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Viewing cable 07MOSCOW220, PHILANTHROPY GROWS IDIOSYNCRATICALLY IN RUSSIA
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| Reference ID | Created | Released | Classification | Origin |
|---|---|---|---|---|
| 07MOSCOW220 | 2007-01-22 06:34 | 2011-08-24 01:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Moscow |
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
SIPDIS
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
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¶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
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¶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
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¶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