Sochi contractor speaks out on widespread corruption

“Bribery in Russia is not a problem. It is a system. It only becomes a problem if you do not pay enough," Valery Morozov said in an interview about the widespread corruption taking place ahead of the Olympic Games in Sochi in 2014.

It is a well-dressed and clearly successful businessman meeting the Norwegian Broadcasting Corporation (NRK) in the premises of Moscow newspaper Novaya Gazeta in the centre of the Russian capital. Novaya Gazeta was the first to publish Morozov’s story together with UK paper The Sunday Times. 

Organised Corruption 
It is very unusual for a businessman to openly discuss in details about how the Russian bureaucracy has systematised corruption. And doing this has made Morozov very unpopular in some circles.

Morozov’s company Mosconverseprom has been doing business with the Russian governmental administration for years. After having completed a series of restoration works in the Kremlin in the 1990s, it came as no surprise that Morozov in 2006 won the tender to build the luxury complex Primorsky in Sochi. 

The Primorsky Sanatorium is planned to house central Russian politicians and officials during the 2014 Winter Games in Sochi. The old luxury hotel in the seaside resort on the Black Sea coast is being rebuilt in its old-style grandeur, with modern standards of luxury, swimming pool and all that jazz.

12 percent in kickbacks 
The budget for the construction of the building was 1.5 billion roubles, (approx. 36 mio euros). But then deputy head of construction at the Office of Presidential Affairs (DPA), Vladymyr Leshchevsky, was on holiday when the decision to award Morozov the tender was taken.

Leshchevsky has close family ties to a Serbian company that also competed for the assignment.

According to Valery Morozov, Leshchevsky was furious when he heard of the decision, and asked the businessman to meet him before signing the contract.

“I showed up at his office and was referred to the contract we had agreed on. He (Leshchevsky) said: "Listen, you know very well that we can send out a new proposal so that this contract does not end up with you",” Morozov says.

Morozov refused to hand over the tender to the competitor, leaving him with one alternative; he had to pay.

“Leshchevsky said: "Then you have to pay 12 percent of the contract’s worth. This is our policy. It's not just me, you see; it is also to my bosses, "Morozov recalls Leshchevsky saying.

Morozov eventually had to pay Leshchevsky 180 million roubles (4.4 mio euros) in order to keep the contract. Having to pay a kickback did not come as a big surprise to him, but the size of the kickback did.

“I knew from experience, when I entered into negotiations with the state administration, that it was normal procedure to require five percent extra,” he says. “The money was paid both in cash and by money transfers to someone in the system.”

Important to pay enough 
Leshchevsky is a key person in the state administration in the Kremlin. In 2003, during the 300-year anniversary of St. Petersburg, Putin awarded him the Order of Friendship. Morozov knew that this man was powerful.

”Most companies pay. Bribes are only a problem if you do not pay enough,” Morozov continues. 

When the financial crisis hit the construction industry in Russia in 2008, many projects were set on hold. Everyone suffered, apart from the companies that had Olympic status. The pressure on Morozov increased.

“They said I had too much luck.  Let us share your luck! “

By this time, the administration in Moscow wanted the Serbian contractors to get a bigger slice of the pie.

According to Morozov, bureaucrats in DPA saw this as a chance to extract more money from government projects and created a new round of bids. Morozov stood no chance. He lost the contract despite the fact that he had already completed a lot of the preparatory construction work.

Morozov’s workers were locked out of the construction site and he lost large sums in equipment and profits.

Anarchy in Sochi 
Roman Shleynov is an investigative journalist at the financial newspaper Vedomosti. He believes that complete anarchy is the rule regarding the Sochi economy.

”No one has control of the state funds now being spent to build venues and infrastructure for the Olympic Winter Games,” says Shleynov.

 “Businessmen are being squeezed by both local and federal authorities to pay the so-called kickbacks. The problem in Russia is that we have so many laws that bureaucrats can choose for themselves which law to follow.”

“It is very unusual for businessmen to speak out. If they do, their business in Russia is done," Shleynov concludes. 

Death threats
The firm who got the new contract had a total budget of more than two billion rubbles (48.8 mio euros). This is more than Morozov’s original contract and now he wonders where this money will go. 

President Medvedev has suspended Leshchevsky and ordered the Prosecutor General’s Office to investigate the case.

According to Novaya Gazeta, there have been no official statements about the status of the case so far. Meanwhile Morozov lives in constant danger.

”During a meeting they said to my wife and my lawyer that blood will flow if we continue to speak with the media. However, I know there are forces inside the presidential office that support our cause. Otherwise I would not be sitting here today," says Morozov.

According to the Russian branch of Transparency International several similar cases have appeared in the Olympic city.

And as long as corruption counts a quarter of the gross domestic product in Russia, there is a large probability that many aggrieved businessmen will want to talk about greedy bureaucrats. Whether the Russian President will clean this up, remains to be seen.

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For a more detailed version of Morozov's story, see Novaya Gazeta journalist Roman Anin's article summing up the case: Corruption case in 2014 Sochi Olympic Winter Games

This article was first published on www.nrksport.no (in Norwegian) on 5 December 2010 and is republished at playthegame.org with kind permission from the author and NRK. Original version: http://www.nrksport.no/1.7411447