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. Last Updated: 07/27/2016

PwC Puts On a Brave Face After Losing Case

Despite its current troubles over audits and tax issues, Pricewaterhouse­Coopers said Wednesday that it planned to stay put in Russia -- but analysts said the auditor could stand to lose some of its market share.

PwC has been accused of irregularities in its auditing of Yukos and evading taxes, charges that the company has ­denied.

Earlier this month, police and prosecutors searched the company's central Moscow office in a high-profile raid.

Incidents like those involving PwC have become "something of an occupational hazard in Russia," said Roland Nash, head of research at Renaissance Capital.

"But the market in Russia is enormous and companies are willing to take the risks, which are far out weighted by opportunities."

PwC's problems are unlikely to affect other international auditing companies, Alfa Bank chief strategist Chris Weaver said. These situations tend to arise in connection to specific issues, the auditing of Yukos in PwC's case, Weafer said.

The government intends to complete the liquidation of Yukos this year and wants to give its proceedings against this company a purely economic flavor instead of a political one, Weaver said. ­Allegations of improper audits are an important part of this process, he said.

A Moscow court Tuesday imposed a 16.8 million rubles ($645,200) fine on PwC over its auditing of Yukos from 2002 to 2004. The suit against the auditor said PwC had compiled two audits -- one for internal use that warned of illegal actions by Yukos, and another for shareholders.

"Clearly, [Tuesday's] decision by the Moscow Arbitration Court was disappointing and we plan to appeal this decision to the second instance court," said Peter Gerendasi, a managing partner of PwC in Moscow.

PwC earlier confirmed that it had produced two reports, as stated in the suit, but said this was normal professional practice.

"Russian law is a pretty complex animal," said Nash, adding that this was something that makes different interpretations possible.

"The question is how the law is being interpreted in this case by the parties involved," he said.

Prosecutors are also pursuing a second investigation into whether PwC evaded taxes worth 243 million rubles ($9.3 million) in 2002. The search of the company's offices was connected with this second case, as well as a separate investigation concerning jailed former Yukos CEO Mikhail Khodorkovsky, who is currently facing embezzlement charges in addition to his eight-year prison sentence for tax evasion and fraud.

PwC has appealed the court decision on additional taxes for 2002 with the Higher Arbitration Court, the company's press service said Wednesday.

PwC offers auditing and consulting services for some 2,000 companies, generating over 50 percent of Russia's gross domestic product, the company said. The firm's Russian clients include the Central Bank, Gazprom, Unified Energy Systems and Alfa Group.

PwC's wide-ranging clientele may be another reason behind the authorities' decision to go after PwC, Weaver said. More than 50 percent of the country's GDP is too much for one company to handle, he said.