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Difference between revisions of "Otkat (Russia)"
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'''''Original Text: Prof. Alexandra Vasileva''''' | '''''Original Text: Prof. Alexandra Vasileva''''' | ||
Otkat is a colloquial term used to describe a form of corruption in Russia. It literally means ‘rolling back’ and is the equivalent of the English term ‘kickback’. Otkat is the diversion of part of the money allocated for a purchase to the person responsible for the purchase, for example to an employee of a state administration or a company. As the result of collusion between a person in charge of a purchase and a supplier, otkat implies embezzlement and results in the overpricing of goods and services. Otkat emerged as a practice in the 1990s following the collapse of the Soviet Union, and proliferated in Russia during the 2000s as the state's role in the economy expanded, resulting in the creation of state corporations. The practice grew further as a result of the general economic upturn and the respective increase in resources associated with the oil boom. | ''Otkat'' is a colloquial term used to describe a form of corruption in Russia. It literally means ‘rolling back’ and is the equivalent of the English term ‘kickback’. ''Otkat'' is the diversion of part of the money allocated for a purchase to the person responsible for the purchase, for example to an employee of a state administration or a company. As the result of collusion between a person in charge of a purchase and a supplier, ''otkat'' implies embezzlement and results in the overpricing of goods and services. ''Otkat'' emerged as a practice in the 1990s following the collapse of the Soviet Union, and proliferated in Russia during the 2000s as the state's role in the economy expanded, resulting in the creation of state corporations. The practice grew further as a result of the general economic upturn and the respective increase in resources associated with the oil boom. | ||
''Otkat'' is widely used in public procurement: the state allows itself to be overcharged, and the bureaucrats responsible for the purchase pocket the difference between the actual price and the stated price. As a result, part of the public funds gets diverted for private gain. According to the Russian law on public procurement, state purchases must be conducted via transparent competitive tenders according to the principle of obtaining the ‘best quality for the lowest price’. However, in reality, numerous techniques are employed to evade the procedure, thus undermining honest competition and allowing the practice of ''otkat'' to flourish. During the tender process a company affiliated to the bureaucrat often makes the winning bid. In 2013, the Russian Court of Auditors concluded that 70 per cent of the largest tenders were awarded without any competitive process (Zamakhina 2013<ref>Zamakhina, T. 2013. ‘Schetnaya Palata Uznala Strashnoye: 70% Goskontraktov Zaklyuchayutsa v Seroy Zone’ Moskovskij Komsomolets, 16 August http://www.mk.ru/economics/article/2013/08/15/900166-schetnaya-palata-uznala-strashnoe-70-goskontraktov-zaklyuchayut-v-seroy-zone.html | |||
</ref>). Moreover, ''otkat'' is a widespread practice in the procurement procedures of big state-owned conglomerates and by monopolies such as the state gas giant Gazprom. Similarly, the suppliers of goods and services involved in the kickback schemes may be affiliated to the conglomerate and, in some instances, have been identified as its (shell) subsidiary, opaque in terms of ownership and registration. | |||
As a result of an otkat scheme, the resources of the state or a state-owned company get embezzled: the contractor returns a certain percentage of the deal to the client - in most cases, in cash. Unaccounted ‘black cash’ is generated through encashment (obnalichivanie), - an illicit informal practice that involves bogus companies, often affiliated with banks (Yakovlev 2001: 38f). For a certain ‘fee’ (around 7 per cent of the total sum) these sham companies generate both the cash and the respective paperwork necessary to cover up the illicit scheme. In some cases, otkat takes more sophisticated forms: rather than a straightforward cash payment, money is transferred for imaginary consultancy work or ‘market research’ to a shell company owned by the person responsible for making the order. | |||
Otkat is also widespread in Russian inter-business relations, where it causes a typical agency problem as rank-and-file managers cheat the company by pocketing some of its resources. For example, managers of purchasing departments buy overpriced goods or services, charging the supplier an illicit ‘commission’. In some sectors, such as corporate insurance, otkat is widely used to make corporate clients pay higher premiums than the market price (Grigorieva 2007). As a rule, otkat is negotiated clandestinely between the representatives of the two firms in advance and paid as a ‘gratitude fee’ by the contractor to the person representing the purchasing company. Vague language is used during otkat negotiations (the Russian internet in fact is full of ‘instructions’ for using the practice): an otkat-giver might suggest ‘being ready to make concessions’, ‘making