Protesters demonstrate against Moscow mayor Yuriy Luzhkov, seen by US ambassador John Beyrle as at the heart of corruption in Moscow. Photo / AP
In Russia the slang word for protection is krysha, literally "the roof".
According to testimony from a Russian mobster at United States Senate hearings in 1996, krysha is a a basic business expense in modern Russia.
Without krysha there is no business. Take Moscow, the capital and the nation's business hub. It is also, according to a cable written by John Beyrle, the US ambassador, and subsequently made public by WikiLeaks, Russia's biggest business scam.
The February 2010 cable alleges the figure at the top of Moscow's krysha pyramid was the former mayor Yuriy Luzhkov - a "trusted deliverer of votes and influence for the ruling party and its leader, Prime Minister Vladimir Putin" - who presided over a hierarchy of corrupt officials.
Beyrle said Luzhkov's links to criminals had made government in Europe's largest city "dysfunctional".
"Criminal elements enjoy a krysha [protection racket] that runs through the police, the federal security service, Ministry of Internal Affairs and the prosecutor's office, as well as through the Moscow city government bureaucracy."
They all, it seems, had their hands out, pocketing bribes from legal and illegal activities. The publication of thousands of classified US government cables has cast Russia in a decidedly unflattering light.
Moscow emerges as the dark star in a krysha galaxy estimated at US$300 billion ($405 billion) a year in kickbacks, bribes and other backhanders. Krysha, it appears, is the vital grease that oils the gears throughout the world's largest country.
It is a sobering thought for anyone contemplating business in Russia, including New Zealanders buoyed by news after November's Apec Summit in Japan, that the Government is negotiating a free trade agreement with Russia. Be careful what you wish for. Let's hope it isn't a pyrrhic victory.
What any free trade deal would deliver is an open question.
There is often a considerable distance between official spin and reality. The WikiLeaks cable suggesting public expectations on any agreement with the US - which Prime Minister John Key gushed might be worth "billions and billions" - might need to be scaled back.
Admittedly, the immediate economic benefits of a deal with Russia, Belarus and Kazakhstan are not huge. The real bounty is seen as strategic, getting up close and personal with one of the BRIC [Brazil, Russia, India, China] nations that economists predict will dominate the 21st century.
Did anyone mention krysha? The prospect of a free trade deal surfaced before the WikiLeaks bombshell, so maybe the delicate issue of bribes has not been addressed.
Kiwis in Russia "are aware of the problem," says Ministry of Foreign Affairs and Trade spokesman Chris Wilson who points out that bribery and corruption plague several overseas markets.
But if the WikiLeaks picture is true then Russia bribery is of a whole different order.
The ministry says "transparency of regulation, including bribery and corruption issues" will be raised with Russia. New Zealand and Russia have ratified the UN Convention Against Corruption, while Russia has its own anti-corruption measures. It is a moot point whether they have any teeth.
Security of market access is touted as a big plus for commodity producers, such as dairy farmers, in free trade agreements.
"But if you look at the realities of the commercial structures, the operation of markets, and who those players are in Russia," says Auckland University law professor Jane Kelsey, "I wouldn't touch them with a bargepole."
As for issues such as Russian investment in New Zealand "do we really want to sign away the right to control what areas Russia might invest in?" Russia's post-Cold War bid to reinvent itself as a capitalist titan, armed with abundant raw materials, is hampered by alarming reports of a Wild West business culture that blurs the line between crime and the state.
It is a climate, says one WikiLeaks cable, in which Putin has allegedly created a system where "there is no real rule of law and that at any time anyone can be arrested or businesses destroyed."
A recent crime - 12 people, including four children, murdered by a gang in Kushchevskaya, 1100km south of Moscow in the nation's breadbasket - says it all.
The gang, led by a local businessman, had allegedly terrorised the town for 20 years, a rampage of murder, kidnapping, rape and robbery, all connived at with regional officials.
"With every passing day it becomes more and more clear that the fusion of government and criminals, what is now called the Kushchevskaya model, is not unique," the head of Russia's Constitutional Court, Valery D. Zorkin, wrote in Rossiiskaya Gazeta, a government newspaper.
Unless, this sinister situation improved, "our citizens will become divided between predators, free in the criminal jungle, and subhumans, conscious that they are only prey".
This grim, despairing vision clashes with rosy business scenarios, like the Goldman Sachs projection that by 2050 Russia could have the planet's sixth-largest GDP, making it Europe's top nation.
This surreal picture is intensified by WikiLeaks' depiction of Russia as a "virtual mafia state," a kleptocracy run by Putin, officials, oligarchs and organised crime. "People are paying bribes all the way to the top," writes Beyrle.
Thus the choice of Russia as host of the 2018 World Cup was met with fervent hope among football authorities this would not trigger a tsunami of corruption, with bent officials sluicing money earmarked for football stadiums and the like into their pockets. Certainly, plans to host the 2014 Winter Olympics in Sochi, a Black Sea resort, haven't inspired confidence, following evidence of relentless corruption, kickbacks to officials and mafia criminality.
In Russia, Belarus and Chechnya "one cannot differentiate between the activities of the government and OC [organised crime] groups," noted Spanish Judge Jose Grinda in a January cable.
Whether Putin is implicated in the mafia is an "unanswered question" says Grinda.
Putin has denounced the cables, and denied rumours of his wealth stashed abroad.
"Putin has been quick to claim that there's a plot against Russia," historian Robert Service, a Russia expert, wrote in the Guardian. "There is indeed a plot against Russia, and it is one he knows a lot about from the inside."
If New Zealand does sign a free trade agreement, we might take a leaf from Britain's book. Since April this year, British firms have been subject to what the Moscow Times calls a "draconian anti-corruption law".
The Bribery Act has global reach and defines any bribe, proffered or received, as a criminal offence. Those convicted face stiff fines and jail terms up to 10 years.
"There's a lot the world doesn't know about Russia," says John Ballingall, the deputy chief executive with the NZ Institute of Economic Research. Due diligence for Kiwi entrepreneurs firms was "absolutely critical."
And Kelsey asks if we really think Russia as an economic giant by 2050 "will consider itself duty bound by a free trade agreement signed in 2012 with a minuscule nation on the periphery?"
1 New Zealand's ranking - shared with Denmark and Singapore - on Transparency International's annual Corruption Perception index.
154 Russia's place. The index ranks 178 countries. Australia comes in at 8, the US 22 and China 78.
By Peter Huck
