Foreign businesses ally with the Kremlin in its war against corruption in Russia

This code, titled, ‘The Corporate Ethics and Principles Initiative for Conducting Business in Russia,’ was signed in Moscow in April by over 50 members of the Russian-German Foreign Trade Chamber (RGFTC). This influential organization, which unites leading local, German and several other European companies operating in Russia, was one of the authors of the basic tenets of this historic document tasked with the promotion of civilized corporate practices in Russia.

The anticorruption initiative signatories specifically highlighted the fact that the document was adopted at a time, when the Russian president and government are stepping up the official fight against corruption in general, and bribery as its most frequent manifestation, in particular, in the country through decisive steps, including the issuance of a special decree on ‘The National Plan for Countering Corruption in the Country in 2010-11.’

According to the RGFTC leadership and members, the idea that businesses should stop ‘pampering’ government officials came from companies themselves. “Besides, we were also aided by the political climate prevailing in Russia today. Thus, when this idea originated, we saw it as a rare opportunity to participate in a serious movement against corruption through the adoption of anti-corruption standards,” the RGFTC leadership noted. “It is, therefore, natural that we, as a business association, joined this initiative with pleasure and developed the appropriate ethics standards. To do this, we polled lots of companies and received very good feedbacks on this initiative.”

“The German economy and RGFTC fully support the national strategy of the Russian government initiated by President Medvedev to actively fight corruption in Russia.”

A broad ‘coalition of the willing’ against corruption

In addition, the far-reaching importance of the this initiative is further illustrated by the involvement of several other business associations, which, except the RGFTC, also included such well-known foreign business organizations like the Association of European Businesses in Russia and the International Business Leaders Forum. “The German economy and RGFTC fully support the national strategy of the Russian government initiated by President Medvedev to actively fight corruption, and the signing of these principles is another big step towards the introduction of effective anti-corruption guidelines in Russia,” the signatories said. “The fact is that corruption and bribery always hinder the flow of investments, development of fair competition and healthy economic growth in any country, where these two social evils exist.”

Commenting on the initiative and its importance for businesses at the signing ceremony of the historic document, RGFTC Chairman Michael Harms noted that adopted anticorruption initiative is not just a symbolic act, but a far reaching intention to actively contribute to all programs, including government’s, on combating corruption in Russia. “First of all, the RGFTC member companies have declared their commitments to fully implement all the anticorruption mechanisms in their everyday business activities and, secondly, the RGFTC will soon appoint a special employee that will oversee the execution of the anticorruption initiative requirements, which will primarily offer support and advice to representatives of businesses in Russia.” 

Corruption is a very endemic problem in Russia in general and in the business sector in particular. Indeed, anyone — who is actively engaged in business and/or monitoring business processes in Russia, especially in such spheres as participation in tenders for public projects, approvals of business plans/projects, obtaining all kinds of permits that are needed to start new or commission completed projects — knows the enormous difficulties that entrepreneurs have to undergo in order to get the required approvals for their projects. When these approvals are finally granted, they are most often not granted just for ‘ones’ beautiful eyes’ or because such projects had been designed in full compliance with all the mandatory regulatory requirements, including the protection of state’s strategic interests. Indeed, the latter, when it comes to rampant corruption, is the last issue on dishonest officials’ minds when taking their appropriate decisions on such projects.

In fact, it is not a big secret that most of the difficulties in meeting the bureaucratic procedures often create a very fertile ground for ‘legitimate extraction’ of bribes from entrepreneurs. Consequently, businesspeople call such procedures “mandatory requirements with ‘inbuilt’ corruption components.” The latter term has long assumed an official status, as all state programs that are being drawn up and/or executed within the presidential anticorruption strategy envisage the removal of all sorts of linguistic ambiguities in both the existing laws and new bills under consideration as well as in all departmental regulations and instructions that can create ‘a corruption environment or a medium for self-enrichment’ for dishonest officials.

“In fact, it is not a big secret that the difficulties in meeting questionable bureaucratic business procedures are designed to create fertile grounds for ‘legitimate extraction’ of bribes from entrepreneurs.”

