Manual for Azerbaijan companies Rena Safaralieva



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U. Jafarov, a military journalist, was sentenced to 3 years and 3 months of imprisonment for  disclosing 

corruption in the army.

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Jan Mirza Mirzoyev, recognized as a political prisoner by many international organizations, including the 

Council of Europe, is serving a term in prison for going public about corruption in the army .

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The rate of corruption in Azerbaijan is extremely high. According to  the  information provided by  

Transparency International, Azerbaijan scored 125th out of 133 countries surveyed in 2003.

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 This data 



corresponds with  local research-73.2%  of Turan news agency respondents believe that corruption in 

Azerbaijan  is very high.

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 However, other research reveals a slight decline in the level of corruption. A 



joint World Bank and EBRD study of commercial entities in Azerbaijan showed that  the instances of 

bribery was  reduced by nearly half  over the last 3 years. If 59.9% of 1999 survey respondents  stated that 

they give bribes,  in   the  2002  survey only 27.5% of all respondents responded  affirmatively to this 

question.

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Organized crime 

 

Organized crime in transition economies differs from the classic Western Mafia modelwhich originated 

in the criminal sphere (arms trade, contraband). In transition economies organized crime has developed 

largely as an offshoot of the legal economy.  The money makers of the Soviet shadow economy, the so-

called “tsekhoviks,” stimulated the formation of a new economic “gray zone,” or informal sector that did 

not fail to attract attention from leaders of criminal groups  and allowed them to turn into a powerful 

sector of organized crime. After the demise of the socialist system, an active growth of  both groups  led 

to confrontation among themselves,  as well as with the state. This process yielded different results in  

different transition countries.  In Russia shadow capital merged with criminal groups. In Azerbaijan the 

state managed to prevent criminal leaders from active penetration in economic life. According to a survey 

conducted by Intermedia  in Central and Eastern European countries, 

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  Azerbaijan has the lowest rate of 



Mafia-related violent crime in the region with a score of 12, while Russia scores  the highest with a score 

of 65. 


 

“Dirty”  and “shadow”  money laundering 

 

The large turnover of shadow money in such a corrupt environment is hardly surprising. If we are to 

follow the model of black and gray economies, we must also distinguish between “dirty” (criminal or 

corrupt money) and “gray” money, (i.e., money earned through legal economic activity, which then 

evaded taxation).  According to analysis by Ayman Ospanova, a member of Fiscal Analysis Group of Tax 

Administration and  Fiscal Reforms of USAID, the total scale of the shadow economy in Azerbaijan 

constitutes  60.1% of GDP. For comparison, in Russia  this indicator is  42.2%,  while the average  

number for developed countries is 12%.

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 Western experts suggest that 50-55%  of Azerbaijan GDP is 



earned in the shadow sector. 

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 Such enormous capital needs to be laundered, partially by means of 



investing into the local economy (as evidenced by the  many luxurious houses and  festivities in 

Azerbaijan) or abroad.   

 

According to the Turkish newspaper, Millet,  Ruslan Mansimov, an Azerbaijan businessman fleeing the 



                                                 

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 M. Mammadov,  Military Journalist Intends To Continue  Denunciation of Ministry of Defense,   Serial newspaper,  15  



February  2003, 7  February 2003 

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 Corruption Penetrates  All System Of Armed Forces, Interview with Alekper Mammadov at the Internet Forum of Zerkalo 



newspaper, 25 January  2003 

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 More details can be found in Corruption Perception Index 2003, 



www.transparency.org

  

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 Expert survey by Turan News Agency, April 2001  

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 N. Gulieva, The Level of Corruption In The Country Has Reduced, Echo newspaper, 11 January  2003 



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 Extent of Crime and Corruption: Perceptions of Elite in Central and Eastern Europe and the Caucasus by J.Martyniuk and 

N.Japaridze, Clean Future Issue, Summer 1999  

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 I. Gasanova, Economy That Casts a Shadow, Echo newspaper, 14 December 2002 



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 G.Gasanov, Candidate of Economics, Associate Professor, Azerbaijan State Economic University, Informal Sector of 

Economy, Point of View column,  Echo newspaper, 19 March  2002  



Russian Mafia, spent $900,000 in bribes to purchase Turkish nationality and a new passport.  The source 

claims that the Azerbaijan was worth $1 billion, of which $650,000 was invested into Turkish 

economy.

