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IKEA in Russia: Now 'Everything is Possible'...for a price

IKEA, which has publicly railed against corruption in Russia, has itself been caught paying bribes there. Could President Medvedev's anti-corruption campaign really turn Russia into a place where foreigners can do business, wonders Jesse Heath?

When I was in Moscow last fall, IKEA Russia had just launched its new catalog and was promoting it throughout the city.  Emblazoned on all of their blue and yellow displays was the new catalog's slogan - «Теперь Все Возможно!» - or "Now Everything Is Possible!"  I remember thinking it was a good slogan, or at least it sounded good in Russian and seemed to capture the company's democratic pricing and the endless number of items that wind up in my cart at their stores.  The slogan also resonated with the official narrative of an economically and politically resurgent Russia.  

IKEA Russia logo

Alas, the IKEA Russia marketing people may have jumped the gun in their implicit assessment of today's Russia, if not in their explicit promotion of affordable yet high-quality furniture.  Last Friday, IKEA announced that they were firing two high-level expat executives in Russia for either approving or acquiescing to the payment of bribes by its contractor in St. Petersburg to officials at utility company Lenenergo.  In exchange for the bribes, IKEA would have one of its St. Petersburg mega-malls - "Mega-Parnas" - hooked up to the local power grid for the first time since its 2006 opening.  

Some readers might remember that last summer IKEA announced it was halting all investment projects in Russia and later that year publicized its battles with the power company to the New York Times.  The company's message?  That it was "building a case" against Russian corruption, which was responsible for its problems in St. Petersburg and elsewhere.  

As it turns out, the very executives leading IKEA's anti-corruption campaign were simultaneously approving bribes to resolve the issues with Lenenergo.  The bribe was reportedly approved in August 2009, at the same time the company engaged in a media blitz claiming it could not operate in Russia because it does not allow bribery.  The executives also allegedly engaged in other questionable activities, according to Swedish tabloid Expressen.  For example, IKEA Russia executives apparently drafted an “enemies list” for the city of Samara, which included Governor Vladimir Artyakov and Mayor Viktor Tarkhov.  With the help of outside “consultants,” the executives considered a number of actions that could be taken against “enemies” opposed to IKEAS interests.

Also, there are still unresolved questions regarding when IKEA learned about its executives' behavior.  Expressen claims to have a copy of a fax from January 2010  sent to IKEA founder and owner Ingvar Kamprad regarding the bribe approval by the company’s Russia executives.  The paper also claims that IKEA’s February 12 announcement came only hours after Expressen informed the company that it would be publishing the documents in its possession. 

IKEA will certainly receive some much-deserved criticism for publicly railing against Russian corruption while privately "playing the game."  The company could potentially pay an even bigger price if law enforcement authorities initiate an investigation.  And of course the two executives have already paid a price for their actions.

But what about the Russian side?  IKEA is one of the country's largest foreign investors outside of the hydrocarbons sector, with nearly $3 billion invested as of 2008.  The retail trade sector is relatively non-corrupt compared to health care, natural resources, etc.  And Sweden is one of the least-corrupt nations in the world (3rd place on Transparency International's Corruption Perceptions Index).  In this context, IKEA's use of bribery in Russia speaks volumes of the challenges which companies face there. 

Since his inauguration, Pres. Medvedev has spoken a lot about the existential threat that corruption poses to Russia.  He has passed new laws and there has been an upurn in enforcement.  Recently, the Supreme Court of the Russian Federation released statistics on the prosecution of corruption offenses.  According to their numbers, the increased enforcement has produced a curious result: enforcement of bribe-giving is much more common and severe than that of bribe-taking.  Also, the vast majority of prosecutions have been against people paying bribes of relatively inconsequential amounts (i.e., $300 or less).  Similarly, when the authorities do prosecute bribe-takers it is generally for very small amounts, with one-third of prosecutions against bribe-takers receiving $100 or less. 

Thus, Medvedev's "War on Corruption" has so far turned out to be a war on the poor and powerless.  This approach will improve neither Russia's business environment nor the quality of its state.  Even worse, it creates a system where ordinary people and underpaid, low-level bureaucrats are expected to meet an infinitely higher standard than major Russian and foreign companies and the high-level officials they sponsor.  If Russia ever wants to be the resurgent and dynamic country it fancies itself as, it will need to refocus its anti-corruption strategy.

Jesse Heath is a practicing attorney specializing in anti-corruption law with a particular focus on Russia and the post-Soviet space. Also the author of the blog The Russia Monitor (www.therussiamonitor.com)

Read On

Corruption in Russia, by Gregory Feifer,  Radio Free Europe Radio Liberty, Nov. – Dec. 2009: part 1, part 2, part 3

Russia corruption costs $318 billion – one-third of GDP, The Christian Science Monitor, Daily News Blog, by Fred Weir, Nov. 23, 2009

Economic crime in a downturn: The 5th Global economic crime survey, Russia, Price Waterhouse Coopers report, 2009


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