Russia: The Anti-Bribery Frontier

More multinational companies are expanding into Russia.  China has become passe.  Years ago, every company was considering expanding into China.  Now, Russia is the new frontier.  India is a close second on the frontier competition.    

China and India pose real corruption risks.  Corruption is built into China’s government and social fabric.  India has extensive layers of government regulation and market structures which increase corruption risks.

Russia presents even greater risks.  Corruption exists at every level of the economy.  Organized crime has grown and permeated every aspect of the marketplace. 

President Medvedev is trying to fight back.  He has launched anti-corruption initiatives and is struggling to have them take root.  Transparency International’s most recent Corruptions Perception Index ranks Russia 154th out of 178 nations.  The Russian government itself estimates that corruption and inefficiencies in state and local government procurement costs the Russian economy approximately $35 billion. 

Russia enacted a new anti-corruption law on May 5, 2011, Federal Law No. 97-FZ which amends the Russian Criminal Code which outlaws bribery of Russian or non-Russian officials by Russian individuals or companies.  The new law also adds steep new fines for bribery violations.

The law is aggressive but its effectiveness will depend on enforcement.  The OECD has now invited Russia to join its Anti-Bribery Convention and Working Group on Bribery.  Even AG Holder and AAG Lanny Breuer praised the new law. 

Russia’s enforcers hope that the threat of steep fines will deter potential violators from engaging in bribery.  That may be wishful thinking given the pervasive corrupt attitudes in Russia’s economy and society.  Importantly, the system of tough fines and penalties also applies to intermediaries who pass bribes, such as consultants and third party agents.

The Russian government hopes that the new fine structure will deter companies and motivate those companies operating in Russia to take their anti-corruption obligations. 

The jury is still out on Russia and the risks are significant.  If Russia adopts an aggressive enforcement program, it could have a real impact and help to improve Russia’s image.

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