How high is the level of corruption in Russia? Is it institutionalized?

One of the most significant problems in Russia's business environment was the continued impact of corruption in both the public and private sectors. The complex central planning system of the communists left a legacy of patronage, kickbacks, and cronyism among government officials, bank employees, and productive sector managers. This culture had survived, and in many cases flourished, since the transition to capitalism, permeating and distorting many market mechanisms. For instance, one estimate suggested that annual bribes paid to police officers approached $400 million, with even higher levels of kickbacks and unofficial payments made to health and education sector officials. Low salaries and morale within the public sector were major contributors to the problem. In the financial sector, for example, crony capitalism manifested itself in direct lending on favorable terms to large, politically influential firms and the withholding of financing from more dynamic small and medium-sized enterprises.

Russia is ranked among the most corrupt nations in the world. According to a survey conducted by Transparency International, Russia was ranked 121 among 163 countries in its 2006 corruption perception index. In 2007, the rank further dropped to 143 among 179 countries surveyed. According to government sources there were around 28,000 cases of corruption filed against Russian state officials in 2006. Corruption remains a disincentive against foreign investments and negatively affects economic development. Furthermore, according to survey carried out by the World Bank, nearly 80% of businesses in Russia are paying some form of bribes to many state run agencies. Increasing criminal activities is another factor restricting governmental effectiveness in the country. According to a survey conducted by the Council of Europe (CoE), economic crimes committed in Russia include political fraud (13%), embezzlement of funds (13%), customer fraud (20%) and counterfeiting of money or securities (7%). The council has also reported that the criminal organizations in Russia have largely targeted the fuel and energy sector, as well as consumer goods, commercial services, transnational trade, financial services, the metal industry, and public procurement. The government has not effectively monitored and controlled these criminal and corruptive practices. These are proving to be significant impediments for the effective implementation of government policies in Russia.

Source: 1.Country Analysis Report- Russia,Aug 2008 ,Datamonitor

2.The competitve advantage of Russia, June 2008 ,Stanford Graduate School