Just Say “Nyet (No)”: Corruption Compliance in Russia
Patrick Kellermann from LeClair Ryan is our guest contributor today. He can be reached here.
For many businesses, now is the time to expand into Russia. In 2011, the Russian economy grew by 4.3%. The IMF projects the $1.8 billion economy will continue to grow by 3.3% in 2012 and 3.5% in 2013, over twice the pace of growth compared with so called, “advanced economies.” The Kremlin is doing its part to lure foreign business by offering investment in state-owned industries like oil/gas, power, and finance on favorable terms. For these reasons it’s tempting to expand operations into Russia, but tread carefully.
The former Soviet Union ranks near the bottom of Transparency International’s (TI) Corruption Perception Index (score 2.4; rank 143). Some of the largest US penalties stemmed from payments to Russian officials; Daimler AG (nearly $200 million), Panalpina ($70 million), and who could forget the record setting $800 million enforcement against Siemens AG.
According to TI’s 2011 Bribe Payer Index, Russian businesses are more likely to pay a bribe than companies from any of the other 27 countries surveyed. This is a significant risk considering the global trend towards criminalizing purely commercial bribery—think, UK Bribery Act.
As a communist regime, back-door dealings were a fact of life. All participated, either willingly or by coercion. Though communism is a relic of the past, corruption remains. It exists at every level of the economy in layered administrative burdens and expectations of grease payments for routine official action. “Must-have” third party insiders employ corrupt tricks of the trade and often, links to the government are not apparent. Also, the most tempting business opportunities in Russia— oil & gas; mining, utilities, healthcare/pharmaceuticals—involve high corruption-risks industries.
Though compliance in Russia with anti-corruption laws is complicated, we would never advise a company to avoid entering Russia so long as it makes business sense. But turning a blind eye to these risks or adopting a cookie-cutter compliance program invites trouble.
The goal is not to say, nyet “no”, you can’t do this and no, you can’t do that. The goal is to enable business by building and maintaining a defensible compliance system tailored to Russian corruption risks. Though difficult, here are a few steps to consider:
Know who sits across from you, or next to you, in business transactions. Are there connections to the government? Conduct third party due diligence. Avoid agents with a history of corrupt payments and develop procedures to respond to red flags as they arise. Document and accurately account for dealings with regulatory officials and inspectors. Communicate risks and policies to employees. Assign a senior compliance officer to oversee Russian operations. These are just some of the potential responses to the many risks.
Taking advantage of Russian business opportunities must go hand in hand with careful planning, dedication to a real compliance program and continuous monitoring.