The Multilateral System of Anti-Corruption Regulation

in the Transition Economy of Russia Yulia Krylova

Department of Economic Theory, Saint Petersburg State University, Saint Petersburg, Russia

ABSTSTRACT The article is devoted to the analysis of

corruption and rent-seeking behavior in the transition economy

of Russia and the mechanisms for stakeholder integration in the

fight against them. It rests on the premise that combating

corruption is an interactive process based on a complex set of

institutional agreements among stakeholders in the economic

system. The challenge is for all stakeholders to develop

coordinated efforts in order to minimize social costs of

corruption and maximize benefits of anti-corruption policies.

This task might be solved by the multilateral system of anti-

corruption regulation.

Keywords: anti-corruption regulation, corruption,

institutional traps, stakeholder theory

1. Introduction

Transition economies are characterized by the institutional

disequilibrium and tend to be more corrupt than other

countries. The institutional environment in transition

economies is a specific combination of old institutions

inherited from the previous political and socio-economic

systems and new institutions mainly imported from countries

with developed market economies. The specific nature of the

institutional environment in transition countries makes

research on corruption complicated and challenging for

scientists raising a multitude of questions. What is

corruption and rent seeking? Why are transition economies more

affected by corruption than other countries? Why are economic

agents in transition countries so persistent about rent

seeking although its negative consequences for the whole

society are so obvious? How can corruption be effectively

prevented? Furthermore, what could be the role of all

stakeholders in the fight against corruption? This article

seeks answers to these questions.

In case of Russia, the institutional environment consists

of paternalistic institutions in the social sphere inherited

from the command economy and new market institutions which do

not always operate effectively in accordance with their

functions, including the financial market, stock exchanges,

insurance companies, etc.  In addition, the institutional

environment of Russia includes a multitude of informal

institutions, such as tax evasion, embezzlement, and black

economy. These informal institutions represent adaptation

mechanisms of economic agents to the highly unstable

institutional environment in transition economies.

Three different forms of constraint can facilitate anti-

corruption efforts. They are found in law, social norms, and

markets. First of all, legislation defines legal and illegal

behavior and practices. Law does not only prohibit corruption

but it also might shape social norms to some extent. Second,

social norms might facilitate opportunities for combating

corruption. On the other hand, while the question about extent

to which laws can reshape social norms remains debatable, it

is obvious that if social norms do not engender complete

compliance with anti-corruption laws, they impede the fight

against it. Finally, markets determine overall patters of

behavior of small and medium-sized businesses as well as

corporations. The secret of effective anti-corruption policy

is the usage of laws, social norms, and markets in

combination. Therefore, the most important factor for

successful anti-corruption efforts is collaboration of

employees from the public and private sectors, scholars, and

all other stakeholders. Cooperation of all major players leads

to significant improvements in the process of creating

mechanisms for scrutiny and social control of public

administration.

2. The Nature of Corruption in the Transition Economy of

Russia

There are many definitions of corruption which focus on

violation of trust and misuse of power by powerful

organizations or individuals. For example, Samuel Huntington

defines corruption as ‘behavior of public officials which

deviates from accepted norms in order to serve private ends’

(1968:2). According to another definition: ‘corruption is an

extra-legal institution used by individuals or groups to gain

influence over the actions of the bureaucracy’ (Leff, 1964:8).

The first definition highlights the fact that bureaucrats

performing public duties can use their legal positions to

increase their individual welfare, status, or power. The

second definition emphasizes that corrupt citizens or interest

groups attempt to influence legislators and officials in order

to achieve their economic interests. These definitions attract

our attention to the fact that there are different motives for

corrupt deals. Following these definitions, in most transition

economies, bureaucratic administrative states are based on

mutually corrupt relationship between bureaucracy and

citizens.

The notion of corruption is related very closely to rent

seeking. Public corruption is a specific form of rent seeking,

where access to politics is organized with limited

transparency, limited competition and directed towards

promoting private ends. The understanding of rent-seeking

behavior has changed and become more sophisticated in the few

last decades. The models developed by Gordon Tullock (1967)

and Anne Krueger (1974) point out that rent seeking imposes

additional costs on the whole society because it consumes

economic resources that could otherwise be used for production

or other socially meaningful activities.

Corruption can take various forms such as bribery,

nepotism, extortion, cronyism, patronage, graft, and

embezzlement. They are embedded in a range of specific

informal patterns of relationships and informal institutions,

including organizational cultures, routines, and social norms.

The main weapon in establishing anti-corruption policies

requires intensive cooperation between socially responsible

citizens and organizations. Collaboration between these actors

is crucial for combating corruption as it can lead to civil

society synergies that individuals would not be able to

achieve independently.

