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. Last Updated: 07/27/2016

No Tearful Goodbyes for Tax Police

After President Vladimir Putin signed the Tax Police into oblivion Tuesday, businesses big and small are breathing a long sigh of relief at the demise of an organization they say choked economic growth and, especially of late, was acquiring alarming new powers.

The Tax Police -- perhaps best known as armed, burly men in masks who roughly restrain accountants, as depicted on television shows -- were disbanded by President Vladimir Putin on Tuesday, and their duties are being transferred to a new, scaled-down department in the Interior Ministry.

In announcing the move in a larger reshuffle of security posts, Putin said most of the Tax Police's 40,000-strong staff will be transferred to a new federal anti-drug agency, the State Committee for the Control of Narcotics and Psychotropic Substances. The new agency will also acquire much of the Tax Police's equipment and buildings -- from state-of-the-art sniper rifles to sanatoriums.

Interfax, citing an unnamed Interior Ministry source, said Wednesday that the new Interior Ministry department might get 12,000 former Tax Police officers, along with the Tax Police's databases and authority to investigate tax crimes.

Tax Police chief Mikhail Fradkov, who worked abroad under the now-defunct Foreign Economic Relations Ministry, will move to Brussels, Belgium, to serve as Russia's envoy to the European Union -- a post that holds as much clout as that of a minister.

The Tax Police's central press service was not picking up the telephone Wednesday. "They're probably hiding," said a spokeswoman for the Tax Police's Moscow division. "There isn't anything to say." The spokeswoman said she and her colleagues had learned of the shake-up from television. "We learned about it from NTV," she said. "It's as much a surprise for us as for everyone else."

The Interior Ministry said it had anticipated the move. "We had known about the planned changes for some time and had been preparing for them. It wasn't a surprise," said a ministry spokeswoman. "It is perfectly logical to disband the Tax Police because a lot of its functions are carried out by our anti-organized crime departments."

Citing sources in the Tax Police, the Kommersant daily said confusion was the order of the day Tuesday morning.

Hungry for information, employees grilled Tax Police generals who, in turn, were unable to offer any clarification. An official announcement was made only in the afternoon, the paper said.

The tax police's forerunner -- the Chief Department for Tax Investigation -- was created in 1992 under the Tax Ministry and charged with battling large-scale tax crime. In 1993, it was spun-off into a separate autonomous body called the Tax Police Department. It acquired its present name in 1996.

The Tax Police garnered a reputation as an organization hungry for new authority that more often targeted honest businessmen with paramilitary-style checks than large-scale tax evaders and organized crime groups. The Tax Police had the sole responsibility of enforcing two articles of the Criminal Code -- tax evasion by companies and individuals. In addition, it enforced 26 other articles, which were also the responsibility of the Interior Ministry.

"Eventually, you had a huge body that was fighting a comparatively small problem. ... They had 40,000 employees, which for Russia is a lot," said Maxim Maximovsky, a senior tax lawyer with the Pepelyaev and Goltsblat law firm.

The Interior Ministry said it is charged with enforcing 91 articles pertaining to economic crime in the Criminal Code. "The problem of overlapping duties between the Interior Ministry and the Tax Police arose some time ago," the ministry said in a statement.

Maximovsky said the Tax Police had an "elastic authority," operating under its own laws and performing checks on businesses and individuals that were difficult to dispute in court.

This made life particularly uncomfortable for small and medium-sized businesses. Andrei Nasonov, a top official with the Association of Entrepreneurial Organizations of Russia, said small business has the most to gain from the end of the Tax Police.

"They were used as a mechanism for unfair competition and for extortion by blocking economic activities," he said. "This decision is certainly not a coincidence, and it was adopted because there have been too many signals from the business community that the Tax Police were slowing down economic growth.

"The Tax Police were originally set up to fight major tax evaders. About a year ago they suddenly set up a division that was aimed specifically at the smallest businesses. They came crashing down on poor small businesses that had no way of protecting themselves."

Maximovsky said the Tax Police were brimming with corruption. "They are used to resolve a variety of commercial problems and by businessmen to achieve a competitive advantage," he said. "Sometimes, entrepreneurs went to the Tax Police to get a criminal investigation opened against their competitors."

Last month, the Tax Police issued two internal instructions that some lawyers said could have come straight off the pages of George Orwell's "1984." One instruction stated that the Tax Police could take "preventive" measures against those they suspected of being likely to commit a tax crime and could encourage family members "to exert a positive psychological influence" over them. The other instruction authorized the use of lie detectors on suspected tax evaders. "These latest instructions showed that the Tax Police were unable to function within their authority and constantly sought new responsibilities," Maximovsky said.

Ministers and businessmen alike gave the thumbs-up to the reform, albeit for various reasons. "It's a sensible step. No one really understood exactly what the Tax Police did," said a source with a major metals company.

Finance Minister Alexei Kudrin, speaking at a ministry meeting, said dissolving the Tax Police represented "a continuation of reforms."

Alexander Pikayev of the Moscow Carnegie Center said corporate tax evaders can pop open the champagne. "I think oligarchs can rejoice," he said.

The transfer of Tax Police staff and duties to the Interior Ministry is expected to be completed in about a year.

In the meantime, what should a businessman do if he get a knock on the door from people claiming to be the Tax Police? "Don't open it," Maximovsky said. Since the Tax Police have been disbanded, they no longer have the authority to perform inspections.