“I kept returning,” he said, “until someone approached me to say he sympathized because he saw me standing in line every day. The man then gently suggested I visit another office down the hall, where it was understood I’d pay a bribe and my problem would disappear. It did.” Maltsev, who on that occasion coughed up five hundred dollars, said routine pressure like that is effective because it paralyzes companies. “Business owners will do anything to unfreeze their bank accounts,” he said. Since the collapse of communism, officials have called entrepreneurship and small and midsize businesses the keys to future economic success. At the same time, however, running one’s own business has gone from merely extremely difficult to downright dangerous, and not only for Russians.
Among those who opened businesses in the 1990s were thousands of adventurous foreigners who came to Russia to make their fortunes in the country’s wild new capitalism. Some struck it rich, but life has been far from easy for many of them. One is a dentist named Giovanni Favero, whose high-tech American-Russian Dental Center occupies plush quarters in the center of Moscow.
I met Favero in 2001, when I needed an emergency root canal and his clinic was the only one listed in the telephone book that answered on a weekend. That was the first of many regular visits I paid to the genial, white-haired man in his early seventies who speaks in a deliberate, indeterminate American drawl. Favero had run a practice in Sacramento for more than twenty years when he first came to Russia to lecture about American dentistry in 1991. He’d believed Soviet standards were advanced until he examined a Russian patient who’d just visited a dentist but still needed twenty-one cavities filled and a root canal. “When I saw the kind of dentistry that was actually practiced here, I said, ‘Wow, I can really make a difference,’ ” he told me.
Favero eventually realized he could make an impact only by running his own practice. He also stood to make a fortune from newly wealthy Russians with very bad teeth. After opening his first clinic in 1995 and a second several years later, he now employs some forty people. Explaining why owning a business in Russia is more difficult than he’d expected, he began with a story: one morning, he found two thugs waiting for him outside his apartment.
“Instead of going to the elevator, I started walking down,” he said. “But they ended by pushing me down the stairs, where I got into a corner and tried to defend myself.” The thugs bloodied Favero and broke several ribs before running off. He believes they had been sent by the Russian he’d appointed to be his company’s nominal director—something often required of foreigners. Apparently the man wanted to intimidate him into surrendering the practice. Having set up bank accounts and prepared all the paperwork necessary to transfer ownership of the clinics, the director needed only Favero’s signature.
Although he went to the police instead and managed to maintain control of his practice, Favero said the authorities provide no guarantee of security. “You never know what’s going to happen.” Like so many others, he complained about constant demands for bribes by the tax police and other officials. The state’s drive to reassert command over private industry is even worse. “They’ve taken back control,” he said of officials under Putin. “Everyone wants to be a bureaucrat because that’s how you make money. They let you work only if they think they can get you in the end.”
Favero sees Moscow’s glossy new buildings and bustling streets as a facade that hides the corrupt deals that stand behind everything. Advertisements for dental services plastered across Moscow are a symptom. “They advertise like crazy to get one-time patients, screw them and then close,” he said of some of his competitors. “They don’t need to care about doing a good job. With more than ten million people in Moscow, they don’t need repeat customers.”
Favero, who once caught a former partner secretly transferring money to the United States, said successful businesses like his are always under threat of being taken over by someone with better political connections. “If you go into partnership with somebody and the company is losing money, it’s your company,” he said. “If you make money, it’s theirs. Believe me, they’ll find a way to get it from you.”
He attributes such behavior to the Soviet legacy of trying to “screw the system.” “People will tell you what you want to hear to get what they want, and if you don’t find out whether they’re lying, it’s your problem.” Although he believes that when he leaves he’ll have to abandon the investment he’s made in his clinics during the past decade, he doesn’t regret his time in Russia. “It’s a real learning experience to find out just how lucky we are in America.”
Far from showing any signs of waning, the informal economy of connections, agreements and favors, which was called blat in the Soviet Union, has relentlessly grown since Putin first took office in 2000. Among other authorities who have grandly acknowledged the problem, Dmitri Medvedev as president in 2008 claimed that corruption threatened Russia’s very viability as a state. The government’s own figures put the country’s “corruption market” at an estimated three hundred billion dollars a year. In 2011, the police said the average bribe paid to officials was ten thousand dollars, while Transparency International ranked Russia 143rd out of 182 spots on its corruption index. The bribes inflate the price of everything from real estate to food as companies pass on the hidden costs of doing business. Maltsev told me he had no hope anything would change. “It’s only words,” he said of Putin and Medvedev’s promises. “Corruption has always been all-pervasive. It’s an integral part of our state.”
Instead of tackling crime, the police spend much of their time falsifying statistics to meet Soviet-era quotas for cases they’re required to solve, sometimes by framing innocent people. An ex-detective who spoke to me anonymously because he was afraid of reprisals from former colleagues said police even set up crimes they appear to solve as a cover for their real activity: using their official positions for profit. Police couldn’t live on their meager official salaries, he explained, let alone afford the rows of shiny luxury cars parked in front of many police buildings. Those who don’t agree to take part are fired or framed. “It’s a business,” he said, summing up. “And it goes all the way to the top.”