Transition economies are particularly vulnerable to

corruption. The most important factor facilitating this is

weak governments which are not able to provide stability and

the rule of law in transition countries. The highly unstable

institutional environment, uncertain long-term economic policy

and political conflicts discourage economic agents from long-

term investments in production activities, which results in

legal and illegal capital flight. The early stages of the

transition period are characterized by the conflict of

interests in which different groups of society are attempting

to navigate between old institutions and new legal norms.

These conflicts provoke the escalation in corruption and rent

seeking. Importantly, in this period, informal institutions

dominate formal norms in transition economies. There are

several factors which can be used to explain this phenomenon.

They include the contradictions between remaining formal

norms of the old institutional environment and new legal

norms; insecurity of property rights; problems with the

interpretation of new formal norms and lack of compliance with

them; the highly unstable institutional environment and policy

uncertainty; constant changes in the legislation;

unwillingness of legislative and executive branches to use

their oversight powers to keep legislatures and bureaucrats in

check; disintegration of law enforcement systems; and rent-

seeking behavior of interest groups who attempt to influence

legislators and public officials.

Informal institutions can dominate even when the new legal

system is fixed in the transition economy. For example, the

survey conducted by the INDEM Foundation, an independent

public research organization in Moscow, in 2001-2005 found

that more than half of Russian citizens found themselves in

situations where they were asked for or gave bribes (INDEM,

2005). To address this problem, in 2008 the government of the

Russian Federation approved the National Anti-Corruption Plan.

Furthermore, in 2008 the State Duma passed the new anti-

corruption legislation aimed at developing multilateral

cooperation and support for anti-corruption efforts.

Nevertheless, according to the survey conducted by the Levada

Analytical Center, a non-governmental organization based in

Moscow, the problem of corruption did not improve in

comparison with previous years. Thus in 2010 the share of

citizens experiencing corruption while dealing with public

authorities was estimated to be 55% and the average amount of

bribes increased by 56.7% in comparison with 2005 (Levada

Analytical Center, 2010).

It is impossible to make any exact calculation of the

extent of corruption as its participants try to conceal it.

The most common approach to measuring corruption is based on

averages of ratings reported by a number of respondents. For

example, Transparency International, a leading anti-corruption

non-governmental organization, provides three indicators: a

Corruption Perceptions Index which is based on experts’

opinions of how corrupt different countries are; a Global

Corruption Barometer which is based on a survey of general

public attitudes towards corruption; and a Bribe Payers Index

which is a measure of the willingness of nations to pay

bribes. Table 1 represents the high corruption rank of Russia

in 2001-2010 according to Transparency International, which

indicates a serious problem for the whole country.

Table 1. Russia’s Corruption Perceptions Index in 2001-

2010Year 2001 200

22003

2004

2005

2006

2007

2008 2009 2010

Number of countries 91 102 133 146 159 163 179 180 180 178

Rank 79 71 86 90 126 121 143 147 146 154Score from10 (highlyclean) to 0 (highly corrupt)

2.3 2.7 2.7 2.8 2.4 2.5 2.3 2.1 2.2 2.1

Source: Transparency International, 2010.

Corruption can be seen as a specific mechanism which helps

economic agents to adopt their activities to the highly

uncertain and unstable institutional environment. Often it is

the state that initiates such informal activities by excessive

bureaucracy, red tape, overregulation and restrictions on the

right to contract. The consequence is that implicit contracts

tend to dominate explicit contracts, as well as personalized

transactions dominate impersonal contracting in transition

economies.  The dynamics of these processes depends on the

scale of the original destruction of the old institutional

environment. After the collapse of the Soviet Union, the

political structure of the state and ideology were destroyed,

bringing chaos into the economic and social lives of people.

As a result, in the 1990s the majority of transactions taking

place in the Russian economy were informal and personalized.

For example, the survey of Russian businessmen conducted in

1999 showed that 38% of them considered informal relationships

with public officials an essential and necessary part of their

business activities (Oleinik, 2001:22). Under the condition of

the lack of law and order, Russian businessmen preferred to

carry out transactions with those people whom they knew

personally or who belonged to the same social network to

reduce the risk and transaction costs (ibid.:17). Most of

their transactions took place in the informal economy.

Excessive regulation and administrative barriers are also

responsible for the informal sector expansion. For example,

Hernando de Soto (1989) points to administrative barriers in

Latin American countries as the main factor leading to the

enormous amount of informal transactions. He and his

colleagues from the Institute for Liberty and Democracy based

in Lima did the research on the administrative barriers in

developing countries. In Peru, for instance, he and his

research team opened a small workshop as an experiment to

calculate the transaction costs of meeting the legal

requirements for starting a new business.  It took 289 days to

open a small garment workshop despite the fact that it was

organized to operate with only one worker. According to

another example, it took 6 years and 11 months, and 207

administrative steps in 52 governmental offices to obtain

legal authority to build houses on state owned land in Peru

(de Soto, 2000:19-20). It is not surprising that such

administrative barriers in Peru led to lack of formal property

rights, which de Soto considers one of the main sources of

poverty in developing countries.

