“The fate of Russian businessman Arkady Volozh is more than just astonishing. It's actually illogical.”

So began a long piece in Germany’s leading magazine Der Spiegel on the fate of the founder and former CEO of Yandex, Russia’s leading internet search engine and (still) one of the largest tech companies in all of Europe.

The article argues that sanctions on Volozh should be dropped. The company that he founded recently announced that it is leaving Russia. He himself left Russia already in 2014. And he is one of only two senior Russian businessmen that have publicly and unreservedly condemned what he called a “barbaric war” last August. Perversely, shortly after Volozh made these comments his sanctions were extended by the EU.

“In the confrontation between Russia and the West, Volozh has become an enemy of the state on both sides. The EU has him on its sanctions list because, in its eyes, Yandex spreads propaganda and helps finance Russia's war. His assets are therefore frozen, banks are not allowed to do business with him, and he is not allowed to travel to the EU. For Moscow, in turn, the entrepreneur is a traitor to the fatherland because he has publicly opposed the war and wants a new start abroad,” Der Spiegel reported.

The article has reignited a simmering debate: should Russia’s wealthiest businessmen be sanctioned if they sell up, move out and publicly condemn the war? Many argue that allowing these people, Russia’s best and brightest businessmen, to leave with their wealth intact will do more harm to Russia’s long-term prosperity than to box them inside Russia’s borders and force them into compromises with the Kremlin because they have nowhere else to go.

Yandexit

Volozh is one of Russia's smartest tech entrepreneurs. He co-founded Yandex, a company that long ran a news aggregator Yandex News, a kind of Russian Google News. And that is what got him into trouble with the West, as after the war started and the Kremlin cracked down further on which media could be aggregated, Yandex News effectively only showed state-controlled media that supported the war (or at least couldn’t criticise it), leading to accusations that Yandex was supporting the Kremlin’s propaganda effort.

However, the company complained that it had no choice, as the state had made it illegal to publish any independent news sources as part of the increasing repressive regime Russian President Vladimir Putin rolled out after the arrest of opposition blogger and anti-corruption activist Alexei Navalny in 2021 that saw dozens of opposition news outlets named “foreign agents” or simply shuttered. Moreover, the company announced in March 2022 that it planned to exit the news aggregation business completely.

Uzbek-born Russian metals tycoon Alisher Usmanov had similar problems when his famous newspaper Kommersant was accused of toeing the Kremlin’s line and supporting the war. But in a deep dive into wartime reporting in Russia, bne IntelliNews interviewed the paper’s editor Vladimir Zhelonkin, who brought up the same issue: the new laws create a real headache for Russian journalists who continue to try to do their job, but are now exposed to the risk of arrest and lengthy imprisonment if they fall foul of the authorities.

Yandex immediately took steps to sell Yandex News shortly after the war started, swapping it for an e-commerce service, and got out of the news game entirely. But to this day the EU has argued that there was legal merit for maintaining the sanctions against Volozh, given that he still held an 8% economic interest in a company that had significant assets in Russia.

That’s no longer true. Just last week Volozh’s final ties with Russia were completely cut when Yandex’s parent company announced plans to fully exit the country – a process Volozh initiated in the first days of the war two years ago.  (He was sidelined from the process after he was sanctioned by the EU in June 2022).

Yandex’s Russian assets are being sold to the local management that have decided to remain in Russia, while the remaining international businesses outside Russia, including an AI-focused cloud computing platform and driverless cars, will remain with the soon to be renamed Yandex NV (YNV), domiciled in the Netherlands and listed in New York.

YNV’s exit is the largest exit of any company since the war in Ukraine began two years ago and one of the biggest M&A deals in Russia’s modern history. The reason the deal took so long was because Yandex has become a huge sprawling empire of businesses, spanning the spectrum of e-commerce, fintech, AI and cloud infrastructure and so on, with interests in several other countries.

