Wormy, Leech-ridden Russia

Vladimir Ryzhkov, writing in the Moscow Times:

Gleb Pavlovsky, a longtime Kremlin insider and pundit, hit the nail on the head when he described the pervasive corruption among Russia’s bureaucrats: “For the last 20 years, no one in the high levels of government has discussed whether this or that top bureaucrat abuses his official position for personal gain. It is taken as a given. They are all corrupt.”

That is why Russia — unlike China, Singapore, Japan and France — has not prosecuted a single high-ranking official on corruption charges in the entire 20 years of the post-Soviet period. The government’s whole “fight against corruption” boils down to nothing but empty speeches, useless anti-corruption legislation, amusing but meaningless “strategies” to combat the problem and occasional arrests on corruption charges of middle- and low-ranking officials — scapegoats who have no impact on solving the larger, systemic problem of corruption in government.

While the economy was growing in the 2000s thanks to high energy prices and business expansion fueled by a seemingly endless flow of cheap corporate credit, there was another boom taking place in Russia — the sharp rise in the number of bureaucrats since Vladimir Putin became president in 2000.

As the number of bureaucrats increased, so did the level of corruption. Corruption has grown by a factor of 10 in the past decade, depriving Russia of up to one-fourth of its gross domestic product, or roughly $300 billion annually. When the so-called “wild ’90s” ended, Russia ranked 82nd in Transparency International’s global corruption rating. By the end of “booming 2000s,” however, Russia had plummeted to 146th place, which is much worse than its main economic rivals and fellow BRIC countries of Brazil, India and China.

Like worms devouring a corpse or leeches sucking blood, millions of corrupt officials gobble up the country’s wealth and cripple the country with their parasitism. Millions of siloviki, managers of state corporations and other bureaucrats have created thousands of sophisticated and complex criminal schemes that are worth collecting in several weighty volumes and publishing as a useful handbook for wannabe gangsters: “How to Get Rich Through Blackmail, Extortion, Larceny, Tax Evasion, Money Laundering and Organized Crime.”

Officials and civil servants steal from the budget, state corporations, government agencies, roads and housing projects and government procurement contracts. In short, they steal everywhere that budgetary funds or state and municipal property are found. They usually commit extortion in collusion with businesses and most often in collusion with businesses that have ties to specific officials. One of my acquaintances in Grozny with inside information tells me that officials there immediately pocket as much as 80 percent of federal investment funds as soon as the cash arrives in Chechnya. It therefore comes as no surprise that state investment expenditures are rising rapidly, even as the real benefit of those investments are declining just as rapidly.

As absurd as it sounds, bureaucrats often consider bribe-taking and extortion as a well-earned, legitimate perk of being a “civil servant” — a term that is ludicrous when used in the Russian setting. The biggest offenders among bureaucrats are the siloviki — the Federal Security Service, prosecutors and police — who specialize in extorting money and seizing property and businesses that legally belong to others, a practice otherwise known as raiding. These incidents occur every day. Two recent examples were the arrest of senior federal prison officials in Nizhny Novgorod for extorting 40 million rubles ($1.17 million) to release individuals suspected of smuggling automobiles and the arrest near Moscow of an investigator for soliciting a bribe of $500,000 to close a case under her jurisdiction.

Corrupt Russians of all stripes do not even bother hiding their illicit funds. They drive fancy cars, live in luxurious houses and dine at the most expensive restaurants, while hiding their assets and income by filing phony declarations.

What can President Dmitry Medvedev claim as results after announcing his much-proclaimed all-out war against corruption two years ago? According to official data, only 800 officials — all of whom are mid or low rank — were arrested on corruption charges in 2009. That works out to just 0.04 percent of all Russian officials — “nanoresults” you could say.

Even when Western companies are implicated in corrupt dealings in Russia and prosecutors from the West present the Prosecutor General’s Office with full details of the crimes, including the names and positions of the Russian accomplices, the authorities do nothing more than conduct a pro-forma investigation that rarely leads to a prosecution. For example, there was no follow-up after two IKEA managers were fired for tolerating bribes given to ensure that one of IKEA’s shopping centers was hooked up to a electrical grid in St. Petersburg. And no progress has been made in the case involving the death of lawyer Sergei Magnitsky, who uncovered a scam by officials to defraud the government of $230 million.

