Business and Finance

Corruption in Russia: Business as Usual?

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Anti-corruption poster in Saint Petersburg, photo: mutatdjellyfish/flickr

Transparency International’s latest Corruption Perceptions Index saw the ratings of many western countries drop. Scoring worst among the G20 countries, Russia’s ranking dropped to 154, its lowest ranking since the index began in 1995.

Naturally, there are limits to how useful measuring a population’s perception of how corrupt their government actually is. Transparency International’s Francois Valerian acknowledges that “a drop in ranking can often result from the exposure of corruption that had already existed for some time.”

And corruption in Russia has existed for a very long time. For millions of Russians corruption is often seen as the norm. Russian authors have explored the theme of corruption in Russia over centuries. Nikolai Gogol exposed corruption in tsarist Russia in Dead Souls and The Inspector General, while Mikhail Bulgakov satirized the greed and corruption of Stalin’s Soviet Union in Master and Margarita.

According to one Russian polling station, the Levada Center, “nearly 80 percent of Russians say that corruption is a major problem and that it is much worse than it was 10 years ago.” Recent years have seen a rise in coverage of corruption scandals in Russia. So have Russians become increasingly critical of the government’s failure to deal with the problem of lingering corruption? In the run up to the 2008 presidential election Dmitry Medvedev declared the fight against corruption as one of the main priorities of his presidency. While most observers remain skeptical of his repeated pledges to fight corruption, others acknowledge that it has contributed to a larger public debate on the issue. Nevertheless, opinions have been divided on whether the recent removal of the Moscow Mayor Luzhkov was a step toward fighting Russia’s corruption problem or simply a shining example of it.

Petty corruption by civil servants stifles small businesses and individuals; on a large scale corruption stifles the entire economy. It is widely accepted that pervasive corruption threatens the sustainability of businesses, thereby suppressing economic development and limiting foreign investment. Businessmen have acknowledged for decades that bribery is an integral part of Russian business culture. However, while most people have heard of the symbolic YUKOS affair and the trail of Khodorkovsky, this year saw a number of major corruption scandals involving a western multinational in Russia coming to light.

In February 2010, IKEA sacked two of its executives for turning a blind eye to bribery. As one of the most outspoken western corporate critics of Russian corruption, IKEA had previously prided itself on its creative solutions to resist involvement in corrupt practices, and recently announced that it had frozen future investments in Russia. Earlier, Daimler agreed to pay $185 million to settle a US corruption case involving offenses committed in Russia. Finally, the US computer company Hewlett-Packard has been accused of paying millions of dollars in bribes to win a big contract in Russia several years ago.

With public trust in western governments dwindling since the financial crisis and outrage over business practices in the financial sector, scrutiny of large multinationals’ overseas business practices will increase. With no expectation that the deeply ingrained practice of corruption in Russia will change anytime soon, and with the risk of facing prosecution by regulators and law-enforcers back home, many western companies will think twice about doing business in Russia at all.

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