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Originally published August 30, 2007 at 12:00 AM | Page modified August 30, 2007 at 2:07 AM

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Corruption still thrives in Russia

Three years ago, Ikea's top executive in Russia told a local newspaper he feared for his life after officials prevented the opening of an...

Seattle Times business reporter

Three years ago, Ikea's top executive in Russia told a local newspaper he feared for his life after officials prevented the opening of an Ikea-developed shopping center near Moscow. Lennart Dahlgren hinted that the threats stemmed from Ikea's refusal to pay bribes.

Dahlgren lived, and the mall opened. In fact, Starbucks will make its Russian debut next month at that same shopping center.

But the episode offers a glimpse of the corruption still plaguing Russia 16 years after the Soviet Union collapsed.

Russia is in the middle of the pack globally when it comes to bribery, according to a 2006 study by the anti-corruption group Transparency International in Berlin.

Twenty-one percent of Russians surveyed in 2004 reported paying a bribe in the previous 12 months; the figure dropped to 8 percent last year.

A mix of heavy bureaucracy and corruption make the market challenging for Western retailers to enter, said Stan Laegreid, a principal at Callison, a Seattle-based architecture firm that has helped Ikea expand in Russia.

"You have to play games with the authorities if you want to be successful in business," he said.

Russian President Vladimir Putin has spoken out against corruption among Russia's civil servants, many of whom make such meager salaries that they demand bribes to augment their incomes. In exchange, they will cut through the thick red tape that binds up permits and other processes.

But some Western critics think Putin has corruption problems of his own, citing incidents like the 2005 imprisonment of Russian businessman Mikhail Khodorkovsky, a Putin opponent who ran the Russian oil firm Yukos.

Corruption is one reason many Western chains hire business partners to handle the messy details of opening in Russia. It is illegal for U.S. companies to pay bribes.

"If you have to pay a bribe and that's the only way, you walk away from the location," said Lori Daytner, chief executive of Rosinter Restaurants Holding, which operates T.G.I. Friday's and other restaurants in Russia.

"A lot of times, people pay bribes just to speed things up," she said. "We've always said we were here for the long haul, and just muddled through the paperwork."

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To open this new market, Starbucks chose M.H. Alshaya, a Kuwaiti company that runs its stores in several other countries and already has retail brands in Russia.

In a written statement, Starbucks said it maintains high standards and "operates with transparency in Russia and worldwide."

Corporate partners sometimes pay bribes and sometimes find ethical ways to work the system.

They might do public works instead, like building bridges, said Dennis Hopple, president of the Center for Business Skills Development in Moscow, part of the Thunderbird School of Global Management near Phoenix.

At times, his training center has sidestepped bribery demands by giving free classes to officials. But Hopple said that because it refused to grease the system, his center waited two years for two imported vans to get past Russia's customs officials.

Retailers are particularly vulnerable to corruption, he said. "If you want approval from the fire inspector or health inspector or all these different people, there's going to be a process of negotiation."

Many U.S. restaurants and their Russian business partners say they've never paid a bribe, though.

Khamzat Khasbulatov, president of McDonald's in Russia, said the country still has entrenched corruption in its bureaucracy. But the burger chain opened in 1990 through a joint venture with Moscow's city government, which helped it get things done.

By now McDonald's is so well known to Russian officials that they have never approached it for a bribe, Khasbulatov said.

"They know how we behave and our policies. We're part of this country."

Melissa Allison: 206-464-3312 or mallison@seattletimes.com

Seattle Times researcher David Turim contributed to this article.

Copyright © 2007 The Seattle Times Company

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