The Godfather Decade
An Encounter with Post-Soviet Corruption
When the Iron Curtain collapsed, many Americans assumed that ex-communist countries would find their George Washingtons and Thomas Jeffersons. We thought the emerging democracies would have a Founding Father Moment. Instead, they got a Godfather Decade. Specifically, The Godfather, Part III -- with ridiculous violence, bad acting by lead players, talentless offspring of big shots in key roles, and too many subplots involving sleaze at the highest levels of government.
When the Iron Curtain collapsed, many Americans assumed that ex-communist countries would find their George Washingtons and Thomas Jeffersons. We thought the emerging democracies would have a Founding Father Moment. Instead, they got a Godfather Decade. Specifically, The Godfather, Part III — with ridiculous violence, bad acting by lead players, talentless offspring of big shots in key roles, and too many subplots involving sleaze at the highest levels of government.
Corruption has been the hallmark of the post-Soviet world. The old nomenklatura bosses used their connections to rig privatization bids, garner cheap government loans, and start banks with free infusions of public money. These banks, with regulations ranging from negligible to none, made Central and Eastern Europe into a cash laundromat. Enormous, untraceable sums have been transferred out of a supposedly impoverished region — an estimated $100 billion in five years from Russia alone. Meanwhile, the International Monetary Fund (IMF) was loaning Russia more than $15 billion during the 1990s. One is tempted to say that the IMF money would have been better spent on an advertising campaign to convince Russian organized crime to shop locally.
Actually, "Russian-speaking organized crime" is the preferred term. Many of the criminals are from Ukraine, the Republic of Georgia, Chechnya, and elsewhere. The core business of this "Mafiya," from Vladivostok to Prague, is the protection racket. And the protection, unfortunately, is needed. Ex-communist countries tend to have what the Hungarians call "Swedish taxation on an Ethiopian economy." Therefore, even people with legal businesses conduct those businesses illegally if possible. The "shadow economy" accounts for about 24 percent of gross domestic product (GDP) in Lithuania and as much as 40 percent in Russia. About one third of the workforce is employed "informally" in Bulgaria. And, in Tajikistan, the government admitted that an astonishing 95 percent of retail activity during the first half of 1997 took place on the black market.
What the Mafiya doesn’t lay hands on, the police, the customs agents, and the petty bureaucrats do. According to a study published by the pro-democracy Freedom House foundation, "virtually all services are susceptible to bribery" in Belarus. "Bribes are customary when dealing with public administration" in Slovakia. And in Turkmenistan, "all services involving interaction with officials require payment."
One counterweight to corruption is public information. A free — or even partly free — press is an inducement to official probity (as our own history of government corruption in the United States suggests). Last year, I was invited to be part of a media survey team sent to Eastern and Central Europe by the United States Agency for International Development (USAID). Our group consisted of a representative from Freedom House, an academic expert on transnational crime and corruption, and three journalists, including myself. We examined local media responses to corruption. Are reporters in ex-communist countries successfully uncovering jobbery and peculation? Does such success have any further effects? Are there means by which USAID, other governmental organizations, or nongovernmental organizations (NGOs), can assist reporters in their endeavors?
When the survey team returned to the United States, we wrote an official report that may be briefly summarized: "Maybe." But not everything fits handily into the format of an official report.
HUNGARY’S CAPITALIST PIGS
We began our assessment in Hungary where corruption is supposed to be very bad, went to Romania where it’s considered much worse, and wound up in Ukraine where the chairman of a Kiev pro–free market think tank said something no one wants to hear about a country: "In Russia, the situation is better."
A government-sponsored delegation is a peculiar mode of travel. Translators and transportation were always at hand. We had "access," which, at our level of semiofficial semi-importance, meant that nobody in private enterprise told us to go away and everybody in government, at minister of health grade or below, was more or less obliged to meet with us. And to these meetings we went — meeting after meeting, all day, every day, for two weeks.
Such access would have given us the real insiders’ feel for a country, assuming we could remember what country we were in. Sometimes we couldn’t. We sat around listening to people talk. And, since all the talk was translated, the language was secondhand English wherever we went. We experienced no art, no culture, and only enough shopping to make sure our children didn’t kill us for coming home empty-handed. Of sightseeing, we had glimpses through car windows.
