseph Stiglitz detailed in Globalization and Its Discontents, the IMF and World Bank watched as the funds moved to Cypriot and Swiss bank accounts within days of the loan’s deposit.  Bank Menatep was left with Russian government bonds that were worthless when the Russian government defaulted.  As the timeline below shows, Milner was a senior official at Bank Menatep during this period:

• 1990-1991: Student at Wharton School of Business
• 1992-1994: Staffer at the World Bank in Washington DC
• 1995-1996: General Director of Alliance Menatep
• 1997-1998: Deputy Chairman & Head of Investment Management at Menatep Bank
• 1998: Regained his earlier position as General Director, Alliance Menatep
• 1998: CEO, New Trinity Investments
• 1999: His tenure as Menatep Bank ended when the bank lost its license

Why Does This Matter?
The Russian government, like other totalitarian regimes in Asia, the Middle East and Northern Africa, is heavily invested in ways to control the Internet in general and online social networks in particular. They're all afraid of a repetition of the Arab Spring occurring within their own dissident populations. As Norway's Foreign Minister Jonas Gahr Støre recently said "Social Media challenge regimes. People bring them down." One way that the Russian and Chinese governments can penetrate and gain influence in foreign-owned social networks is to encourage investment by their national champion firms like Tencent (China) and Milner's DST-Global (Russia). By investment, I mean significant ownership stakes worth hundreds of millions of dollars. With that kind of money comes influence, and influence opens the door to lots of insider privileges and favors.

Social Media Investments for DST, Tencent, Naspers

Social media is clearly a growth industry and should provide healthy returns on investment for all of the companies who play in that space. However that doesn't change the fact that for companies formed inside the borders of potential adversary states like Russia and China, government influence is an undeniable factor. Add to that the close relationships that Yuri Milner has had by virtue of working at a KGB-controlled bank in the 90's and his ongoing relationships with powerful government officials like Vladimir Surkov and oligarchs like Alisher Usmanov both past and present, not to mention his service on various government commissions, and you must conclude that there is the potential for significant conflicts of interest if, as the Russian government fears, Russians use social media to assert the same rights as Tunisians, Egyptians, and Libyans. The rapid embrace of Facebook, Twitter, Weibo, and even online gaming by over a billion people has made us all more vulnerable to attack and exploitation by bad actors - state-sponsored or not. What pressures foreign governments may exert upon their influential citizens and the companies they run is a national security question that must be discussed sooner or later.
----------------
* Photo source: http://www.flickr.com/photos/dyor/4893792942/in/photostream

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DST Global, Social Media, and Favors For The Kremlin

Dvorkovich & Milner*

My company has been advising government and corporate interests about Russian investment in social media in general and DST Global in particular since 2009. I've had the unique "privilege" of having an article about the CEO of DST Global pulled from Forbes.com with nothing more than a phone call from Mr. Milner to Forbes followed by a threatening letter from his attorney. Now I see that DST Global II has finally succeeded in convincing Twitter to take its money - $400 million for a 5% stake in the company.

Two Predictions
If Milner's pattern with past investments holds true, two things will happen in the months following this Twitter investment:

1. DST Global II will increase its holdings in Twitter one way or another. With Facebook it was through the purchase of employee shares. Time will tell how it happens with Twitter, but rest assured, it will happen.
2. Yuri Milner will perform some high profile service for the Russian government most likely having to do with the security of Runet (the Russian Internet).

These predictions are based upon the following historical record:

These tables were created for a paper that I wrote entitled "The Geopolitical Strategy Of Russian Investment In Facebook And Other Social Networks" for the Georgetown Journal of International Affairs. The issue is entitled International Engagement On Cyber: Establishing International Norms & Improved Cyber Security, and will be available by August, 2011.

*The above photo was taken for Kommersant on 30.03.2011 in Russia, Chelyabinsk region, Magnitogorsk. Russian presidential aide Arkady Dvorkovich (left) and CEO of the Digital Sky Technologies (DST) Yuri Milner (right) during a meeting of the Commission under the President of Russia on modernization and technological development of economy of Russia.

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Is Political Office In Yuri Milner's (CEO, DST-Global) Future?

Russian billionaire Yuri Milner’s profile has risen dramatically since his 2009 investment in Facebook.  Indeed, the May 14th issue of the influential British weekly The Economist credits Milner with triggering the latest cycle of investment in tech companies.  The Economist speculates that the cycle is showing signs of “irrational exuberance” and might represent the next investment bubble.

