The tactic most often used by crooked authorities (and they are almost all crooked) to extort money from businesses is to invent a problem (lack of some permit, for example), then demand cash for that ‘problem’ to be ignored. Unless the bribe is paid, the problem remains, and permission for development is withdrawn – or worse, the police are called in and the entrepreneur ends up in prison for ‘violating’ some regulation or other. The size of the bribe depends on the size of the company – so Russian authorities naturally saw IKEA as a big, friendly, blue-and-yellow cash cow.
IKEA’s Russia manager, Lennart Dahlgren, came to Moscow in 1998 and stayed for eight years, battling with the authorities to open the first IKEA stores and ‘Mega malls’. He has since written his memoirs, Despite Absurdity: How I Conquered Russia While It Conquered Me,6 detailing with remarkable good humour his near impossible mission to do business in Russia without paying bribes. When the company built its first distribution centre in Solnechnogorsk, outside Moscow, at a cost of $40 million, the police suddenly turned up and closed the entire site down because they didn’t have all the correct permits. ‘To build a big shopping centre like IKEA or Mega it is necessary to get more than 300 separate permits,’ he says. The district mayor demanded 10 million, then 30 million roubles (more than $1 million) to relaunch construction. Dahlgren agreed to pay the money – not to the mayor but to a charity fund, openly and publicly. It worked.
A year later IKEA tried to open a huge store in the Moscow suburb of Khimki, but was obstructed because the shopping centre operated on reserve generators and a traffic interchange had not been built. To overcome this problem IKEA had to build two bridges for $4 million and pledge $1 million for the development of children’s sports. IKEA’s founder, Ingvar Kamprad, says Russian power companies cheated the company out of $190 million by overcharging it for electricity and gas. He said it only happened because they refused to pay bribes.
The World Bank publishes an annual survey in which it ranks 183 countries of the world according to ‘ease of doing business’. In 2011 Russia came in at 123 – far behind other post-Soviet states such as Georgia (at 19) and Kyrgyzstan (at 44). In terms of ‘dealing with construction permits’ Russia sits in 182nd place, ahead only of Eritrea.7
Dahlgren wanted to arrange a meeting for IKEA’s owner – one of the wealthiest people in the world, and a man with great enthusiasm for doing business in Russia – with Putin. At first they palmed him off with meetings with a deputy prime minister. Then Dahlgren had an opportunity to discuss the proposal with someone from Putin’s entourage, who told him they didn’t think IKEA would really want to have a meeting with Putin. Dahlgren writes: ‘I don’t know whether they meant it seriously or as a joke, but they said: “IKEA is penny-pinching, and the going rate for a meeting with Putin is 5 to 10 million dollars, which you will never pay.”’
The New Times magazine has cited government sources as saying that an appointment with deputy prime minister Igor Shuvalov, by contrast, costs a mere $150,000. A member of the public wrote to President Medvedev on Twitter that he requested a meeting with first deputy chief of staff, Vladislav Surkov, in February 2011 and was asked for $300,000. Medvedev even replied to him: ‘I showed your tweet to Surkov. Call his office. Tell him who is trying to extort money.’
Needless to say, all such suggestions that top officials grant audiences only in exchange for bribes are officially denied. But there is absolutely no attempt to hide the scale of the problem generally in Russia – nor that it is escalating at a phenomenal rate under the current Russian leadership. At a Kremlin meeting devoted to corruption on 29 October 2010 Medvedev himself stated that Russia loses up to $33 billion a year due to corruption. Officials in charge of state purchases rake in so much in kickbacks from suppliers that it officially accounts for one-tenth of all state expenditure. According to the chief military prosecutor, 20 per cent of the military procurement budget is stolen by corrupt officials.8 Overall, according to Medvedev, ‘the level of theft could be reduced by a trillion roubles, by the most conservative estimates. That is, we already understand that in [the sphere of state procurements] gigantic sums are being taken by bureaucrats, and by unscrupulous businessmen working in this area.’9 An independent report puts the level of corruption even higher – at $300 billion a year, equal to one quarter of GDP.10
The financial crisis made no difference in the world of Russian corruption: between 2008 and 2009 the average size of a bribe in Russia nearly tripled – according to an official interior ministry report – to more than 23,000 roubles ($776). By July 2010, according to the same official body, the average bribe had reached 44,000 roubles ($1,500), and by July 2011 the incredible sum of 300,000 roubles, or $10,000. The chief of the interior ministry’s Main Economic Security Department, Denis Sugrobov, told reporters: ‘Officials in charge of purchase and the placement of orders for state and municipal needs are particularly infected by bribe-taking.’ The head of Transparency International’s Moscow office added that $10,000 was the average business bribe, not connected with ‘mega projects’: ‘It is a bribe that medium-level businesses give to officials.’
The strange thing is that while these investigators know the size of the average bribe they do not apparently know who the bribes are paid to – or at least rarely take action. In terms of how much of a deterrent this rampant corruption is to foreign investors, it is enough to consider Transparency International’s corruption index, which ranks the countries of the world according to the level of perceived corruption among public officials and politicians: since 1996 Russia has slumped from number 46 in the world, to 82 in 2000 when Putin came to power, to 154 in 2010. There are, in other words, only a dozen countries in the world considered more corrupt than Russia.
There have been a few small successes in combating corruption. At a Kremlin meeting on 10 August 2010, the head of the Presidential Control Directorate, Konstantin Chuichenko, reported to President Medvedev on an audit of medical equipment purchased by state hospitals. He had discovered that, among other things, 7.5 billion roubles ($250 million) had been spent on 170 CT scanners – many of them costing ‘two or three times’ more than the manufacturer’s prices. Chuichenko opined that public funds were being used ‘inefficiently’. But Medvedev’s reply was more blunt: ‘You know, I think this is not just corruption but an absolutely cynical and brazen theft of public funds. The people who perpetrate this fraud have absolutely no shame and no conscience.’11 This led to a number of prosecutions of officials responsible for medical procurement, not just at lower levels but even in the presidential administration itself. Two of them, Vadim Mozhayev and Andrei Voronin, operated an extortion racket: they informed manufacturers of medical equipment (for example, Toshiba) that they had been placed on a fictitious blacklist, barring them from participating in public procurement tenders for their products, and offered to remove the companies from the blacklist if they paid $1 million. Toshiba reported the extortion attempt to the police, who investigated, and the officials were arrested. Voronin was sentenced to three years in prison.12 In another high-profile case, the head of the defence ministry’s medical administration, Alexander Belevitin, was arrested on 2 June 2011 for taking a $160,000 bribe from a foreign supplier of a CT scanner.13