This strategy is further illustrated by the fact an anticorruption review of official regulatory documents conducted by the Justice Ministry in 2009 revealed that at least 20% of all federal laws and government regulations contain elements that can potentially lead to corruption or so-called ‘features of corruption’ in finally adopted laws. “I need to note that here we are not talking about someone's evil will, as these violations are often of ‘a linguistic nature,’ such as ambiguously phrased rules that allow corrupt officials to interpret them at will,” Justice Minister Alexander Konovalov said. “This, in conjunction with our citizens’ tolerant attitude to the phenomenon of corruption, poses a major threat to the government’s policy on combating corruption in our society.”

Foreign investors on unequal and uneven terrains on the Russian market

Therefore, for entrepreneurs, especially foreigners and less fortunate local business owners, who do not have the right connections and contacts in the right places, conducting honest business has practically become a worthless endeavor in Russia. This, perhaps, explains the differences in behaviors of local and foreign business owners/CEOs and their approaches to the subject, in particular, the more active steps being taken by foreign investors, compared with the lackluster approaches by the local businessmen, to combat corruption in bureaucratic procedures. It is a known fact that representatives of the local business community – both from large to small - have good relations and friends, so-called ‘buddies’ in all the right places at all levels of the so-called ‘vertical power’ for active or covert lobbying of their business interests. These include crude settling scores with business opponents or via the application of more refined tactics, for example, when using their corrupt connections with officials to drive honest competitors from the market on formal legal technicalities.

However, for foreigners, the situation is completely the opposite, as most of them, unlike their Russian counterparts, do not have the same possibilities to effortlessly navigate all the bureaucratic mazes and departmental loopholes without incurring significant damages to their companies' financial status, loss of precious time and nerves during their encounters with corrupt officials, who, naturally, are not prepared to do anything without bribes or kickbacks. One example of this is a series of ongoing high-profile international corruption scandals involving foreign companies working in Russia, which, according to Western law-enforcement agencies and media, doled out millions of dollars/euros in bribes or kickbacks to Russian officials to secure contracts or tenders to supply goods and services to state institutions. 

This helps understand this latest move by foreign businesses CEOs in Russia, as the newly signed anticorruption document has put all players on the same plane to combat corruption, will ensure signatories do not apply ‘dirty principles’ in doing businesses and, most importantly, send an unambiguous signal to all Russian officials that the signatories will neither give bribes nor encourage any corruption schemes in Russia. This is because these companies have pledged to rigorously pursue a policy of ‘zero tolerance’ towards all forms of corruption in their activities in the country. 

The initiative’s expected impacts on businesses and economy

The signatories to the document also noted that this step, taken by RGFTC and its affiliated companies, will give a clear political impetus to long-term improvement in the investment climate of Russia, as this initiative should help attract foreign and boost domestic investments, fuel growth, promote fair competition on the market, and consequently, transform Russia in the long-term perspective into a convenient investment haven. 

“Both Russian officials and their partners should know that the signatories do only honest, and hence, more reliable businesses,” the representatives of foreign businesses said. “Therefore, our position on corruption is very clear, and that is we shall not enter into any transaction, if it is somehow connected with some kinds of illegal actions. It is better to abandon such deals, as that will make our businesses more stable, and most importantly, more cost-effective, because there will be no reputation damages,” they added. It is noteworthy that these companies will seek to control themselves through a ‘mutual self-control mechanism,’ rather than for fear of severe sanctions from the government.

For companies, the signing of the anticorruption pact is not only just a further step towards a full adoption of this ethics code, but will also entail a series of activities, including the execution of awareness-raising programs among business owners, which are dedicated to the relentless fight against all manifestations of corruption in the country. For example, another key objective of the initiative, along with the awareness-raising programs inside companies, is to strengthen and focus the public's attention on corruption. 

Such step is very important, given the fact that over half of Russia's population believes that the majority of government officials are absolutely corrupt. Also, the anticorruption initiative signatories said they planned to establish a special agency to support companies that are active in fighting corruption in Russia. “Business without bribery is not absurd. Indeed, we believe that business without bribes is the future for Russia,” Harms and other anticorruption initiative signatories said as the end goal of their mission’s objective in combating corruption in Russia. 

This article was translated from Russian by Ksenia Fyodorova.