3.1. The heritage of the totalitarian regime
3.2. Economic collapse and political instability
3.3. Underdeveloped legislature and legal loopholes
3.4. The inefficiency of state institutions
3.5. Weakness of civil society and alienation
3.6. Weakly established democratic political traditions
3.7. The weakness of the judiciary
3.8. The state as nurturer of corruption
3.9. Corruption and the banking system
3.10. The legislators
3.11. Law enforcement bodies
2. Corruption in transitional Russia
3. Corruption as a phenomenon of the transition
4. The state
5. Measures taken against corruption
6. A basis for change
Corruption, its scale, dynamics, and specific features, is a consequence of the general political and socioeconomic problems of the transition from socialism.
Historically, corruption has begun when a country enters in a period of modernization and change. The stories of the robber barons of US are well known. It is understandable in a historical context that negative features of radical change should be present in Russia. Russia in the transition underwent a radical renovation of its public, state and economic foundations
The withdrawal of government authority in many spheres and the absence of control over this withdrawal created favorable conditions for the flourishing of corruption. It would be relevant to note, in this respect, that fascist Germany was one of the most corrupt regimes in human history. Those who hope to crack down on corruption with a ‘‘strong hand’’ should remember this fact.
There is a problem in the intertwined political and economic power that is a characteristic of totalitarian regimes with centralized systems of economic management.
In Russia, the natural division of labor between state institutions responsible for creating the conditions for the normal functioning of the economy and free market agents did not emerge in the post-transition years. Administrative bodies in Russia, especially at the regional level, continued to play on the economic field according to rules that they established for themselves. The outcome was, almost inevitably, corruption, in particular given the low official salaries of regional government employees.
It is important to note that the rapid and radical changes in Russia have occurred with the majority of state officials keeping their posts. Many of those who retain their former positions are not capable of adjusting to the new market conditions. They are unable to begin a business of their own and cannot use their talent, professional skills, or even their connections in business activities. The people who remain in the bureaucracies are in some sense negatively selected and are those who are most likely to adhere to the old tradition of state interference in all aspects of life. At the same time, there also remain and also come into the office those who consider a governmental administrative post the means for their personal enrichment.
The impoverishment of the population and the inability of the state to ensure a decent existence to public servants combine to result in massive grassroots corruption. This trend is supported by the Soviet-time traditions of protection ‘‘blat’’ as a form of grassroots corruption. Concurrently, the permanently present political risk related to long-term investments and the harsh economic situation often high inflation, the clumsy and purposeless interference of the state in economic affairs, the absence of clear-cut regulatory norms, etc. molds a certain type of economic behavior that aims at extremely short-term goals. The objective, although perhaps risky, is large profit. People of this behavioral type are not averse to seeking profit by means of corruption.
Political instability creates a lack of confidence in public officials at different levels. In the absence of guarantees for survival in these conditions, the officials become more susceptible to the temptations of bribe taking.
In the conditions of an economic crisis, the state attempts to increase taxes as has been done in Russia. These actions enlarge the shadow economy and consequently the field of corruption. For instance, a businessman who evades taxes is at the mercy of a tax inspector and becomes easy prey for demands for bribes in exchange for a promise of protection.
In the transition period, legislation tends to lag behind the pace of renovation of fundamentals of the economy and economic life. The first steps of privatization in Russia its ‘‘nomenklatura’’ stage were thus made in the absence of any legal regulations or strict controls.
Under the Soviet regime, the main cause of corruption was state control over the distribution of the basic resources. At the first stages of reforms, officials radically diversified their forms of control. They took control over the assignment of credits, privileges, licenses, winners in privatization contests, choice of authorized banks, choice of agents for implementation of major social projects, etc.
Economic liberalization was combined with, first, obsolete principles of state control over resource distribution and, second, with the absence of legal norms regulating new activity. Such a situation, which is specific to the transitional period, served as a breeding ground for corruption.
