Russian Organized Corruption Networks and their International Trajectories

Russian Organized Corruption Networks and their International Trajectories

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Serguei Cheloukhine    M.R. Haberfeld ●

Russian Organized Corruption Networks and their International Trajectories

Serguei Cheloukhine City University of New York John Jay College of Criminal Justice New York, NY 10019 USA [email protected]

M.R. Haberfeld City University of New York John Jay College of Criminal Justice New York, NY 10019 USA [email protected]

ISBN 978-1-4419-0989-3 e-ISBN 978-1-4419-0990-9 DOI 10.1007/978-1-4419-0990-9 Springer New York Dordrecht Heidelberg London Library of Congress Control Number: 2011924340 © Springer Science+Business Media, LLC 2011 All rights reserved. This work may not be translated or copied in whole or in part without the written permission of the publisher (Springer Science+Business Media, LLC, 233 Spring Street, New York, NY 10013, USA), except for brief excerpts in connection with reviews or scholarly analysis. Use in connection with any form of information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed is forbidden. The use in this publication of trade names, trademarks, service marks, and similar terms, even if they are not identified as such, is not to be taken as an expression of opinion as to whether or not they are subject to proprietary rights. Printed on acid-free paper Springer is part of Springer Science+Business Media (www.springer.com)

To Anna and Svetlana and my parents Eugenia and Ivan Sheluhkiny - Serguei Cheloukhine To my Parents: Dr. Lucja Sadykiewicz and Colonel (ret.) Michael Sadykiewicz - M.R. Haberfeld

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Acknowledgments

This book could not have been written without participation, patient assistance, and help of many people to whom I would like to express my warmest gratitude and to whom I am enormously indebted. I would like to thank The Professional Staff Congress-City University of New York (PSC-CUNY) Research Award Program and the John Jay Research Assistant Program for the grants which made possible my research in Russia. I  owe a special debt of gratitude to Professors Howard Abadinsky (St. John University), James Finckenauer (Rutgers University), Vasily Larichev (MVD Scientific Institute, Russia), Garry Nichols (FINTRAC, Canada), Frank Schmalleger (University of North Carolina at Pembroke), Anatoly Kontarev and Roman Gurov (Rostov Law School, Russia), Joseph King (John Jay College of Criminal Justice, CUNY), law-enforcement officers in Russia, and all my students and colleagues who took time and effort to read my works and provided me with invaluable comments and suggestions. No acknowledgments could express my debt to my family, daughter Anna, wife Svetlana, and my parents and relatives, who supported me emotionally and spiritually and helped this project become a reality. Serguei Ivanovich Cheloukhine I would like to thank the additional people behind this endeavor, my father, Colonel (ret.) Michael Sadykiewicz, for his enormous and insightful help with ­collecting data on the state of affairs within the Russian law-enforcement system and Matt Michaels for his scrupulous and detailed summaries of organized crime theories and other related literature review. Without the help of my father and Matt, this book would have not been as rigorously researched as it is in its present shape. As always, Welmoed Spahr provided the much needed support, based on her vision of things that are not always visible to a naked eye but always reach out beyond and above any horizon. Her wonderful assistant Katherine Chabalko provided the greatest administrative support and the additional members of the Springer House continuously exemplify the best of the publishing world.

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Acknowledgments

My additional gratitude is extended to my mother, Dr. Lucja Sadykiewicz, and my loyal friends who afford the framework of solid support so much needed to focus my work. Finally, a heartfelt thank you is extended to my daughters, Nellie and Mia, who are always there, in my heart, my mind, and my vision of a better world. M.R. Haberfeld

Contents

1  Introduction................................................................................................

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Hypotheses................................................................................................... Problems with Data Collection.................................................................... Organization of the Book.............................................................................

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2  Modalities of Organized Crime Phenomena...........................................

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Theories of Organized Crime....................................................................... Social Learning Theory................................................................................ Social Disorganization Theory.................................................................... Social Control Theory.................................................................................. Social Strain................................................................................................. Rational Choice Theory............................................................................... New Institutional Economics....................................................................... Critical Theory............................................................................................. Medley of Generic Approaches................................................................... Russian Organized Crime Theories............................................................. Back to the General Strain Theory............................................................... References....................................................................................................

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3  Roots of Russian Organized Crime..........................................................

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Development of Professional Criminals: Seventeenth to Nineteenth Centuries........................................................... Soviet Period: The vory v zakone in 1920s–1990s...................................... Substructure of Criminal Groups............................................................. Behavioral Patterns of the Criminals........................................................... The Stalin’s GULAG and Soviet System Impact......................................... Gorbachev’s Reforms and Criminalization of the Post-Soviet Economy......................................................................... References....................................................................................................

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Contents

4  Corruption in Russia: Past, Present, and Future....................................

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Past: Corruption as a Social and Historic Phenomenon............................... Corruption in Soviet Times.......................................................................... Present: Contemporary Debates of Soviet and Post-Soviet Schools of Thoughts in Defining Corruption..................... Factors Promoting Corruption..................................................................... Corruption and Public Service..................................................................... Corruption in the State Administrative System........................................... References....................................................................................................

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5  Organized Crime, Businesses, and Local Bureaucracy..........................

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61 67 69 72 82

Contours and Tendencies of Russian Organized Crime............................... 85 Filling in the Void Through Organized Crime............................................. 89 Four Prongs in Defining (Russian) Organized Crime.................................. 94 Late 1990s and Beyond: Ethnic, Regional, and Transnational Dimensions..................................................................... 95 Ethnic and Regional Component of Russian Organized Crime............... 97 Organized Crime Infiltration into Regional Economic Structures............... 105 References.................................................................................................... 115 6  Ways to Fight OCNs: Law-Enforcement Services.................................. 119 Structure and Legislation............................................................................. Corruption in Russia: Enemy Number One................................................. Russian Federal Law-Enforcement Agencies.............................................. The Ministry of the Interior (Ministerstvo Vnutrennikh Del).................. The Police Service (Militia: Militsiya).................................................... The Internal Military Troops (Vnutrennie Voiska)................................... Federal Migration or Immigration Service (Federalnaya Migratsionnaya Sluzhba)................................................... The Interior Ministry Institutions of Central Subordination.................... Federal Guard Service of the Russian Federation (Federalnaya Sluzhba Ockrany).............................................................. Federal Security Service (Federalnaya Sluzhba Bezopasnosti: Rossiiskoi Federatsii)............................................................................... Who Is the Boss?......................................................................................... FSB as the Ruling Political Elite in Contemporary Russia......................... References.................................................................................................... Russian Federation Official Websites.......................................................... Further Readings..........................................................................................

119 120 122 123 125 133 134 135 135 136 138 140 142 143 143

7  Organized Corruption Networks.............................................................. 145 Crime, State, and Economy in Russia Within Historical Context............... 145 The Study of Crime, State, and Economy in Russia.................................... 146

Contents

Defining Organized Corruption Network.................................................... Crime and Corruption in Russia: Attitudes of Law Enforcement and Businesspersons............................................................... Scale and Sectors of OCN’s National Economy Infiltration........................ Types and Forms of OCGs and OCNs Infiltrations and Control of the National Economy......................................................... References....................................................................................................

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146 151 152 155 166

8  The International Reach: Comparative Dimensions of Russian Organized Corrupted Networks............................................ 169 International Trajectories: Tentacles of the Organized Corrupted Networks......................................................... The Spanish Connection.............................................................................. Implications for the Future........................................................................... References....................................................................................................

169 171 173 176

Index.................................................................................................................. 177

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List of Tables

Table 4.1  Official corruption index in Russian Federal districts ..................... 76 Table 4.2  Bribes broken by environmental factor............................................. 77 Table 4.3  Index of corrupt institutions.............................................................. 78 Table 5.1  Corruption and related crimes in Russia........................................... 104 Table 5.2  Dynamic of Registered Crimes Committed by OCG........................ 105

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List of Charts

Chart 5.1  Structure of contemporary ROC....................................................... 100 Chart 5.2  Russian OCG operational ................................................................ 101 Chart 6.1  Bribes in law enforcements............................................................... 121 Chart 7.1  OCN hierarchy ................................................................................. 149 Chart 7.2  Enterprises infiltrated by OCNs........................................................ 156 Chart 7.3 Debt or outstanding taxes repayment . ............................................. 158 Chart 7.4 Factors facilitating the expansion of organized crime infiltration into the economy . ................................................ 159 Chart 7.5 Organized crime group methods of infiltration into the economy . ............................................................................ 161 Chart 7.6 OCN’s methods and forms of control over territory and the economy .............................................................................. 162 Chart 7.7  Methods and forms of control over the economy............................. 164

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List of Abbreviations

CIS CPSU CESSI FSB GULAG

Commonwealth of Independent States The Communist Party of the Soviet Union Central Institute for Comparative Social Research Federal security service/bureau The Chief Directorate [or Administration] of Corrective Labor Camps and Colonies GAI State Automobile Inspection GNP Gross national product GDP Gross domestic product GUBOP MVD R.F. Chief Directorate for Combating Organized Crime of the Ministry of Interior INDEM Information Science for Democracy INOP Institute for Public Projects KFKM Federal Criminal Police Committee MVD Ministry of the Interior NISR MVD R.F. Russian Federation National Institute of Scientific Research of the Ministry of the Interior NEP New Economic Policy NKVD People’s Commissariat for Internal Affairs OCN Organized corruption network OCG Organized crime group OBR Operational Investigation Bureau PTK Petersburg Fuel Company RICO Racketeer Influenced and Corrupt Organizations Act ROC Russian Organized Crime SNK Council of People’s Commissars UBOP The Regional Department for the Fight against Organized Crime

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Chapter 1

Introduction

Hypotheses Countries undergoing social and legal transformations typically experience a slight, but relatively insignificant, increase in crime. This crime takes two forms: acts of (1)  isolated individuals or small groups of individuals of a nonsystematic nature and (2) organized crime groups (OCG) and criminal networks. Criminologists, political ­scientists, and sociologists are unanimous in their view that corruption and organized crime present a major and perhaps the most important factors hindering the economic, political, and social development of the successor states of the ­former Soviet Union. This development has implications not merely for such states but the world as a whole. In the past decade, many transitional countries, and Russia in particular, have experienced the assimilation and collaboration of diverse players – such as criminals, state officials, businesspersons, and law enforcement – into organized networks aimed to obtain financial and economic gains. Many students of Russian organized crime (ROC) define the situation of the 1990s, which reflects the time of Yeltsin’s presidency, as a period of extensive growth and shaping of OCG within the new economic and legal framework of developing Russian institutions. In this process, two interdependent tendencies have become apparent: the “economization” of organized crime and the increased organization of economic crime itself. Both trends have led to a fundamentally new phenomenon, coined by the authors as the organized corruption network (OCN), a symbiosis of factors that is a direct result of corruption, organized crime, and economic crime within the Yeltsin and the Putin times. In contrast to many studies examining Russian Mafia, this book aims to investigate new phenomenon of the OCNs within the context of a number of influential and potent factors. The main focus is directed toward the fundamental changes that have taken place in Russia in the last 5–7 years, manifesting themselves in consistently increasing the rate of economic crime and a shift of power from organized crime to the OCNs.

S. Cheloukhine and M.R. Haberfeld, Russian Organized Corruption Networks and their International Trajectories, DOI 10.1007/978-1-4419-0990-9_1, © Springer Science+Business Media, LLC 2011

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More specifically, the authors identified a number of changes that took place in the post-Soviet era within the criminal world arena: • Shift in balance of power from criminal groups to groups within state apparatus. • Shift in power from police to the Federal Security Bureau (FSB), or merger of police and FSB individuals into the OCN when the FSB took control over police, that already established control over OCG; so a triple-vertical dependency evolved, with OCN in a leading role on the top. Main source of revenues that fuel corruption is no longer run primarily by the criminal groups but by legalized businesses. • Full state resources are used for the benefit of OCNs (extorting criminals, siphoning of profits from legal businesses, and maintaining and expanding business interests). This book portrays the situation in Russia at the turn of the twenty-first century. It reveals, among many other findings, that, first, the illegal allocation of the state property has been completed. After the Yukos1 nationalization and Putin’s KGBzation of many state’s and commercial structures, organized crime subject quickly descended. Some law enforcement officials reported a success in fighting organized crime and therefore Russian criminal mafia has been defeated. Second, that many important criminal figures were killed by the rival groups in the turf war in the mid-1990s, while others ended up in prisons. Third, the remaining criminal avtoritety2 (criminal authorities) – a substantial number – have either successfully legalized their business and lead a law-abiding life or have joined the OCN. Throughout social contacts with former colleagues of the Russian law enforcement, we came across some new developments in the criminal underworld and state legitimate structures. These structures are highly mysterious. They present official governmental organizations tasked to combat all crimes, including organized crime and corruption. The authors of this book present the following hypothesis based on their research. Since the end of the Yeltsin era and the beginning of the Putin era, OCG have transformed into a new structure, the OCN. Within this period of transformation, avtoritety, if not killed or imprisoned, became respectable businesspersons and some even politician. This transformation saw shift in the balance of power from criminals (avtoritety) to clans within the government, transcending different branches, including FSB and the Ministry of the Interior (MVD), customs service, courts, regional and municipal administrations, and private business (in fact, law prohibits ownership of private business by civil servants), based at their core on Yukos was Russia’s largest private company, worth more than $40 billion before tax; authorities seized its largest production asset in 2004 in a case analysts linked to the opposition political activities of its founder, Mikhail Khodorkovsky. The drawn-out dismantlement of Yukos and criminal prosecution of its executives came to symbolize the bare-knuckled rules of Russian capitalism. The New York Times. September 6, 2009. Accessed September 6, query2009. 2  Kriminalnyi avtoritet is a ranking crime boss or criminal authority. 1 

Hypotheses

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familial ties. Tycoons (or oligarchs as Russians refer to them) of the business world who use their wealth to buy protection by corrupting government and/or paying for a private army is a thing of the past, since they are either in exile, in prison, or forced to subject themselves to the authority of the network. The OCN has changed how crime is controlled and protected: • The OCN’s law enforcement members have become the new controlling entity, using investigative powers to control crime (identify criminals followed by exertion of pressure on criminals through arrest or compliance). • People in a position to facilitate or protect OCN activities are brought under the control of the OCN (using various types of blackmail as a coercive tool) or are removed from their position and replaced with OCN members or people willing to comply with the demands of the OCN. The OCNs, working for the state and themselves, do not need a license and do not need to hide their activities since they are, de facto, the State. In contrast to OCG versus State, there is no conflict between OCNs and the state because they are essentially the same entity. State has mutated into criminal state not because it has been taken over by criminals as has been alleged in the 1990s, but the state has incorporated into a new entity. Moreover, functionality of OCNs for the state maintains its political and economic power. Law enforcement and government officials, tasked to combat organized crime, frequently took advantage of the situation and forced many criminal businesses to submit to their oversight. Through the awareness of criminal group activities, like the business transactions, locations, and problems with the law, the OCN offers a “roof ” – protection to criminals for about 30–50% of their earnings or if met with defiance on the part of the group – a prison, as an alternative. This new form of corruption is changing the structure of the Russian society. The Yeltsin-era corruption ended in “loan-for-shares” privatization auction,3 which was a bogus one to begin with. In 1995, facing severe fiscal deficit and in desperate need of funds for the 1996 presidential elections, the government adopted a loans-for-share scheme proposed by banker Vladimir Potanin and endorsed by Anatoly 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) were leased through auctions for money lent by commercial banks to the government. The auctions, however, lacked competition, as they were largely controlled by hand-picked insiders. As neither the loans nor the leased enterprises were returned on time, this effectively became a form of selling the goods for a very low price. The scheme has been perceived by many as unfair, and it is the loans-for-shares scheme that enabled the rise of a new social class of Russian business oligarchs, who have gained control over an enormous number of assets, further increasing the wealth gap in Russia and contributing to the political instability. The Yukos case

Stanley, A. Russian Banking Scandal Poses Threat to Future of Privatization. The New York Times, January 28, 1996. Accessed September 6, 2009.

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changed the logic of corruption. During the Putin era, Yukos case was resolving the conflict between community and individual entrepreneur as it first emerged in shadow economy. Thus, prior to 2003, officials simply took a cut of businesses’ profits, while the new corruption era evolves into hijacking of business and state property, which is in turn transferred into private bank accounts. Nowadays, businessmen pay bribes just to be left alone to be able to proceed with their enterprises. This phenomenon is referred to as a “bribe of survival or legal extortion.” Such extortion techniques were used first by the MVD Organized and Economic Crime Division detectives, judges, motor vehicle inspectors, and then by the FSB.

Problems with Data Collection The ongoing perception of Putin ascending to power and organized crime and corruption sliding into decline in Russia was more of a misperception than a factual reality. It was based on the decline in OCG numbers, turf wars, murder for hire, and a visible improvement of small business conditions, all of which created an image that ­organized crime, avtoritety4 (criminal authorities), and corruption are defeated. Majority of the studies of crime and corruption is pre-Putin chose either not to cover this period or simply failed to notice the emergence of the new phenomenon. This book provides an insight into a unique research conducted mostly in Russia, based on an overview of largely unpublished archives and media reports, supplemented by field interviews. Law enforcement under Putin was given a carte blanche to restore trust in the government. In turn, they established themselves as the ruling class over the economic crime with the provision that Putin’s reputation remains unblemished and people continue to keep faith in the government. The law enforcement data in this study has been generated not for the purpose of public relations to portray law enforcement in a certain light but to reflect upon the state of affairs; and although reservations have to be made regarding validity and reliability, we argue that these data shed some light on the situation of crime, corruption, and the economy in Russia since 2000. Western scholars have largely relied on official law enforcement data and these official data do not provide insights into the existing conditions today. The current literature does not necessarily contradict the concept of OCN. However, since western scholars did not recognize the fundamental change in the configuration of crime, corruption, and power in Russia, the OCN was not identified as a unit of analysis yet. It is possible that there is another factor to explain this omission of the phenomenon of OCN. Since the times Putin ascended to power, under the pretext of

A criminal organization can have two or three group commanders operating in different regions.

