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Lobbying in the Russian market of precious metals and precious stones – How does it look like?

19 august 2019

Is it possible for the Russian market of precious metals and precious stones (PMPS) to compete for its economic interests? Yes, it is possible but taking into account a number of both objective and subjective (for the industry) factors. The more than twenty years of experience in public work in the field of PMPS allow the author of this article to break the history of public struggle for the liberalization of the PMPS market in five stages, each of which has its own characteristics and its historical significance for the industry.

Part one

1. From the beginning of the "dashing 1990s" to the era of Vladimir Putin

The history of the Russian market for precious stones had a dark period, somewhere since the emergence of private commercial activity in 1988 and 1998, when the relationship of business and government was almost openly built on the "pay and work" principle. It was convenient for officials to demand bribes at that time, as legally it was almost everything prohibited in the sphere of PMPS. "Naturally", business was to pay not to a public, but to a private pocket, namely to a specific official. And for a certain bribe it was possible to get, in fact, individual permits. But at the same time, it was necessary then to pay to this official on a permanent basis (instead of a one-time payment, i.e. actually it was a kind of racket) and besides, the obviousness of this semi-legal / semi-criminal character of such business was not embraced by everyone. Some people hated it. And that is why the author of these lines, wanting to start working with precious stones, went to the MPs in the State Duma (Russian Parliament) in the late 1990's in a naive hope to try and create a legislation that would allow businesses to operate legally in the field of PMPS, as it was possible in all civilized countries.

However, the power’s "historical memory" of the PMPS as a source of wealth did not allow then much hope for radical liberalization of the industry legislation, but still the federal law "On Precious Metals and Precious Stones" adopted in 1998 turned out to be much less liberal than the PMPS market required for development. On the special nuances of the environment in which this law was passed you may read here.

A bad piece of luck for the Russian market of colored precious stones - and other gems that are not precious stones under the federal law "On Precious Metals and Precious Stones" - was that Russia’s mineral wealth included a great amount of diamonds, which were successfully mined. Against the billion-dollar background of diamond turnover, against the background of giant company ALROSA, all the rules of the federal law "On Precious Metals and Precious Stones" were "sharpened" exclusively for the extraction and turnover of diamonds, as well as all subsequent by-laws and regulations. "Next to the Elephant, the Pug was simply not visible."

Meanwhile, though it was obvious to experts that only diamonds are worth something in any form and quality, including the application of some of them for technical purposes, it was not obvious for legislators. The legislators did not seem to know about the fact that all other colored gems have any significant value only when they reach a certain quality (although this was not so, of course, they did know it, but most of the law was written in the Assay Chamber of Russia, which did it for its own convenience). Yes, Article 22 of this law has a notion of precious stones "unsuitable for production of jewelry and other products", but the by-laws defining what exactly belongs to this notion reduced to zero any chances for free turnover of inexpensive stones de-facto attributing them to precious stones by their name.

Another problem for the development of the Russian market of precious stones was their perception in the federal law "On Precious Metals and Precious Stones" and in all subsequent regulations as raw materials exclusively for the lapidary industry. That is, the perception of precious (and at the same time of "semi-precious") stones was about the same as, say, the perception of oil. What is oil suitable for in its crude form? For nothing, but it will be by all means used to make gasoline, kerosene, diesel fuel, or otherwise used by the chemical industry as a raw material. The same is true for precious stones - all of them, according to our legislation, are only raw materials for cutting. The exception includes those unique samples that have a particularly high value and in this case the State itself lays claim to their ownership. However, the law fails to mention that precious stones entirely deprived of unique characteristics may still be viewed as valuable collectibles by millions of buyers and may be in demand from both the domestic and international markets.

Nevertheless, before the adoption of the federal Law “On Precious Metals and Precious Stones” many colored gemstones spilled out onto Russia’s domestic market through numerous mineralogical and jewelry exhibitions and spontaneous bazaars, including both prepared collection samples and faceted gem inserts - both imported from abroad, mainly from Thailand, and extracted by residents of the Urals from their "stashes" accumulated for decades. After all, people thought that “stones finally gained their freedom”. And someone (for example, the Zelen-Kamen company) began selling faceted and unprocessed collectible emeralds and alexandrites quite openly, advertising them, as they thought, completely legally.

In the late 1990s, Vladislav Shinkarenko, Professor and Doctor of Historical and Technical Sciences, being and academic entrepreneur, developed turbulent social activity in the PMPS market annually holding all-Russia conferences “Russian Market of Precious Metals and Precious Stones” and publishing a monthly magazine, “Precious Metals. Precious Stones". Maybe it was only Boris Yeltsin who failed to attend these conferences, but the country's entire top leadership headed by prime ministers used to be among their participants... And this magazine could be found on the table of any official connected with the industry.

And this public activity had a result - little by little a liberal update of the federal law "On Precious Metals and Precious Stones" started to be prepared. Vitaly Basygysov, a State Duma deputy from Yakutia, who later headed the parliament of Yakutia, worked on this update. Precisely at that time, the author of these lines was his assistant. However, this job was not completed.