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Unfortunately, Azerbaijan legislation does not have a single legislative provision concerning money 

laundering, despite recently joining the international Convention on Money Laundering, Identification  

and Confiscation of Revenues Derived by Illegal Means.

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 The Azerbaijan banking sector has also not 



experienced any scandals connected to money laundering. According to leading economists, this is due to 

the fact that all corrupt transactions are concluded outside of the bank sector, besides  “shadow” money 

can be invested  by firms into their own projects. 

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Can corruption be justified? 



 

Corruption occurs for a number of reasons:  an underdeveloped  legislative framework,  weak civil 

society,  and  nascent private sector. All these make   corruption particularly  widespread in  transition 

countries. In addition, neither civil society nor the private sector may be experienced in or strongly 

committed to fighting corruption. Some experts view corruption as a positive mechanism, under certain 

conditions. For example, French researcher Marie Mendras  believes that  corruption acts as a kind of 

lubricating mechanism of social and economic relations to compensate for  deficiencies in the state  

machinery". 

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If this argument has some validity during the  early stages of political and economic transition, 10 years 

of independence is believed to be a sufficient amount of time for transition countries to design legal 

frameworks and create a favorable business environment, as demonstrated by the experience of the 

countries of Central and Eastern Europe.    

 

Below are findings of research  from  Azerbaijan. In 1999 the Entrepreneurship and Market Economy 



Development Assistance Foundation (EDF) conducted an expert survey to analyze corruption-related 

problems


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. One question asked:  What portion of revenues are Azerbaijan  businessmen and women 



compelled to pay as bribes?  According to   54% of respondents,  resources spent by Azerbaijan 

businessmen on bribes constitute up to   40-70%  of revenues,  while  33.5%  of respondents spend 

upwards of 70%  of aggregate revenues on bribes.  This situation, naturally raises the cost of doing 

business as well as  undermines the state  budget. 

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Zulfia Gousseinova, head of Sharg clothes factory organized a press conference  and appealed to the 

President of the country to protect her against  harassment by the Prosecutor’s office, which  allegedly 

solicited a bribe of $40,000  and brought the enterprise to the verge of bankruptcy by  persistent 

interrogations of employees.

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Corrupt countries and international business 

 

                                                                                                                                                                            



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 X. Ismailova,  A Passport for $ 900 thousand, Echo newspaper, 5-6  March 2002 

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 This Convention of Council of Europe can be found at  



www.coe.org

  

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 Commentaries by  I. Ahmedov and N. Imanov to  article Money Laundering in Azerbaijan  by  N. Gulieva and N.Ramiz 

oglu, Echo newspaper,  4 April 2003  

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 Marie Mendras,  Enrichment and Clientele –Patronage  Relations in Russia, Constitutional Law:  Eastern European Survey  



No 1(22), 1998, p. 122 

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The survey covered 263 respondents from Baku, Sumgait, Nakhchevan, Ganja, Sheki, Ali-Bayramli, Lenkoran. Experts 

were comprised by 20 MPs, 16 leaders of political parties,  business associations and trade unions, 25 editors and economic 

commentators s  from leading mass media sources and news agencies, 48 businessmen,  25  attorneys and staff of law 

enforcement bodies,  15 economists, including researchers,  a group of doctors and teachers,   representatives of other 

professional groups. All respondents were nationals of Azerbaijan. The survey was funded by Center for International Private 

Enterprise – CIPE, US . 

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 S. Bagirov, The Problem of Corruption in Azerbaijan, report by EDF, 1999  



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 N. Gulieva, Businesswoman  Accuses the Chief Prosecutor’s Office  of Corruption, Echo newspaper,  15  January, 2003 




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