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Putting on the Squeeze

[We’re pleased to offer this exclusive (as far we know) translation of an article on the situation of the accounting firm PricewaterhouseCoopers in Russia. – Bob Amsterdam]

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PUTTING ON THE SQUEEZE, RUSSIAN STYLE: SENSELESSLY AND MERCILESSLY (НАЕЗД ПО-РУССКИ: БЕССМЫСЛЕННЫЙ И БЕСПОЩАДНЫЙ) Author: Nikolai PAVLOV, Source: Moskovsky komsomolets Date: 16 March 2007 In whose interests are globally respected auditors being “eviscerated”? At the end of last week, it became known that the office of the largest auditing company PricewaterhouseCoopers had been subjected practically simultaneously to no fewer than two searches, which were conducted independently of one another by brigades from the Procuracy-General and the MVD. Representatives of the law-enforcement organs then gave clarifications that they had come within the framework of completely different cases. But the coincidence of two different cases in one time and space allows one to assume with a great degree of confidence that there nevertheless is an undercurrent to the attack on the auditor from two sides at once. As many observers consider, the objective of the siloviki is an aspiration to put pressure on the leadership of the auditing company, so that the top management of PricewaterhouseCoopers would admit the complicity of its organization in the tax trespasses of the company YUKOS. In all likelihood, the Russian law-enforcers urgently need new “evidence”, in order to fortify their claims and for the arbitrage court, in which the tax organs are now attempting to recognize as invalid the contracts for an audit of the oilmen. The taxmen assert that PricewaterhouseCoopers had made two different reports in parallel: one for the management of the client company, in which the auditors noted the unlawfulness of evasion from the payment of taxes, and another for broad use, where the non-payment of taxes was not mentioned. If the court recognizes the rightness of the fiscals, then severe sanctions await PricewaterhouseCoopers. In addition to a gigantic monetary fine, the case may even lead to a revocation of the license to conduct auditing activities on the territory of Russia. The auditors, to the extent possible, maintain their correctness. With variable success, this examination has been going on for not one month already. And, apparently, not everything is coming together well for our law-enforcers with the evidence, which is why they had to take extreme measures and spur the process on. And the matter isn’t even about how the attack on a world-famous auditing firm will yet again reflect on the image of Russia and of our power abroad. Everything is much more serious. The logic of “silovik economic policy”, if it prevails over good sense, is such that after the law-enforcers say “a”, it is imperative that “b” will have to be said as well. And it is not a fact that the next sounds will be pronounced by the very same people who, instead of untying the “knots”, prefer to cleave them with a sword placed in their hands by the state. Let me explain what I’m talking about. From the moment of its arrival in Russia, PricewaterhouseCoopers were the auditors of a large number of leading Russian corporations and even organs of state. Among the number of their clients: “Gazprom”, Alfa-Grupp, “KAMAZ”, and even the Central Bank! All of their financial reports are certified first and foremost by the reputation of PricewaterhouseCoopers. If the court rules in favor of those who desire to attain their own victory at any cost that the auditors had falsified the reports of the disgraced company, then this, to put it mildly, will cast a shadow on a sufficiently large part of Russian business. After all, the audit of all of its clients was conducted by PricewaterhouseCoopers according to one and the same set of standards. The problem, I will repeat myself, is not even in reputational risks; in the final analysis, image is a learned matter. All the more so given that in our traditions, in order to build something you need to first break everything and render it totally useless. What worries is something else. Everybody remembers the absurd story with the Swiss company Noga. The Swiss, on the basis of a doubtful contract with the Russian government entered into at the start of the 1990s, demanded some kind of astronomical sums of money from Russia and were constantly tormenting our country with lawsuits. And although all these lawsuits were not satisfied on the merits by international courts, Russia constantly had to look over its shoulder and get boxed on the ear in the most varied countries. The law-enforcement organs of which were constantly freezing the foreign property of the Russian Federation in the capacity of an interim remedy. We all remember the shocking television stories about the seizure of the sailing ship “Sedov” one day, the collections of Russian museums another day, and airplanes that had arrived for an aviation show the next day. And now imagine how many logs the lovers of pettifogging are able to chop now, when they will have in their hands such a trump card as the revocation of the license of the country’s leading auditor? Who will vouch that lovers of living high on someone else’s account will not all swarm to file suits against the Russian Federation, having learned that the Central Bank of the country was audited for many years, as is now becoming clear, by falsifiers? Or how is the leadership of large companies to fend off greenmailers-blackmailers, if all their financial reporting is now not worth anything? Probably, for some kind of “higher state” interests, it was decided once again to revive the famous Russian saying about the law and the towbar and to convict PricewaterhouseCoopers. It is possible that somebody someplace on high did in fact adopt a decision to sacrifice PricewaterhouseCoopers, no matter what. Irrespective of how things really stand.