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. Last Updated: 07/27/2016

The Export-Import Church of Russia

The Russian Orthodox Church has never shied away from making money to stay solvent: An Orthodox Church factory produces and sells icons and candles; bishops bless automobiles in exchange for pocket change; and one diocese has entered into a high-profile bottled-water venture with private partners.

But this is small change when compared to the Orthodox Church's overall business interests. It is founding banks, importing duty-free cigarettes in a program that has cost the government at least $40 million in forfeited revenues, and it is a partner in an oil-exporting business that has an expected turnover of $2 billion this year.

That makes the Orthodox Church a major business concern by any measure, and it has some members uneasy.

"Banking activities directly contradict the [biblical] ban on usury, that is on earning interest on loans," said Father Ioann Ekonomtsev, head of the Patriarchate's spiritual education department.

Over at Moscow's Danilovsky Monastery, the seat of Alexy II, the Patriarch of Moscow and All-Russia, officials have made no attempt to deny their participation in smaller and more traditional commercial activities.

But the big business being conducted by various departments of the church -- including the Patriarchate's Department of External Affairs, or OVTsS, and the Patriarchate's Management Department -- is more complicated.

There is no mention of these commercial structures -- the banks, or the tobacco-import and oil-export companies -- in the patriarchate's official balance sheet. Highly placed church representatives also deny the very existence of these activities.

Other market participants, however, including those doing business with the church, speak of their connections openly.

As a non-commercial organization, the Orthodox Church is bound by federal law to make its budgetary information public. The official 1994 budget for the Moscow Patriarchate lists a total of three primary sources of revenue: sales of day-to-day Orthodox items -- crosses, icons, candles -- produced at the Moscow Patriarchate's Sofrino plant, and the sale of orthodox literature; profits from the Daniliovskaya Hotel, located on the patriarchate's central Moscow territory and falling under the patriarchate's direct control; and donations from private individuals and legal entities.

The Moscow Patriarchate declined to provide details of its 1996 budget. Responding to a request to examine the documents, the Moscow Patriarchate's chief accountant Natalya Deryuzhkina said Patriarch Alexy II "will publish information about his budget when he deems it necessary, through his own means of mass information."

However, one patriarchate employee said privately that 1996 revenues for the Patriarchate of Moscow and All-Russia will come to about $2 million. Deryuzhkina reported that approximately 44 percent of 1996 revenues will come from Sofrino.

The hotel's director, Georgy Arutyunov, said he believes Daniliovskaya's revenues make up only a very small part of the balance sheet.

Nor did Deryuzhkina deny that the Patriarchate's budget is a less than exhaustive document. For example, there is no mention of income from Peresvet bank, in which OVTsS, three dioceses and the church's youth movement are shareholders. The other two founders are the Moscow Privatization Committee and Moscow's Krasnopresnensky Expocenter.

"There isn't a single line about revenues from bank Peresvet stock holdings in the OVTsS yearly audit, although I would be curious to know about it -- OVTsS is held in full by the Moscow Patriarchate," she said.

Even Peresvet's earnings look small compared with earnings from other church involvements. One of the biggest apparent revenue sources is International Economic Partnership, or MES, one of Russia's major oil exporters and a partner with the church.

"The Moscow Patriarchate's finance department is one of our company's founders," said Yury Tavrovsky, press secretary for MES. "It owns 40 percent of our shares, and patriarchate representative Bishop Viktor is a member of the board of directors."

In 1994, MES exported 8.7 million tons of Russian oil. Last year, it exported 6 million tons, or somewhere between 6 percent and 8 percent of total Russian oil exports.

The Moscow Patriarchate is one of two companies that hold stock in MES. The other shares are held by the joint-stock company Slobodskoye -- formerly a cattle sovkhoz called "The Path to Communism" -- as well as private individuals. MES is involved in other ventures also, and plans to open a meat processing factory this month.

MES belongs to a unique class of oil traders that sell quotas of oil allotted to them by the federal government. A company such as MES can buy oil wholesale from Russian producers and then sell it over the border, usually enjoying various tax breaks, said one oil industry observer, who asked not to be identified. Early this year, he said, MES was granted the right to export 4.5 million tons of oil over the course of 1996.

"They're allowed to keep the profits from these operations, usually tax free, and use that to fund whatever they're supposed to be doing," he said. Such a program usually works in everyone's interests, he added: The government can patronize organizations without funding them through the budget, producers receive needed hard currency for their oil, and the exporter gains a cash cow.

MES is expected to see a turnover this year of $2 billion, said Tavrovsky.