Traveling this way provides a small taste of what it’s like to be a high-ranking envoy. Our team now understands how high-ranking envoys can come back from their missions with odd ideas about the places they visited — the idea, for example, that Nazi Germany’s last territorial demand in Europe would be the Sudetenland, or the idea that the U.S.S.R. was an economic superpower.
Fortunately, our role was not to make policy. Indeed, much of the time, our role was simply to give people in Ukraine, Romania, and Hungary a chance to complain. They are good at it. The more conscientious team members took notes. I tended to doodle.
Hungarians complain that they have to pay their doctors. Well, someone should. In 1997, government salaries for Hungarian physicians topped out at $235 a month while average white-collar workers (a number of whom met with us to complain about doctor bills) made $341. The Hungarian constitution guarantees all sorts of social services. But, if you actually want these services, an appendectomy, for instance, you have to "tip" the surgeon. And I suggest doing it before being wheeled into the operating room. You also need to give gratuities to the police. If you’re pulled over for not signaling a turn — or for looking like the kind of person who might not signal one in the future — you are charged what a police officer himself told us is a "fine in the pocket."
The problem, said a World Bank senior official in Budapest — who shall remain anonymous partly for his protection and partly because my notebook is full of doodles where his name and title should be — is that, "Taxes under the old system were invisible and services were free." Now people pay taxes out of their own pockets, and services cost money. "There is a psychological aspect to this change," he said. Meaning that Hungarians are confused about where the money for government comes from. And so, apparently, is the government. The average tax rate on individual earned income in Hungary is 44 percent, but the corporate income tax is 18 percent. Thus everyone who can forms a "Me Inc." Income gained from charitable organizations is tax-exempt, so Hungary is full of bogus philanthropic foundations. Several Budapest restaurants have been caught paying wages in the form of "scholarships." Meanwhile, the civil servants responsible for auditing these taxes, registering these corporations, and regulating these charities earn on average a bribe-vulnerable $184 a month.
When Hungarians complain about corruption, they start out indignant but end up making excuses. A local member of an international rule-of-law institute was furious about an official from the Interior Ministry who said in parliament that there was nothing wrong with small bribes to the police. Then the rule-of-law fellow shrugged and told us, "People don’t feel that giving 1,000 forints to a police officer who could fine them 2,000 forints is a bad deal."
We met with the Hungarian police in a Stalin-era building with measureless corridors, vast flights of stairs, and gray stone courtyards that looked firing-squad ready. Our translator had been active in the anticommunist underground of the 1980s. "I used to have nightmares about being dragged into this place," he said. We were led to a grimly ornate room with 14-foot ceilings and blood-red drapes. There, behind a massive conference table, police officials were waiting for us — with tea, soft drinks, and cookies.
"Hungary," said the most senior official, "is in the medium side experiencing corruption but is a leader in fighting it." He showed us figures. There were 455 corruption prosecutions in 1998, 113 of them involving police officers. Of course, the police should be able to catch corrupt officers since, when the crime is committed, police are already on the scene. The second most senior official drew a triangle on his notepad. "This is the prevalence of corruption," he said and labeled the wide base of the triangle, "Hungary." Then, at the very top of the triangle point — presumably indicating the highest levels of government — he printed, "U.S." (Monica Lewinsky was still in the news at the time.)
As far as our team could tell, Hungary’s corruption is indeed low-level. But this is true only because Hungary’s upper-echelon malefactors have already made their fortunes. (A Romanian would later tell us that a general rule concerning tycoons in ex-communist countries is: "Never ask about the first million.") Unlike many former East bloc nations, Hungary chose swift and thoroughgoing privatization. By 1997, eighty-six percent of state-owned industries had been auctioned off. And these deals were dirty. Hungarian political scientist György Lengyel has compiled research showing that nearly three quarters of the current members of Hungary’s plutocracy are former members of Hungary’s nomenklatura. The commie rats turned, quite nimbly, into capitalist pigs. The entire state privatization board was dismissed in 1996 because its privatization was a bit too private.
