A pop-up museum in Ukraine’s Hryshko National Botanical Garden made international headlines in June 2018. Exhibits included a gold tent shaped like a loaf of bread, a limited-edition BMW, a chandelier valued at eight-million euros, and various other luxury items seized from public officials.
The museum’s name? Corruption Park. Its purpose? To highlight the problem of corruption and the government’s efforts to combat it.
Unfortunately, corruption is far from a museum rarity in the Europe-Caucasus-Asia (ECA) region, which includes Armenia, Azerbaijan, Belarus, Estonia, Georgia, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan. Examples of public corruption in the region range from allegations that Russia secured the 2018 World Cup through bribery; to the recent expulsion of 13 members of the Parliamentary Assembly of the Council of Europe for accepting gifts and bribes from Azerbaijan’s government to boost the country’s image; to reports that government officials across the region own luxury real estate abroad and live well beyond their means. These are just some of the well-known examples; every day, individuals in the countries of the ECA region encounter public corruption as a matter of routine.
International indexes have long said the region presents significant corruption risk for businesses – but what do business leaders with on-the-ground experience think about corruption-related issues in these countries? This subject was the focus of the inaugural Europe-Caucasus-Asia (ECA) Corruption Survey by US law firm Miller & Chevalier Chartered with the assistance of 10 law firms from the region.
Survey respondents included business executives, in-house legal counsel, and other professionals from the ECA countries. Survey questions covered individuals’ and companies’ exposure to corruption, including within specific government institutions, approaches to mitigating corruption risk, and countries’ attempts to fight corruption.
Based on the survey responses, the ECA countries can be largely divided into three categories as highlighted throughout this report, though, of course, with some exceptions. There are countries with viable anti-corruption systems that are showing positive results (Estonia and Lithuania); countries where corruption continues to present a significant challenge for businesses (Azerbaijan, Belarus, Kazakhstan, Moldova, Russia, and Ukraine); and countries where, despite corruption issues, there are reasons to be optimistic about the ability to do business in compliance with accepted anti-corruption norms (Georgia and Latvia).
Notably, we did not receive a statistically significant number of responses for Armenia, Turkmenistan, Uzbekistan, and, despite the assistance of a local law firm, Kyrgyzstan and Tajikistan. Although the survey maintained the anonymity of respondents, this circumstance may be a result in and of itself, reflecting misgivings by local professionals about participating in a survey that could be viewed as taking a political stance. Our own experience in these countries supports grouping them among countries in which corruption presents significant challenges for businesses, although the current political situation in Armenia gives hope that meaningful anti-corruption efforts may be on the horizon in the context of broader political and business reforms.
This survey is Miller & Chevalier’s first effort to assess corruption in the ECA region. We have conducted corruption surveys for over a decade in Latin America (in 2008, 2012, and 2016), and similarly plan to conduct the ECA survey every few years. Future editions of this survey will track the latest developments in each country and across the region and identify corruption-related trends, helping companies with operations in ECA countries to recognize evolving risks and develop tailored anti-corruption compliance strategies.
The corruption landscape
Significant differences among ECA countries. The responses paint a divergent corruption picture across the ECA countries: the region is not homogenous. Responses for some countries – most prominently Estonia and Lithuania – exhibit substantially fewer corruption-related characteristics than their ECA neighbors.
Corruption is an obstacle to business. Nearly two-thirds of respondents say that corruption is an obstacle to doing business in the ECA region. This result is more than just perception—36 percent of respondents note that they or someone they know has been approached to give a bribe to a government official. These results, however, vary widely on a country-by-country basis, as seen in the context of specific survey questions.
Costs of corruption. Many respondents report an economic impact from corruption: over a third (35 percent) say that in the past year they have lost business – whether a specific transaction or market share more generally – to a competitor that provided an improper benefit to a government entity or employee. Over half of the respondents in Kazakhstan, Moldova, and Ukraine report this concern, consistent with the perceived high levels of corruption in those countries.
Areas of government corruption. Respondents were asked about the level of corruption in 10 different areas of government, including: the office of the head of government, parliament, courts, prosecution service, customs, law enforcement, regulators, municipal and local authorities, tax services, and state-owned enterprises (SOEs). More than two-thirds of respondents note moderate to significant corruption in the courts and prosecution service or investigators (both at 67 percent), with 25 percent or fewer respondents for all countries besides Estonia reporting minimal to no corruption in these institutions.
For law enforcement, security service, and police, 76 percent of respondents report moderate to significant corruption, with over two-thirds of respondents in Kazakhstan and Russia describing them as significantly corrupt. Rates of reported corruption are also high for municipal authorities and SOEs. Overall, respondents for Azerbaijan, Kazakhstan, Russia, and Ukraine indicate significant corruption across most of these government institutions, while respondents for Estonia and Georgia express the most confidence in their institutions.
Little confidence in anti-corruption laws. Despite all of the countries having laws that prohibit giving and receiving bribes, nearly three-quarters (71 percent) of respondents view existing laws as ineffective. The lack of confidence in law enforcement, prosecutors, and the courts noted above likely contributes to the perception of the laws’ lack of efficacy.
The compliance landscape
Trends in compliance strategies. Respondents were asked about steps their companies take to reduce corruption risk, with a reference to options reflecting international best practices for anti-corruption compliance. A majority (63 percent) of respondents say their companies have anti-corruption policies, roughly half (53 percent) say their companies provide anti-corruption training, and the same percentage report the use of anti-corruption contract terms. The results show companies looking to take affirmative steps to minimize corruption risks and, perhaps more importantly, highlight areas that companies can target for improvement.
Signs of improvement? Just under half (49 percent) of respondents say the importance of preventing corruption has increased within their companies in the past five years, while 41 percent say things are largely unchanged, and only 10 percent indicate that the importance has decreased.
Desire for judicial improvements. When it comes to the most effective ways to reduce corruption, respondents focus on government institutions, highlighting the need for an independent and impartial judiciary (78 percent), followed by transparency in the public sector (73 percent) and objective investigation and prosecution by authorities (65 percent).
This article was written by James Tillen, Ann Sultan, Michael Skopets, and Maryna Kavaleuskaya at Miller & Chevalier.