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Russian Corruption 'May Force Western Firms to Quit'

Extortion by corrupt officials in Russia has gotten so bad that some Western multinationals are considering pulling out altogether, the head of a U.S. anti-bribery group said in an interview.

Alexandra Wrage, whose nonprofit organization TRACE International advises firms on how to avoid bribery, said the "rampant, endemic" corruption in Russia was much worse than in other big emerging economies.

"My recommendation is: 'Maybe you should reconsider doing business in Russia,'" she said. "I am considerably more optimistic about Nigeria than I am about Russia on this issue."

Berlin-based NGO Transparency International rates Russia joint 146th out of 180 nations in its Corruption Perception Index, saying bribe taking is worth about $300 billion a year.

"A lot of the conversations [with businesses] around Russia are: 'Can we stay there?'" Wrage said during a visit to Moscow last week to run a workshop for more than 100 mainly Western firms.

"Companies are fearful of the U.S. Department of Justice or Britain's SFO [Serious Fraud Office] … they are really scrambling to get it right, and really struggling and, in the case of more than one company, talking about pulling out."

Wrage declined to name firms considering leaving, but Swedish furniture retailer IKEA said last year that it was halting further expansion in Russia because of "the unpredictable character of administrative procedures in some regions."

Wrage recalled a question at her first workshop in Moscow in 2002, which underlined the unique dangers of Russian corruption.

"Somebody came up to me in the break and said: 'If I don't pay the bribes here, I am really worried that my office will be burned to the ground.'"

Her reply? "Well, I have nothing to give you. I don't have any best practice tips to help with that scenario."

Corruption in emerging market economies typically involves payments to secure business, but in Russia most bribes go to officials to stop them from abusing their office, Wrage said.

Questions included how to avoid getting your company shut down on a trumped-up charge if you did not pay off an official, through to corporate raiding by Russian competitors with official connivance that could mean losing the whole company.

Businesses were asking: "How do we survive here without paying bribes, because we're not sure it's possible," she added.

Wrage serves on a U.S.-Russia government commission created to strengthen ties by sharing expertise. She was skeptical about President Dmitry Medvedev's repeated pledges to fight corruption, though she acknowledged that they had contributed to a bigger public debate on the issue.

"There is a new and exciting anti-corruption initiative here with startling regularity," she said. "We don't need any more initiatives. We need results."

TRACE has studied other leading emerging economies. In China, it describes corruption as an "inverted pyramid," with most bribery at the top while India is the opposite, with corruption rampant at lower levels but tapering off higher up.

"Russia is a solid block. There is bribery at all levels," Wrage said. "There appears to be a sense of near-complete impunity, a sense of entitlement … there is no sympathetic low-level management, no sympathetic midlevel management, or sympathy at the top [for anti-bribery efforts]."

"Each time I leave here, I sit at the airport and send my husband an e-mail saying: 'I think I'm going to wrap up our efforts here. I don't feel like I can advance … and then I go back, and we poll our member companies, and they go:

"'Can we do another workshop on Russia because we're really worried about Russia?'"

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