In Russia, in recent years, the volume of theft through corruption schemes has increased, and today corruption has reached unprecedented proportions. country, only with public procurement, according to the Accounts Chamber, Russian corrupt officials steal from the budget almost a trillion rubbles annually. The growth of corruption in modern Russia is reflected in the world ranking, which is annually compiled by the independent international organization Transparency International. If at the beginning of Vladimir Putin's presidency (in 2000) Russia was in 82nd place in terms of the perception of corruption in its country, then at the end of 2020 modern Russia took 137th place in this negative rating and was in the group of countries with the highest level corruption. Corruption is especially dangerous in the structures of state power and administration, which negatively affects the economy and social sphere. This article, based on numerous sources and statistical data, shows the damage that corruption causes to the Russian economy.
Monographs, articles, PhD and doctoral dissertations, and other works of Russian researchers are devoted to the problem of corruption in modern Russia in General and in construction in particular. The studies of foreign authors (Anderson, 1994; Fukuyama, 2006; Huntington, 2004; North, 1997; Olson, 1995, 1998; Rose-Ackerman, 2010, and others) show ways to reduce corruption practices among government officials. Thus, S. Rose-Ackerman's monograph "Corruption and the State" not only cites numerous facts of abuse of state power for the sake of gaining profit, but also summarizes for the first time the experience of anti-corruption policies of the leading states of Europe and America. In the works of (Andrianov, 2011; Astanin, 2019; Glagolev et al., 2014; Kabanov, 2014; Lyubkin, 2021; Manko, 2012; Moiseev & Prokuratov, 2014; Nitsevich et al., 2014; Okhotskiy et al., 2019; Shedi, 2014 and other), Russian scientists not only cite numerous facts of corruption in Russia, including in the construction sector of the economy, but also consider some theoretical problems of combating corruption in government and administration. For example, in the monograph Modern corruption: domestic specifics and foreign experience in countering corruption (Bilinskaya et al., 2011) an attempt is made to systematize domestic and foreign ideas about corruption as a socially dangerous phenomenon, the reasons for its unprecedented growth in the last decade and the harm that corruption causes to the economy and social sphere of Russia are shown. Corruption in Russia negatively affects investment the climate for attracting foreign capital. D.A. Medvedev, being the President of Russia, at a meeting of the Commission for the Modernization and Technological Development of the Russian Economy on March 30, 2011, admitted that the high level of corruption does not allow the domestic economy to develop steadily, and because of corruption pressure on business, capital outflow abroad is increasing (as cited in Bilinskaya et al., 2011, p. 440).
And this situation has continued for a number of years. This is evidenced by numerous arguments and facts. Thus, Russian President Vladimir Putin, in his annual address to the Federal Assembly in 2015, cited the following facts: "in 2014, the investigative authorities initiated almost 200 thousand criminal cases on so-called economic structures. 46 thousand out of 200 thousand reached the court, and another 15 thousand cases collapsed in court. It turns out that if you calculate that only 15 percent of cases ended with a verdict. At the same time, the absolute majority, about 80 percent, 83 percent of entrepreneurs who were prosecuted, completely or partially lost their business. That is, they were pressed, robbed and released. And this, of course, is not what we need in terms of the business climate" (Message of the President of the Russian Federation V.V. Putin to the Federal Assembly on 2015, 2015). However, from this fact, cited by the head of state in confirmation of raiding and corruption on the part of law enforcement agencies and power structures in relation to Russian businessmen, no proper conclusions were drawn.
When conducting the study, the authors set themselves the following tasks:
- Analyze the state of corruption in the Russian economy, in particular, in its construction industry.
- Show how corruption has penetrated into economic relations.
- Determine the harm from corruption to the economic development of the country.
In accordance with the purpose of the study, the authors tried to identify the following questions:
Purpose of the Study
The purpose of the study is to show the true picture of the state of corruption in the economy of Putin's Russia on the basis of statistical data, arguments and facts from reliable sources, to show its harm and negative impact on such an important sector as the construction industry.
