Russia has the fifth-highest murder rate of any country on the planet. But that is only a statistic. To begin to understand the true nature of this problem, take a look at the four gentlemen show above.

Writing on Robert Amsterdam's blog recently, hero journalist Grigori Pasko tells us that this in early January this year that very quartet of Russians took a 25-year-old man named Alexei Denisov (that's him pictured below) to the "eternal flame" monument in the village of Kolchugino, located in Vladmir region, less than 100 miles northeast of Moscow, beat him senseless and set him on fire using the eternal flame.


Alexander Andreyev, Mikhail Danilov, and Nikolai Kuragin were all graduates of Russian vocational school with certifications as painters, and two of them were gainfully employed at the time of the incident. The fourth member of the quartet was anonymous in the court papers because he was a junior high school student, studying in the eighth grade. His name was Alexei Goryachev and he was 15 years old. The drunken group came upon Denisov on the evening of January 1st while he was walking home, beat him unconscious and threw him into the eternal flame, where he burned alive. Some accounts have it that Denisov chastised the wolf pack for desecrating the monument by smoking and drinking on it.

As Pasko writes: "Supposedly, even though the event was horrible, it wasn’t typical for the country as a whole. But I think otherwise – I think it is typical. And that there are more than enough events like this throughout the entire country. They simply don’t all fall into the mass media’s field of vision."


The trial of the group was to have been carried out on Victory Day but was delayed to avoid spoiling the holiday. Russians convened in Kolchugino to celebrate the holiday with a ceremony at the site of the "eternal flame" monument (shown above) just as if nothing had happened. The sentencing took place about a month ago.

That very spot, by the way, was the same one Alexei's parent's had visited on their wedding day, as per the Russian tradition (and as shown in the above snapshot from the family's photo album). When Alexei's mother appeared in the court, the victims openly laughed at her, according to Pasko.

Pasko writes: "There are thousands just like them all over Russia. They live in their cities, towns, and villages, in general quite poorly. There is often no electricity in their homes. They travel on horrible roads. And they vote in elections the way they’re told to. They couldn’t care less who is in power in the country. The powers couldn’t care less how they live or whether they’re even alive." The valiant Russian newspaper Novaya Gazeta, Anna Politkovskaya's employer, published an account of the killing in English a few weeks after it occurred (and included most of the photographs shown here). Its reporter echoes Pasko: " Yes, they often get detained by the police. Their animal instincts often dominate over their feelings. I mean if they are hungry they can just take a bun from the shelf in a bakery and they will not think about consequences. Then again, they are easily influenced. If you are elder – I mean if they take you for an adult – and if you just offer them an apple or a chocolate bar, they will do anything you ask for. A thief might ask them to take the things out of someone’s flat and they would do it. They cannot think."

All this hardly fits the narrative being spun by the other Vladimir, the dictator Mr. Putin. But it certainly does fit his modus operandi. Putin doesn't want his fellow citizens to be able to think, because if they could they might challenge his idea that Russia should be a neo-Soviet state. He wants them to be ignorant, too, with no means of acquiring real information about the world, both because sources of information have been liquidated and because they are too impoverished to afford those that remain. He doesn't want them to be healthy, because sick people are much easier to control. And above all, he wants them to be afraid, just as they were in Soviet times, when they were like a bunch of cattle and just that easily controlled by the Kremlin.

Vladimir Putin is killing Russia in exactly the same manner that Josef Stalin killed the Soviet Union. The country may stagger on a while after the fatal blow is struck, but it will stumble and fall just the same. That is, unless the Russian people rise to stop this horrible progression of history in its tracks.

An Editorial in the Wall Street Journal:

By now, the jilted investor in Russia is a bear-bites-man story. No one who puts serious cash in Vladimir Putin's realm, not least in its flush gas and oil fields, can be surprised to find himself fleeced, run out of town, jailed in a Siberian gulag or worse.

So let's not shed many tears for the latest oil major brought low in Russia, BP. The British company got into TNK-BP—a 50-50 $7.6 billion joint venture with four Russian oligarchs—presumably, with eyes wide open. The initial blessing of Mr. Putin—then president, today prime minister—made the obvious risks easier to swallow. For a while, business was gangbusters, with profit in 2006 alone at $6.6 billion. Then the same old thing happened: Someone in Russia wondered, Why share the spoils with foreigners? And BP found itself defenseless in the wild east.

To make a long story short, BP is losing TNK-BP to another Kremlin-backed forced expropriation. The usual tricks were used. The tax and labor authorities, the police and the courts launched no less than 14 probes of BP, forcing out its expatriate staff from the country. The last man left—TNK-BP's CEO Robert Dudley—had his work visa pulled and on Thursday fled Russia for an undisclosed location, citing "sustained harassment of the company and myself." He says he'll run the company from abroad. Sure. BP officials pretty much admit the game is over.

If the past is a guide, BP will be forced to cede control of TNK-BP to a Kremlin-owned energy giant such as Gazprom or Rosneft. Mr. Putin has pushed aside other big players once considered untouchable, in his quest to Kremlinize oil and gas wealth. Mikhail Khodorkovsky's Yukos—then Russia's biggest and best-run oil company—was broken and its founder sent to Siberia. BP's Russian misery has good company abroad, too; Total, Royal Dutch Shell, ExxonMobil and Amoco, before BP's acquisition of it, all stumbled in Russia.

Mr. Putin coined the phrase, "dictatorship of the law," and in the early days many investors endorsed his authoritarian policies as a path to stability. It turns out that something other than mere "stability" is emerging in Russia.

Local tax authorities and health inspectors are a power unto themselves, extorting large businesses (as in BP's case, directed from above) or free-lancing on their own against the medium and small. Their victims are mostly Russians, who won't be able as easily to conclude their property isn't safe and pack up and take their businesses, and jobs, elsewhere. No matter how much money there is to be made in Russia these days, it ultimately doesn't count for much the day a boyar or simple chinovnik decides to take it away.

The steady erosion of the rule of law in Russia is a distressing sign of the times there. Mr. Putin complains of not getting proper respect from the West. Forcing the president of a major Western oil company to literally flee Russia earns respect in no one's land.

The New York Times reports on high-level corruption within the Russian state. Once again they've translated the article and posted it on a Russian blog, comments from Russian readers are here. Two examples:

William F. Browder was one of the most prominent foreign investors here, a corporate provocateur who brought the tactics of Wall Street shareholder activists to the free-for-all of post-Soviet capitalism. Until, that is, the Kremlin expelled him in 2005.

Mr. Browder then focused on protecting his billions of dollars of stakes in major Kremlin-controlled companies like Gazprom, and on fighting to return to a land where he had deep and unusual family ties. So when he ran into Dmitri A. Medvedev, the country’s future president, at the World Economic Forum in Davos last year, he saw his chance. In a brief conversation at a dinner at the Swiss resort, he pressed Mr. Medvedev for assistance in regaining his Russian visa. Mr. Medvedev, then a top aide to President Vladimir V. Putin, agreed to pass along his request. A short time later, Mr. Browder’s office received an unexpected phone call from a senior Moscow police official, who said he had learned of Mr. Browder’s new visa application and might be able to help. “My answer will depend on how you behave, what you provide, and so on,” the official said, according to a recording of the call supplied by Mr. Browder. “The sooner we meet and you provide what is necessary, the sooner your problems will disappear.”

Mr. Browder’s problems, in fact, were just beginning.

The phone call was one move in a wide-ranging offensive by Russian law enforcement that exposed Mr. Browder to the kind of crippling investigations that Kremlin critics have regularly endured under Mr. Putin. It appeared that the ultimate goal was not only to seize Mr. Browder’s investment empire, but also to make him an example of what happens to those who do not toe the government’s line. His downfall offers a study in how the Kremlin wields power in the Putin era. The rule of law is subject to its wishes, and those out of favor are easy prey.

Mr. Browder’s case points to the official corruption that afflicts Russia, and the Kremlin’s unwillingness to adopt serious measures to combat it by bolstering the independence of the police and courts. The Kremlin may be reluctant to do so because it wants Russia’s wealth to accrue to those loyal to the leadership. Until his visa was canceled and he moved his operations to London, Mr. Browder cut a colorful figure in Russia, a foreign version of the Russian oligarchs who earned their fortunes in the mass privatization after the fall of the Soviet Union. He courted publicity, and his background made a good story: he is the grandson of Earl Browder, a leader of the American Communist Party in the 1930s. He often said that, not unlike Russia itself, he rebelled by becoming a capitalist. He arrived in Russia in 1996 after a stint in London as an investment banker, and quickly saw opportunities. Russia’s economy was undergoing colossal changes, and Mr. Browder positioned his company, Hermitage Capital, as a vehicle for Western investors to get a piece of the action.

