The Shakedown in Ukraine
Bureaucrats of the Ukraine Tax Authority (UAT) Special Audits Department visit the Kiev-based offices of Customer Strategy Solutions and state that the company has failed to file five specific forms with the government. The fine for this equivalent to $16,000 and is payable to the Special Audits Department of the UAT. Kostya Hnatyuk, who runs the Customer Strategy Solutions software development center in Kiev gets the news and immediately calls Pavlo Zhuk, founder and entrepreneur of the company. The case study then progresses to Mr. Zhuk flying from Palo Alto to Kiev to meet with Kostya Hnatyuk to get the issue resolved. Previous situations including the payment of $5,000 to Dnipro Telecom to expedite the installation of telephone service illustrate how pervasive graft is in Ukraine. The case study presents Mr. Zhuk as seeing himself as a force for positive change in Kiev, and looks to bring additional employment there. His practice of paying his programmers double the going rate, or $12,000 a year there, is no doubt attracting much attention in a country whose economy is weak due to so much graft and corruption.The most pressing issue is how corrupt the Ukraine is, and how
Ethical and Social Responsibility DilemmasMr. Previous incremental approaches have been unsuccessful. Third, the issue of whether to pay the $16,000 or not, barter it down, or leave the country is the most pressing one of all. Zhuk needs to get his company out of there as quickly as possible or risk being shaken down for more bribes and having this disruption hurt his business. As there strong momentum to keep pursuing bribes as a means of supporting themselves, bureaucrats need to be called on it more often and very publicly (Cabelkova, Hanousek, 2004). Negotiating for a smaller amount is also comparable to putting the bribe on the installment plan (Pick, Dayaram, 2006). The costs of exposing this graft and the personal risks associated with it, to say nothing of the distractions and lost time running his growing business, is incalculable. Zhuk needs to realize that any broader social aspirations of rejuvenating the Ukrainian economy are not worth sacrificing his credibility and ethics for. One of the solutions recommended in the case study is to expose the graft and seek out assistance from the highest levels of the government. Paying the bribe of $16,000 will eventually lead to the UAT and its corrupt officials requesting even more and possibly requiring him to pay the UAT salaries as well, a common practice of graft in Ukraine (Cabelkova, Hanousek, 2004). Deciding to have their accountant back in Palo Alto figure out how to hide it is a slippery slope. With one of the most promising technology companies leaving Ukraine, this will get plenty of attention.
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