The World Bank collects information on administrative

barriers in different countries. It provides a database Doing

Business, which presents measures of business regulations and

their enforcement worldwide, such as a number of procedures

and time required for starting a business, dealing with

licenses, employing workers, registering property, getting

credit, protecting investors, paying taxes, trading across

borders, enforcing contracts and closing a business. For

example, table 2 represents number of procedures, time and

costs required for dealing with construction permits in

selected countries. In Russia, it takes 53 procedures and 540

days. Russia ranks 182 on the ease of dealing with

construction permits. The only country where dealing with

construction permits is more difficult is Eritrea which ranks

183 according to the survey (World Bank, 2010:26).  This

demonstrates why the system of issuing and regulating

construction permits in Russia needs to be revised. The

administrative costs of issuing and regulating permits, which

were 4,141% of income per capita in 2010, should be reduced.

Besides, a measuring system should be set up in order to

ensure that it is achieved.

Table 2. Dealing with construction permits in selected

countries in 2010

Country Number ofprocedures

Time required(days)

Cost (% ofincome percapita)

Argentina 28 338 133.9Brazil 18 411 46.6China 37 336 523.4Germany 12 100 61.8Hong Kong 7 67 19.4India 37 195 2,143.7Indonesia 14 160 173.3Nigeria 18 350 597.5Poland 32 311 121.8Russia 53 540 4,141.0UK 11 95 70.9USA 19 40 12.8Source: World Bank, 2010: 146-202.

Apart from overregulation and administrative barriers,

expansion of informal institutions in transition economies can

be explained by the fact that imported market institutions and

social norms may diverge in some cases. The convergence of

imported institutions and social norms is the main requirement

for their efficient functioning in transition economies. For

example, Russia has ratified the UN Convention against

Corruption and the Criminal Law Convention on Corruption of

the Council of Europe. However, it is difficult to implement

them in Russia because of social norms tolerating corruption.

Institutional traps are inefficient norms which occur when

transition economies are in the institutional disequilibrium

and which can impede alternative development scenarios.

Classical examples of institutional traps in the Russian

economy of the 1990s are barter, tax evasion and corruption.

Institutional traps can be seen as an unexpected result of

institutional changes and reforms that take place in

transition economies. Such factors as macroeconomic

uncertainty, gaps in the new legislation, and weak

governmental control strengthen the negative effect of

institutional traps on economic growth and development.

3. Self-Reinforcing Mechanisms of Corruption in Transition

Economies

The ‘lock-in theory’ studies self-reinforcing mechanisms of

institutional traps, that is inefficient norms of behavior

that are persistent over time. This theory stems from the

research on technological changes. Perhaps one of the most

well-known studies in this field is the research conducted by

Paul David (1987). To illustrate the lock-in effect, he gives

an example of the QWERTY key arrangement on typewriters which

dominates even in the presence of more efficient keyboards,

such as DVORAK.   Another research on the lock-in effect was

conducted by Brian Arthur (1988). He concentrates on path

dependence and positive feedbacks to explain lack of

technological changes. According to Arthur (1994), self-

reinforcing mechanisms derive from: (1) large set-up costs and

increasing returns which give the advantage of falling costs

per unit; (2) coordination mechanisms which support

cooperation activities among agents; (3) learning mechanisms

which occur because of the benefit from learning and

experience; (4) adaptive expectations meaning that the

increased dominance of technology in the market enhances

beliefs of its further dominance.  These mechanisms explain

why it might be difficult or even impossible to replace

ineffective technologies. The same mechanisms can impede

effective anti-corruption strategies in transition countries.

Douglass North was the first to apply the lock-in theory to

institutional changes and public policy (1990). He

concentrates his attention on supportive mechanisms which can

facilitate the processes of stabilizing ineffective norms in

the institutional environment, such as path dependence. Path

dependence implies that future development depends on the

present path. Similarly, the present position depends on the

actions taken in the past. Thus ‘path dependence means that

history matters’ (ibid.:100). Therefore, institutions are not

endogenous variables in North’s theory. On the contrary,

institutions are exogenous factors that facilitate or impede

economic development. Path dependence, explains the continued

inefficiency of economic behavior of actors and the

corresponding lack of performance of public authorities. North

in Institutions, Institutional Change and Economic Performance (1990)

distinguishes between productive and unproductive paths of

economies. The main premise is that an economy which is on an

unproductive path might remain on such a path. In addition,

individuals and organizations with bargaining power as a

result of the institutional framework impede economic

development.