After Mr. Putin became president in 2000, Mr. Browder became a vocal supporter of the Kremlin, saying that Russian needed an authoritarian leader to establish order and calling Mr. Putin his “biggest ally” in Hermitage’s effort to reform big business. Mr. Browder thrived, and the funds managed by Hermitage grew to more than $4 billion.

Mr. Browder does not know exactly why the Kremlin turned against him. But the Kremlin was consolidating control over prized companies like Gazprom and appeared to be chafing at criticism from outside shareholders. Once things went bad, Mr. Browder had no recourse. The police confiscated vital documents from his lawyer’s office in Moscow. He discovered that his holding companies had been stolen from him and re-registered in the name of a convicted murderer in a provincial city. Whoever was behind the scheme took over much of Mr. Browder’s corporate structure in Russia, but failed to get at his investors’ money. Even so, in recent weeks, Mr. Browder said he had learned that his former holding companies had been used to embezzle $230 million from the Russian treasury.

This article is based on interviews with Mr. Browder, his associates and lawyers, as well as on numerous documents they provided that they say prove corruption. Many of his assertions were confirmed independently. Requests for comment were made to several law-enforcement agencies in Russia that Mr. Browder accuses of carrying out or refusing to investigate the scheme. They did not respond or said they would not comment. The Kremlin has not spoken publicly about his case, despite frequent appeals by Mr. Browder and senior British and American officials. Twice in the last two years, Mr. Putin has been asked by reporters about Mr. Browder. Both times, he denied even knowing Mr. Browder’s name.

“I don’t know who this Mr. Browder is, as you say, why he cannot return to Russia,” Mr. Putin, who is now prime minister, said in May. “Russia is a big country,” Mr. Putin said. “There might have been some kind of complications. There might have been some kind of conflicts — conflicts with the authorities, conflicts in the business world, interpersonal conflicts. But that’s life, it’s complicated and varied. If a person thinks that his rights have been violated, let him go to court. We have a legal system that works, thank God.”

A spokesman for Mr. Medvedev, who succeeded Mr. Putin as president in May, confirmed that Mr. Medvedev had spoken with Mr. Browder at Davos last year, but would not comment further. Mr. Medvedev, a former law professor, has vowed to wage war on corruption, often saying that Russia is plagued by “legal nihilism.” Still, the Kremlin under Mr. Medvedev has also snubbed Mr. Browder. “If ever there was a definition of legal nihilism, this is it,” Mr. Browder said in an interview in his office in London, where he now lives. “I was actually fighting to make Russia a better place, and fighting against corruption, which is something that they should have given me a medal for,” Mr. Browder said. “Instead, they drive me out of the country and tarnish everything that I did there.”

A Personal Stake

For Mr. Browder, who is 44, Russia was more than a place to do business, His grandfather, Earl Browder, was a committed Communist from Kansas who moved to the Soviet Union in 1927, staying for several years and marrying a Russian. He returned with her to the United States to lead the Communist Party for a time, even running for president. William Browder also aspired to help build Russia. He hoped to get rich, but he argued that his fight against corporate malfeasance would benefit the country. After all, even as oligarchs got absurdly wealthy in the 1990s in highly questionable schemes, many Russians fell into poverty. “I had a lot of my family in me, and tried to find a way of connecting my past to my future,” he said.

Mr. Browder grew up in Chicago and attended the University of Chicago. After graduating from Stanford Business School in 1989, he set off for London. He later became a British citizen, not out of antipathy toward the United States, he said, but because he felt comfortable there. Mr. Browder’s company, Hermitage Capital, was first bankrolled by Edmond J. Safra, the billionaire founder of Republic National Bank in New York. Mr. Browder said the late Mr. Safra taught him not to shy from kicking up a scandal to protect his interests.

Following that advice, Mr. Browder made a lot of money and a lot of enemies after arriving in Russia in 1996, garnering a reputation as a sharp-eyed analyst of Russian industry who could also be abrasive and headstrong. Hermitage started with $25 million from Republic. The fund was so profitable in its first 18 months, reaping a gain of 850 percent, that it soon attracted more than $1 billion from institutional investors and others in the West. In the Russian financial collapse of 1998, it plunged to $125 million, but it recovered over the past decade, reaching a peak of more than $4 billion. Despite his success, Mr. Browder led a relatively austere lifestyle in Moscow, eschewing the trappings of many expatriates and working so hard, he says, that he learned to speak barely a word of Russian. He tried to keep a low profile, but did employ bodyguards when he engaged in shareholder battles.

Mr. Browder concentrated his investments on the largest Russian companies, most of them in the energy sector and under some Kremlin control. Hermitage became expert at conducting forensic audits into their finances, uncovering all manner of wrongdoing, from insider trading to outright theft. He often leaked the information to the Russian and international press. “It became a matter of desperation, not inspiration,” he said. “You had to become a shareholder activist if you didn’t want everything stolen from you.” Gazprom, one of the world’s largest companies, was a favorite target. Mr. Browder discovered that billions of dollars in gas had been sold at deeply discounted prices to shady intermediaries.

But by 2005, Mr. Putin had assumed complete control over Gazprom as part of his drive to re-nationalize central energy assets. When Hermitage released a dossier assailing mismanagement and corruption at the company, the Kremlin had had enough.
A few months later, Mr. Browder’s visa was canceled. Over the next two years, several of Mr. Browder’s associates and lawyers, as well as their relatives, were victims of crimes, including severe beatings and robberies during which documents were taken. None was solved.

Victim of Corporate Raiding

The real trouble, though, got underway in June 2007, with Mr. Browder stuck outside the country. Dozens of police officers swooped down on the Moscow offices of Hermitage and its law firm, confiscating documents and computers. When a member of the firm protested that the search was illegal, he was beaten by officers and hospitalized for two weeks, said the firm’s head, Jamison R. Firestone. Supervising the raids was the same police official who called Mr. Browder’s office about the visa three and a half months earlier, Lt. Col. Artem Kuznetsov of the Department of Tax Crime of the Interior Ministry. He said he was seeking evidence in an inquiry into whether one of Hermitage’s related entities, called Kameya, had underpaid its taxes by $44 million.

According to court documents obtained by Hermitage lawyers, the F. S. B., successor to the K. G. B., approved the inquiry. The Interior Ministry and the F. S. B. would not comment. Their role against Hermitage was not unusual. Law enforcement has been repeatedly deployed during Mr. Putin’s tenure against Kremlin critics or those whom the Kremlin did not favor in business disputes. Opposition parties faced numerous investigations during the parliamentary elections last fall.

In recent months, TNK-BP, Russia’s third largest oil company, has been subjected to 14 such inquiries, apparently in an effort to push out BP, the British oil giant, which owns half the venture, BP said. The Kremlin apparently wants a state company to take over TNK-BP, analysts said.

The issues surrounding the Hermitage tax payment were complex, but there was a larger question: why did the police need to carry out searches and seize so many documents, including many unrelated to Kameya, when such tax disputes are first supposed to be handled through routine bureaucratic channels? Even more curious, Hermitage asked the Russian tax authorities whether Kameya owed back taxes. The answer was no. But it did not matter. Hermitage was about to become victim of what is known in Russia as corporate raiding, which involves seizing companies and other assets with the aid of corrupt law-enforcement officials and judges. The phenomenon has flourished under Mr. Putin.

In the weeks after the police seized the corporate documents, someone used them to transfer the ownership of three of Hermitage’s holding companies to an entity based in Kazan, a provincial capital 450 miles east of Moscow. The entity’s registered owner was a man with a murder conviction, records show. Now that the corporate raiders had seized the three Hermitage holding companies, they resorted to a classic strategy to try to drain them of money A lawsuit was filed in a court in St. Petersburg in July 2007 against the holding companies, asserting that they had defrauded another company, Logos Plus, of hundreds of millions of dollars in a 2005 deal involving Gazprom stock.

In fact, everything about the lawsuit was bogus, Hermitage lawyers said. Hermitage had never done business with Logos Plus. The documents submitted to the court had obvious inconsistencies, suggesting that conspirators were not worried about being caught. A power of attorney for one of the Hermitage companies was dated four months before the company had been created. While it is unclear whether the judge knew about the fraud, she let the case go forward anyway. Lawyers whom Mr. Browder had never heard of showed up to defend the Hermitage companies and admitted wrongdoing. The judge ruled in favor of Logos Plus. In all, 15 such claims were put forth in similar cases. A total of $1.26 billion in judgments against Hermitage, which did not even learn of the cases until three months later.

Becoming a Personal Target
In the end, the raiders got nothing from Hermitage. After his visa was canceled, Mr. Browder, concerned about such an onslaught, had quietly moved his Russian assets off shore and sold most of them. The holding companies were shells. Still, the scheme was not done. In recent weeks, Hermitage discovered that the fake lawsuits had served another purpose. The raiders used the legal judgments to alter the holding companies’ balance sheets, wiping away their profits for 2006.

