Misplaced Pages

#253746

46-720: Sidanko was established through the Decree No. 452 of the Russian government, published on 5 May 1994. The company counted among its assets oil extraction and processing facilities in the Udmurt Republic and in the Khanty-Mansiysk, Yamalo-Nenets, Irkutsk and Sakhalin regions. It was privatized in December 1995, when the Russian government auctioned off a 51% share as part of the loans for shares scheme. The 51% stake

92-469: A call for bids , for example in the case of government construction contracts. The typical objective of bid rigging is to enable the "winning" party to obtain contracts at uncompetitive prices (i.e., at higher prices if they are sellers, or lower prices if they are buyers). The other parties are compensated in various ways, for example, by cash payments, or by being designated to be the "winning" bidder on other contracts, or by an arrangement where some parts of

138-400: A larger investigation into Brazil's government as well and has contributed to the conviction and imprisonment of former president Luiz Inácio Lula da Silva . In early January 2018, Petrobras settled a United States class action case for $ 2.95 billion, though JP Morgan and BTG Pactual had expected a settlement between $ 5 and $ 10 billion. The Petrobras scandal extends beyond bid rigging in

184-447: A mutually beneficial system of bureaucracy and government and the private construction industry wherein bid rigging is incredibly common, benefiting colluding firms and officials alike in the form of kickbacks. The system of dango is often supported though as allowing small firms to continue to compete, though detractors are quick to point to the economic inefficiencies presented by a non-competitive market. The US Government, specifically

230-558: A number of academic studies both in Japan and in the US to be a system which considerably inflates the cost of construction projects, and in the Japanese public sector, considerably wasteful of annual tax money amounting to billions of Japanese yen. Dango refers to collusion in Japanese, or more precisely, "conference", and is an extremely prevalent system in Japan. Dango can be understood as

276-522: A political role. "Russian bankers take part in the country’s political life. … The banks, like all of Russia, are learning democracy." The loans-for-shares auctions in November–December 1995 allowed the more conspicuous of "the oligarchs", as they were now known, to reposition as captains of industry. Initially dreamt up by Vladimir Potanin of Oneximbank, this privatization scheme was backed by Chubais but also by Kremlin conservatives like Soskovets, who

322-592: A purchaser for the Department of Defense. The high price of entry and fewer entrants in many industries results in lessened incentives for firms to behave competitively. In the UK, the Competition and Markets Authority published an open letter in 2016 aiming to promote good practice among procurement and supply staff, and detailing indications they should watch out for. Bid rigging is an illegal practice under

368-510: A reinstatement of the initial verdict. In 2007, a Slovakian government ministry participated in bidder exclusion by posting a request for proposals regarding consulting on a bulletin board in an official building, though not open to the public. This resulted in a consulting firm winning a €120 million contract. The word for receiving kickbacks after participating in bid rigging is known as "tunelovanie" in Slovak. Bid rigging occurs frequently in

414-430: A result of reduced ability to compromise. The Organisation for Economic Co-operation and Development (OECD), in its work on bid-rigging and cartels in public procurement , makes the following suggestions for better tenders: Suggestions for ameliorating procurement auctions have also been put forth. Lengstein and Wolfstetter suggest that when a particular bidder is preferred, disregarding cost, possible reforms include

460-428: A sealed Vickrey auction , or if there is reason to believe that officials and bidders are in contact, an open auction is preferred to sidestep potential bribery. When officials are engaged in more competitive procurement processes with regard to price but are suspected of kickbacks, a potential solution is the open auction to prevent clandestine arrangements such as change order abuse. If a closed or sealed auction process

506-449: A western-style management approach by eliminating communist bureaucracy . However, that required them to push out entrenched managers with communist allegiances. This had already become an immensely more cumbersome task once the communists took control of Russia's legislature in the 1995 elections and would be made excruciatingly challenging if the communists were to take control of Russia's executive government. Consequentially, in order for

SECTION 10

#1732793140254

552-466: Is preferred, the use of electronic bidding and investment in tamper-resistant systems is suggested. Brazil's Operation Car Wash is an ongoing investigation into the Brazilian semi-public multinational Petrobras . Petrobras is suspected of having overcharged bids as much as 3% of the total cost on contracts with an alleged $ 2.1 billion being misappropriated in kickbacks. Operation Car Wash is part of