Another important proposition considered by North is the

requirement of a convergence of imported institutions and the

national institutional environment. If they tend to diverge,

imported institutions will not work. To illustrate this

proposition, North gives an example of Latin American

countries which implemented in the nineteenth century national

constitutions modeled on the US constitution. These

traditionally bureaucratic-authoritarian administrative states

were not able to adjust their institutions to a new set of

rules. As a result, these countries abandoned the more

decentralized federal controls. As North argues, ‘the

persistence of the institutional pattern that had been imposed

by Spain and Portugal continued to play a fundamental role in

the evolution of Latin American policies and perceptions and

to distinguish that continent’s history, despite the

imposition after independence of a set of rules similar to the

British institutional tradition that shaped the path of North

America’ (ibid.:103). The same logic can be applied to explain

why anti-corruption laws which proved to be efficient in

developed countries do not work in Russia and why Russian

citizens are reluctant to comply with them.

Victor Polterovich (1999) applied North’s theory to

institutional traps in transition economies. He distinguishes

the following self-reinforcing mechanisms of inefficient

institutions: learning mechanisms, linkage mechanisms,

cultural inertia, coordination mechanisms, and a hysteresis

effect. According to learning mechanisms, benefits of

individuals increase and transaction costs decrease as a

result of public compliance with a given institution and its

spread among agents. It means that in corrupt economies,

agents tend to generate, share and disseminate knowledge about

illegal practices, corrupt officials and other information

decreasing transaction costs of informal deals. In addition to

learning mechanisms, the institution appears to be linked with

many other norms. It is referred to as linkage mechanisms. For

instance, if the government wants to decrease tax evasion, it

is necessary to decrease corruption among tax inspectors. To

prosecute corrupt tax inspectors, it is necessary to eliminate

corruption among law enforcement officers and so on. As a

result, it becomes more difficult to alter one institution as

it would bring with it a chain of other changes and might lead

to prohibitively high transaction costs in the end. Cultural

inertia is also a factor in agents’ reluctance to change their

behavioral stereotypes. Cultural constraints emerge when

formal norms imposed on individuals does not coincide with

informal social norms, such as values, customs, and

traditions.

Coordination mechanisms mean that the more consistently a

norm is fixed in the institutional environment, the greater

the costs imposed on each individual deviating from it. In

game theory, this phenomenon is explained in terms of an

evolutionarily stable strategy (ESS). An ESS is a strategy

which is adopted by the majority of a population. The main

characteristic of an ESS is the fact that it cannot be invaded

by any alternative strategy even though the latter might be

more efficient. It means that once it is fixed in a

population, natural selection prevents any other alternative

strategies from successfully invading. It can serve as a

theoretical tool to explain the fact that once the inefficient

social norm of bribing is fixed in the institutional

environment, it will reproduce itself through coordination

mechanisms. It can also be explained as follows: informal

norms, such as corruption, shows signs of hysteresis. In the

same way as a piece of iron brought into a magnetic field

retains magnetization, ineffective informal norms, once fixed

in transition economies, tend to persist. According to a

hysteresis effect, even an institutional system with the

dominance of efficient norms, if strongly disturbed, may fall

into an institutional trap in which it will remain even after

the disturbing factor is removed.

4. The Multilateral System of Anti-Corruption Regulation

Taking self-reinforcing mechanisms of corruption into

consideration, the important question is how to prevent it.

The most common preventative measures include an increase in

civil servants’ salaries and an increase in the severity of

punishment for corruption. The logic of these measures is

obvious. One of the main causes of corruption in transition

countries is inadequate civil servant salaries. It is much

easier to combat corruption when civil servants have a

commitment to their jobs and the organizations in which they

work. In addition, the economic theory of crime and punishment

predicts that an increase in the expected punishment for

offenses (the punishment multiplied by its probability) leads

to reduction in crimes. In other words, the more certain and

severe punishment is, the less the seriousness and the fewer

the number of crimes are. In the economic theory of crime and

punishment this proposition is referred to as the first law of

deterrence (Cooter and Ulen, 2000:440). However, a lot of

debate remains over the extent to which crime rates respond to

increases in expected punishment.

In transition economies, the enforcement system is weak and

corrupt. It makes it difficult, if not impossible, to increase

the expected punishment for corruption, particularly in Russia

where social norms tolerate bribery, embezzlement, and

nepotism. The majority of Russia’s population accepts

corruption as a normal state of affairs. For example, only

25.2% of businessmen and 23.5% of citizens showed a negative

attitude towards corruption and low compliance with corrupt

practices in 2001 (INDEM, 2005:16). In 2005, their numbers

decreased to 14.2% and 8.8% respectively (ibid.). Citizens

experience corruption in their everyday lives while dealing

with traffic police, authorities in clinics, hospitals,

educational bodies, social organizations, or public

authorities in the spheres of employment, dwelling,

registration, etc. Taken their acceptance of corruption into

consideration, enforcement of laws will be difficult without

raising the awareness of social costs of these dysfunctional

practices among citizens, private and public organizations and

changing their attitude towards them.

