RUSSIA: UPDATE ON PRICEWATERHOUSECOOPERS

C O N F I D E N T I A L MOSCOW 001997

SIPDIS

SIPDIS

STATE FOR EUR/RUS, EB/CBA, CA/OCS/ACS
FRANKFURT FOR IRS ATTACHE
TREASURY FOR BAKER
NSC FOR KLECHESKI
USDOC FOR 4231/IEP/EUR/JBROUGHER

E.O. 12958: DECL: 04/30/2017
TAGS: EFIN ECON RS
SUBJECT: RUSSIA: UPDATE ON PRICEWATERHOUSECOOPERS

REF: A. MOSCOW 664


B. MOSCOW 1584

Classified By: Acting DCM Quanrud, Reasons 1.4 (b/d).

Summary
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1. (C) PricewaterhouseCoopers is still awaiting a response
from the Supreme Arbitration Court on whether it will hear
the company's appeal on the expatriate salary issue, PWC's
Senior Managing Partner for Russia Peter Gerendasi told us
April 26th. PWC continues to cooperate with the Interior
Ministry's criminal investigation; to date, no criminal
charges against any PWC official has been filed. On the
separate case of PWC's audits of Yukos, the Finance Ministry
has stepped up its review of standard operating audit
procedures, including that of PWC. Consistent with what we
heard from Finance Minister Kudrin, Ministry officials
indicated to Gerendasi that PWC's license to operate would be
extended (PWC's license was subsequently extended by five
years). End Summary.

Expatriate Salary Case
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2. (C) Gerendesi told Acting DCM in a April 26th meeting
that The Supreme Arbitration Court has not yet responded to
PWC's February 16 request for a hearing on the case in which
the Federal Arbitration Court ruled PWC had improperly
accounted for its expatriate employees' salaries in 2002.
(See Reftel A.) In fact, the ruling was now overdue.
Gerendasi said that PWC continues to cooperate with the
Interior Ministry's ongoing criminal investigation related to
this case by agreeing to interviews, submitting documents,
and giving clients' depositions as needed. To date, no
charges have been filed. Gerendasi reported that tax
authorities have closed their audits of the PWC's expatriate
salary accounting practices for 2003-2005.

Yukos Audits Case
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3. (C) Gerendasi said that during a recent meeting at the
Finance Ministry, Deputy Finance Minister Sergey Shatalov had
requested a detailed explanation of the firm's standard
operating procedures and methodologies for conducting audits.
(Note: This request might be part of the Ministry's review
of the Federal Arbitration Court (FAC) case that ruled on
March 20 that the auditing contracts for 2002-2004 between
former oil giant Yukos and PWC were allegedly unlawful.
Finance Minister Aleksey Kudrin mentioned this review during
his March 27 meeting with the Ambassador. See reftel B.)


4. (C) Gerendasi reported that Shatalov indicated to him at
the same meeting that the Finance Ministry would approve
PWC's application to renew its auditing license. (Note: The
Finance Ministry did extend PWC's license for another five
years. End Note.) Gerendasi noted that PWC was finalizing
documents related to its appeal of the FAC's March 20
decision in the Yukos case. He said PWC was considering
providing a courtesy copy of the brief to Shatalov when the
documents are filed.

Request from Prosecutor General
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5. (C) The Prosecutor General's office filed a request with
PWC's Moscow office to interview Doug Miller (Amcit) of PWC
on a matter not related to either the Yukos audits or the
expatriate salary case. Gerendasi noted Miller was not in
Russia but that PWC would be interested in demonstrating the
firm's ongoing willingness to cooperate with authorities. He
did not know what Miller would decide.

Comment
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6. (C) On the issue of criminal charges, we maintain our
outlook that the slower the case develops the better -- so
the fact that this has dragged out three months already is
probably good news. We suspect that the Supreme Arbitration
Court's decision on whether to hear the appeal of the
expatriate salary case will play a decisive role in the

longevity of the Interior Ministry's criminal investigation
on the issue. In light of the generally favorable views that
the Finance Ministry appears to have regarding PWC, and the
Finance Ministry's extension of PWC's license, we don't
believe there is cause for concern regarding the firm's
status as an auditor. We will continue to monitor
developments relating to the Prosecutor General's request to
speak with members of PWC's management.
BURNS