In addition, MES is apparently not the church's only oil export agent. Reports surfaced this summer that Patriarch Alexy II had personally approached President Boris Yeltsin with a request to set aside 650 tons of oil for the church to export, duty-free. Proceeds from the sale, to Germany's MRH company, were to be used to purchase a collection of Orthodox art outside of the country for Moscow's Christ the Savior Cathedral.

If the patriarch's request was indeed honored, the oil did not go through the International Economic Partnership. "MES had nothing to do with this," said Tavrovsky. He said another company would have to have served as exporter in this case.

According to MES, the Moscow Patriarchate's representative does not formally participate in the commercial decisions of the company. "Bishop Viktor [representing the church's management department] only participates in discussions pertaining to charitable donations from our company," said Tavrovsky.

Nevertheless, Archbishop Sergy, who oversees the Moscow Patriarchate's Management Department, announced in September that "the Russian Orthodox Church is not and never has been involved in the oil business, and the Synod has recommended that priests do not participate in business."

"There needs to be a clear distinction between the church and someone from the church," he added. "It is impossible to keep track of everyone."

But in the case of MES, the question of involvement in oil export is not about one individual from the church -- in this case, Bishop Viktor -- but of an entire administrative subdivision from the church, its Management Department.

Apparently, oil trading is not the church's only business: This year, the Russian Orthodox Church has been one of Russia's largest importers of tobacco, accounting for one out of every 10 cigarettes legally imported into the country.

The church's cigarette imports have been classified as humanitarian aid -- that is, goods that are given free, such as second-hand clothing, used cars, or small-scale donations. Under Russian law, there are no import taxes on humanitarian aid, but the goods are still liable for value-added taxes and, if they are excise goods such as cigarettes or tobacco, excise tax.

"Two years ago, a Dutch cigarette producer approached us with a request to allow them to give their surplus production [over what they could sell in Europe] to the Russian Orthodox Church in the form of humanitarian aid," said Valery Solovyov, executive secretary of the Russian government's Commission on International Humanitarian and Technological Aid.

"As a result, the Moscow Patriarchate was granted the right to import 50,000 tons of tobacco duty free in the form of humanitarian aid," Solovyov said. "By the end of August of this year, the church had imported 10,000 tons."

According to the National Importers Cooperation Association -- a grouping of 17 tobacco importers that control 40 percent of Russia's tobacco imports -- 10,000 tons is approximately 8 billion cigarettes. Last year, the group said, 89 billion tons of cigarettes were imported legally into Russia.

"The main volume of cigarette imports -- in the form of humanitarian aid for the church -- has come this year, following the National Sports Fund's loss of its privileges for tobacco imports," said Geny Ugolnikov, director of market research for the importers' association. "Considering that imports are shrinking this year, the share of cigarettes imported by the Moscow Patriarchate makes up 10 percent of total volumes."

According to data from the State Customs Committee, a total of $231.8 million worth of tobacco has been imported into Russia in the first eight months of this year.

Vladimir Smirnov, an adviser at the National Importers Cooperation Association, said that OVTsS has become Russia's largest tobacco importer this year. "Not one of the known importers can boast of such volumes."

Although OVTsS may not deny its involvement in cigarette imports, it says its activities are not of a commercial nature.

"The Moscow Patriarchate's Department of External Affairs has never participated in commercial activities involving alcohol or tobacco products or any excise goods -- has never entered into any commercial contracts involving them," according to an OVTsS statement issued on Oct. 11. "They have been sent as humanitarian aid to be used in activities of church institutions and in activities not [involving church institutions].

"In the latter case, with the government's approval, these items have gone to secular trade organizations. Part of the revenues received have gone into the general church budget, and part into special programs for restoring cathedrals and churches." So according to OVTsS, the beneficiaries of the cigarette money were, ultimately, all humanitarian organizations.

Whether Patriarch Alexy II knew about the Patriarchate's Department of External Affairs' tobacco business until it surfaced recently in the Russian media is still uncertain. Daniliovskaya director Arutyunov said he had also been approached with offers to participate in tobacco operations. He informed the patriarch, but said the patriarch forbade Arutyunov from participating in the cigarette business.

In September,

Alexy II wrote a letter to Prime Minister Viktor Chernomyrdin requesting the prime minister stop the State Customs Committee from clearing tobacco and alcohol products that were addressed to the Moscow Patriarchate in the form of humanitarian aid.

But the patriarch's letter had already been overtaken by events. A few days earlier, a presidential decree had been issued that disqualified excise goods from a list of goods qualifying as humanitarian aid. With that decree, the church was no longer able to import cigarettes as humanitarian aid, and the imports ended.

