VZCZCXYZ0014
RR RUEHWEB

DE RUEHMO #5244/01 3051503
ZNR UUUUU ZZH
R 011503Z NOV 07
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 4995
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS MOSCOW 005244 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EUR/RUS, EEB/IFD 
TREASURY FOR TORGERSON 
 
E.O. 12958: N/A 
TAGS: EFIN ECON RS
SUBJECT: PWC CASE: "PLEADING THE FIFTY_FIRST" 
 
REF: MOSCOW 5083 
 
¶1.  (U) This message is sensitive but unclassified and not for 
internet distribution. 
 
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Summary 
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¶2.  (SBU) On October 26, PricewaterhouseCoopers Russia (PWC) refused 
to submit documents on the auditing firm's worldwide staff that an 
appellate arbitration court had demanded earlier in the month 
(reftel).  PWC invoked Article 51 of the Russian Constitution, which 
provides protection against self-incrimination, as its basis for not 
complying with the court's demands.  Our contacts observe that this 
may be the first time a corporation in Russia has attempted to use 
in its defense a right that has historically been applied only to 
individuals.  They also agree that the tactic is not likely to be 
effective in this case.  End Summary. 
 
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PWC Refuses to Comply... 
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¶3.  (SBU) On October 26, the Russian office of PWC told the 9th 
Appellate Arbitration Court in Moscow that it would not comply with 
the court's request for access to the auditing firm's worldwide 
personnel files.  On October 12, the court had demanded that the 
Federal Tax Service (FTS) be granted access to these files as part 
of the latter's investigation into the extent of tax evasion by 
former oil giant YUKOS.  In that session, the court upheld the FTS 
claim that PWC had colluded with YUKOS to defraud the GOR out of 
billions in tax revenue (reftel).  The FTS had argued: PWC was the 
YUKOS auditor of record for almost 10 years; and PWC acknowledged in 
June 2007 that YUKOS had not fully disclosed information relevant to 
the auditing process.  In light of these facts, FTS maintained, it 
had a right and a duty to investigate where and how else YUKOS might 
have schemed to evade taxes. 
 
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And PWC Pleads the "51st" 
------------------------ 
 
¶4.  (SBU) PWC said during the October 26 session that its basis for 
not complying with the court's demands was Article 51 of the Russian 
Constitution.  The article provides protection against 
self-incrimination, stating that no one shall be compelled to give 
testimony against him/herself, the person's spouse or close 
relatives.  Our contacts could not recall and had found no precedent 
of an instance in which a corporation had invoked this provision of 
the Russian Constitution. 
 
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Here Be Dragons 
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¶5.  (SBU) Alexander Gomonov, a corporate counselor at Baker and 
Botts in Moscow, said that PWC's decision will force Russia's legal 
system into uncharted waters.  Article 51 has so far only been 
invoked by individuals and predominately in criminal cases.  Gomonov 
expressed doubt that the appellate arbitration court would set a 
precedent by permitting this particular approach.  He explained 
that, regarding criminal law, the legal standing of corporations has 
only recently begun to develop.  Since 2002, the criminal code has 
allowed corporations to be classified as potential victims of 
crimes, but not yet as defendants. 
 
¶6.  (SBU) Albert Eganyan, an attorney at the Vegas-Lex law firm, 
agreed with Gomonov's skepticism but was more emphatic.  He said the 
9th Appellate Arbitration Court would be an unlikely venue for a 
multi-precedent setting decision.  If the court upheld PWC's 
argument, it would grant a corporation unprecedented standing, in a 
civil case, on the basis of a right which the Russian legal system 
has only assessed in criminal proceedings.  Eganyan said PWC's 
attorneys deserve credit for their creativity, "but it won't work." 
 
¶7.  (U) Yuliy Tay of the Bartolius Law Firm said that whether or not 
the court allows PWC to use Article 51, "this will not release PWC 
from the court's injunction to provide personnel files."  Tay noted 
that even in the U.S., where a corporation's rights and 
responsibilities under criminal and civil statues are more 
developed, corporations may not employ a blanket refusal "to 
produce" documents, which "are not testimony." 
 
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Comment 
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¶8.  (SBU) PWC's unprecedented use of Article 51 as a basis for not 
furnishing documents seems unlikely to be successful.  We'll know 
November 28, when the next session of the appeal will be held. 
BURNS