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Friday, February 15, 2008

Annals of Russian Corruption: Horror by the Numbers

Jonas Bernstein of Eurasia Daily Monitor reports:

In his February 8 speech to the State Council laying out Russia’s development strategy for the next 12 years, President Vladimir Putin contrasted his eight years in power favorably with, as he put it, “the chaos, economic ruin, and breakdown of the old system that we saw in the 1990s.” However, he also said that the “state system” today is “weighed down by bureaucracy and corruption and does not have the motivation for positive change, much less dynamic development.” More specifically, he said that small businesses today are working under “very difficult conditions” and that “what federal bodies in the regions with the support of regional and local authorities do” is, in a word, “awful.”

“One cannot start one’s business for months,” Putin said. “People have to give bribes in every controlling institution – fire prevention, environmental services, medical permissions – you need to go to all of them, and it’s just terrible.” He called for doing away with the “excessive administrative pressure on the economy that has become one of the biggest brakes on development” and for establishing “competitive conditions for attracting the best and the brightest into the civil service, and make them more accountable to society” (Kremlin.ru, February 8).

On the issue of corruption, Putin’s speech was similar to the one that Putin’s designated successor, First Deputy Prime Minister Dmitry Medvedev, delivered last month to the Civic Forum, a gathering of representatives from Russian non-governmental organizations and other groups sponsored by the Kremlin-appointed Public Chamber. In it, Medvedev called Russia a country of “legal nihilism” that manifests itself in the form of “crime,” including “corruption in the power bodies,” which, he said, exists on a “huge scale” in Russia today. No country, he said, can boast of such “disdain for the law.”

In their respective speeches, both Putin and Medvedev either tacitly or unwittingly conceded the failure to make good on the pledge made by Putin at the start of his presidency to end the disorder of 1990s and establish a “dictatorship of law” (see EDM, January 30).

Meanwhile, another group of independent observers has produced data illustrating the extent of corruption in Russia. Vedomosti reported on February 6 that the Institute for Public Projects (INOP), with the participation of the Institute for Comparative Social Research (CESSI), carried out a research project called “The Nature and Structure of Corruption in Russia,” based on interviews with 36 experts who were not named but, according INOP Deputy Director Mikhail Rogozhnikov, are connected with the sectors about which they were interviewed. The study found that the highest degree of corruption in Russia can be found in the areas of taxation, the judicial system, law-enforcement bodies (particularly the Federal Road Safety Service), public health, and property disputes.

The experts interviewed about corruption singled out the state-controlled energy giant Gazprom, the state monopoly Russian Railroads, and the state pipeline monopoly Transneft, with one of the experts stating that law-enforcement or judicial bodies, on the basis of an “understanding” with the presidential administration, exert “pressure” on companies that are sitting on “interesting deposits.” The experts estimated that Transneft annually writes off two percent of the oil it handles – more than four million tons - to leakage and that $1.5 billion-$2 billion a year is stolen. (Vedomosti reported that Transneft and Gazprom refused to comment on the report.) A recent paper on the Putin years written by former first deputy prime minister Boris Nemtsov and former deputy energy minister Vladimir Milov described Gazprom as the “champion” for placing “important assets in the hands of mysterious third parties.” Nemtsov and Milov concluded that an “authoritarian-criminal regime” has developed in Russia over the last eight years (Novaya gazeta, February 7).

Perhaps most interestingly, the INOP-CESSI study also produced a “price list” of bribes. According to the list, a place on a party list for a State Duma election cost $2 million-$5 million while getting legislation introduced in the Duma for consideration costs $250,000. For a state monopoly to win a “goszakaz,” or state purchase order, it must pay 20% of the order’s total value; for it to participate in a national project, it must pay 30-40% of the project’s total value; for it to get a line item in the federal budget, it must pay three percent of the project’s total value.

A large private company must pay $1 million-$5 million to get a license, prevent a license it has from getting revoked or get a competitor’s license revoked. For a large private company to win a “goszakaz,” it must pay a third of the order’s total value. For a small business to ensure that a transaction is carried out, it must pay a third of the transaction’s value; in order to get “help” from officials, a small business must pay 10% of its total profits. Getting customs duties reduced costs 30-50% of the sum on which the duties were assessed; getting tax arrears written off costs anywhere from $1000 to 30-50% of the sum of the arrears.

To get the Central Bank to begin examining documents costs a bank $500,000, while winning the right to transfer federal budget funds costs a bank five percent of the sum of the transfer. To win a case in a civil court or an arbitration court costs 10% of the awarded damages. To win a grant costs a charitable foundation 20-30% of the value of the grant. Finally, according to the INOP-CESSI study, to get a television “talking head” to criticize an official costs $20,000 a month (Vedomosti, February 6).

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