It is impossible to combat corruption in Russia by such

simple preventative measures as pay increases to civil

servants or sanctions alone. Rather, the whole system of

socio-economic relationship needs to be changed. This

fundamental task requires all members of society to be

involved in anti-corruption efforts. For example, Arthur Lewis

argues that ‘in 1800 British public life was as corrupt as

public life in most other countries, but by 1900 there had

been a considerable change in public opinion, which greatly

reduced the extent of corruption’ (Lewis, 2003:409). This

quotation suggests that it is the joint efforts of all

stakeholders which make it possible to provide social control

and to create mechanisms for greater transparency in public

administration.

This corresponds to the proposition of the stakeholder

theory that it is necessary to take into account all members

of society in order to enhance social responsibility of

organizations. According to the traditional definition,

stakeholders are ‘groups or individuals who affect or are

affected by organizational performance’ (Freeman, 1984:iv).

The system of anti-corruption regulations is based on the

institutional agreements and contract negotiations between

different groups and individuals. The complete set of

stakeholders in the entire economy is complex, and thus the

question of giving due regards to their interests presents an

enormous challenge for policy-makers.  It should be noted that

stakeholders in the value chain can have different interests.

This is why it is important to provide consensus about their

needs as it helps avoid ignoring or dissatisfying any

particular type of stakeholders. Their integration in anti-

corruption efforts more accurately depicts the interactive

nature of the regulation processes within organizations, as

well as within the entire economy. Consequently, effective

anti-corruption regulation is associated with joint problem

solving, commitment, coordination, trust, and high levels of

communication between stakeholders and their groups.

Figure. The multilateral system of anti-corruptionregulation

The figure demonstrates three important spheres of

stakeholder integration within the field of anti-corruption

regulation. The first tier represents a self-monitoring or

self-control system with its main function of monitoring

compliance with anti-corruption regulations set by public

authorities. It includes ordinary citizens, civil servants,

and the media. Ordinary citizens comprise the largest

community to be inducted into the monitoring of public

administration. Within this community there may be a number of

sub-groups with specific interests. These groups have a civil,

legal and human right and obligation to bring corruption to

the attention of the appropriate authorities. For example, in

Russia, there are various complaint hotlines where citizens

UNIVERSITIESINTERNATIONAL CONVENTIONS

NON-GOVERNMENTAL ORGANIZATIONS

BUSINESS ASSOCIATIONS

SITIZENS

MASS MEDIA

SMEs AND CORPORATIONS

ANTI-CORRUPTION

LAWS

GOVERNMENT

CIVIL SERVANTS

LAWENFORCEMENT

can report the facts of bribing by officials, policemen or

traffic police officers. But often the potent force of

ordinary citizens in transition economies is limited because

their activities are not coordinated and their participation

in politics is limited, which negatively affects the

development of civil society and fight against corruption. For

example, the majority of Russia’s population participate in

the political process only in symbolic ways. A continuing

decline in public confidence and trust of the government and

politicians leads to an increasing skepticism and cynicism

that adversely affect public participation in political

processes. Outright public distrust of Russia’s government

remains very high. For instance, a survey conducted by

Edelman, an independent private research organization,

revealed that only 38% of Russian citizens expressed a great

deal of confidence in the government in 2010 (Edelman,

2010:3). According to the Global Competitiveness Report, public trust

of politicians in Russia was estimated to be 2.9 on a 7 point

scale (1- very low, 7 – very high) in 2010, which reflects

overall public distrust of political institutions (World

Economic Forum, 2010:369). Therefore, citizens do not object

or respond to mistreatment because they feel such objection

would not result in positive response of public authorities.

An important factor within this self-monitoring system is

the media sensitization of corruption-related issues. It

facilitates the legal and regulatory responses to harms of

corruption and rent seeking. Moreover, the media inflates

public concerns about this problem. But to achieve good

results, the media need to work in close cooperation with

other stakeholders in the system and to be independent from

political pressure. However, according to Freedom House, an

independent watchdog organization, today Russia’s press status

is not free. Russia remains one of the most dangerous country

in the world for the independent media due to numerous

murders; detentions and arrests of journalists and human right

activists; denials of entry for international journalists and

free press advocates; and frequent targeting of independent

outlets by regulators and their closures (Freedom House,

2010:201-202). Among topics which are subjects to particular

political pressure are human rights abuses, governmental

corruption, organized crime, and police torture. Russia’s

press freedom index was estimated to be 81 on a scale of 0 to

100, with 0 being the best and 100 being the worst, and it

ranked 175 out of 196 countries in 2010 (ibid.:36-38). This is

a serious cause for concern as the free and independent media

is a significant part of an anti-corruption campaign.