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“counter-espionage,” western scholars were forced out of Russia or not allowed to visit Russia; therefore, it created a void and a time period characterized by a limited data collection. Limited research and publication on OCN in Russia reflect an existing three-tier interconnected powerful structure: politicians, law enforcement, and organized crime. It is risky to approach OCN group to investigate its structure and function as there is a “roof ” (krysha) of either a senior politician, FSB, Procurators, Courts or the Ministry of Interior officials. The OCN members passionately protect their “family,” and any inquiry regarding the network would alarm those at all level structures. Various law enforcement officers stay away from even as much as ­discussing the OCN for two reasons: (a) they benefit from the existing structure and (b) one should not simply accuse his superiors of involvement in any type of corruption, this would simply be a professional suicide. For the purpose of verification, supplementation, and correction of various journalistic depictions of crime and corruption in Russia under the Putin rule, a number of individuals with direct knowledge of the inner workings of politics, business, and the criminal justice system were interviewed. These interviews were conducted between 2000 and 2008 in different Russia’s regions and outside of Russia. Access to the interview subjects was obtained in different ways, mainly taking advantage of direct and indirect social ties. To safeguard the confidentiality of the interviews, more detailed information on the subjects cannot be disclosed. Some of the researched documents are within the public domain, some are unpublished and access required official permission from the MVD. Even where information was freely available, western scholars of crime and society in Russia have failed to recognized their existence and importance to the field research. The period covered in this study was chosen by the authors based on Putin’s FSB taking over most of power structures in Russia and law enforcement tasked to fight organized crime. One of these sources is the archival materials of Scientific Lab 25 study which was conducted by the Russian Federation National Institute of Scientific Research of the Ministry of the Interior (NISR MVD R.F.) initially between 1998 and 2000 and again in 2002. Findings of the Scientific Unit 2 were used by the State Duma Legislature for drafting the regulations and legislation on the “Activity of Law Enforcement and Controlling Bodies in the Sphere of the Economy and Guarantee of Business Legality in the Market Economy” and by the Russian State Duma Committee for recommendations against corruption. The questionnaire, designed by NISR MVD R.F., was sent to the regional MVD departments and analytical centers which collect data on organized crime, economic, crime, and corruption. Consequently, about 180 law enforcement officers were interviewed in the Russian regions of Volga, Kemerovo, Voronezh, Novgorod, Omsk, and Irkutsk regions. Similar questionnaires were used to interview about 90 experts at the regional Departments for Combating Organized

Director of the Lab 2 Dr. V. Larichev supervised the conducted study and interviews.

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Crime in the MVD R.F., 11 detectives at the Voronezh’s MVD Department for Combating Economic and Organized Crime, and 16 experts at the Chief Directorate for Combating Organized Crime of the Ministry of Interior. At the same time, roughly 100 businesspersons, including senior banking and enterprise managers of the same regions (who encountered various forms of organized crime), answered the questionnaire. In addition, this study analyzes the archival reports from the Volga Federal District Ministry of Interior, the Voronezh Regional Department of Investigation, and the Chief Directorate for Combating Organized Crime of the MVD R.F. In a joint study, Volga’s and the Voronezh’s Regional Departments of Investigation examined the trends of organized crime and corruption in Russia. Finally, the book examines the problems inherent in studying the following five areas: (1) types of enterprises infiltrated by criminal (network) groups; (2) circumstances facilitating the OCG’s infiltration of the economy; (3) OCN’s methods and forms of control over territory and the economy; (4) the potential contribution of the data to the understanding of the OCG and OCN and what its implications; and (5) the international trajectories of OCN. The combined research findings will enable the scholars and students of ROC to make a better assessment of the scale and danger of economic crime and corruption in Russia, and the corresponding response of law enforcement agencies, and at the same time will also provide the necessary guidelines to classify the nature, structure, scale, and method of operations of the OCNs.

Organization of the Book This book is organized into eight Chapters. Chapter 1 is introductory and outlines the problem and the hypothesis and presents the overview of the entire book. Chapter 2 deals with various modalities of organized crime phenomena, the multiple definition of organized crime in a broader context, and more specifically the ROC. Theories of crime causation are discussed within the context of the birth of and the creation of organized criminal activity, as rooted in a plethora of factors from the classic free choice and rational mind explanations through a variety of deprivations: social, economic, class to the more recent Routine Activity and Labeling theories. The ubiquity of organized crime phenomenon begets some theoretical explanations in order to contextualize the developments of the OCN. Chapter 3 focuses on the development of individual players and organizations in the successor states of the Soviet Union, with the emphasis on Russia and is ­organized into three sections. Section I examines the development of professional criminals in Russia from the seventeenth to the nineteenth centuries. In contrast to what others have said, it argues that exiling peasants to Siberia contributed to the development of a criminal underworld, and in fact by the end of the nineteenth century created an underclass of professional criminals. Section II describes the

Organization of the Book

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evolution of vory v zakone, or “thieves-in-law,”6 the creation of criminal groups as a means to survive in the GULAG,7 and describes how such criminal groups operated within Soviet prisons and penal colonies. This section further examines the criminalization of the Soviet economy due to the inadequacies of central planning, and the emergence of the thieves-in-law as critical players in the shadow economy of the Soviet Union.8 Growth of the shadow economy was the main catalyst in the formation of organized crime. Racketeering, robbery, and other crimes were dangerous but predominantly secondary in nature. The roots of the Russian mafia lie in the innermost depths of the Russian shadow economy. Section III analyzes some of the key aspects of the post-Soviet privatization process and the interaction among various levels of the Russian government and OCG. This section describes how the criminalization of the state occurred from the mid-1990s onwards and that OCG did not corrupt the state, rather, that OCG in essence, became the state. Chapter 4 investigates the processes of rising corruption in the post-Soviet context, considering the historical aspects and developing market economy, in the process of the formation of the rule of law. It examines the administrative and legal reforms that took place between 1992 and 2008 and focusing on the following: • Precondition of corruption infiltration into the public service in the late twentieth to early twenty-first centuries • Stages, tendencies, and directions of its expansion in state public service during the democratic reforms • Forms of corrupt behavior by state employees in 1990s and early 2000s • Corruption as a consequence of organized crime infiltration into the public ­services in 1992–2008 Chapter 5 ties the organized crime phenomenon to the local businesses, and some bureaucratic structures focusing on the specific attributes and characteristics of the Russian modality of organized criminality. The premise of the chapter is built upon the assertion that organized crime in Russia developed as a very much needed void that existed between the supply and demand of various goods and services. The chapter introduces four prongs that define the new structure while focusing on the period of time characterized by ethnic, regional, and transnational dimensions

Thief-in-law (Russian: вop в зaкoнe, “vor v zakone”; plural thieves-in-law “vory v zakone”) is a skilled individual, particularly a thief, within the Russian criminal world who satisfies certain requirements of the Russian criminal traditions and are similar to the “Cosa Nostra” in Italy. 7  The term GULAG is an acronym from the government body responsible for administering prison camps across the former Soviet Union. The word is an acronym for Glavnoye upravleniye ispravitelnotrudovykh lagerey i kolonii, i.e., “The Chief Directorate [or Administration] of Corrective Labor Camps and Colonies.” 8  The economic system known as the underground economy, shadow economy, black economy, or black market consists of all commerce on which applicable taxes are evaded. The market includes not only prohibited commerce (e.g., drugs, prostitution, and gambling activities that are illegal in some locales), but also trade in legal goods and services for which some income is not reported and consequently taxation is evaded, through money laundering or payment in cash. 6  

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that let into the infiltration of various regional economic structures and turf wars, commencing in the late 1990s and continuing until nowadays. The ways and manners to counter the organized crime phenomenon are the focus of Chapter 6. Starting with the structure of the criminal justice system and the legislation passed to respond to various types of criminal behaviors and moving to the numerous agencies responsible for the code and law enforcement. Chapter 7 examines the new phenomenon, OCN, through the analysis of survey responses from subjects representing law enforcement and businesspersons, which were conducted in 2000, 2002, and 2008. These surveys probed the existence of crimes in the posttransitional Russian economy and demonstrate that the phenomena of contemporary economic crime and corruption in Russia occur on a much larger scale with far reaching implications than the crimes occurring within the spheres of the shadow economy. The data is examined based on a four-dimensional model: (1) types of enterprises infiltrated by organized criminal (network) groups; (2) circumstances facilitating the penetration of OCG into the economy; (3) OCG’s and OCN’s methods and forms of infiltration into the economy; and (4) contribution of the data to the further understanding of OCG and OCN and what its implications. Chapter 8 overviews the comparative dimension of Russian OCNs through its international reach, serves as the culminating point for the book with some projections for the future implications. There is no doubt that the tentacles of the OCN are numerous and far reaching. The tentacles are indeed very far reaching, in their impact on the Russian economic and political developments and, by extension, the world economy and political stability or instability. Each chapter of the book ends up with a summary paragraph and a question the authors pose to the readers. The questions touch upon possible strategies to counter further expansions of the OCN into the global context.

Chapter 2

Modalities of Organized Crime Phenomena

Theories of Organized Crime It would be immensely difficult to frame the explanations of Organized Corruption Networks (OCNs), the way they are presented in this book without placing them within the context of theories, discussions, and questions posited by scholars of the organized crime phenomenon. As with many other definitions within the social sciences, there is a myriad of definitions that offer very few, if any, practical explanations that could benefit the law enforcement community in their quest to counter this type of criminality. The lack of agreed upon definition from the sociological standpoint is not as detrimental to the war on organized crime as the fact that the existing legal definitions also suffer from the lack of consistency. This chapter, consequently, focuses on the theories currently championed by numerous scholars, in an attempt to arrive at some common template that might assist law enforcement bodies around the world to cooperate in a more effective and efficient manner while countering the OCNs that represent a spin-off what is referred to in the general literature review as “traditional and nontraditional organized crime.” The summary of the theories and constructs offered in this chapter is aimed at defining the contours of certain criminal behaviors that focus on an answer to one rather generic question: “What is organized crime and how it is defined by leading scholars in the field?” In order to facilitate a proper understanding of the phenomenon, the literature review is organized around a number of subconcepts that emerge from this generic question and provide a more in-depth framework of understanding of the more specific aspects of criminal activities. The literature reviewed for this chapter concentrates on both the classic theories of crime and the most recent explanations of organized criminality, that are, by default, rooted in the classic crime causation theories; however, they provide the reader with a up-to-date approach that appears to be more relevant with regard to the phenomenon of OCNs. The individual theories are presented through focus on the following aspects: 1 . Definitions of organized crime 2. Reasons for the emergence of criminal organizations

S. Cheloukhine and M.R. Haberfeld, Russian Organized Corruption Networks and their International Trajectories, DOI 10.1007/978-1-4419-0990-9_2, © Springer Science+Business Media, LLC 2011

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3 . Functions that criminal organizations fulfill 4. Reasons for criminal organizations persist in their existence 5. Actors who become part of criminal organizations 6. Reasons for the members of criminal organizations to commit the crimes in the way they do and their modus operandi

Social Learning Theory The social learning theory (SLT) frequently addresses the problem of white-collar criminality which, in turn, is an integral part of organized crime activity. The overlap between the explanations of white-collar crime and organized crime is sometimes blurry; nevertheless the need to address both activities and their causational model is imperative to a proper understanding of the OCNs. The most recent widely cited articulation of social learning theories (Akers 2009) argue that criminal behavior is learned within contexts that allow individuals to see criminal behavior as normative behavior. He further elaborates Sutherland’s notion of differential organization as one that can explain individual criminal behavior, but also can “explain” how communities are differentially organized to promote deviant or nondeviant behavior. However, Akers does not specifically address organized crime. He suggests that more research is required “testing general social learning models on organized crime” (2009: 370). Although Sutherland is considered the most prolific scholar in the field of white-collar crime, and studies white-collar crime within the context of differential association theory, Akers following Sutherland’s writings still suggests that there needs to be more study of whitecollar crime to discover more overlap, if any, between organized crime and white-collar crime, and to enable scholars to understand the parallel paradigms between the two in a more coherent manner. For organized crime, the cause for individual participation in crime groups and the crimes they commit are a product of a learning environment. Individuals in places where the organized criminal ­presence is pervasive, learn to understand criminal organizations and the activities in which those organizations engage as normative. The experience of individuals, and consequently the learning environment, is different in ways that prescribe ­different types of deviance or nondeviance. Likewise, different groups, including criminal groups, are differentially organized to prescribe different levels and types of deviance and nondeviance. Hamm and van de Voorde (2005) apply the SLT to study “transnational organized crime” groups in order to help “draw our attention to the opportunities to commit crime and the criminal skills necessary to turn opportunity into criminality.” The comparison between the two types of terrorist groups (“domestic right-wing” and “international jihad” groups) shows the possibility for the application of differential organization to organized crime groups. In these case studies, the authors show how the different types of organizations acculturate members in ways that prescribe particular types of criminal activities and how these activities are

Social Control Theory

11

associated with the experience of environment members rather than something like economic imperatives. Sellers and Winfree (2005) address the issue of social forces that influence the recruitment of young people into gangs and other street criminality, and their continuing membership within such organizations, once the initial commitment has been made. According to the authors, there is a natural fit between a variety of gang behaviors and what Ronald Akers refer to as variants of SLT. The social learning theories could definitely provide some answers to the etiology of the OCN, however, they do not address in an in-depth manner, the insidious influence of politics on the way criminal activity evolved during the time periods discussed in this book.

Social Disorganization Theory Sampson and Wilson (1990) and Sampson et al. (1999) apply the social disorganization theory to the organized crime phenomenon where the disintegration of community control is viewed as the main factor that causes crime. Structural conditions generate these disintegrations. Social efficacy is the “process of activating or converting social ties to achieve desired outcomes” (Sampson et al. 1999: 635, emphasis in original). Social capital is the central asset that prevents crime. Where there is a deficit of social capital, crime emerges. The capacity for a community to exercise social efficacy, that is to tap available social capital, determines how well crime is controlled in the community. Organized crime is seen as a product of a persistent lack of social efficacy. The existence of organized crime groups is a result of those groups’ ability to continue to recruit people with poor social ties. The social disorganization theory contributes to our understanding of the way OCN evolve in Russia, with a slant toward the power of deficit of the social capital as it permits the illegal activities to flourish.

Social Control Theory The social control perspective, promulgated by Gottfredson and Hirschi (1990), argues that the reason people choose not to commit crime is due primarily to ­self-control. They argue that criminals lack the self-control that others in society possess. Gottfredson and Hirschi claimed “our portrait of the burglar applies equally well to the white-collar offender, the organized crime offender, the dope dealer, and the assaulter; they are, after all, the same people” (1990: 74). There is no distinction in the explanation for different types of crime, so the explanation for burglary is the same as the explanation for organized extortion. In fact they specifically deny that “crime is analogous to an occupation, a career, or an organized way

12

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of life” because, if it were so, criminals would not engage in it. The seeming empirical problem of criminal networks engaged over time in criminal activities is collaboratively not a problem at all. Gottfredson and Hirschi argue that organized crime is an illusion. It is not a phenomenon that exists. Sometimes there is an illusion that there are organizations because sometimes criminals collaborate, but these ­collaborations are ephemeral (1990: 210–215). Significantly, they see the total lack of ability of academics or legal entities to articulate a clear definition of the phenomenon as part of the evidence for their stance. The authors consider the popular view that organized crime exists as a product of the investment in policing the phenomenon. The need to justify the expenditures creates a media environment that perpetuates the myth. Geis (2000), however, critiques Gottfredson and Hirschi’s social control theory. One section of Geis’s study in particular draws on many different scholars who have criticized the application of Gottfredson and Hirschi’s theory that there is no distinction between white-collar criminals and other criminals. Largely the critique springs from observations that Gottfredson and Hirschi define white-collar crime too narrowly and exclude the types of criminal acts that require some form of ­network and coordinated activity. Although the lack of control as an explanation for propensity toward criminal behavior appears to be a tempting answer to the query, it is indeed too narrow to provide a valid explanation to the organized crime epidemic as defined by the OCN.

Social Strain Agnew (2006) outlines a social and psychological explanation for crime in general terms. He argues that the disjuncture between positively valued goals and the opportunity and ability to obtain those goals causes crime. He identifies several types of strain, which only sometimes lead to “criminal coping” (2006: 205). Strain is more likely to cause crime if the strain is (1) seen as high in magnitude (2) seen as unjust (3) associated with low social control, and (4) creates some pressure or incentive to engage in criminal coping (2006: 204). The strain created can lead to negative emotions, low social control, and social learning of criminal behavior. Agnew characterizes criminal groups as appealing to those experiencing strain because it is seen as a way to gain status and success. The gang (the type of criminal group most explored by this theory) makes the person feel “important, respected, and/or feared.” Moreover, “strains directly increase the likelihood that individuals will come to view crime as a desirable, justifiable, or at least excusable form of behavior” (2006: 207). Langton and Piquero (2007) seek to empirically test the claim that general strain theory (GST) can explain white-collar crime. In their article, they did not try to test whether strain theory explains “corporate crime” but instead focused on “lower level white-collar offenses (e.g., mail and wire fraud, bank embezzlement) that were more individual by nature and presumably motivated by self-interest. On the

Rational Choice Theory

13

other hand, it was anticipated that participation in corporate-type offenses (e.g., antitrust and securities violations) might be beyond the reach of GST.” Cloward and Ohlin (2006) outline the different subcultures that offer the youth in America alternatives to conventional paths to success and validation. Their approach offers a social strain application to one modality of organized crime: criminal gangs. Social Strain theory is probably best suited for the explanation of certain types of criminal activities, like the one targeted by Cloward and Ohlin, but appears to be less valid for a more complex explanation of organized crime that permeates more complex social strata like the one found in Russia.

Rational Choice Theory There is no shortage of rational choice theorists examining organized crime; however, the ones picked up for this chapter offer definitions that seem mostly appropriate for understanding of the OCNs as they keep developing in Russia. Following the lead of economics, the central assumption of rational choice theory is that actors make decisions to maximize gains. That is, based on “the risk, effort, and rewards,” a person will choose the course of action that gives the best return on time and effort (Cornish and Clarke 2002: 43). The rational choices are constrained by background factors, such as psychology, upbringing, and demographic profile. These background factors limit the decisions of the actor. That is, actors have a bounded rationality, limited by predisposition and limited information. Because decisions are presumed to be explained by rationality, the inevitable answer to “Why crime?” is that it is the rational course of action. Rational choice theorists focus on describing and analyzing the criminal decision process for ­specific crimes and delineating the pertinent variables that affect crime decisions. Likewise, the focus with respect to organized crime is not on the organization but on the act, the crime. Therefore, rather than offering a definition of crime groups, Cornish and Clarke offer a definition of organized crimes as illegal acts that are complex and committed serially by a group that has logistic and organizational support. The definition does not need the organization to be persistent or of a particular magnitude. Cornish and Clarke advocate for a script analysis process of organized crimes (1986, 2002). According to Arsovska and Kostakos (2008), a rational choice model to explain arms trafficking in the Balkans can be explained based on a model suggesting that an actor make decisions that maximize their returns given the opportunities the actor has available. The result is four predictions which the authors explore: 1 . Need of and high demand for weapons due to armed conflicts in the Balkans 2. Increased supply and import of weapons in the Balkans 3. End of conflicts and low demand for and need for weapons 4. Export of weapons and reduced supply

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The authors conclude that the rational choice model does not explain arms trafficking in the Balkans. They note that participants in the same arms market develop different interpretations of risks, efforts, and rewards produced by arms smuggling. The divergent interpretations “depend closely on micro- and macrolevel background factors and on a person’s prior history, not only on the specific situation in which an actor finds him/herself at a particular moment.”1 The authors also observe that the nature of the product matters, and the coercive power that weapons have do not lend themselves to rationality, either by the end user or by the criminal organization. Gambetta (1993) sees Rational Choice Theory as rooted in economics and, consequently, the analytical and theoretical explanations often follow that form rather than the scripting approach that Cornish and Clark advocate. Gambetta, using game theory, analyzes the history of the Sicilian Mafia. He argues that the Sicilian Mafia competes with the state for providing protection services, rather than exist purely as a distorting, violent, and extorting force. He argues that the trust plays a crucial role in the formation of criminal organizations. If there is sufficient trust in the state then criminal organizations will not form. The treatment of the criminal organization as a firm appears to be more common than the script treatment in the rational choice literature.