They then went to the tax authorities and applied for a refund on taxes that Hermitage had paid in 2006 on the profits. The authorities handed them $230 million from the Russian treasury, Hermitage lawyers said. While Mr. Browder did not suffer grievous financial losses, his work in Russia has been ruined. He has only small investments left here, and has evacuated his Russian staff to London, fearing for their safety. Mr. Browder has, over the last year or two, reinvented himself and Hermitage now has more than $3 billion invested in other parts of the world.

Beginning last December, Hermitage and its bankers filed dozens of lengthy complaints with Russian government agencies, presenting numerous pieces of evidence, including the phone call from Lieutenant Colonel Kuznetsov. To no avail. Mr. Medvedev appointed a committee in May to develop an anti-corruption program, and Hermitage sent letters to its members. None responded. At the same time, as Mr. Browder has stepped up his complaints, the Interior Ministry has set its sights on him personally. It has opened a criminal inquiry into whether he violated an obscure tax law in 2001.

Hermitage did convince one agency, the State Investigative Committee, which is part of the prosecutor general’s office, to examine the case. But Hermitage has come to realize that this inquiry will also most likely go nowhere. Last month, a Hermitage lawyer went to a meeting at the investigative committee about the case and saw a familiar face. It turns out that one of the officials who is helping to lead the inquiry into Hermitage’s allegations is Lieutenant Colonel Kuznetsov.

Writing in the Moscow Times Yulia Latynina decries Russia's malignant Arctic corruption:

The vast oil deposits located in what the Kremlin believes to be an extension of Russia's continental shelf in the Arctic will be distributed solely at the government's discretion, without holding the usual auctions or tenders. In a meeting on Friday with Deputy Prime Minister Igor Sechin, who oversees the energy sector, President Dmitry Medvedev explained the decision, saying, "This was done consciously to ensure rational use of this national wealth."

Is he saying that only the imperialists allocate the rights to develop oil deposits through competitive auctions, whereas the Kremlin lets Sechin decide who gets what? Is Sechin the sole guarantor of Russia's "rational use of its national wealth"?

Prior to this announcement, Russia had been trying for a year to prove that the Lomonosov ridge, on the bottom of the Arctic, is a logical extension of the Siberian plain. General Vladimir Shamanov even said in a June 24 interview in Krasnaya Zvezda, the country's military newspaper, that the military is prepared to fight any country that disputes Russia's rights to the continental shelf.

So we won't hold a tender, but we are willing to go to war. Naval warships will repel the forces of any country that contests Sechin's right to exploit the oil deposits on the continental shelf.

In January, when Prime Minister Viktor Zubkov told the then-prosecutor general to find out what is going on with country's drilling activities in the Arctic, it was discovered that the country's only functioning Arctic drilling rigs, the Murmansk and the Valentin Shashin, had been rented out to a Norwegian drilling company at one-fourth of the market price. What a great example of the country's "rational use of its national wealth"!

Things are no better with the military. During Soviet times, the country's nuclear submarines patrolled the Arctic region. Strategically, it was the most favorable location from which Moscow could launch a possible nuclear strike against the United States; a missile launch from the Arctic would have the shortest possible flight time to U.S. territory.

Maintaining a military presence in the Arctic, however, requires a complex and very expensive infrastructure, including a sophisticated communications system that can function reliably despite severe magnetic interference, and the ability to accurately predict bad weather conditions.

But the Soviet Union had all that. My colleague and specialist on the Russian military, Alexander Golts, once pointed out to me that, "If anybody thinks we were on [the Arctic island of] Spitsbergen solely to mine coal, they should take a look at the weather station and landing strip there." But since it was impossible to rent out our Spitsbergen assets for one-fourth of their market value to maximize "the rational use of its national wealth," the whole installation fell into disrepair.

It is, therefore, unclear what military resources Shamanov will have at his disposal to defend Sechin's claims to the rich Arctic natural resources.

The most interesting part of this story is that, although there might really be large oil and gas reserves under the Arctic, Russia, unfortunately, is unable to mine those deposits without the help of foreign expertise and equipment. We can't even tap the huge Shtokman gas field in the Barents Sea by ourselves.

But it is hard to imagine Russia entering joint Arctic exploration and development projects with foreign companies when our leaders are constantly shaking our fists at them and sending the country's nuclear submarines to patrol the Arctic waters.

Or perhaps the Kremlin is planning to pour a couple billion dollars into the creation of an exotic new Russian hybrid -- half-nuclear sub and half-underwater drilling platform. Not a bad idea at all! And I have got a perfect name for this one-of-a-kind vessel -- "The Igor Sechin." On its side we could write: "For the optimal use of Russia's natural resources."

Harpers reports:

Back in January of 2007, the House Ethics Committee (“Press 1 if you are a member of Congress covering up a criminal offense. Press 2 if…”) released a statement saying that it had reviewed a foreign trip by Congressman Curt Weldon and determined that he had violated the gift rule ban. Weldon, said the statement–which was signed by Republican Doc Hastings, then the Committee chairman, and Howard Berman, then the ranking Democrat–had traveled in January 2003 with “several” unnamed family members. “Donors,” who were also not identified, picked up the tab for much of the trip, said the committee. The statement also failed to disclose where precisely Weldon & Co. had traveled, but did say that Weldon had been told to reimburse the trip’s financial sponsors for some $23,000 in expenses.

So where did Curt Weldon go? I’ve learned that he traveled to Eastern Europe (stops included Moscow and Vienna) with 10 family members and acquaintances, including one son’s girlfriend and a daughter’s boyfriend. The trip was paid for by three private foreign groups, including a Russian aerospace manufacturer and members of a controversial Serbian family that were barred from entering the United States due to their alleged ties to accused war criminal Slobodan Milosevic. Very soon after the trip the Russian firm and the Serbian family retained Karen Weldon, the congressman’s young, politically inexperienced daughter, to be their Washington lobbyist–which led to charges about whether her father was steering business to her that are currently the subject of a federal investigation.

This was all known to the Ethics Committee when it released its statement in January of 2007. As is inevitably the case, the committee opted to cover up for one of its own as opposed to holding members of congress accountable.

According to the Committee’s statement and other evidence I have obtained, prior to traveling Weldon had disclosed his trip and sought a waiver from the gift-rule provisions that at the time permitted a member of Congress to accept “travel and other benefits resulting from outside activities that are unrelated to official duties.” Weldon argued that his trip was unrelated to official duties, because the invitation to travel to Eastern Europe (to give a speech) was made on the basis of his membership in the Russian Academy of Sciences–not because he was a member of Congress. Even the typically lame Ethics Committee rejected that argument, recognizing (for obvious reasons we’ll soon see) that the trip was connected to Weldon’s position as a member of Congress. So Weldon, according to the January 2007 statement, “then sought a gift rule waiver from the Committee, but withdrew his request prior to receiving a formal written response from the Committee.”

In other words, Weldon apparently didn’t get the answer he wanted so he simply ignored the committee’s advice and ethics rules and went anyway, with the tab being picked up by outside sponsors.

In January of 2003, the Weldon clan headed to Eastern Europe. In addition to the congressman, the travelers included his wife, his three daughters, two sons, one son-in-law, a niece and two other people, whose identities were apparently known to the committee but were not revealed. I’ve learned that those two people were the girlfriend of son Andrew Weldon and the boyfriend of daughter Karen Weldon, who at the time was embarking on a lucrative career as a lobbyist (though a short-lived career, interrupted in October of 2006 by a federal raid on her offices).

So the Weldon clan departed to Moscow, and the Moscow International Petroleum Club, “a non-profit international organization, with membership of over 25 leading Russian, European, and American oil and gas production and service companies committed to doing business in Russia,” picked up about $12,000 in planes fares and hotel lodging.

Other stops in Russia included the Saratov Aviation Plant, a company building a flying saucer, whose technology Congressman Weldon was aggressively pushing in Washington. Saratov paid for roughly $4,000 of airfare, which included flights from Moscow to the plant and then from the plant to Belgrade. Soon after this visit, Karen Weldon closed a deal with Saratov to lobby for the firm in Washington.

In Belgrade, the Weldon family stayed at a private residence owned by the controversial Karic family. As I wrote in the Los Angeles Times in 2004:

Because of evidence that the Karics had supported Milosevic, the Treasury Department placed them on a list of Serbians banned from doing business in the United States. They all had been removed from the list by last year, as the United States normalized relations with Serbia, but they still cannot get visas.

In a written statement, a spokesman for the Karics said, “Regarding the alleged links of the Karic Group or family to the Milosevic regime, we can only reiterate that these allegations are the product of groups or individuals from our country who have been themselves profiting from ties with the former regime.” Rep. Weldon came to adopt the view that the Karics, whose businesses thrived under Milosevic, were being unfairly portrayed as sympathizers of the former leader.

