VZCZCXRO3989
RR RUEHLN RUEHVK RUEHYG
DE RUEHMO #0220/01 0220634
ZNR UUUUU ZZH
R 220634Z JAN 07
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 6545
INFO RUEHKV/AMEMBASSY KYIV 0053
RUEHSK/AMEMBASSY MINSK 5383
RUEHLN/AMCONSUL ST PETERSBURG 3690
RUEHVK/AMCONSUL VLADIVOSTOK 1855
RUEHYG/AMCONSUL YEKATERINBURG 2110

UNCLAS SECTION 01 OF 03 MOSCOW 000220 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV PHUM KDEM SOCI ECON RS
SUBJECT: PHILANTHROPY GROWS IDIOSYNCRATICALLY IN RUSSIA 
 
¶1. (SBU) Summary.  GOR efforts to exert greater control over 
Russia's NGO sector and a lack of tax incentives have not reversed a 
dramatic growth in philanthropy, particularly by large domestic 
corporations.  Philanthropic activity has generally matched the 
expansion of the Russian economy (about six percent annually), but 
it differs in character from western philanthropy.  Individual 
giving is modest, and Russians rarely donate to high-profile 
international causes, like the Asian tsunami.  NGOs play a small 
role in providing charitable services, and Russian officials 
frequently pressure corporate and private donors to support public 
projects and state institutions.  A new law on endowments has been 
passed to encourage big businesses to give more to charities and 
social projects. End summary. 
 
Renaissance of Philanthropy: Corporate, Not Individual 
----------------------- ------------------------------ 
 
¶2. (U) According to research done by the Charities Aid Foundation, 
philanthropic activity is growing in Russia at the pace of the 
economy: about six percent annually.  Corporate donors provide about 
75 percent of donations (compared to 25 percent in the U.S.), the 
donations of the 30 largest amount to USD 1.5 billion per year, and 
the figure is growing.  Aleksandr Livshin, professor at Moscow State 
University's School of Public Administration, said more than 60 
percent of company owners reported in a recent study that they had 
increased their philanthropic activity since 2000. While Russian 
politicians and publicists often imply that western governments and 
NGOs seek to use donations in order to influence political 
developments in Russia, foreign private NGOs and donors actually 
constitute only 8.4 percent of total Russian contributions. 
According to the Center of Economic and Financial Research (CEFR), 
companies spend about 11-17 percent of their net profits on social 
needs (which include not only charity but non-wage employee 
benefits, including subsidies for housing, day care, recreation, and 
medical services), while for Western companies the equivalent 
expenditure is roughly 0.5-1 per cent.  According to CEFR, these 
social benefits typically represent in-kind compensation for the 
poor quality of the local social infrastructure.  Over 50 percent of 
major corporations have a special social budget. 
 
¶3. (SBU) Individual philanthropy remains less developed. 
According to Galina Bodrenkova, President of the Russian Center for 
Developing Volunteerism, only 5-15 percent of Russians donate to 
charity.  Fifty-five percent know nothing about philanthropic 
organizations in Russia, and more than half of Muscovites have never 
practiced volunteerism. Yelena Abrosimova, a program co-director at 
IREX, stated that individual giving and the concept of 
membership-based NGOs (e.g., World Wildlife Fund) is not popular, 
because Russians do not have faith in NGOs to use their donations 
appropriately.  She said Russians are more likely to give money to 
homeless people or beggars on the metro, because they know precisely 
where there money is going. 
 
¶4. (SBU) Also contributing to Russians' reluctance, according to 
Livshin, are current regulations, which make it difficult for an 
individual citizen to offer a charitable donation.  A potential 
benefactor must go to a branch of Sberbank and complete a complex 
form for even a modest donation.  In addition, he said, the 
Khodorkovskiy case caused would-be wealthy philanthropists to avoid 
politically controversial activities.  Some worry as well that 
flaunting their earnings through charity may attract the attention 
of criminal elements.  However, he said the main reasons why private 
citizens engage in so little philanthropy is that the middle class 
is just emerging and the habit of individual charity practically 
disappeared under Communism. 
 
