Karachaevo-Cherkessia Corruption Fears

The republic of Karachaevo-Cherkessia risks losing its autonomy following several cases of alleged embezzlement and illegal profiteering.

Government money has apparently been siphoned off through bankruptcy scams and corruption – and analysts fear that the mounting cost of supporting the republic could push Russia into declaring regional bankruptcy and stripping the area of its sovereignty.

The republic, which has a population of only 430,000, seems resigned to its status as Russia’s poorest administrative region.

Corruption is widespread in local authorities as well as central government, according to the head of the republic’s supreme court, Islam Burlakov, who is a presidential candidate in next month's vote for head of the republic.

The findings of federal auditors confirm that upwards of a million US dollars in loans issued by the government to local authorities remain unaccounted for.

Burlakov told a recent meeting with Cherkessk residents that the government often gives a local administration a subsidy or a loan, and then the official who authorised it demands a kickback of up to half the amount provided.

He alleged that this embezzlement method is widely practiced in the Malokarachaevsky and Karachaevsky districts, as well as the town of Karachaevsk.

“The punitive sword of bankruptcy is ready to descend upon Karachaevo-Cherkessia,” Burlakov told the media, predicting that, if the Russian parliament passes a law on regional bankruptcy, the republic will lose its autonomy.

Government officials refuse to respond to the corruption allegations, with the presidential office’s information department claiming they were “not sufficiently informed” to comment. But Shamil Botashev, an aide to the vice premier Ismail Katchiev, told IWPR he was not aware of any “accusations levelled by the Russian Federation audit chamber”.

Federal auditors allege that Karachaevo-Cherkessia owes the Russian treasury some 3.3 million dollars in loan repayments.

Around 93 million dollars - more than 95 per cent of Karachaevo-Cherkessia’s budget - comes in the form of subsidies from Moscow. Two years ago, the percentage stood at 90 per cent, while in the mid-Nineties Russia provided only half of the region’s budget.

Figures from the Audit Report on Budget Performance of the Republic of Karachaevo-Cherkessia as Beneficiary of Federal Subsidies in 2002 - issued by the Federal Audit Chamber and published by the local Vozrozhdenie Respubliki newspaper in a special edition – suggest that government money has been misused.

A source at the chamber’s public relations department confirmed to IWPR that “certain instances of improper and illegal use of federal funds were established during the audit”.

Meanwhile, salaries to public sector employees have been repeatedly delayed, and the backlog now totals nearly 90,000 dollars. And it has been alleged that more than 50,000 dollars of the government’s emergency fund - intended for tackling natural disasters - has been spent on various institutional celebrations instead.

Poverty and lack of opportunities have led to a brain drain in Karachaevo-Cherkessia – last year alone more that 4,500 qualified professionals moved to other parts of Russia – leaving many key government and industry posts vacant. Analysts believe that in many cases corrupt officials have taken their place.

Following a number of embezzlement scandals, observers now believe that venal managers are routinely tapping into the generous flow of federal subsidies coming into the republic – with the favoured method being a loan request for company which is then declared bankrupt so that the money provided does not have to be repaid.

Amin Urakchiev, head of the Karachaevo-Cherkessk branch of Russia’s anti-monopoly ministry, told IWPR that such state companies borrow a lot of money before being declared insolvent.

He cited the case of local water company Vodokanal, which was recently declared bankrupt before a new firm, using the same name, was set up to replace it.

The director of the new business has since been charged in connection with the disappearance of more than a million dollars which had been given to the company to counteract the effects of the previous year’s devastating floods.

In the meatime, customers are suffering as their household water supply has been cut off in the summer heat, and farmers cannot irrigate their crops.

Another way of profiting from subsidies is to inflate the prices of goods and services purchased with government money.

During the process, auditors discovered that the retail mark-up on some pharmaceuticals can reach 300 per cent in the republic - which means that some life-saving drugs are being sold at triple their purchase price.

No competitive bidding is conducted for government purchases of pharmaceuticals, and no contracts are signed. The same pattern can be observed in the construction industry. Nearly a hundred building projects received official funding last year, but only two properties were actually built.

No work was carried out at six sites that had received the full measure of government funding. And of more than 150,000 dollars allocated for construction, auditors allege that around a tenth was spent on “unjustified expenses” last year.

Tatiana Mamkhiagova is a correspondent for the Otkrytaya Gazeta newspaper in Karachaevo-Cherkessia.