New Institutional Economics Following some of Gambetta’s rationales, Milhaupt (2000) while addressing the concept of New Institutional Economics considers the rationality of actors more bounded and less rational than most economic perspectives. The emphasis is in highlighting the role that social and legal norms play in determining economic behavior. “This article draws on new institutional economics literature and extensive empirical analysis to show that the structure and activities of organized criminal groups are significantly shaped by the state. Organized crime, we argue, is the dark side of private ordering – an entrepreneurial response to inefficiencies in the property rights and enforcement framework supplied by the state.” Milhaupt uses the term “organized criminal firms.” While he mentions many definitions of organized crime, including the debated UN definition, Abadinsky’s, Pace and Styles’, Schelling’s, Posner’s, and Gambetta’s, he does not give a clear definition of what he means by an organized criminal firm. What is clear is that he is concerned with those entrepreneurial groups that provide illicit goods and services. Building on Gambetta, he sees the provision of protection services as a crucial part of organized crime emergence cross-culturally. He argues that as notions of private property became codified, the protection of property became a valuable service. Where the state did not or could not provide that service, or legal means for others to provide protection, illegal enterprises emerged to provide the service. As legal systems change, criminal firms either adapt to provide other products and services disallowed by the state or 1

Arsovska and Kostakos (2008: 361).

Critical Theory

15

are replaced by illegal firms that will. “This mismatch between property rights and enforcement mechanisms leads to organized crime – the dark side of private ordering. In order to develop and provide empirical support for this emergent view of organized crime, we thus focus on the institutional environment that provides fertile ground for illicit entrepreneurialism.” The theory does not seem to account for why individuals become part of organized crime groups, however, it provides a very close explanations for the reasons the OCN flourish in the economic system created in Russia.

Critical Theory There are two strains of thoughts that fall within the umbrella of critical criminology. The first is conflict theory, a theory that emphasizes relative depravation and social stratification as crucial factors in understanding human behavior. From this perspective, capitalism is a conspicuous social order for the emergence of crime. The demoralizing conditions of the poor are forced to live in foster crime by “stunting healthy development and/or by making crime a rational response” (Cullen and Agnew 2006: 295). While the causes at the individual level are similar to strain theory, where persons experience a disjuncture between the desire to obtain a desired end and the means to obtain it, the cause of that strain for conflict theorists is tied to the broader social organization. The experience of strain is caused by the unequal distribution of resources and the active efforts of the social and economic elite to maintain and expand social order and power. How criminal organizations would fit into this paradigm is unclear. Depending on the type of organization, it would either be seen as a protest or a resistance to the dominant social order, providing a means to oppose the power and hegemony of the state and the elite. However, if criminal groups consist of elites, the likely explanation would be that those elites are engaging in criminal activity to maintain social order. The second strain of thought that falls under the critical theory umbrella draws more from late twentieth century philosophers, such as Foucault, Derrida, MerleauPonty, and Baudrillard. Here, we find many perspectives, ranging from the phenomenological to the poststructural and the postmodern that share some common critiques of other theoretical explanation. However, in an attempt not to turn this chapter into a textbook like overview of all the criminological theories that touch upon various modalities of organized crime, we focus on a more directly relevant view, proposed by Lippens and Calster (2000), that takes a more critical perspective to organized crime and presents particular challenges to network theory. The authors analyze a recent food-scare in Belgium, a result of organized criminal activity, from a postmodern perspective. Specifically, the author draws on Deleuze’s concept of “rhizome,” as well as many others (poststructural and chaos theory alike), to argue for a contemporary fractured experience and the crime incident in question as an example. Beneath frustratingly dense prose, there is a clear critique of the network analysis. The view of the authors is that any analysis of the

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involved is inevitably ill-bound and poorly contextualized. The meaning, the “meshyness,” and the varying understandings of the event highlight how ill-­ contained a network and how the organized criminal world, crime, and ­criminologist are “networks of networks.” The argument here is that the perspectives, interpretations, and meanings of the event, or even existence of the event, change too rapidly to be contained in any single network or interpretation (including the authors’ own). The challenge, then, for a network understanding of crime is whether the criminal networks can be meaningfully defined, bounded, and analyzed.

Medley of Generic Approaches As with any attempt for a coherent and all encompassing theoretical explanation of criminal activities, there are those who cannot be easily fitted within any of the mainstream theoretical approaches. Nevertheless, their individual and theoretical contributions need to be acknowledged and brought into the discussion, as some of the arguments appear to be relevant to the present study of OCN. These views are presented in no particular order of importance relating to their contribution but rather to highlight to the complexity inherent in the definitional attempts to explain certain criminal activities. Van Dyune (1995) argues for a definition of organized crime that does not necessarily involve violence and recognizes the entrepreneurial aspects of organized criminal enterprise. Gottschalk (2008), in his study of How Criminal Organizations Work, summarizes several theories and constructs. Unfortunately, almost all of them appear to be descriptive accounts of how criminal organization members relate, that is, attempts at making generic observations about the constituent relationships of criminal ­organizations. Where true attempts at explanation do appear, the summary is not different from other classic explanations of organized crime activities. Lampe and Johansen (2003) identified four kinds of trust in organized crime. First, individualized trust relates specifically to the agreeable behavior of an individual; second, trust based on reputation relates to trust based on publicly formed and held opinion about the ones to be trusted. This type of trust hinges on the flow of information which, in a context associated with illegality, may be dispersed by the underworld “grapevine system,” for example. A third kind of trust, labeled generalized trust, comprises constellations in which trust is linked to social groups rather than to a particular individual. The trustor places trust in the trustee based on the presumption that the trustee conforms to some more general norms or patterns of behavior, for example, codes of conduct such as mutual support and noncooperation with law enforcement that the trustee can be expected to share as a member of a subculture or association. Finally, there is abstract trust, that is, trust placed in abstract systems setting and maintaining certain basic conditions, for example, the government, the monetary system, or the medical system in society at large (Gottschalk 2008). Although Garoupa (2007) does not offer a more general and explanatory theory of crime, he describes how criminal organizations are structured, presenting an

Russian Organized Crime Theories

17

assumption that the criminal organization is composed of a principal with agents distributed in a way that minimizes risk to the organization. Curry and Mongrain (2009) examine the legal definitions of “criminal organization” in the USA and Canada and consider the deficiencies and complexities of the definition in each country. To try to understand how a definition of organized crime ought to be constructed, the authors “turn to the economic theory of punishment to establish why society would want to punish criminal organizations differently than independent criminals.”2 The result is the suggestion that criminal organizations ought to be defined by their involvement in illegal markets and not by the structure of the organization, as the example countries define them. The authors note ­criticisms of Schilling’s definition of organized crime and further criticize the definition because, they argue, enhanced sentencing should “hinge on the attainment of market power.” The definition of criminal organization that the authors give is “composed of three or more persons, involved in the facilitation or commission of serious offenses, and results in the receipt of a material benefit, by the group or persons who constitute the group.”

Russian Organized Crime Theories A handful of researchers more recently engaged in a number of attempts to explain Russian Criminality within a more contextual framework, blending factual descriptions with some attempts at explaining the root causes and possible remedies. Though most of them relied on a number of Western definitions, we find them, nevertheless, to be mostly connected to and with the GST approach. Holmes (2009) considers the incomplete and sometimes contradictory evidence on crime, organized crime, and corruption situations in postcommunist states, and then seeks to explain the apparent increase in all three in the 1990s. The author devotes some space to discussing the challenges and limitations of the quantitative data sources available, with particular emphasis on the lack of intersocietal comparability. The problems identified are (1) that “the definitions and categorization of particular types of crime vary” from country to country, (2) that the cultural context affects the propensity for and quality of police reporting, and (3) that the propensity of citizens to report can change depending on the context. The author advocates multiangulations to compensate for the potential measurement error from the formal reporting data sources. Holmes further determines that the official crime statistics, though imperfect, are the best source for identifying trends in a given country. The ICVS is the best and most reliable source across different countries. With respect to organized crime, the author discusses a variety of problems in terms of defining the phenomenon and cites as one challenge the fact that there is very little published in these countries about organized crime. Because there has been a widely

Curry and Mongrain (2009: 11).

2 

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held perception that Russia, Bulgaria, and Albania are major sources of organized crime, the author focuses his discussion on those countries. In the discussion of corruption, the author draws on the Transparency International Corruption Perceptions Index. The region, with a few exceptions, shows improved or steady indices over the years 1996–2008. Russia’s index has changed considerably and does not show a clear picture of how perceptions of corruption have changed over time. However, Russia in each of the years presented is one of the highest on the scale in the region. The ICVS questions concerning experiences with corruption corroborate the idea that Russia is one of the most corrupt countries in the region. Galeotti (2006), in spite of recent attempts to alter Russian perceptions of the Russian security apparatus (police and military alike), finds considerable evidence that there continues to be much illicit activity within the state security system. His definitional attempts focus on the strong overlap between organized crime and state security, with a particular worsening due to changes in the culture of corruption from the Soviet to the post-Soviet era, which will be further discussed in the chapter on Russian law enforcement and its contribution to the phenomenon of OCNs. Sokolov (2004) challenges the popular image of the Russian state as being “in the grip of criminal enterprises of thugs in leather jackets shaking down and brutalizing helpless business owners and big-time kleptocrats making off with the country’s wealth while strangling its nascent free market.”3 This article, which is based on interviews Sokolov conducted with criminals, business entrepreneurs, government and law enforcement officials, and journalists in Moscow and St. Petersburg, portrays modern corruption and organized crime as a product of criminal–business relationships that existed during the Soviet era and have continued and expanded in the post-Soviet era. In addition, the author also points out that organized crime groups provided crucial services to business during the 1990s when the State was too weak to do so. Recent changes, such as legal reform, the generation of a private market for protection services, and greater central government control, have meant a decreased influence of criminal organizations and increasing involvement in legitimate activities. The author discusses the Putin administration’s role in the declining influence of organized crime and concludes “The Putin government is clearly headed in the right direction in controlling organized crime in Russia, and the prospect of a criminal takeover of the state – which seemed all too real a decade ago – now seems highly unlikely.” Brovkin (2003) adds to the definitional debate by emphasizing the cultural specificity of what constitutes corruption. The author argues that where corruption is institutionalized in a way that obligates officials to engage in corruption, these countries, particularly Russia, the Ukraine, and Kazakhstan are “short circuiting their own future, they get stuck in a vicious cycle of self-sufficiency.” Further, Brovkin attributes contemporary global pressures as reasons why leaders such as Putin and Vincente Fox attempt reform measures rather than perpetuate the corrupt system.

3

Sokolov (2004: 70).

Back to the General Strain Theory

19

Back to the General Strain Theory Based on a curt overview of some mainstream theories and constructs, we posit that the general strain theory also referred to as the GST is the one that is mostly applicable to the explanation of the formation and existence of the OCNs. Agnew’s (1992) “general strain theory” (GST) helped revitalize the study of traditional strain theory. Strain theory focuses on “how contextual factors, in ­particular, what are commonly referred to as opportunity structures, affect the relationship between stresses and strains and delinquency” (Hoffmann and Ireland 2004). Agnew’s General Strain Theory holds that strain occurs when others (1) prevent you from achieving your goals, (2) remove something you value, or (3) present you with negative stimuli (Agnew and White 1992). Although the most common use of GST has been to explain street crime, it has also been used to explain white-collar crime. Baron (2006), for example, pointedly expanded classic strain theory by including deprivation, monetary dissatisfaction, monetary goals, and objective structural factors. Langton and Piquero (2007) echoed this view, saying that, “general strain theory is useful for predicting whitecollar offenses.” Empirical studies suggest that some corporate officials engage in unethical conduct to prevent economic loss or to protect their privileged position.4 In this venue, we propose that the GST can be enhanced by combining it with Sykes and Matza’s (1957) techniques of neutralizations which provides a justification framework for individuals engaged in OCN activities. Therefore, actors once presented with the necessary and contextual variables to engage in criminal activities (as the GST posits) will embellish their behavioral patterns by either denying the crime or the criminality involved in their action which, in turn, will allow them to flourish within the criminal enterprise, both financially and psychologically. We would be remiss if we did not emphasize that this chapter portrays only the contours of the problem rather than fill in the space within the box. Many other well-known scholars have made numerous attempts to find the explanations and the root causes for the organized crime phenomenon in Russia or in any other country around the world. Without a doubt, the debate continues and the goal of this book’s authors is to merely contribute an additional perspective to the ongoing debate. The question posed to the readers will therefore center around the notion of the GST and if this is indeed the most applicable explanation to the root cause of organized crime in Russia? If we can agree that it is then, the most plausible strategy to minimize the occurrence of this phenomenon in an endemic and pervasive manner that it is now spreading around the country would be to devote more attention to legal criminalization of the aforementioned behaviors, as Friedrichs (2009) posits that swift, severe, and certain punishments for white-collar criminals are the partial answer to the problem.

4

Agnew et al. (2009: 43).

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References Agnew, R. (1992). Foundation for a general strain theory of crime and delinquency. Criminology 30, 47–87. Agnew, R. and White H. R. (1992). An empirical test of general strain theory. Criminology 30, 475–499. Agnew, R. (2006). Pressured into Crime: General Strain Theory. In Cullen, F. and Agnew, R., eds., Criminological Theory: Past to Present, 3rd edition. Los Angeles, CA: Roxbury Publishing. Agnew, R., Piquero, N. L. and Cullen, F. T. (2009). General Strain Theory and White Collar Crime. In Simpson, S. and Weisburd, D. L. eds., The Criminology of White-Collar Crime. New York: Springer. Akers, R. L. (2009). Social Learning and Social Structure: A General Theory of Crime and Deviance. New Brunswick, NJ: Transaction Publishers. Arsovska, J. and Kostakos, P. (2008). Illicit arms trafficking and the limits of rational choice theory: the case of the Balkans. Trends in Organized Crime 11(4), 352–378. doi: 10.1007/ s12117-008-9052-y. Baron, S. (2006). Street youth, strain theory, and crime. Journal of Criminal Justice, 34, 209–223. Brovkin, V. N. (2003). Corruption in the 20th century Russia. Crime, Law, and Social Change 40(2–3), 195–230. doi: 10.1023/A:1025741929051. Cloward, R. A. and Ohlin, L. E. (2006). Delinquency and Opportunity. In Cullen, F. and Agnew, R., eds., Criminological Theory: Past to Present, 3rd edition. Los Angeles, CA: Roxbury Publishing. Cornish, D. B. and Clarke, R. V. (2002). Analyzing Organized Crime. In Piquero, A. R. and Tibbetts, S. G., eds., Rational Choice and Criminal Behavior: Recent Research and Future Challenges. New York, NY: Routledge. Cornish, D. B. and Clarke, R. V. (1986). Crime as Rational Choice. In The Reasoning Criminal. New York, NY: Springer-Verlag. Cullen, F. and Agnew, R. (2006). Criminological Theory: Past to Present, 3rd edition. Los Angeles, CA: Roxbury Publishing. Curry, P. and Mongrain, S. (2009) What is a criminal organization and why does the law care? Global Crime 10(1–2), 6–23. Friedrichs, D. (2009). Trusted Criminals in Contemporary Society, 4th edition. Wadsworth Publishing. Galeotti, M. (2006). The criminalisation of Russian State Security. Global Crime 7(3/4), 471–486. doi:10.1080/17440570601073947. Gambetta, D. (1993) The Sicilian Mafia: The Business of Private Protection. Cambridge, MA: Harvard University Press. Garoupa, N. (2007). Optimal law enforcement and criminal organization. Journal of Economic Behavior & Organization 63(3), 461–474. doi:10.1016/j.jebo.2004.04.010. Geis, G. (2000). On the absence of self-control as the basis for a general theory of crime. Theoretical Criminology 4(1), 35–53. Retrieved from http://www.soc.umn.edu/~uggen/Geis_ TC_00.pdf on January 18, 2010. Gottfredson, M. R. and Hirschi, T. (1990). A General Theory of Crime. Stanford, CA: Stanford University Press. Gottschalk, P. (2008). How criminal organisations work: some theoretical perspectives. Police Journal 81(1), 46–61. doi:10.1350/pojo.2008.81.1.400. Hamm, M. and Van de Voorde, C. (2005). Crimes committed by terrorist groups: theory, research, and prevention. Trends in Organized Crime 9(2), 18–51. Retrieved from http://search.ebscohost. com.ez.lib.jjay.cuny.edu/login.aspx?direct=true&db=a9h&AN=20213402&site=ehost-live. Hoffmann, J. P. and Ireland, T. O. (2004). Strain and opportunity structures. Journal of Quantitative Criminology 20(3), 263–292. Holmes, L. (2009). Crime, organized crime and corruption in post-communist Europe and the CIS. Communist and post-Communist Studies. 42(2), 265–287. doi: 10.1016/j.postcomstud.2009.04.002.

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Lampe, K. and Johansen, P. O. (2003) Criminal Networks and Trust, 3rd annual meeting of the European Society of Criminology, Helsinki, 29 August, Finland. Langton, L. and Piquero, N. (2007). Can general strain theory explain white-collar crime? A preliminary investigation of the relationship between strain and select white-collar offenses. Journal of Criminal Justice 35(1), 1–15. doi:10.1016/j.jcrimjus.2006.11.011. Lippens, R. and Van Calster, P. (2000). Crime, accidents and (dis)organization: rhizomic communications on/of a foodscare. Crime, Law & Social Change 33(4), 281–311. Retrieved from International Security & Counter Terrorism Reference Center database. Milhaupt, C. J. (2000). The dark side of private ordering: an institutional and empirical analysis of organized crime. University of Chicago Law Review 67, 41–98. Sampson, R. J. and Wilson, W. J. (1990). Toward a Theory of Race, Crime, and Urban Inequality. In Hagan, J. and Peterson, R. D., eds., Crime and Inequality. Stanford, CA: Stanford University Press. Sampson, R. J., Morenoff, J. D. and Earls, F. (1999). Beyond social capital: spatial dynamics of collective efficacy for children. American Sociological Review 64, 633–660. Sellers, C. and Winfree, J. (2005). Social learning and youth gangs: a natural fit? Conference Papers – American Society of Criminology, N.PAG. Retrieved from SocINDEX with Full Text database. Sokolov, V. (2004). From guns to briefcases: the evolution of Russian organized crime. World Policy Journal 21(1), 68–74. Retrieved from http://www.mitpressjournals.org/wpj. Sykes, G. M. and Matza, D. (1957). Techniques of neutralization: a theory of delinquency. American Sociological Review 22, 664–670. Van Duyne, P. (1995). The phantom and threat of organized crime. Crime Law and Social Change 24(4), 341–377. doi: 10.1007/BF01298354.

