Procurement: The Fraudulent Fifth


February 7, 2012: Russian military prosecutors have found that about 20 percent of Russian defense spending is stolen by corrupt officers and officials. That there is corruption in the Russian military is no secret. Officers, including generals and admirals, have been prosecuted frequently for the last two decades. But this comprehensive investigation revealed that the extent of the thievery was greater than anyone could have imagined. This discovery is all part of a decade long trend. In that time the Russian government has been relentless in its campaign against corruption. Progress is slow but every year more people are prosecuted and more corrupt practices publicized.

The anti-corruption campaign in the military has been going on for several years. A large part of the effort is directed at firms that manufacture weapons. These companies have refused to justify their wildly gyrating prices. Last year, this led to a curious confrontation which resulted in Russian shipyards refusing to build submarines for the Russian Navy. This was caused by government efforts to rein in rapidly rising prices while also eliminating corruption. All this put the Defense Ministry in a difficult position.

Russian Defense Minister, Anatoly Serdyukov, was caught between conflicting orders. President Dmitry Medvedev was trying to reduce corruption in the military and had ordered Serdyukov to make it happen. But in doing that Serdyukov withheld payment to many military suppliers because these firms refuse to explain why prices had suddenly increased. That created problems with Medvedev, who is also demanding that defense industries produce the quantities of weapons agreed on, and by promised delivery dates. That will not happen as long as Serdyukov was putting contracts on hold to deal with corrupt practices. President Medvedev ultimately backed whatever Serdyukov wanted, and this ended up with submarine builders threatening to close shop. All this sped up corruption investigations and resulted in lower prices. But production has been disrupted.

Aircraft and missile manufacturers were the first to agree to lower their prices, but the submarine builders claimed they could not control their own rising costs. The government believed the higher costs were the result of inefficiency and mismanagement, as well as antiquated shipbuilding facilities. This situation was unique to Russian shipbuilding, which never, like many other Russian manufacturing industries, tried to achieve world standards of efficiency and technology. The Russian shipyards are in such bad shape that the government recently allowed the purchase of a new Mistral class amphibious ship from France, as well as the purchase of the manufacturing technology so more Mistrals could be built in Russia.

But backwardness does not explain all the Russian shipbuilding problems, there was still a lot of corruption, and both problems have to be fixed before the Russian Navy can get affordable, effective warships from Russian yards. That's going to take a decade or more.

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