Russia's anti-graft drive moves into new phase

By bne IntelliNews March 29, 2012

bne -

Russia's anti-corruption drive may not be going very fast, nor is it producing much in the way of results, but the Kremlin's efforts are slowly being institutionalised.

Up until now, the campaign (such as it is) has been a series of ad-hoc arrests and investigations into state officials in nearly every branches of government. Generals have been fired, tax inspectors arrested, judges de-barred and even senior officials from the Finance Ministry banged up. The strategy seems to have been to fire a series of warning shots to everyone in government that they can no longer steal with impunity.

The results have been patchy. Russia moved up slightly on Transparency International's 2011 "Corruption Perceptions Index" to tie for 143rd place out of 182 countries, up from 154th a year earlier. However, Russia remains the world's most corrupt major economy, with a score of 2.4 on a scale from 0 (highly corrupt) to 10 (highly clean) on a par with Uganda and Nigeria. Half of Moscow's residents and nearly 40% of all Russians have been in a situation where they felt a bribe was necessary to solve problems, according to research conducted last year by the Public Opinion Foundation and the Indem Foundation, which studies corruption.

Ironically, one effect of the government's drive has been to send the size of some bribes soaring. "The fire inspectors always ask for bribes," a Moscow-based real estate agent tells bne on condition of anonymity, "but since the government reduced the number of inspections [as part of the anti-corruption effort] from once a year to once every five years, all that happened is the fire inspectors now ask for five times as much."

Civil servant action

Eradicating corruption is going to be a very long and hard fight, but it has been moving into a new phase as President Dmitry Medvedev begins to institutionalise some of his anti-graft measures.

In the middle of March, Medvedev ordered the government to prepare a draft bill to control excessive and superfluous expenses of domestic civil servants on personal purchases of real estate, securities and transport vehicles. The law will oblige civil servants to disclose the origin of the money spent on anything they buy if the value of the purchase is more than the combined value of their household income over three years. If the bureaucrats refuse, they could face the sack or have their property confiscated. Likewise, top managers at state-owned banks were ordered to declare their income at the start of this year.

Duma deputies and their families are already obliged to disclose their net worth and income; in March, it emerged that the governor of the central Russian Tula region, Vladimir Gruzdev, is the richest deputy with a combined family income of over RUB3.8bn ($130.1m) in 2011. However, as he made most of his money from selling his stake in supermarket chain Seventh Continent in 2010 for an estimated $400m, even Yelena Panfilova, head of Transparency International Russia, says there is no question that his money isn't clean. However, the same can't be said for the sharp increase in the earnings of many officials who have been in government a long time once they reach senior positions.

Perhaps more importantly, since the start of the year the government has been trying to force more transparency on state procurement by barring companies with undisclosed beneficial owners from being awarded government contracts.

The federal grid company FSK was one of the first state-owned companies to disclose the results of an anti-corruption probe into procurement in March. The company said it may break RUB20bn ($660m) worth of contracts - about 10% of its total capital expenditure last year - because the counterparties won't disclose the identity of their ultimate beneficiaries.

President-elect Vladimir Putin introduced this rule in December 2011, who uncharacteristically launched a specific and blistering attack on the utilities sector, calling it "highly corrupt." According to Kommersant, state-owned nuclear power holding Rosatom has reneged on around 20 contracts for the same reasons. MRSK Holding says it will breach all contracts with companies not disclosing beneficiaries. Hydroelectric power company RusHydro says it knows who the beneficiaries are for only 60% of its counterparties. And power generator Inter RAO EES has established who the owners are in 95% of its deals, reports Kommersant.

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