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 model, which 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