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PP RUEHDBU
DE RUEHDBU #0117/01 0271219
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P 271219Z JAN 10
FM AMEMBASSY DUSHANBE
TO RUEHC/SECSTATE WASHDC PRIORITY 1184
INFO RUCNCIS/CIS COLLECTIVE
RUEHBUL/AMEMBASSY KABUL PRIORITY 0414
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEAIIA/CIA WASHDC
RUEHDBU/AMEMBASSY DUSHANBE 2584

C O N F I D E N T I A L SECTION 01 OF 03 DUSHANBE 000117 
 
SIPDIS 
 
TREASURY PLEASE PASS JEFF BAKER 
 
E.O. 12958: DECL:  1/27/2020 
TAGS: ECON KCOR EFIN PGOV PHUM TI
SUBJECT: A CASE-STUDY IN ROGHUN EXTORTION 
 
REF: A. 09 DUSHANBE 1443 
     ¶B. DUSHANBE 52 
     ¶C. DUSHANBE 67 
 
CLASSIFIED BY: Kenneth Gross, Ambassador, Exec, DOS. 
REASON: 1.4 (b), (d) 
¶1. (C) Summary:  The experience of the U.S. micro-finance 
institution FINCA offers a case study in the subtle and 
not-so-subtle efforts by the Tajik government to extort funding 
for the Roghun hydroelectric dam.  Employees at all but one of 
FINCA's 34 offices in Tajikistan have been told to contribute to 
Roghun.  In some cases it has come as a request; in others, a 
demand.  Most FINCA offices have succeeded in negotiating with 
local officials over the amount of required purchases, but 
authorities shut down two FINCA offices when employees did not 
meet a demand to contribute amounts equivalent to their annual 
salaries.  FINCA has adopted a policy of defraying up to half 
its employees' Roghun purchases.  It is also providing loans to 
some clients to buy Roghun shares.  FINCA's director in Dushanbe 
says the government's Roghun policy is seriously threatening 
Tajikistan's financial and investment climate.  He has asked for 
Embassy help in staving off the more blatant extortion attempts 
the firm is facing.  End summary. 
 
 
 
GOVERNMENT SHUTS DOWN OFFICES THAT CAN'T PAY FOR ROGHUN 
 
 
 
¶2. (C) The government of Tajikistan has not abated its 
fever-pitch effort to wring Roghun contributions out of as many 
people and businesses as possible.  Although President Rahmon 
said foreign-owned firms would not be allowed to purchase shares 
in Roghun, in practice foreign firms and their employees have 
been subject to the same kinds of intimidation and extortion as 
domestic entities (refs A and B).  The experience of the 
microfinance institution FINCA offers a case in point. 
FINCA-Tajikistan is registered as a local limited liability 
company, but it is wholly owned by the U.S. non-profit 
organization FINCA International.  Though FINCA has not been 
forced as an organization to buy shares in Roghun, employees at 
all but one of its 34 offices countrywide have been approached 
by local government officials to buy shares.  In some instances 
the subject has been raised as a polite request, but in several 
cases local officials have openly demanded that employees buy 
shares or their office will be shut down. 
 
 
 
¶3. (C) Two FINCA offices were closed by local authorities when 
staff failed to buy the number of shares demanded.  Officials 
sealed FINCA's office in the southeast town of Kubodiyon on 
January 16 when staff were unable to pay the several thousand 
somoni per person demanded.  After intense negotiations 
authorities agreed to allow the office to reopen two days later 
after paying a total of 1,500 somoni ($342) for the whole 
office.  FINCA's office in the town of Vose "voluntarily" closed 
at the request of local authorities when its staff of four could 
not raise the 25,000 somoni ($5,700) the officials demanded. 
The staff explained that this amount was equivalent to the 
entire office's annual salaries put together.  (The office 
manager makes 12,000 somoni per year, while the cashier, loan 
officer, and database manager make between 5,000 and 6,000.) 
After very difficult negotiations with FINCA's district manager, 
the authorities agreed to let the office reopen with a 6,000 
somoni down payment, with another 14,000 to be paid by year's 
end.  They subsequently raised the demanded down payment to 
11,000.  The office technically remains closed, although they 
are serving some clients through an alternate entrance. 
 
