Monday, 24 February 2014

Corruption  in  Russia                            

 More than half of the world’s population believes corruption in the public sector is a very serious problem in their own countries. While corruption appears to affect every part of the public sector, certain segments were much worse than the rest. Globally, at least 60% of respondents claimed political parties and police were corrupt. Additionally, more than 50% of people stated their legislatures, their public officials (bureaucrats and politicians) and their judiciary were corrupt. In the world’s most corrupt nations, those institutions were, naturally, even worse. In Nigeria, 94% of people claimed their political parties were corrupt—the most in the world. Similarly, 96% of Liberians reported their legislature was corrupt, also the most in the world. In eight of the nine most corrupt nations, more than 80% of residents considered the police to be corrupt.

Russia is on the 133rd place out of 176 corrupt nations (tied with Comoros, Guyana, Honduras, Iran, and Russia is on the 133rd place out of 176 (tied with Comoros, Guyana, Honduras, Iran, and Kazakhstan) according to the Corruption Perceptions Index published by Transparency International.

According to a poll conducted in early 2010, 15% of Russians reported to have paid a bribe in the previous 12 months. The overall amount of bribes in the Russian economy during the last decade skyrocketed from $33 billion to more than $400 billion per year in Putin's government which is a clear indication that this man has no real control over corruption in his country. I doubt that the statistics have changed since 2010.

The Russian government however did recognized corruption as one of the most serious problems facing the country, and had taken steps to counter it. Fighting corruption had been a top agenda of President Dmitry Medvedev. An Anti-Corruption Council was established by Medvedev in 2008 (after Putin left office) to oversee the Russia's anti-corruption campaign. The central document guiding the effort was the National Anti-Corruption Strategy, introduced by Medvedev in 2010. The strategy stipulates increases in fines for corruption, greater public oversight of government budgets and sociological research as to  the causes of corruption. On May 4th 2011, Medvedev continued his anti-corruption efforts by signing the Federal Law On Amendments to the Criminal Code and the Code of Administrative Offences of the Russian Federation to Improve State Anti-Corruption Management. The bill raised fines for corruption to up to 100 times the amount of the bribe given or received, with the maximum fine being 500 million rubles ($18.3 million).

In 2011, Russia’s position in the Corruption Perception Index improved by 11 places. According to Transparency International, the improvement was a result of the successful implementation of President Medvedev's anti-corruption campaign. The organization had especially highlighted implementation of anti-bribery legislation and signing the Organization for Economic Cooperation and Development's anti-bribery convention as anti-corruption measures that appeared to be working.

In September 2006, Russian President Vladimir Putin declared that an inability to make much progress in the battle against corruption was one of his administration’s greatest failures. In fact, currently rising corruption has been a direct consequence of Putin’s policies to strengthen the state militarily and to crack down on many elements of Russia’s civil society. As a result of that failure, it has resulted in this expanding, uncontrollable corruption that is now rampant throughout Russia again. 

The causes of corruption in Russia are certainly no mystery to anyone. Russia has 40 regions and the larger the size of any region results in the amount of corruption in each region being increased in numbers because the more bureaucrats and politicians there are, the more opportunities there are for corrupt transactions to take place. The negative impact of the bureaucrats and politicians greatly outweighs the positive effect of economic development in the regions. Russia’s most corrupt areas are its major cities, where a heavy concentration of bureaucrats and politicians exists. It follows that the larger the city, the greater the number of corrupt bureaucrats and politicians. Putin’s focus on increasing the capacities of the Russian state is responsible for the expanding bureaucracy and also the corruption that accompanies it.

Some will argue that the best way to reduce corruption is to raise bureaucrats’ salaries to a level where they will not be tempted to take bribes. The observation is utter nonsense.  The crooked bureaucrats know how easy it is to accept bribes and how difficult it is for the authorities to catch them in the act so why would they want to stop doing what has been so easy for them to do in the past? The level of salaries seems to be up overall for Russia’s public servants and yet the level of corruption hasn’t changed at all.

Moreover, the current bureaucracy operates without any checks on its conduct while in power. In the past, competition existed between the conventional bureaucracy and that of the law enforcement agencies with the latter losing. Just as there is no longer an internal system of checks on the administration, there is no external balance either. Because of the Kremlin’s crackdown on the media, political party reforms, campaign against nongovernmental organizations, against the gays and against terrorists, and the centralization of political power, the government has few levers to control the actions of state officials. This lack of oversight creates extensive grounds for corruption.

