Foreign Investors Should Take Ongoing State Reform into Account

On February 11^th, Minsk regional court sentenced former Deputy Chairman of the Minsk City Executive Committee Igor Vasilyev, charged with bribery, to 14 years imprisonment in a reinforced regime colony, to confiscation of property and deprivation of the right to hold public office for five years.

Harsh sentence to former senior Minsk official should be regarded in line with the country’s tough personnel management policy and teach a lesson to other officials. Foreign investors should take into account informal rules for coordinating their interests in current Belarus.

The case of ex-Vice Mayor Vasiliev, due to his high position in the government, should teach Belarusian nomenclature a lesson. Perhaps this was the reason why the trial of Vasiliev started as an open trial and was later closed to the public.

Vasiliev was found guilty of extortion and bribery with USD 500 thousand from Czech investors who were planning to build a waste recycling plant in Minsk. The project’s cost was around USD 30 million. According to the KGB, which arrested Mr. Vasiliev, he was arrested in his office at the moment of transferring half of the bribe. However, Mr. Vasiliev pleaded not guilty. His lawyers plan to appeal the verdict – 14 years’ imprisonment – to Belarus’ Supreme Court.

It is noteworthy that previously similar high-profile corruption and bribery cases against other senior officials resulted in more lenient sentences. For example, former prosecutor of Minsk region Mr. Snegir in 2010 and former Air Force and Air Defense Commander Mr. Azarenok in 2011 were sentenced to maximum 10 years in prison. The bribe, which Vasiliev allegedly extorted, is also very costly compared with other Belarusian corruption cases.

First, Vasiliev’s case confirms assessments that President Lukashenko is serious about cutting down Belarusian managerial elite and is prepared to use harsh measures. Consequently, the exponential rigidity will definitely reduce the resistance by Belarusian officials to the forthcoming lay-offs, will increase their loyalty to the President without additional costs, and will reduce initiative in contacts with foreign businesses, either European or Russian.

Now it is time to recall the ambitious plan, made public in January 2013, to attract USD 7-7.5 billion foreign investment in Belarus by 2015, along with recent media speculations that the authorities consider Western business the most desirable investor. Corruption cases against high-level government officials suggest that President Lukashenko seeks to maintain his monopoly on decision-making in property privatization and foreign investment in Belarus.

Moreover, the bribe amount in Vasiliev’s case is exorbitantly overpriced against the background of business opportunities in Belarus and the Belarusian economy as a whole. Theoretically Vasiliev’s case could be interpreted as a signal about the desired informal “entrance” fees for foreign investors, which could be done deliberately, bearing in mind the obscurity of Vasiliev’s detention (official reports say he did not even have enough time to touch the money left in his office), absence of investors during the trial, as well as the fact that the money for the bribe was taken from the KGB’s special fund.