Still, at least Hungary went ahead and got it over with. Politics and economics are no longer joined at the head like the sideshow monster that was communism. The politicians and the fat cats are married in graft. But it’s just a marriage, meaning they’ll be at each other’s throats in no time. Thus do social contracts (and divorces) evolve.
All the aforementioned pork-barreling and boodle is trumpeted in the Hungarian press. Hungary has a network of media that is fully Western in its nose for dirt. Or so we were told. Their Magyar language is as incomprehensible to the uninitiated as Turkish, of which it is considered a distant cousin. At any rate, the journalists to whom we spoke did plenty of complaining, but the complaints were the perfectly familiar kind about gutless editors, paltry paychecks, and conflicts of interest with overbearing advertisers. These can be heard at press watering holes all over the free world. And at our own watering hole, in the hotel bar, our survey team decided that Hungary is on the way to ordinary capitalist corruption — the type we Americans are comfortable with. As a sample of U.S.-style highbinding in Hungary, there is the "Tocsik Affair."
Politically connected lawyer Marta Tocsik was hired by the national privatization board to act as a mediator, settling disputes with local governments about sharing income from the sale of state-owned property. She is supposed to have "saved" the privatization board a great deal of money, although how much and how are things of mystery. Anyway, she was awarded a $5.4 million success bonus. Then the treasurer of the ruling Socialist Party, Laszlo Boldvai, and his friend György Budai, a fundraiser for the Socialists’ coalition partner, the Free Democrats, "advised" Tocsik to pay half of her fee to subcontracting firms they controlled. Half of that half reportedly wound up in Socialist/Free Democrat political coffers. Everyone was indicted, which was very American. And, even more American, Marta Tocsik was acquitted.
ROMANIA’S "CIGARETTE COLONELS"
In contrast to Hungary, Romania actually looks corrupt. At the Bucharest airport customs inspection, the young man in line in front of me opened a suitcase full of cd players, video cameras, and other dutiable items. The young man handed cash to the customs agent. The customs agent pocketed the money, and they both laughed.
There are beggars in Bucharest’s streets and gangs of girls barely into their teens who surround a foreigner saying, "I love you," while their hands flutter near his most private part, which is to say his wallet. And there are an estimated 300,000 stray dogs. This is not corruption, of course. Beggars, thieves, and stray dogs have made no promise to enforce or abide by society’s code. But, said William Blake, "A dog starved at his master’s gate/Predicts the ruin of the state."
Romania has yet to escape the state ruin of communism. An official at the Interior Ministry said, with great percipience, "A very important issue is the question of property." The Romanian government is still giving the infant answer: "Mine!" Until recently, 76 percent of the industrial sector was run by the government. A new administration has promised reform, and small businesses have been privatized. But 80 percent of the buyouts were the usual post-communist shady deals.
We talked to an American business executive. His company was leaving Romania. He complained about a legal system that he tactfully called "uncertain." He deplored the "endless politicization of all issues." His company sent out a press release about problems with Romanian taxes. The company’s taxes were promptly audited. Romania has a tax system so complicated that "everyone is vulnerable," said the executive.
Politicization gives politicians increased opportunities to be corrupt. But a United Nations study concluded that Romanian citizens feel it’s not their responsibility to fix corruption; that is something politicians should do.
Romania does have a free press, though it’s not free from retribution. There is a draconian libel law. "Anyone can sue you anytime," said a Romanian journalist, "and there’s no distinction between journalist and source." If I quote someone, I can get sued not only for what I said but for what my source said, too. Sued and sent to jail.
Two reporters from the Monitorul newspaper wrote about the firing of a police colonel, citing the government’s publicly announced reasons for his dismissal. The colonel sued and the reporters were each sentenced to a year in prison. The judge was the colonel’s daughter.
Such things don’t seem to impede the Romanian press. (And, to be fair, the Monitorul case caused Romania’s minister of justice to blow his stack and order a special appeal.) But the press is highly politicized itself. "The print media are half-reporting half opinion and speculation," said the person giving us a briefing at the U.S. embassy. "The Romanian public doesn’t like objective journalism."
