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Entries in Russia (241)

Monday
Jun222009

Russian Headwinds Hit Investors

Russia -- the world's largest country by land mass, with 11 time zones and 142,000,000 people, one of five permanent members on the UN Security Council, member of the Group of Eight (G8) industrialized nations, and possessor of the largest stockpile of nuclear weapons on the planet -- yes, that Russia, ranks 120th on the World Bank's Doing Business Index (here). That's low, but in the narrower category of dealing with construction permits, it sits at a subterranean 180th, just one spot above last-place Eritrea. There's no doubt, then, that Russia is the modern world's undisputed red-tape colossus.

Just what that means for foreign investors who take compliance seriously was illustrated by a recent story from the AP via the Moscow Times.

The background: Global furniture retailer Ikea -- privately held and based in Sweden -- opened its first store in Russia in 2000 and has since opened 10 more. Its country investment, it says, amounts to more than $3 billion and its workforce in Russia has grown to 7,000.

According to the AP report, Ikea has always had a tough time dealing with Russian red tape and corruption. "On several occasions the company had to delay openings of its stores as regional authorities raised issues with store construction and design, safety or environmental features." As bad as past problems were, however, they may be getting a lot worse.

A store-opening in Samara in the Volga River region is now more than a month late and counting. Local bureaucrats imposed a last-minute requirement that the building be able to withstand hurricane-like 30-meter-per-second winds, even though the strongest winds recorded there have never exceeded 17 meters per second. Ikea now says there's no timeline for the opening.

And authorities last month began investigating whether the company violated anti-monopoly laws. They allege Ikea urged tenants in a mall it runs outside Moscow to buy services from certain vendors. Ikea says the allegations are false.

The company used to be an outspoken critic of bribery and corruption in Russia. It dropped that approach and now uses softer words, like "gray areas." Does the change in vocabulary signal a change in compliance policies? Who knows? But for now, at least, Ikea has put all further Russian expansion on hold. And it's not clear how it intends to deal with the current pressures.

A Western business person in Russia said, "For a foreign company that is still dependent on a lot of different ministries to do their work to go on [an aggressive anti-corruption] campaign ... tends to be a bad idea. If they want to have a future in a country, they can't make enemies."

* * *
From Frederic Bourke's Trial. The defense needed a shot in the arm and got it on Friday, big time. Bourke's friend George Mitchell took the stand for four hours in the federal criminal trial in Manhattan. That's a lot of face time from the former Democratic Senate majority leader and current special envoy for President Obama to the Middle East.

Mitchell's message? Bourke, who recommended the Azeri privatization deal, never suggested bribes were being paid. An while Mitchell now regrets his $200,000 investment in Viktor Kozeny's crooked scheme, he trusted Bourke then and still trusts him today.

The Courthouse News Service has an account of Mitchell's testimony here; Bloomberg's David Glovin filed his report here.

Read all our posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.
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Tuesday
May262009

Resignation And Reform In Russia

Most Russians think the battle against corruption is already lost. More than half believe graft is an "unavoidable and permanent fact of life." And 58% say it's impossible to fight against it. The numbers come from a survey released last month by the All-Russia Public Opinion Research Center, reported by RIA Novosti here.

The poll found that 44% of Russians consider the greed and immorality of officials to be the main causes of corruption. And 49% think it would be easier for them to cope with legal and other problems if officials stopped taking bribes.

RIA Novosti said the poll involved 1,600 people in 140 Russian towns and cities on April 4-5 this year.

The poll's findings are reflected by Russia's worsening position on Transparency International's Corruption Perception Index. In 2004 it ranked 90th; it fell to 121st in 2006; and last year it sank to 147th, tied with Bangladesh, Kenya and Syria. The CPI rates countries according to how much corruption is perceived to exist among public officials and politicians. It's a composite index -- a poll of polls -- drawing on corruption-related data from expert and business surveys by at least three third-party sources for each country.

Despite the gloom among the populace, Russia's president Dmitry Medvedev is still targeting public sleaze. He wants to change the culture. "We must create incentives for legally acceptable behavior through the help of regulatory documents, the media, and as a result of work by civil society institutions," he said recently. "And corruption must be not only illegal, it must become improper. This is probably the most difficult thing."

Medvedev, 43, has been Russia's president for just over a year. He campaigned as a reformer and on the first anniversary of his inauguration vowed to take personal control of the government's anti-corruption efforts.