Distinctive Features of Russian Philanthropy 
-------------------------------------------- 
 
¶5. According to Livshin, Russian philanthropy has many distinctive 
features.  First, almost all donations stay in Russia.  Russian 
philanthropists are overwhelmingly concerned with solving domestic 
problems.  Not even a catastrophe on the scale of the December 2004 
tsunami in Southeast Asia stimulated substantial private Russian 
 
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contributions to international relief operations.  Second, very few 
philanthropists use NGOs to deliver aid to fellow citizens.  Most 
Russian donors see NGOs as inefficient if not thievish.  In their 
turn, most NGO leaders have a poor opinion of rich business leaders. 
 In Russia, the volume of the Russian non-profit sector makes up 
only 1.2 percent of the country's GDP, in contrast to 6.7 percent 
for the U.S. Finally, almost 90 percent of donations in Russia go to 
state-run bodies such as local orphanages and cultural institutions. 
 This results partly from official encouragement, partly from 
philanthropists' general distrust of NGOs, and partly from the tax 
code provision that permits some deductions for direct donations to 
state institutions. 
 
Philanthropy Growing: No Tax Incentives, but Tithing 
 
MOSCOW 00000220  002 OF 003 
 
 
----------------------- ---------------------------- 
 
¶6. (SBU) The growth in philanthropy has surprised many experts, 
given that extensive reforms in 2000-2001 removed from the Tax Code 
virtually all incentives for charitable giving.  Private citizens 
making charitable donations are eligible for tax deductions equal to 
their contribution only if it goes to scientific, cultural, 
athletic, or educational organizations wholly or partly financed by 
the state.  In other words, Livshin said, the incentives encourage 
individual donors to support state initiatives.  The situation for 
corporate charity is similar. 
 
¶7. (SBU) According to Bodrenkova, tax incentives for charitable 
foundations were widely abused in the 1990s, leading to instances of 
money laundering.  Along with depriving the federal government of 
tax funds, these abuses had the effect of sapping public confidence 
in philanthropy.  Government officials often suspect that 
philanthropic donations seek to conceal shady business practices or 
other illicit activities.  Although these abuses are less frequent 
today, Bodrenkova said the image of fraudulent charitable behavior 
persists. 
 
¶8. (SBU) According to Natalya Kaminarskaya, Executive Secretary of 
the Russia Donors Forum, some Russians view corporate philanthropy 
as a form of compensation for unfair privatization of the 1990s. 
Now that business is thriving, society expects repayment.  Companies 
understand that philanthropy can help them create a positive image 
in communities.  They have started to become more strategic in their 
activities - to consider not just current crises but sustainable and 
long-term philanthropic development.  Companies have begun to 
develop complex and sophisticated corporate social responsibility 
programs, Kaminarskaya said, often using the services of 
professional development organizations such as Russia's Charity Aid 
Foundation as they lack the expertise to design effective programs 
themselves. 
 
¶9. (SBU) Kaminarskaya added that supporting education initiatives is 
a very high priority for businesses.  Approximately USD 70 million 
in grants and scholarships was donated by Russian private 
foundations in 2005.  Corporations have had increasing trouble 
finding professional, well-educated employees, and since Russians 
tend not to move in search of jobs, local education is key.  Only 
around 2 percent of the Russian population changed their residence 
within the borders of Russia per year during the 1990s, and the 
figure decreased to 1.4 percent in 2002, which is quite low compared 
to the U.S. internal migration rate of 13.7 percent in March 
2002-March 2003.  Consequently, many companies support youth 
programs, including scholarships, professional training, and 
internships.  For example, she said, the company Norilskiy Nikel has 
a "Professional Start" program, which includes internship 
competitions for students.  The most successful interns often 
receive job offers. Russian private and family foundations also 
focus on education.  For example, the Dynasty Foundation, founded by 
the oligarch Dmitry Zimin, supports natural sciences, education, and 
scientific research, while the Vladimir Potanin Foundation runs 
university scholarship programs. 
 
Philanthropy as Tool to Grease the Wheel with Government 
------------------------ ------------------------------- 
¶10. (SBU) Kaminarskaya said that her experience indicates that 
international and Russian donors tend to establish different 
philanthropic priorities, with Russian donors frequently using 
philanthropy as tool to grease the wheel with the government. 
International foundations concentrate on civil society initiatives 
and institutions, development and sustainability, human rights, 
global environmental protection programs, HIV/AIDS, and economic 
development.  In contrast, Russian donors focus on social 
initiatives, youth and children programs, youth professional and 
occupational training, culture, sports, education, gifted children 
and special needs children, and assistance for the disabled. 
Abrosimova estimated that as much as 80 percent of donations are 
more or less bribes to the government.  The government frequently 
says "build a school here" or "support this museum," and big 
business will agree because it fears retaliation.  Abrosimova said 
that Russian officials frequently pressure major philanthropists to 
support the government's National Priority Projects in healthcare, 
education, housing, and agriculture.  Representatives of the media 
and other social sectors, including the NGO community, also see much 
philanthropy as motivated by a desire to curry favor with elites; or 
worse, as a covert form of bribery. 
 
