A major investor in Twitter and Facebook had financial ties to two Russian government-owned firms known as vehicles for the Kremlin’s politically sensitive dealings, newly unearthed documents show.
The records show that one of the Kremlin-owned firms, VTB Bank, quietly directed $191 million into an investment fund, DST Global, that used the money to buy a large stake in Twitter in 2011. They also show that a subsidiary of the Kremlin-controlled energy giant Gazprom heavily funded an offshore company that partnered with DST Global in a large investment in Facebook.
DST Global’s founder, Russian billionaire Yuri Milner, and other partners in the deals reaped large gains when they sold their stakes shortly after Facebook’s initial public offering in 2012 and Twitter’s in 2013.
There is no indication that the Kremlin gained influence over Twitter and Facebook or received inside information about the firms as a result of investments associated with Milner. But the disclosure shows that, years before Russia meddled in last year’s US presidential election, the Kremlin had a financial interest in American social media.
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These revelations come at a time when Congress is investigating the US tech giants’ role in the spread of Russian misinformation during Donald Trump’s successful campaign for the White House.
It’s public knowledge that Mr Milner put together large investments in Twitter and Facebook. The Russian government’s ties to the investments were not previously known.
Facebook and Twitter said that they had properly reviewed Mr Milner’s investments.
The details of the Kremlin's links to the deals were uncovered during a joint investigation by the International Consortium of Investigative Journalists, the New York Times, the BBC, and other media partners including The Irish Times.
The news outlets' reporting effort drew on public records contained in the Isle of Man's corporate registry, documents from the 2016 Panama Papers leak and a new trove of confidential records obtained by German newspaper Süddeutsche Zeitung.
In response to questions from ICIJ and its partners, Mr Milner said the investments his firm makes, including the Twitter and Facebook deals, have always been based on business merits and have nothing to do with politics.
Mr Milner acknowledged that VTB, the Russian bank, was one of the partners that helped bankroll the Twitter investment, as well as DST Global’s investment in Chinese e-commerce site JD.com. He said that less than 5 per cent of his firm’s investment funding came from Russian government institutions.
He stressed that VTB Bank was a passive investor in the Twitter deal arranged by his investment fund, DST Global. He said the Russian bank, like all of his limited partner investors, did not gain any control over Twitter or DST Global’s investment vehicles.
Mr Milner said he was not aware of any possible financial links between the Gazprom subsidiary and DST Global until ICIJ and its partners contacted him with questions in mid-September.
He noted that the Twitter and Facebook deals happened during a period of better diplomatic relations between Russia and the United States.
"It was a different time," Mr Milner said in an interview with the New York Times. "It never even occurred to me back then that VTB Bank was not just another investor for us."
Big players
Gazprom is Russia’s largest state-owned corporation, and VTB is Russia’s second biggest bank. Questions about their ties to US social media investments are sensitive because of the firms’ controversial history and ties to Russian leader Vladimir Putin and other Kremlin officials.
The US government sanctioned VTB in 2014 in response to Russia’s invasion of Crimea. DST Global had sold its stake in Twitter by then.
The Gazprom subsidiary linked to Mr Milner’s Facebook investment - Gazprom Investholding - was managed for more than a decade by Alisher Usmanov, a politically connected Uzbek-Russian billionaire.
In addition to running the state-owned subsidiary, Mr Usmanov has also been a big player as a private investor. He has built personal stakes in a various industries, including partnering with Milner on the Facebook and Twitter deals and other tech investments.
The Kremlin has used Gazprom Investholding for "politically important and strategically important deals," Ilya Zaslavskiy, an advisor to the Kleptocracy Initiative, a project of the Hudson Institute, a conservative think tank in Washington, DC, told the New York Times. It is a "powerful political and economic instrument."
VTB is also known as a player in Russia’s political system. VTB’s chairman, Andrei Kostin, is a Putin ally.
“On the one hand it’s a bank, on the other it’s an instrument of the Kremlin,” Sergey Aleksashenko, a Russian banking expert with the Brookings Institution who served on VTB’s board of directors in the 1990s , told ICIJ. “Whatever the Kremlin wants, VTB is ready to do.”
In response to questions from ICIJ and its partners, VTB confirmed that it had invested in Twitter through Milner’s firm DST Global. VTB said it had “sold its stake in the company with a profit, making it a successful transaction for us.” VTB called itself a “solely commercial bank,” asserting that “we have never had any politically motivated deals.”
Mr Milner emphasised that VTB is traded on the London Stock exchange and has previously had public investment partnerships in Silicon Valley.
In an emailed statement, a spokesperson for Gazprom Investholding confirmed that it had provided loans to an offshore company named Kanton Services, which records reviewed by ICIJ show was a shareholder in investment vehicles used by DST Global in the Twitter and Facebook deals. The spokesperson said that no “Russian officials were involved in these loans.”
Rising star
For years, Mr Milner has been known as a businessman with a knack for connecting big investors with a wide range of promising tech companies - and he has earned billions for investors who have joined his deals, trusting him to make smart bets with their money.
Mr Milner (55) was born in Moscow and studied business at the University of Pennsylvania’s Wharton School in the 1990s, eventually returning home to launch a series of investments that would vault him to the top of Russia’s entrepreneurial elite.