Part of his plan requires public officials to declare their income and assets. That includes the prime minister and his cabinet, military officers, customs officials, judges and police. Medvedev's tax declaration published on the Kremlin's official website put his 2008 income at 4.14 million rubles ($141,000). He held about 2.8 million rubles ($90,000) in nine bank accounts. His wife Svetlana has about 135,000 rubles ($4,350) in various bank accounts. Together they own a 3,000 sq ft apartment in Moscow and a small undeveloped lot.

See the Kremlin's April 6, 2009 release here (with links to further disclosures).
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Thursday
Apr302009

I-Fighting Corruption

Does the Internet have a role to play in the battle against graft? It's still early, but the signs are promising.

For public corruption to flourish, a couple of ingredients are necessary -- red tape and opaque decision-making. The Internet can reduce both. Online permitting and licensing systems, for example, open the process to public scrutiny. There's less need for contact between citizens and bureaucrats, removing opportunities for bribery. And online systems are usually simpler. That also encourages citizens to resist demands for bribes during the process.

E-government services have been tested and they work. In Korea, for example, the innovative Seoul Metropolitan Government launched a public online application system for licenses and permits in 1999. Called OPEN -- the Online Procedure Enhancement for Civil Applications -- it covers 54 common procedures. A U.N. report said OPEN has made the administra­tion more transparent -- officials responsible for corruption-prone areas now have to upload reports and documents so citizens can monitor the progress of their applications.

The Korean government, which has a chief information officer in each ministry, is now marketing its e-government expertise to other countries and agencies that want to give it a try.

Russia hopes to develop more e-government services. President Medvedev signaled his support by forming the Presidential Council for the Development of the Information Society in Russia. And the tech-savvy Minister of Mass Communications Igor Shchegolev has said the idea behind creating an e-government in Russia is to help people fight the country's bureaucracy, among the most oppressive and exhausting anywhere.

“An e-government will rid our citizens of the need to visit different offices,” Shchegolev said in an article posted on FutureGov. “I certainly hope it gets somewhere -- for one thing, I can’t think of a surer way to stifle corruption than to increase the number of rules-based computer interactions between citizens and government."

We said (here) that we admire the new Internet-based whistleblower system in Illinois. It's accessible and simple to use. But not all governments, it turns out, want to give the public such an easy way to report fraud.

In Hong Kong, for example, the normally pioneering Independent Commission Against Corruption (ICAC) is resisting an e-complaint system, according to FutureGov (here). Julie Mu, the ICAC Director of Community Relations, said in-person reporting is better. It "enables us to interact directly with the complainant and obtain more detailed information, hence facilitating investigative work. People reporting online may not be traceable,” she said.

Last year the ICAC handled 3,377 corruption reports from citizens. That's a lot. And it followed up on 78 per cent of those. So perhaps the organization is right to be worried; an easy-access, online complaint-filing system might just overwhelm its resources.

The conclusion? E-government can reduce red tape and increase transparency overnight. That makes it the best Internet app we can think of.
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Thursday
Feb192009

The Friday Report

Former Congressman William J. Jefferson says the cash found in his freezer four years ago proves he didn't violate the Foreign Corrupt Practices Act. Yesterday Jefferson filed a petition for certiorari to the Supreme Court, asking for review of the Fourth Circuit's refusal to dismiss most of the corruption-related charges against him. But he's not asking for dismissal of the two Foreign Corrupt Practices Act counts.

Jefferson's case is best known for allegations that in August 2005, he hid $90,000 in the freezer at his Washington home. The New Orleans Times-Picayune reports here that Jefferson's lawyers say the cash in the freezer is not alleged to be a bribe to Jefferson, but rather evidence of a violation of the Foreign Corrupt Practices Act. In an apparent preview of his FCPA defense, his lawyers said the money "was transmitted to Mr. Jefferson by the government's cooperating witness during the course of the FBI's sting operation so that he would pass it to a foreign government official," the then vice president of Nigeria. "But Mr. Jefferson did not do that. Instead, the marked funds were recovered in his home."

Jefferson says that except for the two FCPA charges, the grand jury's 16-count indictment depended on materials protected by the absolute privilege in the Constitution’s Speech or Debate Clause (Article I, Section 6, Clause 1). The evidence concerning the cash in the freezer, he acknowledges, wasn't protected by the privilege. A federal grand jury indicted him in June 2007 for violating the antibribery provisions of the Foreign Corrupt Practices Act, and also for soliciting and accepting bribes, wire fraud, money laundering and obstruction of justice. He faces a maximum of 235 years in prison if convicted on all counts. His trial is scheduled to start on May 26. Last year he lost an election for a 10th term in Congress from Louisiana.