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Chapter 3

Roots of Russian Organized Crime

As mentioned in Chapter 1, countries undergoing social and legal transformations typically experience a slight, but relatively insignificant increase in crime. This crime may take essentially two forms: illicit acts (1) committed by isolated individuals or small groups of individuals acting in a nonsystematic way, and (2) committed by organized crime groups. In the case of successor states of the former Soviet Union; criminologists, political scientists, and sociologists are in agreement that organized crime is a major, and perhaps the most important factor, hindering their economic, political, and social development. The activities of organized crime have repercussions, which are felt well beyond the borders of the former Eastern Bloc. Because of globalization, criminality in contemporary Russia and her neighboring countries has an impact on the quality of life and the security of citizens throughout the world. For example, the threats posed by the illicit trade with nuclear materials, narcotics, and human trafficking, and other types of crime, have a strong East–West dimension. This chapter focuses on the development of persons and organizations in the successor states of the Soviet Union, with an emphasis on Russia and is organized into three sections. Section “Development of Professional Criminals: Seventeenth to Nineteenth Centuries” examines the development of professional criminals in Russia from the seventeenth to the nineteenth centuries. In contrast to what others have said, we argue that exiling peasants to Siberia contributed to the development of a criminal underworld, and in fact by the end of the seventeenth century created an underclass of professional criminals. Section “Soviet Period: The vory v zakone in 1920s–1990s” describes the evolution in the early to late Soviet periods of vory v zakone, or “thieves-in-law,”1 the creation of criminal groups as a means to survive in the GULAG,2 and describes

Thief-in-law (Russian: вop в зaкoнe, “vor v zakone”; plural thieves-in-law “vory v zakone”) is a skilled individual, particularly a thief, within the Russian criminal world who satisfies certain requirements of the Russian criminal traditions and are similar to the “Cosa Nostra” in Italy. 2  The term GULAG is an acronym from the government body responsible for administering prison camps across the former Soviet Union. The word is an acronym for Glavnoye upravleniye ispravitelnotrudovykh lagerey i kolonii, i.e., “The Chief Directorate [or Administration] of Corrective Labor Camps and Colonies.” 1

S. Cheloukhine and M.R. Haberfeld, Russian Organized Corruption Networks and their International Trajectories, DOI 10.1007/978-1-4419-0990-9_3, © Springer Science+Business Media, LLC 2011

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how such criminal groups operated within Soviet prisons and penal colonies. This  section further examines the criminalization of the Soviet economy due to the inadequacies of central planning, and the emergence of the thieves-in-law as critical players in the shadow economy of the Soviet Union.3 The growth of the shadow economy was the main catalyst in the formation of organized crime. The roots of the Russian mafia lie in the innermost depths of the Russian shadow economy. Section “Behavioral Patterns of the Criminals” analyzes some of the key aspects of the post-Soviet privatization process and the interaction among various levels of the Russian government and organized crime groups. This ­section describes how the criminalization of the state occurred from the mid-1990s onwards and argues that organized crime groups did not corrupt the state, but rather, in essence, became the state.

Development of Professional Criminals: Seventeenth to Nineteenth Centuries Historically, the professionalization of criminal groups in Russia was a product of strong patriarchal traditions, hostility toward the state, and an underdeveloped, largely agrarian, economy.4 During the seventeenth century, corruption, combined with the tyranny of state officials and landowners, was widespread in Russia. This was in part a reflection of the lack of respect for individual dignity – most people were regarded primarily as property and such property was not protected by a rule of law, but was instead protected indirectly by the “benevolence” of the autocracy toward the country’s nobility. This humiliation and exploitation of the Russian people encouraged greater despotism. For example, the December 1760 law “On Siberian Exploration” authorized landowners to banish, at their own discretion, peasants to Siberia at their own discretion (Law Collections of the Russian Empire 1976). Landowners had the de facto ability to punish their serfs unilaterally. Legislation promulgated by Count Rumiantsev5 and the Code of Count Orlov-Davydov6 in the second half of the ­eighteenth century is a prime example of this codification of lawlessness.

The economic system known as the underground economy, shadow economy, black economy, or black market consists of all commerce on which applicable taxes are evaded. The market includes not only prohibited commerce (e.g., drugs, prostitution, and gambling activities that are illegal in some locales), but also trade in legal goods and services for which some income is not reported and consequently taxation is evaded, through money laundering or payment in cash. 4 Article “The Roots of Russian Organized Crime: from old-fashioned professionals to the organized criminal groups of today” was first published by Crime, Law and Social Change. V. 50(4). Springer 2008. The authors are grateful to Springer Science + Business Media for granting copyright permission for this book. 5  Field-Marshal Count Peter Rumiantsev in the Russo–Turkish War 1768–1774. 6  Russian Marshal of the Nobility 1866–1869. 3 

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In 1753, the well-known landowner Darya Saltykova7 ordered the killing of 138 serfs and the crippling of hundreds more. This was not an isolated case; similar events occurred throughout the eighteenth century. By the second half of eighteenth century, about 20,000 peasants were taking flight every year to unknown lands to escape the wrath of their landowners. Many of these peasants formed veritable armies of robbers, thieves, and tramps,8 it was just a matter of time before some of the more capable compatriots tried to establish a professional criminal network of these “outlaws.” Severe punishments, including capital punishment, did not deter such behavior. Several approaches were tried that were less harsh and incremental in nature. In 1649, Tsar Alexei issued a detailed legal code, the Ulozhenie, which sought to systematize the punishments imposed for certain offenses, for example, a first instance of theft called for cutting off the left ear and whipping, the second exile for life to Siberia, the third death in public.9 Under the Decree of 1662, some recidivists were punished with the cutting off of both legs and the left hand. Peter the Great,10 having created Russia’s first professional police force, established severe methods of torture, such as breaking the body on the wheel, cutting off ears, and tearing out a nostril. Despite all these punitive measures, criminogenic conditions flourished. The criminal community actively began to strengthen its “immune system” allowing it to not only survive but also thrive in conditions of effective lawlessness. This confluence of factors promoted the emergence of professional criminals. In the first half of the seventeenth century, the criminal underworld was solidified, with its own traditions, morals, hierarchy, and slang. Individuals were not required to possess special knowledge or a skill to become professional criminals; all they needed was the opportunity to commit the crime. Moreover, in the absence of an effective police organization, crimes were committed openly. The arrests of various gangs were carried out by military units and not by the police. The state began to use secret methods to fight crime in the first half of the eighteenth century. Ivan Osipov, then a well-known professional thief (also known by his alias Van’ka Kain), became an example of such invaluable efficiency in practice. Kain infiltrated a criminal gang when he was already a skilled and well-known thief and pickpocket. Initiation into the gang required Kain to pay a monetary share and one of the

Saltykova was a young noblewoman from Moscow who became notorious for torturing and k­ illing over a hundred of her serfs, mostly women and girls. She was found guilty of having killed 138 female serfs by beating and torturing them to death, but the Empress was unsure about how to punish her; the death penalty had been abolished in Russia in 1754, and the new Empress needed the support of the nobility. In 1768, Countess Saltykova was imprisoned for life in the basement of a convent. 8  Sidorov (1999). 9  Tikhomirov and Epifanov (1961). 10  Peter the Great or Pyotr Alekseyevich Romanov (1672–1725) ruled Russia from 1682 until his death. Peter carried out a policy of “Westernization” and expansion that transformed the Tsardom into the Russian Empire. 7 

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thieves had to deliver a speech in the thieves’ slang on his behalf. At the time, Kain was detained for pick pocketing and locked up. Thanks to the security guard’s ­inattentiveness, Kain’s accomplice passed him a loaf of bread and a note, which in the secret thieves’ slang stated: “Here is a key for unlocking the chain.” The security guard’s negligence enabled Kain to escape. In 1741, Vanka Kain betrayed the gang and accepted an offer to become a police informant. Using undercover methods, such as the infiltration of gangs, Kain was able to, in a short period, reveal hundreds of crimes: robberies and murders that would have otherwise remained unsolved. In the end, however, Kain’s criminal tendencies got the best of him. He returned to his criminal ways, although by now he was armed with the knowledge of official power. Kain engaged in armed assaults on the rich, extorted merchants, and kidnapped people, then burned houses of the families who did not pay the ransom on time. He was eventually executed in 1749. In tsarist Russia, bribery, abuse of power, and infringement on the law were widespread and had become commonplace among state officials. It was too early to speak about the criminal organizations and communities but corrupted Russian officials were already reaping a different kind of reward, which has since become an unfortunate tradition. Among the first corrupted government authorities were Counts Menshikov,11 Apraksin,12 and other high-ranking government officials. Even though Peter the Great proposed severe laws against bribery in the 1713 Decree, the embezzlement of public funds and rates of bribery were higher than ever. At the end of the nineteenth century, students of Siberian hard labor camps ­outlined the existence of the following criminal castes: “Ivans” – robbers of prison laborers “Khrapy” – instigators of various caste groups “Players” – card swindlers “Asmadei” – usurers closely connected to players “Slaves” – prisoners who had lost their lives to gambling “Sukharniki” – performed others work and served time for pay “Shpanki” – simple peasants Although the first four castes were considered “aristocratic” in their behavioral manners, players could gradually become more influential as they acquired greater financial resources.

11  Governor-general of Finland, Prince Menshikov (1831–1855), was also the Russian Ministry of Navy. 12  Count Fyodor Apraksin (1661–1728) was one of the first Russian admirals. He governed Estonia and Karelia from 1712 to 1723, presided over the Russian Admiralty beginning in 1718, and ­commanded the Baltic Fleet beginning in 1723. In 1715, Apraksin fell into temporary disgrace with the tsar, who had been informed about disorders and bribery in the Admiralty. After a brief investigation, he was fined and dispatched to govern Estonia.

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Such distinctions among the criminals did not exist outside of prison. Professional criminals united in unions or groups known as maliny13 and specialized in specific criminal activities. A malina was headed by a pakhan; a highly authoritative thief who organized activities and kept the thieves’ cash. Rigid rules regulated a malina’s internal relations. Withdrawal by an individual from the organization was punishable by death. These criminals communicated using slang, which was composed of about 10,000 words and expressions, separated into three basic groups: (a) Criminal slang used by all types of professional criminals, irrespective of their field of expertise. (b) Prison slang. (c) Professional argot of certain criminal groups. For example, pickpockets had about 400 slang words and expressions reflecting the specifics of their criminal profession; card swindlers, nearly 200; and drug dealers, about 100. The roots of the vory v zakone could be traced back to the end of the seventeenth and beginning of the eighteenth century. Randomly, vagrants began forming gangs of tramps. These tramps were committing mostly larceny and petty crimes, and later on represented a large group of professional criminals. These groups of petty criminals formed an order of thieves. Law enforcement gave them the name vory v zakone, “thieves-in-law.” At the end of the nineteenth and the beginning of the twentieth century, the foundation of a criminal code of ethics, known as “the thieves’ law,” was established and subsequently a criminal hierarchy began to take shape (Varese 1998). The first group of professionals in the criminal subculture was called Ivans; specific to this group was their propensity to not “remember” their kinship. This designation has a threefold meaning. First, not remembering their kinship labels them as social outcast. Second, breaking away from family and society became a criterion for affiliation with fraternity of criminals. Third, when the police apprehended criminals, their answer to questions about familial background remained “I do not remember.” This group of criminals adhered to the ideology that the true thief must maintain a nomadic existence, living without a house or family, and without subjecting himself to any form of state authority. Another group of criminals, those who engage in robbery and murder, are the least respected members of the criminal underworld. The third and largest group was that of professional thieves who could be disaggregated into 30 different types of expertise. At the top of the criminal hierarchy was the pickpocket whose craft required the most skills and who often traveled abroad. The highest authority in the underworld was held by the burglars, medvezhatniki, “bear-hunters,” who literally cracked or blew up safes, and the shnifery, those individuals who specialized in selecting safe codes and who were considered more sophisticated. Maliny literally means raspberries. In old Russia, a superstition spread claiming that thieves were taking shelter in raspberry bushes. In criminal world, a malina was a shelter or hideout for criminals and fugitives. 13

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Finally, swindlers and counterfeiters were regarded as the intelligentsia of the underworld. Their roguish operations, involving promissory notes, shares, and securities, and directed deception of state organizations, required a masterly execution. Swindlers used fake jewel trading (called farmazonshchiki) and currency exchange as part of their criminal operations. Among all professional crimes, the highest art was counterfeiting. At the same time, it required considerable nerve to engage in counterfeiting, as the punishment for this crime was death.14 The rapid growth of a revolutionary movement in Russia, coupled with the Tsar’s policy to isolate political dissidents, led to a mass replacement of illiterate criminals by educated prisoners. Sent to Siberia15 for their revolutionary activity, political prisoners had no knowledge of criminal norms and morals. Soon the criminal community began to adopt some changes, and the “ideological” prisoners16 began to win the leadership. The activity of ideological prisoners enriched the underworld with new moralistic ­principles. These principles prescribed: never work for the Tsars’ government or authority; resist the existing political and judicial system, and recruit, literally, ­anyone to fight the existing regime. The presence of the political or ideological prisoners and their resistance to regime affected the criminal subculture, which adopted similar principles: that a criminal should not work, nor take any public ­position, as suggested by the concept that one should live and act according to the ideas of their society (the underworld). Moreover, betrayal of these principles was punishable by immediate death.

Soviet Period: The vory v zakone in 1920s–1990s Drastic changes occurred in the underworld after the Russian revolution in 1917. The thieves’ elite were destroyed and those who survived emigrated. Some, with simple qualifications, joined the Bolsheviks and incited robberies, strikes, and looting during the war period. Coming to power, revolutionaries declared all criminal elements to be social companions of the proletariat. Destruction of old police criminal files by communists produced even more violence. Chalidze (1990: 43–56). Russia’s huge Asiatic hinterland of Siberia has always figured in the Western popular imagination as a limitless frozen wilderness, a place of punishment and exile for the unfortunate victims of Tsarist and Soviet authorities. Dostoevsky languished there for several years and afterwards described it as The House of the Dead , while an official government report of 1900 referred to, but dismissed, the concept of Siberia as “a vast roofless prison.” More recently, Solzhenitsyn’s Gulag Archipelago has reinforced this somber and inhospitable image, which, while being an essential, though sinister, aspect of Siberia’s history, is by no means the whole story. Wood, A. (1980). Siberian exile in Tsarist Russia. History Today. 30: 9. pp. 19–24. 16  Ideological communists, or politicheskie, committed no crimes but housed together with professional criminals (S.C.). 14  15 

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In the newly created communist’s militia, people were hired literally from the street. Illiterate and inexperienced peasants and workers were not capable of investigating any type of crime. The growth of organized crime during the Soviet period progressed through several stages. The first stage, which existed until the 1950s, was dominated by the continual existence of the vory v zakone (thieves-in-law) organization. Their activities could be characterized as mercenary and criminal. They did not, however, reach the level of criminal associations yet (Aidinyan 1996). The situation in the underworld began to change in the 1930s when the prisons and then Stalin’s concentration camps started to be filled with the “enemies of the Soviet system.”17 This time witnessed a contentious power struggle between leaders of ­different criminal factions. Nevertheless, by the beginning of the 1940s, these irreconcilable opponents had been quickly absorbed by a new developing caste of leading figures of the thieves-in-law. Unlike their predecessors, they began establishing, for the first time in Russian professional criminal history, interregional business-like relationships. They also established and implemented a more extensive thieves’ ­ideology than that of the initial vory v zakone period. During this period, three levels characterized the structure of the criminal subculture: At the top level, the vor polnota, the “thief in his entirety” possessed absolute authority over the criminal world; the mid-level was the avtoritetnyi vor, the thiefauthority; and at the bottom were the polozhenets, or appointed members.18 The thieves’ morality had become the code of behavior that gradually covered all aspects of their lives. These norms dictated relations between the criminal environment and society and structured the internal subordination of professional criminals, directing the recruitment of individuals to the criminal community, and imposing sanctions on professional criminals. The structure of organized crime in Russia is defined by a well-developed hierarchical system of distinct criminal features and mechanisms protecting it from unwanted intrusions (such as preserving traditions, securing members information, and thieves slang). Until the 1917 Russian Revolution, the Russian penitentiary system became a university within the underworld. The hierarchy of criminals in prisons in many respects corresponded to the thieves’ specializations; however, physical strengths, as always, remained the ultimate determinant of the hierarchy. The ability to stand up for oneself became a means by which to evaluate a thief’s authority. Consequently, thieves who had not served time in prison could not lay claim to higher positions within the criminal subculture hierarchy. At the same time, the thief’s skill set had to include the skills and abilities necessary to resolve disputes without the use of physical force. It was especially important considering the fact that murder was viewed as the ultimate sin.

17  During and after the Great Purges (1930s), the GULAG camps housed millions of prisoners. Stalin used them both as a source of cheap labor and as indirect extermination camps. 18  Gilinskiy and Kostjukovsky (2004: 181).

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The recruitment of new members usually took place in prisons, where criminals were taught, trained, and initiated into the clan of thieves. The procedure of “crowning” thieves occurred at an assembly of thieves in authoritative positions, who ­collected and examined information on the candidate. The thieves assembly examined the charges a man was sentenced for, how many years one had spent in which prisons, and if he had ever been recruited by the prison administration. Prior to the assembly, special written inquiries (мalyavy) were dispatched to all prisons, the replies were thoroughly examined, and witnesses questioned. The thief-in-law candidate’s godfather,19 acting as a guarantor, played the greatest role in determining a candidate’s reputation. To become a thief-in-law, the candidate must have been unimpeachable, from the assembly’s point of view. The temporary rank of “appointed” member (polozhenets) was granted if a candidate could not become thief-in-law for an objective reason (e.g., because he was serving in the army, since work for the government that was prohibited by the thieves’ code). Thus, a person with appointed rights would serve until another thief, more credible in the eyes of the assembly, would claim the rights of the appointed member’s place, duties, and territory (Cheloukhine 1998). The Russian underworld is a criminal structure disaggregated by level of authority, stability, and strictness of rules. At the top of the criminal hierarchy are thieves-in-law. The highest criminal rank is granted only at a thieves’ meeting and as a rule only to those who deeply embody the thieves’ customs and traditions. Admittance to the thieves’ elite is carried out from inside as well as outside of the prisons, but only at thieves-in-law meetings. The candidate would have had to endure a 3-year probation period and then been affirmed by a direction in the underworld by a “thieves” “ksiva,”20 notifying the name and region for the newly crowned thief. Infringement on the thieves’ code was envisaged by three kinds of punishment: a public slap in the face; a beating on the ears, representing automatic demotion to a lower caste; and the death penalty, which was the most common punishment. At thieves’ meetings, the highest joint body was in charge of the most important activities of the criminal subculture. Together with the regional meetings, all-union thieves’ meetings were held in three cities: Moscow (1947), Kazan (1955), and Krasnodar (1956), where a few thieves-in-law were sentenced to the death penalty (Albini 1971). According to A. Gurov, an expert on the vory, “unlike the Cosa Nostra the vory has ‘less rules, but more severe rules’ [and the] members must have no ties to the government, meaning they cannot serve in the army or cooperate with officials while in prison.”21 They must also have served several jail sentences before they can claim the distinction. They should not marry. Furthermore, ethnicity has rarely determined whether someone can join the club, and today most members, even

19  The thief’s-in-law Godfather, thief-authority, carries responsibility for a candidate’s reputation, moral, and credibility. 20  Ksiva: a written message in thieves’ jargon. 21  Gurov, A. (1990). Professional Crime. Past and Present. Moscow: Yuridicheskaya literatura. pp. 23–30.