In the article, the authors used analytical, comparative, statistical and institutional methods of a systematic approach to the study of this problem. The study also used the methods of Advances in Economics, Business and Management Research, analysis and synthesis, statistical and other methods for determining the current trends in the economic development.
In order to objectively consider problematic issues related to corruption in the economy and, in particular, in construction, the authors used statistical data, open press materials, reference literature, President Vladimir Putin's messages to the Federal Assembly, and other documents. At the same time, data from one source was rechecked with data published in other sources. These and other facts presented in this article on the problems of corruption in the Russian economy confirm the authors doubts about achieving by 2024 the strategic goals and national goals formulated by President Vladimir Putin in a well-known decree.
In modern Russia, illegal methods of seizing profitable enterprises and other objects of the economy have become widespread. One of these methods was the mass arrests of businessmen in order to force them to transfer the management of enterprises to others. The scale of illegal influence on entrepreneurs under President V. Putin can be judged from the following Table 1.
The Table 1 shows that over the past 10 years, more than 2.376 million businessmen and entrepreneurs have been arrested in our country. More than half of them (and according to V.V. Putin, more than 80%) have completely or partially lost their business due to illegal actions of law enforcement and other power structures of modern corrupt Russia.
President V. Putin's appeals to the investigating authorities and the prosecutor's office to "pay special attention to this" to protect private property and businessmen did not yield any results. Moreover, according to Russian statistics, information from annual reports sent to the president by the ombudsman for businessmen Boris Titov, corruption in the economy has only increased, and the number of arrests for so-called "economic crimes" has increased.
In February 2019, President Vladimir Putin said in his message to parliament: "Business should not go under the head." He reminded the political elite that he had already paid attention to the problem and cited the corresponding figures, but the situation was not changing for the better (Message of the President of the Russian Federation V.V.Putin to the Federal Assembly on 2019, 2019). In the report presented to the President of the Russian Federation, Boris Titov noted that Russian business is still not protected from unjustified criminal prosecution, despite the corresponding amendments to the Criminal Procedure Code and clarifications of the Supreme Court. As an example, the business albudsman pointed to the accusations of Sergey Kalinin, the general director of Omskgazstroy, of organizing a criminal community (Article 210 of the Criminal Code of the Russian Federation).
As a result of pressure on business in recent years, the flight of capital abroad, registration of enterprises and firms in offshore companies has not decreased. As a consequence of the pressure on business in recent years, the flight of capital abroad and the registration of enterprises and firms in offshore areas have not diminished. This is evidenced by the Table 2.
From the table it follows that from 2008 to 2020, more than $ 818 billion was withdrawn from Russia. This amount (more than 59.45 trillion rubles at the rate of the Central Bank of Russia as of March 15, 2021) exceeds three annual state budgets of the Russian Federation.
The offshore economy hinders the socio-economic development of our country, makes the national goals and strategic objectives set in the decree of President V. Putin for the period until 2024 impracticable (The President signed the Decree “On the national goals and strategic objectives of the development of the Russian Federation for the period up to 2024”, 2021).
Money withdrawn to the West does not work in the construction or any other branch of the Russian economy. Therefore, the Russian government, seeking to return the money of businessmen from abroad, in 2015 published a capital Amnesty program, under which large businesses were offered to return assets and money to the country in exchange for guarantees of non-prosecution for tax and currency violations.
The next round of Amnesty - the third since 2015, when President Vladimir Putin called on billionaires to help the falling economy-ended on February 29, 2020 (Another $ 190 billion was withdrawn from Russia under talk of capital amnesty, 2021). During this period, Russians could voluntarily declare property and accounts abroad, receiving an exemption from personal income tax and income tax of controlled foreign companies, provided that they become tax residents of the Russian Federation. The money was offered to be repatriated to banks located on the territory of Russia, and companies-to re-register in special administrative regions (SAR) in the territories of the Kaliningrad region and Primorsky Krai. But neither appeals to patriotism nor the creation of internal offshore companies with zero tax on dividends could reverse the river of money leaving Russia.
