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In Russia, cautious generosity

Russia's tycoons, whose flamboyant spending has ka-chinged from Mediterranean isles to London's Mayfair district, have found a new use for their supersize wallets: philanthropic foundations.
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Russia's tycoons, whose flamboyant spending has ka-chinged from Mediterranean isles to London's Mayfair district, have found a new use for their supersize wallets: philanthropic foundations.

The rich are awarding thousands of scholarships to the best and the brightest, promoting arts and culture, funding libraries, schools and universities, supporting the Russian Orthodox Church's growth and improving health-care facilities in a country where 20 percent of the population lives in poverty.

But the long and growing list of worthy projects has a striking absentee, the development of democracy. Donors "are afraid of the political consequences," said Maria Chertok, head of the Charities Aid Foundation in Russia. "For now, areas like human rights and social justice are just too controversial."

This vast country, with its troves of natural resources and strong science education, has generated 33 billionaires and 90,000 millionaires since the fall of the Soviet Union in 1991. "I believe that any businessman who has enough funds, who has more than he needs, has an obligation to give back. It's his destiny," said Dmitry Zimin, 73, who built Russia's second-largest cellular phone company, VympelCom, and created the Dynasty Foundation to support fundamental science, particularly physics.

Small, but rising figure
All giving in Russia, including corporate charity, now totals about $1.5 billion a year, a tiny fraction of the U.S. figure. But it has risen exponentially since the figure of $1 million in 1992, when the idea of private philanthropy, after decades of communism and reliance on the state, was completely alien, according to the Charities Aid Foundation, a British organization that helps the wealthy set up foundations.

The biggest Russian foundations have created clear and open procedures to select the best recipients and monitor their work, according to Charities Aid and the Donors' Forum, an organization that brings together foreign and domestic grant makers in Russia.

However, in a country where political power is increasingly centralized in the Kremlin, the funding of groups that promote democracy-building, the rule of law, a free press and human rights has come to be regarded by Russia's elite as exposing their riches to retribution from the state.

Mikhail Khodorkovsky, the oil baron who plowed $60 million into private democracy-oriented projects, is in a Siberian prison camp. His foundation, Open Russia, has been shuttered by the authorities as part of a probe into alleged tax evasion by Khodorkovsky and the company he created, Yukos.

"The Khodorkovsky case was a very clear signal to everyone to stop this kind of activity," said Irina Yasina, who stepped down as head of Open Russia in August. "Our authorities believe that supporting civil society is opposition activity. Open Russia is dead. We've had to close dozens and dozens of projects."

The funding of advocacy groups is now almost entirely the preserve of American and European governments and private foundations.

"I don't know any Russian funds who work with human rights groups," said Arseny Roginsky, chairman of Memorial, the leading human rights organization in the country. "Foreign foundations play the dominant role in supporting our activity." The small support he receives from Russians, Roginsky said, is strictly anonymous.

Foreign funders and their grantees became subject to much greater scrutiny after the passage of a new law this year on nongovernmental organizations. President Vladimir Putin said the legislation was needed to guard against foreign interference in the country's political process, but Russian activists said it is so vague that nonpartisan activities such as human rights monitoring could be construed as political and shut down.

In the years immediately after the fall of the Soviet Union, philanthropy grew rapidly. Corporate charity tended to substitute for the inadequacy of the state in regions where large enterprises were located, and businesses funded housing, medical, education and leisure programs. Individual giving by the wealthy was often random, with little follow-through to see how the money was spent.

Philanthropy quickly became tainted because some businesses used charities to launder money and run tax-free businesses. All tax breaks, both for the donors and recipients of charity, were scrapped in the late 1990s.

The legacy of corruption continues to beset the sector. The Ministry of Economic Development and Trade is working on a bill that will free nongovernmental organizations from having to pay tax on the grants they receive. But the donors will still get no tax breaks.

"This issue is very sensitive for our authorities because they think any special tax breaks are a way not to pay any taxes at all and there is not enough public support for philanthropy," said Larissa Zelkova, director general of the Vladimir Potanin Charity Fund, the country's first private foundation. Created in 1999 by a billionaire mining and banking tycoon to focus on education, it spends about $10 million annually -- about the same as the Ford Foundation's Moscow office.

Elena Chernyshkova, executive director of the Dynasty Foundation, said ordinary Russians believe that the charity of the rich is payment for the sin of their wealth and that no tax breaks should result from it. "Russians have yet to be convinced that encouraging more philanthropy can benefit the country," she said.

After Putin became president, and the country's powerful tycoons were tamed, philanthropy become more structured through the creation of private and corporate foundations. Most of their benefactors were anxious to show loyalty to the Kremlin and willingness to be good corporate citizens.

At least 12 Russian private foundations, most of them created in the past three years, are now dispensing between $1 million and $36 million annually, according to the Donors' Forum. Dozens more small funds, each dispensing tens to hundreds of thousands of dollars annually, have also emerged.

Oil and metals magnate Viktor Vekselberg and his wife created the Kind Century Foundation to improve mental health treatment. Nikolai Tsvetkov, president of the UralSib financial corporation, endowed the Victoria Foundation to assist orphanages.

Mikhail Prokhorov, who made his fortune in nickel, founded the Fund for Cultural Initiatives. The governor of the Tver region, Dmitry Zelenin, a former industrialist, set up the Good Beginning Foundation to support medical programs and education. The Free Deed Foundation was created last year by Oleg Deripaska, the 38-year-old aluminum magnate whose wealth has been estimated at $7.8 billion by Forbes magazine.

Free Deed will spend $36 million this year in two broad areas, supporting the Orthodox Church and promoting education. The group underwrites the social and educational programs of 172 Orthodox churches across the country and funds Orthodox schools and seminaries.

"We view it as spiritual restoration, and we believe this is important for the development of civil society in the country," said Tamara Rumyantseva, the executive director of the Free Deed Foundation.

Zelkova argued that Russian foundations have a different vision of the country's needs than foreign foundations that focus on development of democratic values "I don't believe we are not active in this area because of fear," said Zelkova. "We have other priorities right now, but indirectly we are building civil society by educating a new, creative generation."

But Zimin of the Dynasty Foundation said he has become increasingly concerned about the country's political direction and decided that his organization should expand beyond its original mandate of supporting science. Of the $4 million the foundation disburses annually, about 25 percent now goes to a liberal think tank and journalism training, among other civil projects.

The fact that he has sold his majority stake in VympelCom, Zimin said, made the decision to follow in Khodorkovsky's footsteps easier.

"I feel much freer and much more independent than I used to when I had VympelCom behind me with millions of users and thousands of employees," he said. "At those times I was much less sincere in my deeds and statements, but now I'm free -- or freer."