Russia Ranked No. 1 For Economic Crime

Companies in Russia experienced more economic crime this year than anywhere else in the world, according to a report released Thursday, which underscores the difficulties facing an ambitious Kremlin plan to curb corruption and lawlessness.

Of 86 companies surveyed in Russia, 71 percent said they had been subjected to at least one major economic crime in the past 12 months, according to a report released by PricewaterhouseCoopers.

“This is a shocking 12 percentage-point increase compared with our 2007 research (59 percent), and is well above the global (30 percent), Central and Eastern Europe (34 percent) and BRIC countries (34 percent),” the report said. The BRIC countries are Brazil, Russia, India and China. The figures also exceed results in South Africa, where 62 percent of firms reported economic crimes, and Kenya, with 67 percent.

PWC polled executives from more than 3,000 companies working in 55 countries, including 86 representatives of Russia’s biggest companies in various sectors. The poll was anonymous and no companies were identified.

“Imagine when 70 percent or more companies are suffering an increase in economic crime amid recession. No particular industry can be spared from these effects,” said John Wilkinson, a partner with PWC who helped conduct the survey.

Sixty-four percent of companies operating in Russia reported cases of asset misappropriation, while another 48 percent complained of bribery and corruption among their staff.

“If we say bribery, we do not necessarily mean cash in an envelope. We see it as a broader concept,” said Irina Novikova, PWC director of accounting, fraud risks and controls. “Bribery, in our view, includes unjustified discounts, compensations and coverage of business trips and expenses to third parties, including officials and their family members.” Twenty-eight percent of respondents experienced fraud with financial statements, the report said.

“The distortion of financial results is because of the pressure banks put on companies, and it’s also because of the top management’s desire to meet the expectations of investors,” she said.

The growing number of economic crimes dealt large financial blows to companies operating in Russia, with 47 percent of respondents saying their losses topped $1 million.

Official statistics tend to focus more on successful prosecution than the volume of crimes reported, but they nonetheless show the size of the problem.

Interior Minister Rashid Nurgaliyev said last month that there was an 11.3 percent increase in white-collar crimes in the first nine months of 2009. And in July, Investigative Committee head Alexander Bastrykin said a dozen corruption cases causing damages of more than 896 billion rubles ($31 billion) were sent to court in the first half of the year

PWC’s report found that many companies were suffering from illegal activity within their own ranks.

Sixty-two percent of companies said fraud was carried out in collusion with criminals outside the company, while 34 percent blamed violations on “wholly internal fraudsters.”

Wilkinson said the high rate of crime was related to employees’ personal readiness to break the rules.

“We see incentive, pressure and opportunity as the essential factors, but when it comes to committing a crime, each person asks himself whether he should do it,” he said. “We assume opportunity and pressure are always there, but if a person is motivated correctly, he or she will not break the law.”

The main task for executives, he said, is to strengthen the “attitude and rationalization” in their staff to avoid crime.

The report was released days after Transparency International listed Russia 146th in a world corruption rating — tied with Ukraine and squeezed between the African nations Kenya and Sierra Leone. It was a one-step improvement from Russia’s previous listing.

President Dmitry Medvedev has made the fight against corruption a central goal of his administration.

He called corruption the “main problem of the Russian economy” and promised a further clampdown during a Wednesday news conference as part of a Russia-European Union summit in Sweden.