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 pervasive it is, where Mr. Zhuk and his team encounter requests for bribes from the telephone company to the local tax authority.Studies indicate that there are approximately 1,300 bureaucrats who actively solicit and take bribes throughout this part of the world (Miller, 2006).Entering such a corrupt region of the world and not expecting to be impacted by it is naive on the part of the company's founders.Second, the payment of the telecom bribe sets a dangerous precedent for future transactions and may have already led to the company breaking international laws.Deciding to have their accountant back in Palo Alto figure out how to hide it is a slippery slope.Third, the issue of whether to pay the