Nonetheless, Romanian media manage to expose corruption, as in the case of the "Cigarette Colonels." In 1998, an airplane carrying $1 million worth of smuggled cigarettes landed, on the sly, in a secure zone at Bucharest’s Otopeni military airport. Someone informed the press. A couple of colonels were convicted. But the Romanian newspaper reporter we talked to wasn’t pleased. He figured it took people with more clout than colonels to approve criminal use of the armed forces. And the smuggling wouldn’t have been discovered if his newspaper hadn’t received an anonymous fax that was itself, the reporter said, doubtless political in origin. We asked the reporter what was the end result of such investigative journalism? "Nobody cares," he said.
Why does nobody care about the Cigarette Colonels? This is the theory, as we heard it from Romanians: The IMF and the European Union (EU) want Romania to balance its budget. The Romanian government doesn’t want to cut spending, so it imposes up to a 60 percent excise tax on cigarettes. As a result, there’s smuggling, some of it conducted by the military. Romanian customs agents catch the military fairly often, but the Customs Bureau is allowed to sell the cigarettes it confiscates. Profits go to the customs budget. The military makes money. It’s happy. The government doesn’t have to spend as much on the military or the Customs Bureau. It’s happy. Romania has at least tried to raise tax revenues. The IMF and the EU are happy. The press has corruption to expose, and ordinary Romanians get to buy cheap black-market cigarettes. Everybody is happy. The problem with Romania’s corruption is that, unlike many things in Romania, it works — at least for those who are most directly involved.
UKRAINE’S "RED EMOTIONS"
Corruption works in Ukraine, also. The black market comprises between 50 and 60 percent of the economy. Half of living is illegal, as if one’s diary read, "Got up, made coffee, broke into the neighbor’s apartment for eggs."
Ukraine’s official state papers may indeed read that way. In 1997, Ukrainian Justice Minister Serhii Holovaty said, "The distinction between organized crime and certain aspects of government activity is often indistinguishable." There’s a simple explanation for this. A Kiev television producer told us, "All the people who used to be in power under the U.S.S.R. are still in power. They produced corruption, and now they implement it."
And there’s a simple response. A newspaper reporter explained, "The main problem with corruption, from a Ukrainian point of view, is finding out who you’re supposed to be paying and how much." Although another TV journalist said that wasn’t the problem. "Corruption in the West has an honest face. Corruption in Ukraine has a Russian face. In Ukraine," he complained, "you pay the bribe and it doesn’t mean anything. The mission of the journalist right now is to provide honest rules of the game in corruption."
Journalist Borys Derevianko won’t be able to do that. The veteran editor at the daily Vechernyaya Odessa was shot twice in the heart on a city street in the middle of the day. Petro Shevchenko, correspondent for the Kievskiye Vyedomosti newspaper was found hanged in an abandoned building. The Kiev television producer we talked to said his production office had been set on fire and his business advisor had been killed. Molotov cocktails were also tossed at the offices of the Vseukrainskiye Vedomosti newspaper. The deputy editor of the weekly 95 Kvartal was attacked by three masked men in camouflage uniforms.
Ukrainian TV’s most popular political-analysis show reports that at least 100 journalists have been killed since 1990, and that not one of these murders has been solved. Meanwhile, the government uses civil suits, tax inspections, and other forms of harassment to shut down media outlets that probe corruption.
We met with a doctor who had spent 10 years in a gulag in the 1970s and 1980s. "The Soviet period was better," he said. "Now it’s money only." He cited the case of mental hospitals. The communists used to put dissidents such as himself in them. But he said that these days, anybody can buy a psychiatrist and get inconvenient individuals locked up.
Contemporary Ukraine may be about "money only," but there isn’t much of it around. In 1998, the official GDP figure had fallen to 47 percent of what it was in 1989. Per capita GNP is $3,200 a year — slightly more than half of what it is in Botswana. I had visited Ukraine at the end of the Soviet era, and the place has changed. You can step out into the street now and get run over; before, you’d just get lonely. But, aside from a few more used cars, bluejeans, and Coke signs, it’s the same Marxist dump. There is no decent hotel in Kiev. Our team stayed in the fleabag where Intourist, the state-run travel agency, had put me in 1991. Although now a casino has been added.
