Entrepreneurs flourish when they can depend on the
viability of a country's courts, which are often asked to enforce contracts or
settle business disputes. But in
Russia, business is suffering from what President Dmitri Medvedev has called "legal
nihilism," or widespread disrespect for the law. VOA Moscow Correspondent Peter Fedynsky examines how official
abuse of the law created a risk that two local entrepreneurs in the chemical
industry never imagined.
There is heavy worldwide demand for
silicone, a product with a broad range of applications from plumbing to
medicine and airplanes to cookware.
Sofex, a medium-sized company in Moscow, has been
producing silicone for the Russian market since 1991. Sofex distributes various other chemicals and earns about $30
million a year with nearly 25 percent in profit. Company director Alexey Protsky says
business would be even better, if not for the government's bureaucratic
reporting requirements. "For a manager, excessive paperwork means a loss of
time and reduction of labor productivity," Protsky said.
The government bureaucrat, or "chynovnyk,"
has long been an object of dread among Russians. Inspector General is a classic 19th century comedy that still
resonates in Russia. The author,
Nikolai Gogol, satirized the chynovnyk's power by depicting a Russian town
intimidated by a minor clerk who is mistaken for a high level bureaucrat.
But today's bureaucrats are no joke.
The Interfax News agency recently reported that
entrepreneurs pay government officials an estimated $33 billion in bribes each
year. Confirming the figure is
impossible, but Sofex managers say bureaucrats routinely demand bribes for
licenses and have the power to imprison those who refuse.
Two years ago, the company's financial director, Yana
Yakovleva, spent seven months in jail for rejecting a bureaucratic attempt to
blackmail the company. Yakovleva says
the Russian system encourages shakedowns.
She says, "There is a system of check-marks and
points. A bureaucrat scores a point for
each court case he initiates or for every company he closes, and this improves
his job performance evaluation."
Yakovleva says inspectors constantly harass
entrepreneurs with threats to close a company or with demands for bribes to
keep it open.
Sofix was also victimized by corrupt narcotics agents
who retaliated against Yakovleva and Protsky by throwing them in jail on false
charges after they refused to cooperate in a criminal scheme to manufacture a
solvent needed for illicit drug production.
Yakovleva says prosecutors have no incentive to
question a false charge. "It's not the prosecutor's function to
investigate,” she said. "His function is to demonstrate effectiveness. And effectiveness happens to be the number
cases brought to trial and how many guilty verdicts are obtained."
Sofix's 80 employees held the company together as
Yakovleva and Protsky went through five teams of defense attorneys, before
finding a lawyer willing to defend their innocence rather than seeking the
typical plea bargain with prosecutors.
The arrest of innocent businesspeople
has become so widespread in Russia that it has caught the attention of the
human rights community. Ludmilla
Alexeyeva has been a member of the Moscow Helsinki Human Rights Group since its
founding in 1976.
"Russian business, as before, is victimized by
rackets, though no longer by bandits, but rather by bureaucrats and law
enforcement officials," Alexeyeva said. "That is much more dangerous for business and poses greater risk for
arrest than was the case in the 1990's when it was possible to deal with
bandits by going to the police."
Yakovleva and Protsky were exonerated following a
campaign by Russian chemists that forced the government investigator to admit
the case had no merit. The chemists understood the implications for Russian
industry of criminalizing chemicals found in paint, glue and even fingernail
Alexey Protsky says abuse of the legal system can be
traced to Soviet times, when powerful individuals used telephones to tell
judges how to dispense justice.
"People don't believe in justice and do not
believe they can organize in self-defense," Protsky said. "In a normal situation, none of this would
happen. It would be sufficient for
entrepreneurs to organize their efforts to punish any such bureaucrats. The
potential is there. But right now,
entrepreneurs are not united, though as far as I understand, the process is
slowly moving ahead."
Protsky says the absence of an independent judiciary
is not only bad for business, but also for senior Russian leadership, because
lower and middle level bureaucrats make it impossible to manage the country
The entrepreneur says Russian President Dmitri
Medvedev has defined the need for legal reforms and must now take practical
steps to enact them. Yana Yakovleva
adds that Russia also needs free media to expose bureaucratic criminality to
the light of day.