From Belgrade, the Weldon clan traveled to Vienna. The roughly $7,000 in airfare was picked up by the Karic Group. In March 2003, two months after this trip, the Karic Foundation hired Karen Weldon’s firm on a renewable one-year contract paying $240,000 to help it in “establishing and developing a U.S. presence.”

The Ethics Committee’s limp, pathetic response to this egregiousness came in January 2007–two months after Weldon had lost his House seat. The Committee essentially protected one of their own up until the point that it was irrelevant. Furthermore, Weldon had during the campaign claimed–falsely, as the statement shows–that he had been fully investigated and cleared of any wrongdoing by the committee. By not releasing the statement until months after he had lost his House seat, the committee allowed then-Congressman Weldon to lie.

Finally, the Committee had determined that it would not take any action over charges that Weldon had steered business to daughter Karen’s firm. But, as is customary, the committee’s investigation was largely limited to reviewing information submitted by Weldon’s own office. Imagine how many convictions we’d get if the police limited their investigations to data provided by suspects, yet that’s the way our Congress works.

(This also makes it easy to understand this story from today’s Washington Post, “House Ways and Means Committee Chairman Charles B. Rangel (D-N.Y.) said yesterday that he would welcome an ethics committee investigation into his fundraising efforts for an academic center that bears his name.” Yes, I can imagine the propsect of a committee investigation doesn’t keep Rangel up at night.)

Weldon’s attorney, William Winning, did not reply to a request for comment about the trip, nor to a question about whether Weldon ever in fact paid the money back. If he does reply, I will update this story immediately.

Once again Transparency International has released its independent study of world nations, reviewing each for the presence of social and governmental corruption. Once again, Russia's place on the list has fallen -- from #121 in 2006 to #143 last year. Russia is tied with Gambia and Indonesia, just below Pakistan and Syria, with a woeful score of 2.3 out of a perfect ten. The United States is #20, France is at position #19, Germany is #16 and Britain is #12. These are the nations Russia dares to claim the right to sit with at the G-8 table. Think Russia does better when compared to its neighbors in the former Soviet world? Think again. Russia's current score puts it a pathetic #13 out of 20 countries in Eastern Europe -- Georgia towers above it at #3.

Evaluating the TI scoring at the level of fine detail is actually a bit complicated. While each year more and more countries are found to be less corrupt than Russia, each year more and more countries are studied and the average score of the group, of course, changes. This means that Russia's position compared to the group under study actually hasn't fallen as much as superficially might appear by referencing only the numerical ranking tables, but that doesn't make Russia's performance any less abysmal. Russia under Putin is not remotely close to becoming a civilized nation.

Here are Russia's rankings going back to when Vladimir Putin first took over as president. The fraction is Russia's rank out of the total number of countries surveyed, with the #1 position being the least corrupt nation. In parenthesis is Russia's numerical score that generated its rank, out of a perfect "10" for total lack of corruption, followed by the percentile rank for that score compared to the average of the other nations). Basically, TI considers any score below a "5" indicative of barbarism. All the other G-8 nations mentioned above scored above a "7" and Britain came in with an 8.4 at the top of the group.

The Moscow Times reports:

The Moscow police officers checked Viktor's office and declared that he was in big trouble.

The Windows software installed on his computers was not licensed, and the officers said they would be forced to open a criminal case unless Viktor showed his "generosity."

Viktor slapped $6,000 into the hand of one of the officers, and the pirated software was forgotten.

Across the city, Igor is proud of his brand-new Ford Focus, but he parked it several hundred meters away from the institute where he studies medicine. If his professors were to see it, he would be charged more money to pass his exams.

In a small shop on Prospekt Mira, Yekaterina regularly pays tax officials to turn a blind eye to irregularities in her accounting records and fire inspectors to ignore fire safety violations.

"This is the way we live. We pay, pay and pay," Yekaterina said with a sigh.

People living in Russia pay $319 billion a year in bribes, according to Indem, a Moscow-based research center that tracks corruption. That amounts to about $2,250 for each of the country's 142 million citizens.

The cost of corruption is keenly felt across all segments of the economy, pushing up prices for food, housing, services, health care and education. A few people have taken a stand against bribes, opting instead to take the longer and sometimes more costly route of doing everything above board. But many people prefer the status quo, saying they fear a government-led reform effort would end up forcing them to pay more than they do now.

President Dmitry Medvedev has declared war on corruption, and he is expected to outline a national anti-corruption plan in the upcoming days. The plan, prepared by the Anti-Corruption Council, a body that Medvedev founded and chairs, is to seek amendments to laws that breed corruption, offer protection to businesses from corrupt bureaucrats, and make judges independent.

Corruption, however, is deeply engrained into everyday life. Everyone pays bribes, according to a study carried out last year by Transparency International, a corruption watchdog. The study ranked Russia on par with Gambia, Togo and Indonesia in terms of corruption, ranking it in 143th place out of 180 countries surveyed.

As the cost of living rises, so has the cost of the average bribe, increasing from $10,000 in 2001 to $130,000 in 2005, according to Indem. The largest chunk of bribes go to law enforcement agencies and education institutions, it said.

It is little wonder then that Russians overwhelmingly believe that bureaucrats became less efficient and more corrupt under President Vladimir Putin, as documented in a study by the Institute of Sociology of the Russian Academy of Sciences in late 2005.

Indeed, corruption has become more "impudent and open," compared with President Boris Yeltsin's time in office, said Georgy Satarov, the head of Indem.

"Bureaucrats who took bribes used to try to hide them, but now they are not even afraid of showing off their wealth," Satarov said.

Fighting With Legislation

As a first step, Medvedev has ordered new legislation to prevent state inspectors from entering the premises of small businesses without the permission of prosecutors.

"Arbitrary inspections by officials -- from firemen to the police -- are often an excuse to extort bribes from small firms and must halt," he told a State Council meeting in Tobolsk in late March.

Under Medvedev's direction, the Duma Commission to Fight Corruption has drafted a bill to fight corruption that would deprive officials of opportunities to use their positions for personal profit and set strict standards for government employees. The bill requires officials and members of their families to declare their property and forbids former officials from working for companies that they previously regulated.

The rules were taken from a United Nations convention against corruption and a Council of Europe convention on criminal responsibilities that the Duma ratified two years ago and needs to implement, said Mikhail Grishankov, one of the authors of the bill and the head of the Duma Commission to Fight Corruption.

"We didn't try to create something completely new," Grishankov said in an interview. "Instead, we looked at international experience in this field."

Grishankov said the anti-corruption bill contained provisions that have been tested in Western countries and worked well.

"We don't have any illusions that by applying European measures we will get immediate results. But there are rules that have been applied in other countries and work," he said.

Medvedev will present the bill to the entire Duma for a vote in the fall, and the bill will be passed by year's end, Grishankov said.

Other anti-corruption legislation is also in the works. The Investigative Committee, linked to the Prosecutor General's Office, has floated a bill that would eliminate a legal loophole that allows government officials to accept gifts worth less than 11,500 rubles.

Putin's campaign against corruption largely consisted of raising bureaucrats' miserly salaries to make bribes less attractive and the occasional high-profile arrest of corrupt officials in sting operations.

At his last annual Kremlin news conference in February, Putin admitted that the campaign had failed and said he could not think of a more difficult problem to solve. "Fighting corruption takes time, and there is no miracle anti-corruption pill that the state can swallow and cure its corruption woes overnight," he said.

He accused big businesses of facilitating corruption by placing their people in the government. "Few of these people actually received a salary in these posts. It was not the money that interested them," he said.

Putin has dismissed the idea of replicating attempts by Georgia to get rid of corruption as unpractical and unrealistic. Georgia fired its entire traffic police force and replaced the officers with new recruits.

'Don't Touch Anything'

Told about the pending legislation, Viktor, the businessman with pirated software, unleashed a torrent of profanity.

"Don't touch anything! Let things stay the way they are," he said, shouting. Viktor, like many small entrepreneurs interviewed for this report, spoke on condition of anonymity, citing fears of reprisals from the authorities.

Viktor said he spends about $1,000 a month on bribes to police officers and bureaucrats. The money pays for permits and prevents inspectors from revoking his license for perceived infractions. He said the bribes were like an extra tax, which, although high, is manageable. He said he "strongly" opposes Medvedev fighting the problem.

"I don't like paying bribes, and I would rather work according to clear and transparent rules," Viktor said. "But I live in Russia, and experience tells me that every time authorities decide to tackle a problem, things only get worse."

Yekaterina, who pays $800 to tax and fire inspectors every month, said she feared a government crackdown would only lead to higher bribes. "It would become riskier for bureaucrats to take the money, so they would ask for more," she said.