After the U.S. Justice Department claimed that Daimler had bribed Russian officials in the Federal Guard Service, the Interior Ministry, the Prosecutor General’s Office and other siloviki agencies to buy Mercedes-Benz automobiles at inflated prices, it took Medvedev almost a full month before he ordered a review of the case. But the investigation is being carried out internally and out of the public eye. This should be an open-and-shut case since Russia has been given complete information regarding the identities of the officials who accepted the bribes from Daimler.

After a series of high-profile corruption scandals involving Western companies in Russia, Daimler, Siemens and roughly 50 other companies with operations in Russia recently signed a corporate code of conduct that pledges zero tolerance for corruption. Even if these corporations uphold their pledge, it will be a drop in the bucket, unfortunately. Until the Kremlin gets serious about fighting corruption — and starts the battle by taking on their comrades-in-arms among the highest-ranked bureaucrats in government — Russia will remain one of the most corrupt nations in the world.

9 responses to “Wormy, Leech-ridden Russia

  1. @“civil servant” — a term that is ludicrous when used in the Russian setting.

    That’s what I just wanted to comment on when he wrote about “officials and civil servants”.

  2. “That’s what I just wanted to comment on when he wrote about “officials and civil servants”.

    Is K-street in Moscow???
    Type in “K-street” in google search and see top o’ the top corruption of American corporate monster state. USA is #1 as ever in all the bad things.

    • Kadyrov street? Yes, there is one in Moscow (Akhmad Kadyrov Street).

    • Voice of Reason

      Robert, by “K street in USA”, he meant the place where the hard-earned US taxpayers’ money is distributed to wealthy US corporations and government officials:


      The Road to Riches Is Called K Street

      Lobbying Firms Hire More, Pay More, Charge More to Influence Government

      The number of registered lobbyists in Washington has more than doubled since 2000 to more than 34,750 while the amount that lobbyists charge their new clients has increased by as much as 100 percent. Only a few other businesses have enjoyed greater prosperity in an otherwise fitful economy.

      The lobbying boom has been caused by three factors, experts say: rapid growth in government, Republican control of both the White House and Congress, and wide acceptance among corporations that they need to hire professional lobbyists to secure their share of federal benefits.

      “Washington has become a profit center.”

      The extra lobbying paid off. The legislation was approved and Hewlett-Packard will save millions of dollars in taxes. “We’re trying to take advantage of the fact that Republicans control the House, the Senate and the White House,” said John D. Hassell, director of government affairs at Hewlett-Packard. “There is an opportunity here for the business community to make its case and be successful.”

      The Republicans in charge aren’t just pro-business, they are also pro-government. Federal outlays increased nearly 30 percent from 2000 to 2004, to $2.29 trillion. And despite the budget deficit, federal spending is set to increase again this year, especially in programs that are prime lobbying targets such as defense, homeland security and medical coverage.

      “Hiring a lobbyist is part of system these days,”

      The result has been a gold rush on K Street, the lobbyists’ boulevard.

      The owner of a large lobbying shop said that five years ago he could hire veteran Capitol Hill staffers for $200,000 a year or less. Now the going rate is closer to $300,000 a year and the most-sought-after aides can expect even more. In 2002, Susan B. Hirschmann, chief of staff to House Majority Leader Tom DeLay (R-Tex.), had so many lobbying offers that she enlisted Robert B. Barnett, the attorney for Bill Clinton and Sen. Hillary Rodham Clinton (D-N.Y.), to receive and filter them.

      For retiring members of Congress and senior administration aides, the bidding from lobbying firms and trade associations can get even more fevered. Well-regarded top [retiring government] officials are in high demand and lately have commanded employment packages worth upward of $2 million a year. Marc F. Racicot, a former Montana governor who chaired the Republican National Committee, will soon collect an annual salary of $1 million-plus as president of the American Insurance Association.

      The fees that lobbyists charge clients have also risen substantially. Retainers that had been $10,000 to $15,000 a month for new corporate clients before President Bush took office now are $20,000 to $25,000 a month or more, lobbyists say.

      All-Republican lobbying firms have boosted their rates the most.

