United Kingdom

Highwire - Russia 

Managing Risks in High Growth Markets
highwire-russia

Ian Colebourne has worked in Moscow for the best part of a decade and is now KPMG’s Head of Forensic for the Russian Federation and Commonwealth of Independent States. He has reached the firm conclusion that ”box-ticking comes back to bite you because this is a place where the formal seldom tallies with the real”.

 

”Corporate and public sector bribery are outlawed, and there is corporate as well as individual liability,” adds Colebourne. “The sanctions are serious, but the problem is enforcement. Complex regulation makes it easy to throw up road blocks to doing business.’

 

Colebourne cites fire extinguisher access rules as an example: ”The wording makes it virtually impossible to conform with the law and, of course, this makes loopholes for bribery.”

 

Construction permits are often identified as the biggest single problem because they require maximum engagement with state bodies, including for planning permission, health and safety conditions and environmental standards, as well as building approvals.

 

The World Bank reports the process requires 50 steps and takes an average of 700 days. ”Overseas companies can respond to the situation in one of two ways,” says Colebourne. “The first is to plant a few of your nationals alongside a Russian general manager, promulgate a corporate code, and run some basic ethical training. It is all about lip service and generally ends in the company succumbing to external pressure. People are neither equipped nor supported sufficiently to be able to offer resistance.”

 

The second response recognises the need to dig proper foundations. ”These companies assess prospective acquisitions with a view to understanding how genuine change can be engineered. They address tone, policy, culture and training, monitoring their subsidiaries on a regular basis. And they decide at the outset that paying bribes is not an option.

 

“The Board accepts that institutionalising integrity means slower growth, but they see this as a price worth paying in order to do long-term sustainable business in Russia.”

 

But are not such companies subject to demands for bribes like any others? ”Early on yes, but the key is to make your stance well known,” says Colebourne. “Resistance usually results in being left alone because corrupt rent-seekers prefer softer targets. There is no denying that it is easier for multi-nationals which can cite obligations to follow central standards or comply with legislation from other jurisdictions - the FCPA has been a big help.”

 

Good intelligence gathering is crucial to doing business in the Federation. There are first-class public sources of information, such as the Central Bank and tax service, but according to Colebourne “‘the business culture does not lend itself to 100% reliability or up-to-date information.”

 

It is commonplace to find something negative in media reports when business rivals are undermined through the spreading of incriminating material which may, or may not, be true.

 

”The accent is therefore on assembling a very wide range of sources, weighing them against each other based on practical experience in corruption in order to reach informed judgments.” Colebourne is confident that ”there is a lot of high-value business to be done here, a well-educated workforce and an appetite for western investment. But you need to go in with firm standards and your eyes open. It is that simple”.

 

Contact

Ian Colebourne

 

Partner
KPMG in Russia

 

+74 95 937 2524
Ian.Colebourne@kpmg.ru

Download full report

High Wire Act

Assessing and Managing Bribery and Corruption Risks in High-Growth Markets

 

high-wire-act-cover

 

Highwire