The always-excellent scotusblog has a full report. It also has links to the Supreme Court petition in Jefferson v. U.S. here and the Fourth Circuit Court's decision from November 2008 rejecting Jefferson’s motion to dismiss here.

* * *

The murder of Russian journalist Anna Politkovskaya in 2006 that we talked about earlier this week (here) remains officially unsolved. Yesterday a jury in Moscow acquitted three men charged in her shooting. The LA Times has the story here. On trial were two Chechen brothers and a former Russian police officer. Another man accused in the murder and being tried separately was also released. He's a member of Russia's FSB, the domestic successor of the KBG.

The LA Times said of the verdict, "Critics say it was no accident that the search for the killers was ultimately fruitless. Even Moskalenko, the lawyer representing the Politkovskaya family, stopped just short of urging jurors to acquit the suspects, throwing blame instead on corrupt authorities."

Another journalist from Politkovskaya's paper, the Novaya Gazeta, was shot and killed in Moscow last month. The Washington Times says four journalists from Novaya Gazeta have been killed in the past eight years. "Since 2000," it says, "16 journalists have died in Russia under suspicious circumstances -- and scores of others have been threatened, intimidated and assaulted."

* * *

Russia dropped to 147th on the 2008 Corruption Perception Index, tied with Bangladesh, Kenya and Syria. On the 2009 Index of Economic Freedom, it ranks 146th. "Corruption remains all-encompassing," according to the Heritage Foundation report, "both in the number of instances and in the size of bribes sought. Manifestations include misuse of budgetary resources, theft of government property, kickbacks in the procurement process, extortion, and official collusion in criminal acts. Customs officials are extremely inconsistent in their application of the law."

In the World Bank's 2009 Doing Business project, Russia ranks near the bottom -- 120th, down eight places from last year. The amount of red tape choking the system is astounding. Building a warehouse in Russia requires 54 procedures and takes an average of 704 days. The OECD-wide averages, by comparison, are about 15 procedures and 161 days.
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Tuesday
Feb172009

This Talk Is Not Cheap

Public corruption doesn't happen in public. It needs dark places to flourish. That's why the press can play a decisive role in fighting sleaze--just by shining light on it. So the announcement this week by the Chicago Tribune that it's going all out to fight graft is welcome news. After all, one former Illinois governor, George Ryan, is doing time for corruption and another former governor, the freshly impeached Rod Blagojevich, faces a trial for trying to sell a U.S Senate seat.

In some countries, journalists on the corruption beat are putting their lives on the line. On Monday, a Chinese blogger who writes about corruption was stabbed in the stomach at a Beijing book store after giving a reading there. Xu Lai, who blogs under the pseudonym Qian Liexian, was apparently dragged into the store's bathroom by two men who stabbed him and fled. Xu Lai should recover from his injuries; whether he'll go on writing about corruption in China isn't known. Even if he does, however, other bloggers and journalists there are likely to think twice before they post stories about crooked government officials.

Corruption in Russia is a deadly topic for journalists. Investigative reporter Anna Politkovskaya was shot in a lift in her apartment building two years ago. She'd been threatened many times about her coverage of Chechnya and public corruption throughout the Russian government. Her murder, still unsolved, appeared to be a contract killing. She was 48 and a mother of two and often spoke of the risks of her job. In 2004, the editor of Forbes' Russian edition, Paul Klebnikov, was shot and killed in Moscow. And in 1995, a leading Russian journalist, Vladislav Listyev, was also shot dead in Moscow.

Kenya had a high-profile murder in January. Francis Nyaruri, who wrote about police corruption under the name of Mong'are Mokua, was beheaded and dumped in a forest. He was the second journalist killed in Kenya in the past year and had been threatened just before his disappearance.

It would be hard to find a country that's been more dangerous for journalists than the Philippines. In 2007, five were murdered and two others wounded. A radio host / reporter from Davao City, Ferdinand Lintuan, was killed on Christmas Eve 2007 after hosting his local radio show. He was shot by two men riding a motorcycle. Lintuan often accused local politicians of corrupt dealings, particularly involving the military.

So the Chicago Tribune's "campaign against the Illinois culture of political sleaze" is good news. Not only because it'll shine some light on the dark places where corruption grows. But also because it's a reminder of our free press in America that, at least for now, can still raise its voice without fear of violence.