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those active inside Russia, are from other post-Soviet countries and are not ethnic Russians. Under the code of the “vory,” a thief must: • Forsake his relatives, father, brothers, and sisters. • Not have a family of his own. • Never, under any circumstances work, no matter how much difficulty this brings; live only on means gleaned from theft. Violent crimes and sex crimes are strongly frowned upon and may endanger a “vor’s” status. Arms smuggling and drug trafficking are considered a form of commerce and are therefore incompatible with the status of a thief-in-law. • Help other thieves; both by moral and material support, utilizing the commune of thieves. • Keep secret information about the whereabouts of accomplices (i.e., dens, districts, hideouts, safe apartments, etc.). • In unavoidable situations (if a thief is under investigation), take the blame for someone else’s crime; this buys the other person time of freedom. • Demand the convocation of an inquiry for the purpose of resolving disputes in the event of a conflict between oneself and other thieves. If necessary, participate in such inquiries. • Carry out the punishment of the offending thief as decided by the convocation. • Not gamble without being able to cover losses. • Teach the trade to young beginners. • Have nothing to do with the authorities (particularly, with the Correctional Labor Authority). • Not participate in public activities, nor join any community organizations. • Not take weapons from the hands of authorities; not serve in the military. • Make good on promises given to other thieves. • Organize thieves’ communal fund (obshchak) and help enlarge it. • Render financial aid to imprisoned thieves and their families. • Continue to decision-making on the most important questions at thieves’ meetings. • Referee in conflict resolutions.22 The thieves’ obshchak does not supervise individual crimes, but governs the criminal community based on a functional–territorial principle. The obshchak has a designated person in charge of a specific spectrum of criminal activity, as well as for a certain territory of operations. These persons collect taxes from those individuals and businesses which are under organized crime protection. The criminal elite of the underworld always operate within the boundary of the law23 in Russia; thieves-in-law practically commit very few crimes. In most cases,

Ibid. Within the boundary of the law meant not to stepping out of a legally designed frame of the law; a thief-in-law (vor v zakone) commits a crime for which he cannot be charged by existing criminal code. 22 

23  

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if it was even possible to charge a thief-in-law for a crime, it was generally only for a minor crime like the possession of a weapon or drugs. The thieves’ revenue comes from various criminal activities and the fiscal responsibilities of the group assigned to one of the thieves-in-law to oversee. These organized crime groups and criminals engaged in individual criminal activities (drug dealing, pick pocketing, swindling, etc.), earned their income from “taxes” paid by commercial businesses for “protection,” profited from corruption networks, participation in state-run projects or legitimate business, and garnered compensation for their assistance in money laundering. The financial activities of the groups are responsible for supporting the thieves­in-law inside and outside of prisons and maintaining relationships with corrupt officials and law enforcement. Nowadays, thieves’ extra profits are invested in real estate and legitimate business inside and outside of Russia.24

Substructure of Criminal Groups In Russia’s different regions, criminal’nye avtoritety, who are considered trustworthy by the thieves-in-law, are called fraera, “woolen,” or “proper ones.” They fully respect and obey the norms of the thieves’ moral code, but unlike the thieves-in-law, criminal’nye avthoritety cannot allocate thieves’ cash, call thieves’ meetings, or cast votes. They quite often organize their own criminal groups and are active executors of bold crimes. Shesterki, or snitches, are professional criminals who carry out various assignments as directed by thieves-in-law and avthoritety. They are assigned to study potential objects of crime, or sources of income, and to communicate between the criminal elite and their protectors. Muzhiki constitute the largest segment of the imprisoned people, who quietly and peacefully aspire to serve their time. They isolate themselves from thieves-in-law, authorities, and snitches. Gangsters are the violent criminals who have committed severe crimes and do not recognizing thieves’ morals or criminal subordination. They are uncompromising and always ready to start a deadly fight with the criminal elite. The gangsters’ social backgrounds are very diverse, but they nearly all took part in military conflicts in Afghanistan, Serbia, the Chechen Republic, and Abkhazia. These individuals, who earlier were in either the military or law enforcement, decided to make a living by committing crimes and did not integrate into the traditional criminal networks. They operate in small groups, and are brutal, cold-blooded, and experienced in ­conducting combat operations.25

24  Sidorov, A. (2002). Velikie bitvy ugolovnogo mira: Istoriya professionalnoi prestupnosti Sovetskoi Rossii, Rostov-on-Don, p. 77. 25  Volkov (2002: 67, 93).

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Behavioral Patterns of the Criminals Historically, the centers of criminal activity in Russia were formed at the beginning of the twentieth century in St. Petersburg, Moscow, Kiev, Odessa, and Rostov-on-Don. Each of these centers has a distinctive feature. For example, in St. Petersburg street, crime, pick pocketing, and prostitution have always been the ­typical major types of crimes. The seaport Odessa became a Mecca for smugglers, thieves, and robbers. Rostov-on-Don was the center of the Cossack settlements, populated by fugitives and peasants that have a predetermined rigid violent orientation of crimes. The saying “Rostov is daddy, and Odessa is mommy” corresponds to the ideology of vagrancy in the criminal world. The affiliation with a professional group was defined by tattoos and their functional meanings. Every tattoo had information on criminal charges, terms of previous convictions, psychological predispositions, and sexual orientation. If an individual became homosexual or downcast, tattoos were done forcefully. Those wearing tattoos inappropriate to their criminal rank were severely punished. Accordingly, the person who inappropriately changed the status-figure tattoos of a ring on his finger would have this finger chopped off. If one had a tattoo made without permission by thieves-in-law, one would be killed without even a thieves’ trial. Tattoos are not an art; they represent status in the criminal underworld. This is a language of those who are forbidden to talk in prison. For example, the thief-inlaw shoulder’s strap: only a few can wear it and it means “I am thief-in-law.” Usually, tattoos are done voluntarily, though could also be done forcefully to those in a lower caste and despised by others. They represent a criminal stratification of everyone and denote the place they occupy in prison and/or in the underworld.26 Baldaev (2003) provides many images of such tattoos and the following descriptions represent some of the most recognizable tattoo images: 1. Rectangular shape with smaller rectangle inside. Diagonal line from top right corner to bottom left corner. Horizontal lines are drawn midway down outside of outer rectangle facing out. Indicates “was incarcerated” (in prison, camp, or GULAG); anyone can have that. 2. Rectangular shape with smaller rectangle inside. Thick diagonal line from top right corner to bottom left corner. Top left corner inside rectangles is cross shaped and on bottom right corner inside rectangles is upside down spade shaped like on a deck of cards. Indicates “squandered juvenile” referring, usually, those who were incarcerated at a young age. 3. Square shape with smaller square inside. Light shaded area almost fills the inner square from bottom to top leaving only small area at top not shaded. The image indicates that the person “served full time without parole”. 4. A depiction of an upright coiled snake on a stiletto with a vertical rectangle. Indicates “for murder.”

Source: Baldaev, D. (2003) Russian Criminal Tattoo Encyclopedia. Steidl/Full pp. 134–135.

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5. Rectangular shape with skull in middle. Diagonal lines are drawn from skull to all four corners of the inside of square. Dark shaded area surrounds skull forming shape similar to German cross. To left and outside of square is dark shaded cross shaped figure. Indicates “armed robbery with murder.” 6. Square shaped figure with diagonal lines running from top right corner inside of square to bottom left corner and from top left corner to bottom right corner. It forms triangles inside of square on top, bottom, and both sides. Three horizontal lines run on outside of square midway down. Indicates “robbery.” 7. Square shape with smaller square inside. Shaded in club figure inside of an inner square. Club figure resembles shape found on deck of cards. The image indicates “petty thief” and leader of a criminal group. 8. Square shape with smaller square inside. Dark shaded upside down spade inside of an inner square. Spade shape resembles that found on deck of cards. Indicates “charged for disorderly conduct” + very violent, unpredictable could kill. In addition, can be tattooed on ear lobe. 9. Diamond shaped square with vertical line from top to bottom with horizontal line going from left side to right side. Top to bottom line is just off center giving appearance of broken line midway down inside of square. Indicates “denial, rejection” enemy to law enforcement, those who take rehabilitation and snitches. Mostly the “thieves’-in-law” elite wear this ring. 10. Small diamond shaped square with dark vertical line inside of diamond that does not connect to edges. Two horizontal lines outside of diamond shape that go from all four edges of diamond having appearance of a rainbow effect. Indicates “a peasant – muzhik” criminals without a particular status; just serving time. 11. Rectangular shape with diagonal line from top right corner to bottom left ­corner that has three solid circular dots inside line. On either side of diagonal line are two triangular shaped images that are shaded. Outside of rectangle are heart shaped solid figures like those found on deck of cards. The image indicates “homosexual or submissive,” a lower rank in criminal world, downcast, those who failed to pay their card debt, or homosexuals. 12. Rectangular shape with smaller rectangle inside. Figure inside of smaller rectangle has the number 6 right in the middle of rectangle with six shaded circles that resemble the look of a domino or dice. Indicates “snitch” or “thief’s slave.” 13. Square shape figure with cross inside of square that is not shaded but light in color. Four interior corners are darkly shaded with kings crown shape on top and on bottom exterior of square. Indicates “fought prison administration” crown means elite of the criminal world. 14. Square shape with five dark shaded circles inside of square that have the look of a domino or dice. The image indicates “I was in prison.” 15. Rectangle shape with large darkly shaded ellipse shape inside of rectangle. The image indicates “escaped” the prison. 16. Vertical and horizontal lines that would like an aerial view of an intersection of a city block with a small shaded circle in center of intersection and four other shaded circles at each corner of intersection that could represent the corners of the sidewalks. Indicates “alone” do not have friends.

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17. Rectangular shape with smaller rectangle inside. Tall thin cross has line intersecting at the bottom of the cross diagonally. Horizontal lines are drawn midway down outside of outer rectangle facing outward. Has two meaning “I am a killer”/of police (or in the memory of late parents). 18. Rectangular shape with smaller rectangle inside. Half moon shape inside rectangle with lines pointing toward top giving appearance of sun rays. Five small box shaped figures under half moon. Has two meaning “I am a killer”/of police (or in the memory of late parents). 19. German cross shape with egg shape in center of cross with vertical dark shaded line inside the egg shape. The image indicates “rapist.” 20. Square shape with cross like figure inside of square. At base of cross is circle shape that looks like the base of the cross. At top of cross and behind it is sun like figure giving off sun rays. The image indicates “burglar.” 21. Dark outlined square with three skull and bone figures inside of square one on top of the other giving a vertical view of the three skulls with the cross bones dissecting the middle skull. The image indicates “murderer.” 22. Square shape with turtle like figure in the middle of square. Arms and legs of turtle figure are extended pointing to all four interior corners of square. The image indicates “recidivist.” 23. Small square figure with cat like face figure in the middle of square with barb wire type lines diagonally across inside of square and behind cat like figure that connect top right to bottom left and from top left to bottom right of square. The image indicates “committed crime in prison.” 24. A diamond with a skull at its center. The diamond is encased in a rectangular grid representing prison bars. The image indicates “incarcerated in a super-max labor camp.” 25. Square shape with barb wire type lines inside square. One line is horizontal and the other line angled. Both lines go from one side of square to the other. Three shapes inside square. Cross figure on top, an ellipse shape under cross and shape that resembles the letter H under ellipse shape. The image indicates “served time in super-max prison.” 26. Rectangle shape with thick dark shaded vertical line inside rectangle. Smaller thinner shaded horizontal line midway down rectangle. The image resembles number “3” is in the center of rectangle that has the look of barb wire. The image indicates “no guarantee from poverty and prison.” 27. Square shape with diagonal lines that look like barb wire from top left to bottom right and top right to bottom left. Russian cycle and hammer logo in the center of square. The image indicates “born in Soviet prison.” 28. Long rectangle shape with nine square boxes inside. Center square box has four small circles at each corner. The image indicates “never worked for Soviet regime and never will.” 29. Black rhombus with white diagonal stripe in the middle. The image indicates “charged as juvenile but served in adult prison.” 30. White rhombus with a large letter “A” in the middle. The image indicates “anarchist.”

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31. Rectangle shape with club like on deck of cards in upper left corner. Upside down spade like on deck of cards in lower right corner. Dark shaded boxes in upper right and lower left corners of rectangle. On outside of the rectangle, on both sides, are three triangular shapes, three on each side of the rectangle. The image indicates “leader of thieves group.” 32. (a)  R  ectangle shape with crown figure inside with lines resembling that of sun rays facing upward from crown. Outside of rectangle on both sides are three triangular figures. Three on each side of rectangle forming an outer box shape. (b)  Square shape with diamond shape inside larger square. Inside diamond shape is an ellipse shape with cross in center of the ellipse shape. All four corners of the inner square are shaded and interior of diamond shape are also shaded. Both indicate “thief authority (of a group only).” (c)  Octagon star where a part is shaded in area and part not shaded giving appearance of shadow within octagon shape. This tattoo belongs to prisons’ camp Vory or thief-in-law, denial or pakhan, the godfather; placed under collarbone and knee. 33. Four-sided figure with top and bottom rounded a bit forming a square. Dark shaded insect like figure inside square. Insect, a scarab, is a symbol of thieves luck. 34. Square shape figure with lone standing building inside square resembling that of a church with bell tower. The image indicates “was born to be thief.” 35. Square shape figure. Inside square are the letters in capitals B C O with small ink blot like figure above the letters. Below the letters B C O are numbers 1 3 0 and below the numbers are letters A-A. The image indicates “before incarceration was a military officer.” 36. Pentagon shape that resembles home plate in baseball. King’s crown shape is drawn inside a pentagon, near top with Russian cycle shape under King’s crown. The image indicates a racketeer’s leader. 37. Square shape with dark thick shaded cross inside square with sun shape at top of cross giving off sun rays. At bottom area of cross and to the left is the letter D in capital form and to lower right the letter B. At the bottom of cross is the number 2. Indicates “served 2 years in a military disciplinary battalion.” 38. Circle shape with vertical arrow shape in center that has pointed end facing upward and wing like shape horizontally through the center of arrow. Indicates “today I am here, tomorrow there; a thief guest-performer.” 39. Large ellipse shape with smaller ellipse shape inside with longer end of ellipse vertically inside. Inside smaller ellipse shape is the letter D with small horizontal line under D and below horizontal line another letter D. Two D’s on top of each other with horizontal line separating them. The image indicates “an orphan was raised in orphans home.” 40. Square shape with two swords intersecting each other in the center part of square. The number 4 below swords near bottom center of square. The image indicates “racketeers Muslim.” 41. Circle shape with dark shaded smaller circle inside. Appearance of a bull’s eye on a target indicates “do not trust anybody.”

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42. The letter “R” enclosed within a vertical ellipse. Above the “R” is a cross and below the letter “R” is the Russian letter “E” backward indicating “racketeer.” 43. Circle shape with vertical, horizontal, and diagonal lines intersecting inside circle. Four total lines that intersect in the middle of the circle indicating “became a thief because of orphan.” 44. Square shape with three Russian style church tops side by side near the top of a square. Four small squares are positioned under the church tops that are side by side and attached. Small upper left square has cross like figure inside. Bottom right square has upside down spade, a shape that can be found on deck of cards. The other two squares have diagonal lines inside them that go from one side to the other. The image indicates Avtoritet/Authority or Thiefin-law. 45. Circle with swastika logo inside the circle indicating “anarchy is the order.” 46. Russian cycle and hammer with star at the tip of sharp end of cycle. The ­letters BOG under cycle and hammer indicating “discontented by the Soviet verdict.” 47. Square shape with dark shaded heart inside the square indicating “rapist.” 48. Hexagon shape with six triangular shapes interlocking each other inside the hexagon. Three triangles are shaded in and three are not. Triangle at the top of hexagon is shaded and the ones next to it are not shaded and the ones directly under the not shaded ones are shaded and last triangle at bottom center is not shaded. The image indicates “thief.” 49. Square shape with dark shaded hourglass figure inside the square and centered from top to bottom. The image indicates “served time in a labor camp.” 50. Square shape figure with another square just inside larger square. Diamond shape is drawn inside a smaller square with four small squares inside the diamond that interlock. The number 9 is inside diamond and at the top. The number 3 is inside the diamond and at the bottom. The other two small squares are dark shaded and do not have any numbers inside them. This tattoo has two meanings: (1) “gave up the criminal life style,” (2) “lone thief; work without companions.” 51. Square shape with a rabbit figure inside of the square. Indicates “womanizer” and tattooed forcefully. 52. Square shape with smaller square just inside larger square. Dark shaded diamond inside of squares. Diamond shape is the kind that you would find on a deck of cards. The image indicates “informer,” done forcefully.

The Stalin’s GULAG and Soviet System Impact While elements of what developed in the GULAG system preceded Stalin’s consolidation of power, the gulag did not develop into a widespread phenomenon until the pace of industrialization increased and the elimination of alternative sources of power in the country allowed for the creation of a criminal subculture. It was the interplay

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between revolutionary change, NEPmen,27 centralized planning consolidation of Soviet power, and the accelerated development of the criminal world in the Post-War II era. In the second half of the 1930s, law enforcement experts realized the danger of the thieves-in-law clans. Prison and camp administrations began an uncompromising battle. Administrators used such methods as the dissemination of false claims and rumors to discredit the thieves’ authority. Prison and camp administrators openly supported those who clashed with thieves, even organizing the thieves’ murder. Among criminals, the beginning of World War II caused even greater confusion than the 1917 Russian Revolution. To the thieves, the concept of fighting a war for the state was immoral. Nevertheless, many criminals challenged this taboo under the condition that law enforcement authorities would subsequently remove all criminal charges. Either because of the state’s deception or because they had committed more crimes, the majority of criminals were again sent to GULAG, without the opportunity for a pardon or appeal. Conflict with ideological enemies and political adversaries, as well as among thieves-in-law, led to the formation of numerous rootless gangs that never obeyed the thieves’ code. After Stalin’s death in 1953, NKVD28 amnesty released tens of thousands of offenders from the GULAG and prisons. This had a serious impact on Soviet law and order. At this point, a complex system of repressive measures was applied against the professional criminal world leaders. For example, in December of 1956, a prominent thief-in-law Ivanov was forced by the Moscow militia to write a statement breaking ties with the criminal world. Four guards attacked him, pulled his trousers down, and were about to rape him. He chose to sign the written statement relinquishing his status in the criminal organization. Two days later, he committed suicide. By the end of the 1950s, the Russian criminal elite seemed to have been completely destroyed. Under the conditions of Stalin’s authoritative and totally controlled society, the state and the criminal underworld could not coexist. Consequently, many criminological and sociological studies were curtailed, and the war on crime was declared as won. The expression “organized crime,” with reference to Soviet society, became forbidden.29 Such official state policy created a great gap in data and information regarding the development of the criminal world.