 Putin’s systematic crackdown on the Russian media is consistent with efforts on the part of his administration to cover up corruption among public servants so as to not embarrass him internationally.  

To make matters worse, anti-corruption has been one of the main tools the Kremlin has used in its battle against Russia’s regional leaders. One of Russia’s governors was sitting in jail, and several others were also facing charges of abuse of office.  Some had later been deemed to be innocent.  Obviously the Kremlin’s attack on corruption among the regional elite is a political tool rather than a real anti-corruption campaign. Putin uses this tool as a means of putting his own cronies in power and his enemies in jail.

 The false accusations of corrupt practices are increasing in Russia’s crucial energy sector as the state takes over more private assets. The state also enjoys monopoly ownership of Russia’s oil pipelines through Transneft. Kremlin officials sit on the boards of key energy companies, and Russia is exerting increasing pressure on foreign firms active in the energy sector.

Banking has long been one of the most corrupt sectors of the economy. The state has made little progress in reforming Russia’s financial institutions, and the formal ownership and activities of many Russian banks remains opaque. The assassination in September 2006 of Andrei Kozlov, Russia’s top bank regulator further slowed down efforts to clean up the system. Kozlov guided work to shut down banks suspected of money laundering and other abuses but with his death, the laundering and abuses continue.

 Corruption is a necessary facilitator for Russia’s extensive organized crime and terrorist networks. Corruption within the law enforcement agencies makes it possible for criminal and terror groups to operate on Russian territory, while corruption within the customs service and border guard facilitates the transport of illicit goods across Russian borders. It will be impossible for Russia to address these problems without first reducing the amount of corruption in these state agencies.

 One clear indicator of the link between corruption and organized crime is a spate of assassinations of deputy mayors responsible for managing municipal property in Russian cities. These officials become targets since they control access to the city’s best retail space. They risk paying with their lives if their actions run counter to the interests of one or another of the criminal organizations.

 When corruption is in the construction industry and also among bureaucrats and politicians; slovenly work is done on projects, many are not completed on time and costs skyrocket far above the original estimated costs. The Sochi Games is the best example I can present to you to illustrate this problem of corruption.


Corruption at the Sochi Olympic Games

 The Olympic Winter Games being held in Sochi, Russia is the worst financial disaster in Olympics history. While originally budgeted at US$12 billion, with its 98 events in 15 winter sport disciplines are being held during the Games, various factors caused the budget to expand. President Viadmir Putin had authorized the expenditure of (get ready for it) $51 billion for the Games. I will put the cost of the Sochi Games in perspective: China spent US$40 billion getting Beijing ready for the 2008 Summer Olympics (with its 302 events) and Vancouver spent a US$8.7 billion on the last Winter Olympics.


Why did Putin decide to have the Winter Games held in Sochi? It is a subtropical resort city of 300,000 and is situated along the eastern coastline of the Black Sea with pebble beaches and palm trees, making it a playground for Russian jet-setters. 

The city of Sochi has always been a very popular tourist destination in Russia with more than 3½ million visitors each year. The month of February is characterized by gradually rising daily high temperatures, with daily highs around 10°C throughout the month, exceeding 16°C (60.8 F) or dropping below 5°C (23 F) only one day in ten. Of course, the mountains are some distance from Sochi where there is snow. In Vancouver, the temperature in February averages low a low of 1ºC / 34ºF.  On the 4th of February, 2014, temperatures reached 66º F there and 59 º F in the mountains behind Sochi. Choosing Sochi as the venue for the 2014 Olympic Winter Games in a sub-tropical climate is like going to Las Vegas with only counterfeit money—risky at best. I do however wish the Games to be a success.

In the Vancouver Games, the skiing events took place in the mountains surrounding the resort town of Whistler which was easily reached by rail that had been place many years earlier before Vancouver was even considered for the Winter Games. The distance traveled by rail or car from Vancouver to Whistler is 79 miles (127 km). When Putin decided that he would like the 2014 Winter Games being held in Sochi, there was no rail line from Sochi to the mountains. When the railway project was first announced in 2007 it seemed really expensive and hard to implement. The transport link was not a requirement of the International Olympic Committee. The new line connects the coastal and mountain clusters of the 2014 Winter Games. The indoor skating and hockey venues are clustered in the considerably less-green city of Adler, about 13 miles along the coast, while the skiing, snowboard and sliding venues are up in the mountains at Krasnaya Polyana, roughly 30 miles (48 km) away. The Rosa Khutor Alpine Resort is part of the mountain venue area, where Alpine, sledding sports and action sports events will be held. It cost Russia US$8.7 billion to build the 48-kilometre rail line. And when the Games are over, will Russia ever recover that money back? Some of it perhaps but it would take many generations of skiers for Russia to have the line paid for.

