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http://www.businessweek.com/articles/2013-05-09/bloomberg-view-putins-phony-war-on-corruption

Bloomberg View

Bloomberg View: Putin's Phony War on Corruption


Russian President Vladimir Putin at the Tomb of the Unknown Soldier in Moscow on May 8

Photograph by Sasha Mordovets/Getty Images

Russian President Vladimir Putin at the Tomb of the Unknown Soldier in Moscow on May 8

President Vladimir Putin’s crackdown on corruption is vital to Russia’s future. It’s also certain to fail unless he recognizes the shortcomings of his methods.

Corruption costs Russia about $300 billion a year, a full 16 percent of its GDP. And that measure doesn’t capture the distorted incentives and lost investment that are side effects. Russia placed last in Transparency International’s most recent Bribe Payers Index, which ranks countries according to their companies’ propensity to offer bribes.

Unfortunately, corruption is an integral part of the state-based economic system Putin has built since he took power in 2000. In the oil and gas sector, for example, the government controls 45 percent of production, up from 10 percent in 1998-99, according to research by BNP Paribas (BNP:FP). Managers of state-owned oil and gas companies are usually former government officials, and their companies are routinely tapped to fund unrelated projects, such as the 2014 Sochi Olympics. The natural gas monopoly Gazprom’s budget for such initiatives for 2011-14 is $14.3 billion, according to BNP.

In 2011, Gazprom lost $40 billion to corruption and inefficiency, Anders Aslund of the Peterson Institute for International Economics has estimated. Since returning to the presidency in 2012, Putin has seen public anger over corruption take a toll on his approval ratings. He has formed an investigative committee on graft within the Kremlin, and has pushed new laws to force officials to declare their incomes and ban them from holding foreign bank accounts and shares.

Yet such welcome strengthening of anti-corruption laws can’t succeed if the state attacks anyone who takes the lead in exposing graft outside Putin’s Kremlin-sanctioned campaign. The current show trial of anti-corruption blogger Alexei Navalny on what look like trumped-up charges of embezzlement is a case in point.

So what to do? One answer lies in building on steps already taken. In 2008, after joining the Council of Europe’s Group of States Against Corruption, Russia adopted a legal definition of corruption and later made it a distinct criminal offense. Last year, Russia signed on to the Organisation for Economic Co-operation and Development’s Anti-Bribery Convention.

These organizations should continue to press the Russian government to follow through on its anti-corruption commitments. So far it has implemented 15 of 26 recommendations that the Council of Europe made in 2008. A progress report in March said it remains true that “bribe-taking in courts represents one of the biggest corruption markets in Russia.”

Putin’s campaign against nongovernmental organizations has made it more difficult for them to promote necessary reforms. Transparency International’s Moscow office, for instance, has been inspected three times this year, and it may be forced to register as an “alien” organization.

Meanwhile, the U.S., the European Union, and Russia’s other partners can make sure that companies operating in Russia comply fully with their own anti-corruption laws. They can also shine a light on egregious abuses.

To read Margaret Carlson on gun control and William Pesek on China and Vietnam, go to: Bloomberg.com/view.


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