 
 
¶4. (C) Other FINCA offices have endured arduous negotiations 
with local authorities.  On January 13, a delegation from the 
district governor's office paid a visit to the FINCA office in 
Rudaki, just south of Dushanbe, to request that its seven 
employees, "as good citizens," contribute a total of 25,000 
somoni (an average of $815 per employee) to Roghun.  They said 
the office head, as a bank branch manager, should contribute 
5,000 somoni.  After a lengthy explanation of FINCA's social 
mission and its relatively poor target population, officials 
agree to accept 2,500 somoni from the office as a whole.  The 
officials reminded the manager, however, that "it would be very 
easy for us to call the fire marshall in for a quick inspection 
of your office."  Similar events have been repeated at many 
FINCA offices. 
 
 
 
 
DUSHANBE 00000117  002 OF 003 
 
 
TRYING TO NEGOTIATE WITH OFFICIALS TO LOWER DEMANDS 
 
 
 
¶5. (C) According to FINCA country director Paul Hamlin 
(protect), most Roghun discussions take the form of a 
negotiation.  Officials initially demand a very high figure -- 
often 5,000 somoni per person -- but then quickly come down to 
500 or 1,000 somoni.  Though in some cases authorities issue 
direct ultimatums to pay or be shut down, in other cases the 
threat is implicit.  Local governments have a good deal of 
leverage.  FINCA offices rely on them for everything from 
notarial services to heat and water, and their staff must work 
with officials for their individual needs as well, including 
renewal of identification documents and tax collection.  Hamlin 
said FINCA employees were very aware that a failure to 
contribute to Roghun could lead to countless difficulties in 
their daily lives.  (Note: We have heard of several cases where 
citizens have not been allowed to renew their passports without 
making major Roghun stock purchases on the spot.  End note.) 
 
 
 
FINCA AGREES TO HELP FUND EMPLOYEE ROGHUN PURCHASES... 
 
 
 
¶6. (C) After lengthy discussions with managers and lawyers in 
the United States, FINCA has enacted a policy under which it 
will defray up to half of its employees' Roghun purchases. 
FINCA headquarters in Dushanbe will advance funds to employees 
to purchase shares in the employees' names, and the share 
certificates will be kept in Dushanbe until the employee repays 
the (no-interest) loan.  If an employee remains with FINCA for 
six months, nearly one-quarter of the loan is written off; if 
the employee remains for one year, nearly one-half the loan is 
written off.  Once the remainder of the money is repaid, FINCA 
will return the share certificates.  Hamlin said this program 
will likely cost FINCA about $25,000 -- $18,000 for the share 
purchases, and another $7,000 in taxes and social fees on the 
original amount, because this will be considered a bonus payment. 
 
 
 
...AND TO PROVIDE LOANS TO CLIENTS FOR ROGHUN SHARES 
 
 
 
¶7. (C) FINCA also has decided to quietly issue loans to clients 
for Roghun purchases.  Initially, FINCA had a policy of only 
providing loans for business activities; they would refuse, for 
example, to provide a loan so a client could pay for a wedding 
or buy a car.  FINCA saw, however, that its clients and others 
continued to take on debt for major expenditures such as 
weddings, taking out very unfavorable loans from other sources. 
As a socially conscious lender, FINCA altered its policy to 
allow loans for non-business activities, provided the applicant 
had a good credit history and a reasonable repayment potential. 
It is under this policy that they are allowing some loans to be 
issued for Roghun share purchases.  Hamlin said, however, that 
these loans are being made only to trusted clients with good 
credit histories, and mention of Roghun is not made in any of 
the documents.  He is worried about a rush of Roghun applicants, 
and is consequently keeping this practice as quiet as possible. 
Hamlin acknowledged that providing loans for Roghun was a 
questionable practice.  FINCA managers and lawyers, however, 
decided that if Roghun payments were mandatory for many people, 
the lender had a responsibility to help. 
 
 
 
DILEMMA:  TO HELP EMPLOYEES OR NOT? 
 