Links to stories about Illinois are here, China here, Kenya here, Russia here, and the Philippines here.
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Thursday
Dec252008

Help Wanted For Siemens Report

One of ProPublica's outstanding investigative reporters, T. Christian Miller, wrote the story below (which ProPublica co-published with MSN Money). We reprint it under ProPublica's generous license ("You can republish our articles for free, if you credit us, link to us, and don't edit our material or sell it separately.")

If you have trouble accessing the DOJ and SEC charging documents linked in the story (we did), you can also find them at the bottom of our earlier post here.

_________

Help Us Name Names in Siemens Corruption Scandal

by T. Christian Miller, ProPublica - December 22, 2008 1:05 pm EST

Get ready for the Siemens World Corruption Tour, 2001-2008. Siemens pleaded guilty last week to corruption across the globe, receiving a record-setting fine -- $1.6 billion (which sounds like a lot, but really, it's just 0.3 percent of their revenue during those years.)

In announcing the fine, the Justice Department and the Securities and Exchange Commission released formal complaints detailing how Siemens bribed government officials all around the world. (We published a story in Sunday's New York Times profiling the Siemens accountant at the center of the scandal.)

However -- and this is a big "however" if you're into accountability -- they released none of the names of the corrupt bureaucrats that took the cash or the Siemens officials who paid it.

This was done, Justice folks said, to protect the integrity of ongoing investigations and to comply with privacy laws in various countries.

At the hearing prosecutors seemed a bit wistful that they couldn't reveal the names, which were provided to Judge Richard Leon in a sealed file. Lori Weinstein, the dogged prosecutor who pursued the case, said the department could not provide exact names. But, she said, the documents were sprinkled with clues to provide "sufficient clarity" for the court to figure out who was who.

Some identifications are vague -- there are plenty of "government officials." But others are more specific. (Hello, "Wife of the former Nigerian Vice President, a dual U.S.-Nigerian citizen.") ProPublica figures that with the help of readers, we might be able to ID at least some of these folks. Below, you'll find descriptions of the bribees. Send us a name and a link sourcing the information.

To get things started, take the case of the Argentine identity card contract. The SEC's complaint said that Siemens paid bribes to a certain "president of Argentina" who left office in 1999. Not too hard to figure out that one -- Carlos Menem ran the country from 1989 to 1999. Looks like the buck really did stop there.

This is by no means an exhaustive list. As of last count, 16 countries had investigations ongoing into Siemens. Our list below includes only those bribery schemes detailed in the formal complaints by the Justice Department and the Securities and Exchange Commission.

E-mail us if you find clues to figure out the other grafters.

Argentina
Source: SEC Complaint, p. 21
National Identity Card contract (1998-2004)
Contract Amount: $1 billion
Bribe Amount: $40 million
Recipients:

  • President of Argentina until 1999 (Carlos Menem)
  • Minister of the Interior
  • Head of Immigration Control
  • Cabinet ministers

Bangladesh
Source: SEC Complaint, p. 19
Mobile Phone contract (2004-2006)
Contract Amount: $40.9 million
Bribe Amount: $5.3 million
Recipients:

  • Son of then-Prime Minister
  • Minister of Posts & Telecommunications
  • Director of Procurement for the Bangladesh Telegraph & Telephone Board
  • In addition, Siemens Ltd. Bangladesh hired relatives of two BTTB and Ministry of Posts and Telecom officials.

Venezuela
Source: SEC Complaint, p. 14
Metro contracts (2001-2007)
Valencia and Maracaibo metro systems
Contract Amounts: $642 million
Bribe Amount: $16.7 million
Recipients:

  • A high-ranking member of the central Venezuela government
  • Two prominent Venezuelan attorneys acting on behalf of government officials
  • A former Venezuelan defense minister and diplomat

Israel
Source: SEC Complaint, p. 17
Power plants (2002-2005)
Contract Amount: $786 million
Bribe Amount: $20 million
Recipients:

  • Former director of the Israel Electric Company
  • Payments routed through brother-in-law of former CEO of Siemens Israel Ltd.