Recent Russian developments, however, indicate that Yuri might enter Russian domestic politics.  In 2009, Milner was appointed to the Presidential Commission on Innovation.  At that time, the commission’s members were all either government officials or leaders of government controlled entities with the exception of Yuri Milner, head of Digital Sky Technologies, and Mikhail Prokhorov, head of ONEKSIM Group.  According to Russian press, Mr. Milner attended commission meetings as late as January 2011.

On May 16th, commission member Mikhail Prokhorov announced he would head the political party Right Cause for the 2012 presidential elections.  Prokhorov, one of Russians richest men and owner of the National Basketball Association team The New Jersey Nets, gives Right Cause a new face for a Russian public that might be tiring of the current Medvedev-Putin tandem.

We note that fellow commission member Yuri Milner possesses many of the same qualities that make Prokhorov attractive.  He has been successful in his Russian investments and is increasingly known in the west without being linked directly to the current government.

However, prominent Russian political analyst Dmitry Orlov noted on May 17th on Vedomosti.ru, that there are 25 to 30 influential Russian politicians and businessmen setting the scene for the 2012 elections.  The group, Orlov notes, helped start the Presidential Commission on Innovation to capture the modernization agenda for the government.  Many of the group serve on the commission.  One of two non-government commission member’s hat is now in the ring.  Will the second follow?

- This post was researched and written by Taia Global's Russia analysts -

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The Kremlin's Online Hit Squad - The Nashi - Attacks LiveJournal.com

The popular Russian blogging site LiveJournal.com has been under heavy DDoS attacks from at least two different botnets over the last couple of weeks targeting high profile political dissident and anti-corruption blogger Alexey Navalny as well as other controversial sites. Maria Gamaeva of Kaspersky Labs provides a list of the targets that they were able to pull from one of the botnets used in the attack (the Optima/Darkness botnet).

This apparently all began when Navalny began attacking the current ruling political party (United Russia) by calling them the party of swindlers and thieves. Retaliation followed in the form of spamming Navalny's blogs with derogatory comments. At least one advertisement was found online which offered $14,000 rubles per month for individuals to continue the campaign against Navalny, according to Maria Antonova writing for the AFP news agency. Antonova wrote that many bloggers suspected the Nashi to be responsible for the attacks against Navalny and LiveJournal.

The Nashi was the brainchild of Vladislav Surkov, Chief Ideologue and First Deputy Chief of Staff of the President of the Russian Federation Dmitry Medvedev. Shortly after the Russia Georgia War of 2008, Surkov reportedly told a roomful of Russian spin doctors that "August, 2008 was the starting point of the virtual reality of conflicts and the moment of recognition of the need to wage war in the information field too."("Information Warfare Chronicles" (Yevropa, 2009)).

As I wrote in my book "Inside Cyber Warfare", Surkov intends to use Nashi to enforce the Kremlin’s will regarding RUNET communications, i.e., “Ensure the domination of pro-Kremlin views on the Internet” (published by The New Times Online in Russian, 16 Feb 09). In March, 2009, Surkov
organized a conference with about 20 key people in the Russian blogging community, as well as leaders of the aforementioned youth organizations, some of whom include:
• Maksim Abrakhimov, the Voronezh commissar of the Nashi movement and blogger
• Mariya Drokova, Nashi commissar and recipient of the Order for Services to the Fatherland Second Class medal for her “energetic” work in the area of youth policy
• Mariya Sergeyeva, leader of the United Russia youth wing Young Guard
• Samson Sholademi, popular Russian blogger
• Darya Mitina, former state duma deputy and Russian Communist Youth Union leader

Other attendees included Russian spin doctors who specialize in controlling the messages communicated via the blogosphere. The objective was to work out a strategy for information campaigns on the Internet. It is formulated like this: “To every challenge there should be a response, or better still, two responses simultaneously.” A source who is familiar with the process of preparations for the meeting explained:

• If the opposition launches an Internet publication, the Kremlin should respond by launching two projects.
• If a user turns up on LiveJournal talking about protests in Vladivostok, 10 Kremlin spin doctors should access his blog and try to persuade the audience that everything that was written is lies.

The Nashi is run by the office of the Federal Agency of Youth Affairs' chairman Vasily Yakemenko, who is also the co-founder of the group. Yakemenko's office provides partial funding and is an activist himself. In fact, he's not able to travel in the EU after being declared "persona non grata" by Estonia after organizing a blockade of the Estonian embassy in Moscow in 2007.

