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Corruption Haunts the Winter Olympics in Sochi

by | February 23rd, 2014 | 10:00 am
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Despite the last-minute concerns about readiness, the Winter Olympics in Sochi have put on an impressive display of sportsmanship and enthusiasm, with only small glitches marring the games. But the Olympics have also brought attention to some troubling aspects of the Russian political and economic system.

Initial media coverage focused on these negatives: human rights abuses, roughshod preparation, and the exorbitant cost—$51 billion. Russia, which ranks a poor 148th in terms of press freedom,1 may not have been prepared for the onslaught of complaints from foreign journalists as they settled into their unfinished hotels at the Black Sea resort. The negative coverage of this aspect of the games  has repercussions beyond Sochi itself, underscoring Russia’s difficulty in curating its ‘soft-power’ and bringing attention once again to the country’s widespread problems with corruption.

This is the first Olympics in Russia since the collapse of the Soviet Union, and the games have represented President Vladimir Putin’s ongoing attempt to reassert Russia’s position on the world stage through diplomacy and sports. These efforts also include the 2012 APEC summit, 2013 G-20 meetings, 2014 Russian Grand Prix, and 2018 FIFA World Cup.

But the narrative is at best in competition with the corruption issue. This year’s Olympic Games clock in at $51 billion, eclipsing the $7 billion Vancouver Winter Olympics.2 Not only are the games the most expensive ever, they are more than four times the original budget of $12 billion.3

Sochi will join the company of the most expensive FIFA World Cup ($20 billion4 initial estimate), the most expensive APEC summit ($18 billion at completion5 but initially estimated at closer to $3 billion6), and other grand projects funded by Russia’s extractive industries wealth. To be fair, these price tags do include some regional development and infrastructure projects, which will outlast the scope of the events themselves. But some of this spending has clearly been wasteful: APEC’s $1 billion “bridge to nowhere” and Sochi’s $9 billion road are only two examples. Others have been documented in The Anti-Corruption Foundation’s interactive map.

Examples like these illustrate why Russia ranks among the worst in the world (127th)7 in terms of corruption. President Putin hails himself as fighter of corruption yet recognizes the government’s complicity: In a guest post in the Financial Times, he wrote: “We still have system-wide corruption. The cost of doing business varies depending on your “proximity” to specific individuals within the government machinery. In these conditions entrepreneurs quite rationally tend to find backers and strike deals with them rather than observe the law. Then, having made their deals, such businesses try to suppress competition.”8

This admission, however, does not mention who those “specific individuals” are—they are widely believed to be Putin and his inner circle, according to many accounts. In the words of Financial Times columnist Gideon Rachman, “the system he is condemning is the one he created.” Putin’s role as economic kingmaker in previous episodes, such as the Rosneft/Yukos affair, is old news. Now we have numerous additional examples from Sochi.

Speaking on Swiss television, senior IOC member Gian-Franco Kasper claimed approximately one-third of Olympic outlays—about $18 billion—had gone to line the pockets of the “construction mafia” of business linked to the Kremlin.9

Russian opposition leaders Boris Nemtsov and Leonid Martynyuk gave an even higher estimate, between $25 billion and $30 billion.10

Looking just at contracts received by childhood friends of Putin, Bloomberg finds 21 contracts totaling “about $7 billion—more than the total cost of the Vancouver Olympics and around 14 percent of all spending for the Sochi games.”11

In a more specific examination of those connected to the $9 billion road, the Anti-Corruption Foundation finds that “Vladimir Yakunin, CEO of Russian Railways and an old Putin pal, was responsible for its construction. Russian Railways awarded two no-bid contracts. The first contract went to SK Most, owned by Vladimir Kostilev and Yevgeni Sur, builders of the Baikal-Amur Railway, and by Gennadi Timchenko, another old buddy of Vladimir Putin. The management of the second contractor, Transinzhstroy, is closely related with Russian Railways. Transinzhstroy subcontracted some works to Mostotrest, owned by Arkadiy Rotenberg, shockingly owned by another friend of Putin.”12

Rather than guide investment in infrastructure to those who can finish the job most efficiently (for example, through public tendering) in order to protect the taxpayer, crony capitalism pervades the system. The no-bid contracts above are a prime example. State patronage like this is exceedingly profitable if one is in the right business, with the right connections, but deeply costly for the country’s prestige and economic well-being in the long run. Unfortunately, the international attention seems to have done little to discourage these practices.

Notes

1. Reporters Without Borders, 2013 World Press Freedom Index, http://en.rsf.org/press-freedom-index-2013,1054.html.

2. Jake Rudnitsky, “Putin’s $48 Billion Olympic Legacy Faces 100-Day Sprint to Open,” October 29, 2013, www.bloomberg.com/news/2013-10-29/putin-s-48-billion-olympic-legacy-faces-100-day-sprint-to-open.html.

3. Owen Gibson, “Sochi 2014: the costliest Olympics yet but where has all the money gone?” October 9, 2013, www.theguardian.com/sport/blog/2013/oct/09/sochi-2014-olympics-money-corruption.

4. Russia Beyond the Headlines. “Russia to host most expensive World Cup ever,” June 27, 2013, http://rbth.ru/arts/sport/2013/06/27/russia_to_host_most_expensive_world_cup_ever_27535.html.

5. Moscow Times, “Probe Shows Multi-Million-Dollar Fraud in Vladivostok APEC Summit,” December 27, 2013, www.themoscowtimes.com/news/article/probe-shows-multi-million-dollar-fraud-in-vladivostok-apec-summit/492122.html.

6. Vladivostok Times, “Putin: Preparation for APEC Summit in Vladivostok in 2012 will Cost about 100 Billion Rubles,” January 29, 2007, http://vladivostoktimes.com/show/?id=6614.

7 Transparency International, Corruptions Perceptions Index, 2013, http://cpi.transparency.org/cpi2013/results/.

8. Vladimir Putin, “Guest post by Vladimir Putin: Russia needs more technology and less corruption,” January 30, 2013, http://blogs.ft.com/beyond-brics/2012/01/30/guest-post-by-vladimir-putin-russia-needs-more-technology-and-less-corruption/#axzz2t3FqMK7T.

9. Graham Dunbar, “Sochi Olympics Corruption Led To 1/3 Spending Disappearing: Senior IOC Member Gian Franco Kasper,” January 10, 2014, www.huffingtonpost.com/2014/01/10/sochi-olympics-corruption-spending_n_4576848.html.

10.  Moscow Times, “IOC Member Says One-Third of Olympic Funds Lost to Corruption,” January 11, 2014, www.themoscowtimes.com/news/article/ioc-member-says-one-third-of-olympic-funds-lost-to-corruption/492501.html.

11. Bloomberg Businessweek, “The Waste and Corruption of Vladimir Putin’s 2014 Winter Olympics,” www.businessweek.com/articles/2014-01-02/the-2014-winter-olympics-in-sochi-cost-51-billion#p2.

12. The Anti-Corruption Foundation, Road Adler-Krasnaya Polayana,”  http://sochi.fbk.info/en/place/14.