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Russian Collection Societies Break Ties Amidst Fog of Fraud

Controversy surrounding the Russian collection society RAO has continued as another local collection society, RSP, which until recently was closely associated with RAO, has broken ties with the…

Controversy surrounding the Russian collection society RAO has continued as its counterpart RSP, which until recently was closely associated with RAO, has broken ties with the embattled company.

RAO’s general director Sergei Fedotov remains in custody over allegations that he funneled $7.7 million out of the organization. Meanwhile, RAO has published on its website an outcome of an independent audit, saying that the organization’s 2013-2014 real estate deals, which the police say were fraudulent, involved no wrongdoing.

“We believe there are no grounds for the accusations,” RAO’s spokesman told Billboard.

RSP, which collects a one-percent tax on imports of electronic devices that can be used for copying content, will from now on take on the task of distributing proceeds from the tax to rights holders, RSP head Andrei Krichevsky said in a letter quoted by the Russian business daily Vedomosti. According to the letter a previous agreement between RAO and RSP had rights holders registered with RAO receiving their shares of the copying tax alongside authors’ rights fees collected and distributed by RAO.

Sergei Fedotov, Head of Russian Collection Agency RAO, Arrested for Fraud

Since 2011, RSP has transferred to RAO over 1.3 billion rubles ($20 million) earmarked for rights holders. RSP also paid RAO a commission of 6.5 million rubles ($100,000), Krichevsky said. According to the International Federation of the Recording Industry’s “2016 Global Music Report,” Russia is the 28th most-valuable music market, and 22nd in performance rights revenues.

RAO’s spokesman confirmed to Billboard that the letter has been received and “will be considered.”

Until recently, the two organizations reportedly had close ties; Fedotov also held the position of RSP’s general director until late 2015, when he stepped down to focus on his work at RAO. 

Police first began investigating RAO in the summer of 2015, following the organization’s announcement of a merger with two other collecting societies — RSP and neighboring rights society VOIS.

At the time police alleged that 500 million rubles ($7.7 million) had been funneled out of the organization in a series of dubious real estate deals. There were also unconfirmed reports that the probe could have been triggered by the floated merger between RSP and RAO, an idea heavily criticized by some in the Russian government. Police took no action until late June 2016, when Fedotov was arrested on suspicion of fraud.

Earlier this month, several rights holders registered with RAO called for the organization’s management to be replaced and that fundamental changes to its charter be made.

In a statement on its website, RAO dismissed the move as an “an unfriendly takeover” attempt.