Report: Russia Claims Highest Economic Crime Rate

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Dec. 2 – Russia has the world’s highest economic crime rate, according to a newly released survey by PricewaterhouseCoopers and The London Business School. The survey shows that the misappropriation of assets remains the most common economic crime (72 percent) with a US$5 million loss reported by 22 percent of the businesses who had encountered fraud.

A total of 126 representatives from Russia’s leading entities took part in the 2011 Economic Crime Survey. The study was designed to seek respondents’ views on economic crime in general and, specifically, about cyber-crime which is a growing concern in C-suites and boardrooms.

The study covered a wide range of organizations operating in Russia, including private companies (67 percent), publicly-listed companies (26 percent), government-sector entities (6 percent) and not-for-profit organizations (1 percent). The majority of respondents were from the retail and consumer industry (18 percent), financial services (17 percent), manufacturing (12 percent) and energy, utilities and mining (10 percent) sectors. Executive officers and board members made up 43 percent of survey respondents.

In Russia, 37 percent of organizations reported being victims in the last 12 months which is significantly lower than in 2009 (71 percent) or in 2007 (59 percent). But still, this is higher than the global average (34 percent), as well as typical levels experienced in Central and Eastern Europe (30 percent) and Emerging states (31 percent).

Some 40 percent of respondents were affected from bribery and corruption in the last year with 13 percent of respondents claiming that they chose not to enter a new market or declined to pursue a new business opportunity due to corruption risks.

Fraud is considered a significant future threat – 73 percent of respondents believe their organization remains highly vulnerable to economic crimes within the next 12 months, according to the survey.

The most common economic crimes – the misappropriation of assets mentioned above – are reportedly committed by government officials, in particular by so-called “siloviki” (from sila, “force,” derives from the term “structures of force” to denote the military-style uniformed services, including military proper, police, former KGB officers).

The state corporate raid is not the only direct misappropriation of assets – there are also a wide range of complicated schemes of extortion. Numerous criminal cases have been opened for the sake of bringing pressure to bear on business owners. One example is the sudden sale of Evroset by Evgenie Chichvarkin, who had been pushed to move abroad afterwards, and Michael Gutseriev’s sale of Rosneft. The two companies, country leaders in the telecommunications and petroleum industries, respectively, have been sold after criminal cases were opened against their owners.

All criminal cases filed against successful entrepreneurs have one thing in common: only 10 percent to 16 percent of them come to the trail stage. The other 84 percent to 90 percent of so-called economic crime cases either aren’t proved, don’t come to trail, or collapse during litigation, according to the country’s statistics on economic crimes for 2002-2009, analyzed by the European University at St.Petersburg.

Such criminal cases are simply used as a tool to pressure businessmen who are then forced to sell off their company in exchange for closing fraudulent cases against him (her).

The Russian business daily Vedomosti has pointed out two reasons why it would be extremely hard to beat corporate raid in Russia. First of all, nobody seems to fight it, while the second reason is the wide range of officials who are using state resources for corporate raiding.

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