There were considerable loopholes in the assignment of property ownership, particularly land use. The unlawful selling of land is a source of corrupt deals. One should also add a plethora of ill-defined transitional forms of mixed ownership, which spread responsibility and allow businessmen to operate like public servants and officials to operate like businessmen.
Underdeveloped legislation manifests itself in poor awareness of the law, imperfections of the legal system as whole and ill-defined legislative procedures.
Here, various forms of corruption are created by the intrinsic inconsistency among legislative acts. Some laws effectively allow state officials to create conditions for extorting bribes and blackmailing citizens.
Insufficiently, detailed laws provide ambiguous formulations, loopholes, and numerous cross-references. As a result, the final ‘‘production’’ of laws is often accomplished through regulatory norms set by local authorities without oversight or control. Thus conditions emerge for the issuance of ill-formulated, ‘‘closed’’, hardly accessible regulations that create a favorable setting for corruption. Absence of standardized legislative procedures for developing regulatory and executive norms laws, presidential decrees, governmental decrees, etc. thereby opens avenues to corruption. The situation is aggravated by an overall negligence in adhering strictly to or respecting procedural norms.
Totalitarian regimes create cumbersome systems of state management. This is the case, first of all, in the executive branch. Bureaucratic structures are moreover very sturdy and survive under most severe shocks.
The more radical the changes are, the more energy and inventiveness are shown by the bureaucratic structures in the struggle for survival. As a result, when general life rapidly changes, bureaucratic institutions and the system of state management as a whole lag behind.
In the times of the late Soviet Union and in early post-Soviet Russia, one could observe the reaction of the bureaucratic system to increasingly complicated and multiplying problems. The shortcomings of the system were evident, but staff was swelling, new hierarchical levels of management were introduced, and coordinating structures responsible for nothing were mushrooming. The result was straightforward:
the more complicated and clumsy the state management system is, the larger is the gap between its structure and the problems it has to solve, and the easier is the entrenchment of corruption within it.
In the first stages of reform, the state could barely employ the authority of state machinery and the law to protect rights of ownership or to ensure unconditional fulfillment of the rules of the game. In the absence of protection provided by the state, entrepreneurs asked for favored private protection from particular state officials. Relations between business people and state officials, established out of necessity in this fashion, continued and developed easily into a corruption-based relationship.
The inefficiency of the state also manifests itself in the inability to establish, after the collapse of the nomenklatura, a new modern system for selection and promotion of public servants. As a result, the new wave of public servants brought many less-than-honest people into the state bureaucracy with premeditated plans to misuse their offices for ignoble purposes. Very often, there was direct infiltration of ‘‘agents of influence’’ from private businesses to the state administration.
A democratic state can solve its problems only via the institutions of civil society. The worsening of the socioeconomic situation of citizens that accompanied the first stages of renovation, combined with the disillusionment that replaced high initial hopes, alienated society from the authorities. Neither grassroots nor top-level corruption can be turned back without the involvement of the public.
The infiltration of corruption into political life is aided by an adverse political culture. When elections take place, voters readily trade their votes for cheap handouts or become prey to obvious demagoguery. An undeveloped political party system does not enable parties to take responsibility for training and promotion of their representatives. Shortcomings in electoral legislation protect politicians and permit fraudulent financing of election campaigns. Corruption consequently enters the representative branch of political authority at election times. Fictitious political life and a political opposition deprived of the possibility of influence push political figures to trade their political capital for economic gain. In this way, a smooth transition is made from semilegal lobbying to undisguised corruption.
The weakness of the judiciary is one of the main problems of the transitional period. The system of total party control taught people to seek protection in party committees and not in courts: suing was considered to be almost an indecent act. After the collapse of the socialist system, judicial weakness left a legal vacuum that remains unfilled. The weakness of Russian judiciary system manifests itself in the failure of the fiscal and executive branches of power to provide for salaries of judges and operation of courts. Court decisions are often not implemented. The low effectiveness of arbitrage courts results in long delays in case processing and, consequently, in paralysis of economic activity. There is a shortage of skilled and knowledgeable personnel to meet the requirements of the new economic conditions.
