On April 19, 2011 the Delovaya Rossia Business Association hosted a meeting to discuss the establishment of a federal service to control the circulation of precious metals and gemstones in Russia. Every year the industry holds quite a number of various meetings, but this one was of a particular significance. And it was not because the meeting yielded some very important decisions. There was only one decision taken - to establish a work group to finalize the resolution adopted by the meeting. But the meeting was special because it actually turned out to be a point changing the trend from a quiet "crackdown" on the part of authorities toward a dialogue with business. The industry, or to be exact, the jewelry industry got a chance for its development in the coming years. Now, first things first.
The industry of precious metals and gems in Russia used to move forward in zigzags and knew not one change in its development trends. Immediately after the collapse of the Soviet Union and after U.S. dollars started their free circulation in Russia the industry enjoyed a very brief period of euphoria fed on freedom, which, however, was quickly terminated - everything here remains as it was in the old days. But in 1998 the industry was given its own law “On Precious Metals and Precious Stones,” which was quite positive: the law gave the right to private enterprises to work in the industry of precious metals and gems and it legalized private ownership of precious metals and gems. It was not little compared with the previous order of things.
Five years later, in 2003, precious metals and precious stones were altogether withdrawn from the list of foreign exchange assets in the Federal Law "On Foreign Currency Regulation and Foreign Currency Control." On this occasion, the Ministry of Finance of the Russian Federation even abolished its Department for Precious Metals and Precious Stones. However, this was done in a crafty manner: its head Leonid Tolpezhnikov was turned into Deputy Director of the Administrative Department in the ministry. The “path” from the head of the industry to the "very top" was made one link longer... By itself, the choice of the Administrative Department for the industry of precious metals and gems meant that the Finance Ministry had not found any “proper” place within itself for precious metals and gems assigning them probably on the assumption of least absurdity: all the 18 departments and 4 federal agencies of the ministry were infinitely equidistant by their functions from the production problems related to mining, processing and circulating precious metals and precious stones.
However, this was not the end of transformations. Petty amendments to the Federal Law "On Precious Metals and Precious Stones" and to its bylaws were essentially void of any leverage - in fact, the attitude towards precious metals and gems remained the same – they were regarded as foreign exchange assets. And well-known Articles 191 and 192 of Russia’s Criminal Code were left intact. Although it is true that the upper limit of punishment under Article 191 for "violating the rules of circulating precious metals and gems” decreased from 10 to 7 years of imprisonment. A handsome gift indeed!
Who was the winner in this situation? In the first place, major mining companies, such as ALROSA, Norilsk Nickel and Polyus-Zoloto. As well as banks. The articles of the Criminal Code gave mining companies a chance to save on security services, while their closeness to the country's leadership made it easy to solve any business problems. If they needed a new rule or decree they had to wait a bit and everything was solved. It was perfectly acceptable for law enforcement agencies as well – the above mentioned articles of the Criminal Code were to them like the "magic wand" of the traffic police. The secrecy which surrounded the Federal Customs Service data on imports of precious stones made it possible for anyone to bring them into the country without unnecessary hassle using any schemes, discarding the "white" schemes altogether; while the secrecy over the Federal Customs Service data on jewelry imports made it possible to present quite an acceptable picture of imports in the Russian jewelry market to the Assay Chamber. The notorious tolling permitted "shifty" jewelry companies to save the trouble of open smuggling and quite easily and legally simulate imported goods as their own. And it looked as if all the "core" players were quite happy with the status quo.
But who was the loser? First and foremost, as always - the end user. Ordinary people do not care about ALROSA’s success and that of other mining companies, but they do care, for instance, if the high characteristics of their purchased gems turn out to be bogus. However, this is something which was mentioned many times. The state, of course, also proved to be a loser - customs duties and VAT were being paid in odd money. The market in all its diversity was boisterously developing towards the "shadow" segment, but still it should be said that mining companies managed to make up the revenue of the state budget. Those “odd eggs” who were really intent to produce jewelry and cut gemstones in Russia, i.e. to process raw materials, ran into a harsh reality. But the worst situation awaited those who wanted to work honestly with colored gemstones – they found themselves "very close" to the articles of the Criminal Code. Besides, all the jewelers were occasionally harassed for no reason: they were either implicated into cases cognizable under the ambiguous legislation on refining precious metals or were brought to books for improperly transported goods, or for something else.
Naturally, honest market operators sought to defend themselves. They had to exert Herculean efforts and sometimes were successful. Thus, working with the Finance Ministry they managed to cancel tolling practices; those involved in trials for "illegal" refining also managed to hurl back.
But as the Government of the Russian Federation had no state strategy to develop the industry of precious metals and gems this sector was once in a while shaken by sudden decisions "from the top." It was probably a spontaneous and random process of lawmaking in this country.
Suddenly, overnight, state duties for testing and hallmarking "soared to the sky", and no one was able to understand how this could happen. Well, the jewelry community took great pains to streamline the situation.
Once again suddenly, there came down Federal Law 294-FZ, but this time it hit the Assay Chamber and Gokhran. And it was a real shock: it turned out, that these government agencies, the Assay Chamber and Gokhran, were prohibited to exercise supervisory functions, as they had no executive power. The seriousness of this situation became clear at a meeting in the Ministry of Finance held on June 30, 2009, when the prosecutor’s office made it clear that it will not allow breaking the law and permit the Assay Chamber and Gokhran to perform control functions.