In the Russian scientific and popular science literature, as well as in the electronic and other media, numerous facts of corruption are cited that have a negative impact on the construction of important state facilities, including those related to their rise in price and corruption scandals. So during the construction of the Vostochny cosmodrome for the period from 2012 to 2019, 140 criminal cases were initiated, according to the General Prosecutor's Office. More than ten percent of the funds allocated for the construction of the Vostochny cosmodrome have been stolen. This fact was officially confirmed by the press secretary of President V. Putin Dmitry Peskov. "A total of 11 billion rubles were stolen." 32 people were convicted of corruption. Ex-head of Dalspetsstroy found shot dead in Moscow
Earlier, the Prosecutor General's Office of the Russian Federation stated that since 2014 it has revealed a total of 17 thousand violations during the construction of the Vostochny cosmodrome. The cosmodrome began to be built in 2012, but its construction has not yet been fully completed. The Vostochny cosmodrome remains one of the most problematic facilities for law enforcement agencies (Kremlin admits multibillion embezzlement during construction of Vostochny, 2020).
During the construction of another facility, the Power of Siberia gas pipeline, which has enormous economic and even political significance, facts of theft, fraud and corruption were also exposed. The Power of Siberia gas pipeline can be confidently considered the most ambitious construction project in modern Russia for the transportation of gas: 4,000 km of pipes, 770 billion rubles of capital investments, almost 15 thousand builders (The Power of Siberia gas trunkline is the most ambitious project of our time, 2018). The new gas pipeline will significantly strengthen economic cooperation with the states of the Asia-Pacific region, and, above all, with our key economic partner, the People's Republic of China. Russia had to speed up work on the development of gas fields in Eastern Siberia for quite understandable reasons - relations between our country and Europe are going through hard times (tension, sanctions and the halt in the construction of the Nord Stream 2 gas pipeline and other restrictions) (Moiseev, Karelina, Karelina, et al., 2019). With the start of commercial development of the Chayandinskoye gas field and the implementation of the Yakutia - Khabarovsk - Vladivostok gas trunkline construction project, negotiations between Gazprom and the China National Petroleum Corporation (CNPC), concluded in May 2014 for thirty years worth almost $ 400 billion, became possible. It became a real catalyst for a new grandiose construction project. Russia has pledged to supply up to 38 billion cubic meters of it annually. m. of natural gas. The gas monopoly made a decision to carry out supplies from the Yakut and Irkutsk fields through the Khabarovsk Territory and Primorye directly to China. The construction should take place in the most complex and heterogeneous geological Siberian conditions. As Gazprom leaders promised, Power of Siberia, the southern regions of Yakutia and other regions through which the pipeline will pass, will be among the first to receive an impetus for social and economic development.
The cost of building the Power of Siberia gas pipeline, which was initially estimated at 800 billion rubles, has risen in price to 1.1 trillion rubles. It should be noted here that back in December 2015, Stroygazmontazh received five purchase orders from a single supplier for almost 198 billion rubles. Representatives of Gazprom and Stroygazmontazh declined to comment. In 2016, the amount of the contract with another construction contractor - Stroytransgaz (co-owner - businessman Gennady Timchenko) changed for the Power of Siberia section of KS-1 Saldykelskaya - KS-2 Olekminskaya. It grew from 72.2 billion rubles. up to 74.18 billion rubles. On the government procurement website (and Gazprom is a "national treasure"), the reason for the rise in the cost of the pipeline construction was explained by "changes in volumes and prices," which previously could not be calculated and fixed in the corresponding estimates. On 23 January 2017, the contract amounts were adjusted for the reason given “fixing the price”. It follows from the government procurement documents that Gazprom has increased the total amount under five contracts for the construction of Power of Siberia with Stroygazmontazh by Arkady Rotenberg by 25.6% to 248.3 billion rubles. This was announced by the head of the department of construction of the company, Andrey Vorobyov, on April 27, 2018. Thus, in just one year, the estimate for the construction of the pipeline increased by a quarter. The beneficiaries were the citizen of Finland Gennady Timchenko and one of the Rotenberg brothers, close to the president. Favoritism is evident - one of the forms of top-level corruption and conflict of interests, when the interests of friends prevail over the interests of the state (Gazprom has increased the cost of contracts with Stroygazmontazh for Power of Siberia, 2017).
