3 May 2011 Last updated at 13:48 ET

Russian search-engine Yandex passed information to FSB

By Ekaterina Drobinina BBC Russian Service, Moscow

Yandex is due to sell shares on Nasdaq

Russia's largest search engine, Yandex, has confirmed that it passed confidential data to the country's state security service, FSB.

Yandex's online payment service gave the FSB personal information about users who donated money to an anti-corruption website launched by the Russian blogger Alexey Navalny.

The disclosure follows a warning by Yandex about the legal and political risks associated with investing in Russia, ahead of its planned listing in New York.

Yandex plans to raise up to $1bn (£600m) through a listing on Nasdaq.

In its prospectus, issued to the US Securities and Exchange Commission last week, the company warned that businesses in Russia "may be subject to aggressive application of contradictory or ambiguous laws or regulations, or to politically-motivated actions".

The Russian legal system is characterised in the document by:

• "inconsistencies between and among laws and regulations"
• "selective enforcement of laws or regulations, sometimes in ways that have been perceived as being motivated by political or financial considerations"
• "a perceived lack of judicial and prosecutorial independence from political, social and commercial forces"

The company also warned that the degree of uncertainty will grow as the 2012 presidential elections approach.

Market leader

Russia is one of the few countries where Google is not the dominant search engine. Yandex holds 65% of the Russian internet search market while Google has 21.8%.

"Yandex has a very good position in Russia and some of the former Soviet countries, being the most popular search engine", says analyst Lilit Gevorgyan from IHS Global Insight.

"However, when you hear news that the FSB forced Yandex to reveal the payments through Yandex.Money, it hits the most painful spot: transparency and state intervention."

Some experts say this episode will not affect the company's IPO plans.

"All big funds who plan to invest a lot of money in Russia are already aware of these risks," says Georgy Voronkov, analyst from Investcafe research company.

Yandex plans to follow in the footsteps of another Russian Internet group, Mail.ru, which at the end of last year raised $912m in London.