The government put on thinking cap as to what was to be done. Terminate any control? It seemed unthinkable. Hence, the only alternative left was to establish a specialized federal service for control over the market of precious metals and gems.
The jewelry business also began to prepare for the "new future" in its own way. On March 22, 2010 in Kazan there was held a meeting attended by Rustam Minnikhanov, Prime Minister of the Republic of Tatarstan, Vladimir Mospan, Director of the Russian Assay Chamber, and Flun Gumerov, the jewelry industry coordinator acting on behalf of Delovaya Rossia. The meeting discussed the feasibility of a federal service for precious metals and gems, and Rustam Minnikhanov agreed to address this proposal to Sergey Sobyanin, Deputy Prime Minister.
Rustam Minnikhanov noted in his letter that the role of Gokhran and the Assay Chamber by virtue of their status was only to implement the decisions of the Ministry of Finance and the Government, with little opportunity to influence the state policy in the industry dealing with precious metals and gems and they could not provide assistance to this industry in its development. Therefore, to transform the sector of precious metals and gems into an independent and highly efficient industry it is necessary to establish a new management body of a federal level based on the mentioned government agencies.
At the same meeting in Kazan the participants supported the previously expressed need to simultaneously create a public council on precious metals and gems at the Ministry of Finance of the Russian Federation. This Public Council was regarded as extremely important because if the market was to have only one government super-service deprived of business participation there was nothing positive to expect. The Public Council for Precious Metals and Gems was to become a platform for dialogue between business and the Ministry of Finance. It was devised as a kind of "public supervisor" over the actions of the “state controller.”
What happened then? In February 2011, the Ministry of Finance issued a decision to establish the Public Council at the ministry, but not for precious metals and gems only - it was to supervise all the issues pertaining to the Ministry of Finance. However, the problems of precious metals and gems appear to be of minor importance to the Ministry of Finance and this kind of Public Council will be of no use to the jewelry industry. And this was done in spite of the consent given by Finance Minister Alexei Kudrin in November 2010 at the meeting at Delovaya Rossia to establish the Public Council under the Ministry of Finance dealing only with precious metals and gems!
On April 5, 2011 the Ministry of Finance issued draft documents on establishing the Federal Service for Control over Circulation of Precious Metals and Gems. This was to be a control service, and not a service to support and develop the industry. It became clear - the jewelry business was facing one of the worst "crackdown" scenarios.
Flun Gumerov started consultations with the leadership of this organization at the Committee for Precious Metals and Gems of Delovaya Rossia trying to find some way out. It was decided to convene an urgent meeting inviting top industry managers and bringing to their notice the utmost concern with the events. In other words, it was decided to invite Alexander Akhpolov, Director of the Administrative Department of the Finance Ministry, and Andrei Glinov, his deputy supervising the industry of precious metals and gems.
This time no one minced words: either the industry leadership comes to the meeting and starts a normal, civilized dialogue between the jewelry business and government or in case of a crackdown the jewelry business would have no choice but to go "underground." In this case, the current "gray and black” market in the country will seem almost white tomorrow. If the dialogue was to start, it was difficult to say how it would end, but only joint work of the whole industry and the government could be a sound basis for a future market.
The industry leadership could ignore the invitation to the meeting declining the dialogue with business. In this case there was only one possibility left – to send a letter of appeal "to the very top." In the absence of leadership at the meeting, which was to adopt an appropriate resolution, it would look like opposition between business and the industry authorities and this was highly undesirable.
However, this time, everything went the best way possible – the industry leadership represented by Alexander Akhpolov and Andrei Glinov came to the meeting held at Delovaya Rossia. Apparently, the authorities took an important decision between them to have a dialogue with business. And not only with large-scale mineral mining business, but with jewelers and other manufacturers processing raw materials.
At the meeting the industry leaders heard tough criticism of the idea to create a government agency which would only have market control functions. Virtually all the participants representing business repeated one and the same thing in their statements: the federal service should be first of all established to support and develop the market of precious metals and gems and only then to control it. And for this purpose it must by all means have powers to set standards and make laws.
The position of the industry leadership was acceptably flexible for business. At the meeting, Alexander Akhpolov looked more like "a wise liberal" and Andrei Glinov like a "tough statehood champion." But be that as it may, it became clear that now the process of establishing the federal service will no longer stay under the somber veil of mystery and that not only representatives of large-scale mineral mining businesses will be able to communicate their requests.
At the end of the meeting there was no doubt that in some degree the requests of business will be taken into account in establishing the federal service. Anton Danilov-Danilyan, Chairman of the Inter-Industry Council in Delovaya Rossia, did a brilliant job conducting the meeting which obviously proved to be of help. Of course, coming to any decisions is a compromise. Now we shall have it and there will be no decisions taken by one side only.
However, whether the new federal service is to become a driver of the precious metals and gems market or turn into its hindrance will ultimately depend on the highest political will and the general trend in the Russian economy as well as on who exactly will be in charge of this service. But there is no way to influence the above...
The "bottom line" is that the meeting agreed to establish a work group at Delovaya Rossia to develop a resolution of the meeting. The work group includes the representatives of jewelry firms, mining and processing companies dealing with precious metals and gems. And, which is very important, Andrei Glinov agreed to discuss the issue in the working group. The point of misunderstanding was passed, the ice was broken.
Vladimir Zboikov for Rough&Polished
