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Corruption getting worse for Russian companies

Sitting in his dingy office in downtown Moscow, Nikolai, a small-scale retailer, complains that he is struggling to make ends meet because of a relentless rise in corruption under President Vladimir Putin.

The businessman in his mid-30s, who operates five small stalls packed with cosmetics and leather goods, recently was forced to pay US$1,000 to tax police who were threatening to carry out continual checks on his bookkeeping.

Another time he had to buy expensive audio equipment for a police officer who detected minor violations of strict trading regulations.

"They make sure that you end up offering them something to get them off your backs," said the entrepreneur, who admitted to underpaying taxes and would not give his full name for fear of reprisal.

Corruption, a problem in Russia since czarist times, flourished during the chaos of the post-Soviet period under president Boris Yeltsin. Then, well-connected businessmen became billionaires virtually overnight by carving up the nation's resources in allegedly rigged privatizations for a fraction of their value.

Yeltsin's successor Putin, a stern-looking former colonel in the Soviet-era KGB, was elected five years ago promising to set Russia on the path to modernization and impose a "dictatorship of the law" to eliminate graft.

But a study published last month by the respected Indem Institute concluded that bribes paid by businesses to police, licensing bodies and state inspectors have soared nearly 10 times since 2001 to US$316 billion -- equivalent to more than double Russia's federal revenues.

The report found that the average bribe paid by companies had shot up from US$10,000 to US$136,000.

The survey of 1,000 businesses was met with disbelief in some quarters. But the global anti-corruption group Transparency International (TI) and Russia's business-funded National Anti-Corruption Committee estimate the level of graft has jumped as much as sevenfold since 2001.

"Corruption has become the main business in Russia and has taken over the entire system of government," said Kirill Kabanov, who has received death threats for his work as head of the anti-corruption committee.

Russia has risen on the TI scale of corruption, reaching No. 90 last year, along with such countries as Mozambique, Malawi. Three years ago, it had been rated 71. On that scale, the least corrupt is Finland, while Haiti and Bangladesh share the most corrupt spot.

A key turning-point was the politically charged campaign against Russia's erstwhile richest man, Mikhail Khodorkovsky, which the authorities launched in mid-2003, said Indem head Georgy Saratov. The second half of that year saw "headlong growth" in corruption, he said.

The billionaire tycoon was sentenced in May to nine years on fraud and tax evasion charges and his Yukos oil company was dismantled and largely renationalized to pay off multibillion-dollar tax demands.

Putin, who instituted a 13 percent flat income tax in a partly successful attempt to tackle chronic tax evasion, insisted that prosecutors went after Khodorkovsky and Yukos to make an example of a prominent tax cheat.

But Saratov noted the tycoon's public humbling -- which many believe was intended to neutralize a powerful political opponent and cement state control of oil -- has emboldened bureaucrats to declare open season on bribing businesses.

The head of the Russian branch of TI, Yelena Panfilova, believes the most dangerous legacy of the Khodorkovsky affair is that it accelerated a process that took away the last vestiges of the rule of law.

"There is no supremacy of the law. The belief that our courts are independent was always weak, but it has now disappeared completely," she said.

It isn't massive corporations like Yukos that have suffered most, but small and medium-sized enterprises that economists say could provide a durable engine of growth and help diversify Russia's oil-dependent economy.
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