Russia: No country for charitable souls

Svetla Marinova: 8/01/08

The Russian government appears to be implementing a plan to bring Russia's non-governmental sector under the Kremlin's control. The idea is to deliver a one-two punch to civil society activists – first by pushing out Western organizations now operating in Russia and replacing them with Russian entities that are beholden to the country's political leadership.

In contrast to the heavy-handed way in which the Russian government cemented its grip over the country's energy sector during the early 2000s – underscored by the state's coldly calculated takedown of oil baron Mikhail Khodorkovsky – the Kremlin is moving with velvety ruthlessness against NGOs involved in democratization-related activities.

While no formal blueprint on NGOs exists, or at least none has been made public, the Russian government's intentions started coming into clearer focus in early July. On July 2, Prime Minister Vladimir Putin issued a decree that dramatically rolled back the number of foreign-based NGOs that will enjoy tax-exempt status in Russia. The chief targets of the decree appeared to be NGOs active in areas deemed nettlesome by the Russian government, such as human rights and the environment. NGOs that no longer qualify for exemptions will have to pay a 24 percent tax on all grants made inside Russia, starting January 1.

The 24 percent rate is deemed prohibitive by many civil society activists, who believe the new rules are designed to force Western NGOs to pull out, and thereby throttle the spirit of liberalization in Russia. Tanya Lokshina, a Human Rights Watch Russia researcher based in Moscow, said Putin's decree was "certainly a demonstrative political gesture, which is very illustrative of the climate foreign-funded NGOs and their donors have to deal with in Russia today."

"In making the working environment more and more hostile for NGOs, the Russian government is acting in a similar way as those CIS states with dramatically poor human rights record, such as Uzbekistan or Belarus," Lokshina added.

Among the 89 NGOs impacted by the decree are the International Red Cross, the World Wildlife Fund, the Ford Foundation and the Eurasia Foundation. Joe Voeller, a press officer at the Ford Foundation, noted that the organization's Moscow office distributes more than $10 million in grants annually. "We are studying the recent decree, but do not have enough information to comment at this time," Voeller said.

Of the 101 NGOs that enjoyed tax-free status prior to Putin's July 2 decree, only 12 stand to retain the privilege in 2009. The new qualifications for tax-exempt status were arbitrarily established by the government. NGOs themselves had no role in the outcome. "We did not lobby for it, but [our organization] remained in the list of institutions allowed to give tax-free grants," said one representative of the 12 organizations that will still enjoy the privilege.

Although the government's methodology in refining the tax-exempt list was anything but transparent, a pattern can be detected in the outcome. Those organizations that will continue to enjoy the exemption tend to be intergovernmental groups, such as the Commission of the European Communities and the Council of the Baltic Sea States, along with several UN-related entities like the International Atomic Energy Agency.

"The [Russian] government likely feels that it can largely trust intergovernmental organizations such as councils of government ministers or UN agencies, since it has a voice in those organizations and other governments tend to understand Russia's wish to ‘protect sovereignty,'" said Lisa Sundstrom, a professor at the University of British Columbia in Canada, and an expert on Russian civil society developments. The Kremlin tends "not to trust private foundations, which are less in dialogue with the government and are also the biggest funders of NGOs critical of the government," Sundstrom added.

"It just does not make sense to tax grant funds and thereby reduce their usefulness to grantees," continued Sundstrom. "So many civil society groups in Russia are doing such valuable work with their grant monies – which already aren't sufficient to serve societal needs."

Motives become clearer, however, when the tax-exempt move is viewed within the context of another government initiative to encourage the NGO sector's Russification. President Dmitry Medvedev has spoken repeatedly in the past weeks of the Russian government's desire to promote NGO activity. He has also plainly indicated that his administration views foreign NGO activity in Russia as meddlesome.

"I doubt that any developed Western country would tolerate such an overwhelming flood of foreign capital into its own ‘third sector,'" Medvedev told German political and civil society leaders in Berlin in June. The Russian leader went on to indicate that the Russian government would increase the share of state funds used to support local NGO activity.

The absurdity of a "non-governmental sector" financed by a government, especially one as democratization-averse as Russia's, is self-evident. Accordingly, Medvedev also has been urging Russian corporations to become more active in philanthropic activity.

Observers fully expect Russian businesses to step up. But under present circumstances in Russia, even if corporate donors are providing most of the funding for local NGOs, the government would still be in position to call the shots. That is because the Kremlin effectively controls Russia's private sector, via the willingness of the political leadership to selectively apply taxation and criminal codes. These days, no Russian entity that wants to stay in business can risk defying the Kremlin's wishes, or do something sure to annoy the government. Thus, it would be reasonable to expect that corporate support for the NGO sector would adhere strictly to the government's wishes. That means that any NGO that carries out work deemed detrimental or irksome by the Kremlin would likely be starved of funds.

The government's ability to manipulate Russia's private sector was on full display in late July, when Putin ominously hinted that the state might investigate Mechel, a leading Russian coal and steel producer, for price gouging. Within hours, the company's market valuation plummeted $5 billion, roughly a third of the entity's overall value.

It would indeed seem that the bell is tolling for a genuinely independent non-governmental sector in Russia. However, a few experts, such as Laura Henry, a professor at Bowdoin College in Maine, are reluctant to say that all hope is lost. "The actual impact of the decree is hard to predict," Henry said. "Many organizations may be able to redefine their activities to minimize funds given as ‘grants,' or there may be a renegotiation of the tax rate in the weeks ahead, possibly if foreign governments choose to press the presidential administration on the issue."

Editor's Note: Svetla Marinova is an EurasiaNet editorial associate in New York.

Posted August 1, 2008 © Eurasianet