NEPmen were businesspersons in the young USSR who took advantage of the opportunities for private trade and small-scale manufacturing created by the New Economic Policy (NEP). Their entrepreneurial activities were an affront to the Communist Party and its goal of building socialism in the USSR. Yet so long as state commercial and cooperative institutions were incapable of meeting the demand for goods and services, NEPmen were tolerated. 28  The NKVD (Narodnyi Komissariat Vnutrennikh Del) or People’s Commissariat for Internal Affairs was the leading Secret police organization of the USSR that was responsible for political repression during the Stalinist era. 29  In the USSR, the phrase organized crime was not used for ideological reason. The political elite claimed that communist society could not have the organized crime and corruption; because those are features of capitalism. 27 

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Many thieves-in-law could not survive under this systemic pressure and began to cooperate with law enforcement. Those so-called turncoats, never pardoned by the criminal underworld, turned into extremely tough opposition. The new category suki (“bitchy”) appeared in the thieves’ language, as well as “Polish thieves,” those who act deceitfully under thieves’ law. In the mid-1960s, the long and bloody “War of Bitches” between the two factions began in the GULAG and prisons, where the suki enjoyed total support from the administration. The state effectively declared war on the criminal clan of thieves-in-law. All type of actions were used against them, from physical incapacitation (simply killing without a trial) to dissemination of false statements intended to pressure the individual (i.e., placing a thief in a prison cell together with a suki).30 It is incredibly difficult to determine who won that war. Thieves, with their old moral code, were too conservative in their values when exposed to strong pressure from the state. The new generation that valued the use of violence was already breaking the thieves-in-law’s moral code. Thus, the old clans of thieves-in-law virtually disappeared by the beginning of 1970s and an invigorated clan began to form in the 1980s. During the collapse of the USSR and its socioeconomic and political systems, the contemporary criminal syndicates appeared. At this stage, organized crime began to shape its modern form (Dikselius and Konstantinov 1997). Syndicated criminal activity began spreading the sphere of its operations by crossing national borders with: • Strong intragroup subordination and discipline • A two-tier controlling system, distancing the governing thieves’ body from criminal activity • Growth of the organized group membership • Mid-level body and procedure regulating both intragroup and external relations • Body of internal investigation and counterespionage • Maintenance of corrupt relations with the state administrative structures to preserve immunity • Formation in each group of special support and a surveillance team In the USSR, an extreme shortage in food and consumer goods was growing fast, as was the amount of unused cash in the hands of the population. It was the organized crime groups that set about meeting the population’s growing demands through its illegal means and methods. The growth of the shadow economy was the main catalyst behind the formation of organized crime. Racketeering, robbery, and other crimes were dangerous but predominantly secondary in nature. The roots of the Russian mafia lie in the innermost depths of the Russian shadow economy. The shadow economy in western countries was primarily engaged in the supplying of illegal goods and services. In the USSR, along with these services, shadow economy businesspersons were also engaged in the production of consumer commodities, from shopping bags to the assembly of cars. One of the central features of the shadow economy infrastructure was the market of criminal services provided by organized crime.

Gurov (1995: 45).

30 

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The shadow economy met the demands for services that were not satisfied by state-run enterprises. Hence, thieves-in-law offered a wide range of criminal services (from “knocking out” a debtor’s money to contract killing), and became a second-tier distribution vehicle for shadow capital. Authorities within the criminal underworld supervised shadow businesspersons, tsekhoviki,31 protecting them from robberies and extortions, providing enforcement for contracts, and sometimes simply blackmailing them and forcing them to share profits. By examining an organization’s stability, the scale of its criminal activity, and its ability to remain immune from state interference, we have singled out three levels of organized crime groups. The first level is composed of the numerous criminal groups specializing in crimes managed by criminal authorities appointed by the thieves-in-law. The second level is the criminal organization that combines criminal interests in the sphere of all criminal and shadow or business economic crimes. Supervising such groups, depending on the primary criminal operation, are either thieves-in-law or tsekhoviki. Only businesspersons of the shadow economy (tsekhoviki), who were in contracts with state officials (a position never held by thieves-in-law) were responsible for managing the third level, representing the business itself. Therefore, if the two first levels establish corrupt relations with law enforcement for simple immunity, the leaders of the third level are interested in political power. In ordinary person’s mind, this highest level of organized crime is referred to as the “Russian mafia.” (Podleskikh and Tereshenok 1994). By the end of the 1960s and the beginning of the 1970s, there were a number of cases attesting to the presence of well-functioning organized crime in the USSR. For example, the gangster groups armed with automatic weapons appeared in the city of Kazan and in the Moscow fish supermarket Ocean were “avtoritety,” or organized crime group members, sold forged Vodka. The more the Soviet economic system deteriorated, particularly during Communist Party General Secretary Leonid Brezhnev’s rule, the greater the opportunities for the gray32 and black economies to emerge and be dominated by organized crime groups in part due to the increased level of corruption in the country. Many criminal cases have revealed well-organized and branched-out networks of criminal links within the highest echelons of ministerial power. It was a complex, interdependent structure based on membership in the Communist Party and the hierarchical stratification in the system of authority, the general interests of which were achieved by direct infringements of law (Cheloukhine and King 2007). Exactly at this time, microcosms of the criminal networks appeared in the republics of Georgia and Central Asia (Uzbekistan and Turkmenistan). An example of this 31  Tsekhoviki are the entrepreneurs in shops, underground enterprises, and large factories, who illegally produce consumer goods. 32  The gray market (or gray economy) usually refers to the flow of new goods through distribution channels other than those authorized or intended by the manufacturer or producer. Instead, companies that may have no relationship with the producer of the goods sell them outside of the normal distribution channels. Frequently, this form of parallel import occurs when the price of an item is significantly higher in one country than another.

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was the struggle for political positions in the Kremlin between the Mikhail Gorbachev supporters in the Stavropol region and their rivals in the Dnepropetrovsk region, Leonid Brezhnev’s clan. Investigations of criminal cases into the abuse of power, large-scale thefts, and bribes in the 1980s have faced some serious obstacles, and sometimes have been impossible to carry out. In most cases, the investigations were suspended by a call from Moscow or the political nomenklatura33 of the region. Double standards, according to which authority gets a license for impunity, have spread among the Soviet elite. Since the thieves-in-law and even high-ranking state officials appeared to be operating in the same sphere of interest, it inevitably pushed them into closer contact. The only place where their paths physically crossed, however, was prison. Thus, relationships between organizers and executors increased and strengthened in both branches of the organized crime groups. Depending on the character and forms of activity, at present we can identify two main types of Russian organized crime: property/violent crimes and economic (white-collar) crimes. Examples of the first type are theft, racketeering, forgery, and murder. Economic crime can also be classified as a bureaucratic type of crime. The white-collar criminals conduct illegal operations with state property and securities. Each type of crime has its own contributing factors, but a key condition for an  increase in criminal activity is the existence of contradictions between the ­economic reality and the legal-administrative system. Organized crime serves as a way to overcome those contradictions. The shadow economy and underground market conduct the exchange function, which the bureaucracy itself could not ­perform. Therefore, under the Soviet system, organized crime was a direct product of the command economy.34

Gorbachev’s Reforms and Criminalization of the Post-Soviet Economy The criminalization of post-Soviet society is one of the most important factors influencing the development of legal and economic reforms in Russian. The distinctive feature of this period is based on two processes: a transformation of the old

The system of patronage to senior positions in the bureaucracy of the Soviet Union and some other Communist states controlled by committees at various levels of the Communist Party. 34  In a Command Economy or Planned Economy, the central or state government regulates various factors of production. In fact, the government is the final authority to take decisions regarding production, utilization of the finished industrial products, and the allocation of the revenues earned from their distribution. The government-certified planners come second in the hierarchy. They distribute the works among the labor class, who actually undergo the toiling part of the entire process. China and the former USSR are perhaps two of the best instances of Command Economy. Though many countries nowadays are switching from Planned Economy to Market or Mixed Economy, in nations like North Korea and Cuba Planned Economy still exists in full form. 33 

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Soviet elite – nomenklatura, or apparatchiks35 – into the new capitalist elite and the accompanying criminalization of the transitional economy. The changes in the administrative sphere, caused by the beginning of the liberalization and Gorbachev’s reforms, led to a transformation of the party and nomenklatura into a new class – the capitalist bureaucratic elite. In the economic sphere, the existing laws did not regulate the new forms of state and private enterprise administration, as well as other new types of economic activity. The shortages in the legislative base were endemic in nature; since a country’s economic development usually outpaces the development of its legal system. The nomenklatura quickly came to realize all the possible benefits of such contradictions, and by using its administrative and political power was able to become the official owner of the former state property. The legislative deficiency had not only added to the process of redistribution of the former state property, but also helped the communist party and nomenklatura in transforming their shadow (underground) activities in the economic sphere into the legal ones. Thus, the new state which replaced the collapsed Soviet Union has become one of the main factors that stimulated the process of criminalization of the society: on the one hand, this state turned out to be weak and unprepared for the new economic processes, on the other hand it produced favorable conditions for the unhindered criminalization of the economy. It was only in 1995–1996 that the laws “On the Fight against Organized Crime” and “On the Basis of the State Service” were adopted. The absence of these laws at the early stages of Perestroika dramatically contributed to the shaping and development of the Russian criminal networks.36 The state itself has become a direct participant and a conductor of criminal business where corruption became endemic at all levels of the administrative-bureaucratic system and society. The criminal activity of the Russian state officials has been ­characterized by the use of the so-called mafia method.37 This method distinguishes Russian white-collar organized crime from the other types of nonadministrative crimes. According to the former leader of the “Yabloko” faction in the State Duma, Gregory Yavlinsky, the former corrupted elite, has transformed themselves into a criminal oligarchy with a monopolistic state. This is the main distinction of the Russian mafia-type organized white-collar crime from the other types of criminal activity.38 The contradictions in the administrative, economic, and legislative

The system of patronage for senior positions in the bureaucracy of the Soviet Union and some other Communist states controlled by committees at various levels of the Communist Party. 36  Database of normative legal documents; “On the procedure of giving and keeping class ranks of state civil service of the Russian Federation by the federal state civil employee” http://eng.www. rosoez.ru/docs/docs_base/141744/. Retrieved December 13, 2009. 37  The Mafia. http://www.bestofsicily.com/mafia.htm. Retrieved December 13, 2009. 38  Gidahubli, R. “Russia. Resolving Financial Crisis.” http://www.jstor.org/pss/4406983. Accessed December 13, 2009. 35 

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spheres caused by Gorbachev’s reforms and by the state itself, became the vehicle for increased criminal activity in the Russian economy. Due to the economic, political, and social instability of Russia, as well as the weakness of its newly created democratic institutions at the end of Perestroika, criminalization of the noneconomic institutions – political, legislative, military, and cultural – became inevitable. The contradictions of Gorbachev’s reforms generated severe criticism from the reformers and conservators. The former blamed Gorbachev for his rejection to pursue a fundamental economic system transformation of the collapsing Soviet economy and Gorbachev’s useless shake-ups of the government.39 The latter accused him of complicity in bringing the so-called antipeople’s regime to power. Indeed, Gorbachev tried to sit on two chairs simultaneously: in politics he preserved the Socialist choice, while with regard to economy he tried to introduce capitalist methods without significantly changing the administrative structure. Having lost direction, the reforms became a major cause for the collapse of the administrative economic system, disintegration in all spheres and the cause for the appearance of the new, semicriminal elite. There, in the Soviet run system, a number of developments were of particular importance. First, in 1985–1990, a significant number of innovations in the administration of the Soviet economy were introduced. Among them were cooperatives, self-governance of the workers’ collectives, elections of the directors, and leasing. The main idea of these innovations was to develop the new methods of management of the sluggish Soviet economy. In practice, however, they were nothing more than a mere change in the methods of accounting. The very essence of economic relations and the forms of property (still controlled by the Soviet centralized decision-making system) had not been changed, and this created all types of opportunities for shadow economy dealers and criminals. Second, the reorganization of Gosplan, Minfin, and Gosstroi40 stimulated a disintegration of the bureaucratic administrative system and the future formation of the market economy. Without being completely aware of this fact, Gorbachev contributed significantly to these processes, although he was afraid of the destruction of the Soviet economy as a result of a demise of state control. Third, Glasnost played a crucial role in the aforementioned processes. Freedom grew tremendously in all strata of Soviet society. With all the positive effects it had, this freedom had another, seamy side, which found one of its reflections in the new administrative methods. For example, it helped the nomenklatura to get rid of its

Societies, whether traditional or modern, experience tension between spontaneity (individual freedom) and control (regulation). Consequently, economies as a subsystem of society experience it too. More specifically, they experience a tension between economic individualism and economic collectivism, which in modern economies revolves around the role of the state in the economy. Since the collapse of communism, this tension has manifested itself not as a tension between ­market capitalism and command socialism but as a tension between the free market and the interventionist variants of market capitalism. Although currently economic and political liberalization is in evidence worldwide, not only in postcommunist societies, its outcome remains uncertain. 40  Ministries of Planning, Finance, and Construction. 39 

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inferiority complex, which the latter developed in connection with the shadow management during times of stagnation. One of the main features of the administrative economy was the fact that no enterprise manager could perform his duties without resorting to various illegal deals. In this way, the shadow economy compensated the shortages of the administrative mechanism. These conditions were breeding new elite, a new family of nomenklatura, which came to replace the old one. The new elite were oriented not only toward what was allowed, but also toward what was promising and was at hand: grab everything you can, there is no legal regulation at all. Capable of using various state resources and actively cooperating with criminal business, this new nomenklatura quickly and boldly seized administrative power in Russia. The emergence of specific forms of economic relations, which were not regulated either by the Administrative or by the Criminal Codes, was one of the consequences of Gorbachev’s reforms. What emerged was the economics of co-ordination – a network of informal corrupt relations “ty – mne, ya – tebe”41 neither anticipated nor regulated by the existing laws. This was a very fertile soil for the growth of the illicit economy, which after 1992 successfully merged with the officially created market economy. This process was an open gate for intense money laundering – the vast sums which were accumulated during the period of Gorbachev’s reforms. Thus, the contradictions of the Gorbachev period stimulated the formation of the new elite, which was closely connected with organized crime through its previously established and newly developed ties. Yeltsin, who replaced Gorbachev as the head of state in 1992, inherited a largely corrupted economy with distinctive criminal orientations. Gorbachev’s reforms went throughout two stages. During the first stage, the cosmetic changes were introduced. The USSR was alive and the process itself was under its control. However, the most important fact was that the administrativecommand system was still quite appropriate for the old Soviet nomenklatura that held political power in the country. On the one hand, it restricted the reforms within the frames of narrow borders: a redistribution of the state property was blocked and the commanding, in terms of appointments, administrative Communist Party positions, in terms of appointments, were still in the hands of the Communist Party of the Soviet Union (CPSU). However, simultaneously, it created a specific cover for the removal of the property out of state control in the interests of the nomenklatura. On the other hand, the shadow process grew stronger and broader, protected by the banner of reforms. Feeling that they were losing political power and their ­positions, the party and Komsomol42 leaders, heads of the ministries, and other high-ranking soviet officials rushed into the sphere of new market relations.

The Russian version of the proverb “you scratch my back and I will scratch yours.” Komsomol is a syllabic acronym, from the Russian Kommunisticheskiy Soyuz Molodiozhi or Communist Union of Youth. Komsomol served as the youth wing of the Communist Party (CPSU). 41  42 

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Former party and Komsomol functionaries, who used assets of their institutions as a starting capital, quickly replenished their numbers. Coming into legal business, they inevitably brought with them their criminal patrons from the shadow economy. Consequently, from the very first steps, the Russian transitional businesses have appeared firmly connected to the criminals. Using their well-developed connections and still existing power, they quickly established themselves as new administrative elite. The nomenklatura, which previously used to work for the state, started working for themselves. The weakening of the  ministries’ economic power and strengthening of enterprise directors’ independence created the favorable conditions for the redistribution of economic power through the transformation of state property into their hands. Quite understandably, as long as the USSR continued to exist with its legal system, such a rearrangement of the state property was considered illegal. Luckily for the people in power, the collapse of the USSR washed away all their previous sins in grabbing property and the state’s money, making the new political and administrative order quite opposite, in its essence, to what was declared as humanistic and liberal. This was the second, nonofficial stage of the reforms, which essentially contradicted the scenario of Perestroika. If one agrees with such an interpretation of Gorbachev’s reforms, the type of capitalism that was born in 1992–1993 had a criminalized character, since criminality was at the core of its property set-up. The destruction of the two most powerful institutions – the Soviet state and CPSU apparatus – did not create any changes in the personnel of the nomenklatura. The expansion of its traditional administrative role led to the appearance of a new role, that of the businessperson. The new business of these old nomenklatura’s bosses was illegal, because it ­operated against the existing laws that prohibited any private business, and no adequate legal regulations had been adopted yet. The nomenklatura was conducting the most significant operation in the economy under the appearance of economic transformation. The market economy, officially declared as the objective necessity for Russia’s economic life, became the main grounds for illegal operations. The nomenklatura gained both economic and political advantages. Now, under the market reforms, the people in power were becoming the only real masters of the former state property, turning from the shadow owners into the official, legal ones. Thus, the three milestones of Gorbachev’s reforms – glasnost, the new thinking and the new forms of administrative governing continued with privatization and reorientation toward the market economy were enough for the nomenklatura to become the new ruling elite. At the beginning of the 1990s, spontaneous and ill-thought-out privatization led to the rise of the oligarchs,43 which also contributed to the criminalization of Russian society and to a significant increase in corruption at all levels.

