Richard L. Cassin Publisher and Editor

Andy Spalding Senior Editor

Jessica Tillipman Senior Editor

Elizabeth K. Spahn Editor Emeritus

Cody Worthington Contributing Editor

Julie DiMauro Contributing Editor

Thomas Fox Contributing Editor

Marc Alain Bohn Contributing Editor

Bill Waite Contributing Editor

Shruti J. Shah Contributing Editor

Russell A. Stamets Contributing Editor

Richard Bistrong Contributing Editor 

Eric Carlson Contributing Editor

Bill Steinman Contributing Editor

Aarti Maharaj Contributing Editor

FCPA Blog Daily News

Entries in Russia (235)


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.



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.



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.


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.


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.


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.


The Russia (Ware) House

It requires 54 procedures, takes 704 days, and costs 3,788% of annual per capita income to obtain the licenses and permits needed to build a warehouse in Moscow. So says the World Bank's Doing Business 2008. The averages for the OECD, by contrast, are 14 procedures, 153.3 days, and 62% of per capita income.

Red tape always breeds corruption. As the World Bank puts it, "Cumbersome entry procedures are associated with more corruption, particularly in developing countries. Each procedure is a point of contact—an opportunity to extract a bribe. Analysis shows that burdensome entry regulations do not increase the quality of products, make work safer or reduce pollution. Instead, they constrain private investment; push more people into the informal economy; increase consumer prices; and fuel corruption." So with today's Russia being such a U.S. Foreign Corrupt Practices Act minefield, any company serious about compliance will think twice about doing business there.

Listed below -- and weighing every bit as much as a sack of bricks on the back of a peasant -- are the 54 procedures needed to build that warehouse in the land of the czars:

1. Submit application to obtain Act of Permission for Use (APV) to Department of City Planning Documentation Development at the Architecture Planning Department

2. Request and obtain Situation Plan of District and Conclusion for a District Land Commission from Architecture Planning Department

3. Request and obtain Conclusion from Territorial Union of Land Use Regulation (TOP3)

4. Request and obtain Decision by District Land Commission on Land Plot Provision and City Planning Regulation

5. Request and obtain clearance of draft Disposition of Prefect with Architecture Planning Department (APD)

6. Request and obtain clearance of draft Disposition of Prefect with Local Government

7. Request and obtain clearance of draft Disposition with Territory union of land use regulation (TOP3)

8. Request and obtain the Disposition on Preparation of Act of Permission for Use (APV) by Prefect

9. Request and obtain Conclusion on compliance of proposed object with specified city planning and territory use regulations

10.Request and obtain technical conditions from water and sewage services

11. Request and obtain technical conditions to connect to electricity with MosEnergo

12. Request and obtain technical conditions to connect to telephone line

13. Request and obtain approval from Moscomarchitectura on engineering supply of the facility

14. Request and obtain Act of Permission for Use (АРИ) from Committee on Architecture and City Planning – Moscomarchitectura

15. Request and obtain Disposition of Prefect on Inception of Construction Designing (Decision on Construction)

16. Request and obtain the approval of conditions for designs by Department of Well-Being of Moscomarchitectura

17. Request and obtain the approval of conditions for designs by Department of Preparation of Project Approvals of Moscomarcitectura

18. Request and obtain approval of conditions for designs by Local Government

19. Request and obtain approval of conditions for designs by Prefect’s Office

20. Request and obtain approval of conditions for designs by Emergency Situation and Civil Defense Department

21. Request and obtain approval of conditions for designs by Moscow State Expertise

22. Request and obtain Act of Moscow Geological - Geodesic Department

23. Request and obtain approval of conditions for designs with Sanitary Services (Rospotrebnadzor)

24. Request and obtain the approval on transport routes from Moscow City Transport Agency

25. Request and obtain the approval from State Inspection of Road Safety (GIBBD) 2

26. Request and obtain the approval from Department of Comprehensive Well-Being of City

27. Request and obtain the approval from Department of Nature Use under State Ecological Expertise

28. Request and obtain Sketch No. 2 from Moscow Geological Institute

29. Request and obtain approval of Sketch No. 2 with Moscow Architecture Committee

30. Request and obtain the construction passport from Moscow City Geological Unit

31. Request and obtain approval of Volumes of «Outline of Construction Arrangement» and “GenPlan” from Moscomarchitectura Comm

32. Request and obtain approval of Volumes of «Outline of Construction Arrangement» and “GenPlan” from Prefecture

33. Request and obtain approval of Volumes of «Outline of Construction Arrangement» and “GenPlan” from GenPlan Institute

34. Request and obtain Regulation No. 2 and Certificate of approval of Architectural City Planning Decision

35. Request and obtain approval on project by Moscow State Expertise

36. Request and obtain Permission for construction

37. Receive inspection from Inspection on Architecture and Construction Supervision during foundation works

38. Receive inspection from Inspection on Architecture and Construction Supervision during structure works

39.Receive inspection from Inspection on Architecture and Construction Supervision during engineering works

40. Receive inspection by Union of Administrative Technical Inspection (UATI) - I

41.Receive inspection by Union of Administrative Technical Inspection (UATI) - II

42.Receive inspection by Union of Administrative Technical Inspection (UATI) - III

43. Receive inspection by Union of Administrative Technical Inspection (UATI) - IV

44. Receive inspection by Union of Administrative Technical Inspection (UATI) - V

45. Receive inspection by Union of Administrative Technical Inspection (UATI) - VI

46. Receive inspection by Union of Administrative Technical Inspection (UATI) - VII

47. Connect to water services

48. Request and receive inspection from Energy Supervision

49. Connect to electricity –sign agreement with “Energosbyt”

50. Request and connect to telephone services

51. Request and convene Acceptance Commission

52. Request and receive the Disposition on operation of building (Occupancy Permit)

53. Request and receive Plans from Bureau of Technical Inventory (BTI)

54. Register the building after completion

View the World Bank's Doing Business 2008 Here.

Page 1 ... 16 17 18 19 20