slate:
they way in understood it (anyone feel free to correct me) is that in russia because there arent really any copyright laws, these sites get setup. They arent actually paying any royalties to the record labels.
Actually they are paying royalties, there is copyright legislation in Russia, and that site is operating perfectly legally.
The catch is that the Russian legislation does not give the record labels as great share of the profits as the current European legislation does. Therefore the record companies do not like anyone benefiting from that loophole and are trying their best to make services such as this appear illegal, which they are not.
This is similar to European record labels trying to stop etailers from selling import CDs. Look at the CD-Wow case for a recent example of music industry bullying.