The second tier represents the system of self-regulation

where stakeholders are supposed to draw up their own

regulations and take responsibility for monitoring compliance

with them and for developing enforcing procedures. These

regulations may take form of codes of conducts defining good

and bad practices. The second tier involves business

associations, small and medium-sized enterprises (SMEs),

corporations, non-governmental organizations, and

universities. It consists of collective players who can be

very effective due to shared values and common interests. In

the private sector, it is important to fight corrupt practices

through corporate governance, effective transparency, and

disclosure mechanisms. Industry associations and non-

governmental organizations can contribute by developing codes

of conduct, compliance programs, and initiatives to improve

the ethical behavior and culture at all levels of

organizations.

Recently, there have been a number of interesting anti-

corruption projects in Russia developed by research centers,

non-governmental organizations, and businesses. For instance,

researchers of the regional public foundation INDEM developed

anti-corruption recommendations for small enterprises

(Golovshinskii et al., 2004). Another interesting project was

proposed to the Centre for Economic and Financial Research

(CEFIR), an independent research center established in Moscow

in 2000. In collaboration with the World Bank and with the

financial support of the U.S. Agency for International

Development (USAID), it conducted the monitoring project of

administrative barriers to the development of small businesses

in Russia. Their research contributed to improving Russia’s

regulation policies. The aim of the CEFIR project was to

evaluate the result of the deregulation reforms initiated and

implemented by the federal government in 2001. The first round

of the monitoring project, which took place in 2001, showed

that the administrative burden on small and medium-sized

businesses was very heavy. It often created opportunities for

bribing public officials in order to make things go faster for

businesses. These practices proved to be corrupt in nature and

pervert to the traditional processes of starting and operating

businesses. For instance, respondents indicated that 50 days

were necessary to obtain licenses in 2001 (CEFIR, 2002).

Since 2001 there have been a number of positive

developments and overall trends towards deregulation. For

example, the new laws on inspections (2001), licensing (2002)

and registration (2002) induced significant positive changes

for small and medium-sized businesses, a simplification in the

procedure of registration and lower frequency of inspections.

In 2007 the time required to get licenses decreased to 32

days, which indicates that it became easier to deal with

public authorities issuing licenses and permits (CEFIR, 2007).

Thus, there were less opportunities and need to use bribery to

obtain permissions to conduct business. However,

administrative burdens on small and medium enterprises remain

high in Russia in comparison with developed countries.

Another interesting project in which stakeholders combined

their efforts in the fight against corruption was launched by

Citizens’ Watch, a human rights non-governmental organization.

Since 1992 Citizens’ Watch has been working in cooperation

with Saint Petersburg University of Ministry of the Interior.

The main goal of this project was to make human rights and

police ethics a larger part of education programs for police

officers. In order to address the problem of violations of

human rights by the police, Citizens’ Watch prepared special

training programs for police officers in Saint Petersburg.

This project showed that education programs can contribute

significantly to anti-corruption efforts by raising awareness

about the negative consequences of corruption. Consequently, a

helpful aspect can be the development of special courses

devoted to anti-corruption regulation in order to increase

understanding of costs of corruption to society, promote

appropriate attitudes and ethical values among citizens, and

develop their social responsibility.

The third tier involves government authorities and

international organizations working together. Their

partnership can be a major factor for the successful promotion

of anti-corruption policies. The state is ultimately

responsible for creating robust anti-corruption regulations.

It prohibits corruption legislatively and provides appropriate

enforcement procedures. But as mentioned above, this is not

enough taking into consideration the complex nature of

corruption. In transition economies, policy-makers should also

be involved with removing overregulation and administrative

barriers which facilitate the widespread usage of informal

transactions. Institutional agreements can serve to support

efforts by those interested in better domestic anti-corruption

laws.

In 2008 the new anti-corruption legislation was adopted in

Russia. It included three interconnected federal laws: the

Federal Law on Counteraction to Corruption, the Federal Law on

Amendments to Certain Legislative Acts of the Russian

Federation in Connection with the Adoption of the Federal Law

on Counteraction to Corruption and the Federal Law on

Amendments to Certain Legislative Acts of the Russian

Federation in Connection to the Ratification of the UN

Convention against Corruption and the Criminal Law Convention

on Corruption of the Council of Europe and Adoption of the

Federal Law on Counteraction to Corruption. These laws came

into force in January 2009 and they involved different aspects

of Russia’s anti-corruption legislation. The first law

established the general framework of anti-corruption

legislation. The second law developed provisions applicable to

particular categories of government employees, such as judges,

members of the State Duma, and persons holding state and

municipal offices. The third law developed the provisions of

the main law with respect to state and municipal service and

amended the Civil, Criminal and Administrative Codes of the

Russian Federation.

Although the laws represent substantial improvements in

Russia’s anti-corruption legislation, there are serious gaps

in the law which require immediate attention of legislatures.

