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Council on Foreign and Defense Policy
"Russia and the world" project
Russia vs. Corruption: Who Wins?
Report was developed by the regional public foundation
"Informatics for Democracy"
Part 1. CORRUPTION IN RUSSIA
1.1. CORRUPTION IN RUSSIA AND IN THE WORLD
1.1.1. Definition of Corruption
1.1.2. Historical Background
1.1.3. Corruption Abroad
1.1.4. International Aspects of Corruption
1.2. CORRUPTION AS A FACTOR OF NATIONAL SECURITY
1.2.1. Corruption Created Problems
1.2.2. Economic Losses Related to Corruption
1.3. FACTORS AND CONDITIONS CREATING CORRUPTION
1.3.1. General Problems
1.3.2. Specific Problems of Russia
1.3.3. Economic Conditions for Corruption
1.3.4. Conditions for Grassroots Corruption
1.3.5. Social and Psychological Conditions for Corruption
Part II. ANTICORRUPTION POLICY
2.1. FIGHTING WITH CORRUPTION IN RUSSIA
2.1.1. Current Failures and Success's
2.1.2. Fighting With Corruption: Prerequisites and Limitations
2.1.3. The International Experienceof the Struggle with Corruption
2.1.4. Principles of the Anticorruption Struggle
2.2. BASICS OF THE ANTICORRUPTION PROGRAM
2.2.1. General Measures
2.2.2. Institutional Measures
2.2.3.Direct Anticorruption Measures
This report was developed by the joint efforts of the Council on Foreign and Defense Policy and the regional public foundation "Informatics for Democracy" (INDEM Foundation). This report is intended for wide public discussion. In the opinion of the authors and the initiators of the project, the aim of this report is to develop the concept of corruption as socio-economic phenomenon as well as to explain its specifically Russian features. The report should draw public attention to the possible methods of cracking down on corruption and outline the ways in which efforts of the civil society can be combined to solve this acute problem.
The authors of the report do not share the widespread opinion that, due to historic and cultural reasons, Russia is a country that is doomed to be victim of large-scale corruption. Following the original intention of both the authors and the initiators of the project, the report attempts to give a broad vision of a feasible anti-corruption program and design such a program with practical goals in mind.
The report was prepared by G.A. Satarov, the president of the INDEM Foundation, M.I. Levin, Doctor of Science (Economics), INDEM expert, and M.L. Tsirik, a post-graduate student of RAS Central Institute of Economics and Mathematics.
The authors express their gratitude to the members of the Council on Foreign and Defense Policy for fruitful discussions of both the report and the background materials. The authors are indebted to Yu.Yu. Boldyrev, E.T. Gurevich, M.A. Krasnov, V.M. Polterovich, M. Propstr, K.P.VanDick, A. Hillman, R.M. Entov, to other colleges of us from Russia, Israel, Netherlands, USA, France and to international non-profit organization "Transparency International" for essential comments and the help in collection data.
Part 1. CORRUPTION IN RUSSIA
1.1. CORRUPTIONIN RUSSIA AND IN THE WORLD
1.1.1.Definition of Corruption
Like any complicated social phenomenon, corruption does not have a well-established, canonical definition. Nevertheless, the authors cannot avoid explaining the meaning of the term "corruption" when starting a serious discussion on the subject. This is not an academic problem, for it is dictated by the need to be understood properly by the readers.
In this report, we shall talk mainly about "state" corruption, implying that one of the parties is always a person who is either fulfilling the duties of a public servant, or exercising authority delegated to him by voters or in some other way. Ignoring certain terminological inconsistency, we shall use the following expressions as synonyms in this context; "public servant", "official", and "functionary".
State corruption exists insofar as an official has an opportunity to manage resources not owned by him by making or not making specific decisions. Such resources may include budget money, state or communal property, state purchase orders or privileges, etc. Collecting fines, tax or other payments prescribed by the law, the official also controls the resources that he does not own. If the fine (levy) is legal, then its owner is the state's treasury, otherwise, the owner is the person who is being shaken down by the official.
A public servant is obligated to make decisions on the basis of goals established by the law (the Constitution, and other laws and regulations) and by the publicly approved cultural and moral norms. Corruption emerges when these goals are replaced by the public servant's personal interests reflected in specific actions. This condition is sufficient for classifying such phenomena as the misuse of an official position in personal interests. The watershed between this phenomenon and corruption is rather blurred. A public servant can only rarely derive illegal benefits from his official position without involving other people in his unlawful activities, e.g., when an official covertly embezzles resources not owned by him (the term "kaznokradstvo" (embezzlement of public funds) used earlier may be relevant). One usually does not use the term "corruption" in such cases.