598-456: Is the loans-for-shares scheme that gave rise to the class of Russian business oligarchs , who have concentrated enormous assets, further increasing the wealth gap in Russia and contributing to political instability. In the medium term, this scheme impeded Russian growth; the oligarchs, realizing that their purchases could be seen as fraudulent by future governments, attempted to strip assets from

644-549: The 2014 FIFA World Cup . This revelation implicates an additional five domestic construction firms and was revealed by the Conselho Administrativo de Defesa Econômica (CADE). From 2002 until 2013, the Colombian government opened 121 investigations into bid rigging, which lead to sixty-nine entities paying fines amounting to nearly $ 23.5 million, with an additional nine entities receiving sanctions. Colombia

690-911: The Competition Act . Bid rigging is illegal in the European Union (EU) under Article 101 of the Treaty on the Functioning of the European Union (TFEU). The annual cost to the EU in economic waste as a direct result of bid rigging among cartels was estimated to be between €13 billion and €37 billion in 2008. Bid rigging seems to be on the rise across Europe, raising concerns particularly over excessive expenditures and single-bid tenders. These single-bid tenders represented 17% of tenders in 2006, but 30% nine years later. RAND estimated that

736-557: The Svyazinvest privatization. In September 1999 western creditors agreed to cede their voting rights in the company to Russian government. Tyumen Oil Company bought Sidanko's Chernogorneft unit for $ 176 million at a bankruptcy auction in November 1999. In 2001 Interros sold a 44% stake in the company for $ 650 million. BP raised its stake to 25% in 2002, paying $ 375 million for a 15% share. In 2003 Sidanko merged with TNK, Onako and

782-590: The United States Trade Representative Office and Department of Commerce, made fierce efforts in the late 1980s and early 1990s to urge the Japanese government to reform dango as a de facto non-tariff barrier to foreign firms in the Japanese construction market. Despite years of negotiations, including promises by the Japanese government in the Structural Impediment Initiative (SII) trade talks,

828-581: The appeals are ongoing. Multiple other cases are still ongoing. In the United Kingdom, individuals can be prosecuted criminally under the Enterprise Act 2002 . In 2011, fines were levied by the Office of Fair Trading (OFT) on 103 construction companies found to have engaged in illegal bid-rigging schemes. The OFT commented that cover pricing, the form of bid rigging involved in these cases,

874-557: The appearance of genuine competition", by businesses who, "in reality, ... are not competing". Many of the businesses involved cooperated fully with the OFT investigation and it was acknowledged that they had changed their bidding practices and provided staff training on competition law once the OFT had raised the issue. The fines were subsequently deemed to be "excessive" and the Competition Appeal Tribunal revised

920-676: The bidding ring is designated to win a particular contract, that bidder's conspirators could avoid winning by not bidding ("bid suppression") or by submitting a high bid ("cover bidding"). Many of the issues presented by bid rigging are the result of cartel involvement. Inefficient firms are not pushed out, as they would have been in a competitive market, and firms experience more profit, despite an inefficient allocation of resources. Cartels behave more like monopolies and so their behaviors, such as bid rigging, create market inefficiencies as contracts are fulfilled at elevated values. Furthermore, bid prices increase with more repeated collusion. Ultimately,

966-479: The companies to turn a profit, investors felt that the Communists would need to lose the election. The auctions were rigged and lacked competition, being largely controlled by favored insiders with political connections or used for the benefit of the commercial banks themselves. The scheme was structured in a manner that made Yeltsin's victory a strong interest of the investors involved. The two-stage program

SECTION 20

#1732793140254

1012-499: The construction industry in Switzerland. In 2007, seventeen different firms were involved in a bid rigging scheme but there was no prosecution as the ring had disbanded before colluding. [1] In 2009, a ring of seven electricity firms from Bern were charged with bid rigging and fined two million Swiss francs. In Aargau , in 2011, a bid rigging scheme was discovered wherein seventeen firms were fined eight million Swiss francs though

1058-462: The cost is typically borne by the taxpayer as government-sponsored contracts are artificially above market value. Additionally, it can be thought of as raising prices for the taxpayer (or consumer) as firms rent seek. One study found that bid rigging significantly raised prices over market value in the seafood industry in Philadelphia in a bidding scheme involving Defense Personnel Support Center,