Construction failures

The streets of the Olympic village in the city were still being paved just days before the opening night. You had to watch your step on some of the sidewalks because not all the manholes were covered.

Some of the so-called four-star hotels were still under construction six and a half years after ground was broken. Running water finally arrived this week at some of the four-star hotels still under construction Flushing your toilet, drinking the water that was the colour of urine and expecting a good night’s sleep with construction work still being done nearby was a common complaint. Some journalists found this written request in their bathrooms, “Please do not flush toilet paper down the toilet! Put it in the bin provided.” Can you believe it? There was also a sign in the bathroom asking the guests not to indulge in fishing in the toilet. In one hotel in which there was no water, a reporter stated that she was advised by the front desk, “If restored ‘do not splash water on your face because it contains something very dangerous.” Perhaps the toilet is connected to the sink. Though the Russians poured $51 billion into the Olympics, arriving journalists found only six of their nine hotels fully operational. Almost every room was missing something such as light bulbs, TVs, lamps, chairs, curtains, Wi-Fi, heat, hot water and shower curtains which are valuable items in the black market in Russia. One room was occupied by a stray dog. So much for hotel security. CNN booked 11 rooms in the media hotels five months ago — but arrived to find only one available. In his dispatch, newsman Wetzel detailed living in a room with two beds with only one pillow and no shower curtain. If you bring four stars with you when you enter one of those hotels, you can add them to what you have already and only then it will become a five star hotel. Arriving national delegations have been forced to settle for accommodation in dumpy lodgings that quick-buck artists have erected inside the Sochi Games’ security zone, where a roomette offering a view of a wall rather than an Alpine vista goes for $316 a night. The Russians even put surveillance cameras in hotel rooms. And at least in some of those hotel rooms, surveillance cameras are even focused on the showers.

The new electrical grid has failed hundreds of times in the past year. The ground is unstable, due to shaky rock formations and a plethora of underwater streams. This is why the ski-jump venue had to be re-engineered so often that its cost had skyrocketed from an initial estimate of US $40 million to a final tab of more than US $265 million. The rail-and-road link between the Black Sea and the ski and snowboard venues in the mountains required the construction of 45 bridges and a dozen tunnels. A megaproject in itself, that is now pegged at $9.4 billion, more than four times’ the original estimate. It is the most expensive 50-kilometre road in history.

Cost Overruns

Typically, Olympics games cost about three times what their promoters estimated in winning the right to host them, which in Sochi’s case was US$12 billion in 2007 and US$50 in 2014. But what caused such a high cost overrun?  Stupidity, incompetence and corruption of course.  The City of Atlanta Games cost more than US$2 billion which overshot its budget by 147%.  The cost of the Games in London was US$15 billion after doubling their early estimates.  The average cost overruns is 179%                                                 

Part of the problem is that the cities that offer to host the Games purposely lowball their expenditures in an attempt to convince the Olympic Games officials that they can afford to host the games in their cities. If the promised private investors don’t anti up, the city can’t then say to the Olympic officials “Sorry. We can’t have the Games in our city.” The city then has to look to their taxpayers to fork over the money to make the venture a reality. In London, private developers promised to fund the Olympic Village but reneged on their promises and the taxpayers ended up paying the cost of building the Village. The venues in the Games appear to be white elephants. What are the cities going to do with these huge domes for the rest of their non-Olympic days?   


Typically, the kickbacks extracted by officials who granted Sochi contracts are 20 per cent of the total cost. The contractors simply add that to the bills submitted to Olympstroy, the chief Sochi Olympics funding agency.

Olympstroy has run through four directors in its brief existence. Once fired, the directors have been scapegoated with embezzlement, fraud and other charges. For decades, that has been the standard means by which the Kremlin deflects blame, demonizing former powerbrokers, both local and foreign. That’s how Putin expropriated the vast Siberian oil fields that BP PLC spent billions of dollars to bring into production, by inundating the British executives with absurd criminal charges. The former Olympstroy directors have wisely fled the country before they were seized by Putin’s henchmen and accused of wrongdoings in which they were entirely innocent.  

