Pervasive Corruption in Russia Is 'Just Called Business' By Steven Lee Myers

August 13, 2005, New York Times

MOSCOW, Aug. 12 - A businessman here recently formed a company to supply equipment used in new office and apartment buildings. Despite the country's construction boom, it nearly foundered. That is, until this summer, when two "intermediaries" arranged to fix the bidding for contracts from a regional government.

He has since received four new contracts, he said, and expects more. Success has its cost, though. He had paid bribes, he said, amounting to 5 to 10 percent of each contract. The largest, so far, totaled $90,000.

The amount of each bribe was punched out on a desktop calculator to avoid any paper trail. He expressed disgust but said the bribes were an unavoidable cost of doing business in Russia today.

"If you want to be competitive you have to play the game," he said, agreeing to speak in a lengthy interview only if he, his company and the regional government were not identified. He said he feared legal difficulties and being harmed or even killed.

"It used to be called bribery," he added. "Now it is just called business."

Bribery is certainly not new to Russia, but according to several recent surveys and interviews with dozens of Russians, it has surged in scale and scope in recent years under the presidency of Vladimir V. Putin, so that today it touches just about every aspect of life.

With greater urgency than ever, anticorruption campaigners and even some government officials warn that the government has become so ensnared by corruption that it threatens to undo Russia's progress since the dismantling of the Soviet Union 14 years ago.

The Indem Foundation, a research group in Moscow that has conducted the most extensive efforts to measure bribery here, estimated last month that Russians paid more than $3 billion in bribes annually and that businesses paid $316 billion - nearly 10 times the estimate of its first survey just four years ago.

The total is more than two and a half times what the government collects in budget revenues, the survey found. That means that vast amounts of Russia's wealth flow in a shadowy netherworld of corrupted officials - unreported as income, untaxed by the government and unavailable for social or economic investments.

"The weakness, inefficiency and corruption of all branches of government are the most important obstacles to further progress in reforming Russia," the Organization for Economic Cooperation and Development, or O.E.C.D., said in June in a report commissioned by the Russian government.

Other surveys also rank Russia among the world's most corrupt nations, placing the former superpower on a par with developing countries. Transparency International, the worldwide corruption watchdog, said in its latest report that Russia was now following the path of countries like Nigeria, Azerbaijan and Libya - rich in oil but soaked by graft.

Grigory A. Satarov, the president of Indem, said in an interview that the new growth of bribery fed off the inefficiencies of Russia's still sclerotic state structures, inherited from the Communist past.

But he also blamed Putin policies that have weakened the rule of law. Fighting corruption, he argued, requires three conditions: free news media, a vibrant political opposition and a truly independent judiciary. Under Mr. Putin, he said, the Kremlin has undercut all three.

"The main thing," Mr. Satarov said, "is that all this time, Putin has not done anything to change the situation."

For businesses especially, bribery is ballooning, along with the amounts solicited, which Indem estimated to average $135,000 - a 13-fold jump from 2001. Mr. Satarov said the increasing pressure on businesses reflected the expanding role of the state in the economy during Mr. Putin's presidency.

For Mr. Satarov and others, high-profile cases like the legal assault on the Yukos oil company highlighted less the government's determination to root out corruption than its desire to assert its control over valuable economic assets.

In fact, the conviction of Yukos's former chairman, Mikhail B. Khodorkovsky, on tax evasion charges that he and his supporters called politically motivated may have had an opposite effect.

According to a very wealthy and prominent Moscow businessman, who spoke on condition of anonymity for fear of prosecution or political retaliation, as well as others interviewed, bribes have increasingly become a necessity, either to win contracts or to keep inspectors and prosecutors at bay.

The magnitude and scope of this kind corruption make Russia different today from even the recent past, the Moscow businessman said. In the early years of Russia's post-Soviet transition, lingering fear of Soviet control and a romantic optimism for a normal democracy limited corruption to some extent.

"There are no romantics now," he said, "and the old fear is not there anymore."

A recent survey by the World Bank reported that 78 percent of businesses in Russia reported having to pay bribes. Another survey, by the Foreign Investment Advisory Council, created in 1994 by the Russian government and prominent foreign corporations, found that 71 percent considered corruption the biggest barrier to foreign investment.

Mr. Satarov said one major businessman had told him of having to pay monthly bribes to five federal ministries. Fully half of the businessman's profits went to bribes, Mr. Satarov recounted. "He said, 'When it reaches 70 percent I'm going to close the business.' "

A business consultant who until recently worked with the European Union on economic development projects in Kaliningrad and Moscow said he had endured repeated encounters with bribe-seeking officials, who demanded cash, gifts or the hiring of unqualified relatives.

