Witness to corruption: The Belarus medical sector

Last month I wrote posts on the FCPA Blog about my birthplace, Belarus. I talked about perceived corruption there and my optimistic outlook for the country as a destination for foreign direct investment. After the posts appeared, I heard from an acquaintance who until recently worked as in-house counsel for a Belarusian medical supply firm.

Translated from his original Russian, here’s part of his story about corruption.

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The firm where I formerly worked produced medical chemicals. In Belarus, hospitals and clinics are state-owned, which means all potential buyers of my firm’s products were state-controlled hospitals (including teaching hospitals), clinics, and medical labs.

But many firms compete to sell reagents in Belarus. Of these firms, at least half don’t produce anything themselves but rather import the chemicals from abroad. 

The imported chemicals cost more than locally produced reagents. Companies selling imported goods therefore constantly try to explain why Belarusian chemicals aren’t fit for serious medical applications. This would be typical competition if the methods employed by the competitors weren’t directly tied to various types of corruption.

Though it might sound counterintuitive, hospitals don’t care how expensive reagents are. There will always be enough money for chemical testing. Hospitals need the chemicals to be functional, but for the products we sold, functionality wasn’t an issue. All of the reagents on the market in Belarus worked equally well and were ultimately interchangeable. But if a vendor paid a kickback, then the hospital had an incentive to pay more because that meant the “percentage” kickback would also be bigger.

So that’s what was happening. Hospitals routinely bought the most expensive imported chemicals. It became impossible to sell them our reagents. Sometimes we picked up small sales — we called them table scraps — when importers didn’t deliver fast enough, or delivered a bad batch that couldn’t be used. We also made some sales to second-tier clinics the importers hadn’t reached yet.

Of course there were occasional exceptions: large hospitals that bought transparently, or hospitals that consistently bought the most cost-efficient option. But those exceptions were very rare. . . .

Within the Ministry of Health, there was a specific position that lobbied for importers — the same group paying the kickbacks. This individual was appointed by the deputy minister and would instruct hospitals how to write their requirements to favor one particular supplier. The title of this position was “independent specialist” — so named, apparently, to absolve the ministry of responsibility if something went wrong. “He’s got nothing to do with us. He’s independent.”

In Belarus, this system apparently started about five years ago. That’s when the deputy minister and the independent specialists decided to buy testing devices from certain firms. Although the testing equipment was capable of using various reagents, the ministry specified which suppliers would be selected, citing importance of compatibility of devices with chemicals. 

The deputy minister was replaced by someone else but the same procurement system remained in place. One excuse I’ve heard is that only certain reagents can be used so that “we don’t void the warranties on the testing devices.” The ministry has also asked some medical experts to attest that “yes, there needs to be perfect compatibility.”

And that is also part of the tragedy — there are no truly independent medical experts in Belarus. All doctors and medical administrators work in or for the Ministry of Health. As I said at the outset, medicine in Belarus is state-owned and state-run. There is only one big boss, and that is the state itself. 

So rest assured, corruption still exists in Belarus.

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In the next post, I’ll provide another part of my acquaintance’s observations, detailing institutionalized procurement fraud.

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Ilya Zlatkin is a Chicago attorney focusing on business planning, intellectual property, and international entrepreneurship. He’s also a Certified Fraud Examiner. He can be contacted here.