"It is better to leave things the way they are," she added. "It is not an easy situation, but now we can survive. If they touch anything, it would be the end for small businesses."

Viktor and Yekaterina explained that they have good relations with "their" officials, and a change would mean building new relations with new people who might want more money.

"It took me so long to establish my contacts, and I don't want to lose them," Viktor said. "The old ones already have cars and apartments."

But Igor, the student with the new car, said he supported any government initiative to stop bribery at schools. At his institute, he said, only students from poor families pass exams for free, but professors ask for money from students from middle-class or rich families.

"I like studying, but I sometimes lose motivation because I know that I can pay and the exam is done," Igor said. "Who studies under such circumstances? People get degrees without even opening a book."

Satarov said "everyday corruption" is the worst kind, when students pay professors for a degree and people pay doctors for treatment.

Already in 2001, he said, 2 million adults reported that they did not seek treatment when they were ill because they could not afford to pay for nominally free public health care services.

"This kind of corruption will bring unimaginable danger in our society," Satarov said. "People will be unhealthy, and soon we will have lawyers, constructors and doctors who have all purchased their degrees."

One Man's Fight

Ilya Khandrikov, a businessman who owns a clothing factory with 110 workers, started his own fight against corruption in 2006 after growing weary of being harassed by policemen and fire and tax inspectors. He stopped paying bribes.

When officials stop by his office looking for a handout, he refuses. When he needs to get a new permit, he hires a firm that takes care of the bureaucratic hurdles for him.

"It is a big challenge," he said. "Some people say, 'You'd better pay,' but I'm a fighter by nature."

Khandrikov said it was difficult to compete with rival businesses that prefer the easier way of paying bribes, but he believes that someone has to oppose the system before things will start to change.

"It takes more time and money to solve the problems the way I do, but still I decided to stop giving money to anyone anymore," he said. "It is more expensive, but it is worth it."

Khandrikov believes that corruption would end if all businesses followed his example.

A few other businesses are also openly refusing to pay bribes, including Ernst & Young, the auditing firm, which encourages clients to follow its lead. "If a company wishes to get recognition from its Western partners, it should have a zero-tolerance policy toward any corruption payments," Ivan Ryutov, head of fraud investigation and disputes services at Ernst & Young, said in an e-mail. "That is why we always recommend that our clients think about their image and reputation rather than entering into dubious corruption schemes."

Grishankov, the Duma deputy, said businesspeople are one of the main problems in fighting corruption. "When businessmen understand that the rules are changing and they need to follow the law like everyone else, things will gradually start to improve," he said.

Solution Is Democracy

Is there a way out of corruption? Satarov said the solution is simple: allow nongovernmental organizations and the media to provide external control over bureaucracy.

"The bureaucracy is now independent and without any controls. It does whatever it wants," Satarov said. "When bureaucracy is without any controls, it works for itself, and then you have corruption."

To fight corruption, Satarov said, Russia needs free NGOs and free media, as well as a developed civil society, political competition and a clear division of powers in the government.

"In one word: democracy," he said. "Without these conditions, any fight against corruption is useless. You will only get short-time results."

Punitive measures are unlikely to work in a big country like Russia. "In some small countries like Singapore, it is possible to fight corruption with strong punitive measures, but not in Russia," Satarov said.

Yelena Panfilova, head of the Russia office of Transparency International, said the authorities needed to work to change people's mentality so that they understood that life without corruption would be better for everyone. Putin often launched anti-corruption campaigns around election seasons, and people tend to associate them with election-time politicking.

"The political leadership should make it absolutely clear that this time they are fighting corruption seriously, that they are not going to stop when the elections are over," Panfilova said.

In educating the public about corruption, the government must make people realize the price they pay everyday because of corruption, she said.

"When people see that Coca-Cola is 5 rubles more expensive, they blame greedy businessmen," she said. "But they don't see that the reason for the price increase is not economic but corruption."

People also do not associate the danger in the streets with corruption, said Kirill Kabanov, director of the National Anti-Corruption Committee, an advocacy group. "Patrol officers in our country are on the street to make money, not to protect citizens," he said.

At least one Moscow police officer is not worried that Medvedev's drive against corruption will change the way he works.

A police officer, who works for the Moscow force's anti-organized crime division, is more skeptical about the fight against corruption the government wants to start.

"It is just a publicity stunt to promote the new president and to show people that he wants to find a solution to this problem," said the officer.

He said bureaucrats were so used to taking money that they would continue the practice even if their salaries were raised by 10 times.

"The only thing to fight this problem is to replace everyone from the top to the bottom with new people," he said.

The AFP reports:

Spanish authorities said Friday they had broken up a massive Russian criminal network operating in the south of the country, arresting 18 people.

The Tambovskaya-Malyshevskay gang is the "largest criminal organisation of Russian origin in the world" and has been "totally dismantled", police said in a statement.

It said 400 officers took part in the crackdown in southern Spain, from where "they planned their criminal activities in Russia, in several countries of the European Union and in the United States."

"They controled the criminal activities of lower-ranked leaders", which included murders, weapons and drug trafficking, racketeering and influence peddling.

The gang also carried out money laundering through financial institutions in Switzerland, Cyprus and Latvia, and a network of companies," it said.

Eighteen people were arrested Friday, including leaders of the network, and the number is expected to grow, a judicial source said.

A police source said foreign intelligence services also participated.

The operation was carried out simultaneously in several places, including Marbella, Nerja, Malaga, Torrox, Palma de Majorca, Javea, El Campello, Valencia and Madrid.

It was under the supervision of Judge Baltasar Garzon and anti-corruption prosecutors.

Garzon is expected to travel to Palma de Majorca, in the Balearic islands, on Saturday to oversee search operations there.

Spanish authorities have already carried out several operations against Russian criminal gangs, notably on the Costa del Sol, where they are suspected of carrying out money laundering activities.

Operation Avispa (Wasp) in June 2005 led to the arrests of about 30 people from the former Soviet Union, including 22 leaders of criminal gangs, most of them from Georgia.

The interior minister described that operation as "the largest crackdown on organised crime in Europe."

As a tourist I would be scared to be in Moscow and have no desire to ever visit there. My colleagues passports were held for ransom by Russian police during sightseeing on Red Square. If you cant trust the police who can you trust in Moscow? Russian President needs to take quick and decisive action to rid itself of widespread corruption at its highest echelons in government especially in its law enforcement agencies to gain the West's confidence that it is a Just and Social society mindful of it citizens and tourist welfare with a deep sense of Right & Wrong, otherwise it will be continued to be seen as a country reliving its violent and oppressive past.

-- Comment on the following story by reader "John"

Business Week reports:

It seemed like any other workday at Togliatti Azot, a giant chemical factory in Russia's Samara region, on the Volga River 600 miles east of Moscow. Engineers were on their morning rounds, and union representatives had just finished a talk about financial support for newlyweds. Then around 11 a.m., dozens of men dressed in camouflage and toting automatic weapons charged into the administration building. "We thought it was a terrorist attack," Sergei Korushev, the plant's deputy director, says of the September, 2005, raid.

In fact, the uninvited visitors were members of the local OMON, Russia's crack paramilitary police, and detectives from Moscow. They seized thousands of financial documents—evidence, they said, of crimes by management. The police later brought charges of tax evasion and fraud against General Director Vladimir Makhlai and CEO Alexander Makarov, both of whom have since left the country. (Neither could be reached for comment.) While the company has been hit with $150 million in back tax claims, many at Togliatti Azot have their own explanation for the events. "Someone wanted to eat up a very good and very lucrative morsel for their selfish goals," says Korushev. The plant's current boss, Yuri Budanov, calls the police probes a "shakedown," which a local politician links to a rival company.

Budanov and Korushev, like many Russians, believe the police and courts have become weapons in the capitalist arsenal. Some 8,000 companies a year are targets of lawsuits or investigations at the behest of rivals seeking to put them out of business or take them over, the Russian Chamber of Commerce & Industry says. Russians call this process reiderstvo, or raiding. In some of these cases, companies pay off police and courts with a goal of harassing competitors. Often raiders rely on corrupt courts to rule that they are legal owners of a company. In other cases, raiding companies or their agents use legal pressure as a tool to force controlling shareholders to sell their stakes. While targeted companies sometimes don't know who is behind the legal attacks, the practice is common enough for the Russian press to name the prices corrupt officials allegedly charge for various "services": Getting police to open a criminal investigation costs $20,000 to $50,000, an office raid is as much as $30,000, and a favorable court ruling runs anywhere from $10,000 to $200,000, according to press reports.

Rampant lawlessness is the No. 1 barrier to Russia's economic development, says President Dmitry Medvedev. The former law professor, who promised to make law and order a top priority, has coined his first catchphrase, "legal nihilism," to describe widespread disrespect for the law at all levels of society. Medvedev, who took over the Presidency from Vladimir Putin on May 7, has called for legislation to rein in reiderstvo, and Parliament is debating a 20-year jail sentence for raiders who illegally acquire companies.