The near-total nature of Russian corruption provided rich material for Nikolai Gogol, whose 1836 play The Inspector General is a brilliant satire of bureaucracy in the nineteenth century and one of the landmarks of Russian drama. In the comedy, the crooked officials of a small town mistake a visiting civil servant for a high-ranking government official whose inspection they desperately fear. Cottoning on, the young man takes advantage of the fawning local officials: he moves into the mayor’s house, where he flirts with his wife and daughter while taking bribes from the town’s merchants in return for promising to exile the hated town boss. The pretender skips town just before he’s found out and the real inspector general arrives.
Recent accusations have placed Yuri Luzhkov, whom the Kremlin ousted in a political power struggle in 2010, among the country’s most notoriously corrupt officials. Luzhkov was Moscow’s mayor for seventeen long years, ten of them under Putin and Medvedev. Running the city like a personal fiefdom enabled him to sink hundreds of millions of dollars into ZiL in a futile populist campaign to revive the company. Medvedev fired him after a cynical state media campaign that accused him of making his wife Russia’s richest woman by funneling city contracts to her construction company. But a year before his unceremonious removal, when the Kremlin was exhibiting no disapproval of his tight control of the city because it suited its needs, opposition leader Boris Nemtsov published a report about the mayor in which he put the price for a kilometer of road then under construction in Moscow at a whopping $570 million.
“If you compare the cost of Moscow’s roads to the Large Hadron Collider in Switzerland,” Nemtsov told me soon after his report was issued, “the particle collider is cheaper. So is the Channel Tunnel [between Britain and France].” It’s no accident that the Russian capital remains one of the priciest places on earth: its
costs reflect a closed political system in which construction companies enjoy close ties to political leaders. “In any country in the world, the Czech Republic, Britain, Germany, even Italy,” Nemtsov said, “it would be cause for a criminal investigation. Those two”—Luzhkov and his wife, Elena Baturina—“would be sitting in jail. But not in Russia.”
Nemtsov added that among the countless politicians up to their eyeballs in corruption, Luzhkov and Baturina were “so odious” that any move against them would send a loud signal to politicians and law enforcers across the country. The move came the following year, when Nemtsov’s accusations—although never attributed to him or many other critics of Luzhkov in the opposition—suddenly found their way onto state television as part of its smear campaign. However, the allegations were no sign of a real battle against corruption. They were used to remove political rivals—in that case the last powerful regional leaders installed during the Yeltsin era.
Luzhkov fought back in a show of resistance exceedingly rare among top politicians; he was, after all, a founding leader of Putin’s United Russia Party. But his inevitable defeat came when Medvedev used his presidential power to fire him. His replacement, a dour bureaucrat named Sergei Sobyanin, who had previously served as Putin’s loyal chief of staff, put Moscow firmly under the Kremlin’s direct control. But although Baturina’s business interests have steadily declined since then, few Russians believe that she, Luzhkov or any other truly high-placed official will be formally called on the carpet for corruption. Sobyanin later faced accusations that he ordered Soviet-era asphalt sidewalks in the city center to be ripped up for replacement with concrete bricks. His wife owns a brick and paving business.
“Many have stopped believing it’s possible to defend their rights if they’re the victims of corruption,” a lawyer named Yevgeny Arkhipov told me. Arkhipov, the director of the watchdog Anti-Corruption Committee, which operates hotlines throughout the country on which people can report abuses of office, said the lack of perceptible change following Medvedev’s promise to fight corruption when he became president in 2008 disenchanted many people, according to the opinions expressed by thousands of callers. That feeling would swell into the protests of 2011–12. But in 2008, just as he was preparing to publish a report on corruption, Arkhipov and several other members of his group were forced to flee the country after he was warned they would be investigated. They released their findings in Ukraine, where they took refuge for two months, until they felt they could safely return.
Arkhipov confirmed that such intimidation is effective for frightening Russians into remaining silent. The authorities’ marginalization of civil society, erosion of public institutions and crackdown on freedom of speech has been thorough enough, he told me, for many to no longer know even how to go about defending their rights. “The stricter their control, the more their activities are hidden from the public,” he said, “and the more difficult it is for people to fight corruption. Better to pay a bribe than start a conflict with an official.”
Not everyone has been cowed. In 2006, I visited a small plant in a nondescript brick building in residential northeastern Moscow, where dozens of workers were hunched over sewing machines and steam presses, producing uniforms for the likes of McDonald’s, Pepsi and Procter & Gamble. The textile company had been started by one of the Soviet Union’s first private businessmen to be allowed to operate legally, Ilya Handrikov, who launched his venture in the 1980s under Gorbachev’s new laws after he was expelled from college for selling clothes he’d made himself.
No fat cat, the gregarious entrepreneur drove a humble Russian-made hatchback and worked out of a cramped office next to his shop floor, behind mannequins displaying the factory’s products. When I first spoke to him, he told me that conducting business honestly was one of his main goals and highest obstacles. He said laws and regulations governing business were purposely vague and often difficult to pin down. Asked about his most frequent problem, he cited visits by fire inspectors and financial regulators who demanded bribes to stop them from reporting fabricated violations.