In 2001, he seized on the dot-com bust to become CEO of the struggling internet firm Mail.ru. Under Mr Milner’s leadership the company grew into Russia’s primary email provider and the country’s most prominent tech firm.
In 2005, Mr Milner formed tech firm Digital Sky Technologies. Three years later he partnered with Mr Usmanov, one of Russia’s richest men. Mr Usmanov became a major shareholder in DST Global, the investment fund Milner established in 2009.
Soon, Milner set his sights on bigger deals in America.
Facebook Investments
While assessing the Facebook investment in early 2009, Mr Milner befriended Facebook founder Mark Zuckerberg. His investment in Mr Zuckerberg’s firm later that year launched him to fame in a Silicon Valley still reeling from the financial crisis.
Mr Milner has said that his strategy of refusing to accept board seats or voting rights at companies in which DST Global invests allows him to put money into competitors without creating conflicts of interest. When it came to investing in Facebook, Mr Milner told Forbes, this strategy “sent a strong message that we are not seeking any influence over Facebook’s operations.”
Between 2009 and 2011, Mr Milner managed a series of investments in Facebook, using both his tech firm Mail.ru and his investment fund DST Global to buy a growing chunk of the social networking platform.
Mr Usmanov’s investments in Milner’s ventures made him a key partner in these deals. DST Global and Mail.ru’s stake in Facebook reportedly grew to roughly $7 billion, making Milner’s firms Facebook’s second largest group of outside shareholders.
During Facebook’s record-breaking initial public offering on May 18th, 2012, the dazzling returns investors made off the social network made headlines. Four days after the IPO, a DST Global subsidiary sold more than 27 million Facebook shares, yielding roughly $1 billion, according to SEC filings.
In an interview, Mr Milner confirmed that Kanton Services was an investor in one of the DST Global vehicles that bought shares in Facebook. Milner said that his firm subjected Kanton to rigorous screening before taking it on as a partner. Even if Kanton received Russian government money, Mr Milner said, it wouldn’t be possible to know whether that money found its way into Facebook, because Kanton could have used other sources of funding for the investment.
In response to a question from ICIJ and its partners about Kanton Services’ ties to the Facebook deal, Gazprom Investholding stated that its loans to Kanton “were provided for general corporate purposes.”
“Kanton was being backed by Gazprom,” said David Zweighaft, a New York-based forensic accountant, who has worked for the accounting firm Deloitte and as a contractor for the US Department of Justice. Mr Zweighaft reviewed key documents at ICIJ’s request.
A spokesperson for Facebook emphasised that DST Global had no control over the company. “It is worth noting that as a passive investor DST themselves had no voting rights or board seat,” Facebook said in a statement. “The investment was made eight years ago and DST Global has since sold all their holdings in Facebook - their stake ended five years ago when we went public.”
Kanton Services is a company with several links to Usmanov. The leaked records reviewed by ICIJ indicate that all of Kanton’s shares were owned was recently as 2009 by an investment manager named Leon Semenenko, who is known as an Usmanov business associate.
Rollo Head, a spokesperson for Mr Usmanov, said Mr Usmanov “has been a highly successful investor in Russian and international assets utilizing a combination of his own and borrowed funds.”
Head said none of Mr Usmanov’s investments in Facebook and JD.com used money borrowed from state institutions. As a passive investor in Milner’s deals, the spokesman said, Usmanov had no control over DST funds or their underlying investments.
Twitter deal
In addition to its presence in Mr Milner’s Facebook deal, Kanton Services also played a role in his investment in Twitter.
In July 2011, VTB invested at least $191 million in exchange for the vast majority of shares in DST Investments 3, an investment vehicle based in the Isle of Man, according to public records in the Isle of Man’s corporate registry.
That same month, Mr Milner used DST Investments 3 to finance nearly half of DST Global’s stake in Twitter. Kanton Services was also a shareholder in DST Investments 3, but appears to have contributed little money to the deal.
Yet, records show that, several months after Twitter’s IPO in late 2013, VTB transferred the bulk of its shares in DST Investments 3 to Kanton Services.
A spokesperson for DST Global declined to provide specific information about arrangements Kanton Services may have had with VTB.
In a statement, a spokesperson for Twitter said DST Global is “a well known entity in Silicon Valley” and that the social media firm had reviewed all of its investors.
Kushner start-up
Mr Milner’s investments in American firms haven’t been limited to big Silicon Valley ventures.
In 2015, Milner was one of several high-profile investors in Cadre, a New York-based real estate technology firm co-founded by Jared Kushner, Donald Trump’s son-in-law and an adviser to the president. The company was founded in 2011 by Kushner and his brother Joshua along with another entrepreneur.
Mr Milner said he invested $850,000 of his own money. None of the funds came from DST Global, he said.
With major rounds of funding from outside investors, Kushner’s business grew in value to a reported $800 million.
Mr Milner said he met Jared Kushner once, at a conference, and has made no additional investments in Cadre. He said his stake in the presidential son-in-law’s company is “no different” from other investments he has made - it’s about business, not political connections.
When he was young, he said, his father warned him: “Please don’t get involved in politics.”
“And as I spent most of my life in the Soviet Union,” Milner said, “it was my principle back then and still now.”