They include criminalization of illegal enrichment and

protection of whistleblowers. In 2006 Russia ratified the UN

Convention against Corruption but not completely. Russia did

not ratify article 20 of the UN Convention on illicit

enrichment that offers criminal punishment for officials who

fail to explain reasonably the origin of their income and

wealth. The Federal Law on Counteraction to Corruption places

the duty of state and municipal servants to report to their

employer income, property and obligations of a monetary

nature, which also covers their spouses and children who are

minors. However, Russia has not yet adopted legislative

measures which are necessary to establish illicit enrichment

as a criminal offense.

Whistleblowers within public and private organizations

play an important role in the process of detecting corrupt

practices. At the present time, there are no special laws on

protection of whistleblowers in Russia. However, whisleblowing

involves high risks of reprisals on the part of organizations

or persons whom they have accused, meaning that lack of

special programs and legislation in this arena undermines

inducements to report misconduct on a fellow employee or

superior within organizations. For example, specials

provisions on protection of whistleblowers are provided in the

UN Convention Against Corruption (art. 33). Furthermore, it

has proved successful to provide financial motivation for

whistleblowing to make this mechanism work more effectively.

For instance, the False Claims Act, which was the first U.S.

law adopted specifically to protect whistleblowers, provides

special financial incentives for people reporting corrupt

practices in the form a percentage of the money recovered or

damages won by the government. In general, awards range from

15 to 30 percent of the total amount recovered under the Act.

It has proved to be a very efficient tool in detecting

misconduct of public and private employees. For example, in

2010 the U.S. Department of Justice recovered over $3.1

billion of stolen money thanks to whistleblowers and the

Federal False Claims Act (TAF Education Fund, 2010). 

The development of comprehensive anti-corruption

legislation should be accompanied by providing special

enforcement bodies and procedures. For instance, many

researchers point out that the main factor which made it

possible to curb corruption in Hong Kong was the establishment

of the Independent Commission Against Corruption (ICAC) in

1974 (Rose-Ackerman, 1999:159-62; Langseth, 2000:7; Quah,

2006:178-9). Several important preconditions insured the

efficiency the ICAC and public trust it received. First of

all, being independent to the police and civil service, the

ICAC reported only to the Colonel Governor. Second, officials

working for the ICAC had authority to investigate and

prosecute corruption cases, including all procedures

associated with it, such as wire taps, check of bank accounts,

search without need for a legal warrant, arrest, detention,

bail, and seizure of illegal funds. Besides, its broad

functions included recommendations on legal and administrative

reforms and educational workshops for civil servants and the

public. Third, officials were protected from involving in

corruption by relatively high salaries in comparison with

other agencies and they were not subjects to departments

transfers. Finally, special regular surveys were used to

monitor corruption levels in Hong Kong and public trust of the

ICAC.

The problem in Russia is that there is no special

independent anti-corruption agency with authority to

investigate and prosecute corruption practices. There are

multiple agencies aimed at preventing corruption, such as the

Presidential Council for Combating Corruption, the National

Anti-Corruption Council of the Russian Federation, the Anti-

Corruption Parliamentary Commission, the Accounts Chamber, the

Financial Monitoring Service, etc. However, their incentives

for coordination are weak and practice falls far short of

policy intent. Their functions overlap and their powers are

diluted and unclear. The Federal Security Service and the

Prosecutor General’s Office, with its special anti-corruption

department, are the main agencies with authority to

investigate and prosecute corruption cases in Russia, and they

are not independent. They lack independence as their directors

are nominated and can be dismissed by the President. These

offices themselves have been criticized for corruption and

human rights violations. For example, high-ranking officials

of the Federal Custom Service, the Federal Security Service,

the Ministry of the Interior and the Prosecutor General's

Office were involved in one of the largest corruption cases

known as the Three Whales corruption scandal, which centered

around a furniture import company engaged in weapons and oil

smuggling, as well as money laundering (Yasmann, 2006). The

case demonstrates the major weaknesses of judicial and law

enforcement bodies in Russia.

Finally, as corruption is a cross-border problem,

coordinated international efforts are important. Recently,

many governments have recognized shared responsibilities and

commonality of the problem of corruption among countries. As a

result, a number of international anti-corruption conventions

have been adopted. The first international anti-corruption

convention was developed in 1996 by the member countries of

the Organization of American States (OAS). The Inter-American

Convention Against Corruption (OAS Convention) requires its

signatories to criminalize bribery and provides for prevention

of corruption, international cooperation and asset recovery.

In 1999 the Organization for Economic Co-operation and

Development (OECD) adopted the Convention on Combating Bribery

of Foreign Officials in International Business Transactions.

This convention focuses on the supply side of the bribery of

foreign public officials and provides severe sanctions for it.

As of March 2009, it was signed by the 34 OECD member

countries and four non-member countries (Argentina, Brazil,

Bulgaria, and South Africa).