For Russian President Vladimir Putin, the Sochi games were and still are considered as a spare-no-expense project so that he could and still can assert the continued influence of post-imperial Russia. Spreading that kind of money around inevitably attracts dubious operators, and the Sochi region happens to be the home turf of the Khasan organized crime family, Russia’s biggest criminal organization.

Among the fears with these Games is that shoddy construction by shady contractors which obviously poses as much of a disruptive threat as a recurrence of the ethnic-based terror attacks Russia endured last month.

Friends in Putin’s inner circle have been awarded the biggest Sochi contracts, most of them no-bid affairs. The biggest winners at the Sochi Olympics are Boris and Arkady Rotenberg, childhood friends of Putin. Their 21 Sochi contracts worth $7.4 billion have swollen the brothers’ personal fortunes by about $2.5 billion. An updated report late last year stated that between $25 billion to $30 billion spent on the Games has been stolen or skimmed off the top by construction firms and other business interests that they claim are friends of Putin. How much of that ended up in Putin’s hands?

Other friends of Putin, many tracing their close ties to Putin from their years working with him in St. Petersburg’s civic administration, now run the state rail monopoly Russian Railways, long regarded as a cesspool of varied corrupt behaviour. Naturally, the railroad company is entrusted with the $9.4-billion rail-road link. Still other friends of Putin run the state development bank, Vnesheconombank which is financing 70 per cent of private-sector contracting the event and is still a black hole of unaccounted-for expenses.

The Fisht stadium, the chief Olympic venue, was estimated to cost $230 million but that ballooned to $779 million, making the cost per fan at the stadium as much as $19,500. The stadium was built in the Imert Lowlands, a flood-prone area threaded with underground streams. I wouldn’t be surprised if on one day in the future, the stadium sinks in a huge sinkhole.

The Bolshoi Ice Palace was estimated at $200 million but by 2012 it had shot up to $300 million. The average cost per fan in that building is $25,000
During an interview with Russian and foreign media on January 17th, Putin adamantly denied the $51-billion total cost. He said that everyone has the math wrong.  He said that the overall cost was 214 billion rubles, by advising reporters that they divide by 33 (the U.S. exchange rate) and that by those calculations, the Games cost only US$6.3 billion. Either he doesn’t understand basic arithmetic or his nose is so long, it would make Pinocchio’s nose look like a pimple on its face. No doubt the Russian taxpayers will be paying for this fiasco for decades to come.

The 1976 Montreal Olympic Games stadium was well over its original budget. The stadium ended up costing $770 million to construct. By 2006, the final cost had risen to $1.47 billion when calculating its repairs, modifications and interest paid out. It took taxpayers 30 years to finally pay off the cost.

In my opinion, the Sochi Olympic Games are nothing but a monstrous scam thrust upon the people of Russia. There are accusations that widespread corruption is gobbling up large chunks of the US $50 million. For example, Russia’s own Sochi Internal Affairs department has identified some $800 million in stolen funds related to the Olympic stadium, the main hockey rink and other facilities. Further, the cost to build the ski run had skyrocketed from US$40 million to US$265 million. How much of that went into the grubby hands of Putin’s officials as kickbacks? Garry Kasparov, the Russian chess master turned politician, tweeted in the wake of The Economist report: “I never doubted that Putin and his cronies would take the gold.”

Russia sprawls across nine time zones and it still can’t build a decent car. It is a petro-economy that is reliant on oil and gas exports for most of its GDP, which trails that of Brazil. It comprises of ethnic hatreds. It lacks rule of law. Business cannot function without rule of law, as BP’s investors learned the hard way. One might expect remedies to those ills would be Russia’s focus but they don’t seem to be utilized.

Instead, Putin’s Russia has indulged in his Sochi extravaganza. What other country would stage a Sochi fiasco with $50 billion that its people have a thousand better uses for? Russia of course which is held hostage by the incredible ego of one man—Putin who isn’t doing it for Russia but instead for his personal legacy. I don’t know if he is getting any of the revenue being scammed from the people of Russia by his criminal friends who are part of the Sochi fiasco but I wouldn’t be surprised if he was. The strange thing about that kind of authoritarian, heavily controlling leader is that Putin is in a very complicated, heavily bureaucratized country where he can give dictatorial orders to intimidate people.  However, there are so many actors involved and so much corruption all through the Russian bureaucratic system; it is really hard to make everything happen exactly the way it should.  

