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By John Helmer, Moscow

Sergei Stepashin is a former Prime Minister of Russia. He’s also been a security minister, justice minister and interior minister. He holds a doctorate of law, the academic rank of professor, and the military rank of Colonel-General. This is a serious pedigree — when he tilts at a target, Stepashin is a master of pen and sword. For many years he has headed the state audit organization responsible for supervising the legality and efficacy of state tax-gathering and state spending. This outfit is called the Accounting Chamber. Since it was created in 2000, Stepashin has been its only chief.

In that time, Stepashin and his Chamber can’t be accused of having a soft spot towards Oleg Deripaska and the business practices of his monopoly, Russian Aluminium (Rusal). Indeed, scarcely a year has gone by since Deripaska took Rusal from former partners Mikhail Chernoy (Michael Cherney) and Roman Abramovich, without the Accounting Chamber investigating the legality of tolling. That’s Rusal’S trading and contracting practice of importing raw materials for smelting aluminium, paying Russian smelters a restricted processing fee for turning this into metal, and exporting the product without paying value-added tax, or income tax on the profits registered offshore. According to the Russian law, tolling is legal if the offshore suppliers are unrelated to the domestic processors and to their export traders. If they all belong to the same corporate group, controlled by the same person, they are, according to the law, an illegal transfer pricing and tax avoidance scheme.

In 2004 Stepashin and his auditors exposed and identified as illegal a Rusal scheme using phoney company registrations in Chukotka, and a chain of cashflows between corporate fronts in Anadyr and Moscow which kept substantial domestic aluminium profits from being taxed. Abramovich was governor of Chukotka at the time; he has recently reported taking annual half-billion dollar dividends from the Rusal profit at the time this scheme was in operation.

The Chamber attack in 2004 came hot on the heels of a report from the then federal tax ministry charging Rusal with paying a fraction of the income tax that its peers in the Russian metal export industry were paying. According to Accounting Chamber spokesman Andrei Belayev in September 2004, “it’s now clear that Rusal was using tax optimization schemes in the Chukotka region, but it’s difficult to give the exact number of the tax underpayments.”

In 2006, the Chamber attacked Rusal’s tax evasion schemes in Krasnoyarsk. Two years later Stepashin publicly attacked Rusal’s tolling contracts as illegal transfer pricing. In July of that year, just before Rusal became virtually insolvent, all its cash having disappeared, Stepashin charged Deripaska with profiting unlawfully from the difference between “the high price of realisation of products of processing for the foreign market and the low cost of services in the processing of the Russian enterprises [smelters] and was not subject to taxation in the Russian Federation.” At the time, a Chamber statement substantiating the point estimated the tax dodge value to Rusal at $2 billion.

In January of 2009, Stepashin wound up a detailed audit of Rusal’s books, with his auditors working alongside forensic experts from the Federal Security Service (FSB) and accountants of Vnesheconombank, Rusal’s saviour from bankruptcy; but their findings were kept tightly secret.

In 2010, according to Gennady Gudkov, a deputy of the State Duma, Rusal’s “tolling [is a] semi-criminal scheme, which compromises Russia.” Gudkov was a former KGB officer and a two-term representative of the Kolomensky district in the Moscow region.

It now appears Stepashin has climbed again on his horse, and is pointing his lance once more at Rusal and Deripaska. On March 6, at a session in Moscow of the Duma Committee on Budget and Taxes, Stepashin announced, this time in relation to a scheme of tax concessions for Rusal’s three smelters (Bratsk, Taishet, Uralsk) in the Irkutsk region: “We’ll see what those preferences that they have, if they have the tax [concessions], and how effectively they are used in this plan [as] tax incentives for enterprises of Irkutsk”.

He was speaking in response to remarks at the session by another State Duma deputy, this time Andrei Krutov, who said: “We have a problem: the largest enterprises in the area [Irkutsk] belong to Rusal. They use all possible tax credits, tolling schemes, transferring the money into offshore accounts.” At the same time, he added according to the RIA-Novosti transcript, the wages of workers in these enterprises are two times lower than the industry average. To this Stepashin responded: “What you just said is, we will assume, your formal request to the Accounting Chamber.”

Rusal issued this reply on March 6: “The company finds it necessary to make the following statement following comments made by the State Duma deputy, Andrei Krutov, aimed at discrediting UC RUSAL. Andrei Krutov’s recent and frequent comments in relation to UC RUSAL are distorted and incorrect and clearly demonstrate that he does not have any information about the situation at the Company’s facilities. As a result, the Company is examining possible legal action regarding disseminating false information. RUSAL operates in full compliance with the current tax legislation of the Russian Federation. With regards to employees’ salaries, the average wage at UC RUSAL’s plants in Irkutsk is approximately 40 thousand rubles, which is among the highest salaries in the industry.”

Krutov is standing his ground, insisting that so far he has not provided details of Rusal tax schemes in Irkutsk. The concern, he said, “came from real life – the idea to start checking came from the people – employees who receive low wages, amounts incomparable with the company’s revenues transferred in the budget. There are also questions about energy tariffs [which Rusal receives at a discount].” Krutov adds that he has sent a request for an investigation of Rusal’s tax benefits and its compliance with the tax laws to the Irkutsk region tax office. He has yet to receive a response, he noted.

At the headquarters of the Irkutsk region, spokesman for the government Irina Zhak was asked to clarify what tax concessions Rusal obtains from the region. She responded that her superiors are “very busy with many events. If these questions are within their competence, they will respond.” That was last week.

Stepashin has also been slow to respond to the question of what the Accounting Chamber intends to investigate in Irkutsk. A spokesman said that the Chamber can only confirm that Stepashin has included the Rusal tax issue in the work plan, but that no decision has been reached on whether to start an investigation or not. According to the Chamber’s department of information: “Information about the inclusion of the investigation in which you are interested in the Work Plan of the Accounting Chamber will be posted on the official website of the Accounting Chamber (www.ach.gov.ru) after the approval of the issue by the Board of the Accounting Chamber. Follow our site.”

As for Andrei Belyaev, who was frank about Rusal eight years ago, he responds this week that he is no longer responsible for this issue. Stepashin’s press secretary Ekaterina Paristaya does not pick up the telephone at her official number.

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