Fradkov Makes a Pitch for Honesty
themoscowtimes.com
By Alex Fak
Staff Writer Prime Minister Mikhail Fradkov on Thursday called on business owners to come clean, reveal exactly what they own and roll up schemes used to hide money and avoid paying taxes.
"Everything must be done honestly -- which means, lawfully. Gray wage-paying schemes are incompatible with civilized corporate governance," Fradkov told a corporate governance conference in Moscow whose participants included World Bank president James Wolfensohn.
"Many ... companies, including large ones, don't disclose their real owners, don't disclose an exhaustive list of affiliated firms and people, and continue to act, not always legally, through offshore zones," Fradkov said.
Cosponsored by the World Bank and billionaire Vladimir Potanin's National Council on Corporate Governance, the conference was meant to impress upon businesses the need to do more to improve their relations with society and investors, Wolfensohn said.
"It is very simple: People will not invest in a company if they think the boss is going to steal their money," Wolfensohn said. "This is not just a question of foreign investment, but a question of Russian investment, and frankly I think that is more important."
Earlier Thursday, Wolfensohn met privately with Finance Minister Alexei Kudrin and Economic Development and Trade Minister German Gref.
"We talked about corporate responsibility, we talked about the 700,000 children in institutions" such as orphanages and prisons, he said.
Wolfensohn cited studies showing that 50 percent of companies consider implementing good governance practices "unimportant," that only 28 percent of traded companies had independent boards of directors, and that most companies do not disclose their beneficial owners.
But he also put some of the onus on the government. Although there have been improvements, like the new rules allowing minority investors to pool their votes when electing board members, he said, "much remains to be done, particularly in the fields of bankruptcy, insider trading and related-party transactions, and competitive environment."
"The weaknesses of the court system have become more obvious" against the background of improving corporate governance, he added.
Wolfensohn also played up April's World Bank report that showed 23 Russian companies and businessmen control much of the country's industrial output, saying this leads to "efforts in lobbyism of various kinds on the markets in which these large companies are active."
"There aren't just 23 people in Russia who can build business," he said.
One of the 23 who apparently can, Potanin appeared in public for the first time since rumors surfaced that he had been called in for questioning by prosecutors.
Toeing the Kremlin line, Potanin lashed out at companies that have used offshore schemes and pay wages under the table. These companies gain an "unfair competitive advantage," he said.
"The prime minister is absolutely correct in the need for a very tough struggle against evading taxes and laundering money,'' Potanin told Bloomberg.
The remarks by Potanin, one of the original oligarchs who gained their fortunes through government largesse a decade ago, raised questions about practices at his own company, Interros, which controls metals giant Norilsk Nickel.
Norimet, a London-based trading company that Norilsk Nickel bought for $234 million in 2000, posted losses of $44 million last year -- when Norilsk Nickel's profit hit a record $861 million.
One analyst said this could mean that Norimet passed profits on to a trading partner that is owned by major shareholders of Norilsk, but is not consolidated on its books.
"Norilsk has a pretty good guide on the supply side, so you'd think its trading company would make money," the analyst said.
Others, however, said Potanin appears to be rolling with the times.
"I think Potanin has seen the light, in terms of what needs to be said -- and perhaps even done -- about corporate governance," said Roland Nash, chief strategist at Renaissance Capital. |