The civil courts are consequently unutilized in the confrontation with corruption. The underdevelopment of the public legal conscience originates from the past system of Soviet quasi-law. Besides the weak implementation of laws and regulatory norms, the absence of culture and traditions of using the law by citizens, and the perception of legal immunity for state officials results in little or no resistance to ‘‘grassroots’’ corruption.
The habitual bias of the law enforcement bodies and their representatives is protection of state interests and socialist property. Protection of the legal rights and interests of citizens, including private owners, has not become the main perceived task of law enforcement bodies. Not having found formal legal protection, entrepreneurs are obliged to seek special arrangements by buying unlawful services from state officials.
The tradition in Russia of an official’s commitment is not to the rule of law but to instructions, and the overseer is rooted in times much more ancient than the 70 years of the Soviet regime. As a result, attempts to introduce legal regulation become stuck in an obsolete bureaucratic system operating according to its own rules established several centuries ago. A successful anti-corruption program in Russia would have to be combined with radical reform of the state-service system.
We now turn to economic activities nourishing corruption where the state is present.
Privatization of state property is a serious cause of corruption. The problem was aggravated in Russia by the scale of privatization and weak control over implementation.
According to law enforcement agencies, in the first stages of privatization, about 30% of all decrees already contained violations of existing legislation. Inclusion of a state official in the pool of shareholders was a widespread practice. The Ministry of Internal Affairs noted that every 10th breach of trust among those revealed from mid-1994 until mid-1997 was committed in the privatization sphere totaling 5600 cases. The most widespread breaches have concerned financial embezzlement and bribery. In almost half of Russian regions, there have been criminal convictions of officials from the local administrations, territory committees on state property management, or state property funds.
There are numerous cases that involve seemingly corrupt practices, but which are either uncovered or do not meet with criminal prosecution: the cost of privatized property is underestimated, tender conditions are manipulated, or enter-prise and state officials engage in mass purchases of shares of enterprises through trustees. It is not incidental that privatization became a battlefield for political clashes where powerful weapons - compromising materials and accusations of corruption - were widely used.
Budget execution and distribution of budget funds is another breeding ground for corruption. There is poor discipline in executing budgets with almost complete absence of any reaction to audits.
Numerous federal budget practices facilitate corruption. The list has a number of components: (1) receipt of taxes and payments in the federal budget; (2) non-monetary offsets of tax obligations or expenditures; (3) receipt of foreign credits; (4) attraction of the credits of commercial banks under guarantees and surety of the Ministry of Finance of Russia, on behalf of the government; (5) renewal of debts of the enterprises and regional organizations of the Russian Federation regions, etc.; (6) means of allocation of financial assistance to the regions; (7) long and unwarranted delays in the collection of debts receivable; and 8 non-purposive and inefficient use of federal budgetary funds.
Estimates are that around half of all decisions regarding state credits or the distribution of state budgetary resources are accompanied by bribes. The situation is nurtured by the clumsy tax system, which stipulates that money collected in regions first goes to the federal coffers and then returns to the regions in the form of transfers.
Corruption is also boosted by unrealistic budgets that have more legitimate claimants than funds. The budgetary shortfall allows officials to decide who will be the first to obtain financing. For the same reason of underfinancing, off-budgetary funds are established undr the aegis of various state bodies. Manipulation of these funds nourishes corruption. The absence of control and accountability over the expenditures of budgetary funds in the regions also nourishes corruption at the regional level of authority.
The distribution of budget resources also takes place through government contracts and bulk purchases. In the past, these transactions were obscured from public scrutiny. Corruption in procurement in particular affects the use of state resources for the military.