Nigeria
Source: SEC Complaint, p. 20
Telecommunications projects (2000-2001)
Contract Amount: $130 million
Bribe Amount: At least $4.5 million
Recipients:

  • Wife of the former Nigerian Vice President, a dual U.S.-Nigerian citizen who lived in the U.S.
  • "likely" the former President of Nigeria
  • "likely" the former Vice President of Nigeria

Vietnam
Source: SEC Complaint, p. 22
Hospital equipment sales (2005-2006)
Contract Amount: $6 million
Bribe Amount: $383,000
Recipients:

  • Government officials

Source: SEC Complaint, p. 27
Mobile network (2002)
Contract Amount: $35 million
Bribe Amount: $140,000
Note: Siemens did not win the project but agreed to pay 8 percent to 14 percent of project value to Vietnamese government officials
Recipients:

  • "likely" Vietnamese Ministry of Defense officials
  • Vietel, state-owned mobile phone network

China
Source: SEC Complaint, p.16
Metro trains and signaling devices contracts (2002-2007)
Contract Amount: $1 billion
Bribe Amount: $22 million
Recipients:

  • Government officials

Source: SEC Complaint, p. 18
High voltage lines (2002-2003)
Contract Amount: $838 million
Bribe Amount: $25 million
Recipients:

  • Government officials

Source: SEC Complaint, p. 23
Medical equipment sales (2003-2007)
Contract Amount: $295 million
Bribe Amount: $14.4 million
Recipients:

  • Deputy Director, Songyuan City Central Hospital, convicted in China and sentenced to 14 years in prison

Source: SEC Complaint, p.24
Hospital equipment sales (1998-2004)
Contract Amount: Unknown
Bribe Amount: $650,000
Recipients:

  • Chinese hospital officials

Russia
Source: SEC Complaint, p. 25
Traffic control system (2004-2006)
Contract Amount: $27 million
Bribe Amount: $741,419
Recipients:

  • Government officials

Source: SEC Complaint, p. 27
Hospital equipment (2000-2007)
Contract Amount: Unknown
Bribe Amount: $55 million
Recipients:

  • Russian state-owned hospital officials

Mexico
Source: SEC Complaint, p. 26
Refinery modernization (2004)
Contract Amount: Unknown
Bribe Amount: $2.6 million
Recipients:

  • Senior official of Pemex, state-owned oil company

Iraq
Source: SEC Complaint, p. 28
Oil for Food program (2000-2003)
Contract Amount: $124 million
Bribe Amount: $1.7 million
Recipients:

  • Iraqi Ministry of Electricity officials
  • Iraqi Ministry of Oil official
So who are these folks? Send us a name and a link sourcing the information.
_________

Will readers of the FCPA Blog contribute to this story? Let's see.

* * *
A Siemens / Jefferson Link? Meanwhile, a story in the Dec. 24 edition of Harper's Magazine by Ken Silverstein refers to the earlier joint ProPublica/New York Times story about Siemens, and then says: "Now ProPublica has asked for help identifying some of the alleged recipients of the bribes who are described but not named in the SEC complaint. One of those people appears to be Jennifer Atiku-Abubakar, who is tied to the scandal involving the former Louisiana congressman William Jefferson and is also a donor to the Republican Party. But I want to emphasize that I have no way of knowing whether the charges made in the complaint about her are accurate. . . . According to this Washington Post story, she is the wife of Atiku Abubakar, the very controversial former vice president of Nigeria from 1999 to 2007."
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Monday
Sep292008

A Rare (Or Medium-Rare) Opportunity

Review Procedure Release No. 81-02 from December 11, 1981 may be a Cold War relic, but it's still relevant to the FCPA. It answers the question: How do you introduce new products to potential government customers in foreign countries without violating the Foreign Corrupt Practices Act? That's what Iowa Beef Packers, Inc. wanted to know when it knocked on the Justice Department's door in those early days of the FCPA.

The Packers, we'll call them, had a plan to promote sales of USA beef to the government of the Soviet Union. To whet the Bear's appetite, the idea was to send samples to officials at the Soviet Ministry of Foreign Trade, the government agency responsible for meat procurement. The samples (cuts unspecified) would amount to about 700 pounds, worth less than $2,000 in 1981, with no single sample package worth more than $250. The giveaways, the Packers said, could help them land sales to the the Soviet government of at least 40,000 pounds.

The Packers represented to the DOJ that the steaks were strictly for inspection, testing and sampling, and to make the Soviet officials aware of the quality of USA beef. The treats weren't intended for the officials' individual use, according to the Packers, but in their capacity as representatives of the agency responsible for buying beef. It's unclear how the meat would be kept off the officials' backyard barbies, but the Packers weren't worried. Anyway, the arrangement was transparent. The Packers said they'd informed the Soviet government about the goodies heading for the Ministry of Foreign Trade, a disclosure the folks at the Ministry couldn't have welcomed.