The Ukrainian government, for all its alleged rapacity, doesn’t seem to have much money either. We went to the National Agency of Ukraine for Development and European Integration, which is supposed to be in charge of fighting corruption, and the building was a mess. Remodeling had been started and then abandoned, leaving behind piles of broken masonry and jury-rigged partitions draped in plastic sheeting. We questioned an official in a very dusty office. He said, with pride, that 30 tax and customs inspectors had received overseas training — in Egypt.
Does Ukrainian journalism, we asked, have an effect on corruption? "Of course it does," he said, pointing out that Ukraine’s prime minister was currently a fugitive wanted on corruption charges. The man in question, Pavlo Lazarenko, is a member of Ukrainian President Leonid Kuchma’s "Dniprovetrovsk Clan" who fell afoul of his cronies. Lazarenko is charged with stealing $262 million from the Ukrainian government plus using public funds to renovate his house. As Lazarenko explained at a press conference in Switzerland, when he was out on bail in a separate money-laundering case, "Lazarenko, just like everybody else, is not an angel." We queried the Development and European Integration official about the fact that, under Ukrainian law, almost everything is a state secret — including facts about executions, prison conditions, and "forcible treatment of alcoholics."
"Our regular citizens," said the official, "complain that there is too much information on corruption. They are bored." That is more than can be said for 100 or so journalists. They are dead.
We consulted the scholars at the Ukrainian think tank where we had already been told, "In Russia, the situation is better. The law is clearer. The press is freer." The scholars were a gloomy bunch. The chairman of the institute said that, although Ukraine has had some free-market reform, Ukrainians don’t understand it. They "think the situation we have now is the result of reform. People think," he said, "the very strong hand is missing in Ukraine." He talked about the "mental stamps in our head" left by 70 years of Soviet rule. He explained that, under communism, people had money, but there was nothing to buy. Now people just remember the money. The chairman called this "red emotions."
Ukraine’s government takes advantage of the nostalgia for orderly horribleness. Corruption caused by state regulation of business is an excuse for increased state regulation of business, which benefits corrupt business executives. "In the West," said the chairman, "people believe the communists block reform. In fact, it’s the new rich ‘clan capitalists’ who block reform." Although the communists, he said, are glad to help, because in Ukraine, they still run the government. As Stephen Handelman, author of Comrade Criminal: Russia’s New Mafiya, puts it, "One of the curious facts about corruption in the post-communist world is that governments have been empowered, rather than weakened by it."
We found one former member of the Ukrainian government — now a business executive — who was willing to talk about that empowerment. "I was part of this corruption process," the man told us. "Officials think that this is part of their business, to be intermediaries between higher-ups and clients." His solution? "Now the elite is in power that used to take the bribes. I hope for an elite in power that used to give the bribes." But, we asked him, until that golden era arrives, what can be done about corruption? "If you take the corruption away, the whole state will fall down," he said. "If we win, we will win over Ukrainian statehood, and the chaos will come. It will not be possible to live or work."
As our assessment team was leaving Ukraine, I discovered the root cause of all corruption. It’s right where you’d think it would be, in your pocket — or, rather, in mine. Ukraine has all sorts of laws about importing currency. To avoid paying fees and filling out endless forms, I fibbed about the amount of money I was carrying when I entered the country. When I left, a customs agent made me empty my pants and then took me to a nasty little room behind a steel door where a number of agents inspected every item in my luggage. (I do not envy them for the dirty sock part.) They discovered I was in possession of $1,300 more than I was supposed to have. (Although I convinced them to return the $1,000 in traveler’s checks on the grounds that it isn’t real money because it doesn’t bear the signature of anyone important, just me.) The $300 they confiscated. I had to write a confession. I had to sign a copy of the incident report, a 12- by 16-inch sheet of paper with 47 sections filled out in longhand, in Ukrainian. And I was given a court date and told I could return to Ukraine and be represented by counsel.
Let me note, with great irritation, that at no time during the two-hour ordeal did the authorities so much as hint to me that a bribe might fix things. "You have to obey the rules," said the customs agent as he marched me to my plane.
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