Since Belarus’s independence from the Soviet Union in 1991, it has maintained strong economic and cultural ties with Russia and has been dependent on Russia’s economic support.
Recent conclusions by international finance institutions, such as the World Bank and the European Bank for Reconstruction and Development (EBRD), however, suggest that the Belarusian government is demonstrating an eagerness to revive its relationship with the West and an intention to open its market to foreign businesses.
This effort to pivot away from its Eastern neighbor is primarily due to recent geopolitical developments in the region, including the conflict between Russia and Ukraine that started in 2014, and has led to a broader political crisis with Russia on the one side and the United States and European nations on the other, with the Western sanctions against Russia having a trickle-down effect on Belarus’s economy.
Between 2013 and 2016, the World Bank’s development portfolio for Belarus under the Country Partnership Strategy has increased from $500 million to $1 billion. On September 7, 2016, the EBRD, a major investor in Belarus, adopted a four-year Strategy for Belarus, noting that “in the recently changed regional geopolitical environment Belarus has engaged in greater international openness and become more willing to discuss domestic political developments, including the human rights situation in the country.”
Despite the positive outlook regarding the Belarusian investment climate by the World Bank and EBRD, multiple international organizations, NGOs, and the country’s civil society have expressed concerns regarding the country’s true state of corruption, the rule of law, and transparency in judiciary, governance, and business.
As discussed below, these concerns reflect deeply rooted corruption among high-level officials, the lack of protection of foreign investors under the domestic legal regime, and the absence of an independent judiciary.
Reliable information on the true state of corruption in the country is very scarce. Civil society inside and outside Belarus has virtually no access to any trustworthy statistics regarding the true level of corruption in Belarus. The government has recently initiated a number of corruption cases against well-known Belarusian businessmen and officials. Those cases appear to stem from political motives of the authorities rather than their true eagerness to eradicate corruption.
Though petty corruption is not a pressing problem in Belarus, some experts argue that official corruption is a method of governance in the country. In multiple reports adopted since June 2012 on the state of corruption in Belarus, the Council of Europe’s Group of States against Corruption (GRECO) supports this conclusion.
According to GRECO’s Summary of the Evaluation Report on Belarus dated December 6, 2013, only limited reliable information about corruption in Belarus is available, which makes it “difficult to establish the true scale of corruption in the country.”
GRECO further notes that “some information suggests that the day-to-day (so called low level) corruption is less endemic as it is kept under better control through strong law enforcement measures and that the problem of corruption in Belarus is more alarming higher up in the hierarchy and within the predominantly state-run enterprises. The limited research available is not enough to adequately describe the situation and there is virtually no information of any substance from sources independent of the State.”
In its latest Summary of the Interim Compliance Report on Belarus published on September 1, 2016, GRECO reinforced its conclusions regarding the state of corruption and the anti-corruption measures in the country, stating that
. . . of the twenty-four recommendations considered pending in the Compliance Report on Belarus none have been implemented satisfactorily or dealt with in a satisfactory manner […] no concrete projects or proposals seem to be under way that could contribute substantially to improve this situation.
GRECO subsequently concluded that Belarus’s level of compliance with its recommendations remained “globally unsatisfactory.”
To ensure transparency of the GRECO process and to facilitate the implementation of its recommendations, GRECO has on multiple occasions urged the Belarusian government to make the reports public. Thus far the Belarusian authorities, however, have not authorized the publication of any of the GRECO’s reports.
The Transparency International Corruption Perceptions Index 2015 supports the GRECO’s conclusions in regards to the high level of corruption in the country, ranking Belarus 107 among 168 countries.
The Freedom House, in its Nations in Transit 2016 Report, corroborates the GRECO reports’ results, stating that
though petty corruption, such as bribery of police or customs officials, remains relatively uncommon in Belarus, higher-level corruption is more difficult to detect and represents a serious problem. Much of the economy is still controlled by the state, which creates fertile ground for graft […] A large part of the Belarusian economy remains in the shadows, as companies avoid paying taxes and social security contributions. Belarusian entrepreneurs think that the initiative for corrupt activities usually comes from state officials, according to opinion surveys.
So what should the businesses interested in investing in Belarus do?
While investing in Belarus is becoming more attractive to international businesses, as the reports coming from the World Bank and EBRD suggest, a more balanced view of the business climate in Belarus indicates that foreign companies should be prepared to address the unique risks of the hidden but pervasive high-level corruption and the absence of independent judiciary.
Operating or investing in Belarus, with its history of economic instability, state-controlled economy and authoritarian government, calls for implementation of advanced preventive measures, including rigorous risk-assessment, due diligence, and advanced compliance and anti-corruption programs.
In the next post, I’ll outline specific compliance and anti-corruption measures to help companies minimize their risks related to business opportunities in Belarus.
Maryna Kavaleuskaya, pictured above, is a law clerk in Miller & Chevalier’s international department. She focuses on Foreign Corrupt Practices Act-related matters, business and human rights, global anti-corruption training programs and rule of law issues. Before starting her LL.M. program at Harvard Law School, she practiced law in Belarus where she focused on high-profile criminal cases.