Last year, there was a minor stir in the Russian and Western press when major European/American businesses and business associations involved in Russia signed an integrity pact pledging not to pay bribes in that country. Many were skeptical at the time – me included – especially because some of the effort’s most prominent members were involved in past/ongoing corruption investigations linked to their activities in Russia. While I am not sure about the status of this particular initiative, one year on it is clear that industry-led anti-corruption initiatives are here to stay and that may be a good thing.
One of the newest examples of this phenomenon is the Russian Energy Compliance Alliance, organized by the Center for Business Ethics and Corporate Governance. As the name suggests, RECA’s membership includes both Russian and foreign companies active in Russia’s energy production sector. I like the idea of industry-specific initiatives, and this industry is a great place to start. First, it has major growth potential in Russia, as inefficient state-run enterprises are privatized and Russia’s Soviet-era energy infrastructure is refurbished/replaced. Second, this sector involves a lot of contact with government entities (e.g., public procurement, is heavily-regulated), which raises a company’s corruption risks in Russia (remember IKEA’s problems arose in its interactions with state-run utility Lenenergo).
RECA’s platform involves both intra-industry training and idea exchanges and industry-government interactions aimed at minimizing regulatory uncertainty and risk reduction. This is where the value of collective action is apparent – market players know what their peers are doing – and hence the standards by which they will be judged – and can approach regulators with a united message (nobody wants to be the only company to tell agency X to stop being so corrupt). Finally, RECA plans to have civil society organizations “certify” a company’s compliance with the standards developed by RECA’s member-companies.
RECA’s strategy includes a defensive element to it – namely, to show law enforcement bodies that its members are making a good-faith effort to not violate anti-corruption and other laws while doing business in Russia. The U.S. authorities appear to be taking note. Assistant Attorney General Lanny Breuer – head of the Justice Department’s Criminal Division Division – spoke at RECA’s most recent meeting last week in Moscow (attended by TRM).
Aside from avoiding prosecution back home, it is my sense that both Western and Russian companies are simply exhausted with waiting for Pres. Medvedev’s ‘war on corruption’ to make doing business in Russia even marginally easier. Many see Russia’s investment potential but perhaps are holding back because the risks outweigh the benefits. Initiatives like RECA are a way for companies to take the lead in reducing these risks and improving Russia’s business environment.