Kyivstar and Helsi.me by Friedman. Where are the boundaries of national security?

The situation is as follows: the Dutch company VEON simultaneously owns Vympel Communications, which serves Spetssvyaz (Special Communications) of the Russian Armed Forces, and Ukrainian Kyivstar. The “Dutchness” of VEON is very conditional as until 2017 the company proudly bore the name VimpelCom Ltd. Severing VEON’s ties with Mikhail Fridman, who on February 28, 2022, was demonstrably removed from the board of directors of VEON but left as a completely legitimate beneficiary of the company, is conditional.

This is not a story about potential financial risks, as was the case with Sens Bank, whose recapitalization was simply impossible due to the sanctions imposed on Friedman, and thus created a constant risk for a systemically important bank.

However, this story is definitely more important than Morshynska, another asset of the Russian oligarch in Ukraine, which is already successfully operating under the management of Karpatska Dzherelna.

Kyivstar is communication for almost 25 million subscribers and home Internet for another million and more users. Kyivstar is a database and fairly wide telecommunications capabilities, in other words, it’s coverage. And this is a huge company, a powerful employer, and a large taxpayer.

Let us remind you that President Zelenskyy approved the decree to introduce sanctions against Mikhail Friedman by implementing the decision of the National Security and Defense Council of October 19, 2022. Next to Friedman there was a whole list of other individuals, including the richest “fellows”, such as Vladimir Lisin, the Rotenberg brothers, Mikhail Voievodin, etc.

Friedman was most worried about the bank. Even before being included in the sanctions list, he was rushing around with proposals to recapitalize it and other options for “solving” situations. Everything appeared to be in vain as the National Bank of Ukraine did not decide to look for compromises.

Next, we saw loads of statements and articles that such a “small thing” as Karpatska Dzherelna cannot manage the huge Morshynska, and new tenders and, obviously, new managers are needed. It was clear that the former owner was not indifferent to this asset. It is good that Karpatska very quickly showed that it can do without advisers.

But there never was a mention of Kyivstar in general. It seems that Friedman does not have such an asset in Ukraine.

In April of this year, my colleagues from the Anti-Corruption Center published an article devoted to the problem.

In turn, the VEON company, the owner of the Kyivstar mobile operator, announced that it intended to complete its exit from the Russian market by listing its shares on the Dubai Stock Exchange, and Kyivstar’s ones – separately on the Warsaw Stock Exchange or NASDAQ.

Moreover, the corresponding proposal was then expressed by the minority of VEON, the American company Shah Capital. The pseudo-Dutch majorities kept mum. It is not surprising, because they usually submit applications for exit from the Russian market only in the perfect form, and the plans of the American partner to finally exit the market, from which they supposedly already exited, became a huge “fuel” for them.

According to Shah Capital forecasts, if the sale of Russian assets (of the Vympelcom operator) is completed according to schedule, then in 2023 VEON should receive a profit (EBITDA) in the amount of 1.8 billion dollars, in turn, the capitalization of the company will reach 3.2 billion dollars. But at the moment, the situation is – how strange – as follows: nothing has been sold, no one has entered any of the exchanges with a declared goal.

Already in August, the American authorities, namely OFAC (Office of Foreign Assets Control), included the co-owners of Alpha Group on its list and introduced restrictions against them. To the Ukrainian political elites, this is a hint to speed up the collection of the assets of Putin’s oligarchs under sanctions into the state income.

Let us clarify this a bit: the US sanctions are provided through the inclusion of specially designated nationals and blocked persons (SDN) in the lists. As part of its enforcement efforts, OFAC publishes a list of individuals and companies owned or controlled by or acting on behalf of target countries. Unlucky, so unlucky are the co-owners of Alfa, because this means the strictest restrictions on their business activities. Paradoxically, a lawyer for one of the co-owners stated that “Billionaire Friedman’s life was ‘ruined’ by the sanctions imposed on him after the full-scale invasion began.” But it was more about the European sanctions.

I really want to continue the topic of destroyed lives, because the above-mentioned businessmen, and Friedman in particular, are directly involved in the participation in the military intervention of the Russian Federation. For example, their company Alfa-Strakhuvannia provided car insurance services to the Russian Guard. In addition, the Security Service of Ukraine announced that Friedman was suspected of financing terrorism. As reported in the Service, since the beginning of the full-scale invasion of the Russian Federation, he invested about 2 billion rubles. at several military plants of the aggressor country. Among them is the Tula Ammunition Plant, which produces cartridges, as well as the Yalamov Ural Optical-Mechanical Plant, which produces high-tech equipment for combat aircraft and helicopters of the Russian Federation.

Kyivstar, considering the corporate structure, is not some business out there, barely tangential to the ultimate beneficiary, Mikhail Friedman. This is the, so to say, Ukrainian branch of the Russian telecommunications business, which serves the Russian Spetssvyaz of the armed forces of the Russian Federation. And Friedman himself is not very similar to a person who will bend over backwards but will not allow his company's clients to be harmed or to mix business with politics.

In addition, Alfa Group has access not only to telecommunication services of Ukrainian citizens, which in itself is a risk.

In August 2022, when a full-scale war was already underway, our authorities allowed the consolidation in the hands of the above-mentioned persons of the majority share of the Helsi medical service. Yes, the same one who signs you up to specialized doctors or for vaccinations.

Currently, Alfa Group owns 69.99% of this company, which has access to 23 million data sets of Ukrainians – passport data, identification numbers, registration and residence, as well as linking to a mobile number, e-mail, and family ties in addition. Good set, high quality. And most importantly, massive. As of the summer of 2022, 1,300 clinics have joined Helsi, and the network will grow, because the service is convenient and not at all associated with the “Russian trail”.

We have a clear understanding that the Ministry of Justice is ready to file a claim with the High Anti-Corruption Court in order to collect these assets of Alfa Groups from the state income. However, according to our data, for some reason, this decision stalled somewhere at the level of the middle echelon of the National Security and Defense Council.

Fears can be explained not only by corruption (if that is the first thing you thought of) motives. Kyivstar is not Morshynska, it is already a monopolist, and its potential managers are well-known operators, a merger with which will only deepen this monopoly. In the presence of an absolutely spineless Antimonopoly Committee, such market disturbances require a very balanced approach and qualitative analysis of possible consequences for the competitive environment.

However, it is impossible to leave everything as it is, considering the amount of data that companies have and their conditional immunity from interference, taking into account the political risks.

In fact, for Kyivstar itself, from a reputational point of view, getting rid of Friedman is the best possible solution, because in their business, the loyalty of the client always prevails over the loyalty of the owner. At least financially.

Read this article in Ukrainian and russian.