A different situation occurs more often. Below, several examples are given which can be labeled as cases usually described by the term "corruption".
1. When a commander of a military district builds his villa at the state's expense state (construction materials, engineering equipment, military servicemen), he does not act alone. He depends on other persons who are involved in the supply of materials and actual construction. Having used his power to illegally obtain material benefits, the commander is compelled to repay his "accomplices" by unlawful promotions in the service, bonuses, and in other ways. The situation is closer to the common concept of corruption since it involves not a single person but a group of officials who collectively derive profits from a violation of the law and regulations.
2. If an official obligated by the law to make a certain decision concerning another person (e.g., issue a license for some business activity) erects artificial obstacles, he induces his client to bribe-giving, which happens very often. This situation is closer to the traditional concept of corruption since it is related to giving and accepting a bribe. Such gifts for making a favorable decision which an official was obligated to make were called "mzdoimstvo" in the old school of Russian jurisprudence.
3 Most often the term corruption (in a narrow sense) is used in the situation when an official makes an unlawful decision (sometimes, a decision which is not acceptable in the public opinion) resulting in profits for a second party (e.g. a company securing a state purchase order in violation of the established rules), while the public servant himself obtains an illegal reward from this party. The specific features of this situation are as follows: a decision is made which violates the law or unwritten social rules; both parties act in mutual agreement; both parties obtain illegal profits and privileges; both parties try to conceal their activities.
4. Finally, situations occur when a public servant is forced by pressure or blackmail to make an unlawful decision. This usually happens to the officials already involved in criminal activity. Yielding to pressure, they actually obtain one very simple benefit: their activities are not revealed.
It would be relevant to remind the reader that the phenomenon of corruption is not limited to the aforementioned examples.
It is also useful to distinguish the top level and grassroots corruption. The former includes political figures, middle- and higher-level officials and is related to decisions that have a large impact (formulation of laws, government contracts, transfer of property rights, etc.). The latter, specific to the middle and low levels of bureaucracy, is related to the regular, day-to-day contacts between the officials and the public (fines, registrations, etc.)
Often, both parties in a corrupt deal belong to the same state body. For instance, when an official gives a bribe to his boss for covering up his corrupt activities, this, too, is corruption, often called the "vertical" one. It usually connects the top-level and the grassroots forms of corruption. Such corruption is especially alarming since it signals the development of corruption from the separate cases stage to the stage in which organized forms of corruption are entrenched.
The majority of experts consider buying of votes in an election as a form of corruption. All but one of the specific features of corruption are observable. The only exception is the absence of a public servant who was an active element in all the cases considered above. According to the Constitution, a voter possesses the resource called the "power authority". This authority is delegated by an elector to the elected persons by means of a specific form of decision making, i.e., voting. The elector is supposed to make the decision by considering who, in his opinion, will represent his interests in the best way. Such form of decision making is a publicly adopted norm. In case of vote-buying, the voter and the candidate make a deal. Its result is that the voter obtains money or other benefits for violating the norm mentioned above, while the candidate hopes to get the power resource in violation of the electoral legislation. Obviously, this is not the only type of corrupt activity in politics.
Finally, it is worth mentioning corruption in NGO's, the existence of which is admitted by the experts. An employee of an organization (either commercial, or non-profit) can control resources not owned by him, too. He is obligated to fulfill the institutional goals of his company, and has an opportunity for illegal enrichment by means of actions running counter to the interests of the company for the benefit of another party. Such situations are exemplified in today's Russia by credit funds obtained from commercial banks for projects that have only one purpose: to disappear into the thin air immediately after the money has been received.
1.1.2. Historical Background
The history of corruption is as old as the history of human civilization wherever it emerged: in Egypt, Rome, or ancient Israel. Bribe-taking (so-called "mzdoimstvo") is mentioned in Russian chronicles dating from the 13th century. Legal constraints on corruption were pioneered by Ivan III. His grandson Ivan the Terrible was first to introduce the capital punishment for excessive bribe-taking.