The granting of exclusive rights by the state privileges for export and import operations, taxes, licensing, etc. is a breeding ground for corruption. When a draft project for administrative reform was in the preparation stage, the personnel of government agencies was polled and asked which powers the agency was felt to lack. The right to issue licenses was one of the most frequently expressed wishes. We include here under state nurturing such sources of corruption as special permission for the deferred payment of taxes, privileged access to credits or budget resources, prolongation of credit agreements, provision of state guarantees, and budgetary preferences such as those that can be obtained through the ‘‘development budget’’. Regional authorities exhibit the same vigor as in the federal level in using their powers to grant privileges in exchange for bribes.
According to the General Prosecutor’s office, in 1995, in Stavropol krai alone, 130 crimes committed by officials were exposed.
The banking sector was one of the first in Russia to launch reforms. In the late 1980s and early 1990s, unregulated privatization took place in a considerable part of the state-owned banking system. The establishment of the system of trustee banks, in which state resources were transferred for management, under conditions of extreme inflation, was a source of revenues for the chosen banks. In this sphere, too, corruption became naturally deeply entrenched. The cooperation of state officials with commercial banks allowed a form of bribery to become formalized that was almost legitimate. The traditional envelopes and later briefcases filled with cash were replaced by low-interest credits, or for lenders, interest rates 10 times higher than regular rates, and other more sophisticated forms of expressing gratitude.
In 1996, the General Prosecutor’s office reported its concern about the situation in the Central Bank of Russia and its territorial branches. The number of criminal cases launched against employees of credit and financial institutions who were charged with accepting bribes in the period from 1993 to 1995 was growing: 48 cases in 1993, 93 in 1994 and 143 in 1995.
Unlawful receipt of favors in legislative bodies is virtually beyond any control and criminal prosecution. The main reason is the scope of immunity from criminal sanctions for deputies. Therefore, the number of legislators among officials convicted for misdeeds that can be classified as corrupt though this term is absent in the criminal code is a modest 3%. It is unclear as to what extent one should be calmed by the price list for corrupt services exhibited in the State Duma the list was distributed in the Duma and published in a number of newspapers. The prices are an order of magnitude smaller than those paid for similar services to legislators in countries with a more developed democratic system.
The connection of law enforcement bodies with economic crime creates a medium that limits control of corruption. ‘‘Special teams’’ that are organized make money by undermining criminal cases. Pressure by the law enforcement bodies on one’s business competitors can be arranged in exchange for bribes. The same means are used for blackmail. Many cases are known where officers of the law enforcement bodies have been employed ‘‘as a part-time job’’ by commercial entities. Commercial sub-units have been established under the aegis of the law enforcement bodies. Relatives of high-ranking officials from the tax inspectorate or customs service, irrespective of their professional skills, are nominated to well-paid posts in commercial entities. Relatives of some high-ranking officials from other governmental bodies prove to be equally fortunate.
In 1995, 270 cases of illegal commercial activity conducted by tax inspectors were exposed. In 1996, 404 officers of the internal affairs departments were subject to criminal prosecution. Many crimes in the customs service about 40% are committed with the acceptance of bribes.
Corruption infiltrates courts. In such conditions, lawyers can use bribes as an effective tool for the defense of their clients. Polls reveal that 98% of drivers have offered a bribe to a highway patrol officer at least once. This figure not only signals a high level of corruption in this system, but also is evidence of a public coming face to face with corruption. Grassroots corruption is deeply entrenched in everyday life.
The attractiveness of grassroots corruption is explained by the mutual gain and minimal risk for the person accepting a bribe and the person who offers the bribe. A bribe helps to solve routine problems. Bribes can serve as a modest payment for minor violations of laws and regulations. A sufficiently large ruble note attached to the driver’s license may prove to be useful when it is necessary to exceed the speed limit or to drive a car under the influence of alcohol. In Moscow, the bribe for avoiding punishment for drunk driving has been known to vary from US$100 to US$300, depending on the model of the car.