Is Medvedev’s War on Corruption Working? The Case of Overpriced Medical Equipment

By now most readers are well familiar with Medvedev’s “war on corruption.”  We know new laws have been passed and enforcement has reportedly increased.  Still, many of the new laws are often ignored (e.g., income declaration requirements).  And much of the purported increase in enforcement is actually from prosecutors counting garden-variety fraud prosecutions as “anticorruption” cases.  But anecdotal evidence from Medvedev’s most targeted anticorruption campaign – in public procurement of medical equipment – suggests that his war on corruption may be working.

“Absolutely Cynical and Brazen Theft of Public Money”

The move against corruption in medical procurement got its start almost exactly one year ago, when Head of Control Department Konstantin Chuichenko reported to Medvedev on inflated prices paid for high-tech medical equipment in public purchases throughout Russia.  Medvedev demanded a substantive report, which Chuichenko delivered on August 10, 2010.  The report found that public purchases of CT scan machines were typically at prices 200-300% higher than manufacturer prices.  Chuichenko explained that the reason for the discrepancy was the use of offshore intermediaries by Russian companies selling to the Russian government.  The offshore intermediaries substantially marked up the price allegedly in order to mask the margin between the manufacturer and end-user prices (Medvedev commented that the offshore and Russian companies are likely owned by the same individuals).  Chuichenko added that “corruption was evidence” in several of the tenders.  Medvedev agreed, calling the scheme “an absolutely cynical and brazen theft of public funds.”  Medvedev ordered Chuichenko to, among other things, implement price monitoring and to bring corrupt officials to justice.

“I demand the sum of … 1 MILLION DOLLARS.”

Following Medvedev’s order to investigate and prosecute corrupt officials, there were several low-profile criminal prosecutions against mid-level medical procurement officials throughout Russia’s regions.

But perhaps the most interesting case unfolded by accident in November 2010, when a group of individuals were arrested for their involvement in an extortion scheme, including Andrey Voronin and Vadim Mozhaev, two high-level members of the Presidential Administration.  The scheme was pretty simple – Mozhaev and others would inform manufacturers of high-tech medical equipment that their company had been placed on a non-existent “black list” of companies who would not be allowed to participate in public procurement for their products.  Channeling Dr. Evil, Mozhaev offered to remove the companies from the black list if they paid $1 million.

But, as the saying goes, “no plan survives contact with the enemy.”  When Mozhaev et al posed their extortion demand to Toshiba (via a Russian distributor), Toshiba’s country manager (to his great credit) acted like you would in a normal country – he went to the police.  And the MVD detectives (to their credit) acted like law enforcement officers in a normal country – they investigated.

Indeed, the MVD investigated rather well – their plan was to have Toshiba pretend to agree to the extortion demand and wear a hidden camera at the meeting, with a result worthy of Hollywood.  The characters: Toshiba’s country manager and former Deputy Minister of Health Aleksey Vilken.  The scene: Novikov restaurant “Sushi Vesla,” located right off of Lubyanka Square.  The props: a hidden camera, cigarettes, and some phony SWIFT transfer confirmations, showing that the money had been wired to a designated offshore company.  Here is a news report showing the meeting with Vilken:

As a result of this investigation, Voronin, Mozhaev, and others were arrested for their extortion attempt.  Voronin has already pleaded guilty and is “cooperating” with investigators.

Vilken Strikes Again

Over the past few months, there has been a focus on corruption within defense purchases.  The chief military prosecutor reported that 20% of the military budget is stolen through corrupt schemes.  A leaked Audit Chamber report highlighted the same problem, finding that $71 mln worth of public tenders for military procurement involved violations of the Law on Procurement.  So it was not very surprising when Alexander Belevitin, the Chief of the Defense Medical Administration, was arrested earlier this month for taking a $167k kickback in relation to the purchase of medical equipment.  In order to avoid detection, Belevitin and his co-conspirators had used none other than former Dep. Minister of Health Vilken as an intermediary.  The bribe payer in this case was reportedly a citizen of India from the company DIN International.  Unlike the Voronin case – where the participants will be charged with extortion – Belevitin and his compatriots will be charged with bribe taking under Art. 290 of the Criminal Code of RF.

Scoring Medvedev’s Anticorruption Drive

There are a few characteristics of the war on corruption in medical procurement that merit attention.  First, the prosecutions have been comprehensive – they have targeted purchases throughout Russia and individuals at all levels of the procurement process.  Second, this drive has ‘gone the distance’ in that people who never would have been prosecuted in the past are in fact going to jail.  This is an important kind of ‘optics’ in Russia where the constant refrain from the public is ‘где посадки?’ (basically, “where are the arrests?”).  Third, the drive seems to be working – Kommersant reported last month that medical equipment – particular CT scanners – were being sold at below-market prices in public tenders this year.

So, in many ways Medvedev’s campaign in this area has been highly successful.  To many foreign observers, it does not meet any of the several litmus tests for the end of all corruption in Russia (e.g., release of Khodorkovsky, prosecution of Putin).  And to many Russians, it may not have any readily apparent benefits.  But the benefits – millions of dollars saved in medical purchases – are real and the prosecutions do serve as a warning to others in different sectors.  Lastly, the fact that these successes were achieved in the course of only one year is impressive by any standard.      

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3 Responses to Is Medvedev’s War on Corruption Working? The Case of Overpriced Medical Equipment

  1. Pingback: High Tide: From Colbert On FIFA To The SFO Survival Backstory – Wall Street Journal (blog) « Uk Corruption « CORRUPTION!

  2. Thank you for this. Very valuable for people like myself who try to follow the “big picture” but miss many of the important details.
    The anticorruption campaign will take a long time and will never fully end (even in the Glorious West we have corruption — it never goes away) and it has to be step-by-step

    • jesseheath says:

      Thanks. Indeed, I think corruption is worsening (in the U.S. at least). Perhaps there will be an equalization at some point

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