ESSAY: Tax Raids Should Force Duma to Act on Code
- By Igor Gamayunov
- Feb. 25 1998 00:00
The Russian State Tax Police operation against the private company Dei lasted eight months. The operatives, experienced people who have witnessed much in their time, were simply stunned. Judging from the company records, the firm earned a pittance during a six-month period -- 27 million old rubles ($4,500). But at the same time, quarterly money turnover ranged from 10 to 15 billion rubles.
Something else was peculiar about the company. The firm was located in the southernmost reaches of Russia, in Nalchik, the capital of Kabardino-Balkaria, and its warehouses were scattered far beyond the city limits: in Stavropol, Krasnodar and Rostov-on-Don. In each of these cities, the firm had a network of stores.
The tax police inspected the company's accounts at Tveruniversalbank and turned up ridiculously small sums of money. They must have conducted their transactions in cash or under the table. The police had been tracking company representatives who would come to Moscow to make large purchases -- in cash. It turned out that the company had been keeping two sets of books, one for the tax inspectorate, the other for itself. In addition, when the company employees came to Moscow, they lived in secrecy and had no visitors in their apartments. Even the neighbors on the same floors did not know who lived next door.
This is how the operation took place. On Sumskaya Ulitsa in Moscow, a special tactics team took key positions at the entryway and in the stairwell. A plainclothes policeman then rang the doorbell. Expecting no surprises, the people in the apartment opened the door and were presented with a search warrant by armed men in camouflage uniforms. During the search, a bag full of the double accounting books was uncovered, which included invoices, receipts, contracts and certificates. They found 1.3 billion rubles and $160,000 in a small safe in the kitchen. Simultaneously, the company's inventories in Nalchik, Krasnodar, Stavropol and Rostov-on-Don were confiscated. Those inventories were appraised at 10 billion rubles.
These discreet people turned out to be quite cunning. Tax evasion had made them very rich. They had a fatal flaw, however, which economists call "group selfishness." They understood that the fewer taxes they paid and the richer they became, the longer people would go without their wages. But the habit of not respecting the law was stronger than the fear of not having paying customers.
This lack of respect for the law pushes some to engage in blatant fraud. Easy money tends to cloud people's minds like a narcotic. Such was the case with the 35-year-old founder of the Polyarnaya Sova employment agency in Murmansk. The businessman and his wife offered temporary overseas work for Russian sailors. Their business was well publicized, but did not attract applicants immediately. The Russian people have learned to be careful from their bitter experiences with deceptive pyramid schemes like MMM.
Everything at the Murmansk entrepreneur's office seemed respectable. His partner, an African student studying at the local college, wore a three-piece suit during the signing of documents. Perhaps that is why the sailors, old salts who have been in all sorts of scrapes, let down their guard at the door and put significant sums of money into the fictitious overseas employment agency. Perhaps this is why they waited so patiently for the news to pack their bags for work. But the news never came.
It is unclear how long the sailors would have remained enchanted by the company, because the tax police intervened. It turned out that the company head had been putting the money he gathered each year from the credulous sailors intothe bank without paying taxes or ever employing anyone.
He was contrite, of course, after the investigation and promised to pay his debt to the state very soon and return the sailors' money right away. He even signed a police agreement that he would not leave town. Then he and his wife secretly left for Spain, where a big house that they had bought in advance awaited them. Sitting in his rocking chair with a bottle of brandy, he must have had a good laugh at the Murmansk sailors' expense.
But not for long. The State Tax Police went to Interpol, which quickly found the embezzler, put him on a plane and turned him over to the tax police at Sheremetyevo 2. The tax police put him in solitary confinement in Murmansk. He is lucky that Interpol did not turn him over to the Murmansk sailors. They would have ceremoniously sewn him up in a sack and thrown him into the Barents Sea.
At the State Tax Police, I had the following conversation with people who asked that their names be withheld.
"Doesn't it seem to you and your colleagues that everyone is stealing, only to varying degrees?" I asked.
"No, it doesn't. We don't work using haphazard methods or try to tell fortunes by reading coffee grounds. We conduct initial inquiries in accordance with the law and only after probable cause has been established do we pay a visit," a tax officer replied.
"So you use any means necessary to do the job -- eavesdropping, surveillance and planting an agent on the staff of a suspected company?" I pressed him further.
"Of course, but only within the bounds of the law. You cannot stand on ceremony with people who jeopardize the country's economic security. They deceive millions of our fellow citizens and turn their pockets inside out to take their last kopek. Do you think their consciences bother them? Take just the organizers of financial pyramids. They're pirates on the raging sea of our economy."
"Do you really think your intervention can stop their activities? After all, Russian citizens are on the whole used to believing in miracles," I asked another officer.
"It was precisely our intervention in the activities of the huge, overgrown MMM pyramid and our detention of its architect Sergei Mavrodi that sobered many naive investors at the time. That pyramid had already reached its critical mass, and its destructiveness threatened Russia with the same events that occurred in Albania: popular uprisings with shootings and looting."
You have to give the tax police credit for their courage. But from time to time in my discussions with them I was reminded of a recent interview I conducted with the well-known Russian economist Larisa Piyasheva. She told me that the main reason for hiding profits here is not that people are on the whole dishonest, but that unreasonably high taxes make any business unprofitable. The problem stems from the slow pace of Russian lawmakers to adopt a workable tax code.
Shouldn't the picture presented by the tax police operations make the lawmakers feel the need to act more quickly?
Igor Gamayunov is a staff writer for Literaturnaya Gazeta. He contributed this essay to The Moscow Times.