Corporate Corruption in Russian Regions

RUSSIAN ANALYTICAL DIGEST No. 92, 22 February 2011 2 ANALYSIS Corporate Corruption in Russian Regions By Alena Ledeneva, London, and Stanislav Shekshnia, Fontainebleau Abstract To understand corporate corruption in Russia and to develop both effective anti-corruption policies at the macro level and anti-corruption strategies at the firm level one has to move beyond the predominant paradigm and to disaggregate its measurement. This article outlines the results of a pilot survey of CEOs of lead- ing companies operating in the Russian regions with regard to their use of informal practices. Informal Practices Secondly, the concept of corruption that underlies Russia finds itself at the bottom of the 22 assessed coun- international regulatory standards presumes completion tries and one place below China in the Transparency of the transformation from what Weber described as International Bribe Payers Index, aimed at measuring “patrimonial power structures,” where decisions made on corporate bribery abroad. It is the TI’s attempt to mea- the basis of people’s relationships and traditional forms sure the perception of corporate corruption rather than of authority, to rational-legal systems, where institution- the perception of public sector corruption reflected in alized rules become the foundation of governance. In the aggregate Corruption Perception Index, which in terms of such transformation, the concept of corruption 2010 ranked Russia 154 out of 178 countries with an is modern, and the establishment of a rational legal order absolute score of 2.1 on the low side of the 1 to 10 scale. and the institutionalization of rules should become the In the words of IKEA founder Ingvar Kamprad, the sit- norm, from which corruption is viewed as a deviation. uation in Russia is “something in a class of its own.” It The modernization campaign initiated in Russia by Peter is not that the requisite components of the rule of law the Great in the first quarter of the 18th century is one are absent in Russia; rather, the rule of law has been example of such a transformation. By undermining and diverted by a powerful set of informal practices that subsequently criminalizing the custom of paying tribute have evolved organically in the post-Soviet milieu. John to officials, he transformed what was an acceptable prac- Browne, CEO of BP for twelve years, observes in his tice into the illegal act of bribery. Similarly, the efforts memoirs, “the problem is not the lack of laws, but their of post-communist societies (especially those aspiring selective application. This is what creates the sense of to the EU membership at the time) to synchronize their lawlessness. While bureaucratic legalistic processes are legislative and institutional frameworks with those of the hallmark of Russia, you never know whether some- advanced market democracies during the 1990s resulted one will turn a blind eye or whether the laws will be in the recognition of practices—regarded for decades as applied to the hilt.” commonplace—as corrupt, and in the development of sophisticated instruments to eradicate them. However, Disaggregating Corruption despite legislative and judicial reforms in contemporary The global corruption paradigm that has prevailed since Russia, sophisticated political and legal institutions have the 1990s is based on three premises: that corruption not fully replaced patrimonial governance mechanisms, can be defined; that corruption can be measured; and which often coexist with modern practices and manip- that measurements can be translated into specific pol- ulate them. A classic example here is an elaborate set of icies. Significant advances in corruption studies and procedures for the organization of tenders for vendors anti-corruption policies have been made since then all and suppliers. Tenders are formally open and compet- over the world. However, the current paradigm and itive and conducted according to strictly followed pro- the use of the term “corruption” do not facilitate an cedures yet also manipulated to the advantage of an understanding of the workings of corruption in Rus- informally related vendor or a trusted supplier. In soci- sia for three reasons. eties where the use of personalized trust compensates Firstly, corruption is an umbrella term for a vari- for defects of impersonal systems of trust resulting from ety of complex phenomena associated with betrayal of selectivity in the workings of formal institutions, it is trust, deception, deliberate subordination of common somewhat misleading to apply the term “corruption” as interests to specific interests, secrecy, complicity, mutual it is understood in modern societies. obligation and camouflage of the corrupt act. In order Thirdly, the majority of contemporary definitions to deal with such diverse practices in an effective way, of corruption presume that there is a clear distinction we disaggregate “corruption” into clusters of practices between public and private realms. Corruption is thus relevant for business in Russia. understood as “the abuse of public office for private gain.” RUSSIAN ANALYTICAL DIGEST No. 92, 22 February 2011 3 However, in Russia this distinction is still vague. Key defects in formal procedures and as the key to under- actors—government officials of different levels, busi- standing “local knowledge,” as well as to explore their ness owners and executives, law enforcement officers, relation to “corruption”, rather than simply identifying employees of private companies and government agen- them with the latter. cies—brought up with the communist concept of “pub- By analyzing informal practices as set strategies used lic property” under which all land, capital and other sig- by firms in Russian regions we propose to complement nificant assets belonged to everyone as a collective owner, existing approaches to business corruption with a study often struggle to draw the line between the public and that does not rely on the universal definition of “corrup- private domain. In the Soviet days such practices as “tak- tion.” Rather than following the top–down logic of cor- ing home” valuable resources from the office or using ruption indices or governance indicators, it calls for a working time to solve personal problems were common- bottom–up perspective and shifts the focus of analysis place at all levels of society. In the post-Soviet period, from legal or moral prescription to a relational under- weak property rights result from the nature of privatiza- standing of specific practices as “strategies of coping” tion: understanding that fortunes are made with support with the larger system. This has the advantage of cap- of the state and informal channels means their owners turing a range of practices that are often omitted or cannot be fully in possession of their property. As one misinterpreted by the current conceptualization of cor- business tycoon acknowledged in an interview to the ruption, especially the strategies based on the manipula- FT, his assets will be given up should the state require tive use of the law and extralegal practices that attempt it. However, the blurred boundary between the public to redress systemic injustice, thereby embodying resis- and the private for the benefit of the latter runs much tance or mobilization. Such practices are regulated by deeper into the national psyche. For example, between values and incentives that may not be perceived as cor- the 14th and 18th centuries the so-called “sistema korm- rupt by their protagonists, although they nourish cor- leniia” (feeding system), under which the tsar gave his ruption indirectly. regional representatives the right to exploit their con- stituencies for private gain after the state tax has been Business Corruption: Research Findings collected, constituted an important element of the gov- Although the theme of business corruption in Russia ernance system. Therefore it is not surprising that “inter- is being widely discussed both in Russia and abroad, nal corruption,” that is the use of corporate resources or there are few comprehensive studies of this phenome- authority which comes with the job for personal gain, non. This is understandable, considering its complex- is so common in Russian business. ity and difficulties encountered in collecting data. To a great extent, Business Environment and Enterprise Per- Shifting Perspectives on Business formance Surveys (BEEPS 1999, 2002, 2005, 2009— Corruption see p. 8) have identified trends in the evolution of cor- Depending on one’s perspective, informal practices are rupt practices. For example, the level of direct extortion either associated with trust-based relationships, mutual attempts by organized criminal groups in such coun- obligations and the power of informal norms (bottom tries as Russia, Ukraine, and Belarus has declined sig- up); or they are associated with the betrayal of trust by nificantly since 2000. Government officials at all -lev agents who bend or break the formal rules set out by els have increased their pressure for economic gains the principal (top–down). In this context one should and many former mafia figureheads have entered polit- assume that grassroots forms of corruption are not only ical life. Another tendency is that lump sum corruption the outcome of the misuse of corporate office for pri- has given way to more sophisticated, legalized forms of vate gain, but also an expression of entitlement associ- income such as shares in business and other forms of ated with people’s expectations regarding social (in)jus-

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