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The Russian Tech Companies Poised to Benefit From U.S. Sanctions

By Ilya Khrennikov
May 20, 2014 5:15 PM EDT 23 Comments
Vladimir Evtushenkov, president and CEO of Sistema JSFC, at the 2007 World Economic Forum in Davos, Switzerland.
Photographer: Daniel Acker/Bloomberg
Vladimir Evtushenkov, president and CEO of Sistema JSFC, at the 2007 World Economic Forum in Davos, Switzerland.

U.S. sanctions were meant to punish Russia for interfering in Ukraine. Instead, they may actually benefit some of its business moguls.

Telecom billionaire Vladimir Evtushenkov is a case in point. One of his companies makes bank cards with embedded microchips. Demand is set to surge after sanctions on Russian banks prevented American credit-card companies from working with them. Russia is bolstering its own card standard now as it seeks self-sufficiency from Visa and MasterCard, which, as the Kremlin perceives them, betrayed local customers.

Most Russian lenders issue banking cards supporting Visa or MasterCard. When a Russian pays with his card, even in a local shop, or withdraws money from third-party ATM, those transactions are typically processed via foreign payment systems.

When U.S. President Barack Obama sanctioned three Russian banks owned by President Vladimir Putin's allies — Rossiya, SMP and InvestKapital — it essentially banned U.S. companies from doing business with them. Visa and MasterCard had to stop servicing these banks' transactions, leaving the cards with limited use.

In total, 19 companies, and 45 of Putin's allies and officials were sanctioned by the U.S., though for many of them, the restrictions are meaningless. The people on the list are banned from entering the U.S. and owning assets there. While Russian industries haven't yet been significantly affected by sanctions, political tensions had already pushed Russia to start developing its own home-grown technologies to maintain independence.

Putin signed a law this month forcing global Internet companies, such as Google and Facebook, to store Russian user data on servers inside the country. Brazil recently proposed, but retreated from, a similar provision. The move could be a boon to local construction of data centers and provide an edge to Russian Internet companies that are likely doing this already.

Russia's showdown with the U.S. could also give a boost to its challenger to GPS, called Glonass. Deputy Prime Minister Dmitry Rogozin threatened to suspend operations of 11 GPS stations on Russian territory starting on June 1. These stations, which are used to amplify signals, will be turned off permanently if the U.S. doesn’t allow Russia to install similar stations for Glonass on American soil, Rogozin said last week. As Space Exploration Technologies, led by Elon Musk, pressures the U.S. not to use Russian-made rockets, a Glonass revival could help the local aerospace industry, including satellite manufacturers such as Information Satellite Systems and Gazprom Space Systems.

However, Russia's financial-technology companies are seeing the most immediate impact. Putin urged legislators to approve a law that would create a national payment-card system, which will become a local alternative to MasterCard and Visa. All state employees — Russia has more than 20 million of them — would get their salaries on cards that support the local system. Banks may offer these cards to non-state employees as well.

This is good news for Evtushenkov. It means demand for Russian payment cards will grow by at least 10 percent from about 217 million cards issued in the country currently, according to central bank data. Evtushenkov's Mikron plant in Moscow is set to receive the bulk of these orders. It will install its own microchips in cards starting next year.

Even without sanctions, Russians may prefer a domestic producer to ease fears that cards with foreign microchips may have bugs or be used for spying. That's one concern that Americans and Russians have in common.

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