¶11. (SBU) In addition, Kaminarskaya said philanthropy often 
emphasizes culture.  For example, Alfa Bank funds large concert 
tours for the St. Petersburg-based Mariinsky Theater and the Russian 
Ballet, as well as concerts and performances in different regions. 
Similarly, the Vladimir Potanin foundation supports museum 
development in the Russian regions, and Viktor Vekselberg (head of 
SUAL and Tyumen Oil Company) purchased the Forbes' Faberge egg 
 
MOSCOW 00000220  003 OF 003 
 
 
collection in order to repatriate it to Russia.  As in the West, 
such high-profile philanthropy burnishes the reputation of the donor 
and buttresses the image of Russia as a resurgent state. 
 
Philanthropy Plays a Large Role in Regional Development 
-------------------------- ---------------------------- 
 
¶12. (SBU) Livshin believed that philanthropy plays a large role in 
the development of some of the regions.  Businesses such as SUAL, 
RUSAL, TNK-BP, and others manage their own programs, taking 
responsibility for funding municipal social institutions, including 
hospitals and schools.  In some cases, they virtually supplant the 
local authorities.  In most cases, social institutions have no other 
source of funding.  Livshin estimated that more than 80 percent of 
corporate funds are distributed in the regions, with 60-90 percent 
of those provided to state institutions.  Donors can more rapidly 
address urgent social needs than public institutions, with their 
extensive legal requirements and bureaucratic processes. 
 
¶13. (SBU) Livshin said surveys indicate three-fourths of Russian 
philanthropists report experiencing pressure from regional and 
municipal authorities to donate to public projects.  Ironically, 
half of this group looks favorably on such overtures, because they 
see the solicitations as strengthening their ties with the local 
bureaucracy.  In addition, over 70 percent said they would donate to 
state institutions anyway, although often they would choose 
different recipients.  Officials often pressure them to pay to 
sustain decaying public infrastructure, whereas the philanthropists 
would prefer to address urgent social needs.  Although respondents 
believe that maintaining the infrastructure should be the 
government's responsibility, they acknowledge that official 
incompetence and corruption often interfere. 
 
New Law on Endowments Will Help Corporate Philanthropy 
-------------------------- --------------------------- 
 
¶14. (SBU) Putin recently signed a new law to encourage big 
businesses to give more to charities and social projects.  The law, 
which will allow the creation of charitable endowments with special 
tax privileges, was hailed as a milestone by interlocutors.  The 
move comes amid pressure for the Kremlin to spend some of its USD 70 
billion petro-dollar fund on social projects. 
 
¶15. (SBU) According to Bodrenkova, under the new law, those 
charitable funds that meet the definition of an endowment will not 
be taxed and will not have to pay VAT when they disburse their 
funds.  Human rights organizations and youth groups do not qualify 
for tax breaks, however, as the law will apply only to organizations 
involved in education, science, healthcare, culture, and social 
services - in other words, Bodrenkova said, areas where the 
government usually provides services.  The new law stipulates that 
the endowments must be at least 3.5 million rubles (USD 130,000) in 
size and that they be invested into the market by professional fund 
managers. 
 
¶16. (SBU) Bodrenkova said it is not clear if the government will 
stop with the new endowment law.  There has also been discussion of 
a new "philanthropic tax" on big business, which would, in effect, 
make charitable donations mandatory.  According to Livshin, 
"philanthropic taxing" has been used on occasion on the local level 
in Moscow and the regions. 
 
Comment 
------- 
 
¶17. (SBU) Some critics argue that government officials have 
succeeded in concentrating philanthropy among a small number of 
large corporate benefactors in order to exercise greater control 
over their activities.  Making philanthropy more independent of the 
state and less dependent on corporate generosity could spur the 
development of a more robust independent civil society in Russia. 
However, increasing public involvement will take time.  It will 
require not just new legislation but socio-cultural changes, which 
would lead to the emergence of a new culture of individual 
philanthropic behavior, although much has already been accomplished. 
 
 
BURNS