x Abu Dhabi, UAEFriday 28 July 2017

In Russia, it pays to keep bureaucratic palms greased

Paralysing red tape and unscrupulous competitors leave businesses vulnerable to corrupt officials and with little hope of redress in courts.

MOSCOW // The law enforcement officers who showed up at Ivan Baranov's office told him he had paperwork problems. Delivery documents had been improperly filled out, they said, meaning they could seize a shipment of consumer goods his company was expecting. It was the type of bureaucratic hassle in Russia commonly solved on the spot with a bribe, a cash payout for the officers to drop the case altogether. Mr Baranov, 37, says he was told it would take several million roubles (tens of thousands of dirhams) in fines and bribes to settle the matter. Instead of paying up, however, Mr Baranov, the chief executive of the Vitomin chain of health stores, fought back. He got a lawyer with an exceptional record in fending off similarly suspicious fines. The officers backed off.

"Every time we encounter problems with different [state] organisations, we always try to play this card," Mr Baranov said of the lawyer he and his partners hired as outside counsel. "To show that we are strong, that we are ready to fight, and that we have experienced lawyers backing us." Doing business in Russian without paying bribes demands Herculean efforts and can involve considerable legal fees. Paralysing red tape and unscrupulous competitors leave businesses vulnerable to corrupt officials and with little hope of redress in courts notoriously susceptible to outside pressure.

There are no precise figures on the percentage of Russian businesses that pay bribes, though several studies and considerable anecdotal evidence suggest Mr Baranov and his partners are among a minority committed to operating without paying off officials. A 2008 survey commissioned by Dmitry Medvedev, the Russian president, and conducted by the Public Opinion Foundation, a Moscow-based pollster, showed that 56 per cent of Russian businessmen pay bribes. Other polls have put the figure much higher, and a 2005 report by Indem, a Moscow think tank, said Russian businesses pay more than $300 billion (Dh1.1 trillion) in bribes annually.

Mr Baranov, whose company had about $5 million in turnover last year, said his refusal to pay bribes is primarily an ethical stance but that it is grounded in pragmatism as well. He said bluntly that he wants government inspectors and law enforcement officials to see Vitom's leaders as tough people who cannot be squeezed for bribes. "That reputation will pay off," he said. "I believe companies operating in the same way will have less inspections and less troubles."

The scourge of corruption in Russia has not escaped the attention of the Kremlin. Mr Medvedev has identified battling graft as a key plank of his presidency, and while critics say there have been few tangible results since he was elected two years ago, last week he introduced legislation that would boost protections for entrepreneurs against attacks from competitors and corrupt officials. The president has issued harsh rebukes against officials who "give businesses nightmares", a catchphrase he deploys to describe campaigns of bureaucratic bullying against entrepreneurs.

Small- and mid-sized businesses, such as Mr Baranov's, are most vulnerable to extortion from officials, business lobby groups say, but major multinationals operating in Russia are by no means immune. Last month, the Swedish furniture giant Ikea fired two of its top officials in Russia, including Per Kaufman, its general director in Russia, saying one of its subsidiaries had "turned a blind eye" to a bribe paid to a subcontractor to supply electricity at one of its malls in St Petersburg.

"We are deeply upset and disappointed," Ikea Group's president and chief executive, Mikael Ohlsson, said in a statement. "Corruption is totally unacceptable for Ikea, and therefore we take this matter very seriously and will act fast and determined." Ikea has long insisted on operating absolutely legally in Russia, going so far as to announce last year that it was halting investment in the country over "the unpredictable nature of administrative procedures in some regions".

Kirill Kabanov, the head of the National Anticorruption Committee, a Moscow-based non-governmental organisation, said the economic crisis has exacerbated the situation for businesses pressured by officials to give bribes, as many firms rely more and more on government contracts. "It's almost impossible to do business with the state without giving kickbacks," said Mr Kabanov, a member of Mr Medvedev's council for human rights and civil society. "They can't risk not paying the bribes if they want to stay in business."

Refusing to pay bribes to low-level bureaucrats - like fire inspectors - is usually good business, said one US businessman who has worked for more than a decade in Russia. "If you pay them off one time, they are going to come back for more," he said. "For the most part you try to fight it at every turn: take their name and title and create some fear that someone might come down on them." It is not uncommon, however, for a competitor or a disgruntled former employee to sick economic crime police units on a company, resulting in inspections into all of a firm's transactions and even the licensing of its computers and software, the businessman said on condition of anonymity. Such visits are considerably more precarious, he said.

"You could lose an entire day of work that costs you $20,000," he said. "They say they'll leave you alone if you pay them 500,000 roubles - Even if you're doing everything by the book, sometimes it just costs you less to pay them off." cschreck@thenational.ae