Business Corruption

Public procurement regulations can be found at the official public procurement website. According to Global Integrity 2010, at the local level, depending on the region in question, tender notices can be publicly available or information can be totally lacking to everyone except for a few selected bidders.

Many companies consider information regarding rules and regulations on public tendering inadequate or have regularly witnessed non-transparent practices. According to Global Integrity 2010, sometimes the state only shares information with selected bidders, spawning accusations of pre-selecting winners, in other instances, the terms and conditions for bidding are specified so that few companies can actually bid (single sourcing). Kickbacks are common, and there are reports of companies paying no less than a 16% in kickbacks in order to obtain a government contract. Moreover, Global Integrity 2010 reports that in practice companies guilty of major violations of procurement regulations are not prohibited from participating in future procurement bids, and this loophole allows corrupt officials to partner with bad suppliers.

In February 2010, IKEA dismissed two senior executives in Russia, the director for IKEA in Eastern Europe, Per Kaufmann, and the director for the company's shopping mall business in Russia, Stefan Gross, for allowing a contractor to pay a bribe to an electrical company official, as reported in a 2010 article by The New York Times. According to the article, the details about what these executives are accused of are not known, but the payment involved electricity supplies at two malls in St. Petersburg. Allegedly, in an effort to outmanoeuvre corrupt utility officials, IKEA began renting diesel generators to power IKEA stores so that the malls could never be closed down during negotiations. However, as reported by the article, this plan did not stop corruption at the St. Petersburg stores, and eventually the generator rental company found a Russian executive in IKEA's ranks willing to take kickbacks. In exchange for the payment, the Russian executive had allegedly encouraged IKEA's Swedish leadership to overpay for the generators.

In April 2010, the offices of Hewlett-Packard in Moscow were raided by law enforcement officers to probe into allegations that its executives paid USD millions to win a government contract, as reported in an April 2010 article by RIA Novosti. According to the source, the probe is part of an investigation being conducted by German prosecutors who are looking into allegations that Hewlett-Packard executives paid about USD 10.9 million in bribes in 2003 to win a multi-million dollar contract. Hewlett-Packard allegedly sold computer equipment through a German subsidiary to the Russian Prosecutor General's Office. Companies are recommended to use a specialised public procurement due diligence tool in order to mitigate the corruption risks associated with public procurement in Russia.

See more on public procurement under 'Public Anti-Corruption Initiatives' in the Initiatives section.

Political Corruption

Public procurement in Russia can be characterised as still open to manipulation, although regulation has been improved, according to the Bertelsmann Foundation 2010.

Also, the Prosecutor General's Office notes that many corruption crimes occur in the sphere of public procurement. For instance, no guidelines exist on how to determine prices on procured property. As a result, procurement officials tend to rely not on market prices but on the volume of budget financing, as reported in a December 2009 article by Moskovski Komsomolets. 

The Prosecutor General conducted a study in November 2009, which found that it is quite common for state companies to illegally interfere with procurement processes, such as to violate tender and outsourcing rules, according to Freedom House 2010. Nevertheless, in October 2010, President Medvedev called for a cleanup of the state tender process, through which the state loses up to USD 33 billion each year, or one-tenth of federal spending, according to Freedom House 2011. According to Global Integrity 2010, government procurement in Russia has become more regulated and transparent as compared to previous years.

Russian authorities continue to investigate allegations of corruption over the procurement of Daimler AG cars for government purposes. Daimler was fined USD 185 million by a US court in April 2010 for violating the FCPA. Daimler admitted to paying tens of millions of USD in bribes to foreign governments, including the Russian government, as reported by BBC News. Furthermore, according to Kommersant, in 2000-2005 alone, Russian officials received well over USD 6 million as kickbacks from Daimler, as cited in an April 2010 article by RIA Novosti. According to the source, among the cars delivered to Russia under such contracts were Mercedes for top Russian officials, including the president, the prime minister, top judges, and parliament speakers.

In September 2010, President Medvedev dismissed Moscow Mayor Yury Luzhkov amid allegations that Luzhkov showed favouritism towards his wife in approving contracts. This dismissal has been seen by some critics as politically motivated, according to a September 2010 article by Bloomberg.

See more on public procurement under 'Public Anti-Corruption Initiatives' in the Initiatives section.

Frequency

World Economic Forum: The Global Competitiveness Report 2011-2012:
- Business executives give the diversion of public funds to companies, individuals, or groups due to corruption a score of 2.4 on a 7-point scale (1 'very common' and 7 'never occurs').

- Business executives give the favouritism of government officials towards well-connected companies and individuals when deciding upon policies and contracts a score of 2.5 on a 7-point scale (1 'always show favouritism' and 7 'never show favouritism').

The World Bank & IFC: Enterprise Surveys 2009:
- More than 46% of the companies surveyed expect to give gifts to secure a government contract.

- The average value of gift given to secure a government contract amounts to almost 4% of the contract value.

EBRD & World Bank: BEEPS Russia 2008:
- The value of an unofficial payment made to secure a government contract typically constitutes 4.1% of the contract value.