The Nashi's other powerful financial supporter is none other than Alisher Usmanov, the largest single shareholder of Facebook investor DST-Global, Inc. who's chairman is Silicon Valley's favorite Russian venture capitalist Yuri Milner. Nashi members have been involved in numerous organized cyber attacks against both external and internal targets which oppose the interests of Russia's leadership. A Nashi commissar claimed responsibility for the Estonia 2007 attacks and numerous cyber attacks as well as physical demonstrations have been mounted against Georgia and Georgian activists in 2008 and 2009.

I expect to see an increase in Nashi attacks as the RF Parlimentary elections in December draw closer. In the meantime, a LiveJournal.com support rally is scheduled for tomorrow April 8th at the SUP offices to encourage bloggers to find other ways to communicate in spite of the LJ outages.

UPDATE #1 (7 APR 2011): AFP reports that President Medvedev posted a condemnation of the attacks against Live Journal today.

UPDATE #2 (8 APR 2011): Novaya Gazeta reports a massive DDoS attack today. The paper often publishes articles critical of the United Russia party. In November 2008 it fired Russian Security Services writer Andrei Soldatov of Agentura.ru for unknown reasons although political pressure is suspected.

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Why Yuri Milner Doesn't Want You To Know About His Business

On February 11, 2011, I wrote an article for my former Forbes.com blog "Facebook Investor Leads New Russian Internet Police". It was based in part upon an article published by reputable Russian news portal InFox.ru entitled"Yuri Milner Will Clean Up The Internet" (a translated version can be found at the end of this post). The fact that Yuriy Milner personally called Forbes San Francisco Bureau Chief Eric Savitz to complain about my article and had his lawyer send a letter to Lewis Dvorkin and Tom Post threatening to sue if Forbes didn't kill it (which Eric did post-haste) underscored for me that Milner didn't want anyone outside of Russia to know of  his work for the Russian government.


I can understand Yuriy's reluctance at having that information known in the West. After all, this is where his company DST-Global is making huge profits from their investments in Facebook, Groupon, Zynga, and many other social networking companies. It's also where people hate to hear about government monitoring of the Internet. Then to find out that the CEO of DST-Global, the single largest corporate investor in Facebook, is helping the Russian government identify individuals of interest through an online investigation might complicate things for he and his partners, especially now as they launch DST Global 2, and open it to Western investors.

Here are the facts on Milner's role, as well as the role of Directorate K which I pulled from my company's weekly intelligence briefing archives.

Milner volunteered for the job according to Alexander Zharov: Deputy Minister of Communication and Mass Media of the Russian Federation:

"The ministry of communicationa and information has charged the president of Digital Sky Technologies Yuri Miller with the task to analyze the scale of distribution of illegal content in the Russian segment of the Internet and to define Internet resources that support or distribute illegal content on the web." (human translation of the InFox.ru article referenced above)


What is the MVD and Directorate K
The Directorate for Combating Crimes in the High Technology Sphere (Directorate K) of the Russian Federation Ministry of Internal Affairs (MVD RF) investigates cyber crimes and other illegal activity related to information technology in Russia.  Directorate K works closely with Russia’s Federal Security Service (FSB)—the lead agency for information security—and with foreign law enforcement agencies.  However, Directorate K—like MVD Center E and the FSB—also works to suppress domestic dissent.

Directorate K’s current head is Lt. Gen. Boris Miroshnikov.  General Miroshnikov maintains a high profile speaking frequently to domestic and foreign press on cyber crime.  General Miroshnikov travels frequently, attending foreign conference on cyber crime and meeting with foreign law enforcement officials.  Prior to heading Directorate K, General Miroshnikov headed the FSB Information Security Center after serving as deputy head of FSB Counterintelligence Operations.


Directorate K Cooperation with the FSB
Russian Law assigns the Federal Security Service (FSB) the lead role for ensuring Russia’s information security.  The FSB also has broad authority against crime, especially organized crime, and also cooperates with international law enforcement.  Potential conflicts, however, appear minimal since the FSB is clearly the senior partner.  The FSB runs the overall system for internet monitoring and Russian press frequently mentions FSB and MVD cooperation in criminal investigations.  The news section of the MVD website stresses Directorate K successes against credit card fraud, phone fraud, child pornography, and other fairly routine criminal activity.

