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Valery Tsepkalo: “Criminal Code should for a long time exclude liability for illegal business activity”

An interview with Valery Tsepkalo, head of Belarusian High-Tech Park in Minsk published by “Belarus Today”

Tsepkalo

It is difficult to believe, but the Belarusian High-Tech Park is only 10 years old. During this time, our pioneers in the IT field actually took a step forward into the future and loudly announced, “Look how Belarusians can make a competitive product on the world market!” It is an undeniable bonus for the image of the country, as well as for the economy. But this very industry, where the main resource is intellect, needs a special environment without sharp movements and excessive control.

In a short period in the country it is the branch of creation that today largely shapes the image of Belarus. This is because we have developed a number of the most prestigious products in the consumer segment of the market, used by hundreds of millions of people worldwide. These include the well-known messenger Viber, the game World of Tanks, and the app “Masquerade”. This has led to talk about Belarus in Business Week, Bloomberg, Euronews, Reuters and other leading media. Of course, no one diminishes the value of our engineering flagships, but it is mostly in the professional segment of the market abroad that they are well-known. BelAZ is known among experts of the mining industry and Minsk Tractor Factory among farmers in Eastern Europe, India and Pakistan. This is understandable, and IT also has its professional segments. There are products for the banking and insurance fields. They, naturally, are known only to those who work in these areas.
“Belarus Today”: Recently the Park of High Technology summarized the first half-year’s work. The figures sounded impressive, with a growth in volume of revenue at 15%. Exports account for over 90 per cent…

The industry of information technology and the world economy as a whole are not, in fact, growing so rapidly. Compared to a global rate of around 1.5 – 2% per year, the pace of development of our IT industry is still almost 10 times higher. Despite the fact that the industry has matured, it has become an important element of the national economy of Belarus.

 

“Belarus Today”: It is not surprising that the IT industry today is one of the most attractive for young people.  For success there is much to learn and a lot of work, but in the end you get a decent standard of living.

I agree. The world has entered the post-industrial stage of development. The fashion today is to establish technology products, rather than heavy machinery or products of petrochemistry. The truth is that young men do not dream about the exploits of Stakhanov, and young women are not hungry to become seamstresses. Young people are not eager to work in conditions of noise, vibration, fumes, and strong smells. She dreams of an office job. But the correct alternative is a topic for another discussion. The country needs accountants and lawyers, but they do not make it richer or develop the economy. They only serve the system, which the state has created. The material wealth of the country creates primarily engineers. They are the foundation of the economy. They provide export, bring into the country currency, give jobs to hotel and restaurant businesses, and provide employment for lawyers, economists and accountants. Thanks to them, by the way, are civil servants and law enforcement agencies.

 

“Belarus Today”: Without a person machines do not come on and combines do not move on the field…an interesting topic…but let’s return to the image of the Park. How do resonant stories about taxes like those recently with IBA Group reflect on companies which are residents of the hi-tech park?

We have no information about the nature of the claims and do not even know who submitted them, whether a company that is part of the Park, or that operates outside the legal framework of the Park. According to the Ministry of Taxes and Levies for the year in the economic sphere, violations are detected in 99.8 per cent of the audited entities. Why this is happening is a separate conversation. I do not think that all the people involved in the country’s economic activities are unscrupulous, and inspectors, tax authorities and other inspectors are only fair. I will say this: a mass “feeling of guilt” for all involved in the business, very much discourages people and deprives moral satisfaction from the results of their work, of pride in their work.

 

“Belarus Today”: Yes, but Margaret Thatcher defined the economic course of the country as “What is good for Rolls-Royce is good for England.” We have the same domestic producers sometimes exhausting checks.

Existing businesses in the country can be divided into two categories. The first group includes companies that produce export products. They create jobs, earn currency for the country, contribute to the growth of GDP. These companies form the basis of economic growth, a source of pride, especially when the products are technologically advanced, and the whole world knows it.

The second group includes companies that deliver foreign-made products – from cars to computers, construction materials, clothing and so on. They export currency earned by enterprises of the first group. They do not have the material resources in the country, in Belarus, they do not have the equipment, they practically do not create a workplace. For the economy of the country the enterprises of the first group are of primary importance. They need to be supported, and governments of foreign countries where the main production facilities are located work in second-hand importers.

 

“Belarus Today”: Then what? Differentiate companies on a “bring currency or get out?”

And why not? All act this way, if they want economic development and to increase the welfare of itheir people. Here is another interesting example.

