Sunday, October 2, 2011

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,, 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.:
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:

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