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Russian collecting society begins to uncover extent of fraud in its system

By | Published on Monday 13 February 2017

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A new audit of the finances of Russian songs rights collecting society RAO has uncovered evidence of fraud. This follows various accusations of embezzlement, one of which resulted in the jailing of former General Director Sergei Fedotov, who was accused of funnelling over 500 million rubles (£6.9 million) out of the organisation during his time in charge.

Although RAO initially defended Fedotov, at a board meeting last week, new General Director Maksim Dmitriev said that an audit of the years 2014 to 2016 had uncovered 228 million rubles (£3.1 million) of suspicious activity in the last year alone, including the “transfer of funds on spurious grounds and overstating expenses”. The largest of these payments was taken out in the second half of last year, he said, ie after Fedotov’s arrest.

This contributed to growing losses at the collecting society – an average of 200 million rubles (£2.75 million) annually by the end of 2015 – which have meant that it has not been able to pay songwriters and publishers what they are owed.

“By the end of 2015 RAO had an impossible obligation to songwriters to the total amount of 2.8 billion rubles [£38.5 million]”, said Dmitriev. “Obviously, at the end of 2016 the situation has become worse. In the near future we will get the final results of the audit and will be able to draw conclusions and to generate proposals for the improvement of our organisation”.

The full results of the audit are scheduled to be announced at the organisation’s AGM in April and will be used as the basis for new legal action against former management.

As previously reported, late last year RAO was also accused of being part of another embezzlement scam with Russia’s other music rights organisations RSP and VOIS, which may have siphoned off more than £55 million in revenues.

As RAO attempts to uncover the extent of the fraud in its system, the Russian government is also considering taking control of the country’s collective licensing. Its latest proposal was to establish a new multi-territory licensing body as part of the Eurasian Economic Union, replacing RAO, RSP and VOIS entirely.