A few years ago in Korea in court considered the case concerning the creation by the president of Hyundai and KIA Chung Mong Koo of a “Lube Foundation” or slush fund. The fund was formed to launder 106 million dollars obtained as a result of tax evasion for various improper purposes, including bribing officials. The public prosecutor demanded 5 years of imprisonment. They gave him 3 years. However, the court ruled that his detention would have “serious economic consequences”, and President Lee Myung-bak of the Republic of Korea made a statement about the “importance of the enterprises of Mr. Chang for the country.” He did not spend a single day in prison.

Everyone knew that the deprivation of his freedom only played into the hand of Japanese, US and European carmakers, for which Korean automobile concerns had become a serious competitor. And not only in the domestic market, but worldwide. Therefore, the government decided not to isolate the one who committed economic crimes, and give him the opportunity to continue the economic activity, to engage in charity, and continue to earn currency for the country.

 

“Belarus Today”: So after all businesses to differentiate on the basis of export-import?

It should be understood that it is practically impossible to find offense in those who engage in import. For example, the Polish factory for the production of ceramic tiles operates within the territory of Belarus through intermediaries or individual entrepreneurs that import smaller consignments on request. In an extreme case, an offender may have confiscated several cubic meters of tiles that will not cause any harm to the Polish manufacturer.

Therefore, imported products suppliers feel comfortable. Production is outside their country, beyond the jurisdiction of controls and law enforcement. The situation would be completely different for a Belarusian enterprise producing the same tile. After all, it is the material base – buildings, machines, equipment – and working people. It is a major economic activity, not just a “buy-sell”. Therefore, to find flaws in his work is much easier than that of the importer, as evidenced by the discovery by the Ministry of Taxes and Levies of violations of the law in 998 of the 1,000 enterprises of the Republic of Belarus.

We must understand that every punishment of a Belarusian producer increasingly undermines its position in foreign markets and facilitates the work of foreign competitors in the domestic market of Belarus. Therefore, the most painful blow is applied precisely to the national manufacturer, that has people, buildings, machinery, equipment and materials. Penalties can be imposed, and property inventoried and confiscated for the purpose of repossession of the said property. He can not “quick fold trade”, re-register, go bankrupt, disappear …So some inspectors, without knowing it, are actually working for the economies of other countries.

 

“Belarus Today”: But the law should probably be the same for everyone.

Of course. So make all exporters and importers equal before the law to enterprises in the United States, China or Turkey that for decades do not see any inspection. Moreover, they do not even know that they exist. In the People’s Republic of China is an organ, which is called the Main Control and Revision Office. This is the main control body of China … only 450 people work. And it is for a country with a population of 1 billion 350 million people and 77.5 million business entities. In theory, Chinese enterprises could be checked once in 150 years. It is not surprising that the Chinese in general have no idea of the existence of such a body.

 

“Belarus Today”: Perhaps your example did not convince all … It is hard to encourage a company to work in the absence of state control. You often talk about the “knowledge economy”. In what way does it differ from a traditional economy?

I must say that our SCC has taken a very constructive position in recent years. No niggling, no noise, and conducts systematic work. I like this. As for your question…In the “knowledge economy,” the man, not the machine, even the most expensive, is the primary productive force. And if all roughly in the industrial economy revolves around the machine, in the post-industrial economy – around the person. If a person will leave, the project ceases. Therefore, in the industrial age, people are fighting for a place, and in the “knowledge economy” companies are fighting for the employee …

In 1976, Steve Jobs and Steve Wozniak assembled their first computer in a garage and sold any non-essential parts in a neighborhood store. Then the friends registered Apple, which today is worth twice as much as the entire Ukrainian economy. Company registered, the two Steves focused on production and promotion. They did not have the prerequisite staffing, work rules, fire safety instructions listing those responsible, books of checks, bills, security forms and account books themselves, personal files of employees, rented office, or even the mandatory legal business address (they were in a garage).

They did not yet have a subscription to the “Tax Bulletin” or a lot of the things essential for a business to have “right” organization. The guys just invented, made and sold computers.

We must understand that we have Steve Jobs and Steve Wozniak, who most likely would have been prosecuted for “illegal business activities involving the generation of income in a large scale, committed by a group of persons” under Article 233 of the Criminal Code. But in the States, they have earned, and advanced the world of hi-tech.

But I continue hypothetical thinking, if they suddenly “had passed” the first stage, after the registration of a legal entity, the amount of fines for failure to comply with the requirements of the legislation would have exceeded many times the profits from the sale of computers. And if their firm was unable to pay off fines, the partners named Steve would suffer vicariously liable to the probable confiscation of personal property in order to pay off debts. Who would benefit from this?