VENALITY ON THE VOLGA

Sometimes Russia's legal shenanigans make global headlines. Oil giant Yukos was broken up and renationalized by the Russian government between 2003 and 2007. Police on Mar. 20 raided the Moscow offices of BP (BP) and its Russian joint venture, TNK-BP. And on Apr. 6, Hermitage Capital Management, a British investment fund, said Russian police, under cover of an investigation for alleged tax evasion, stole documents that were then used in an attempt to defraud the fund. (The police did not comment.)

While such cases capture worldwide attention, reiderstvo more typically targets small and midsize companies in places like Samara. Located on the historic trade route with Asia, Samara has long had a wild streak. In the 17th century, the city—the capital of Samara province—was the base for Russia's most notorious outlaw, a Cossack named Stepan Razin who held up riverboats. In the 1990s criminality in the region centered on the giant AvtoVAZ car factory in Togliatti, Samara's second city, where mobsters stole cars and gunned down managers.

These days life is calmer. While assassinations of businessmen and officials still happen, Samara has seen an economic revival in the Putin era. Crumbling 19th century buildings give the city an air of faded elegance, but the streets have been brightened by the arrival of big electronics chains, mobile-phone shops, and Western brands such as Citibank (C) and Adidas. Today, the region's businesses worry less about mobsters and more about cops and their bureaucratic masters.

That's certainly the case at Togliatti Azot. Surrounded by Russia's ubiquitous birch forests, the factory is one of Russia's most profitable petrochemical plants, producing ingredients for plastics and fertilizer. (Azot means "nitrogen.") Built in the 1970s with technical assistance from U.S. billionaire Armand Hammer, the plant is relatively modern by Russian standards. The perestroika economic reforms of the '80s hurt, but the company revived, helped by new partners and markets.

Many credit Togliatti Azot's survival to fugitive General Director Makhlai. He ran the company during the Soviet era and stayed at the helm when it was privatized in the early 1990s, becoming its largest shareholder. The plant's staffers are surprisingly loyal to their boss and have organized dozens of demonstrations. Their banners and placards—"Hands off Togliatti Azot!" and "We won't let the dirty raiders pass!"—make clear what the workers think of the accusations. "If the workforce has come to the defense of the manager, it's because he isn't guilty," fumes Olga Sevostyanova, head of the plant's trade union.

The police's case rests on the claim that between 2002 and 2004, the factory sold ammonia at artificially low prices to a trading company in Switzerland. The police maintain the Swiss outfit was a front for Makhlai, and that it resold the ammonia at market prices, pocketing the difference. The factory disputes this and has received backing from experts at the Justice Ministry who support Togliatti Azot's claim that the police case rests on insufficient evidence. The Samara police declined to comment, as did the Internal Affairs Ministry in Moscow. But Alim Dzhiganshin, investigations editor of the official police newspaper, Shield and Sword, says: "The position of the investigators is close to the truth. [Makhlai] crudely stole from his company, and now he's trying to blame raiders."

To be sure, the case against Togliatti Azot is complex, resting on such arcane matters as the fair export price for ammonia. Commentators note that such cases are rarely black and white. "Opening a criminal case is of course a kind of corporate war," says Boris Titov, head of Business Russia, a lobbying group. "You don't know who's attacking whom."

Murky as it is, the conflict has led to local outrage. "It's obvious that all signs point to a hostile takeover of the company—a so-called raider," says Anatoly Ivanov, a deputy of the pro-government United Russia party who represents the city of Togliatti in Russia's Parliament. He points a finger at Renova, a Moscow-based company owned by Victor Vekselberg, a tycoon with interests in the petrochemicals sector. Renova Group, a minority shareholder in Togliatti Azot, emphatically denies involvement in a corporate raid, while acknowledging past disagreements with the plant's management over dividends and shareholder rights. "The Renova Group can't have any connection with the investigation of Togliatti Azot by the law enforcement agencies, because it is a private Russian business group," Renova told BusinessWeek.

The onslaught of criminal and tax investigations against Togliatti Azot coincided with civil suits affecting it. In 2006 managers were amazed to learn of a case lodged in Ivanovo, near Moscow. In it, one small company accused another of reneging on an agreement to sell 100% of Togliatti Azot's shares. After the plaintiff presented the court with a share register that appeared to prove the defendant owned the stock, the judge halted trading in Togliatti Azot's shares. But that was reversed after the company proved the document was forged. In another unsuccessful case, executives say, a plaintiff lodged a lawsuit against Togliatti Azot citing papers that had been taken in the 2005 police raid. "They had documents that this company should never have had access to," says Oleg Klyukhov, Togliatti Azot's legal director.

The region of Samara doesn't lack for other examples of alleged reiderstvo. In the city of Samara, the Smarts cell-phone company could hardly be more different from Togliatti Azot. The plant was a product of the Soviet industrial complex, passing into private ownership as a result of Russia's controversial privatization process. Smarts, by contrast, is a creature of Russia's post-communist consumer boom. It has some 4 million subscribers in the Volga region and occupies a shiny office block in Samara. Unlike the gray-haired engineers who head up Togliatti Azot, Smarts' general director, Andrei Girev, is young, trim, and sharply dressed. But Smarts has one thing in common with Togliatti Azot: For the past three years it has been hit by legal challenges and criminal probes, which Girev calls "a classic raiders' attack."

The problems began in 2005, when Smarts was planning an initial public offering. It hired a Russian consulting firm, Marshall Capital Partners, which was working with Sigma, a Moscow investment firm. Smarts alleges that Marshall failed to do what it promised, leading the phone company to terminate the contract. Then the legal troubles began. "It used to be gangsters who ran rackets, and now it's consultants and lawyers wearing ties, who are civilized on the surface but carry out the same blackmail," says Girev, who suspects Sigma is acting on behalf of a company that wants to buy Smarts.

A Marshall spokesman said: "For us the case finished a long time ago." Sigma didn't respond to requests for comment. But the group has told Russian newspapers it wasn't involved in a raider attack on Smarts. Sigma says Smarts violated its contract and that Sigma had an option to buy 20% of the company's shares. Sigma has brought several court cases against Smarts but lost appeals last year.

A regrettable, but not uncommon, commercial dispute. Yet what happened next wouldn't be part of a routine commercial dustup. Smarts' major shareholder, Gennady Kiryushin, is now under investigation for alleged criminal offenses, including fraud, illegal entrepreneurship, and money laundering. "There is no foundation for the criminal case," says Kiryushin, who is under legal order to remain in Samara. Girev says the allegations followed threats from individuals who promised to land Kiryushin in jail unless he agreed to sell his shares.

A BARRAGE OF LAWSUITS

The basis for the criminal claims? Smarts is accused of failing to obtain permits for its base stations, violating licensing rules. Girev admits the company has sometimes operated stations before the licensing process was completed, but only on frequencies already allocated to Smarts. Such technical violations are normally punishable by a fine of $400-$800. The police declined to comment.

Smarts has also been hit with dozens of civil lawsuits in regional courts. These suits, using virtually identical language, ask that trading in Smarts shares be halted on the grounds that a private individual hadn't honored a contract to sell bonds issued by Smarts. "What does Smarts have to do with this?" Girev asks. In one town, police identified the plaintiff, who said she had been approached by a stranger in a park and offered 5,000 rubles ($200) to sign a form. In another, the plaintiff died three weeks before the case was filed. While a few judges initially ruled against it, Smarts has been able to reverse the decisions by arguing the cases were frivolous. "We win in the end. But then, in another part of Russia, exactly the same thing happens," says Girev.

With thousands of such cases across Russia, executives and entrepreneurs are pressing for action. Yet it's doubtful that new legislation alone will solve the problem. After all, some tools in the reiderstvo playbook—corruption of courts and prosecutors, forgery, and bribery—have always been illegal. What's needed is a cleanup of the culture of lawlessness—and it's not clear Russia's new President has the clout to do that.

Paul Goble reports:

Corruption in the Russian Federation is so extensive that it rather than a rational calculation of national interests is determining the outcome of many decisions, a situation that promises large if short-term benefits for some but even larger and longer term costs for the country as a whole, according to a Moscow commentator. In a speech to an Interior Ministry conference on combating corruption that was posted online recently, Mikhail Delyagin, the director of the Moscow Institute of the Problems of Globalization, argued that now “even the most important and strategic decisions” in Moscow are taken on the basis of “corrupt interests."

