At the beginning of the month, the American pharmaceutical company Bio-Rad paid a multimillion-dollar fine in the United States for bribing officials in Russia. The company accepted all the charges, actively cooperated with the investigation, and chose to settle the case out of court. Procurement fraud in Russia and two other countries cost Bio-Rad $55 million.
At ACF (the Anti-Corruption Foundation), we follow investigations like these closely: they often uncover interesting money-laundering schemes and telling little details about how officials steal our money. Here, for example, is one from a recent investigation into Hewlett-Packard and kickbacks in the procurement of computers for the Prosecutor General’s Office:
Usually, the Securities and Exchange Commission (SEC) publishes details of elaborate schemes involving a whole web of agents, contractors, and subcontractors. In Bio-Rad’s case, everything turned out to be indecently simple and mundane. The ABCs of kickbacks in government procurement—everyday corruption.
Over five years, from 2005 to 2010, Bio-Rad won tenders and supplied diagnostic equipment to various medical institutions under Russia’s Ministry of Health. But instead of competing normally and winning these contracts fairly, the company paid “commissions” of 15% to 30% to three shell companies registered in the United Kingdom, Belize, and Panama.
Bio-Rad managers “hid” these regular payments in the accounts, passing them off variously as installation services, distribution services, advertising, or training.
The SEC investigation found that none of the three shell companies had any capacity to provide services at all—they had no offices, no employees, and were all affiliated with the same person. The money was paid into bank accounts in Lithuania and Latvia, and part of it went to Ministry of Health officials as bribes to secure victory in the tender. And here’s an especially wonderful detail:
The crooks couldn’t even be bothered to try very hard—they registered their fake office in Moscow at the address of some ministry building.
For those who like visuals:
No resale schemes, no inflated prices, no multilayered offshore structures. Vladimir Ivanovich Yakunin (former head of Russian Railways, often associated with opaque offshore dealings) must be laughing at how crude the ministry’s operation was.
Over five years, they managed to siphon off $4.6 million out of total contracts worth $38.6 million—that is, 12%. Apparently, this is that “standard macroeconomic corruption percentage” Potanin talked about.
Here’s what’s interesting. We keep reading about these exposés, and the American FCPA (Foreign Corrupt Practices Act), slowly but surely, is doing its job. Companies apologize, heap ashes on their heads, and pay billions in fines. But all of that happens there; here, nothing happens.
Take a look. Below is a ranking of the largest FCPA cases by the amount of compensation paid by companies to the Securities and Exchange Commission (which is only part of the total penalty):
Bio-Rad bursts into this ranking in 10th place, with $40.7 million paid out of a total $55 million penalty. These are the figures worth focusing on, because this is not just some abstract fine for wrongdoing—it is specifically the return of illegally obtained income to the public treasury.
Let’s take a close look at officials from which countries these companies were bribing:
In 5 of the 12 largest cases of bribing foreign officials, the officials bribed were specifically Russian. Nigeria is breathing down our necks in this ranking; officials in other countries are evidently less accommodating.
From these five cases alone, the U.S. budget gained $1.2 billion. In other words, the money was embezzled here, the fraud happened here, and yet the money is being returned to the American taxpayer. There were many apologies from the heads of these companies, dismissals across their offices, and in Germany they even arrested HP employees involved in the scheme with Russia’s Prosecutor General’s Office.
Here, meanwhile, nothing happens. Foreign court findings exist. Confessions from company employees exist. U.S. law enforcement knows the full names of everyone involved; notifications must have been sent, and surely Russia’s investigative authorities were offered cooperation in the investigation as well.
These were the magnificent comments the BBC received from the Ministry of Health regarding Bio-Rad’s bribes:
At ACF, we are thoroughly fed up with this situation. You may remember that I spent quite a lot of time on the “Daimler case,” and now we want to take a comprehensive approach. We have formulated a set of questions that need answers, and we are sending them to the prosecutor’s office in formal inquiries, including parliamentary ones. And we urge everyone—journalists especially—to keep asking these questions persistently until full answers are given.
And let’s not forget: officials who cannot explain the origin of their wealth usually cannot do so precisely because of schemes like these. It is through companies like Bio-Rad, Pfizer, and Daimler that civil servants “earn” themselves country houses, luxury watches, and hotel stays costing €108,000. Vote on ROI (the Russian Public Initiative platform), and make them explain.
P.S. Three days after the publication of the article about the Bio-Rad case, the Health Minister of Vietnam—a country where the company was also caught paying bribes—asked prosecutors to open an investigation immediately and requested that the American side share information about the violations.
State hospitals in Vietnam working with Bio-Rad demanded a complete list of all medicines purchased since 2005 and all relevant documents to be provided within one week.
Russia’s Health Minister remains silent. Probably thinking about where to hide the money next.