      • Voice of Reason

        The date of this WP article:

        The Road to Riches Is Called K Street
        Lobbying Firms Hire More, Pay More, Charge More to Influence Government

        By Jeffrey H. Birnbaum
        Washington Post Staff Writer
        Wednesday, June 22, 2005

        I am sure that by 2008, these numbers became even higher.

      • Nope, he said about “K-street in Moscow”.

        Which I guess may be a metaphora how the “hard-earned” Russian bribe-takers’ money is distributed to wealthy Chechen “government officials” (instead of stuff like, I don’t know, maybe fighting the epidemics of tuberculosis and AIDS in Russia or aiding some of the millions of Russian street children or something). A little peek into where the money goes then:

        • Btw K.’s luxury car collection:

          Kadyrov Says He Has No Car


          All senior officials are supposed to declare their income and some assets under an anti-corruption drive initiated by President Dmitry Medvedev last year. The deadline for regional leaders to file their declarations with the tax authorities and publish them on their regional web sites was Friday, April 30. Kadyrov did not say why he waited until this week to publish his declaration.

  3. Francis Smyth-Beresford

    Let’s give this another shot. To borrow an expression from Andrew: sigh.

    If authors would abandon the practice of casting these issues in Manichean terms – us good, them bad – they’d get little argument from me. Corruption is a problem in Russia, there’s no denying it. However, Transparency International is not the best agency to monitor and quantify domestic corruption. Their mandate does provide for their involvement in domestic allegations of corruption, but the global index is based more on international business practices and the climate for investment in the country under discussion. A national score does not necessarily reflect domestic corruption – otherwise, how could the country that crashed the global economy be rated as good? Was corruption at the root of it? Well, see what you think.

    “corruption noun abuse of public trust, act of bribing, act of profiteering, baseness, breach of faith, breach of trust, bribery, complicity, conduct involving graft, corrupt inducement, corruptibility, crime, criminality, debasement, deception, deviation from rectitude, deviousness, disgrace, dishonesty, dishonor, disloyalty, disrepute, fraudulence, fraudulency, graft, improbity, indirection, injustice, jobbery, knavery, lack of conscience, lack of principle, lack of probity, malignancy, obliquity, perfidiousness, perfidy, perversion of integrity, scoundrelism, turpitude, unscrupulousness, venality, villainy, want of principle, wickedness
    Associated concepts: corruption in public office”

    A good place to start would be the recent antitrust inquiry against Goldman-Sachs. Referred to in one source as a “great vampire squid wrapped around the face of humanity,” Goldman-Sachs stands accused of defrauding investors by operating in collusion with a major hedge fund, picking subprime investments and taking a speculative position they would fall in value.

    When the U.S. economy began to go pear-shaped in 2007, Henry Paulson was the U.S. treasury secretary. He stepped into that post from his previous position – Chairman and CEO of Goldman-Sachs. If this scenario took place in Russia, the western networks would be wall-to-wall with reporters croaking apocalyptic predictions while “Highway to the Danger Zone” played in the background. Current CEO Lloyd Blankfein’s net worth is $450 million, and Goldman-Sachs cleared a record $2.3 billion profit in the second quarter of 2009, after they received a gigantic bailout package.


  4. Francis Smyth-Beresford

    …continued. Here’s a fairly detailed explanation how the crash of the housing market happened, including a suggestion that borrowers were encouraged to lie about their income in order to qualify for mortgages for which they would otherwise not be considered.

    Click to access wp_522.pdf

    “…the subprime market bloomed, with increasingly risky instruments and practices. “Low doc” loans (less documentation required) evolved to “no docs” and to “liar loans” (borrowers were allowed and even encouraged to lie about income and other information relevant to the application process), and finally to “Ninja loans” (no income, no job, no assets)…”

    Speaking of bailouts, how about those auto executives? They flew to Washington to ask for a big chunk of the taxpayer’s money, in corporate jets.


    To their credit, Ford didn’t take a bailout, and at least one company who took a huge loan has repaid it in full. But that doesn’t change the perception of corruption and oligarchy. If Alexey Miller flew into Moscow in a corporate jet to negotiate the government bailout of GAZPROM, Russophobes would shriek what a bloodsucker he was.

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