A harsh critic of the Putin administration, Delyagin argues that three major government projects provide clear support for his argument. The Pacific Oil Pipeline (VSTO) would never have been slated to go through such seismically active areas had certain regional interests and companies not had to be paid off. The Sochi Olympics is a second case of corruption trumping national interests, he suggests. Indeed, it appears that this project is little more than an opportunity to funnel government money into private pockets. And the third case involves the reform of the country’s housing stock. In the last case, Delyagin points out, “the basic discussion” about government funding of these reforms “has developed not around how to better and more quickly fulfill its goals – the capital reconstruction or old and dangerous housing – but around which financial instruments and over what period should be best invested ‘temporarily free’ means.”
Indeed, it has gotten to the point, the Moscow analyst says, that “Russian bureaucrats, who have a bank account, property or other shares abroad simply cannot defend the interests of Russia where their interests do not correspond to the interests of the development of the country since they are simply afraid for their property” much of which has been acquired “corruptly.”
Russian society “is paying a colossal price for corruption in practically all spheres of life,” Delyagin continues, arguing that the current upsurge in inflation could be curbed if the state had the ability to limit the “arbitrariness” of monopolies, something it does not have because of the corruption that ties officials to these businesses.

Some people are beginning to recognize this problem, he argues, but unfortunately, many people currently accept notions about how to fight corruption that do little but make the problem worse. Some believe, for example, that raising the salaries of bureaucrats will help, but in general, such moves only increase the appetites of those receiving more money. Indeed, Delyagin suggests, the only effective ways to deal with corruption involve acting in the same way that the authorities promise to do in fighting organized crime, something corruption is intimately interconnected with. Other means include improving transparency and new means to protect whistle blowers, steps the bureaucracy appears certain to continue to resist.

In the short term, there may be no way out, but as Russian officials sacrifice the national interests of the country in order to protect their corrupt personal ones, the community of those who will be prepared to oppose such actions is certain to grow, a trend that will either force those in power to change or lead those whose interests are now being sacrificed to revolt. While the former is far preferable given than it would lead to fewer dislocations across the political and social system, it is clear that Delyagin himself thinks that the latter outcome is more likely, something that points to the kind of radical, ratchet-like change that has so often marred Russian history in the past.

Last week Russia lost Serbia to Europe. This week it lost Cyprus. The Financial Times reports:

A Cyprus court has refused to extradite a former senior Yukos executive to Russia, saying that the case is politically-motivated.

Judge Alecos Panayiotou refused Russia's request to extradite Vladislav Kartashov, a former manager at the Russian energy group, because "there is a real risk that his right to a fair trial will be flagrantly violated".

The judge also said "the charges faced by the respondent in Russia are tainted with political motives" and said he could not be extradited while he was seeking political asylum in Cyprus.

The ruling is another international defeat for Russia as it seeks legitimacy for its legal onslaught against Yukos.

Last week we reported on how opposition political groups were exposing the Kremlin's disastrous failure in organizing the Sochi Olympiad. No sooner had this story broken than the boss of the affair was forced to resign in disgrace, conclusively proving the truth of the charges. The Moscow Times reports:

Semyon Vainshtok, the head of the Olimpstroi state corporation responsible for preparing Sochi for the 2014 Olympics, resigned abruptly Thursday, amid accusations of mismanagement and cost overruns. Viktor Kolodyazhny, the mayor of Sochi, was named as Vainshtok's replacement.

Vainshtok's departure, just seven months after being appointed to the job, came after months of criticism from lawmakers and state officials, who said the cost of preparations for the Olympics had ballooned to nearly $12 billion. At a news briefing Thursday at Olimpstroi's Moscow office to formalize the handover, Vainshtok introduced Kolodyazhny as his successor. In front of television cameras, Vainshtok hugged Kolodyazhny and wished him luck. Kolodyazhny spoke only briefly, saying merely, "The preparations will be finished by the deadline."

Earlier, Regional Development Minister Dmitry Kozak told reporters that Olimpstroi would now work to complete the preparations ahead of time. Afterward, Vainshtok insisted that he had done what was expected of him, and it was time to step aside. "I had a certain task: to begin the preparations for the Olympic Games, and I have fulfilled it," Vainshtok said in an interview on the street outside the Olimpstroi office. "I am satisfied, by now 46 billion rubles ($1.97 billion) has been transferred to the accounts of Olimpstroi." Vainshtok, 60, added that he had had "a number of very good offers [of jobs] but nothing from the state."

Officials sought to downplay Vainshtok's resignation, saying he had planned it for some months. Kozak said at the briefing that he had agreed with Vainshtok in September that he would leave after completing his allotted task. "He has done as planned," Kozak said. "I see no politics in what has happened." He added that Vainshtok would soon be given a high-ranking state award. Both President Vladimir Putin and Prime Minister Viktor Zubkov on Thursday praised Vainshtok for his work at Olimpstroi.

Vainshtok, formerly head of pipeline monopoly Transneft, was tapped by Putin to head Olimpstroi on Sept. 11, a day before Putin appointed Zubkov prime minister in a shakeup of top government and state officials. After stepping down at Transneft, which he headed for eight years, Vainshtok was replaced by Putin ally Nikolai Tokarev, the head of state oil firm Zarubezhneft. Kozak on Thursday praised Kolodyazhny, 54, calling him "a highly professional manager." He added that Kolodyazhny "was not the only candidate" to replace Vainshtok but declined to name the others. On Thursday, Vladimir Afanasenkov, a former deputy governor of the Krasnodar region, replaced Kolodyazhny as Sochi mayor. Olimpstroi vice president Sergei Grigoryev, a lieutenant of Vainshtok's who followed him from Transneft, said Thursday that Kolodyazhny's appointment had been "quite unexpected." Grigoryev stoutly defended Vainshtok against his critics. "Less than a year has passed since we won the bid. It is obvious that we have neither the financial nor the strategic plan yet with exact figures and parameters," Grigoryev said.

Grigoryev, a former vice president at Transneft under Vainshtok, hinted that the team that came with Vainshtok from the pipeline monopoly last September might also leave Olimpstroi. "But don't expect any dramatic changes in the company," Grigoryev said. Public arguments among officials over the spiraling costs for the Olympics have increased in recent months, with Vainshtok telling State Duma deputies last month that the games would cost taxpayers three times the initial estimates. Building the transportation infrastructure alone could cost 316 billion rubles ($13.5 billion), Vainshtok said. The government initially earmarked 200 billion rubles ($8.5 billion) of state funds for Olympic construction, including the cost of design and construction of sports facilities, energy supply, communications and tourist attractions. "A lot was missing [in the estimates] and most of what was included was not confirmed by state experts," Vainshtok told deputies. "[The cost of] purchasing land was not even taken into account, and this alone would require an additional 82.4 billion rubles ($3.5 billion)."

The first serious hint of Vainshtok's position being under threat came earlier this month, when Victor Ilyukhin, a Communist Duma deputy, urged authorities in an open letter to fire Vainshtok and start an investigation into possible money laundering at Olimpstroi. Ilyukhin said the state's planned budget for Sochi, $11.9 billion, would dwarf the $6 billion combined total spent on the Winter Olympics in Nagano, Salt Lake City and Turin. Audit Chamber chief Stepashin warned a Cabinet meeting last month that the Sochi Games would end up costing taxpayers $24 billion. Ilyukhin said Thursday that the departure would offer only temporary relief. "Not much will change immediately, but all hopes are on [Kolodyazhny] to use his good local knowledge to put things right," Ilyukhin said. In his complaint, Ilyukhin attacked Olimpstroi's status as a state corporation, which he said meant that it was beyond the control of the Justice Ministry, State Registry, and tax and customs services. "This gives huge opportunities for money laundering," Ilyukhin said.

Ilyukhin put the blame for quickly rising land prices in Sochi on Vainshtok's shoulders, saying speculators had gained at the expense of the state. Chris Weafer, chief strategist at UralSib, said Vainshtok's departure had not come as a big surprise, as "a lot of changes across the government structure" were to be expected during the presidential handover period between Vladimir Putin and Dmitry Medvedev. Vainshtok's move to Olimpstroi in September had more to do with moving him out of Transneft, where he was blocking a deal between the state and the Caspian Pipeline Consortium, than with him being involved long-term with the Olympic preparations, Weafer said.

Paul Goble reports more horror stories documenting the utter failure of neo-Soviet "education" in Russia:

An increasing number of Russian students are paying bribes to their instructors for higher grades, often at the insistence of the latter, a practice that not only subverts the educational process but threatens Russia’s future by creating a class of people whose skills do not match their credentials. Indeed, this practice, one that is widespread in many other former Soviet republics as well, may ultimately entail more serious consequences than the more immediatelhy spectacular cases of corruption in business and government that continue to attract far more attention from the media and academic specialists. On March 18th, an article in Novyye Izvestiya noted that corruption “in the higher educational institutions of the country continues to grow,” with the most frequent form being bribes offered by students to secure entry to those schools or to get passing or higher grades in examinations.