The DOJ liked what it herd (sorry, what it heard), and gave the thumbs up. "Based on all the facts and circumstances as represented by the requestor, the Department does not presently intend to take an enforcement action with respect to the furnishing of sample products as proposed by the requesting party."

The USSR is gone and the ex-Ministry-of-Foreign-Trade-officials-turned-oligarchs may now prefer Kobe Beef to USDA Prime. But Review Procedure Release No. 81-02 still has a lesson for companies wanting to send product samples to potential foreign government customers. Target the right agency, keep the amounts small, make sure (somehow) the products are intended for evaluation and testing and not for individual use, and be transparent in the host country. It may also help if your product goes well with potatoes -- baked, boiled, broiled or roasted.

View Review Procedure Release No. 81-02 (December 11, 1981) here.

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Sunday
Jul202008

Bulgaria Joins The Wrong Club

One benefit of "globalization" -- a word we think means the integration of national economies into the global financial system -- is that corrupt regimes now come in for heavy international flak. The spotlight on corruption moves around -- it was on China for a while, then shifted to Nigeria. Kazakhstan had a turn, and Russia too.

Now Bulgaria is in the news - and makes its first appearance today in the FCPA Blog.

On admission to the European Union last year, Bulgaria promised to clean up its public-corruption mess. The reform plan called for new laws and tougher enforcement. None of that happened, though, and the EU now says the country is slipping backwards-- into money laundering, a mafia - government alliance, and even contract killings. The EU says it may freeze the rest of the country's accession money.

"Bulgaria itself has to make the commitment to cleanse its administration and ensure that the generous support it receives from the EU actually reaches its citizens and is not siphoned off by corrupt officials, operating together with organized crime," the EU said in the draft of an official progress report. That report hasn't been released but was leaked to the global media last week.

Being under the world's anti-corruption spotlight isn't comfortable. Bulgaria's leaders will feel the heat to make a choice: get rid of the sleaze or lose global credibility -- along with public international aid and legitimate foreign private investment.

View reports from the International Herald Tribune and the Financial Times.

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Tuesday
Jun172008

Moscow Debates Reforms, Sort Of

The biggest public corruption story on the planet may be Russia -- the entire country, where red tape and bribery are scaring away foreign investors and wearing down ordinary citizens. Reform can't come soon enough, so we're glad that President Dmitry Medvedev is at least talking about the problem.

The numbers tell the story. Russia's 2006 rank on Transparency International's Corruption Perception Index was a lowly 121st -- tied with Benin, Gambia, Guyana, Honduras, Nepal, the Philippines, Rwanda and Swaziland. Then things got even worse. In 2007, Russia fell to 143rd on the CPI -- tied with Gambia (again), Indonesia and Togo.

A thoughtful correspondent in Russia sent us the following story from the Moscow Times (here). The article signals that public corruption is finally on the Kremlin's agenda, which is good, but also that real reform may be a long way off. That may account for the gallows humor in the story -- a great Russian trait. (A government translator in Moscow once told us that the saying, "The spirit is willing but the flesh is weak" means in Russian, "We have plenty of vodka but we're out of potatoes.") Here's the article:

Bill Floated to Ban Gifts to Bureaucrats as Bribes.

17 June 2008By Francesca Mereu / Staff Writer

Bureaucrats face a ban on accepting small gifts under a bill being floated by law enforcement officials.

President Dmitry Medvedev has said the fight against corruption is a priority, and the government is under pressure to find ways to root it out.

Under the Criminal Code, any money or gift given to a bureaucrat in the performance of his or her duties constitutes a bribe, but Article 575 of the Civil Code allows for the acceptance of gifts worth up to 11,500 rubles ($485).

An Investigative Committee official said Sunday that the "legal contradiction" created by the articles hindered investigators in their attempts to fight corruption, Interfax reported. The Investigative Committee is under the Prosecutor General's Office.

"In legal practice, and in particular when you investigate a crime linked to corruption, you often run into problems linked to the interpretation of these," the unidentified official said.

The lack of a clear legal definition of what constitutes corruption poses one of the most difficult obstacles when trying to battle the problem.

The initiative by the Investigative Committee, which is the main body responsible for battling corruption, is an attempt to downplay the magnitude of the problem, said Kirill Kabanov, director of the National Anti-Corruption Committee, an advocacy group.

"It seems that the $300 billion market for corruption in our country consists of gifts," Kabanov said, sarcastically.

