How—and why—the U.K. should bolster anti-corruption efforts in the Russian Federation
In the past decade, the Russian Federation has emerged as one of the world’s most promising economies, rising from post-Soviet economic chaos to year-on-year growth, even in the aftermath of the global financial crisis. Yet the country remains in the thrall of endemic corruption—a phenomenon which has undermined Russia’s political and economic development, and threatens to cause long-term stagnation or even crisis.
According to the Transparency International “2012 Corruption Perceptions Index”, Russia ranks among the most corrupt developed countries in the world—133rd out of 176 countries surveyed, with the worst offenders at the bottom of the list.1 According to Sergei Ignatyev, head of the Central Bank, this has cost the country $49 billion in capital flight in 2012 alone. In the West, corruption in Russia is often treated as a fact as unchangeable as the Russian winter—an assessment that is all-too-often informed by a patronising perception of the country as somehow naturally incompatible with building a law-abiding society. Others prefer to conveniently ignore the problems created by this endemic corruption, on the grounds of self-interest, rationalising that the money to be made from the energy and commodities sectors far outweighs the long-term economic; legal; or moral elements of this problem.
To view corruption as merely a problem for Russians is not only cynical, but also short-sighted. Ignoring this phenomenon enables the continuation of a system in which theft is not the exception, but the rule. In a globalised economy, and with the United Kingdom still struggling towards recovery, endemic corruption in one of the world’s rising economic powers is a problem for the system as a whole, distorting competition and undermining the integrity of the financial sector.
While billions may be stolen in the Russian Federation, it does not usually remain in the country; it is swiftly transported through shell companies and accounts around the world, laundered in offshore entities as well as European Union countries such as Cyprus and Latvia, and legitimised through purchasing assets in global financial-centres such as London. Such funds can be rapidly put towards the purchase of reputational legitimacy via the financial and legal services of that country, or even the exercise of political influence.
This report explores the significance of Russian corruption, with particular emphasis on its impact and influence in the U.K. This is not to suggest that Russia is the only exporter of corruption with whom the U.K. should be concerned, as anti-corruption actions should clearly be universal in nature. The intent of this report is simply to highlight the fact that, given the significant amount of capital transferred to the U.K. from Russia, there is good reason for the U.K. to invest in fighting against the exportation of corruption, and to support efforts by Russian civil society to achieve meaningful reform. Such an effort has the potential not only to help the U.K. avoid the pitfalls associated with the injection of dirty money into the British economy, it can also perform a vital role in supporting efforts to reform Russia’s economy and contribute to the fight against global corruption.
- The Russian Federation has made tremendous strides since the economic chaos of the post-Soviet 1990s. However, the country remains plagued by endemic corruption, suffusing a system in which the boundaries between the public and private sector are blurred.
- This phenomenon has also gone hand-in-hand with the erosion of democratic development and return of authoritarianism under Vladimir Putin. It is used as a means of cementing the loyalty of the political elite, and flourishes in the absence of judicial independence and government transparency.
- According to polls, corruption is one of the foremost causes of dissatisfaction amongst the Russian public, and was one of the issues which inspired the mass protests of 2011-2012. Anticorruption activism by individuals such as Alexey Navalny has highlighted the potential for this issue to be used as an impetus for political reform.
- While the Russian government has integrated international anticorruption standards into its domestic legislation, those measures are selectively enforced, usually against political opponents. The government’s most recent anti-corruption measures are unlikely to prove successful, as they do not address the need for systemic reforms such as the introduction of political competition, judicial independence and breaking the government monopoly on the media.
- Corruption in Russia is often tied, both directly and indirectly, to human rights abuses, by entrenching disrespect for individual rights in the political system. The case of the billionaire political prisoner, Mikhail Khodorkovsky, and the wrongful imprisonment and death of the whistleblower attorney Sergei Magnitsky aptly demonstrate this connection.
- Russian corruption undermines the economic prospects, civil liberties and fundamental dignity of the Russian population. However, the scale of this domestic problem also has significant ramifications in a globalised economy, as funds obtained through corruption are laundered and circulated throughout the world— often finding homes in global financial-centres such as London. Corrupt business practices exported into the international market undermine the stability and integrity of the international financial system.
- The United Kingdom has one of the most sophisticated anti-corruption regulatory structures in the world, and is internationally respected for its judicial independence. However, the enforcement of these regulations, particularly by banks and by agencies charged with oversight of the importation of funds tied to corruption, has consistently been criticised as insufficient by the Financial Services Authority (F.S.A.) and other bodies.
- The significant presence of Russian wealth and immigrants in the U.K. is a positive development. However, the likelihood of corrupt practices having been responsible for some Russian wealth should inform the assessment of funds brought into the country from Russia, as well as from other countries with reputations for corruption.
- Improved domestic enforcement is crucial to any effort by theU.K. to bolster anti-corruption efforts abroad. Banks should be subjected to increased pressure to engage in more rigorous assessments of risk in relation to funds from Russia and other corrupt countries. Additionally, investment in the Serious Fraud Office should be increased.
- The U.K. Parliament should undertake measures to enhance public scrutiny of corruption, including pushing forward libel reform. The current libel law regime aids those whose wealth is obtained through corruption by providing them with a significant 10 Russian corruption: Domestic and international consequences weapon with which to forestall investigations and silence public criticism of their activities.
- Parliament should pass a U.K. version of the Sergei Magnitsky Rule of Law Accountability Act, which was signed into law in the United States in December 2012, and imposes visa bans and asset freezes on the individuals implicated in the imprisonment and death of Magnitsky, as well as any other Russian citizen credibly suspected of human rights abuses. If the U.K. passed a similar measure, this would have direct consequences for the individuals who engage in rights abuses, often for personal benefit via corrupt practices, and chip away at the incentives for participating in this system.
- The British government should increase its engagement with representative of Russia’s embattled, but burgeoning, civil society. This should extend to high-level meetings with ministers in the Foreign and Commonwealth Office (F.C.O.), as well as engagement with parliamentary forums such as relevant All-Party Parliamentary Groups (A.P.P.G.s).
- The U.K. should robustly promote an anti-corruption agenda in international forums. In particular, the U.K. should use its G8 presidency this year to push for measurable benchmarks for Russia to undertake economic and political reforms relevant to a genuine systemic anti-corruption campaign.