Russian press, however, shows Directorate K working with the FSB, and MVD Center E, to suppress domestic political dissent.  In December 2007, Novaya Gazeta wrote that major Russian hosting service Masterhost blocked access to opposition websites after receiving a letter from Directorate K.  Sergey Kopylov, head of Masterhost’s; legal department confirmed receiving a letter from the MVD about suspending service.  Novaya Gazeta wrote to Directorate K’s press service—normally eager to place stories concerning Directorate K activity—without receiving a reply.  Leaders of opposition parties also detailed denial of service attacks on their websites and disruptions in cell phone service.  Opposition leaders complained that the authorities displayed little interest in their problems and stated they would probably move internet activity to foreign servers.  In March 2010, Solidarity member Olga Kurnosova told Ekho Moskvy Radio that Directorate K shut down the 20 March website as extremist.  According to Ms. Kurnosova, opposition activists used the site for communication and coordination of protests.

Russian officials are concerned that opposition forces will move internet activity aboard, using social networking sites to coordinate their activity.  In fact, Deputy Minister of Information Technologies and Communications Dmitriy Milovantsev told Dagestanskaya Pravda in 2005 that this acted as a brake on government actions despite concern over opposition domestic internet activity.

Since 2005, major Russian social networking sites VKontakte and Odnoklassniki have come under financial control of pro-Kremlin oligarchs including DST Global’s Yuriy Milner.  According to Moscow Vedomosti Online, in November 2010 Russian social networking activity was shifting to Facebook and Twitter.  As a result, Russian telecommunication companies MTS and Vympelkom reached agreement with Facebook and provide free Facebook access for their subscribers.  Facebook, with Russia’s DST Global owning approximately 10 percent of Facebook, anticipates continued strong growth in Russia and is developing a Russian interface.  Some analysts anticipate a strategic merger between Milner’s VKontakte and Facebook.  The Russian search engine Yandex is also indexing Facebook internal pages.

Taia Global analysts estimate that the growing linkages between Russian companies and Facebook help the FSB and MVD Directorate K prevent possible opposition groups from using Facebook as an organizing mechanism for political dissent.  The FSB can easily monitor internet activity originating in Russia since all outbound traffic passes through gateways controlled by government entities.  MVD Directorate K can exercise authority over Russian telecommunications companies instructing them to cutoff access so embarrassing photos and videos do not appear during internal disturbances.  Day to day monitoring allows both the FSB and MVD Directorate K to identify possible “extremists” for inclusion in MVD Center E’s extremist database.

Security Impact For Facebook Users
Any future merger between VKontakte and Facebook could expand Russian monitoring capabilities dramatically.  Any merger would probably include technical connections between the two networks.  By law, Russian companies are required to cooperate with the FSB if asked.  This also applies to U.S. companies doing business in Russia, like Facebook Russia (who is mentioned in the InFox article). The FSB could manipulate, if not actually direct, the connection to facilitate FSB objectives.  Given Yuriy Milner’s close connections to the current government, cooperation would probably occur quietly.  Taia Global analysts estimate that Russian government objective of preventing the political opposition from using media to organize dissent, especially during a domestic crisis, is one reason for DST Global’s investment in Facebook.

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A translated version of the Infox.ru article "Yuri Milner Will Clean Up The Internet" follows after the cut.

Yuri Milner will clean up the Internet (13 May 2010, Infox.ru)

The ministry of communication and information has chosen the curator
of content projects in the Russian segment of the Internet. Monitor
internet ressources as for the legality of their content will Yury
Milner, whose DST foundation owns shares in "Odnoklassniki" and
"Vkontakte".

The ministry of communicationa and information has charged the
president of Digital Sky Technologies Yuri Miller with the task to
analyze the scale of distribution of illegal content in the Russian
segment of the Internet and to define Internet-ressources that support
or distribute illegal content on the web. The deputy minister
Alexander Zharov told infox.ru that an analytical report about the
conditions of functioning of these ressourses and their "influence on
the situation in the sector" will be presented in the ministry in the
fall of 2010.

A source close to the ministry has specified that this task was given
to Yury Milner as a result of the session of the Council for Internet
and new mass-media of the ministry in November 2009. The businessmen
was proposed to to present a report on the economic consequences of
illegal activity in the beginning of 2010.

According to the deputy minister Alexander Zharov the delay in the
preparation of the report is due to the complexity of this task.

<<He (Yury Milner. - Infox.ru) has not yet fully finished this work.
Loads of information has to worked through. And the content is
constantly updated, therefore he is still in process. I wait for the
report in August-September>>, - Alexander Zharov has told.

Yury Milner is the coowner of the company Digital Sky Technologies,
which owns ICQ and shares in Mail.ru, as well as social networks
Vkontakte.ru, Odnoklassniki.ru, Facebook and others.