 
 
¶8. (C) The intense pressure being exerted by the government has 
put FINCA in a difficult position:  if it helps its employees 
and clients purchase shares, it is abetting the government's 
heavy-handed tactics.  If it declines to provide any assistance, 
however, it is not only throwing its staff to the wolves, but 
setting up tense relationships with authorities, risking its 
future operations.  This dilemma is not unique to FINCA: 
countless businesses, universities, hospitals, and other 
organizations are wrestling with the same issues.  As a rule, 
the government has been demanding share purchases in proportion 
to the number of employees in a given organization.  Nor is 
FINCA's decision to assist its employees unique either.  Many 
 
DUSHANBE 00000117  003 OF 003 
 
 
managers are helping employees shoulder the Roghun burden.  The 
mother of one embassy local staff member, for instance, who 
works at a government agency, said her boss simply bought shares 
for all of his employees.  (He runs a successful business and 
evidently had the funds to do it.)  The mother of another 
embassy staff member, however, a doctor at a government 
hospital, received no assistance in paying the 5,000 somoni 
demanded of her -- and was in fact told by her boss she would be 
fired if she failed to pay.  For its part, the government does 
not seem to care who pays, as long as it gets the money. 
 
 
 
ROGHUN MAY SCARE AWAY INVESTMENT 
 
 
 
¶9. (C) Hamlin noted the Roghun campaign seriously threatened 
Tajikistan's financial and investment climate.  Unlike a tax -- 
even an unfair, ad hoc tax -- there are no obvious limits to the 
Roghun campaign.  Individuals who are hit up for 500 somoni one 
day may be forced to give 500 more the following day.  And the 
approach may not stop with Roghun.  Hamlin said the campaign has 
been so successful he is worried the government may use it as 
the blueprint for future fundraising efforts.  All of this makes 
it extremely difficult for individuals and businesses alike to 
plan rationally for the future.  That uncertainty, in turn, may 
give investors serious pause about entering or remaining in the 
Tajik market.  Hamlin said he fears that even an organization 
like FINCA, which is focused more on social and developmental 
goals than the bottom line, may find its investors unwilling 
brave the risks here.  There is evidence the government is 
willing to be very flexible about the rule excluding 
foreign-owned firms.  Hamlin said Deputy Prime Minister Murodali 
Alimardon told him last week that FINCA, as a "locally 
registered company" could of course buy shares. 
 
 
 
FINCA SEEKS EMBASSY HELP 
 
 
 
¶10. (C) FINCA-Tajikistan has asked for the Embassy's help in 
interceding with the government to attempt to halt the most 
blatant extortion attempts.  The decision to approach the 
Embassy was made after consulting with FINCA managers and 
lawyers in the United States.  FINCA is concerned about possible 
retaliation from government authorities for involving the 
Embassy, but believes the potential benefits may outweigh the 
risks.  Hamlin emphasized he has no desire to escape Roghun 
contributions altogether, and he maintains that individual FINCA 
employees are entitled to purchase shares, and FINCA will help 
them do so.  The Embassy is working to craft an appropriate 
diplomatic note to the Tajik government. 
 
 
 
COMMENT:  OMINOUS CONSEQUENCES OF ROGHUN CAMPAIGN 
 
 
 
¶11. (C) FINCA's experience demonstrates the lengths the 
government will go to extract every possible somoni from every 
possible source in the name of Roghun.  Having declared in a 
burst of nationalism that foreign entities will be forbidden 
from investing in the dam, the government has effectively 
invited that investment by pushing local employees so hard that 
FINCA feels it must bail them out.  FINCA's decision may be 
questionable, but it is by no means unusual in Tajikistan's 
current, deeply repressive climate.  The chief difference is 
that Hamlin believed he could tell us about it, whereas many 
keep quiet for fear of retribution.  FINCA's loans for Roghun 
shares highlights a potentially more worrisome concern for the 
economy.  Past experience shows that the government is willing 
to force banks to make bad loans.  If they come to see this as 
another path to resources, one fears they will wring every last 
bit of liquidity from the sector, once again leaving their 
population with a pile of debt that cannot be paid back.  End 
comment. 
GROSS