JDC shows up on Russian list of organizations suspected of fraud

A holding company set up by the American Jewish Joint Distribution Committee was included on a Web site set up by the Russian State Tax Authority that named potentially fraudulent organizations, according to the Forward.

The American Jewish Joint Distribution Committee Real Estate Company, an offshore company set up in Cyprus to oversee the Joint’s real estate holdings in Russia was included on the Web site set up by the St. Petersburg division of the tax authority because the company had not earned a profit in more than two and a half years, according to the Forward. The company was being looked at for suspicion of hiding profits or nefarious financial transactions.

The Joint responded by saying that the company was legal and the listing was just a formality:

“They’re just serving notice to us that we will be audited in September. It’s not a big thing,” said Asher Ostrin, the JDC’s director of programs in the former Soviet Union.

Yevgeniy Khorishko, an official at the Russian embassy, supported the JDC’s stand, saying that the listing is a routine matter and that it implies no wrongdoing or legal peril.

Why does the Joint need an offshore holding company?

According to Ostrin, AREC grew out of efforts to make sure that Russian Jewish communities can support themselves in the long run. The JDC’s strategy has been to establish Jewish community centers and use the income from rentals and fees to cover the expenses of running and maintaining the buildings.

The concept is a common one among Jewish community centers in America. The difficulty, JDC officials say, is that Russian laws prohibit nor-for-profits from any activity that generates income. In response, Ostrin says, JDC officials established a commercial holding company in 2006 on the island of Cyprus to run and maintain its properties. Ownership of the JDC’s properties has been transferred to the holding company. Tenants — both Jewish and non-Jewish — have paid their rent to the holding company.

According to the Forward, the setup did trigger some degree of internal debate:

Four former JDC senior staffers, who declined to be named for fear of reprisals, say that AREC sparked a heated internal debate. According to these sources and to internal documents and e-mails shared with the Forward, a number of JDC employees, as well as Russian community leaders, objected to establishing the offshore company. These sources say that they and other critics of AREC protested that an offshore shell company would look suspicious to Russian authorities and that it could damage efforts to build partnerships with local communities. The appearance of AREC on the Russian tax list has revived that suspicion in some quarters. …

Ostrin said that internal opposition to AREC was minimal and that any questions were answered.

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