Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

ILBE Hits Back at Former Partner

The head of the Institute for a Law-Based Economy, under fire for allegedly stealing U.S. government property, struck back Friday by charging a U.S. aid contractor linked to Harvard University with avoiding Russian taxes.

ILBE Director Sergei Shishkin said at a news conference that the Harvard Institute for International Development, which founded his institute and was its biggest partner, had violated Russian tax law by failing to register as a legal entity or account for computers, desks, tables and other property. He declined to estimate the equipment's total value.

"There is a lot of such property," he said. "If Harvard used it, then it must put it on tax records in Russia."

Harvard institute officials dismissed the accusation, saying that as an aid contractor providing technical assistance to Russia, it has been exempted from local taxes. Under an April 1992 agreement between the U.S. and Russian governments, "commodities, supplies or other property provided or utilized in connection with the United States assistance programs" cannot be taxed.

"That's a big thing [U.S. Agency for International Development officials] work on in any country," said David Weiler, a senior Harvard institute employee in Russia. "They don't pay the local taxes."

Shishkin also said USAID owed ILBE employees $170,000 for services rendered. A USAID official said an agreement had already been reached on paying the debt.

ILBE has been at loggerheads with the Harvard institute and USAID over the rights to books and office equipment left over from Harvard projects that are now being closed down. Last weekend, movers working for ILBE took a large amount of equipment from a central Moscow office where the two institutes had worked together on economic and legal reform projects.

The U.S. government has said Shishkin removed the property, which it claims is worth $500,000, despite repeated warnings not to.

Shishkin has said that the property is worth a lot less, that he was never officially warned not to take it and that he had advised the U.S. government well in advance of his intention to move to a nearby office.

Several days after the incident, USAID suspended an $890,000 grant to ILBE.

Relations between ILBE and Harvard have been deteriorating since May, when USAID accused two top Harvard advisers, Jonathan Hay and Andrei Shleifer, of using their positions for personal gain. In June, USAID canceled most of the Harvard institute's remaining economic reform projects in Russia.

On Friday, Shishkin showed a small group of foreign journalists documents to support his accusations of tax avoidance. Among them was his proposal, dated July 18, under which nearly all of the equipment that Harvard and the ILBE had shared would go to the Russian institute.

Shishkin said in the proposal, addressed to USAID Moscow head Janet Ballantyne and other aid officials, that much of the shared equipment was on ILBE's balance sheet. If the institute were to transfer that property to USAID or to other aid contractors, he wrote, a 40 percent tax would have to be paid.

"Since ILBE currently does not have the money required to pay those taxes, it has to receive the relevant amount in advance," he said.

One of the Harvard institute's reasons for setting up ILBE had been to put the U.S. property on the Russian foundation's balance sheet and thus avoid responsibility for local taxes, Shishkin said. He estimated the property's present value at $86,000, but later added that Harvard had a lot of other equipment that hadn't been declared or taxed.

Regarding the equipment on ILBE's balance sheet, Weiler countered that "Harvard did not dictate to ILBE how to treat that equipment."

"If they put it on their balance sheet, that's the way they did their accounting," he said.

USAID declined Shishkin's proposal on the property and on Aug. 6 approved a Harvard plan under which ILBE would get about one-third of the equipment.