The Internet will be sent to the commission – Newspaper Kommersant No. 227 (7428) dated 12/07/2022

The Center for Strategic Research (CSR) proposed extending to Internet companies a law obliging foreign investment to be made through the government commission. It must also approve significant corporate actions. It is proposed to control this through representatives of the state in the boards of directors. The mechanism is designed to protect the IT sector from foreign influence. According to market experts, this option is better than direct limits on foreign capital, although it creates serious difficulties for companies. Moreover, Eastern investors, who now look almost the only possible ones for the Russian Federation, will understand it more clearly than Western ones.

“Kommersant” got acquainted with the report prepared in November by the CSR “Control of foreign influence in the IT sector on the example of the classifieds market”. It follows from the document that the fixed limits on foreign equity participation – like those already introduced for the media – do not correlate with the “special nature” of the sector as a whole. The authors proposed to oblige foreigners to coordinate investments in IT companies and “significant corporate actions” – transfer of infrastructure abroad, alienation of rights or part of the business, appointment of foreigners to the board of directors, and more – with the investment commission. The measures will allow “preserving the investment attractiveness of the Russian IT sector.” The document is scheduled to be published on December 7, it was sent to the Ministry of Economy (they did not answer “Kommersant” there).

According to the CSR, representatives of the state should be appointed to the board of directors of IT companies in order to reduce the risks of committing actions blocked by the government commission. It is also proposed to create committees for state control in companies or give the state the right to veto decisions of a foreign participant. For violations, foreign participants may be subject to liability up to criminal liability, freeze their voting rights or be forced to alienate assets.

The ideas of the CSR appeared as an alternative to plans to directly restrict foreign participation in companies, which “cause a negative reaction and concern from the business community.” We are talking about the draft laws of State Duma Deputy Anton Gorelkin: in 2018, he proposed limiting the share of foreign capital in news aggregators to 20%, in 2020 – in online cinemas, and in June 2022 – in classifieds.

Ekaterina Papchenkova, Vice-President, Director of the Center for Regulatory Policy of the CSR, referring to the experience of other countries, calls the Center’s proposals “more subtle tools.” Among these, she lists the screening of transactions and corporate decisions with the possibility of blocking them or agreeing on individual conditions in the interests of the state: “The palette of conditions is diverse, from corporate governance mechanisms to control over critical information infrastructure.”

The CSR report was prepared after Ivan Tavrin’s Kismet Capital Group (KCG) closed the deal to acquire the Avito classified from Prosus. An investment group owned by the South African Naspers sold Avito cheaper than it could, including due to the introduction of a bill on restrictions on classifieds (see Kommersant dated October 15). Later, Prosus wrote off its stake in VK in favor of the Internet company itself, which sold them to the management structure (see Kommersant on November 10). Anton Gorelkin and representatives of VK did not answer “Kommersant”, Yandex and HeadHunter declined to comment.

Attempts to regulate foreign influence on Internet companies “are not justified by anything other than abstract risks,” and only create barriers, said Karen Kazarian, CEO of the Internet Research Institute. He noted that the government commission is already spending months issuing permits for transactions with companies from unfriendly countries, and its involvement in IT will aggravate the situation. At the same time, Mr. Ghazaryan agrees that the idea of ​​the CSR is “the lesser of evils” in comparison with the initiatives of MP Anton Gorelkin, because “companies listed on the stock exchange are simply not able to fulfill them.”

After the outbreak of hostilities in Ukraine, the interest of foreign investors in Russian business dropped sharply, even foreign venture funds stopped working with Russian IT startups (see Kommersant on September 19). For investors from countries that comply with sanctions, the risks of investing in the Russian IT sector will be high in any case, said Finam’s Leonid Delitsyn, while “the need to obtain permission for every occasion may scare off Western investors, but not Eastern ones.” He believes that it is possible to attract investments and personnel, among other things, by creating special rules for friendly countries.

Yuri Litvinenko