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Audit of Russia's State-Backed PRO Reveals Possible $3.8 Million Embezzlement

Red Square in Moscow
Mark Kolbe/Getty Images

Red Square in Moscow, Russia. 

The news has put the country's entire music publishing sector in jeopardy.

An independent audit of finances of RAO, Russia's state-approved authors' rights collections society has revealed that about $3.8 million was funneled out of the organization by its previous management in 2016 alone.

"A detailed report will be presented at the annual conference in April, but it is already clear that there were many instances of breaking the law," Maxim Dmitriyev, RAO's general director, said in a statement, published on the organization's web site.

He added that many suspicious transactions occurred in the second half of 2016, in the wake of the arrest of RAO's former general director Sergei Fedotov on charges of funneling money out of the organization.

According to Dmitriyev, based on preliminary results of the audit of finances, 228 million rubles ($3.8 million) was funneled out of RAO last year.

The audit of finances also revealed that for the last few years the collecting society operated at an average annual loss of 200 million rubles ($3.4 million).

"Of course, violations of the law, revealed during the audit of activities of the previous management of RAO will become the basis for lawsuit against individuals who received payments they were not entitled to," Dmitriyev tells Billboard. "Payments made under counterfeit and suspicious contracts will also be recalled."

According to Dmitriyev, RAO's new management is waiting for the final results of the audit, after which ideas for improving the situation at the collecting society will be formulated and executed.

"But it is already clear that we will optimize spending and reorganize all the main processes of the society's operation," he says.

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The outcome of the audit is in line with repeated criticisms against RAO for insufficient transparency of its procedures for collecting and distributing copyright royalties among rights holders, voiced over the last few years.

However, no evidence was presented until last June, when Fedotov was arrested and accused of funneling accused of funneling real estate worth of over 500 million rubles ($7.7 million) out of RAO.

The controversy led to a shakeup in RAO management and replacement of Fedotov, who is still in jail, with Dmitriyev.

Meanwhile, as RAO tries to clean up its act, the future of the entire Russian royalty collecting sector is to be decided by the government over the next few months. One scenario that is currently under discussion stipulates the scrapping of all existing collecting society, including RAO, and replacing them with a state-run collecting agency.

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