YNV will, as a result of the divestment, no longer retain any stake in Yandex Russia. Yandex’s Russian management has bought all the Russian assets along with a consortium of minigarchs. No one has a controlling stake and none of the businessmen coming into the business are sanctioned; that was one of the YNV Board’s conditions for a deal. Management will keep a substantial amount of control and hope to continue to develop what was already a world-class company and has organised things to keep the Kremlin’s control over Yandex Russia to a minimum.

YNV (still owned by its international shareholders) will likewise hope to develop the remaining AI assets into a major international tech champion working exclusively outside Russia. And that was another thing that ate up time: YNV has worked hard to relocate more than a thousand engineers that wanted to leave Russia and set them up in other countries. As a result of the war, it is estimated that a total of 1mn IT professionals have fled Russia; a brain drain the Kremlin may come to rue.

“None of this changed the EU's verdict. Volozh remains on the European Council's list. To be more precise, position 1,175. There he finds himself in dubious company: in front of him stands a manager of the state oil company Rosneft, known for his aggressive behaviour, Putin's alleged lover Alina Kabaeva and also a son of the dead mercenary leader Yevgeny Prigozhin,” Der Spiegel reports.

Guilty until proven innocent

Der Spiegel is not the only one arguing that mitigating circumstances should be taken into account when imposing sanctions, or at least some formal process be employed when making the decision, including a methodology to have sanctions repealed again. Currently the decision to impose sanctions on an oligarch are based on little more than unsubstantiated claims in the press of being “close to Putin”, not actual evidence.

“The Volozh case is more than just bad luck or a series of unfortunate circumstances. This shows the weak points of the European sanctions regime, which was put into effect very quickly after the Russian attack on Ukraine began. Initially, it quickly put pressure on large parts of the Russian elite – but most of the associated hopes for a change of course in Moscow have not been fulfilled. The punitive measures did not drive a wedge between businessmen and oligarchs on the one hand and the state leadership on the other. This is despite the fact that the war has proved so devastating to the incomes of many Russian billionaires,” Der Spiegel says.

In fact, one of the unintended consequences of the blanket sanctioning of anyone on the rich list has been to drive many billionaires into the arms of Putin because they have lost their business in the West and have nowhere else to go. Many oligarchs spent most of their careers trying to keep the Kremlin at arm's length rather than get close to Putin, but now they have no choice as there is nowhere else to go. There is a hard core of oligarchs that are extremely close to Putin, the stoligarchs that bne IntelliNews identified as long ago as 2016, but most of the rest merely wanted to keep the government out of their hair.

“The sanctions lists make no distinction between people from Putin's hard leadership core and figures from the elite's periphery. Almost two years after the measures were imposed, they are still strangely undifferentiated and some of the justifications are questionable. The Volozh case is therefore being followed closely in Moscow business circles,” says Der Spiegel. “Volozh is one of the few entrepreneurs who have built their business beyond oil, gas and metal, without political connections.”

Der Spiegel cites another anonymous oligarch who has been sanctioned who complains he is caught “between two fires.”

“His lawyers asked the EU what he could do to ease the sanctions. There was no answer to that. However, without such a perspective, he is not prepared to scale back his business in Russia. He doesn't want to live without his wealth either. He is simply “not an angel and not a saint.” Some experts see this as a fundamental design flaw in the EU sanctions: they lack an exit option,” Der Spiegel reports.

One unlikely supporter of the idea of removing sanctions from oligarchs that condemn the war is former oil oligarch Mikhail Khodorkovsky, who was jailed by the Kremlin for a decade and has since become one of its most outspoken critics. But he told bne IntelliNews in a conversation in Berlin last year that he was against the witch-hunt that the oligarch sanctioning has become.

“No Putin is worth undermining property rights [for],” said Khodorkovsky. “I’m for it but only if it is done via a court of law. I’m for giving people an exit. If they clearly denounce the war then it should be possible to be redeemed. What that should cost is a different question. Confiscation must be done by the courts.”

The decision to impose sanctions in almost all the cases has been based on the principle of “guilty until proven innocent”, the antithesis of Western jurisprudence. Journalistic principles have been undermined and merely reporting unsubstantiated claims a certain oligarch is “close to Putin” is enough to get a businessman’s assets seized.

