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Moscow Times
March 22, 2005
Expatriates Are Being Refused Work Permits
By Kevin O'Flynn and Oksana Yablokova
Staff Writers

Hundreds of expatriates might be refused work permits after the Federal Migration Service unexpectedly stopped issuing the documents to employees of scores of foreign companies, Western business leaders and lawyers said Monday.

Affected are expatriate staff at the representative offices and branches of foreign businesses, and employees and their companies face fines of more than $1,000 for each employee who does not have a work permit.

"The problems are accumulating very fast," American Chamber of Commerce president Andrew Somers said Monday. "Essentially the government is saying that as a foreigner you must be employed by a Russian company, which excludes representative and branch offices."

Somers said the change appeared to be an attempt to increase tax collection but warned that it was becoming a "serious inhibitor to operating here."

Repeated telephone calls to the Federal Migration Service and the migration department of the Moscow police went unanswered Monday.

The migration service apparently modified its policy in January to bar companies that are not registered as "legal entities" from receiving the permits, businesspeople and lawyers familiar with the problem said.

Foreign workers at representative and branch offices had been receiving work permits in the two years since the Law on Foreign Workers came into force in November 2002. The law requires foreigners to have the permits, and when it was approved it was widely perceived as an attempt to stem the flow of illegal workers from impoverished former Soviet republics -- not to create a headache for employees of well-established companies.

"It cannot fail to upset investors, as we are talking about tens of thousands of foreign workers," said Sergei Melnikov of Your Lawyer, a law firm that specializes in visa and work regulation issues.

By law, a work permit lasts for one year and the migration service must respond to an application for a permit within one month. Over the past three months, however, the service has been holding onto the applications for much longer, foreign companies and lawyers said.

Companies whose foreign workers lack work permits face fines of 5,000 to 20,000 rubles per employee, and the head of company can be fined up to 10,000 rubles per employee. The employee can also be fined up to 5,000 rubles.

Three major foreign companies contacted Monday refused to discuss the problem, saying the issue was too sensitive.

An official with a major Western accountancy said he first became aware of problems a year ago, when the migration service refused to issue work permits for some staff posted in regional offices. Migration officials began refusing everybody -- including those employed at head offices in Moscow -- from the start of this year, he said.

The official suggested that the change in policy might be aimed at forcing all foreign companies to set up local subsidiaries and bring all employees onshore. "Meanwhile, the cost of bringing everybody onshore can be very high, and not all the companies are interested in doing that," he said.

Tim Carty, head of the human resources committee at the Association of European Businesses, said AEB's members started reporting work permit problems in February. About 20 percent of the association's 400 members are representative offices.

"The AEB has raised the issue with the government and the authorities in an attempt to determine an appropriate way forward," said Carty, who is a partner at Ernst & Young's Russian office.

Somers said he has had some success with the migration service and managed to negotiate permits for 42 employees from a large U.S. company.

He said he recently met with Prime Minister Mikhail Fradkov's chief of staff, Sergei Naryshkin, and won a promise that the matter would be looked into.

Somers could not provide an exact figure for how many representative offices and branches are represented by the American Chamber of Commerce, but he said the number ran into the hundreds.

There are about 2,000 foreign companies with representative offices and branches in Russia, according to the web site of Business Monitor International, an emerging-markets information agency.