Does Russian Billionaire Arkady Volozh Really Belong on the EU Sanctions List?

Enlarge image

Russian tech entrepreneur Arkady Volozh

Photo: Alexander Miridonov / Kommersant / Polaris / laif

The fate of Russian businessman Arkady Volozh is more than just astonishing. It doesn't make much sense.

Volozh has become an enemy of state on both sides in the confrontation between Russia and the West. The European Union has placed him on its sanctions list because Brussels believes the billionaire is spreading propaganda and helping to finance Russia's war. His assets have been frozen, banks are not allowed to do business with him, and he is banned from entering the EU. Moscow, meanwhile, considers the entrepreneur to be a traitor because of his public opposition to the war and his intention to make a fresh start abroad.

That ancient proverb that the enemy of my enemy is my friend? It apparently doesn't apply in this case.

Volozh is one of Russia's smartest tech entrepreneurs. He co-founded Yandex, a corporation that for a long time operated a Google News-like Russian aggregator. This service played an important role in disseminating news from pro-Kremlin media on the Russian Internet. But in accordance with instructions from the Russian authorities, Yandex News suppressed reports from critical media. The service has since been sold, but Yandex continues to pay taxes in Russia today. The EU has therefore classified Volozh's activities as a “substantial source of income” for the Kremlin and targeted him with sanctions.

At the same time, though, the entrepreneur has been avoiding Russia since the beginning of the war. This applies not only to his travels, but also to his resume. Volozh now presents himself as an “Israeli tech entrepreneur born in Kazakhstan.” This has outraged many in Russia, both pro-Kremlin propagandists and members of the opposition. His company also made it possible for thousands of Russian IT specialists to emigrate abroad. Just days after the start of the war, he initiated the split-off of Yandex's Russian business.

But none of this has done anything to change the EU's verdict. Volozh's name still occupies position 1,175 on the European Council's sanctions list. He finds himself in dubious company on that list: Higher up on the list are an executive with the state oil giant Rosneft, a company known for its aggressive behavior, Putin's alleged mistress Alina Kabaeva and also a son of the late Mercenary leader Yevgeny Prigozhin.

Volozh's case is more than just bad luck or a chain of unfortunate circumstances. It illustrates the weaknesses of the European sanctions regime, which was hastily installed after the start of the Russian invasion. The move quickly exerted pressure on large sections of the Russian elite, but most of the EU's hopes for a change of course in Moscow have since been dashed. The punitive measures did not drive the hopes-for wedge between businessmen and oligarchs on the one side and the state leadership on the other. And this despite the fact that the war has proven so disastrous for the incomes of many Russian billionaires.

Instead, the opposite has happened: Because they have lost their business in the West, some of the billionaires have regrouped more closely around Putin. That group includes a number of oligarchs who, for many years, preferred to live in London rather than in Moscow. One reason for this is that the sanctions lists make no distinction between members of Putin's hard-line leadership circle and figures more on the periphery of the elite. Almost two years after the measures were imposed, they are still strangely lacking any nuance and some of the justifications are questionable. Which is why some members of the Moscow business elite are closely following the Volozh case.

The self-made billionaire is a unique figure in the top echelons. He's not one of the standard Putin friends, Kremlin cadres or commodity tycoons who make up the majority of the sanctions list. Volozh is one of the few entrepreneurs who have built a business beyond oil, gas and metal, and without relying on political ties.

In the early 1990s, he created his search engine for the Russian internet. Yandex rose to become the market leader, while Google had no chance in Russia for a long time. He later transformed the search engine into a tech conglomerate with 20,000 employees, focusing on all those business areas in which the future lies: artificial intelligence, cloud computing and the development of self-driving cars. “We wanted to create a new Russia, open and able to offer the world more than just raw materials,” as Volozh himself once put it.

