Institutional corruption has existed in the Russian Empire since ( and probably before) the time of Peter the Great and was regularly written about in the master pieces of Chekhov so it is not a follow-on from the Communist era. During this era it was common practice for example in grocery stores where sugar was sold damp to increase the wieght or the scales were 'fixed' to add wieght and the surplus was sold as 'specials' for birthday celebrations, weddings and the like. This was 'bizness' an expression that continues to this day.
But corruption is not exclusive to this part of the world as it was pretty rampart around the world but in recent times much of the western world has managed to vanquish it.
However some western institutions in Ukraine are inadvertently, niaively or unwillingly helping to perpetuate corruption in their organisations. This knowledge is based on our 20 years of experience of operations in the real estate market here.
Major western institutions are repeatedly and justifiably complaining about Ukraine's failure to address this issue with any fortitude. But some western organisations operating in Ukraine should look at the situation inside their own organisation to see if some level of corruption continues 'at home'.
To discover if your organisation is possibly inadvertently helping to perpetuate some form of corruption internally here are some methods to check it for a selection of some business enterprises.
At Pickard we have run a successful valuation service for nearly 15 years for a select number of international clients either directly or via our international partners. However until relatively recently very few local banks used our services because to join a banks list of accredited valuers often necessitated paying the bank's decision maker a reasonably large amount of cash. Which is possibly why if a check is made on a bank's list of accredited valuers there were often few recognisable names listed there.
The 'scam' usually went something like this:
- you pay the accreditor to get accredited
- anybody applying for a mortgage (loan) had to use a valuer from the accredited list
- for a 'bung' to the valuer, who is paid by the borrower, he would value the loan collateral by up to a 20% (and more) premium.
This was why when the property market turned 'sour' the banks had a significant problem although they initially thought they were safe as they had only loaned 70% of the collateral value. Oops!
If the real original value was 100 but the accredited value was 120 and the bank had loaned 70% of 120 (84) but real prices had dropped by 40% the real collateral value was only 60. Again oops!
Generally acquisitions or leasing of embassy premises are handled by special representatives from the relevant central government department so there is little to no opportunity for 'fiddling' in this specific section. However leases for residential accommodation for diplomats are usually handled by local staff employed by the embassy and for this particular sector the situation can be somewhat different.
The relevant person assigned to find suitable residential accommodation has often been responsible for sourcing this for a number of years and is often perceived to be doing a credible job so little changes as diplomats come and go; so an attitude of 'it ain't broke don't fix it' persists.
However if a small scam exists in these circumstances it usually occurs in this fashion. The relevant person often has a friend or relative who is a residential real estate 'expert' and the major part of the sourcing of residential requirements are passed to this individual. The embassy pays this agent the normal fee for this type of service, 50% of one month's rent but this agent pays 50% of this fee back to the embassy employee that engaged him on an almost exclusive basis.
Occasionally other agents are used to support the pretence of an 'open market'.
Now this is where the real 'honey pot' is. In international companies operating in Ukraine the local staff tend to stay while the expat management regularly get rotated in 3 to 5 year shifts which the locals are well aware of. So in some international companies there is created a sort of internal mafia that keeps control of matters inside the company especially in the purchasing/ acquisition department where the real money can be made. Those that do not want to participate in this rip off are cajoled into at least staying silent.
The bonus money comes when a company needs to relocate their offices and usually works like this; possibly a tender for relocation services is issued to several real estate agencies and the replies are received. The officer responsible views the offers and then asks each agency to reconsider their proposal but the selected agent is advised of the offers received and has the opportunity to lower their price to win the tender and the informative officer is given a bonus for their help.
This scheme is most prevalent where the expat general manager decides not to be involved or where the corporate head of property decides for whatever reason to leave to the local staff.
It continues to surprise me that in a country where unfortunately corruption is rife and regularly commented on that so little is actually done to try to stamp out these little 'tricks'. A few simple checks could easily be done to check if your operation is being cheated.
In western economies most valuers have to have FRICS certification &/or professional indemnity insurance do your accredited valuers have these?
Do most of your residential apartments come from one specific agency?
The general manager or their corporate property head should take the lead role in tendering for these services.