No one on the Commission on International Humanitarian and Technological Aid or at the patriarchate would say how tobacco earnings have been used. Nevertheless the government lost out on another significant source for tax revenues.

During the duration of the cigarette import scheme, the church did pay the excise rate of 2 ecus (about $2.50) per 1,000 cigarettes; it did not, however, pay import tariffs. Current import tariff rates would exact a minimum of 3 ecus per 1,000 cigarettes imported. And at the time of sale, value-added taxes would total 20 percent of the cigarettes' price, including any import duties and excise taxes; since the church importers were not paying import tariffs, the government lost out on a portion of VAT revenues, as well. In the end, the decision to allow the Moscow Patriarchate to import 8 billion cigarettes duty-free cost the government at least $40 million.

The Moscow Patriarchate has not limited its business activities to mercantile operations.

Over the past four years, and in spite of the direct canonized ban on this form of activity, its subdivisions have founded several banks. One of those, called Orthodoxy Bank, never actually opened its doors. According to one of its founders, Father Ioann Ekonomtsev, the bank's Greek partners "turned out to be too low-powered."

Father Ioann acknowledged that the church is not supposed to become involved in banking affairs -- but he added that there's no point approaching the problem too radically.

"We cannot close our eyes to the fact that contemporary economics are based on a banking system," he said. "Therefore all that we can do to keep from tainting the church's image is to be certain the banks associated with it do not participate in immoral and illegal affairs."

A second bank is the Khristiansky Rossiisky Bank, or Christian Russian Bank, which the Russian media has reported is chaired by the Archbishop Sergy -- the same Sergy who denied the church's involvement in the oil business. The archbishop declined to comment on his involvement in Christian Russian Bank, although his secretary said: "It is unlikely that His Sovereignty is informed on the activities of this bank."

And although the patriarchate's chief accountant has not seen anything of Bank Peresvet on her accounts, it certainly exists -- and collects interest. "Bank Peresvet offers complete banking services, including loans, and specializes in the construction field," said the bank's vice president, Vladimir Zhoga.

There is yet another church-backed financial house, the Christ the Savior Cathedral bank. Are the activities of that bank limited to the affairs of constructing the cathedral of the same name? "Not exactly," replied one employee, who asked that his name be withheld.

According to the Rating Information Center, which classifies Russia's financial institutions, all of the church's banks fall into the C3 reliability category, far from the highest, and none are included on Russia's listing of the 200 largest financial institutions according to assets.

Critics of the patriarchate say that in addition to trade and banking, the church is involved in other high-revenue forms of business. Alexander Nezhny, who has written a number of expos?s on the patriarchate, suspects that it is also involved in the diamond-mining industry.

"Last summer, the patriarch personally participated in the opening ceremonies of a cleaning plant at the Aikhau mine in Yakutia, where Russia's largest diamond resources are located," Nezhny said. "The fact that the patriarch personally flew to Yakutia can be explained away -- but the fact that he put up with the participation of local shamans in the ceremony says his reasons for going were much more serious than a simple desire to bless another factory.

"As head of the Russian Orthodox Church," he said, "the patriarch cannot just casually take part in a ceremonies with representatives of heathen religions."

In substance, were it not for the Orthodox Church's own strict canons, there would be nothing reproachable in the patriarchate's activities.

The Russian Orthodox Church is far from the only religious organization with business dealings. Most Protestant churches do not have canonized limitations regarding profit-making as a whole, and any prohibitions generally concern illegal activities.

One expert on the financial affairs of the Roman Catholic Church said: "The Vatican's largest commercial project is securities investments, including bonds, which total nearly $500 million. Earlier, information concerning the Vatican's finances was carefully concealed. However, recently, this policy has been changed and twice a year the head of the budgetary department gives a press conference, where he details the [church's] state of affairs," said the expert, who asked that his name not be published.

If there are secular concerns about the Church's business activities, they are that these concerns are not openly declared and that they depend on favors from the government -- such as special tobacco-import or oil-export privileges -- that amount to a means of circumventing the budget process.

As for the tax exemptions, the government has its justifications.

"On one hand, the state considers itself responsible to compensate for damages that the church suffered under the former government. And although there is no law on this subject, theoretically, such a directive does exist," said one government analyst, who asked to remain anonymous.

"On the other hand, the Russian Orthodox Church is a non-governmental organization, involved in humanitarian activities, and in this sense, state support for it is also legitimate," he said.

"The only problem is that the size of these privileges is too great, and with its secular operations, the Moscow Patriarchate in its own way has started to look like the National Sports Fund."