An official representative of DST Leonid Solovev has commented on the
situation as following: <<In November 2009 at the session of the
Council for Internet and new mass-media of the Ministry of
communication and information Yury Milner has suggested to generalize
the position of the largest Internet companies of Russia concerning
the distribution of an illegal content in the Russian segment of the
Internet and to present it at the next session of Council>>. That means
that Milner will present a certain uniform position of the largest
Russian Internet companies on this question, but it does in no way
mean that he was charged with the task to <<to analyse the scales of
distribution of illegal content in the Russian Internet and to define
Internet resources supporting or distributing illegal content on the
web>>.

According to reports of the "K" department of the Russian ministry of
internal affairs in 2009 on the pages of Vkontakte.ru was discovered
more than half of the child pornography available on the Russian
segment of the Internet. "Because of this the problem was fixed fast,
- said the head of the press-service of the social network Vladislav
Tsypluhin. - Vkontakte.ru is now develloping a programm for the fight
against child pornograpy - we support financially child charity
organisations and they provide us with volunteers who search and
delete this kind of content. We give them the rights to delete videos
and other kind of content. And of course we monitor what they do".

Lawyers of the social network deal with pirated content on the social
network says the representative of Vkontakte.ru "The license owners
send official requests with the prove of their rights and then we
remove the content from the side, expains Vladislav Tsypluhin.
"Facebook has its own algorithms to find this kind of content and a
team of moderators who work on this", - adds the head of
representation of Facebook in Russia Ekaterina Skorobogatova.

Alexander Zharov said that "when this topic came up Yury Milner
volunteered to head the process". "I think that he as any responsible
businessman wants the share of illegal content to come down to zero",
- adds Alexander Zharov.

One of the Council for Internet and new mass-media thinks that
independent analytics should be included in the expertise of the
content "to exclude conflict of interests". "It is naiv to think that
owners of social networks want to fill them with illegal content. We
work a lot to categorize it and exclude it and get clean from it", -
responds a top-manager of another popular social network who is not
part of DST.

According to one member of the Council to charge officials with the
monitoring of the market of illegal content would not bring the needed
results. "The work would take to long, and I doubt that companies
would provide the oficial with confidential information. He would have
only data from open sources", - said the souce of Infox.ru

"A person who knows the work of a social network and other services
from within will bring much more results than an oficial who is far
from the Internet", - agrees the CEO of the social network mamba.ru
Andrey Bronetsky. He says that the existing laws do not allow to
absolutely exclude illegal content and a new document is needed which
would make the cooperation between the management of social networks
and law inforcement authorities more effective.

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Russia's Ongoing Effort To Avoid Revolution by Social Media

Russian President Medvedev is well aware of the influence that Twitter, Facebook, and other social networking websites have played in the revolutionary changes that have been taking place in the Middle East and the Maghreb. He said as much last week when he spoke at a meeting of Russia's Anti-Terrorism Council in Vladikavkaz according to a Feb 24th article in The Moscow Times "Kremlin Sees Peril In Arab Unrest".

Effective today, March 1, 2011, a new Russian law gives police the right to order executives of Internet companies to shut down services which pose a threat to the peace or place the security of the Russian Federation in peril. This follows earlier high profile government efforts to "clean up" the Russian Internet space (known as Runet):

• November, 2009: the Russian Ministry of Communications organizes an effort led by Yuri Milner, Chairman of DST-Global to look for illegal content online and report his findings to the Commission in mid-2010.
• Feb 8, 2011: The League of Internet Safety is launched with Mail.ru Group CEO Dmitry Grishen on its Board of Trustees. Mail.ru Group is a subsidiary of DST-Global.

These internal efforts are preceded by the Kremlin's recognition that the Russia-Georgia war (2008) signaled the beginning of the virtual reality of conflicts and "the need to wage war in the information field too" (Vladislav Surkov in a closed door address to Russian spin doctors as reported in "Information Warfare Chronicles" - Yevropa Press 2009).

Considering that DST-Global either owns or has significant investment in some of the world's largest Internet services companies (Facebook, Zynga, ICQ, Mail.ru, GroupOn, QQ, vKontatke, etc.), Medvedev's strategy may very well achieve its objective of maintaining order through the diversification of control via a citizen's "League", expanded police powers, and the support of corporate officers from billion dollar Russian companies like DST.

UPDATE: (01 Mar 2011 1025 Eastern) Moscow Prosecutor's office seeks to label Live Journal an extremist website. Below are scans of the document from the Live Journal blogger nb_licantrope:

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