Russia and Corruption: Don Quixote or Elliot Ness? (Part II of II)

russia12With the political forces aligned to fight corruption, Russia may be finally making a serious and sincere effort to address corruption in Russian society.  Do not get me wrong – Russia has a long way to go and there are a lot of cracks in the system.

Corruption will always be an issue which Russia fights.  In the absence of an independent judiciary and media, there is no strong force other than political discontent which will rein in corruption.  President Putin will only act if necessary.  He appears to be taking some steps in the right direction.

Russia’s economy is growing but nowhere near the levels of growth enjoyed by other BRIC countries.  Russia depends on exporting natural resources and financing its imports with these revenues.  State-controlled companies are increasing in number and size. The state controls over 50 percent of banks; 70 percent of the transportation industry; and 40 percent of the oil industry

Rosneft, the state-run oil giant, is the largest oil producer in the world, eclipsing ExxonMobil.  Gazprom and Russian Railways are huge companies, dominant in Russia with expansive reaches into the west.  Small and medium-size businesses are not growing but actually declining in number.

Russia’s infrastructure continues to erode and efforts to repair and rebuild are plagued by corruption.  Huge infrastructure projects are being run by companies with mysterious connections to offshore companies.  The 30 largest Russian companies are now managed by offshore companies.

Russia’s bureaucracy is backward and difficult to navigate.  Russia ranks 112th out of 185 economies in the World Bank’s Ease of Doing Business Index. For example, in some of the larger cities it takes nearly two years to obtain a building permit.

In 2011 Russia signed the OECD Anti-Bribery Conventions, and the most recent report from the Group of States against Corruption shows the country is making progress on fulfilling anti-corruption obligations.  But corruption siphons off vast amounts of money – some estimate as much as $300 billion a year.  The shadow economy of corrupt dealings is estimated to total as much as 15 percent of the Russian economy.russia10

Western companies entering Russia frequently rely on third-party agents who navigate local governments and regulations.  Many of these third-parties are shady and due diligence is a definite must when engaging them.  Facilitating payments are often requested to help get goods through customs or secure basic government services.

At the government level, the five top areas for corruption include: government contracts and purchases; issuance of permits and certificates; law enforcement agencies; land distribution and land relations; and construction.

russia3The government developed a National Anticorruption Plan for 2012-2013. According to the new anticorruption legislation, officials must provide information not only on their own income, assets and property obligations, but also on the income, assets and property obligations of their family members.  The anticorruption measures have brought unexpected results: there are far more convictions of people who paid bribes than of officials who took them.

Russia’s anti-corruption efforts may pick up steam in the near future as political forces align and political discontent grows.  Corruption is a huge problem in Russia but improvements may be on the horizon – whether these are long-term, sustained efforts remains to be seen.

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  1. May 29, 2013

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