“When a fire code inspector comes by, he can ‘find’ any number of them,” he said. “Which is of course why the majority of manufacturers have to pay bribes.” When a drunk policeman appeared at the factory’s front door, it turned out, after much barely coherent explanation, that he was looking for a different company. “Doesn’t matter,” he slurred after finally being made to realize his mistake. “You’ll pay me, too.”
Such visits prompted Handrikov to launch an organization to aid businesses like his. Now one of the country’s most prominent corruption fighters, he told me that corruption is choking off hope for Russian businesses to compete globally. “Manufacturing has been destroyed,” he said. “Small and midsize businesses have been trampled. How can you expect companies pressured by taxes, monopolies and political clans to create innovative ideas? They can’t because all their energy goes toward simply trying to survive.”
Forced to rent his factory’s premises on the black market for years because city authorities refused to answer his myriad requests to lease it officially, Handrikov was also compelled to pay the fines their deputies stopped by to collect. He said the problem could have easily been resolved with one hefty, well-placed bribe but refused to pay it. For other companies that didn’t have the money to comply with often arbitrary official demands, he said, submitting was cheaper.
“To our misfortune and unhappiness, the bribe is the main instrument of our daily life,” he added. “And because our bureaucracy is the crucial main link between the state and society, things are getting worse and worse for the individual.” Estimating that 30 percent of his expenditures were going toward kickbacks, he said he and other small manufacturers were barely able to stay afloat, in his case despite having big-name clients. “It’s very hard to live by the rules. If you follow them all, pay all your taxes while everyone else doesn’t, that’s unfair competition.”
In 2005, one of Handrikov’s anticorruption groups collected the signatures of big-name legislators and heads of major unions on a petition that entreated Putin, then in his second term as president, to adhere to United Nations and European anticorruption standards. No reply ever came. “When they don’t want to answer us,” Handrikov said, “the question naturally arises: What’s our dear presidential administration really busy doing?”
Partly in explanation, Handrikov described his association’s effort to stop the sale of illegally imported clothes from China in 2005. Brought into the country on five thousand railcars the government had paid to transport, he said, the clothes were being sold by officers of the Federal Security Service, the country’s security forces, who stood to make a huge, tax-free profit. When the Accounting Chamber—Russia’s version of the IRS—sought to investigate the issue, the government barred it from proceeding.
Few who know Handrikov were surprised when he was finally forced out of business during the financial crisis of 2008, after the tax authorities demanded a fifty-thousand-dollar bribe. According to Georgy Satarov, that kind of corruption is a direct result of Putin’s effort to consolidate power in his own hands. Bald, gravel-voiced Satarov co-chairs Handrikov’s association and heads Moscow’s INDEM (Information Science for Democracy) think tank, which studies corruption. One of Russia’s leading political commentators, he told me Putin gave the bureaucracy a free hand by silencing the government’s critics. “Corruption allows people to be easily controlled because it’s easy to manipulate those who’ve been compromised. On the other hand, it also hurts the authorities because it sharply reduces the competence of state agencies.”
Soon after Putin won a third term as president in 2012, state television began showing police confiscating massive piles of cash and jewels during raids on the luxurious apartments of high-ranking bureaucrats. The bread and circuses, part of the president’s show of governing in the interests of the people, were part of the most visible anticorruption drive to date, which included the sacking of
the defense minister. Far from praise, however, the campaign drew comparisons with similar drives under Brezhnev, which also had the unintended effect of exposing just how rotten the system was—especially then, when most people had to wait in line for basic goods. But in 2012, warnings that corruption threatened stability usually ignored the important fact that it’s also central to how Putin exercises his power.1
One of my many personal experiences with official ineffectiveness took place in my apartment on the top floor of a small nineteenth-century Moscow building. One midmorning when I was working there, I heard the doorbell ring, followed by the voices of two men who said they were police officers checking on residents’ registration papers. Annoyed by the distraction and eager to return to work, I opened the door without checking the peephole. In burst two unshaved thugs, one short and fat, the other tall and thin. The tall one was waving a pistol he claimed was loaded. Encouraged by their amateurishness and perceptible nervousness, which suggested they probably weren’t hardened criminals—they hadn’t even bothered to wear police uniforms, which were easily obtainable—I managed to fight them off, aided by my claims that video cameras were recording their break-in and by threatening reprisal from influential friends.
When I later phoned my wife, Elizabeth, an American who was working at the English-language daily newspaper the Moscow Times, she dismissed my arguments that informing the police would be useless. When the police arrived more than an hour later, the two detectives began by carefully inspecting the apartment for indications of wealth, then checking and rechecking my passport and residence permit, no doubt for any inconsistencies that would enable them to solicit a bribe. After listening to my story and laboriously writing a report, they handed it to me to sign. It contained very little of what I’d told them; instead it said only that I’d called the police after my doorbell was rung by two strangers who had left by the time the officers arrived. Their response to my incredulousness helped open my eyes to the effect corruption has on the state’s ability to provide basic functions such as security: you have to understand the chances we’ll catch the would-be robbers are very small, they said, and we have quotas for crimes we have to solve. Help us out, sign the paper and we promise to do everything to find them.
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