#13
The Russia Journal
July 26-August 1, 2002
Editorial
Full disclosure

Proposed changes to laws governing publicly traded companies in the United States -- necessary as every day brings more revelations of wrongdoing and questionable conduct by companies, banks and auditors -- should change corporate conduct and the business landscape.

More could have been done. Still, Russia could learn a few lessons: This country's response to similar misdeeds has been woeful.

Prime Minister Mikhail Kasyanov announced that corporations would be asked to publish their audited GAAP accounts from 2004. But we have learned that audited accounts do not entirely fulfil the need for transparency. Some of the leading auditing companies have used their expertise to fool investors and tax collectors, rather than inform the public of risks and fraud. In Russia, many companies are owned by untraceable shelf companies in exotic islands operated from the offices of Moscow-based partners of the same auditing companies that attest to their truthful accounts. Auditors consult, collude and profit from the deception of public and government.

Unlike their counterparts in the United States, Russian lawmakers have not called in business owners or auditors to explain their practices and improve their conduct. The Russian media do not have the courage to stand up to companies and auditors who threaten and stonewall them through shareholding or advertising contracts. Over the last year, this newspaper has made two dozen requests for information from Big 5 auditors in Moscow. We have only seen responses in the most general terms imaginable -- never specific comments or figures. In short, these corporations and their auditors are not accountable to the public, media, minority investors or government in Russia.

We must therefore welcome declarations by Yukos and AFK Sistema of the real identities of their shareholders.

The threats to wealth posed by criminals, the so-called mafia and draconian tax laws are a thing of the past in Russia. There is no reason for corporations not to be forthright in declaring their ownership -- save a lack of good financial and accounting expertise. Auditors who will be held up to higher standards in the United States and European Union have no reason not to apply those same standards here. They should disclose conflicts of interest and be forthcoming about internal practices and methodology.

Many Western companies also refuse to disclose the extent of their imports into Russia for fear that it might compromise their practices of evading customs and duties. Many leading U.S. companies in Moscow refuse to publish their results or talk about figures because of "security concerns" from those who "might be tempted to make extortion threats to our executives," as a U.S. company CEO in Moscow told us. We believe this is a convenient smokescreen for the company, which we suspect is involved in smuggling consumer goods into the country without paying tariffs.

And disclosure begins at home. An anonymous reader queried in an e-mail whether our newspaper, which is published at a LUKoil-controlled printing plant, ID Pressa in Moscow, has any links with the oil company or any other Russian financial or industrial group. Even though as a privately owned company we are not required to disclose such information, we feel it is our obligation to make a full disclosure.

The Russia Journal and its publishing company are owned by a private Cyprus-based corporation. This business is fully owned by the founder of the newspaper, Ajay Goyal. This newspaper, mother company and promoters of the business have no equity, preferred shares or debt from any other institution or individual, Russian or foreign, some employees of the company being the sole exception. The newspaper has no relationship with any other corporation beyond that of subscriber or advertiser. This newspaper has never had any sponsorship agreements or funding from any Russian company or individual for anything other than direct advertising or subscription. This newspaper and its promoters have never accepted any grants, financial support or subsidies from non-profit or government institutions.

BACK TO THE TOP    #217 CONTENTS