One of the most significant advancements in the fight

against corruption is the UN Convention Against Corruption

(UNCAC) which came into force in 2005. The convention

represents a truly global anti-corruption treaty. It has been

signed by 140 countries, including Russia. It covers

preventive measures, criminalization of corruption and

international cooperation framework for mutual law enforcement

assistance. A fundamental principle of the UN Convention is

asset recovery, which is extremely important for Russia where

widespread corruption has plundered the national wealth. In

Russia, major efforts are needed to achieve the objectives set

forth in the UN Convention.

The Council of Europe Criminal Law Convention on Corruption

was negotiated by the member states of the Council of Europe,

along with the participation of a number of observers,

including Russia, Canada, Japan, Mexico and the United States.

Russia ratified this multinational convention in 2006. It took

about three years to adopt the federal law on amendments to

legislative acts of the Russian Federation in relation to the

Criminal Law Convention on Corruption. By signing the Criminal

Law Convention on Corruption, Russia automatically became a

member of the Group of States Against Corruption (GRECO) which

is the Council of Europe monitoring mechanism of the

compliance of parties to the Convention with their

undertakings in the field of corruption. However, Russia has

not yet signed the Council of Europe Civil Law Convention on

Corruption which defines common international rules in the

field of civil law and anti-corruption regulation. The Civil

Law Convention on Corruption Convention contains provisions

which are utterly important for Russia, such as remedies for

injured persons, compensation for damage from corruption,

invalidity of corrupt contracts, and whistleblower protection.

Clearly, it is impossible to combat corruption in

transition economies without all stakeholders’ contributions,

be it independent press, transparent governmental agencies,

effective law enforcement, educational programs for public

officials, entrepreneurs and citizens, or international

cooperation. The three tiers represent the system of co-

regulation based on cooperation of public authorities and

civil society. It combines the elements of self-regulation and

traditional public regulation, which makes it possible to use

the advantages of both systems. One of the positive aspects of

the self-regulatory system is the ability of stakeholders to

react to new challenges faster than policy-makers. The self-

regulatory system is based on a voluntary basis. The fact that

stakeholders in this system share common objectives makes

positive impact on the regulatory processes as stakeholders

usually obey the rules set by self-regulatory organizations

without coercion. But if they do not obey, a range of possible

sanctions induced by self-regulatory organizations is limited

in comparison to public regulation. In a co-regulatory system

deviant behavior is directly sanctioned by public authorities.

However, public authorities can not solve the problem of

corruption alone. Thus the main advantage of the co-regulation

system is the fact that self-regulatory organizations also

participate in the process of anti-corruption policy

formulation as well as monitoring and enforcing activities. In

this perspective, the multilateral system helps to integrate

all stakeholders and ensures the effectiveness of anti-

corruption regulation.

5. Summary and Concluding Remarks

Corruption is a major problem for transition economies. In the

early stages of the transition period corruption tends to

escalate enormously. This phenomenon can be explained by

several factors. They include low levels of legitimacy of

newly emerging political structures, high levels of

uncertainty, constantly changeable laws, weak enforcement,

extreme economic constraints, unclear formal regulatory norms,

and criminogenic tendencies which are typical of transition

economies.

What is worse is the fact that inefficient informal norms

tend to remain even when the new institutional system has been

implemented.   In new institutional economic theory, this

tendency is explained by path dependence and self-reinforcing

mechanisms which lead to the development of institutional

traps, including corruption. They impede economic development

and growth of countries and impose enormous costs on society.

The nature of corruption in transition economies is so complex

and there are so many factors to take into account, that it is

impossible to combat it by simple preventative measures. This

is why all stakeholders need to be involved in the system of

anti-corruption regulation.

It is worth noting that the most important benefit of the

multilateral system of anti-corruption regulation is that

coordinated efforts of all major stakeholders enable corrupt

practices to be identified, which helps individuals and

organizations to reach their full potential.  Educational

programs help to inform individuals and social groups about

costs of corruption and the range of anti-corruption

instruments. This aids in the development and dissemination of

business codes of ethics that facilitate organizational

understanding and learning, and enlighten citizens of their

rights and responsibilities. It is desirable to influence

public perception of corruption through continuous and

advanced training of government officials, ordinary citizens,

employees of SMEs and corporations. The negative perception of

bribing and other forms of informal transactions formed in the

course of training programs can benefit the fight against

corruption in general. In addition to this, specific norms

related to ethical behavior would help to implement anti-

corruption policies more effectively.

Anti-corruption regulation should be approached through a

variety of institutions and policies. Voluntary codes of

conduct certainly play an important role in the process of

establishing good and bad practices within governmental

agencies and private organizations. But codes of conduct are

not sufficient by themselves. According to a more

comprehensive approach, consistent fight against corruption

requires universalizing and supporting anti-corruption

policies simultaneously at the public and private levels.

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