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Investigators Raid PwC Offices

Investigators searched the offices of PricewaterhouseCoopers in Moscow for several hours Friday on the eve of a court hearing into the firm's audit of Yukos.

The raid comes as the authorities once again step up their legal campaign against the founders of the bankrupt oil firm and the state-appointed receiver prepares to sell off its remaining assets at discount prices.

Prosecutors and police searched the PwC offices in central Moscow in separate audit and tax evasion investigations.

On Monday, PwC faces allegations in the Moscow Arbitration Court that it concealed tax evasion by Yukos in its 2002-2004 audit of the company. In a second investigation, police suspect that the company evaded taxes worth 243 million rubles ($9.3 million) in 2002 on its managers' orders, the Interior Ministry's investigations committee said in a statement Friday.

PwC denies the allegations.

The raids come also as the government is proposing to tighten rules for international audit firms.

The Kremlin has attempted to draw a parallel between the Yukos case and that of Enron, the U.S. energy firm that collapsed in 2001 amid a slew of fraud and accounting-related charges.

Earlier this year, prosecutors brought new money laundering charges against Yukos founder Mikhail Khodorkovsky and his business partner Platon Lebedev, who are already jailed for eight years on tax evasion and fraud charges. The two men face up to a further 15 years in jail.

PwC audited Yukos' accounts from 1996 to 2004, the period when Khodorkovsky and his partners controlled the company.

If PwC is found to have broken Russian accounting rules, it could stand to lose lucrative clients, such as the Central Bank, Gazprom, electricity utility Unified Energy Systems and billionaire Mikhail Fridman's holding company, Alfa Group.

At the PwC offices on Kosmodamianskaya Naberezhnaya on Friday, security and staff leaving the offices were reluctant to comment on the ongoing searches.

About 10 police officers began their search at 9 a.m. and ended it after 6 p.m., taking computer files relating to the 2002 back tax claims, a PwC spokeswoman said. It was not immediately clear how many prosecutors were involved in searching the offices.

Officials from the Prosecutor General's Office looked at documents and spoke with company managers as part of their investigation into Yukos, said the PwC spokeswoman, who spoke on condition of anonymity.

PwC recently paid $145 million after it lost a lawsuit against the Federal Tax Service over the payment for foreign consultants, a spokeswoman for the company said. "We believe it wasn't tax evasion," she said. "The taxmen don't recognize money spent on foreign experts."

By law, the payment of outstanding taxes does not preclude the police from pressing tax evasion charges against company managers.

Mike Kubena, general director of PwC Russia, said in a Jan. 17 statement: "We believe that the tax inspection claim is without merit and is based on a fundamental misunderstanding of the roles and responsibilities of auditors as defined by Russian law."

The Prosecutor General's Office declined to comment Friday.

The checks are linked to the government's drive to establish more control over international financial services, said Tim Brenton, equities strategist at Renaissance Capital.

"The Russian government wants to bring these accounting firms more into line, to have more control over capital flight," he said. "Obviously, in the long term they will do it through legislation."

The Central Bank has asked the Cabinet to approve amendments to banking and auditing legislation that would allow the Central Bank access to commercially sensitive information that may be at the disposal of auditing companies, Kommersant reported Wednesday. Several branches of the Federal Tax Service have demanded similar disclosures from auditing firms, the newspaper reported Friday.

In 2004, the Interior Ministry brought charges of tax evasion against Deloitte & Touche, another "Big Four" accounting firm. Police never reported the outcome of that case.

PwC also has offices in St. Petersburg, Yuzhno-Sakhalinsk and Tolyatti. It audits more than 2,000 of the country's companies, which together account for nearly half of gross domestic product.

(The Moscow Times 12.iii.07)

 
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