In the rare case where these claims were challenged in a Western court after a bevy of oligarchs sued HarperCollins for defamation, due to their “close to Putin” claims in Catherine Belton’s best-selling book Putin’s People, the publisher lost in every case. Thousands of words were edited or deleted as many of the claims made in the book were unsubstantiated or relied on unsubstantiated reports.

And if the goal of the oligarch sanctions is to raise money for Ukrainian reparations or simply wound Russia’s economy, then it is not going well. The EU had seized a total of $22bn worth of oligarch assets in 2023 but Russia’s super-rich saw their wealth increase from $353bn in 2022 to $505bn in 2023. Indeed, the rich list was swelled by another 20 names of those worth more than $1bn, according to the Forbes rich list.

Sanctioned oligarchs

One of few other Russian businessman to have been sanctioned in the West and then reprieved is Oleg Tinkov, the former owner of Russia’s only purely online bank Tinkoff Bank, which listed in 2013, making Tinkov a billionaire. Tinkov is the only other senior Russian businessman who has openly condemned the war. And it cost him everything.

“We told him to keep quiet, but he wouldn’t do it. You know what he is like. He had to speak his mind,” said one banker close to Tinkov speaking to bne IntelliNews who didn’t want to be named.

Retribution from the Kremlin was swift and decisive. Tinkov was forced to sell his bank to Kremlin-friendly oligarch Vladimir Potanin for “kopecks on the ruble” and left the country.

The Uzbek-born Russian metals tycoon Alisher Usmanov has won a string of court cases in Germany where he is being investigated. In one of the latest, the Frankfurt am Main Court on October 26 ruled that all items seized during the 2022 search of a villa Usmanov rented in a luxury resort town in Germany must be returned to their owners.

In May, the judges had ruled that the search warrants had been issued on the basis of mere hearsay and so were invalid. Indeed, Politico ran an investigation into the evidence used by the EU when deciding who to put on sanctions lists and found that most of it was “secret and slipshod”, relying on little more than unconfirmed press reports.

This case was followed by a lawsuit won against Forbes in Hamburg. The American magazine alleged without proof that Usmanov fronted for the Russian president and solved his business problems. This accusation, which was used by the EU to sanction him, was overturned.

The same thing happened in the decision to sanction Soadat Narzieva, a Tashkent-based gynaecologist and Usmanov’s sister. She was accused of acting as a front for Usmanov’s companies and added to the EU sanctions list. A bne IntelliNews investigation found that she had no involvement in his business other than briefly holding some shares in 2013, a year before any sanctions were imposed on Russia for annexing the Crimea, let alone any sanctions on Usmanov himself. In a rare climbdown, the EU admitted its mistake and removed her sanctions in September 2022.

Usmanov himself has not been so lucky, despite all his wins against the oligarch claims in German courts. The European Court of Justice on February 7 rejected his appeal and that of former Russian Deputy Prime Minister Igor Shuvalov against European sanctions imposed on them.

Volozh has another chance to be removed from the blacklist, as his case will be discussed again in the next few weeks, an EU diplomat confirmed to Der Spiegel. The outcome is uncertain. His position on the war is just one of the criteria that matters. The more important question is whether Volozh will continue to be classified as an important Russian businessman who helps the Kremlin directly or indirectly.  Although after being labelled a “traitor” by the Kremlin, it’s hard to imagine that Volozh would ever be allowed back into Russia, let alone to run a business there.

But the courts where several businessmen have brought cases trying to get their sanctions overturned have taken a hard and very general line. At times the oligarchs denied that they belonged to Putin's inner circle or denied their companies are involved in Moscow's "special military operation."

“But that, as the responsible Luxembourg EU court decided in several judgments, is not the point. Anyone who, as a leading entrepreneur in an “essential economic sector,” helps to increase state revenues is considered a Putin aide whom the EU can punish,” Der Spiegel says.

In other words, anyone who is associated with a company that operates and pays taxes in Russia can be labelled a Kremlin stooge.