Today’s post is from Ethan Burger. Burger is a D.C.-based attorney who has followed Russian-connected transnational crime and corruption for over a decade and until recently was a member of University of Wollongong’s Law Faculty. He can be contacted at ethansb@post.harvard.edu.
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Who Will Be The Real Medal Winners At Sochi?
Corruption exists throughout the world, but its forms vary according to numerous factors such as form, scale, consequences and beneficiaries. It is difficult not to be a little bit skeptical over Russian President Vladimir Putin’s recent agitation over his sudden appreciation of the magnitude of the apparent corruption in connection with the preparations for the 2014 Sochi Winter Olympics.
According to recent press reports, Russia’s Winter Games will be the most expensive Olympics ever – more so than the 2008 Beijing Summer Olympics — the cost of which is estimated to have exceeded the equivalent of $40 billion – an exact figure cannot be determined given the non-market nature of the Chinese economy.
Earlier this week, it was revealed (here) that the Sochi Winter Olympics will cost the Russian people at least five times greater than was originally budgeted by approximately 1.5 trillion rubles ($51 billion at current exchange rates). These are not matters of mere cost overruns. This particular situation is either the product of large-scale petty corruption or the political realities of contemporary Russia. It would be unrealistic to think that this could take place without money passing hands – furthermore, it is unlikely that all the work for the games is being accomplished solely by Russian companies and individuals.
Russian President Putin fired one of the Vice Presidents of the Russian Olympic Committee Akmet Bilalov, reported to be the owner of a company which was constructing the ski jump and related facilities before selling its stake to state-owned Sberbank last year. This situation is likely to prove just the tip of the iceberg. One wonders whether the Russian President is more upset over the existence of the situation or that this apparent manifestation of corruption was not benefiting his people. In any event, such public corruption is not good for Russia or the President’s image.
Indeed, there is some indication that Mr. Putin and his favorites may be treating the Games as his latest cash cow. (See here from NBC News). For instance, the world’s largest gas company, Gazprom, formerly state-owned, seems to control directly or indirectly a large share of the construction activity related to the Olympics. According to one report (here) about 6 years ago, “in a sensational interview in Germany’s Die Welt Stanislav Belkovsky, the well-connected insider who initiated the Kremlin campaign against Yukos in 2003, made specific claims about Putin’s wealth. He alleged that Putin owned . . . 4.5 percent of Gazprom.” The report further noted that Mr. Putin’s total personal fortune was likely to be greater than $41 billion making him one of the world’s 10 wealthiest persons. In the view of some observers, Russia is a contemporary equivalent of the English East India Company. It is not business acumen that has made the Russian President one of the richest men in the world. No one knows how many of his subordinates are his shills or how many shell companies he is a partial beneficial owner in does business in Russia or with the backing of the Russian state outside its territory.
To my knowledge, bribery, kickbacks and rigged-bidding is illegal within the territory of all of the world’s more than 200 states. The use of the term “state” is deliberate here since most of the world’s polities represented in the Olympic Games could be thought of as mere territories where elites control particular territories. The individuals who inhabit such territories are not subject to a “social contract” where they pay taxes in exchange for the receipt of services and they are often powerless to change the ruling governments even if they might root for the teams carrying their “nation’s” flag.
One might classify states where people exercise genuine civil and political rights as countries. The fact that the World Olympic Committee allows a state to send a team to participate in the games or the United Nations grants a state the right to participate in the international body’s activities does not a country make. Many elites of many states enrich themselves through the sale of licenses, the collection of custom duties or the sale of raw materials. In some respects, they resemble kleptocracies – where the equivalent of organized crime groups conduct their business, but under the guise of legal authority. The Winter Olympics constitute major opportunities to earn money.
In 2011, Russia enacted, but selectively implemented legislation that prohibited the payment of bribes abroad to obtain or retain business. Granted, given limited resources, there is always an element of discretion to law enforcement activity. In early 2012, Russia became a signatory to the 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the Anti-Bribery Convention), which entered into force in 1999. If recent events are any indication (e.g. the 2010 Commonwealth Games held in New Delhi or the 2008 Summer Olympics held in Beijing), it is not a matter of whether there will be corruption in the preparation and carrying out of the games, but its scale.
What makes Russia a special case is the high degree of politicalization of law enforcement, much of which is seemingly feudal in nature – with the central authorities usually controlling the most profitable business endeavors. Perhaps, Mr. Putin’s concern about corruption is for public consumption or reflects anger that he and his favorites are not the beneficiaries of the corrupt conduct.
In 2011, Transparency International published a survey of 3,000 business executives from developed and developing countries, which ranked Russian companies as the most likely to have firms that paid bribes to obtain business. The concept of nationality of a company can be misleading since where it is formed need not indicate the nationality of the beneficial owners of the actual bribe payers. Thus, one needs to be careful when analyzing the characteristics contributing to the high cost of next year’s very expensive Winter games.
Nevertheless, at the Olympics, individuals will win medals. Fans will cheer. Food and beverages will be consumed as well as souvenirs sold and hotel rooms filled. Let there be no doubt, the real winners of the games in Sochi will be the public officials and business persons – many of whom will be the same people – and a large share of whom will have obtained their business opportunities through bribes paid to public officials. There should be no doubt that many of the same persons will also regard themselves as fortunate that Russia will be hosting the 2018 World Cup Games.