There are also the truly darker sides of the company's history. “Over the years, Yandex has transformed from a start-up to a propaganda distribution channel,” says Alena Epifanova. The researcher studies the Russian internet at the German Council on Foreign Relations (DGAP) in Berlin. In 2021, she sought to conduct background interviews with Yandex executives for her work. What she found was a largely secretive company. Epifanova says that no one from the company's top management wanted to talk to her.

She says Yandex has been compelled by Russian legislation to present users with more and more state-loyal media. The company, she adds, “adapted its algorithms accordingly in order to get out of the line of fire.” She argues that Volozh should have done more to push back against the state pressure. Yandex was so important for the development of the Russian tech industry that the conglomerate “could have used its weight to influence the formulation of Russian internet laws in negotiations with the Kremlin,” says Epifanova. That, although, essentially only applies to the period before Moscow forcibly annexed the Crimean peninsula in February 2014. After that, the political climate in Russia grew harsher. She says there was little room for maneuver for Yandex either.

“The EU Is Treading on Thin Ice”

Is it possible that the EU has hit the wrong person and that it is punishing Volozh for what he had been required to do under Russian law? Many experts believe that to be the case. The EU is “treading on thin ice” in this case, says Gerhard Mangott, a Russia expert at the University of Innsbruck. “It is hard to understand what Volozh is being accused of.”

Anders Åslund has a similar take. The Swedish economist was an adviser to then-Russian President Boris Yeltsin in the 1990s. He argues that the reasons given by the EU for sanctioning Volozh are “poor and dubious.” No one suspects Åslund of holding a particularly lenient view of Putin and Russia's oligarchs. Long before the attack on Kyiv began in 2022, he was already calling for tougher action by the West and more sanctions.

He's also the author of a book about the Russian kleptocracy in which Putin's friends just keep getting richer and richer. Åslund describes Volozh's Yandex as being one of the few examples to the contrary. Although Volozh didn't protest against the annexation of Crimea, he was “clearly not a sympathizer” of the development at the time. Åslund found it particularly bothersome that the EU made reference to his book, of all things, when it made the decision to issue sanctions against Volozh. In response, Åslund sent a letter of protest to Brussels.

It is unclear what evidence the EU has against Volozh. The document in question hasn't been released publicly. A response from the General Secretariat of the European Council to a request to view the documents was still pending at the time this article was published. It generally takes three weeks for such requests to be processed.

Meanwhile, another Russian businessman provided DER SPIEGEL with insights pertaining to documents relating to his own case. He asked that his name not be published in this story. The EU sent the documents in question to him. Officials in Brussels used the content to justify why they imposed and later extended the sanctions. Some of the documents appear to have been hastily copied: Many pages are filled with blurry screenshots of Russian-language media reports and the translations are at times a bit on the choppy side.

This man also describes himself as being caught between the front lines. He says his lawyers asked the EU what he could do to ease the sanctions - and apparently received no response. With no prospects of the sanctions being lifted, he says he's not prepared to scale back his business in Russia. And yet he doesn't want to live entirely without his fortune either. After all, he says he's “no angel and no saint.”

Some experts believe there is a fundamental flaw in the design of the EU sanctions: They lack an exit option. Russian economist and elite researcher Andrei Yakovlev argues that the penalties imposed are a “particularly ineffective and unfortunate mechanism.” Yakovlev left Russia at the beginning of the invasion of Ukraine. He is now a researcher at Harvard University and at the Hanse-Wissenschaftskolleg, a research institution in Delmenhorst, Germany.

He argues that Europe implemented the sanctions “hastily, without a clear understanding of their long-term effect.” With the second anniversary of the start of the war, he says, it is still completely unclear what steps the EU actually expects from the targets of its sanctions. Does Brussels want them to take a stance against the war? For them to take an active role in Ukraine's reconstruction? Yakovlev argues that only clear criteria can help persuade parts of the elite to do more to distance themselves from the Kremlin. So far, he says, the sanctions have had the opposite effect. With their investments in the West frozen, many billionaires are becoming more active in Russia again.

