Russian Collection Society Accused of Embezzling Millions in Royalties

The Kremlin in Moscow, Russia photographed on May 7, 2015.

The authors' rights organization is accused of buying property with collected monies.

Russian police have opened a probe into the collecting society RAO, which allegedly embezzled 500 million rubles ($7.4 million at the current exchange rate), against the backdrop of authorities pushing for changes to the copyright royalties collection system.

The probe is centered on allegations that RAO, Russia's sole state-accredited collection society for authors’ rights royalties, embezzled some of the royalty fees it had collected by buying real estate and later transferring it to a shell company, reported the Russian business daily RBK.

According to the report, between 2007 and 2011, RAO purchased four buildings in central Moscow, which later changed hands several times, ending up in the possession of several other companies and individuals.

RAO confirmed that the probe is in progress but denied any wrongdoing. RBK quoted the collection society's representative as saying that it did own the real estate in question, but legitimately sold it earlier this year due to the overall economic downturn, with a goal of investing the raised cash in other assets that would help RAO's "effective operation."

The probe was launched just weeks after RAO announced a merger with two other state-accredited collecting societies, VOIS (which deals with neighboring rights) and RSP (which collects a one-percent tax on imports of electronic devices that can be used for copying content).

The three collecting societies said that the merger would make their operations more transparent, also simplifying procedures for rights holders.

However, the government disagreed, and soon after the merger was announced, the communications ministry came up with a proposal for drastic reform in the country's copyright royalty collection system, citing insufficient transparency of the current system as the main reason.

Last month, in the midst of controversy over the collecting system reform, Andrei Krichevsky, RAO's deputy general director and head of Melodiya label, was attacked and beaten in central Moscow. He suffered broken ribs, a broken nose and cerebral trauma, and still remains hospitalized.