Waste of money

The associated economic benefits of being an Olympic host are marginal at best and disastrous at worst. While many of these arenas and stadiums are stunning and maximize athletes’ chances at record-breaking performances, how useful are they after the Games end? What will become of the Olympic venues? Unfortunately many fade into obscurity or become general-use arenas. The 85,000-seat centerpiece of the 1996 Games in Atlanta was the site of some truly incredible moments. It's still around, although in a form that would be unfamiliar to hardcore Olympic fans. Downtown Atlanta has relatively little use for a gigantic track and field stadium. Olympic host venues such as Atlanta, Sidney and Barcelona saw little if any increase in tourism as a result of the Olympics being held in those cities. And Sochi with its pebble beaches and shabby hotels built for the Olympic Games and the non-democratic rule of Putin is hardly going to entice visitors from other nations.  

There is however no doubt in my mind that the skating rink in Sochi will be used long after the Games are completed but I doubt that the US $265 million ski jumps will be used again. They were designed to produce jumps of around 106 metres) and the large (140 metres. There are very few people in the world who are willing to go risk their lives going down ski jumps of those heights other than competitors in Olympic Games and it is highly unlikely that the Games will ever be held in that part of Russia again. Further, the last time the Olympic Games were held in Russia was almost a quarter of a century ago when the Summer Games were held in Moscow. 

But the biggest loss as a potential economic payoff will probably be the US$779 million Fisht Stadium named after Mount Fisht. The 40,000-spectator capacity stadium was built primarily for the 2014 Winter Olympics and Paralympics, serving as the Olympic stadium which sole purpose was the venue for the opening and closing ceremonies. Even then, it wasn’t filled to capacity. After the Games, the stadium complex will serve as a training centre and match venue for  Russia's national football team.

Fisht stadium is one of the 11 arenas to host matches in the 2018 FIFA World Cup. For that match, the stadium can hold 47,659 spectators.  But those matches are held every once four years and there is no guarantee that the FIFA World Cup matches will be held in that stadium in 2022 and it is unlikely that the Olympic Games will be held there again in our lifetimes. As I see it, there is only three occasions when that stadium will be filled with thousands of spectators—the opening and closing ceremonies of the Games and the 2018 FIFA World Cup match. There are seven stadiums in Germany alone where the FIFA World Cup matches were held and five more still available for those matches. There are 41 large stadiums in the UK. There are hundreds of large stadiums around the world so I think that once the 2018 FIFA World Cup match is held in the Fisht Stadium; that will probably be the last time the stadium will have a large contingent of spectators in it. One of the reasons is that the hotels were so shabby; no one will trust the Russians to renovate them to any high standard. The stadium in Sochi is a huge loss economically speaking for such an enormous stadium to eventually be used as a training site for a football team. Can you vision just how much money will be spent each year to keep it open so that the Russian football team can use it for their training? What a sad fate for such a magnificent stadium that will never see full capacity. It didn’t even have full capacity in the opening and closing ceremonies of the Games.

It is a shame that the corruption surrounding the Sochi Olympic Winter Games of 2014 was so rampant. It is also unfortunate indeed that the Russians have to foot Putin’s bill which the Russians can ill afford so that he can look good in the eyes of the world.

I really liked the cartoon placed on the cover of The Economist in which Putin is shown as a figure skater who has just dropped his partner (representing the people of Russia) and then is preening himself before the crowd with his toes pointed towards them and his arms aloft. There is one good thing about all of this however—Putin’s fiasco isn’t going to go down in history as his finest hour.                                                                                                                                      
He recently made a really stupid statement. He said when asked if he associated homosexuality to pedophilia, the replied when addressing his remarks to homosexuals, “Leave children alone, please.” Someone should have told him that homosexuals per se are not the kind of people who molest children. It is the non-homosexuals who are doing it.                           
Despite what I have said about Putin, the Games were a great success. There were no acts of terrorism committed in Russia during the Games and the opening and closing ceremonies were absolutely a real visual and audio treat. Great credit goes to the Russians for their efforts in making the Games so successful.       

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