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After Khordokovsky verdict, taking stock of business and corruption in Russia

Russia lashed out Tuesday at Western leaders who voiced their concern over Monday's conviction of Russian tycoon Mikhail Khodorkovsky.

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The case against Khodorkovsky was developed after he bucked the establishment by using the wealth generated by Yukos (a company that he paid the government $350 million for in 1995 but was soon valued at $30 billion) to back pro-democracy groups and opposition candidates distasteful to Mr. Putin, now Russia's prime minister who ordered their prosecution when he was still president. His legal travails have long been taken as a pointed object lesson for other Russian businessmen.

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"Khodorkovsky decided to get involved in something that he didn't have to, and our bureaucratic class had him beaten up," says Yevgeny Butovsky, who runs an agricultural business. "It was a kind of demonstrative flogging."

Like most Russian businessmen, Mr. Butovsky sees Khodorkovsky's case as an outlier in its extremity, but says that the daily toll of corruption and state interference that it symbolizes is harming Russia's economic prospects. "The business climate has been worsening all the last 15 years," he says. "Sometimes there are some small things but they add up and the result is atmosphere that is no good for business."

Corruption up, transparency down

How much worse? Transparency International's latest corruption index -- which surveys investor opinion about every country – placed Russia among the 20 most corrupt countries on earth, tied with countries like Kenya and Cambodia and just below Yemen, Libya, and Haiti. That was down eight spots from the year before, when President Dmitry Medvedev promised a "war on corruption."

The InDem Foundation in Moscow estimates that Russian businesses and individuals pay $318 billion in bribes every year, and in a survey released this fall by Pricewaterhouse Coopers 71 percent of foreign and local businesses reported being victims of "economic crime." That's double the rate reported in large, emerging market peers of Russia like China, Brazil, and India.

The price of doing business

While Khodorkovsky's cause has been taken up vocally internationally, within Russia his problems are often seen of his own making – the case of a man who played with fire and got burned. Corruption is generally seen as a fact of life that simply needs to be worked around.


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