Business oligarch or tycoon is a close-synonym of the term business magnate. In modern Russia, it is very common to apply this term to any business tycoon, regardless of whether or not he has real political power. 43 

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The state, on the one hand, aggravated the situation with failed tax policies and inconsistent decrees in currency reforms, exchange rates, and the privatization of state property. On the other hand, some areas of Soviet law were archaic and overly strict and economic instability, causing businesses to seek immediate rewards and head back into the shadows because the State (as well as police) still treated business as capitalistic (not Soviet-equal to all citizens); therefore, it had to be treated as such or eliminated. Another tendency among businesspersons and criminals was to secure political power so as to gain maximum freedom allowing for the abuse of law. The given situation has generated an unprecedented level of corruption and penetration of criminals into the state institutions. Promoted by ill-designed privatization, the repartition of the sphere of influence and property between criminal groups by contract killing and bloody turf wars took place at all levels. The massive buying-up of privatization vouchers from the population led to a subsequent attack on enterprises that were not prepared to deal with private ownership and, especially, to false bankruptcy claims, which in turn lowered the balance costs of state property and led to the falsification of property auctions in favor of organized crime. Corruption, blackmail, physical violence, killings, and power actions were the new games in town.44 Between 1989 and 1991, draft proposals on legislation to deal with organized crime went to the Supreme Soviets of the USSR and the Russian Federation. After the collapse of the USSR, these state institutions disappeared, as did their drafts. The new Russian state had tried to resume this unfinished legislative process. In 1995, the state Duma45 of the Russian Federation considered simultaneously three drafts of the Law on the Fight of Organized Crime, two of which were published in the media.46 The Council of the Federation rejected all of the bills. The reason for rejection was due to the unacceptability of certain provisions; details of which remained classified. In one of the rejected bills, organized crime was defined as a product of criminal formations – criminal groups, organizations, and associations. The bill identified three elements of organized crime. The first is the growing number of people who jointly undertake criminal activity on a systematic basis. Among such groups, power is concentrated in the hands of one or more leaders who maintain subordination through criminal traditions. The number of participants ranges from five to several hundred people. Such groups differ in the degree of hierarchical structure and type of criminal activity. The second element is economic activities of the criminal groups aimed at obtaining large sums of money and material goods. The third element is corruption. Criminal organizations, by their enterprise, were differentiated in several ways: • Structure and type of criminal activities • The material base or monetary funds for mutual support and bribery of officials Volkov (2002: 126–133). The state Duma (Gosudarstvennaya Duma) in the Russian Federation is the lower house of the Federal Assemble of Russia (legislature). 46  Schit i mech. (1997: 12). 44  45 

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• A group of people having equal position in controlling the organization • Charters, which regulate the norms of behavior and relationships within a ­certain group, as well as imposing sanctions for breaking such rules • Division of the organization into compound groups, which include lieutenants, bodyguards, and messengers • Collecting database, intelligence, and counter-intelligence services At the start of Perestroika, one of the possible paths of reforms was China’s type of mixed market economy, which would have combined the new market fundamentals and methods with existing traditions and norms. However, the nomenklatura was pushing more forcefully for a different goal – to take a maximum advantage of the disintegrating system in order to benefit from it. It was not possible to declare this goal in an open manner. The criminalized character of the emerging market was veiled by the idea of equal opportunities for everyone under the new economic conditions. New economic reforms have become a cover for the formation of a criminal capital. The contradiction between the type of the economy that was formed in Russia by 1992 and the vague reform ideals implanted into the consciousness of the population was obvious. The emerging Russian society was fundamentally different from the one that was expected to emerge from the market reforms after 1992. The massive transformation of Russian society in the past decade has been accompanied by rising crime. Thus, for example, according to the CIS International Committee on Statistics, the total number of crimes grew by 22% in 1995 compared to 1991 and the total number of convicted criminals increased by 12%. The coefficient of previous convictions had reached its maximum level – 875 for each 100,000 of adult population (14-year old and older). The official number of registered criminal offenses against property was more than 1,715 million in 1992, or 62% of all registered crimes in the country.47 The criminal sphere had gained more professionalism, received a multidimensional orientation, and become better organized in involving its activities in the new sectors of the economy. The character of crimes also changed – from unplanned murders and serious cases to the well-planned organized crimes of an economic nature. Therefore, economic crime became a major factor that affected all levels of Russian society. Among other factors, a critical cause of the crime wave has been the course of economic reforms. The most destructive was a very high degree of concentration of capital and means of production in the hands of a small layer of private owners. This phenomenon not only generated social injustice, but also stimulated an ongoing struggle for power among new businesspersons, many of whom had solid connections with organized crime and had previous criminal skill. As a result, an

Ryvkina R., Kakoi kapitalism voznikaet v Rossii (What Kind of Capitalism is Emerging in Russia). Mirovaya ekonomika i mezhdunarodnye otnosheniya 5, 1997, 80. 47 

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active process of criminalization of the economy, accompanied by the growth of economic crime and other criminal offenses, has dramatically increased. Crime affecting the economy can be classified into the following categories: • Avaricious infringement in managing the state property and its illegal expropriation during privatization • Illegal reallocation of the GDP in favor of criminal structures • Illegal conduct of entrepreneurial activity, using false names and nonexisting firms and enterprises • Large-scale fraud involving the private investors’ capital • Transition of certain sectors of the economy toward the illegal principles of management • Use of shadow capital to maintain criminal activity • Active integration of organized crime into the economic sphere in order to receive maximum illegal profit • Corruption of state officials • Further development of illegal enrichment channels, establishment of new and re-division of old spheres of influence, elimination of competitors, etc. In the post-Soviet era, economic crime has expanded into politics and various ­noneconomic institutions: law enforcement, customs, tax police, etc. Thus, economic crime became a factor of criminalization in society in general. Many state officials were forced to participate in illegal operations in order to ensure the efficient ­performance of their enterprises. Enterprise directors were breaking laws in order to receive shortfall equipment or construction materials, to avoid the restrictions of Gosplan48 from fulfilling the state plans. For example, building a new plant or implementing new technology under the command system was not possible without the use of black market channels. Throughout such channels, many managers developed a habit of circumventing existing laws. From the USSR, Russia had also inherited economic crime. For example, the types of crimes committed by Brezhnev’s apparatchiks are quite characteristic of modern Russian businessmen, especially if their businesses touch upon the sphere of foreign trade or operations with foreign companies. As in Brezhnev’s times, new Russian businesspeople engage in illegal or nonlicensed direct export of raw materials and other products, opening accounts in foreign banks where they put out of sight undeclared profits, conduct financial transactions with huge amounts of cash, and embezzle state budget funds. As in those years, such

48  GOSPLAN, abbreviation of Gosudarstvennyy Planovyy Komitet (State Planning Committee), was the central board that supervised various aspects of the planned economy of the Soviet Union by translating the general economic objectives outlined by the Communist Party and the government into specific national plans. Established in February 1921, Gosplan was originally an advisory council to the government, its functions was limited to influencing the level and direction of state investments. It assumed a more comprehensive planning role in 1928, when the First Five-Year Plan, which called for rapid industrialization and a drastic reduction of the private sector of the economy, was adopted.

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a­ ctivities were carried out by Russian phoney businesses and enterprises opened and licensed in Russia for a few days only to conceal the transaction. And, in such business operations, the high-ranking state and law enforcement officials are the most important players. Another type of illegal business engaged in underground enterprises where personal/family and inter-group network relationships developed in such structures. Moreover, the liberalization of the economy created favorable conditions for the vast re-creation of the traditions shaped by the Soviet shadow economy. If the Soviet criminal legacy was one of the factors contributing to the flourishing of Russian organized crime, the new state, which came to replace the USSR, has become a major stimulus on its own. During the market transition, its ­crime-generating role revealed itself in many different ways. The former Soviet apparatchiks who moved to create this state made a rapid shift from being the core of the Soviet system to playing the role of market reformers committed to Russia’s radical change. However, in the Soviet peoples’ consciousness, nomenklatura was always associated with the command-administrative system. That is why the usurpation of state property by the former apparatchiks and their transformation into businesspeople caused major resentment among the Russian people. All these factors forced officials to conceal their involvement in the illicit ­processes of the state property allocation. Such an underground activity made them vulnerable to pressures from professional criminal groups and, at the same time, forced them to rely upon those groups in order to defend their new possessions. This process made the criminalization of the emerging Russian market economy virtually inevitable. Economic policies pursued by the post-Soviet state have unwittingly become another factor of society’s criminalization. The state adopted the laws stimulating various criminal activities of its citizens. For example, the 1992 Russian Tax Code, which was so poorly designed that it has provoked mass tax evasion (Kudryavtsev, Luneev and Naumov 2000). It provoked the crises of underpayments, which in turn have become a favorable condition for underreported frauds. Media reports on bribery among the state revenue service officials were no longer surprising. State officials received bribes in exchange for a fine decrease or reduction in other penalties.49 A special investigation department was created within the federal revenue service to keep an eye on its own personnel. But administrative control has never been the best way to fight crime inside state structures, which are essentially, tasked to fight crime. The state has also facilitated the criminal activities throughout the interactions of public officials and criminals. The forms of such interactions exhibited themselves in such activities as: loosening control over criminal business after receiving bribes in cash; direct participation in criminal business; protection of  the criminal authorities and leaders; corruption of state administration ­officials, etc (Ovchinski, Eminov and Yablokov 1996).

Bulgakov,V. Vzyatki gladki. Argumenty i fakty, 50, 1996.

49 

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The Annual Report of the Ministry of the Interior for 1994 made public the ­following data on the state officials involved in criminal activities: • • • • • •

Ministries, committees, and other state institutions – 47% Personnel of the law enforcement structures – 29% Employees of the financial and banking system – 13% Employees of other services of the state control agencies – 5% Customs and immigration – 4% The State Duma Deputies – 2%50

The post-Soviet Russian state proved to be incapable of effective resistance to the onslaught of criminal elements in different spheres of society. It undermined its own law enforcement agencies such as MVD, courts, and FSB, which initially were assigned to fight crime. No reforms in either structure or in the courts were implemented until 1995 (the reform of the court), which also led to the tremendous increase of crime and corruption (Shelley 1995). The failed state provoked a monetary starvation and a crisis of payments to the state enterprises,51 which allowed privatizing ­enterprises earning no less in value than $40 billion. Crisis of budget, payments, investments, and banks debts was a direct consequence of the government malfunction and therefore created new conditions for economic crimes (Gilinskiy 1998). Being a cultivator of the criminalized economic policy, the state naturally lost the opportunity to fulfill its main function in reforming society – and to serve as a barrier against crime. This state failed to defeat the criminal genie liberated by the market reforms. Moreover, it has become a direct participant in crime. The failure of the administrative system has undermined Russia’s new criminal justice system. When state officials are themselves members of criminal organizations, or accept bribes and work for their own interests using government power, the state cannot expect that its laws will be obeyed. As a result of this symbiosis between state structures and criminal activities, the Russian state has acquired a criminal character. Since the middle of the 1990s, the state functioned not just as an organism into which different criminal groups have penetrated but as the largest mafia of all, seeking to fill up its financial obshchak. Therefore, the Russian state transformed and functioned according to the mafia laws. After Russian President Boris Yeltsin designated Vladimir Putin as his successor, the most distinctive feature of this period was the “KGBization”52 of the commanding administrative heads in the economy and government, as well as the development of relationships among corrupt officials, favored businesspeople, and organized criminal group leaders (Khlebnikov 2000). The Russian democratic transition, a combination of ill-designed legal, economic, and moral actions fed organized crime and corruption, which was now

Rasinkin (1995). Illarionov, A. Izvestiya December 11, 1996. 52  KGBization is the process that took place after President Putin began appointing former KGB officers to key positions in the economy, government, and law enforcement. 50  51 

References

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aspiring to absorb the state. Russia has become a state where anarchy is continuous, where people, radioactive materials, weapons, and narcotics are easily bought and sold. As if these threats are not troublesome enough, the truly frightening aspect of the new Russia is the cold-blooded organized crime groups and corrupt government executives who are working together to generate not so much a new market economy as a truly new criminal state (Furman 2000). The new Russian elite who came to power after the collapse of the USSR played a key role in the criminalization of Russian society at the post-Soviet stage of its development. If the party and administrative control restricted the activities of the old Soviet nomenklatura, the new, market-oriented, elite which did not abide by any restrictions, because they could easily get around laws, would not have emerged. Russia’s new ruling class consisted of corrupt officials who freely mixed government service with business activities (Kravchenko 2004). The emerging market economy, which began to gain strength in the late 1980s and was legalized in the early 1990s, was inevitably permeated with criminality. The market economy effectively deformed and neutralized the new state, undermining its capacity to act against crime and corruption. The hopes for the formation of a democratic state that arose with the start of Perestroika have been dashed. Instead, a criminal oligarchy and networks with a monopolistic state began to flourish in Russia. The question summarizing the developments portrayed in this chapter asks for a list of the necessary economic strategies that the state needs to put in place to counter the proliferation of oligarchy and their criminal networks. What kind of economic strategies the government needs to mount to counter the legacy of hundreds of years of corrupted developments that provided for a very solid foundation for the criminalization of the Russian economy? (Sharov 1998). Countries in transition go through numerous transformations before they arrive at the best solutions that account for the conflict between the historical roots of the problems they face and the demands of the democratic system. One way to address the gap between the corruption laced legacy and the much needed effective rule of law is to create and enforce accountability mechanisms that expose the corrupt practices as self-defeating and insidious to the economic recovery and the move toward full-fledged democracy. Compliancy toward the status quo will only exacerbate the already grim picture.

References Aidinyan, R. (1996). Funktsionalnaya teoriya organizatsii i organizovannaya prestupnost. Organizovannya prestupnost v Rossii: Teoriya i realnost, St. Petersburg. Albini, J. (1971). The American Mafia: Genesis of a Legend. New York: Appleton-Century-Crofts. Chalidze, V. (1990). Ugolovnaya Rossia. Moscow. Cheloukhine, S., King, J. (2007). Corruption Networks as a Sphere of Investment Activities in Modern Russia. Communist and Post-Communist Studies, Elsevier. 40(1), 107–22. Cheloukhine, S. (1998). Organized Crime in Changing Russian Society: Economic, Social, and Legal Aspects. Nathanson Centre, Toronto Canada.

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Dikselius, M., Konstantinov, A. (1997). Banditskaya Rossiya. St. Petersburg. Furman, D. (2000). Preemnik nachal revisiyu nasledstva. Na smenu mafiosnomu khaosy idet mafiosnyi poryadok, Obschaya gazeta, 39(28). Galeotti, M. (2002). (Ed), Russian and Post-Soviet Organized Crime. Ashgate. Gilinskiy, Y. (1998). Economic Crime in Contemporary Russia. European Financial Services Law, 5(3–4), 60–65. Gilinskiy, Y., Kostjukovsky, Y. (2004). From Thievish Artel to Criminal Corporation: The History of Organized Crime in Russia. In C. Fijnaut, L. Paoli, (Eds.), Organized Crime in Europe: Concepts, Patterns and Control Policies in European Union and Beyond (pp. 181–202). New York: Springer. Gurov, A. (1995). Ispoved vora v zakone. Moscow. Kravchenko, A. (2004). Sotsiologia deviantnosti. MGU. Khlebnikov, P. (2000). Godfather of the Kremlin: The Decline of Russia in the Age of Gangster Capitalism. New York, Harcourt, Inc. Kudryavtsev, V., Luneev, V., Naumov, A. (2000). (Eds.), Organizovannaya prestupnost v Rossii 1997-1999. Moscow. Law Collections of the Russian Empire. (1976). Moscow. Ovchinski, V., Eminov, V., Yablokov, N. (1996). (Eds.), Osnovy bor’by s organizovannoi prestupnostyu. Moscow. Podleskikh, G., Tereshenok, A. (1994). Vory v zakone: brosok k vlasti. Moscow. Rasinkin, V. (1995). Vory v zakone i prestupnye klany. Moscow. Sharov, L. (1998, February 15–21). Ostavte prestupnost’ v pokoe. Obschaya gazeta, p. 5. Shelley, L. (1995). Post-Soviet Organized Crime, European Journal on Criminal Policy and Research, 3(4), 7–25. Sidorov, A. (1999). Velikie bitvy ygolovnogo mira: Istoriya professionalnoi prestupnosti Sovetskoi Rossii. Rostov-on-Don. Tikhomirov, M., Epifanov, P. (1961). Sobornoe Ulozhenie[Muscovite Law Code] 1649. Moscow. MGU, 55. Varese, F. (1998). The Society of the Vory-v-Zakone, 1930–1950s. Cahiers du Monde Russe, 39(4), 515–38. Volkov, V. (2002). Violent Entrepreneurs. Cornell University.

Chapter 4

Corruption in Russia: Past, Present, and Future

Corruption in Russia has penetrated the political, economic, judicial, and social systems so thoroughly that has ceased to be a deviation from the norm and has become the norm itself. By pursuing poorly thought-out actions during its transition to a market economy, the state became a generator of crime; in other words, the authorities became criminal-based institutions generating asocial behavior. Nearly every other individual (60%) admitted giving gifts and money to doctors, surgeons, nurses, and school teachers. Almost each third Russian driver (28%) has bribed the State Automobile Inspection official (GAI). The interdependence of economic crimes and corruption has not yet been seriously studied. Corruption is rarely registered as a criminal activity in many countries. Such features of crimes and corruption, as the high social positions of the officials involved, specific methods of their activities, material and moral damage resulting from their actions, latent character of the crimes, and lenient attitude of the state authorities toward such criminals, make them especially dangerous for the democratic development of society. Corruption has an implicit and compromising character. Usually, it does not result in complaints, because the involved parties receive a mutual profit from their illegal bargains. Even bribe extortion is not necessarily always reported, because people do not trust the authorities or do not believe that legal procedures would lead to justice. Corrupt activities are usually performed under complex and confidential ­conditions. Corruption as a social, political, and legal phenomenon has a superior adaptability. The forms of corruption are constantly changing and getting more sophisticated. The latent character of corruption prevents anyone from gathering complete data about it or its participants. Only a few such participants, usually from the lowest strata of the pyramid, are caught, convicted, and charged with concrete crimes. The nucleus of corruption is bribery. This type of criminal activity is seldom reflected in statistical reports. For example, the US statistics on bribery are based on the reports of arrested suspects and listed under the column “other” crime in annual reports.

S. Cheloukhine and M.R. Haberfeld, Russian Organized Corruption Networks and their International Trajectories, DOI 10.1007/978-1-4419-0990-9_4, © Springer Science+Business Media, LLC 2011

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According to UN annual reports, the percentage of incidents of bribery in 1983–1984 was very low – 1% among the 10–12 crimes reported by the international community. By 1996–1997, this figure increased eightfold.1 Primitive bribery is not the only form of corruption, especially under the conditions of the free market economy. Lobbying, protectionism, creation of the favorable conditions for selected groups of people, investing into commercial structures (that belong to one’s family business) from the state budget, traditions of appointing political leaders and presidents of corporations and private companies, transferring state property into the possession of holding companies, etc. are latent forms of modern corruption. This chapter investigates the processes of rising corruption in the post-Soviet context, considering the historical aspects and developing market economy, in the process of the rule of law formation. It examines the administrative and legal reforms that took place between 1992 and 2008 focusing on the following: • Precondition of corruption infiltration into the public service in the late twentieth to early twenty-first centuries • Stages, tendencies, and directions of its expansion in state public service during the democratic reforms • Forms of corrupt behavior by state employees in 1990s to early 2000s • Organized crime infiltration into public services in 1992–2008

Past: Corruption as a Social and Historic Phenomenon Historical experience leads to the recognition that any person possessing authoritative power is inclined to abuse it and continue to do so until he reaches a certain limit.2 Historically, compensation and boundless extortion was developed in the vassal system of Russia during the tenth to twelfth centuries. On the one hand, the authorities aspired to limit illegal enrichment of officials and enacted legislative measures to eradicate corruption. On the other hand, low salaries compelled officials to resort to extortion and corrupt actions. In the Russian legal system, the first mention of a “promise” as illegal compensation for the performance of official duties was found in the Dvinsk Statute of 1397–1398.3 In the Pskov Court Statute (1397), the concept of such a “promise” is defined in terms of a bribe.4

Uniform Crime Handbook. US Department of Justice. Washington, DC, 1984, 1. Charles de Montesquieu (2008). 3  Protsenko, Yu. (2002). Obrazovanie Russkogo tsentralizovannogo gosudarstva I razvitie prava (14–15 veka). Volgograd State University. 4  Rossiiskoe zakonodatelstvo 10–20 vekov. V.1, 1984. pp. 332–337; V.3. 1985. pp. 181–185. Moscow. 1  2 

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Further attempts to control corrupt actions are ascribed, in the 1497 Code’s of Laws,5 to Tsar Ivan III and then, to Ivan the Terrible,6 who was the first to assign the death penalty as a punishment for excessive bribery.7 The Ulozhenie,8 the Code of Law of 1649, which was in effect for more than two centuries, also condemned bribery.9 In the Russian Code of Law, the corrupt behavior of public servants was defined and considered “absurd extortion.”10 The tradition of presenting gifts to officials began with the giving of “reverences” which carried notions of voluntary offerings. This custom existed since the times of Kiev’s Russia11 and was meant to express respect for the one who received such gifts. This custom, in existence to this day, is nothing other than a modified practice of offerings in medieval Russia. In the seventeenth century, there was a transformation of offerings into bribes when “reverences” increasingly evolved into the notion of allowed bribes, which were not legally prohibited in pre-Peter, the Great12 Russia. The practice of “earning a living from the state business affairs” was a part of the state system, placed in effect to support officials in the seventeenth century. Unlike “reverences” and payments for work, a “promise” was forbidden by the law and treated as a bribe. The legal system of fourteenth to sixteenth centuries forbade “promises,” considering them as offerings connected with unfair court decisions. However, in the fourteenth to seventeenth century’s legal code, “reverences” and offerings “for work” were not regulated or mentioned, thus becoming informally allowed. In old Russia, local and regional authorities and their staff did not receive state salaries; therefore, they established their own collections in order to support themselves.

