06MOSCOW9206, KHODORKOVSKIY-ASSOCIATED NGO HIT WITH HUGE TAX BILL

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Reference ID Created Released Classification Origin
06MOSCOW9206 2006-08-23 14:30 2011-08-30 01:44 CONFIDENTIAL Embassy Moscow

VZCZCXRO8768
PP RUEHDBU
DE RUEHMO #9206/01 2351430
ZNY CCCCC ZZH
P 231430Z AUG 06
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 0977
INFO RUCNCIS/CIS COLLECTIVE
RUEHXD/MOSCOW POLITICAL COLLECTIVE

C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 009206 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 08/21/2016 
TAGS: PGOV PHUM PREL KDEM RS
SUBJECT: KHODORKOVSKIY-ASSOCIATED NGO HIT WITH HUGE TAX BILL 
 
Classified By: DCM Daniel A. Russell. Reasons 1.4b and d. 
 
1. (C) SUMMARY. Russian tax authorities recently imposed a 
USD 180,000 bill for back taxes on an NGO headed by one of 
Mikhail Khodorkovskiy's lawyers.  The Federal Tax Service 
claims the Center for International Legal Defense (CILD) owes 
taxes on grants it has received from the National Endowment 
for Democracy (NED) and other foreign donors.  CILD head 
Karina Moskalenko told us that the NGO was targeted because 
of its participation in the Other Russia conference, which 
took place shortly before the tax bill was delivered.  Other 
human rights activists said that CILD was also targeted 
because of its court successes and its close connection to 
Yukos and Khodorkovskiy. 
. 
------------------------------- 
CILD Targeted by Tax Service... 
------------------------------- 
 
2. (SBU) In late July, the Russian Federal Tax Service (FTS) 
filed a major tax claim against CILD after it was checked 
three times by tax inspectors.  The total tax claims and 
fines against CILD are about USD 180,000, which if collected 
could potentially put the NGO out of business.  The FTS 
claims that the center failed to pay profit taxes on grants 
totaling USD 500,000 received between 2002 and 2004 from the 
Ford Foundation, the Soros Open Society Institute, the 
MacArthur Foundation, and NED.  CILD's lawyers are trying to 
reach an agreement with the FTS; if that fails, they will 
appeal the claims in Russian courts. CILD General Director 
Oksana Preobrazhenskaya told the press the NGO would pursue 
its case at the European Court of Human Rights (ECHR) if 
necessary. 
 
3. (SBU) According to Russian tax law, recipients of grants 
must meet two conditions for tax-exempt status.  The grant 
money has to be used for one of the specific pre-approved 
purposes established by the Russian Government (support of 
education, culture, human rights, the environment, and 
certain health issues), and the grantor has to be on the 
Russian Government list of organizations that can give 
tax-free grants.  Grant money given to NGOs otherwise is 
subject to 24 percent corporate income tax, and the grantee's 
purchases are also subject to Value Added Tax (in most cases, 
18 percent).  The NED, which gave CILD USD 105,000 between 
2002 and 2005, is not on that list.  CILD lawyers, however, 
cite a 1992 U.S.-Russian bilateral agreement, which was never 
ratified by the Duma, under which no grants from that 
organization are taxable because it is a U.S. government 
organization. 
. 
------------------------- 
...Because Too Successful 
------------------------- 
 
4. (SBU) CILD won the first-ever case brought against the GOR 
before the ECHR.  Moskalenko and other CILD attorneys have 
represented defendants in several high profile cases, 
including Khodorkovskiy and his codefendant Platon Lebedev, 
as well as Igor Sutyagin, a researcher accused of espionage. 
It also provides training to Russian attorneys and legal 
assistance to Russians who want to file cases before the ECHR. 
 
5. (SBU) Russian authorities unsuccessfully attempted to have 
Moskalenko disbarred in 2005 and have lodged other complaints 
against her, including efforts to have her removed from cases 
before the ECHR.  The GOR never objected to CILD's receipt of 
foreign funding, however, even though it kept them informed 
about its grants.  In 2005, however, authorities 
re-interpreted the tax law and ruled that grants received for 
human rights activities could be taxed. 
. 
------------------------------- 
Tax Claim Politically Motivated 
------------------------------- 
 
6. (C) Moskalenko told us recently that she believed the tax 
claim was politically motivated and that having to pay the 
tax bill would likely put CILD out of business.  Moskalenko 
believed these measures were in response to her participation 
in the Other Russia conference, as well as her continued 
visits to see Khodorkovskiy about every 4-6 weeks. (NOTE: Her 
last visit was in June, and she plans to visit him again in 
August.)  Moskalenko fears that her staffers will lose their 
jobs or face intimidation if the tax bill is actually 
collected.  Additionally, her husband was dismissed from his 
job at a classified nuclear research facility, two months 
before qualifying for his pension. 
 
7. (SBU) At the beginning of August, thirty of the most 
influential NGOs in Russia -- including the Moscow Helsinki 
Group, Memorial, and For Human Rights -- issued a joint 
 
MOSCOW 00009206  002 OF 002 
 
 
statement claiming the tax case against CILD was politically 
motivated.  The activists asserted that the authorities 
waited until after the G8 Summit to begin a campaign of 
harassment against legal experts, and that CILD was the first 
target.  Human rights activists worry that the same claims 
can be made against any of them and could lead to their 
organizations being bankrupted and shut down.  Independent 
Legal Cou
ncil member Mara Polyakova told the press that if 
the FTS claims are upheld, it could set a precedent that 
could be used against any NGO receiving foreign grants. 
 
8. (C) Darya Miloslavskaya, a legal specialist, said that 
article 251 of the Tax Code, which covers the taxation of 
grants, is written so that it can be interpreted to the 
state's benefit in any situation.  Gerald Staberock, Director 
of the Global Security and Rule of Law Program of the 
Geneva-based International Commission of Jurists (ICJ), of 
which Moskalenko is a member, concurred, noting that the ICJ 
believed authorities were engaged in selective enforcement of 
the law in retaliation for CILD's success in exposing the 
GOR's violations of human rights.  Moscow Carnegie Center 
analyst Liliya Shevtsova predicted continued targeted 
harassment of NGOs as Russian law enforcement officials test 
both the extent of Kremlin interest in cracking down on 
"Western" NGOs and Western government reaction in the G8 
aftermath. 
 
9. (C) COMMENT. Although much attention has been focused on 
the NGO law and its implementation, tax claims against CILD 
suggest other methods exist to pressure NGOs.  The Ambassador 
plans to raise this case next week with senior GOR officials 
while reinforcing U.S. interest in a transparent and fair 
process of re-registering foreign NGOs. 
BURNS

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