THE BLOG

How Corruption Works in Russia

02/12/2014 12:35 EST | Updated 04/14/2014 05:59 EDT

My recent post about the Western press being too critical of Russia was not meant as a free pass for what goes on there. It was an observation that ordinary Russians are not inherently malevolent or conniving.

And make no mistake, I am not an apologist for the Putin regime. The reason I am a Canadian citizen now is that my grandparents took my mother and escaped the almost certain death that awaited them if they would have stayed in Lithuania and been enslaved by the advancing communist armies of Stalin.

Today, the average Russian would probably invite a foreigner into their homes for a meal and a drink. Just as we like to think we would do.

They invited the world to play and they want us to think well of them.

Foreigners have been taken care of in a most hospitable way. Broken hotel rooms and facilities aside. Russia is different in so many ways, as I will attempt to point out here.

Corruption is so firmly entrenched in the Russian consciousness that its implementation is a virtual art form.

One of the only ways one could survive in the Soviet era was by making side deals for food and survival. Of course at the higher levels it took on new parameters. And that way of living remains as a cultural norm. It is carried out with an aplomb that transcends any attempt to eliminate it.

Western corporations and entrepreneurs found that out when they began making inroads into the wild west that was Russia soon after the collapse of the Soviet Union, during the Presidency of Boris Yeltsin, and later Vladimir Putin.

The Sochi Olympics have turned a spotlight onto this most Russian way of daily living. Yulia Latynina is perhaps the most famous, and certainly one of the most widely read journalists in Russia. She writes for the Novaya Gazeta and the Moscow Times, and is also the most popular radio host at the Echo of Moscow, which some observers describe as "the last bastion of free media in Russia."

To give you an example of how she thinks, "Latynina" as she is most commonly known, published an article in the Moscow Times in January of 2010 following the elections in Ukraine, declaring that people can't be trusted to vote for their best interests.

She wrote: "Viktor Yanukovych's victory in Sunday's presidential election -- not unlike the victories of former Chilean President Salvador Allende, Iranian President Mahmoud Ahmadinejad or Adolf Hitler -- once again raises doubt about the basic premise of democracy: that the people are capable of choosing their own leader. Unfortunately, only people in wealthy countries are truly capable of electing their leaders in a responsible manner."

Her words exhibited a foreboding prescience considering what is happening in the Ukraine today as Yankovich chose to align with Putin's Russia rather than the EU.

An article she wrote late in 2013 for the Moscow Times about the Olympic Torch relay is perhaps the best example of how corruption works in Russia:

"The Olympic torches were manufactured by the Krasnoyarsk Machine Building Plant, or Krasmash, a top-secret facility that produces Sineva ballistic missiles. A torch is a much simpler device than a missile. At its core, an Olympic torch is a cigarette lighter, a cheap commodity product, they are a dime a dozen. The Krasnoyarsk Machine Building Plant charged Russian taxpayers 12,942 rubles ($400) for each of the 16,000 torches it produced, coming to a total of $6.4 million. We do not know the price of a single Krasmash missile -- the government jealously guards that information -- but we do see what they charge for their torches. So the question is this: Are their missiles just as overpriced as their torches?

The authorities have maintained that all payment for the torches went to the top-secret Krasnoyarsk plant. This implies that even if an overpayment did occur, the money would have served as an indirect subsidy for Russia's bloated defense industry.

But the Krasnoyarsk Machine Building Plant did not assemble the torches at all. They were produced by a company called Variant-999, which makes metal-frame furniture, refrigerator and retail display equipment. The only connection that Variant-999 has to Krasnoyarsk Machine Building Plant is that it rents out factory space from the plant.

But how could the top-secret manufacturer of advanced ballistic missiles rent out space to a private company? If the Krasnoyarsk plant is well suited to producing furniture, refrigerator and retail display equipment at a profit, why isn't it manufacturing and selling these products itself? In reality, though, every Russian defense factory has similar private enterprises on its premises. In a typical Russian scheme, the factory director owns a private business on site and pockets all of its profits, while the government picks up the tab for all of its operating expenses. Sometimes, however, the owner of the private business pays the operating expenses but pays next to nothing for rent.

These are classic Russian schemes to siphon large budgetary funds into private hands."

And if corruption inside nuclear missile plants isn't enough to get you thinking, it was widely reported that a baby-faced teenager is the key suspect behind the software that was used in the massive security breach at Target over the holidays.

Seventeen-year-old Sergei Tarapsov created the malware and sold it for $2,000. As many as 110-million Target shoppers had their credit card details stolen after a computer program was written to collect the credit card details of shoppers.

Andrew Komarov, CEO of InterCrawler, an internet security firm, didn't accuse the young man of the Target heist but said he believes he developed the software used to skim credit card numbers and other personal data from millions of Target shoppers.

The malware, known as BlackPOS, has been downloaded at least 60 times since it was created, Komarov said.

"But we shouldn't treat him as a criminal," he said. "He should be regarded as a genius."

And so it is in Russia.

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