In an interview, the consultant, who agreed to discuss the issue only if not identified because of fears of retribution, said it was necessary to understand bribery in the context of the Russian government.

"Corruption is not a virus infecting the system," he explained, saying that was how bribery was viewed in Europe or the United States: as an aberration that must be isolated and cut out. "It is the system itself that is corrupt."

Indeed, Russia has evolved from its Soviet past in such a way that for many, paying "a little something" is not even considered bribery anymore. Rather, bribes are seen more as a fee for resolving seemingly intractable problems or overcoming bureaucratic delays, one that supplements the meager incomes of otherwise honest civil servants.

"It's not their fault, but the government's inability to provide a decent living," Yaroslav D. Lissovolik, the chief economist at United Financial Group, said. He last paid a bribe - "a couple of dollars," he said - to receive the results of lab tests at a state clinic, where state health care is free only in theory.

The O.E.C.D. report concluded that government officials actually complicated legislation or regulations deliberately to increase opportunities for bribery. Or as the businessman in construction put it: "The law is like the Bible. They interpret it any way they like."

An American businessman married to a Russian woman recounted his own example. He said he had to pay nearly $1,000 in bribes to resolve a Catch-22 involving his infant daughter. She could not receive a Russian passport unless she was registered with the local police. She could not be registered, though, unless she had a passport.

"That perfect problem was solved with a larger sum than I want to remember," he said, agreeing to tell the story only if not identified, because of American laws against bribery.

As a result of its necessity, bribery has become accepted practice.

Bribes have become almost obligatory, for instance, for admission to Russia's universities, even those supposedly available at no cost to those who qualify. The Indem study estimated that $583 million was spent annually in bribes to deans, professors and others involved in securing admission. The foundation, along with the Moscow Higher School of Economics, estimated that students paid bribes as high as $30,000 to $40,000 to enter the most prestigious universities.

Young men of draft age also routinely pay to receive a deferment, either on medical or other grounds, to avoid service in a military roiled by the war in Chechnya and a particularly gruesome form of hazing for new recruits.

One young man in Yekaterinburg said in an interview that the going rate in central Russia was $1,500, and that he and several peers had paid it gladly. In Moscow it is said to be $5,000. According to the Defense Ministry, fewer than 10 percent of eligible men are drafted.

The police have the reputation of being the most notoriously corrupt. Sergei S., a lawyer with a prominent law firm, recalled the time recently when his girlfriend was at the wheel in Moscow and, without question, absolutely drunk when an officer waved the car over. She avoided arrest after Sergei went to an automatic bank machine, escorted by the officer, and withdrew $300.

"The most horrible thing," he said, agreeing to discuss the experience only if neither his last name nor his law firm was identified, "is it is absolutely normal."

Indem's survey uncovered one positive trend: the number of Russians willing to pay bribes has fallen since 2001, suggesting a growing popular frustration with the solicitations. Still, 53 percent of those surveyed said they would pay a bribe.

Mr. Putin's critics and even some supporters charge that the government has done little to combat corruption seriously because it extends to the upper tiers of government, something the president himself has acknowledged, sometimes bluntly.

"The state as a whole and the law enforcement bodies, unfortunately, are still afflicted with corruption and inefficiency," Mr. Putin said in an interview on state television last year. The corruption, he added, reaches to the "highest level, where we are talking about hundreds, tens of thousands, perhaps millions" of dollars.

Aleksandr Y. Lebedev, a wealthy financier and a member of the lower house of Parliament in the pro-Putin party, United Russia, said in an interview that corruption would flourish until drastic measures were taken, like the seizure of assets at home and abroad. "You find deputy ministers who have houses and yachts," he said. "I know ministers who are millionaires."

At the same time, Mr. Putin's government has not completely ignored the problem. It has announced a series of modest anticorruption measures, increasing salaries for law enforcement and other security officials and toughening penalties for seemingly petty crimes, like issuing a false passport.

The latter was a consequence of the deadly wave of terrorist attacks in August and September of last year. Two passenger airliners exploded in flight on Aug. 24, killing 90 people, after a bribe of roughly $34 enabled at least one of two suicide bombers to board at a Moscow airport.

"The people on those planes were not only the victims of terrorism," Yelena A. Panfilova, director of the Moscow branch of Transparency International, said. "They were victims of corruption." Yet as shocking as it was at the time, she said, the disclosure hardly surprised her.

When Transparency International applied to register its branch in 2000, an official in the Justice Ministry solicited a $300 "fee" to correct supposed problems in the application that Ms. Panfilova said did not exist.

"I said, 'Do you know who we are?' " she recalled.