According to officials at the Ministry of Internal Affairs, many of the cases of corruption they have brought in recent times involve students and faculty at educational institutions that, the newspaper said, now have the reputation of being among “the most corruption organizations” in Russia. A UNESCO study the paper cited reported that students in Russia paid 520 million U.S. dollars in bribes last year, a figure that because it involves a phenomenon almost everyone involved with wants to hide is impossible to confirm and one that may significantly understate the extent of the problem. And consequently, Novyye izvestiya focuses on a few high profile cases to make its point. Recently, it reported, law enforcement officials arrested the deputy rector of the Vladimir branch of the Russian Academy of State Service, a training academy that is attached to the office of the President of the Russian Federation.

Not only are students offering bribes, the paper said, but many poorly paid faculty members are demanding them. In a recent case in Tyumen, for example, a female student complained that one instructor had demanded a bribe of 2,000 rubles (84 U.S. dollars) to allow her to pass an examination. Andrei Pilipchuk, a spokesman for the interior ministry, provided a more comprehensive picture of the problem. During the admissions process, he noted, “frequently an instructor will offer the applicant or his parents ‘help in exchange for money,’” an transparent “request” for a bribe. “The amount of the bribe varies depending on the region and the status of the higher school,” the ministry spokesman continued. “In depressed regions, a student might be asked for about 100,000 rubles (4200 U.S. dollars) for admission and further ‘advancement.’”

But “in economically developed centers” like Moscow, St. Petersburg or Nizhniy Novgorod, he said, “the price for a place may rice to 25,000 [U.S.] dollars” – or more than 600,000 rubles, an astronomical sum far beyond the means of most Russian students or their parents. Between May and October 2007, Pilipchuk said, the interior ministry opened 391 criminal cases involving bribery in higher educational institutions. And in May 2008, he told the Moscow newspaper, “we intend to conduct yet another anti-corruption operation” in Russian universities. Sergey Komkov, the head of the All-Russian Educational Foundation, said that the most corrupt sectors of Russian higher education have traditionally been in economics and law, but increasingly, he noted, bribes are required for students in institutes of international relations and in technical faculties as well.

Indeed, he and others told Novyye izvestiya that bribes – offered by students and expected by faculty members – are now so common that students and their parents view them as something “absolutely normal” and that efforts to limit the practice are largely ineffectual. One of the reasons for that, Komkov argued, is that everyone is becoming more sophisticated. Bribes are no longer handed over in cash but rather transferred to the bank accounts of instructors or given in the form of pre-paid trips abroad. And the bribes are often shared among faculty members, thus ensuring that no one will turn in anyone else. Not surprisingly, Novyye izvestiya and most other commentaries on this problem typically bemoan the collapse of standards from Soviet times or the lack of serious law enforcement efforts against this particular form of corruption. But a more serious problem is elsewhere. To the extent that students come to view obtaining a diploma as being more important than getting an education, the Russian Federation and other countries in which such bribery is widespread put their futures at risk because they will have a large group of people who have more or less meaningless degrees.

All too many of such “graduates” will expect good jobs and high pay, but they will not have the skills needed to justify either. They will certainly become angry if they don’t get both. More seriously, their countries will thus suffer especially as the knowledge-based sectors of the economy become more important. Consequently, bribery in higher education is thus likely to cast a longer and darker shadow on the future of Russia and its neighbors than the larger bribes paid to get approval for government contracts of one kind or another – even though, with rare exceptions, the latter will continue to attract more media attention than the former.

The Globe & Mail reports:

College student Renat Nasipov doesn't have time to go to class. He works full time driving a moving van to pay his tuition bills and support his single mother. When exam time came in January, Mr. Nasipov, 21, knew he would fail. Instead, he paid his course supervisor nearly $900 in exchange for passing grades on all of his exams. If all goes to plan, Mr. Nasipov will graduate this June, without ever having attended a seminar or lecture. "I pay bribes for all my exams," said Mr. Nasipov, who is finishing an automotive mechanics course at a small college. "I can't afford to attend class because I have to pay for my education, which is $1,200 a year, and I have to feed myself and my mother."

Mr. Nasipov doesn't feel guilty that his college diploma will be purchased, not earned. His life circumstances left him no other choice, he said. Besides, he doesn't think he missed much by skipping classes. He plans to open an automotive repair business after graduation. "I already drive a car. I know how it all works. I don't need to study mathematics for that."

Mr. Nasipov's story wouldn't shock fellow Russians. While not every student is purchasing a postsecondary education, most adult Russians have, at some point in their lives, slipped money to a public official in exchange for a favour or exemption from a rule. Russians pay bribes to avoid passport-renewal lineups, to obtain driver's licences, to get their kids into top universities or keep them out of the dreaded army.

Corruption is so widespread in Russia today that some activists say the word "corruption" itself is misleading because it implies that there is an aberration of standards. In a recent poll, only a third of Russians said they believe corruption can be rooted out. The country's top leaders admit corruption is tearing at Russia's economy and threatening its economic development. Most of the talk in policy circles concerns the toll that corruption has wrought on struggling small- and medium-sized business, where it's estimated to cost between $1,800 and $41,000 in bribes to start a new company.

But it's not just the Russian economy that is affected. Countless college and university graduates, including medical students, have entered demanding professions using bogus educational credentials. And public safety is jeopardized by motorists who have purchased their driver's licences or paid off inspectors during annual auto safety inspections. Salesman Mikhail Balashov paid $700 for his driver's licence after failing the test four times. Mr. Balashov said he suspected the driving inspector was failing him on purpose because he hadn't offered a bribe. After his fourth failed test, Mr. Balashov arranged to pay the inspector through a mutual acquaintance. On his fifth attempt, after the inspector was paid, Mr. Balashov passed his exam. Like Mr. Nasipov, Mr. Balashov said he felt no remorse. "In this country, you can't survive without giving a bribe. It is just the law of living, not a crime." A few weeks later, he paid a safety inspector $150 to give his car the green light. He said he didn't have time to stand in the day-long queue.

Georgy Satarov, the founder of the Moscow think tank INDEM, which has published numerous reports on corruption, said most Russians don't think of the long-term, broader consequences of state-sanctioned cheating. Few equate Russia's high car-accident death rate with rampant corruption in the motor vehicle sector, he said. "The people who will heal us, the people who will build our bridges; if their diplomas aren't real, it's creating a dangerous situation," Mr. Satarov said. Elena Panfilova, director of the Russian branch of Transparency International, agreed. "Unfortunately, people in Russia still don't understand why it's bad to pay a bribe to a public official," Ms. Panfilova said.

So far, corruption has not deterred short-term investors in high-tech sectors, Ms. Panfilova said. But there is a concern that Russia's endemic corruption could scare off long-term investors who might be considering large capital investments. And the problem is getting worse. Last year, Transparency International ranked Russia 141 out of 180 countries in a ranking of corruption perceptions, a drop of 20 places from 2006. In 2002, Russia placed 71st. Earlier this week, President Vladimir Putin suggested chopping off the hands of corrupt public officials. The President didn't mean this literally, but his comments reflected how serious the issue has become.

His successor, president-elect Dmitry Medvedev, has vowed to tackle the problem anew and has promised to introduce an anti-corruption bill. Many aren't holding their breath. Ms. Panfilova and Mr. Saratov said Russian leaders have been promising for years to crack down on corruption. Despite signing two international treaties aimed at curbing corruption, Russia still has few laws in its criminal code that address the crime, she said. While corruption exists to some extent in every society, the Russian brand began to flourish in the legal vacuum that was left after communism collapsed in 1991 and Russia turned to a market economy.

Over the past few years, the government has introduced a raft of anti-corruption measures, but many initiatives have failed. Mr. Saratov blamed the top-down regime structure created by Mr. Putin, who also doubled the size of the bureaucracy. At the same time, the President stifled the organizations that traditionally scrutinize public officials, namely the media and opposition groups. "It's a dictatorship of the bureaucracy," Mr. Saratov said. Ms. Panfilova said Russian citizens need to be more aggressive about their rights when confronted with corrupt officials. "There is no public control over public servants, she said. "There is no obligation for civil servants to reply to a citizen who has a complaint."

Eventually, corruption could blunt Russia's long-term economic recovery, Mr. Saratov said. Small- and medium-sized business operators feel increasingly strangled by the ever-changing demands of public officials. Ask Alla Abushayeva, who operates two small grocery outlets in Samara, about 850 kilometres southeast of Moscow. Each month, she pays her local tax inspector $125 to keep other municipal officials and inspectors at bay. Ms. Abushayeva said most fines for regulation breaches are set so high - $1,200 for failing to hand a customer a receipt - that business owners must pay bribes to get exemptions.

"If I had been paying all the fines that the tax inspectors and police imposed, I would have been bankrupt a long time ago," she said.