2. From the beginning of the 2000s to the time when PMPS turned to be “just commodities”

With the advent of Vladimir Putin, the curtain was rung down on the “dashing 1990s” and the relations between business and government, as you know, has radically changed. Infinite corruption came to naught, and this, of course, was a positive achievement. However, in this new environment the security forces had a tighter grip on the gem market and de facto became the main actors in reforming industry laws together with ALROSA and the Assay Chamber of Russia. It is clear in which way this went. If we talk about raw gems, then in fact only ALROSA got a unique opportunity to really influence the adoption of legislative acts and by-laws in the field of precious stones and thus lobby its own interests.

In fairness, it is worth noting that the then deputy head of the Assay Chamber of Russia, Boris Borisov understood the flagrant imperfection of the regulatory framework for the circulation of precious stones and supported a more liberal legislation speaking at one of the round tables of the State Duma. In his opinion (and not only his), it was necessary to remove all the PMPS from the law "On Hard Currency Regulation and Hard Currency Control", in which the PMPS were mentioned as valuables equivalent to hard currency. And this was achieved through joint efforts - on December 10, 2003, a new Federal Law was passed in which the PMPS were excluded from the list of such valuables. The environment at that time was suitable - Russia was joining the WTO, and the WTO demanded liberalization of the economy. Then even the Ministry of Finance abolished, on paper, a separate unit dealing with PMPS. However, it was revived, but later. And PMPS, having ceased to be hard currency valuables de jure, remained to be such de facto, but this time according to another law, the above-mentioned Federal Law “On Precious Metals and Precious Stones”.

3. Removing the status of “hard currency valuables” from PMPS and going further to the first decision to establish a Federal Service for Monitoring the Turnover of PMPS

Since 2004, PMPS have allegedly become "just an expensive commodity" and it would seem that the work with the State Duma’s MPs to prepare a liberal wording of the federal law "On Precious Metals and Precious Stones" came to a decisive stage - to introduce a large-scale bill, for which purpose they organized parliamentary hearings.

Unfortunately, at a parliamentary hearing in the State Duma in 2005, the speech delivered by MP Vitaly Basygysov, in which he called to reform the law making almost free the circulation of precious stones and partially precious metals already deprived of their hard-currency status, was negatively received by the leaders of law enforcement agencies ("some are trying to ruin the system of state regulation of the PMPS market") and ALROSA ("if the proposed innovations are accepted, the company itself will have to pay for the entire security"). After that, the intentions to introduce the already prepared liberal bill were discontinued on their own - 2005 was a watershed year (not for the better) in the trend that looked like an emerging government support for the liberalization of the PMPS sphere.

However, the public industry work with MPs of the State Duma has shown its effectiveness – it proved that it was possible to convince lawmakers! It is important only to prepare high-quality analytical materials, provide statistics and weighty justifications.

Alas, the then management of the Russian Jewelers Guild in the person of Valery Radashevich not only failed to support the liberal ideas of reforming the law, but on the contrary took the side of the security forces. At that time, the Guild thought that large companies will have a more comfortable environment for their work under tight market control, and such companies determined the policies of the Guild...

But time passed, and even large jewelers began to be prosecuted. And most importantly, a gradual crackdown on any economic liberties began in Russia, and of course the field of PMPS could not stay away from this general trend. Many came to understand the realities, and several public industry projects were launched in 2008-2010 aimed at liberalizing the legislation. True, these were attempts to liberalize only the assay supervision system.

The culmination moment for the PMPS sphere was the authorities' plans to form a Federal Service for Monitoring the Turnover of PMPS, which became public in April 2011. The PMPS branch office of Business Russia held an emergency meeting attended by industry authorities from the Ministry of Finance, and Boris Titov, the then Chairman of Business Russia sent a letter to Dmitry Medvedev, the then President of the Russian Federation expressing a negative opinion of Business Russia about these plans. The creation of this Service was put on hold. This was not done only due to the resistance of industry stakeholders, but also because of this.

By this time, the authorities had already laid down two informal conditions for any industry lobbyists, the fulfillment of which was considered an absolute necessity in order to be heard in principle:

- The four all-Russia public organizations should be used as channels of access to government authorities (better all at once): the Russian Union of Industrialists and Entrepreneurs (large business), Business Russia (medium-sized business), OPORA Russia (small and micro-business), Chamber of Commerce and Industry of the Russian Federation (all business scales) ), as well as all-Russia public industry organizations of business (but better - with the support of the first four, as initial filters for new ideas);

- The wishes coming from the above-mentioned public business organizations should be a consolidated opinion of the vast majority of participants in the respective markets.

To meet the afore mentioned requirements, there was established the PMPS Coordination Council, which was inaugurated on August 2, 2012 by signing a Memorandum between all four leading all-Russia public business organizations, as well as industry public organizations, including the Russian Jewelers Guild and the PMPS Market Participants Union. The Council did not achieve any particular success, but there were objective reasons to justify the failure of this project: a new stage in the nationwide crackdown began across the entire economy.

Vladimir Zboikov for Rough&Polished