a very good offer’, ‘giving you a personal discount’ or ‘paying particular attention to your needs, whereby ‘you’ is deliberately used ambiguously to refer both to the company and to the person in charge (Lonkila 2011: 66f). | Otkat is also widespread in Russian inter-business relations, where it causes a typical agency problem as rank-and-file managers cheat the company by pocketing some of its resources. For example, managers of purchasing departments buy overpriced goods or services, charging the supplier an illicit ‘commission’. In some sectors, such as corporate insurance, otkat is widely used to make corporate clients pay higher premiums than the market price (Grigorieva 2007). As a rule, otkat is negotiated clandestinely between the representatives of the two firms in advance and paid as a ‘gratitude fee’ by the contractor to the person representing the purchasing company. Vague language is used during otkat negotiations (the Russian internet in fact is full of ‘instructions’ for using the practice): an otkat-giver might suggest ‘being ready to make concessions’, ‘making a very good offer’, ‘giving you a personal discount’ or ‘paying particular attention to your needs, whereby ‘you’ is deliberately used ambiguously to refer both to the company and to the person in charge (Lonkila 2011: 66f). | ||
Along with other forms of corruption, otkat is openly acknowledged as a problem by the Russian leadership. For example, in his 2010 annual address, President Medvedev condemned the embezzlement of state funds, including the practice of otkat, and estimated losses at one trillion roubles annually, which corresponds to about 15 percent of state purchases (Medvedev 2010). Similarly, President Putin regularly declares the fight against corruption a priority, and has acknowledged that otkat, as a percentage of contract volume reached 50 per cent of public procurement contracts (NTV 2013). Otkat is also a widely discussed topic in the Russian media, deemed to negatively affect both business and public procurement. Using the Integrum database, Lonkila examined the frequency of the term ‘otkat’ in printed media in Russia since the early 1990s. It was found that the term became more commonly used during the 2000s (Lonkila 2011: 68). On the Internet, websites and blogs dedicated to the techniques, advantages and disadvantages of otkat schemes abound. The term ‘otkat’ sometimes seems to be used in a broader sense in these sources, and is often (falsely) used as a synonym for bribe, if the size of the bribe is fixed as a percentage of a deal. However, as a form of corruption, otkat differs from bribery. While a bribe represents an illicit money flow to agent A from agent B, otkat involves a formal legal payment from a budget overseen by agent A (but not owned by him personally) to agent B, and a subsequent illegal, private re-payment of part of that sum back to agent A. Therefore, for example, a payment received by a supermarket manager from a wine supplier for displaying the produce prominently is a bribe rather than an otkat. But if the supermarket manager colludes with the supplier of wine and receives in return an informal ‘personal bonus’ in cash of some 10 per cent of the ‘on-paper’ purchase sum, the correct name for the informal practice is otkat. | Along with other forms of corruption, otkat is openly acknowledged as a problem by the Russian leadership. For example, in his 2010 annual address, President Medvedev condemned the embezzlement of state funds, including the practice of otkat, and estimated losses at one trillion roubles annually, which corresponds to about 15 percent of state purchases (Medvedev 2010). Similarly, President Putin regularly declares the fight against corruption a priority, and has acknowledged that otkat, as a percentage of contract volume reached 50 per cent of public procurement contracts (NTV 2013). Otkat is also a widely discussed topic in the Russian media, deemed to negatively affect both business and public procurement. Using the Integrum database, Lonkila examined the frequency of the term ‘otkat’ in printed media in Russia since the early 1990s. It was found that the term became more commonly used during the 2000s (Lonkila 2011: 68). On the Internet, websites and blogs dedicated to the techniques, advantages and disadvantages of otkat schemes abound. The term ‘otkat’ sometimes seems to be used in a broader sense in these sources, and is often (falsely) used as a synonym for bribe, if the size of the bribe is fixed as a percentage of a deal. However, as a form of corruption, otkat differs from bribery. While a bribe represents an illicit money flow to agent A from agent B, otkat involves a formal legal payment from a budget overseen by agent A (but not owned by him personally) to agent B, and a subsequent illegal, private re-payment of part of that sum back to agent A. Therefore, for example, a payment received by a supermarket manager from a wine supplier for displaying the produce prominently is a bribe rather than an otkat. But if the supermarket manager colludes with the supplier of wine and receives in return an informal ‘personal bonus’ in cash of some 10 per cent of the ‘on-paper’ purchase sum, the correct name for the informal practice is otkat. | ||