The only popular riot against corruption (of course, different terminology was used at the time) dates from the reign of the Russian tsar Alexei Mikhailovich Romanov. It occurred in 1648 and ended with the victory of the Muscovites. Part of the city burned to ashes, while a great number of city-dwellers and two corrupt "ministers" -Plescheyev, the head of the Land department ("Zemskoi prikaz"), and Trakhaniotov, the head of the Gunnery department ("Pushkarskii prikaz") - were slaughtered by the mob.
Under Peter the Great both corruption and the brutal tsar's struggle with it were flourishing. One of the striking episodes occurred when, after an investigation that took several years, Gagarin, the governor of Siberia, was convicted of bribe-taking and publicly hung. Three years later, however, Nesterov, the senior fiscal official who had revealed Gagarin's embezzlements, was publicly executed for bribery, too.
During the entire Romanov period, corruption was a considerable source of income for both petty and top-level bureaucrats. For instance, Bestuzhev-Ryumin, the Chancellor to Empress Elizabeth, received 7 thousand rubles a year for his service to the Russian crown while his services to the British crown (as an "agent of influence") were estimated as 12 thousand in the same currency.
Corruption was apparently inseparable from favoritism. The most striking examples from the pre-Revolutionary times apart from the infamous Grigory Rasputin are ballet-dancer Kshesinskaya and the great prince Alexei Mikhailovich. Both accepted huge bribes to help certain industrialists to get government military contracts during W.W.I.
Documents witness that the change of the state system and the form of government in October 1917 did not remove corruption as a phenomenon. Instead, there emerged a hypocritical attitude towards corruption that encouraged entrenchment of bribery in the new administrative system.
On May 2, 1918, Moscow revolutionary tribunal considered the case of the four members of the investigation commission who had been charged for bribe-taking and blackmail and convicted them to six months of imprisonment. V.I. Lenin, the chairman of the Soviet of People's Commissars (SPK), became aware of the sentence and insisted on retrial. VTslK (Supreme Central Executive Committee) reconsidered the case and convicted three of the four to ten years of imprisonment. One can find in the archives Lenin's letter to D.I. Kursky concerning the urgent necessity to introduce legislation stipulating severe punishments for bribery. There is also Lenin's letter to the Central Committee of the Russian Communist Party with the proposal to include in the agenda an item on expelling the judges who give mild sentences in bribery cases. SPK Decree "On Bribery" of May 8, 1918, was the first legal document in Soviet Russia stipulating criminal prosecution for bribery (imprisonment for the term of not less than five years combined with forced labor for the same term). It is worth noting that the decree equaled an attempt to give or receive a bribe with the completed crime. The class approach was not forgotten. If the person giving a bribe belonged to the class of owners and was trying to keep his privileges, he was convicted to "the most heavy and harsh forced labor", while all his property was subject to the confiscation.
The history of the struggle between the Soviet power and corruption ended with the Soviet power itself without bringing any success. This fight has several interesting and important features.
First, the authorities avoided the term "corruption". Its use was allowed only in the late 80's. The terms "bribery", "misuse of the official position", "connivance", etc. were used instead. Denying the term meant denying the concept and, hence, the phenomenon itself. Because of that, the analysis of the phenomenon was doomed to failure, and so was the fight with its individual manifestations that were subject to criminal prosecution.
Second (and this aspect is very closely related to "First"), the Soviet "law conscience" always explained the reasons for corruption phenomena in an amazingly naive and unproductive way. A secret letter of the CPSU Central Committee of March 29, 1962, "On strengthening the struggle with bribery and embezzlement of public property" claimed that corruption is "a social phenomenon generated by the conditions of the exploitation-based society". The October revolution removed the basic roots of bribery and "the Soviet administration and management system is the system of a new type". The document gave reasons for corruption as the shortcomings of the work in party, trade union and state bodies, and first of all in the domain of personal development of the working people.
The text was copied verbatim from the very first to last years of the Soviet system in an unchanged pattern.
It is stated in the letter of the Department of administrative bodies of the Central Committee of the CPSU and of the Committee of Party Control on the strengthening of struggle with bribery in 1975-80 of May 21, 1981, that in 1980, more then 6,000 cases of bribery were revealed, which is 50% more than in 1975. The same letter tells about the emergence of organized groups (giving as an example a more than 100-strong group in the Ministry of Fishery headed by a deputy minister). Examples are given of the conviction of ministers and deputy ministers in national republics, in other federal ministries, of the penetration of criminals into law enforcement bodies, of bribery and embezzlement in prosecutor's offices and courts.
