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Global IT companies ready to fight for Russian market

International IT firms have begun the process of complying with the latest regulations imposed on them by the Russian government

Global IT companies operating in the Russian market have begun to open local offices in compliance with the requirements of a new Russian federal law.

Under the terms of the law, No 236-FZ, which came into force last month, foreign IT companies with a daily online audience exceeding 500,000 Russian-speaking users must open an official representative office in the country, register a personal account on the website of the local IT regulator, Roskomnadzor, exchange data with the department, create a feedback form for Russian-speaking users and introduce a single measure of their audiences.  

A number of global IT companies have started to fulfil the requirements of the new law. One of them is Viber, representatives of which have confirmed opening a representative office in Russia. Earlier, Apple and Twitter also registered a personal account on the Roskomnadzor website, and the Likee social network said it had produced a form for receiving requests from Russian-speaking users and organisations and was completing preparations for an office in Russia. 

In November 2021, Roskomnadzor published a list of foreign IT companies that should open representative offices in Russia. In addition to Apple, it included 12 other companies: Google, Meta Platforms (formerly Facebook), Twitter, TikTok, Telegram, Zoom, Viber, Spotify, Likeme, Discord, Pinterest and Twitch. This list may be expanded in the future. 

In an exclusive interview with Computer Weekly, Vadim Subbotin, deputy head of Roskomnadzor, said the department will not immediately fine companies that fail to comply with the new legislative requirements. He said Roskomnadzor is ready to hold a dialogue with the companies and provide support to them if it understands they are working on it. Subbotin said consultations with IT companies affected by the new law are ongoing.

Enforcement measures will come into force on 1 September 2022.

Alexander Zhuravlev, head of the Commission for the Legal Support of the Digital Economy of the Russian Bar Association, told the Russian Parlamentskaya Gazeta, the official paper of the Russian Parliament (State Duma), that the new requirements will not result in an exodus of foreign IT companies from the Russian market, because it remains important for them. “As world experience shows, transnational corporations will not leave Russia, as it is a large and promising market for them,” he said.

Record fines

Last year, Russian regulators significantly tightened pressure on global IT companies, imposing record fines, primarily for companies abusing their dominant position and not deleting prohibited information. Total fines in 2021 exceeded RUB11bn ($144m), a record figure for Russia.

Probably the biggest signal made by the Russian regulator to foreign IT corporations occurred on 24 December, when a Russian court imposed a turnover-based fine of RUB7.2bn on Google for violating the law on information. The fine was imposed after a case brought by Roskomnadzor and was a record for Russia’s IT sector.

But that might not be the end of Google’s troubles in Russia. The company may also face a turnover-based fine for violating anti-trust laws. On 19 April 2021, Russian anti-trust regulator the Federal Anti-Monopoly Service (FAS) suspected that Google was dominating the market for hosting services with its YouTube service. According to the FAS, this was reflected by non-transparent, biased and unpredictable YouTube rules, which lead to sudden blocking and deletion of user accounts.

Representatives of Google were not available for comment, while some Russian experts at that time assumed that the company may even consider leaving Russia.

On the same day, the court fined Meta (owner of Facebook, WhatsApp and Instagram) for a similar violation and imposed a fine of almost RUB2bn. Roskomnadzor has warned Google and Meta about imminent new turnover-based fines if they continue to delay deleting illegal information.

Despite such pressure, no foreign IT companies currently plan to leave Russia, because despite its relatively small volume for their business, most of them consider the market important for their development.

HPE well established in Russia

One of these is Hewlett Packard Enterprise (HPE), where an official spokesman said the company “has a well-establish Russian subsidiary, so does not expect the new law to have an impact on its business in Russia”

In general, the Russian market remains important for HPE, which is reflected by the number of projects it has run n the country in recent years.

The HPE spokesman added: “Hewlett Packard Enterprise serves Russian customers across all industry sectors, from small and mid-market companies to large enterprises. Recent customer wins include gas producer Novatek, which implemented a new software-defined storage system that helps it to react more quickly to malfunctions and reduce service downtime.”

But while it cracks down on foreign IT companies, the Russian government is also considering economic methods of attracting them to the local market. One such method could be access to anonymised data of Russians on a commercial or other basis.

Anton Gorelkin, deputy chairman of the State Duma Committee on Information Policy, Information Technologies and Communications, said: “We know that foreign companies collect such data. They all process it and violate the law on localisation. As for anonymised data, this issue is being discussed, and it is important to move towards each other. The regulator and our users receive certain advantages, and it is important for us. So there are advantages for foreign platforms. This issue is being worked out now.”

Vadim Vinogradov, head of the working group of the Civic Chamber of the Russian Federation on legislation in the field of internet technologies and digitisation, told business Russian paper Rossyiskay Gazeta that the adoption of the law will attract additional funds to the state budget. In Russia, the digital advertising and IT market is half owned by foreign companies,” he said. “This is about RUB90bn. So far, no taxes have been imposed on this.”

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