That also poses a problem for the West, says Yakovlev. He further adds that Russia can never be defeated in the same way as Nazi Germany because of its nuclear status. Europe and the United States need alternative concepts for a political transformation in Russia. “Elites who are still subject to sanctions today could play a role,” Yakovlev says.

It didn't even take particularly clear signals from the EU for Yandex founder Volozh to distance himself from the Kremlin. Volozh announced in August 2023 that he was “totally against Russia's barbaric invasion.” A short time later, it became clear why Russian businessmen are usually reluctant to make such political statements. President Putin reacted in his usual manner. First he called Volozh a “talented entrepreneur.” He had made similar comments about mercenary leader Prigozhin – only to see his plane fall out of the sky a short time later. Then, in what he clearly intended as a threat, he wished the tech entrepreneur “good health.” Putin's spokesman, Dmitry Peskov, was even more direct not long later. People like Volozh, he said, would deliver Russia to the enemy for money, just as Judas once delivered Jesus. “They are traitors,” Peskov said.

In the US, Volozh has been the subject of praise. Michael McFaul, a Russia expert and professor at Stanford, has applauded Volozh's courage. McFaul was the architect of the White House's Russia policy under President Barack Obama and later served as ambassador to Moscow. State television teams regularly hunted down the diplomat in the Russian capital. In 2018, Putin even tried to get Donald Trump to allow Russian officials to interrogate McFaul. It seems that it has only been in Brussels that Volozh's criticism of the war has had no noticeable effect. Shortly after his statements, the EU extended its sanctions against the Yandex founder.

Understanding the EU's sanctions polices processes is a science in itself. In contrast to the United States, the Europeans don't have a sanctions authority. Diplomats from the EU member states decide who is on the list of outlaws in a working group of the European Council. Haggling and horse trading are not excluded from the process. Hungary, for example, prevented the sanctions against Patriarch Kirill, the head of the Russian Orthodox Church, which were supported by a majority of the EU member states.

After the same round of negotiations, Volozh appeared on the sanctions list. It is no longer possible to reconstruct exactly at whose instigation he was punished in June 2022. DER SPIEGEL interviewed diplomats in Brussels and high-ranking officials from several European governments about the case. Those discussions, however, were largely unproductive.

Uncertain outcome

Nevertheless, an EU diplomat confirmed that the Volozh case will be revisited in the coming weeks. The outcome is uncertain. The diplomat said that Volozh's position against the war is only 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, either directly or indirectly.

In other words, Volozh doesn't have great prospects. He did vacate his post as Yandex CEO in 2022. But that did not go far enough for the EU to lift its sanctions. Even the sale of the propaganda spin-off Yandex News did nothing to change the assessment in Brussels.

At the beginning of February, Volozh went even one step further. Yandex announced its own division into two parts. Russian investors are to take over the highly profitable Russian business. They will pay out the existing shareholders, including Volozh, who still holds around 8 percent of the shares. The price must be at least 50 percent below market value, according to new Kremlin rules. The rules are intended to make it more difficult for companies to leave Russia.

Volozh had been planning this step for some time. He wants to turn the promising departments into a new company geared towards the global market. However, for many months it was not clear whether the Kremlin would even allow him to withdraw from Russia. His statement against the war has delayed this process.

Even now, the maneuver could still fail. Banks and shareholders must agree, as must Russian government agencies. It could take weeks before the spin-off is completed, partly because the sanctions make payment processing more difficult. However, if the EU officials make a complete departure from Russia a condition, the Kremlin could ultimately decide on Volozh's fate again. If Moscow torpedoes or delays the deal, he would have to remain on the sanctions list.

How the splitting-off succeeds could also have consequences for Europe. Volozh would like to locate the headquarters of his new company in Amsterdam. Yandex had been officially registered in the Netherlands since its IPO. However, if the sanctions remain in force, Volozh would have to look at other locations. And there are alternatives: London, for example, or Austin, Texas, where the company has had an office for some time. Britain and the US haven't imposed any sanctions against the Yandex founder at all.