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East: Corruption Takes Varied Forms

In a continuing series on the widespread corruption in post-communist nations, RFE/RL correspondent Askold Krushelnycky looks at what forms -- large and small -- corruption has taken in their transitional economies.

Prague, 1 September 2000 (RFE/RL) -- Analysts have offered different explanations for the pervasive corruption in post-communist countries. Some blame the weakness of lax state laws that allows corruption to breed. Others say that, because the state imposes too many rules and bureaucratic layers, the scope for corruption increases and people find the easiest way to circumvent rules is a bribe.

A former U.S. ambassador to Hungary in the 1980s, Mark Palmer, had first- hand experience of doing business in post-Communist countries some years later. In his words:

"There is a problem in all of these countries. There is corruption and it is a significant impediment to economic growth in all of these countries. Not to say that in England or the United States we don't have corruption too -- of-course, we do. But I think that even in the best of these countries, it's more than -- generally speaking -- in the EU (European Union) or the United States."

Corruption among officials in the former communist nations thrives on the petty level. In the Soviet Union and its satellites, it was an accepted fact of life that a small gift was needed to smooth the path in most official transactions. In those days, the difference in wealth between the bureaucrats and those they were dealing with was small and usually in the bureaucrats' favor. A bottle of cognac, some tea or chocolates was generally sufficient to get a bureaucrat to stamp the necessary pieces of paper.

But in the last decade, these bureaucrats have seen some of their countrymen grow rich while they are still poorly paid. They are envious, reasoning that, since businesses need permission that only the bureaucrat can provide, they ought to pay for it.

Celeste Wallender of the Council on Foreign Relations, a U.S. organization, says that one of the reasons for rampant corruption in the post-communist countries is that those in the police and security services who are supposed to fight fraud are actually the same people who served during communist times. That's why, she says, they're not trusted.

"They [the bureaucrats] don't have the proper respect, professionalism, and they're not given a reason to commit to their profession -- including a financial reason, that is, good salaries."

Public-opinion polls in post-Communist countries show that the general public, as well as the domestic and foreign business community, overwhelmingly believe that official corruption is widespread -- and that many of those polled have had direct experience of it. Recent polls show that in Russia 93 percent of people thought corruption was rife, in Kazakhstan 87 percent.

In Estonia, the first former Soviet republic to become a candidate for entry into the EU, 75 percent of the population consider corruption a serious threat. In the Czech Republic 82 percent of those polled believe corruption is a big threat to their society.

Researchers from international monitoring organizations like the U.S.' Freedom House and Transparency International have ranked corruption around the world. They broadly agreed on findings that place at or near the top of the list Albania, Armenia, Azerbaijan, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, Turkmenistan, Ukraine, Uzbekistan and the former Yugoslavia. In all these former communist states, the level of corruption is comparable to some Latin American or African countries long notorious for inveterate corruption.

The least corrupt post-communist countries include Estonia, Hungary, the Czech Republic, Poland, Lithuania and Slovenia. All of them have levels of official misbehavior comparable to Italy or Greece -- which certainly doesn't make them pristine, either.

Latvia is often ranked as a high-corruption country, although it usually scores well on progress towards democracy. French financial expert Phillipe Gelin, who has organized conferences on corruption in the CIS, says Latvia's proximity to Russia is largely to blame for the country's high corruption level, because Russian criminals like to take advantage of Latvia's modern banking system.

"There are very, very strong links with Russia and the financial center in Riga is much more developed than in neighboring countries. And for some Russians [Latvia is] a friendly place because they speak the same language, there's quite a sophisticated banking system and it's quite a modern country. So that's why you have lots of business which would not necessarily be legitimate. which at some stage would go through Latvia."

The most prevalent form of petty corruption in post-communist societies usually involves the payment of bribes to low-level officials. It consists of such things as traffic policemen stopping drivers for imaginary misdeeds and taking bribe in order to waive an official fine. Or it can involve a bureaucrat demanding a bribe to issue a license for a business to be registered or to import goods. Sometimes, too, low-paid teachers or doctors demand unofficial payments for good examination results or medical treatment.

Lucrative opportunities for corruption -- in an area that straddles petty and big-time fraud -- are often open to tax inspectors who constitute extremely powerful, and sometimes armed, groups. The complex, frequently contradictory laws on taxes in many post-communist nations leave ample room for negotiating an agreement where the state gets some tax money, the tax inspector lines his pockets and the businessman is not bankrupted by a crippling tax demand.

Tax fraud is usually the most important way that a government is cheated of money. Russia's biggest auto maker, Avtovaz -- linked to its most famous business oligarch, Boris Berezovsky -- is currently under investigation for allegedly avoiding paying tax by registering 280,000 vehicles under one number -- and thereby paying tax for only one vehicle.

It is difficult to believe that no Russian official spotted the ruse. Gelin notes that, as long as those who are supposed to enforce the laws are poorly paid, corruption will flourish.

"The moment you have people who are paid a very low salary to do a job which consists of stopping people who have a very high salary, there's got to be a deal between them to be done -- and that's what's happening."

The tax inspector, like the traffic policeman, and the low-level bureaucrat, is expected to pass a share of his earnings on to his boss. So it actually is in the interest of state officials to retain the status quo and resist reforms.

Sometimes, more regulations provide more scope for demanding bribes. In Ukraine for example, registering a business can take three months. Paying a bribe is much simpler. Once registered, the business can be inspected by 26 different government bodies that can impose fines for violating the many muddled business laws. That offers another 26 excellent opportunities for corruption.

But the biggest profits from corruption are made when senior members of government and high officials -- including those from security services -- combine with favored businessmen or with criminal gangs in what has been termed a "criminal-syndicalist state." That is the form of corruption we will examine in the next part of this series.