Taking Stock / Putin Tax

MOSCOW - There is no country more corrupt and more centralist in its economy than Russia. Corruption is bred into the very bones of government and society at all levels, from the loftiest officers of the Kremlin to the lowest apparatchik in the grubbiest kolkhoz, not to mention the police force.

"Five years ago I was working in Moscow as an economic adviser to the Russian Ministry of Finance," a young German banker tells me. "I knew dozens of people high in the Russian government. Two years ago I went back to Germany, to work at the bank's headquarters and discovered that many of these high officials were heavy customers of our private banking department. It wasn't their salaries that made them such huge depositors with us."

"You can't move a millimeter in business in Russia without bribing people left, right and center," a high-ranking executive in a European company told me. "The problem is that the corruption here is not organized. You bribe one person and the next day discover you have to bribe somebody else. After two years they come and take away your license, saying you only got it through bribery. Now you have to bribe them all over again."

Moody's for one seemed unworried by the steep spike in Russian corruption, according to the Corruptions Perception Index (CPI). A few days after the index was released, the rating agency gaily announced it was upgrading Russia's debt rating. Why? Because income from its vast oil reserves had sharply increased its foreign currency reserves, to more than $150 billion.

As demonstrated by the Russian oligarchs snapping up businesses and assets throughout the West in recent years, when you have enough money, nobody cares how corrupt you are.

A view of exile

When speaking of Russian corruption, a story that immediately springs to mind is Mikhail Khodorkovsky, owner of the Yukos oil giant.

Khodorkovsky's exile to a remote jail in Siberia could be interpreted as Russian President Vladimir Putin having declared war on the oligarchs.

(What, by the way, is an oligarch? It has become a euphemism for the dozens of entrepreneurs who stole the assets of the Russian people during the last 15 years, abetted by friends in government. They took over assets worth billions of dollars, paying a fraction of the real value for them.)

But that would be a mistake. Putin has no intention of fighting the oligarchs, as long as the oligarchs don't break his two commandments regarding economic affairs.

1) Thou shalt not take over an oil or gas terminal. (You may buy a refinery, an oil field, a processing plant, real estate or any other business you dream of, but not that.) Why? Because the terminal is where the Russian tax clerk carves off the government's not-small share.

2) Thou shalt not create independent political power base because if you do, you won't need a pet politician any more.

Most of the oligarchs obeyed Putin's two commandments. Khodorkovsky did not, though he had been warned and warned again. Now he's spending six years in a particularly remote Siberian prison. A few of his cronies who also failed to toe the line fast enough are afraid the same will happen to them. But those who stood at Putin's side and openly eschewed any thought of political ambition can continue doing business in peace.

"Putin has no intention of harming the oligarchs, nationalizing their assets or selling assets to foreign companies," a Russian journalist told me. "He knows that when in need, for instance before elections, they'll give him what he really needs and not ask for a receipt. He wouldn't get that arrangement in any other constellation of circumstances, certainly not from foreign companies. The oligarchs can assure Putin of election economics."

For instance, says the journalist, just ask the Jewish oligarch Viktor Feliksovich Vekselberg, a partner in the giant oil company TNK and in aluminum. His wealth is estimated at $6 billion. "A year ago Vekselberg bought one of the most coveted treasures in the art world, Faberge eggs, for the stunning sum of $100 million. Immediately afterwards he gave them to Putin, for free, in a sort of voluntary tax he imposed upon himself."