"This is to soften the problem in the eyes of the population," he said. "It is like treating a very ill patient with iodine."

Calls to the Investigative Committee went unanswered Monday.

A final note. Our correspondent wondered how the "legal contradiction" noted in the article between the Russian civil code and criminal law would fit into the Foreign Corrupt Practices Act's affirmative defense that allows payments (or gifts) to foreign officials, if permitted under the written laws of the host country. Good question. For now, though, as Winston Churchill said about Russia itself, the answer remains a riddle, wrapped in a mystery, inside an enigma. Which means in Russian, don't bet the lunch money on the defense just yet.
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Tuesday
Apr222008

A Country That Cannot Change

Russia's English-language Moscow Times carries a provocative page-one story today (here) by Anders Aslund titled, "There Is Nothing Normal About Corruption." Author Aslund is a senior fellow at Washington, D.C.'s Peterson Institute for International Economics and author of "Russia's Capitalist Revolution: Why Market Reform Succeeded and Democracy Failed."

He argues that since 1990, both authoritarianism and public corruption have grown dramatically in Russia, and that there's a connection between the two. "Authoritarian rule is often used by rulers to hide and sustain their corruption," Mr. Aslund says. "According to Transparency International, the only country with higher income per capita and more corruption than Russia is Equatorial Guinea. That is hardly a standard worthy of a great nation."

Ordinary Russians are fed up with public corruption, he says. He cites the mismanagement of the large state corporations and alleged kickbacks of 20 percent to 50 percent on major infrastructure projects. In other corrupt countries, he says, people complain about "mere 2 percent kickbacks." He says that because many ministers own major companies in the industries they regulate, the obvious conflicts of interests between business and government are undermining the rule of law and the economy.

Mr. Aslund asks, "Can anything be done as long as the Putin clique stays in power?" Surprisingly, his answer is to look toward the Internet. "The Russian Internet is full of interesting and detailed information about every conceivable corruption story. Unfortunately, few Western correspondents in Moscow dare to touch this issue. How long will they miss the greatest corruption story in history? Ordinary investigative journalism could do wonders."

Russia's extreme corruption has turned the country into a dysfunctional and weak state, he says, threatening the quality of education, health care, and the stability of the state itself. The government's inability to carry out major infrastructure projects is a good example of its fundamental weakness, he says. "The country suffers a desperate shortage of qualified labor because much of the education system has been eroded by corruption, and the government has made no attempt to clean it up."

We've said before that today's Russia is a minefield for anyone subject to the Foreign Corrupt Practices Act. The compliance challenge of doing business there is enormous, if not insurmountable. While foreign investors can choose to stay away, the local population is once again trapped by another increasingly repressive, self-protective regime. The losers are ordinary Russians -- isolated from the world economy, this time not by ideology but by overwhelming corruption. Russia, it seems, really is a country that cannot change.

Sunday
Nov182007

All Eyes Are On Siemens

The Big Show these days for followers of the U.S. Foreign Corrupt Practices Act is Siemens' global bribery scandal. To wit, the print and online versions of the November 16, 2007 Wall Street Journal carried a brilliantly reported Page One story based on the fact statement compiled by the Munich public prosecutor ("Ruling Details Bribery Across the Globe"). The lead says, "Scandal-scarred Siemens AG paid millions of euros in bribes to cabinet ministers and dozens of other officials in Nigeria, Russia and Libya as it sought to win lucrative contracts for telecommunications equipment, according to a court ruling that depicts a pattern of bribery by one manager. The document, viewed by The Wall Street Journal, offers the most detailed picture to date of the scandal that has ensnared one of the world's biggest conglomerates in investigations across the globe." The online story is here but is by subscription only.

Business Week's November 15, 2007 online edition questions Siemens' prospects for a quick resolution with the U.S. Department of Justice and the Securities and Exchange Commission. Siemens might be in a hurry to put alleged FCPA violations behind it, the story says, "[b]ut U.S. enforcers may be tough to placate. The bribery scandal comes in the midst of a drive by Washington to hold foreign companies to the same standards as their U.S. competitors. 'Global corruption undercuts democracy and the rule of law; it destabilizes markets; and, it creates an uneven playing field for those companies who are committed to playing by the rules,' U.S. Assistant Attorney General Alice S. Fisher told an audience of anti-corruption specialists in Alexandria (Va.) on Nov. 13, according to her prepared remarks." The story can be found here.

