Mirage or Real?: The Claim Bribery is a Declining Problem for Russia

December 16th, 2011

flickr / didkovskaya

Foreign bribery is a huge problem for the Russian economy. Investors are threatening to flee in droves in the face of ever increasing official depravity and the tightening of domestic laws on bribery abroad. Transparency International estimates that the total annual amount paid in bribes in Russia is worth $300 billion—equivalent to the GDP of Denmark.  Global Financial Integrity estimates that the country lost an average $47 billion in illicit financial flows per year, a number which money transferred abroad stemming from tax evasion, corruption, and trade mispricing.

Corruption has become an endemic characteristic of Russia’s public sector. As internal State Department memos made public by WikiLeaks revealed, the top levels of Russia’s government are engaged in a much deeper and more pervasive type of corruption than most of the world has realized.  One cable notes that extortion is so widespread that it has “become the business of the Interior Ministry and the federal intelligence service.”  The government has transformed into an organization more closely resembling “the mafia” and the line separating government from business is so blurred it is nearly non-existent.

Bribery is also pervasive part of the private sector’s culture. According to Transparency International’s Bribe Payers Index, Russian businesses were the most likely to pay bribes abroad compared to companies in 28 other leading economies, below both China and Mexico. Elena Panfilova, the Director of Transparency International’s Russian Chapter, believes this is the result of “stabilized corruption,” which means “that even if new laws are adopted, it does not have the desired effect on those involved in corruption because they are not enforced.”

In the face of all these head winds, earlier this year, Russian President Demitri Medvedev signed a bill that would outlaw foreign bribery and gives prosecutors the authority to seek massive fines for graft—up to 100 times the amount of the bribe. The OECD has welcomed this bill as a “significant step,” although I would categorize the entire response’s tone as cautiously optimistic.

Medvedev, for his part, has done his best to assert his intentions to tackle corruption in the court systems, stating that Russia should do its best to “make the courts become as much as possible independent from the authorities and at the same time to absolutely depend on society.”  Although, he’s also said he has “no illusions that this will happen in one or two years.” Just a year earlier Medvedev admitted he knew “of no significant successes in this direction,” despite the prior two years of effort.

Panfilova wouldn’t be surprised. She’s noted “This law looks great on paper, but the question is whether it will be implemented…the real work will be all in the future.”

Despite all the pessimism floating around, Russia has improved, significantly, in one important survey. According to an economic crime survey by PricewaterhouseCoopers, 40% of respondents “who faced economic crimes in the past year suffered from bribery or corruption,” this is down from 48% two years ago. Could it be? Is the bribery problem diminishing in Russia? Or is it just a mirage?

Not likely. As Irina Novikova, the director of the forensics department at PricewaterhouseCoopers Russia, has observed, “one of the reasons for the decline may be a reduced willingness of survey respondents to talk about corruption.” This would actually indicate the problem is getting worse, not better, since solving the problem requires openness, dialogue, and willingness to reform. But let’s at least hope the numbers are real. And if they turn out to be, let’s figure out what Russia is doing right. Even if it’s by accident.

Image License: AttributionNoncommercial Some rights reserved by didkovskaya

Written by Ann Hollingshead

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