Major types of crimes are listed in the letter: shipping of goods that are in short supply, supply of equipment and materials, revision and lowering of planned tasks, promotion to various important positions, concealment of embezzlements. The main reasons, as quoted in the letter, are: serious shortcomings in the selection of personnel, red-tape bureaucracy in processing citizens' requests, unsatisfactory work with the complaints and letters of the citizens, gross violations of the state, financial, and plan discipline, liberal attitude to bribe-takers (in particular, in court sentences), unsatisfactory work with the public opinion. Facts are quoted concerning punishment of high-level party officials (at the level of city and district party committees) for connivance to bribery. The letter suggests that a decree of the Central Committee has to be issued.
The close relationship between the weak understanding of the corruption phenomena, primitive explanations of the underlying reasons, and inadequate methods of cracking down on corruption are easily noticeable.
Third, the hypocrisy of the authorities which facilitated entrenchment of corruption manifested itself in the impunity of the higher-level Soviet and party officials. As rare exceptions from the rule, one can mention the cases of Tarada and Medunov, high-level officials in the Krasnodarsky krai, and Schelokov's case. When Sushkov, a deputy minister of foreign trade, was convicted for bribes and embezzlements, the KGB and the General Prosecutor's office reported to the central Committee about revelations made during the investigation: Patolichev, the minister of foreign trade, regularly accepted expensive golden jewelry, other precious items, and rare golden coins as gifts from the representatives of foreign companies. The case was dropped quietly.
A unique but almost forgotten case was described in the book "Bribery and corruption in Russia" written by A. Kirpichnikov, who in the early 60s was investigating a major embezzlement case in "Lenminvodtorg" (Leningrad city department of mineral water retail trading). The investigation unraveled a ramified network of bribe-taking that included high-level officials of the City Department of Internal Affairs (GUVD) and the CPSU city committee and, eventually, reached the chairman of the city Soviet (member of the Presidium of the USSR Supreme Soviet and the CPSU Central Committee). Investigation ended when the city prosecutor's office was reshuffled. The prosecutor was not allowed to continue the investigation. The very fact that the case ended in court can be explained by the political struggle which was waged at that time at the highest levels of the CPSU.
Fourth, campaigns against corruption in the administration were carried on only by the representatives of the administration itself. This had two consequences. The campaigners were intrinsically unable to remove the causes of corruption since the latter were tightly bound to the most vital conditions of the system's own existence. The anticorruption campaign very often developed into a struggle against competitors in the corruption market (as it was in the times of Peter I - see above).
Fifth, corruption quite often proved to be the only channel for introducing market relations into the planned economy. Fighting against the laws of nature cannot result in a success. That was the reason for the entrenchment of corruption in its role as the organizer of the shadow market. That was the reason for the expansion of corruption after weakening of the totalitarian state.
The old regime had its last chance to influence the state of affairs in the corruption-related issues in July 1991. The Secretariat of the CPSU Central Committee issued a Decree "On Urgent Measures for Fighting With Economic Crimes". Amazingly, this decree did not even mention corruption or bribery.
During the postwar years, in the times of perestroika and its aftermath, expansion of corruption proceeded as the state machinery was weakening in the background. It was accompanied by the following processes: decreasing of the centralized control pressure, then falling apart of ideological constraints, economic stagnation followed by plummeting of the industrial output, then the collapse of the USSR and the birth of a new country - Russia - which could be considered a state only nominally at first. Gradually, the organized crime of the centralized state was replaced by a "federate" compound of a multitude of corrupt systems.
Thus the current state of corruption in Russia is largely explained by the trends which already existed long ago and by the transitional stage which was accompanied, as happened in other countries in the same situation, by the growth of corruption. The most important factors pre-determining the growth of corruption and rooted in the country's history (alongside with dysfunctioning of the state system and some historical and cultural traditions) are:
an impetuous transition to the new economic system not supported by the necessary legal base and law-based culture;
absence in the Soviet times of a normal legal system and cultural traditions based on respect for the law,
collapse of the party control system.
1.1.3. Corruption Abroad
A short historical essay which was given above may cause grim feelings and aggravate the sense of doom. For this reason, the authors consider it necessary to stress that corruption is an international phenomenon. It is inherent to all countries irrespective to their political systems and the level of economic development. Only the scale matters.