It should be noted that the management of the gas monopolist, taking advantage of a certain lack of control, is constantly increasing the amounts that were originally agreed on a particular construction project. Thus, the cost of developing the Chayandinskoye gas field has increased and is now estimated at almost 0.5 trillion rubles. According to the same scheme, the original estimate of the Amur Gas Processing Plant (GPP) increased from 670 billion to 950 billion rubles, or more than 40% (Gazprom actively finances the construction of important gas transmission projects, 2018). It is difficult to understand why Gazprom needed to invest hundreds of billions of rubles in the construction of a gas processing plant on the border with China, when the Chinese are ready to accept pipeline unliquefied gas. According to analysts' calculations, the Amur GPP will pay off by 2044 at a peak load, which most likely will not exist. The cost of the Power of Siberia gas pipeline increased by almost the same amount (37.5%), from 800 billion to 1,100 billion rubles. In January 2020, the chairman of the Russian Audit Chamber A. Kudrin said that the scale of corruption is not decreasing and is measured in trillions of rubles. According to him, when detecting financial violations, the Accounts Chamber can only send its materials to law enforcement agencies, which will have to independently find out whether these violations can be considered corruption crimes. The authors doubts that at present a criminal case can be instituted against the favorite of A. Miller on grounds of illegal enrichment through corruption schemes. Sberbank analyst Alex Fack, one of the best investment analysts on Russian equities, was fired for telling the truth, revealing the essence of Gazprom's machinations of enriching contractors, owned by Gennady Timchenko and Arkady Rotenberg, who became billionaires.
The Power of Siberia gas pipeline, which was put into operation at the end of 2019, almost immediately found itself in the center of a major scandal: the media got information about serious problems with filling the main pipeline with gas from the Chayandinskoye field in the south of Yakutia, and at the same time some unpleasant facts became known. The appointed commission, “closing its eyes to the obvious facts of forgery, violation of technology, lobbying the interests of the contractor, tried to distort the essence of the claims of the engineering community, which revealed the shortcomings in Power of Siberia. Therefore, in February, four leading engineers of Gazprom Dobycha Noyabrsk sent letters to Viktor Zubkov, Chairman of the Board of Directors of Gazprom, to the Accounts Chamber and the Presidential Administration. In particular, they say that the planned gas production at the Chayandinskoye field is maintained only in one third of the wells, in the other third gas is partially present, and in another third it is absent altogether. In December 2019, a memorandum was signed with Mongolia and a decision was made to build a new trunk gas pipeline through Siberia, the so-called Power of Siberia-2, and now bright prospects for the development of new hundreds of billions of rubles are opening up for Gazprom and its billionaire contractors.
A lot of budget and private money was spent on the construction of sports, infrastructure and other facilities for the Winter Olympic Games in Sochi. The Sochi Olympics had a tremendous success, Russian athletes, despite some doping scandals, took first place, delighting their fans. However, in addition to the revealed cases of doping, the impression of the sports festival is darkened by the revealed facts of corruption during the construction of Olympic facilities. It was noticed for a long time: the more grandiose the construction, the more budgetary and other money is allocated for its financing, the more opportunities appear for corrupt officials. The construction of Olympic facilities in the resort town was no exception. Russian President Vladimir Putin said there was no corruption in preparation for the Sochi Olympics and asked to inform him about the facts of corruption, if any (There was no corruption in preparation for the 2014 Olympic Games, Putin is sure, 2014).