1104-458: The country might revert towards a Communist resurgence if progress was not maintained, and that in light of these concerns, the long term political goals of democratization and asset distribution from state hands to private ownership might have been deemed more important than possible short term gains from the asset sales: "[I]f that meant undervaluing State assets then so be it". The scheme has been perceived by many as unfair and fraudulent, and it

1150-435: The criminal or competition laws of most developed countries. Depending on the jurisdiction, it is punishable by fines, imprisonment or both. At a very basic level, there would likely be more competitive bidding if there were more firms present in a market, outside of a cartel, as evidence shows that bids lessen in value as the number of firms rises. Furthermore, collusion becomes less frequent with better market competitiveness,

1196-488: The government enterprises rather than build them up. Bid rigging Bid rigging is a fraudulent scheme in a procurement action which enables companies to submit non-competitive bids. It can be performed by corrupt officials, by firms in an orchestrated act of collusion , or by officials and firms acting together. This form of collusion is illegal in most countries. It is a form of price fixing and market allocation, often practiced where contracts are determined by

1242-478: The government of Boris Yeltsin adopted a "loans-for-shares" scheme proposed by banker Vladimir Potanin and endorsed by Chubais, then a deputy prime minister, whereby some of the largest state industrial assets (including state-owned shares in Norilsk Nickel , Yukos , Lukoil , Sibneft , Surgutneftegas , Novolipetsk Steel , and Mechel ) were leased through auctions for money lent by commercial banks to

1288-404: The government. The auctions were rigged and lacked competition, being largely controlled by favored insiders with political connections or used for the benefit of the commercial banks themselves. As neither the loans nor the leased enterprises were returned in time, this effectively became a form of selling, or privatizing, state assets at very low prices. "[T]he reforms of the 1990s were mainly

1334-478: The majority of BP's oil assets in Russia to form TNK-BP . Loans for shares CPSU membership Elections First term Second term Post-Presidency [REDACTED] Media gallery Beginning in 1995, Boris Yeltsin 's government began privatizing state-owned shares in companies through a loans for shares scheme . The scheme helped with " fundraising " for Yeltsin's 1996 reelection campaign and restructuring freshly-sold companies at

1380-438: The oil sector as the investigation has also implicated Brazilian construction firms as bid rigging was discovered to be rampant in the preparations for the 2016 Summer Olympics . This would not be the first instance of bid rigging by construction firms in recent Brazilian history as Andrade Gutierrez Engenharia SA, the nation's second largest construction firm, admitted to bid rigging during contract procurement for stadiums to host

1426-750: The overall annual cost posed to the EU by bid cost increases was $ 5 billion. Bid rigging is illegal in Slovakia under the Act on the Protection of Competition and by EU membership, also Article 101 of TFEU. The first charges to be brought to court in Slovakia in 2006 by the Antimonopoly Office involved six construction companies who submitted bids with suspiciously consistent unit quotes. The fines from this bid rigging scheme amounted to €45 million following an initial court decision, an over-ruling, and

Sidanko - Misplaced Pages Continue

1472-447: The practice was never fully stamped out and continued to flourish. In 2006, Tadahiro Ando , the then governor of Miyazaki Prefecture , resigned over a series of bid rigging allegations and was subsequently sentenced to over three years in jail. As of 2008, thirteen lawsuits were still pending over 1990s' bid rigging for local government contracts to supply incinerator plants. In a three-and-a-half-year period from 1995 to 1998 there

1518-572: The rest of the loan for shares scheme, the Sidanko auction was considered rigged by most analysts. In November 1997 British Petroleum bought a 10% share in the company for $ 484 million. Sidanko entered bankruptcy proceedings in February 1999, after ZAO Beta Ekho filed to recover a $ 22,000 debt. Beta Ekho was later revealed to be a vehicle of Mikhail Fridman 's Alfa Group , which was using bankruptcy laws to avenge Fridman's exclusion by Potanin from

1564-526: The same time (in order to outweigh communist sympathizers as one source speculated). Russian bankers constituted the majority of those who have provided the funds (see Letter of thirteen  [ ru ] ). The rest included such entities as Stolichny bank ( Russian : Столичный банк ) and World Bank (who made a loan for a small percentage of the Sibneft oil company) and even some targeted investments from USAID in assistance to Chubais. The scheme