No country can consider itself protected from corruption. Switzerland, famous for its incorruptible public servants was shocked in 1994 by a tremendous scandal caused by one of the officials of the Zurich canton. An inspector of bars and restaurants was charged with accepting bribes totaling almost $2 min. Immediately after that an investigation was launched against five inspectors of the Swiss government who were assisting some companies in obtaining government contracts. Then two more scandals broke out.
France had its share of massive investigations of corrupt activities by businessmen and political figures. In 1993, the prime-minister promised for the first time that he would not hinder these investigations. "The situation in France gradually changes, as recently as 10 years ago it was forbidden to investigate cases of bribery and corruption", claims a French judge Jean-Pierre Thierry.
Numerous cases of corruption in Italy engulfed the highest political circles. The investigation in Milan launched in 1992 ended in the appearance before courts of more then 700 businessmen and political figures.
In September 1996, a special conference was held in Berlin which was devoted to struggle with corruption. According to the documents reported at the conference prosecutor offices in many major German cities conduct investigations of thousands of. corruption cases. In Frankfurt-am-Main they number more than a thousand, about 600 in Munich, 400 in Hamburg and about 200 in Berlin. In 1995, almost 3,000 cases of bribery were officially registered in the country. In 1994, almost 1,500 people appeared before courts, in 1995, their number increased to more then 2,000. Experts believe that these figures are only a tip of the iceberg. The corruption engulfed departments checking foreign refugees, registration offices of new cars and other state bodies. One can illegally "buy" for cash a license for operating a restaurant or a casino, a driver's license, a license for towing illegally parked cars. The construction industry is the one which is most strongly infected by corruption.
From time to time we witness tremendous corruption scandals which "implicate" leaders of major countries and heads of respected international organizations. Bribe amounts exceed by many times the income of Russian bribe-takers. An international non-profit organization "Transparency International" (hereafter, TI) which fights against corruption at the national and international levels and in business claimed in one of its reports: "It (corruption - authors' remark) became a feature of the day-today life in many leading industrial countries. However, their riches and stable political institutions allow them to conceal the scale of losses inflicted by corruption on the social and humanitarian aspects of life". A survey carried out in 1995 by TI's national branches revealed that "corruption in the state sector acquires the same forms and affects the same aspects of life regardless of whether it occurs in a developed or underdeveloped country".
Classification of countries according to the degree of corruption which is based on the East - West division is absolutely irrelevant. Historical research provides numerous examples of corruption brought to colonies by Western colonizers. For instance, Indonesia was "infected" with corruption by the officials of the Dutch East India company, corruption was brought to the Philippines by Spanish colonizers and to India by the British administration. Philippines and Bangladesh which rioted against corrupted military regimes provide examples supporting the statement that corruption is not an intrinsic element of the Oriental cultural tradition. Singapore and some other developing countries may be considered as examples of the successful implementation of anti-corruption state programs.
When comparing today's Russia with the industrially developed countries famous for their century-long democratic traditions one has to keep in mind that we are trying to make comparison between social organisms standing at different levels of development of democracy and market institutions. It should like to remind the reader that the tradition of consistent (and not always successful) struggle with corruption in "Western democracies" is only some 20-30 years old while the democratic evolution of those countries has been more then tens of times longer.
1.1.4. International Aspects of Corruption
Developing political and economical cooperation makes corruption an international problem. Russia is becoming more open to the world and thus subject to the same trend. One can distinguish the following channels of international corruption.
Corruption in international organizations exists due to general tendencies: resources (e.g. aid to participating or sponsored countries) are distributed; the distribution is conducted by officials who are not the owners of the resources. Moreover, officials in international organizations operate under less stringent control than their colleagues in national bodies scrutinized by national public organizations. All of these create corruption which, due to specific features of the international bodies' operation, is much less risky to the participants. ATI publication claims, e.g., that "Embezzlement of budget funds in the European Union has become an enormous problem..."
Recently, publications appeared in the Russian press that talked about mysterious disappearance of funds obtained as aid from international organizations. There are good reasons to believe that frauds were the manifestations of corruption of that kind.
Corruption in international economical cooperation reveals itself when joint ventures are established, investment projects are implemented, state property is privatized, production is shared and in many other forms. No country is insured against corruption of that kind. A report by US experts claims that in 1994, 80% of major contracts were given to foreign companies offering bribes for the deal.
A strange situation emerged in Russia. On the one hand, many foreign businessmen justly complain on corrupt officials hindering normal economical cooperation. More then 70