Lots more will be said and written about Siemens' corruption saga in the coming weeks and months.

Siemens AG's ADRs trade on the New York Stock Exchange under the symbol SI.

View Prior Posts About Siemens Here.

Thursday
Nov082007

Siemens Discloses More Details About Corruption Investigations

€1.3 Billion In Questionable Payments Have Been Found; Investigations Involve Multiple Divisions and Countries; Oil-For-Food Program Is Also Involved

Siemens AG's November 8, 2007 earnings release for Fiscal Year 2007 and a separate document called "Legal Proceedings" disclosed the most comprehensive information yet about corruption prosecutions and ongoing investigations involving the German industrial conglomerate. Among the items disclosed are these:

Global Corruption Investigation. Questionable payments of €449 million had been identified previously. Further investigation has revealed an additional €857 million in questionable payments -- relating to various countries and business units under review.

Germany. The Munich district court in October 2007 fined Siemens €201 million, ending the investigation by the Munich Office of Public Prosecution. The court found that a former manager bribed officials in Russia, Nigeria and Libya in 77 cases from 2001 to 2004 for the purpose of obtaining contracts on behalf of Siemens.

-- The Munich public prosecutor is still investigating certain current and former employees on suspicion of embezzlement, bribery and tax evasion. The prosecutor has searched Siemens' premises and employees' private homes. Arrest warrants have been issued for several current and former employees, including former members of senior management.

-- Prosecutors in Darmstadt charged two other former employees. In May 2007, the Regional Court of Darmstadt sentenced one of them to two years in prison (suspended on probation) for commercial bribery and embezzlement. Another former employee was sentenced to nine months in prison (also suspended on probation) for aiding and abetting commercial bribery. Siemens AG was ordered to disgorge €38 million of profits.

-- In 2004, the public prosecutor in Wuppertal began investigating certain Siemens employees who allegedly participated in bribery related to the award of an EU contract for refurbishment of a power plant in Serbia in 2002. In August 2007, the public prosecutor searched the premises of Siemens' Power Generation Group in Erlangen, Offenbach and Karlsruhe (all in Germany).

Italy. The public prosecutor in Milan is investigating allegations that two employees of Siemens S.p.A. made illegal payments to employees of the state-owned gas and power group ENI. Also in Italy, legal proceedings involving corruption charges against two other former employees ended when they plea bargained in November 2006.

China, Hungary, Indonesia and Norway. Other pending investigations into allegations of public corruption involving Siemens, certain current and former employees, or projects in which Siemens is involved, include the following examples:

-- There are numerous public corruption-related investigations in China relating to several divisions of Siemens Ltd. China, primarily Medical Solutions (Med), Automation and Drives and Siemens IT Solutions and Services. The investigations were begun by prosecutors in Guangdong, Jilin, Xi´an, Wuxi, Shanghai, Ting Hu, Shandong, Hunan, and Guiyang, among others.

-- Siemens Zrt. Hungary and certain employees are being investigated by Hungarian authorities for suspicious payments under consulting agreements with shell corporations, and for alleged bribery related to the award of a contract for delivery of communications equipment to the Hungarian Armed Forces.

-- The public prosecutor in Kalimantan, Indonesia, has charged the head of the Med division of Siemens PT Indonesia with participating in bribery, fraud, and overcharging related to an award of a contract for delivery of medical equipment to a hospital in 2003.

-- The Norwegian government is investigating possible bribery and overcharging of the Norwegian Department of Defense under a contract for the delivery of communications equipment in 2001.

The United States. The U.S. Department of Justice is investigating possible criminal violations by Siemens of the U.S. Foreign Corrupt Practices Act and other laws. During the second quarter of FY 2007, the U.S. Securities and Exchange Commission upgraded its informal inquiry of Siemens into a formal investigation. The SEC and the DOJ are also investigating possible violations of U.S. law by Siemens in connection with the Oil-for-Food Program. Siemens is cooperating with the U.S. investigations.

Other Oil-For-Food Investigations. A French magistrate commenced a preliminary investigation of local companies, including Siemens France S.A.S., in the Oil-for-Food Program. German prosecutors began a related investigation and searched Siemens' premises and employees' private homes in Erlangen and Berlin in August 2007. Siemens is cooperating with the authorities in France and Germany.

Siemens AG's ADRs trade on the New York Stock Exchange under the symbol SI.

View Siemens' November 8, 2007 Earnings Release Here.

View Siemens' November 8, 2007 Document "Legal Proceedings" Here.