Here are some of their facts of corruption in the construction of Olympic facilities. According to investigative journalism, the costs for Sochi-2014 were ten times higher than the budgets of the past Winter Olympics in Turin, Italy, and Salt Lake City, America, and Vancouver, Canada. The costs of preparing for the Games have exceeded $ 30 billion against an initial estimate of $ 12 billion, according to representatives of the Ministry of Regional Development. Economists attribute the abnormally high spending on the Sochi Olympics to both low efficiency of contractors and high corruption. According to experts, there are several reasons for the formation of such an exorbitant price for the Olympics: overestimated estimates, a huge share of kickbacks, very inefficient construction, rush jobs, catastrophic underinvestment in the infrastructure of the chosen location. "We have incredibly overstated all costs due to inefficiency and corruption. We do not know how to build efficiently and cheaply. We have huge non-production costs, and this is corruption", - Natalia Zubarevich, director of the regional program of the Independent Institute for Social Policy, said.
On the facts of corruption in the state corporation "Olympstroy", which was engaged in the construction of Olympic facilities in Sochi, about 30 criminal cases were initiated (Investigators found corruption at Olympstroy, 2011).
Thus, this "construction of the century" was also affected by corruption, when the officials of the "Olympstroy" corporation used their official imprisonment for personal enrichment.
The ruling party, through its faction in the state Duma, has not ratified key articles of the UN Convention against corruption for almost two decades. During this period, its representatives were involved in high-profile criminal cases for corruption on a particularly large scale, including: Minister of economic development A. Ulyukayev (for a bribe of 2 million US dollars, governors N. Belykh (400 thousand euros), V. Dudka (40 million rubles), V. Gaizer (1 billion rubles), A. Khoroshavin (1.1 billion rubles), and others.
Opponents of full ratification of the UN Convention against corruption explain their unwillingness to introduce articles on illegal enrichment and confiscation of corrupt officials ' property into Russian legislation by allegedly contradicting an international document that summarizes the world's experience in combating corruption with the current Constitution of the Russian Federation. According to the authors, this is not true. In the Constitution of the Russian Federation (item 4 of article 15 of Chapter 1. "Fundamentals of the constitutional system") it is written: "The generally recognized principles and norms of international law and international treaties of the Russian Federation are an integral part of its legal system. If an international Treaty of the Russian Federation establishes rules other than those provided for by law, the rules of the international Treaty shall apply" (New text of the Constitution of the Russian Federation as amended in 2020, 2020).
Of course, these and other facts had a negative impact on the growth of corruption in the Russian economy.
As a result of this study, the authors came to the following conclusions.
Corruption in the construction industry in Russia is a means of embezzling state budgets, from which construction projects are financed.
Thus, corruption during construction is the "tax" that a Russian citizen actually pays to officials, criminals and all those who participate in the implementation of projects financed from the federal or regional budget.
To reduce corrupt practices in construction, measures of a political, legislative and economic nature are needed. Political measures include the political will of the head of state, who, according to the Constitution (as amended in 2020), determines the entire domestic and foreign policy of the country and has enormous powers, including personnel policy and legislative initiative. The authors considers the urgent ratification of the articles of the UN Convention against Corruption, which President V. Putin signed 17 years ago, to legislative measures. Among them, Art. 20 on illegal enrichment, art. 31 on the confiscation of property of corrupt officials, etc.
Economic measures, combined with anti-corruption legislation, should make corruption an unprofitable and extremely dangerous business. As in China, where corrupt officials in construction are shot, and their property is confiscated. Isn't that why the economic successes of the PRC are so enormous: over 40 years of reforms, China has increased its nominal GDP 50 times (Moiseev et al., 2019).
Against the background of the phenomenal success of the Chinese construction industry, the economic performance of the Russian construction industry is very modest.
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25 September 2021
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Moiseev, V. V., Komarova, O. A., Novopavlovskaya, E. E., & Borisovsky, V. I. (2021). Corruption In The Russian Economy. In I. V. Kovalev, A. A. Voroshilova, & A. S. Budagov (Eds.), Economic and Social Trends for Sustainability of Modern Society (ICEST-II 2021), vol 116. European Proceedings of Social and Behavioural Sciences (pp. 244-253). European Publisher. https://doi.org/10.15405/epsbs.2021.09.02.26