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. Last Updated: 07/27/2016

U.S. Seeks To Swap Debt for Embassy

The U.S. government is offering to write off World War II-era lend-lease credits to the Soviet Union in return for full ownership of U.S. Embassy properties, including Spaso House, the tsarist-era ambassador's residence.

The U.S. and Russian governments have for years squabbled about the rent for U.S. diplomatic properties in Moscow and St. Petersburg. In 1986, Washington and Moscow struck a 20-year, ruble-denominated lease to pay 72,500 rubles a month At exchange rates at the time, that came to about $60,000.

But the inflation of the 1990s has geometrically reduced the U.S. rent payments - in 1996 they were the equivalent of $13 - and the U.S. State Department has been reluctant to renegotiate before the lease expires in 2006.

An embassy official contacted Tuesday said the Spaso House-for-lend-lease swap was just one of several offers the U.S. government had forwarded to the Russian Foreign Ministry as part of the ongoing rent talks.

"It's just one of the proposals on the table," said the official, who asked not to be identified. Other proposals on the table include the outright purchase of the property by the U.S. government and a simple renegotiation of the lease to reflect its market value.

The Soviet Union's decades-old lend-lease debt is on paper worth somewhere from $600 million to $700 million. But Russian officials have been talking ever more loudly of repudiating some or all Soviet-era debts and only honoring those taken on since 1991 by the Russian Federation - and if that happened, the lend-lease debts would probably be among those ditched.

The embassy official would not comment on how much rent the U.S. government now pays - there have been some minor renegotiations over the years - and no one at the Foreign Ministry was available Tuesday for comment on the matter.

Interfax first reported the proposed debts-for-embassy swap Tuesday, but the embassy official called the timing of that report "surprising" because the proposal "was nothing new."

Surprising or not, the report's timing is noteworthy. It comes hard on the heels of reports splashed across the front pages of Russian newspapers last week alleging that the U.S. Embassy's Russian employees owe up to $10 million in tax arrears to the Russian government.

The U.S. Embassy has confirmed it is involved in tricky negotiations with authorities over the tax dues of its Russian employees. But an embassy official said this is also another problem that has been under discussion for years, yet has only now flared up in public.

All of the hullabaloo comes at something of a low point in U.S.-Russian relations. Washington and the European Union have both been critical of the war in Chechnya, and Washington in particular has been rocked by allegations of Russian corruption that may have fed massive money-laundering operations in New York and bled away International Monetary Fund loans.

A diplomat from another embassy in Moscow said the public airing of the ongoing squabbles over rents and taxes simply reflects the troubled nature of U.S.-Russian relations.

"They're just some of a number of ongoing grumbles the Foreign Ministry has with the United States. But they only appear in the [Russian] press when Russian-U.S. relations are going through a rough patch," the official said.

The U.S. position is that individual Russian staff members at the U.S. Embassy are responsible for paying taxes themselves. Foreign staff, meanwhile, are exempt from taxation under the Vienna Convention, which protects the rights of diplomatic missions abroad.

That same convention, however, also reserves the embassy's right to classify the size of its staff and their salaries - a rule that draws any foreign nation's tax probes into a tangled web of state secrets and tax loopholes.

"We don't provide documents to the Russian government on the size of our staff and how much they are paid," the embassy official said. "These figures are confidential, but this is why the problem has cropped up."

A Russian employee at the embassy, who asked not to be unidentified, admitted that not all staff members rush to fill out tax declarations. But he claimed that the staff who did were turned away by the tax inspectorate for not having the correct income documents.

"It's a catch-22 situation: The U.S. government does not want to disclose to Russia its budget at the embassy, so we have no real documents to prove the size of our income," he said.

Russian tax officials express little concern for the niceties of international diplomacy at the U.S. Embassy.

"Wages are paid to employees in dollars inside envelopes. This is a major violation of Russian legislation in itself and helps employees evade taxes," Yury Tretyakov, head of the Tax Police press service, said in a telephone interview. "We're talking about a total of $10 million in unpaid taxes."

Tretyakov said tax authorities have not yet had time to check out other foreign missions in town.

"It's not the first year that this has happened, but it's time we began to clear the matter up," Tretyakov said. "I'm quite sure that its not just the U.S. Embassy staff who are not paying taxes, but tax evasion is so widespread it's impossible to address all issues at once."

Other embassies contacted refused to say in what form staff were paid and whether they made tax payments on behalf of Russian employees.

One Russian employee at the U.S. Embassy said Russian staff there would never have fallen foul of the Russian authorities in Soviet days simply because they were all on the payroll of the KGB.

"Its a long and tangled history. But as [the last Soviet KGB chief Vladimir] Kryuchkov once wrote in his memoirs: One of the greatest achievements of the Russian secret service was that in 1987, when the Cold War was thawing, the entire Russian staff of the U.S. Embassy quit their jobs in one team," he said. "There was never any question of problems with Russian officials then."