1610-414: The state—turned into a fraudulent shambles, which drew criticism from many" - John Nellis, Center for Global Development A "less cynical" interpretation was proposed by Professor of political science and international studies, Russell Bova, who offered as an alternative, that Chubais may have been motivated by concerns that privatization would fail, that in the face of mid-1990s economic difficulty,

1656-428: The successful bidder's contract will be subcontracted to them. In this way, they "share the spoils" among themselves. Bid rigging almost always results in economic harm to the agency which is seeking the bids, and to the public, who ultimately bear the costs as taxpayers or consumers. Those forms of bid rigging can occur together, and two or more of the practices could occur at the same time. For example, if one member of

1702-526: The values of the fines. The tribunal decided that the OFT had used turnover figures for the wrong year when calculating fines, and treated the bid-rigging as more serious than it should have done, although in some other respects the OFT's ruling was upheld. Although both a violation of Japanese criminal law and the Japan Anti-Monopoly Law, bid rigging is still a habitual practice of the Japanese construction industry. It has been shown by

1748-416: The work of the advisers brought in under then president Boris Yeltsin. Fearing that the population might soon have a change of heart and turn its back on reform, Yegor Gaidar and Anatoly Chubais, the chief Russian architects of the process, decided to accelerate it, selling off state resources and enterprises at little or no charge. Not long into the process, ownership of some of Russia's most valuable resources

1794-540: Was auctioned off by oligarch-owned banks under a scheme called "Loans for Shares." Although they were supposedly acting on behalf of the state, the bank auctioneers rigged the process-and in almost every case ended up as the successful bidders. This was how Khodorkovsky got a 78 percent share of ownership in Yukos, worth about $ 5 billion, for a mere $ 310 million, and how Boris Berezovsky got Sibneft, another oil giant, worth $ 3 billion, for about $ 100 million. [...] [T]he government

1840-534: Was awarded to the bank Mezhdunarodnaya Finansovaya Kompaniya in return for a $ 130 million loan, guaranteed by Vladimir Potanin 's Uneximbank. The company came under the ownership of Uneximbank, which exercised control over it through the Interros holding company. An additional 34% stake was sold by the government in September 1996, in an auction designed to have Uneximbank as the only admissible bidder. As with

1886-579: Was found to generally comply with the OECD 's recommendations regarding competitive procurement. In the United States, bid rigging is a federal felony criminal offense under Section 1 of the Sherman Act . Even so, bid rigging is still rampant in the construction industry, auto sale auctions, and foreclosed home auctions. In Canada, bid rigging is an indictable criminal offence under Section 47 of

Sidanko - Misplaced Pages Continue

1932-464: Was generally unable to exercise much control. Since the state was very weak, these "new Russians" paid little or no taxes on their purchases." - Marshall Goldman , Professor of economics and associate director of Russian Studies at Harvard . "Much of the second wave of privatization that did take place—in particular, the "loans-for-shares" scheme, in which major Russian banks obtained shares in firms with strong potential as collateral for loans to

1978-513: Was primarily overseen by Anatoly Chubais who was linked to USAID program managed by head of the Harvard Institute for International Development (H.I.I.D). at the time. The scheme implementation ultimately resulted in the emergence of an influential class of enterprise owners, known as Russian oligarchs . To make companies whose shares were sold by the government profitable, the new investors sought to restructure them and install

2024-420: Was structured so that the loans would be allocated before the election, but the auction of the shares could only take place after the election, making it of financial concern for them that Yeltsin would win the election. On August 31, 1995, Yeltsin held an initial meeting attended by ten Russian business moguls about banking issues. In his remarks, Yeltsin made comments about his belief that the banks should have

2070-402: Was the one to get Yeltsin's signature on it. At bargain-basement prices, Potanin picked up Norilsk Nickel , the world's number one smelter of palladium and nickel, and he, Mikhail Khodorkovskii of Menatep, and Boris Berezovskii acquired the oil giants Sidanco, Yukos , and Sibneft . In 1995, facing severe fiscal deficit and in desperate need of funds for the 1996 presidential elections ,

2116-540: Was widespread in the UK construction industry. "Indeed, the OFT uncovered evidence of cover pricing in over 4000 tenders involving over 1000 companies but had to focus its investigation on a limited number of companies and instances where the available evidence was strongest, in order to make best use of its resources and conclude its investigation within a reasonable timeframe. The OFT could not, therefore, pursue every firm suspected of involvement in cover pricing." Cover pricing involves high price bidding, intended "to give

#253746