In my opinion, of our criminal law for a long time should exclude liability for illegal business activities (except for medical activities related with the life of people and financial activities, associated with the production of counterfeit money, the construction of various financial pyramids, etc.). After all, in our legislation already exists the administrative responsibility for the activities without registration. I think that the article in the Criminal Code remains as a relic of the Soviet economy, where there could be only state-owned enterprises. illegal owner-operators of private underground factories were called “tsehoviki”. If someone decided to, let’s say, sew denim suits, such private activities qualified as illegal and he was arrested to serve a long term in prison. But this is another time. Without private business it is impossible to imagine a modern economy. And without the right people to do business, to dare, to try, there can be no development.

 

“Belarus Today”: But back to the difference between the industrial economy and the innovation economy.

Good. In the industrial era (i.e. in the era of factory chimneys), the person is more valuable if he is more disciplined, prone to the strict observance of rules and regulations. Based on the performance of repetitive operations, the conveyor system of the organization of production places demands on the employee. Precise and unconditional fulfillment of tasks is needed from the person. In order to squeeze the maximum out of the worker, system controls are created. For the industrial era, the ideal is to maintain control over the maximum number of people with the minimum number “watching”. The peak of this system was the famous Panopticon where all workers could be could be seen, watched, and controlled by only one.

Business is not without losses. And the director of the state enterprise has no right to make mistakes. If he has three new successful projects, but the fourth was not delivered, the manager may be severely punished “for failures in economic activity.” Therefore, the majority of directors avoid risk. They do not go for innovations, do not try to introduce something new. To do so by definition would involve risk, so innovation does not exist. This failure is not punishable. Therefore, to our deep regret, our businesses continue to lose in the competition.

Tax questions should be resolved peacefully, through negotiations between the authorities and business entities, as is the case in the US, in Europe and in the developed countries of Asia. Civilized approaches to solving the economic problems of the relationship between state and citizens are necessary. Regarding business approaches applicable to the murderers, terrorists, robbers, drug traffickers and other anti-social elements are unnecessary. For enterprising people not only do not represent danger to society, but on the contrary – create jobs and promote economic growth.

In developed countries, the procedure for consideration of cases related to payment of taxes, is determined by civil law relations. The criminal aspect of the accounts for the most extreme case, is when the opportunities to resolve the issue within the framework of civil law relations have been exhausted.

We must understand that companies such as IBA, brought currency into the country. We can punish a company that is importing 40 million dollars a year, and blame for what might bring another million. But this logic is turned inside out. After all, it would not bring the company to nothing, if it is decided to develop its business not in Belarus, but in Poland or Lithuania, who sleeps and watches to drag the Belarusian IT companies to Vilnius, where a techno park is built for these purposes …

 

“Belarus Today”: It is an interesting fact, more precisely, a trend…

At the building of the Park, we were faced with an absurd situation: while building was built, the ratios of distance between evacuation routes changed from 13 to 18 meters. As a result, the inspector came and said that the building was constructed improperly, wrote the formula, turned around and left. And what to do? Remove the already constructed building?

Then he was not satisfied with the Austrian smoke valves; I had to wait 3 weeks for the Russian. After questions arose as to the glazing of the building, we had to completely change the stained-glass windows. All this time, the object is not put into operation …

In the People’s Republic of China, if monitoring damaged the economic activity of the enterprise, which is expressed in the reduction of production volumes or, God forbid, job cuts, the damage would be extinguished from his salary. So if you come to the plant fire inspector and see what is wrong decorated firefighter shield, all purchase made by the requirements and the company simply will invoice for the work.

 

“Belarus Today”: the word “techne” In ancient Greece was also called an art. Indeed, new technologies are like art

Yes, they involve creativity, which is impossible without freedom – to dare, to invent, to try. We see the birth of a new people that are the engine of rapid economic change. These people are young, enterprising, creative activity, fully mastering the intellectual experience of human civilization. They form a new economic model of modern development, when not loading terminals, coal mines and sewing machines will determine the level of development of countries and peoples, and the intelligence of its citizens. And under these new realities must adapt to the economic and legal system in the state, if we want to take a worthy place in the international division of labor.

 

Thank you for your conversation.

For your information:

Park of High Technology this year is close to a billion dollars in annual revenue. For 10 years, the export of Belarusian software has grown more than 30 times. It almost four times lagged behind India and five times the US, but today the country is ahead of the US on this indicator by 1.5 times,  India in 2006, the export of computer services per capita in Belarus – 2 times, South Korea – 2.5. Belarus is one of the top 10 countries in the Europe, Russia, Middle East and Africa, which are the largest service providers in the field of custom software development, and ranked second, after Israel, the share of development of information technologies in GDP per capita.

 

About Yuri Drazdow (66 Articles)
Yuri Drazdow is the founder and owner of The Minsk Herald. He is also a journalist specialising in area of business and politics. He has degrees in Journalism and Software Engineering and has been working on media and IT projects in Minsk and London.
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