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June 14, 2006
Government As Gangsters

The Russian democracy has begun to resemble Russian communism in the way in which its government has become pre-eminent among thieves. The New York Times reports that government agencies and the police are less likely to protect Russians from crime than to participate in crime themselves. Motorola just experienced a multi-million dollar lesson in the Russian concept of free-market international trade:

On March 29, agents of the Interior Ministry seized 167,500 mobile phones that Motorola had shipped into Sheremetyevo Airport in Moscow, dragging the company into the Kafkaesque world where Russian justice intersects with business.

The phones were first declared counterfeits, then contraband, then a health hazard, and now they are evidence in a criminal investigation focused, again, on suspected smuggling.

In April, the Interior Ministry made a show of destroying some of the phones — 49,991, officials said — after saying that one model violated safety standards, though suspicion abounds that not all the phones were destroyed. The same model remains on sale in shops around Moscow.

Then a patent dispute began.

The story quickly becomes a Byzantine exploration of government confiscations and criminal prosecution that works to protect Russian business interests and provide material for the black market. The Kremlin bureaucrats who managed to confiscate over $17 million of cellular phones from Motorola have probably done far worse on smaller scales that keep their fraud off the radar. In this instance, they got a bit too greedy, and reacted badly when caught. The patent dispute escalated into a criminal case, even though Motorola had produced these particular phones prior to the Russian patent award.

Interestingly, Vladimir Putin actually improved the situation by sacking members of the government perpetuating the fraud. It still shows that Russia has to improve their performance on private property rights by at least an order of magnitude before we can trust them to participate in free-trade agreements honestly. If the Motorola case and other examples of Russian corruption have not made it onto the G-8 agenda, the US needs to make sure it gets addressed.

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Posted by Ed Morrissey at June 14, 2006 8:23 AM

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