In 2007, Transparency International ranked Russia 143rd out of 179 countries on a scale of the world’s most corrupt countries. Corruption in business hits foreign trade the hardest since this is where the big money is – after all, the Federal Customs Service collects anywhere from 40-60% of the Russian government’s annual revenues.
It is incredibly difficult for an outsider to understand the full extent of the criminality infecting the Customs for the simple reason that graft, bribery and kickbacks are soft crimes benefitting the person offering the bribe, as much as the person receiving the bribe. There is no way to penetrate the system unless you are part of it, no incentive to disclose what goes on (and indeed, disclosure may be extremely dangerous), and good reason accept the status quo if it benefits you. While most western companies operate under strict prohibitions against offering bribes, the stark reality is that, one way or another, almost everybody pays to play.
A 2008 report issued by the Institute for Comparative Social Research and the Institute for Public Projects in Russia titled “The Nature and Structure of Corruption in Russia” mentions that getting customs duties reducted costs 30-50% of the sum on which the duties are assessed. The cost for bribes to participate in capital projects in Russia – investment in port, road, rail or warehouse infrastructures – equal about one-third of the contract value.
While smearing with a broad brush may be unfair – after all, with over 60,000 officers Customs workers in Russia spread over 8 departments covering the world’s largest landmass, doubtless there are plenty of honest officers out there. They are no doubt dismayed – and disgusted – by the unlawful excesses they witness, and want nothing more than to see deep and serious reform. They understand that corruption means less money for Russia’s schools and universities, for the care of her pensioners and elderly, as well as for funding badly needed road, rail and port projects to support foreign trade.For the money skimmed by dishonest Customs officers goes towards nothing but their own pleasure – it funds shopping sprees for designer clothes, fancy trips to exotic destinations, and opulent feasts in high-priced restaurants.
Most Westerners in Russia’s foreign trade are insulated from the day-to-day corruption in Federal Customs by design; they avoid getting caught up in racketeering by working import and export operations through an army of freight forwarders who deal with Customs on their behalf. A western company gets an invoice for service and pays it with a clean conscience, relying on the freight forwarder to do the dirty work. The St. Petersburg transportation market supports literally hundreds of freight forwarders whose stock-in-trade is handling customs clearance. The most reliable among them keep their customers on Customs’ good side, and are therefore offer the most expensive services. As the old Russian proverb put it, ne imet sto rublei, a imet sto druzei – better one hundred friends, than one hundred rubles. For a western company moving cargo to Russia, best business practice boils down to four simple rules: 1) Master the technical side of shipping; 2) Find a good freight forwarder who can handle the money side predictably; 3) Budget for the occasional shipment to go awry and 4) Don’t antagonize Customs.
The last proscription is tricky. Here it helps to remember that, while it is nice to thank an officer for services rendered, another Russian proverb applies: Spasibo v karman ne polizhish – You can’t put a thank you into your pocket.
Unlike government workers in the West, who work under strict proscriptions regarding the receipt of gifts, Russian government workers nearly always expect a little something extra from their constituents. They always want to put a thank you in their pockets – corruption is, after all, not an abstract concept, but a very human one. And the officers working for the Russian Customs are nothing if not human beings. Although they may be raking in the big money from bribes, graft and gaming the system, they also appreciate a little grease on the wheels from time to time. Unlike the tedious West, where even a little gift above as little as $25 can land a public servant in hot water, there are plenty of very public occasions where it is not only appropriate, but expected, to put on the grease in full public view.
In fact, there is nothing a Russian Customs officer likes more than thoughtful little gifts for the holidays. This being Russia, there are so very many holidays to choose from. As the Russian Embassy website puts it: “Russian holidays present a motley picture — new and old, official and unofficial, professional and private, religious and secular. All occasions warrant a celebration.”
Remember it: “All occasions warrant a celebration.”
The first main holiday to celebrate is New Year’s. New Year’s is the season for giving, and indeed, it is considered extremely bad form for anybody to show up at Customs without shopping bags stuffed with goodies. I have heard of officers at Baltic Customs dressing down couriers from freight forwarders for daring to show up empty-handed during the holidays. When I worked in St. Petersburg, it was routine for shipping companies and freight forwarders to spent thousands of dollars on New Year’s presents for officers in Baltic Customs. Goodie bags included boxes of Belgian truffle chocolates, bottles of Remy Martin cognac, Asti Spumanti, or French champagne (not Russian), jumbo-sized jugs of Johnny Walker Red and Black Label whiskey, top-of-the-line vodkas (Finlandia and Kremlovskaya, the preferred brands), tins of Danish butter cookies, company calendars, leather-bound diaries and office sundries. Department heads got high-end electronics like multi-system boom boxes, DVD players and karaoke systems.
These gifts were given by the more budget-conscious, and lie somewhere way down low on the comparative generosity scale. The more high-end givers, rumor had it, were the bigger freight forwarders who splashed out to sponsor extravagant feasts at St. Petersburg’s best restaurants, notably – and how could it be otherwise? – The Staraya Tamozhnya, or Old Customs House. At the very top end, it was said, the senior officers were fully sponsored shopping vacations to France, Finland, Greece and Thailand – the ultimate in holiday cheer.
Even though the New Year is the traditional main holiday season, Russians take any excuse to party and relax, and the concept of New Year has become somewhat elastic over the past 20 years. Now many Russians begin their winter vacations on December 25, or ‘Catholic Christmas,’ which neatly segues neatly into January 1, followed by Russian Orthodox Christmas on January 7 and Old New Year on January 13. Many officers take advantage of the January 26 International Customs’ Worker holiday to stretch out their rest and relaxation even more.
The extended holiday break is a time for many of the department heads in Customs to take a break, as well, and most importers know it as a the myortvi sezon – the dead season, when it is notoriously difficult to resolve any but the most basic Customs issue. Anybody with any authority is far away from Russia, out on holiday, incommunicado, and junior officers dare not make a decision in their absence – a major reason why the average dwell time for containers in the port of St. Petersburg increases dramatically during the winter. If your cargo gets held up before Christmas, the chances are good it will not be released until February; something to build into your transportation cost model.
Then there are birthdays – among the most sacred and beloved of Russian holidays, a chance for family and friends to gather around the table to feast, drink and toast the imennik, or ‘name day person.’ The occasion is highly personal – the so presents the perfect occasion for a constituent to show his or her favorite Customs officer the exact value placed on their relationship. For example, referring back to the kompromat.ru article cited in previous blogs, for his birthday on February 13, 2006, the head of the Dagestani Diaspora reportedly presented Baltic Customs chief O.V. Tugolukov with a Volkswagen Taureg, and his wife with a Virtu telephone. “What did he do to inspire such generosity?” asks the blogger, Vitya. He really need not ask. As the old saying puts it, “Give a man a ride home, you’re a nice guy, but give him an expensive imported German luxury ride, and you’re a wise guy.”
Are these orgies of gift-giving spontaneous expressions of gratitude coming from the business leaders of the Russian transportation business community? Are the Russian businessmen so grateful for the helpfulness Customs officers show them that they are unable to restrain themselves from handing out thousands and thousands of dollars worth liquor, expensive vacations, electronics and even automobiles, for the slightest excuse?
Maybe. Cultivating good relations with government officials is the way to protect your business interests in Russia. And the consequences of not doing so go beyond looking foolish, like the only person showing up at a birthday party without a present. As outsiders, we can really only speculate
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