Kluchevski (2002). Ivan IV Vasilyevich, known as Ivan the Terrible was Grand Prince of Moscow from 1533. The epithet “Grozny” is associated with might, power, and strictness, rather than poor performance, horror, or cruelty. Some authors more accurately translate it into modern English as Ivan the Awesome. The Grand Prince Ivan having achieved much overseeing numerous changes in the transition from a mere local medieval nation state to a small empire and emerging regional power, became acknowledged as the first Tsar of a new more powerful nation, became “Tsar of All Russia” from 1547. 7  Gladkikh, V. Korruptsya v Rossii: genezis, determinanty i puti preodoleniya. Rossiiskii sledovatel. 3:31, 2001. Moscow. 8  Excerpts from The Code of Law of 1649 (Ulozhenie) http://www.dur.ac.uk/a.k.harrington/1649code. html. 9  Polnoe sobranie zakonov Rossiiskoi imperii. V. 1. No. 7157, 1987. Moscow. 10  Public servants were appointed to provide services on behalf of the Russian Tsar and were expected to collect some pays to cover their salaries and routine expenses; since such process was not regulated, servants charged people as much as they wish. 11  A medieval Slavic state was the forerunner of modern Russia. Centered on the city of Kiev, it included most of present-day Ukraine and Belarus and part of northwest Russia. Kievan power and influence grew steadily through the tenth and eleventh centuries, but was later weakened by internal disputes and fell to the Mongols by 1240. 12  Peter the Great was the Russian czar who transformed Russia from an isolated agricultural society into an Empire on a par with European powers. He succeeded in conquering land on the Baltic Sea, where he founded St. Petersburg, a gateway to Europe; St. Petersburg became the new capital of Russia. 5  6 

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The reason for this phenomenon, which is uniquely characteristic of Russia, lies in the imperfect legal system, the superficiality of reforms, the traditional form of feudal relations, and the indecisive replacement of officials. The difficulties of the State in collecting taxes eliminated the possibility of paying, on a regular basis, even the minimum salary. Thus, the government forced its officials to pursue extortion and involuntary collections. In the eighteenth century, the concept of “earning a living from state business affairs” was deemed fraudulent. Especially important was the Peter the Great’s decree “On prohibition of bribes and promises” (1714), in which bribery was classified as a crime subject to strict punishment.13 Peter the Great employed all possible means and methods to organize public service affairs, exerting influence on boundless extortionists and bribe takers. However, these measures did not produce the desired effect. Bribery stubbornly remained an unadvertised source of income for officials of all ranks. During the eighteenth century, the scope of corrupt offenses widened, as extortion and illegal collections from the citizens during the collection of taxes and the registration of official documents were equated to bribes. A fight was waged against the wasteful spending of state money. Budgetary wastefulness was considered another example of crime against the state and forgery emerged as a new form of extortion. However, neither Peter the Great’s reprisals nor Catherine the Second’s14 acquiescence leads to the eradication of bribery. It became clear that the core foundation to fight bribery consists of creating a legal base that would increase the monetary compensation of state employees and increase the punitive measures proportional to the severity of the committed offense. In the second half of the nineteenth century, the first theoretical study on corruption appeared and thus emerged the sociology of officialdom. The payoff of persons holding administrative posts became an established tradition of everyday Russian state life. Bribery indivisibly merged and fused with the order of political life.15 Aspiring to strongly tie itself to its officials, the government ignored signs of enrichment by means of bribery and deceitful treatment of the treasury. During the epoch of capitalist expansion, corruption spread deeply roots among officials. With this development, certain hopes came to rest with the changes that took place in the political environment, which stemmed from the Russian October revolution in 1917. Masses of existing employees were inclined to continue in their old traditions, including those in the sphere of corruption, while new personnel divisions had not yet been formed. On May 8, 1918, the Council of People’s

Polnoe sobranie zakonov Rossiiskoi Imperii (Full Collection of Laws of the Russian Empire). V. 5. No. 2871, 1987. Moscow. 14  The Russian empress Catherine II (1729–1796), known as Catherine the Great, reined from 1762 to 1796. She expanded the Russian Empire, improved administration, and vigorously pursued a policy of Westernization. Her reputation as an “enlightened despot,” however, is not wholly supported by her deeds. 15  Berlin (1910). 13 

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Commissars (SNK)16 passed the decree “On Bribery” and on August 16, 1921 the decree “On fight against bribery.”17 Decrees on the fight against bribery served as a foundation for the establishment of appropriate measures within the Criminal Code of the Russian Republic (RSFSR). At the same time, the policies of the New Economic Policy18 (NEP) were accompanied by the substantial growth of bribery and corruption which appeared in the area of private enterprise. Bribery infiltrated all economic establishments. The SNK’s decree, in December 1922, approved “Temporary rules for service in governmental institutions and enterprises,” essentially limiting opportunities for interconnecting public services with commercial activities.19 It was also not possible to abolish the negative attributes inherited by the officialdom (including corruption), despite the changes that took place in the post-Revolutionary Soviet political system. The primary causes for this were founded in the thorough infiltration of corruption into the working sphere of Russian state officials. Corruption subsequently infiltrated a significant portion of the Soviet system, while training and educating new state managers was a long and difficult process.

Corruption in Soviet Times Corruption and bribery during Soviet times were a kind of universal system, and in this sense, the roots of contemporary corruption were already established back then. However, there are significant distinctive features that are unique to Russian corruption today. By the 1970, corruption infiltrated structures of the ruling party and crime in the economy, and government had risen sharply. During this period, the illegal resale of scarce goods by retail employees had become widespread. It also included bribes to officials responsible for the allocation of consumer goods and other recourses, quotas for scholarships in the education system, and for the falsification of official reports. Bribery was considered an exception and was not intrinsic to the socialist system. Within the Soviet legal system, the battle against corruption was practically nonexistent, although there was a system of punishments, in addition to public and party censure, for the abuse of official positions. Displays of corrupt behavior by

Sovnarkom was the name of the administrative arm of the Soviet government until 1946 when it was renamed. From 1919 to 1946, the functions of ministers in the government of Russia and later the Soviet Union were performed by the Peoples Commissars (Russian title: Narodnyi Komissar). 17  Volzhenkin (1993). 18  The New Economic Policy (NEP) (Novaya Ekonomicheskaya Politika) was an economic policy to prevent the Russian economy from collapsing. Allowing some private ventures, the NEP allowed small businesses to reopen for private profit while the state continued to control banks, foreign trade, and large industries. 19  Sobranie Uzakonenii (1923). 16 

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Soviet officials were, in many respects, constrained by the authoritative mechanism that was focused on the nationalization of economy. The fundamentals of Soviet corruption were structured by a totalitarian system, and, in particular, by the system of resource allocations during conditions of constant shortages of goods and services. Therefore, the major spheres of corruption were logistics, capital investments, and the drawing of plans and reports on their performance, accompanied by huge falsifications of official data. This system, from one viewpoint, was the social illness corrupting the morals of society. From another point of view, the plan-distribution system in the economy could not function without this “lubricant,” without decisions being made in the allocation of funds and “limits.” At the household level, the Soviet distribution system led to the practice of ­giving all kinds of gifts, from scarce goods to services. People perceived small bribes, “gratitude,” and gifts as the norm. A significant difference between Soviet and contemporary corruption is in the limited expansion of direct monetary payments. This conduct promoted to a larger degree, a wider development of the exchange of services, material gifts, and favors (Gilinskiy 2005). This feature was extraordinary throughout a greater portion of the Soviet period, though it was supplemented during Brezhnev’s time in power by the payment of large sums, “purchases” of administrative positions, large-scale swindles, and the development of a shadow economy. In the beginning of the 1980s, alongside traditional protection, nepotism, and falsifications, “gangster-type socialism” was developing in the form of a state-like mafia and the marriage of corrupt and criminal structures. Nevertheless, in viewing the entire Soviet period, the major feature distinguishing Soviet corruption from the present context is the low level of wages and services. However, there was a fear of not only being prosecuted and punished by the courts, but also of being pushed out of the nomenklatura system. Periodical arrangement of anticorruption shows that processes took place, but even without them, all officials knew that the system could destroy them. Thus, obeying the rules of the game, following the norm of political loyalty and state hierarchy, gave officials a certain degree of security in their corrupt activities. The function of limiting the scope of corruption was carried out by the nomenklatura system. Belonging to a certain level of the Soviet bureaucracy was a way of gaining a number of benefits inaccessible to the ordinary person. Accordingly, in order to climb the bureaucratic ladder, a perfect reputation and party membership were necessary. Someone involved in the nomenklatura bureaucracy for his or her entire life, who obeyed the required rules and norms, could look forward to a promising future (Melnik 2001). The pre-Brezhnev period successfully retained corruption in relatively comprehensible frameworks, using a repressive system. The party bureaucracy, itself panicky, was afraid that corruption would gobble it up from within, and counteracted in a strange, but effective manner. Special services, including the KGB, carefully traced all deviations from the norm and therefore there was no need to conduct any criminal investigations against state officials.

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Corruption under socialism as the “sale of status opportunities, or the sale of the socialized property rights” has framed the structure of contemporary corruption.20 Corruption also developed from allocating, regulating, and supervising the functions of the state, combined with the illegal privatization of all state property. If in other countries capitalism grew from the development of private entrepreneurships, in the Soviet Union and especially in post-Soviet countries, it has grown from a direct robbery of state property. At the same time, the degree of state control over entrepreneurs and other economic activities still is very similar to the Soviet style. Moreover, many procedures and regulations were created that provide the opportunity for corrupted transactions. Corruption, with immeasurably great volumes of payment, became more widespread and extremely cynical. For example, during Soviet era, the practice of “buying” an administrator or a party post was not widespread. The system of staff selection did not allow that. In order to be appointed as a factory manager, it was necessary to pass personal security checks conducted by the Ministry of Internal Affairs, KGB, Communist party, and the ministries. Nowadays, the head of an administrative region appoints the head of customs and tax officers at his decision. To appoint the right person as the factory CEO of a unitary enterprise, a bribe of $500,000–$1,000,000 should be paid.21 A significant distinction between contemporary corruption and that of the Soviet regime is that the “benefit from the transaction” has grown immeasurably. At the same time, the risks of being punished and the degree of negative consequences have decreased substantially. Corruption in Soviet times did not affect either the state decision-making or the acceptance of systemic goals. Contemporary corruption, however, already interferes with strategic and security issues (Komissarov 1993). The connection between corruption and the disintegration of the Soviet system, initially, was caused by the contract of elites. The central authority pretended to be blind to numerous infringements in the union republics, especially in Central Asia and the Caucasus. In return, the peripheral elites not only remained loyal to the system, but also tried to preserve it. Investigations into bribery among the leaders of union republics in Central Asia, initiated by Yuri Andropov22 and continued by Mikhail Gorbachev, were viewed by the elites as a sign of the end of the “previous contract.” To shed some light on this problem, we have to turn to debates about the form and method of transition from Communist regimes to democracy and market economy that have taken place in the West and in Russia since the perestroika years and post-Communist radical economic reforms. The principal question of the debates was how to make the ruling nomenklatura agree to political and economic reforms if it was destined to lose its power.

Acemoglu and Verdier (1998). Davydova (2000). 22  Chairman of the KGB 1967–1982; General Secretary of the Communist Party of the Soviet Union 1982–1984. 20  21 

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The most significant contributor to the growth in corruption during the period of 1988–1989 was the creation of joint ventures and favorable conditions for illegal capital exports. During the same period, “illegal privatization” was on its way. In this context, the idea of a power buyout, that is exchanging power for property, was born. Under this concept, democratic movements had to reward the nomenklatura with a certain portion of state property for its readiness to leave the political scene. During the same period, N. Ryzhkov’s economic reform23 allowed managing directors (“red directors”) being able to appropriate profits from economic activities but, simultaneously, the reform shifted all problems and costs to the state. At that time, the modern forms of authority and business mergers were formed. In the beginning of the 1990s (mainly 1992–1993), experts noticed the first cases in the use of corruption in political campaigns. Since then, the fight against corruption in government slowed down because any charges in relation to corruption were considered as a political persecution, which indeed, took place from time to time. It is important to note that the economic reforms initiated by the government were taking place in an alien environment. For example, the creation of cooperative enterprises took place in conditions of market economy but at state prices. Cooperatives, by bribing the state officials, were buying materials and goods at wholesale prices, and then selling them back to the state enterprises at market prices. Thus, at the earliest stage of the economic reform, the reforms themselves caused a flurry of corruption. Moreover, the positive conditioned reflex was formed – corruption promoted fast enrichment. Simultaneously, a law-enforcement system was thrown into havoc: cooperatives were a favorite child of party and government, and consequently the fight against corruption in cooperatives fell under a charge of antiparty conspiracy. As a result, Russia experienced a marriage of law-enforcement bodies with both businesses and criminals. The other source of new authority intoxications was the activities of the KGB, directly connected to the mechanisms of financing the Communist Party of the Soviet Union (CPSU) shadow activity. In fact, spies did not carry money in suitcases, but created banks. Therefore, in 1991, A. Chubais, E. Gaidar, B. Berezovsky, and many others came to Yeltsin and said: “Well, it is absolutely necessary to defeat communists! Do we need money, yes? And how to make it we will now teach you.”24 When discussing the specifics of the transitional period (1987–1995), which caused an increase in corruption, it is necessary to point out the problem of personnel. The most motivated and professional officials left for businesses and less qualified people “have rushed to a feeding trough.” The democrats coming to power did not transform the system; on the contrary, they were absorbed, milled, and eventually decayed by it A Russian politician held governmental and party posts from 1975 before being brought into the Politburo and serving as Prime Minister 1985–1990 under Gorbachev. A low-profile technocrat, Ryzhkov was the author of unpopular economic reforms. In August 1996, he became a leading member of the communist-led Patriotic Popular Union of Russia, one of the main left-wing ­factions in Russia’s Duma. 24  Klich (1996). 23 

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(Kuzminov 1995). Destitute officials were now in charge of the allocation of huge amounts of money and state funds. A lack of control, weakening of the law-­ enforcement system, and moral degradation eliminated any potential moral barriers. The elementary actions related to business registrations and licensing were dependent just upon official decisions and mercy. Anyone acquainted with the traditions of the Soviet bureaucracy knew the solution: you had to pay, especially since the required payment was quite reasonable. Among the economic factors aggravating corruption were: • Shadow economy and the huge redistribution of property without precise regulations • Confusing tax system, which literally transformed all people into infringers • Mixed ownership with extremely inefficient control over the use of state property shares • Weakness of the financial system based on barter During the transitional period, corruption played a “greasing” role in facilitating the reforms. Even law enforcement stressed that if at the beginning of the reforms some effective combat tools against corruption were provided, any transition to capitalism in Russia would not take place. From this perspective, corruption has played, strangely enough, a positive role (Kolodkin 2002). In the USSR, corruption as a part of the contract of elites was tolerated for the sake of the system’s preservation. In contemporary Russia, it began with a similar purpose, as a means of loyalty to the new system. At the same time, corruption was considered to be a method of control over the state officials’ actions, and then as a factor favorable to promotion. Today, corruption acts as a process of maintaining loyalty.

Present: Contemporary Debates of Soviet and Post-Soviet Schools of Thoughts in Defining Corruption For the past 10 years, the growing corruption in Russia has drawn continued attention of many scholars and experts. Their research demonstrates not only the existence of this phenomenon, but also its persistent expansion and the lack of effective measures to combat it. Corruption has penetrated the political, economic, judicial, and social systems so thoroughly that it has ceased to be a deviation from the norm and has become the norm itself.25 Corruption in today’s Russia exists in the three separate forms.26 The first form is political corruption, when officials in power get involved in relationships with 25  Grease my palm. Bribery and corruption have become endemic. The Economist November 2008. p. 10. 26  Article “Corruption Networks as a Sphere of Investment Activities in Modern Russia,” was first published by Communist and Post-Communist Studies, Elsevier. 2007 40(1):107–22. The authors are grateful to Law Enforcement Executive Forum for granting copyright permission for this book.

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criminals to promote their own political interests. It takes place primarily not because of their interest in getting economic profit, but because of clan-type relations. The most important principle here is blood relation among criminals. Legal norms are substituted with clan traditions. The second form of corruption is a pure criminal activity, which is based on bribery of state and administrative officials who, for certain monetary rewards, provide services for criminals. Both sides are driven by selfish goals and are in need of each other. The third form consists of the deliberate involvement of certain categories of state officials in criminal activity by a criminal organization in order to create a favorable regime for the latter. For this purpose, officials are bribed, threatened, and blackmailed. In fact, not every criminal group has established direct contacts with a representative of the power structures or state authorities. Certain individuals operating in the criminal world specialize in establishing such contacts. Therefore, some criminal groups then use services provided by state officials, those who are “on the hook of a criminal network,” for their own interests and those of a network. A corrupted organization and corrupted society have a similar approach to the methods of leading any business or any other social activity: the necessity to pay for illegal services and goods. In addition to economic changes during its post-Soviet transformation, the former moral values collapsed, while the state institutions underwent few changes. Various sources determined that an annual volume of bribes paid to state officials constitute about $15 billion.27 Corruption undermines trust in government authority and its institutions, and thus has become the main obstacle for the economic growth. According to INDEM,28 between 2001 and 2005, the average amount of corrupt transactions in the business sector alone went up from $33 to $316 billion. The amount that average businesspersons bribe state officials has increased from $10,000 to $136,000 within just a few years.29 Russia’s executive power authorities actively interfere with the activities of commercial enterprises, appropriating a significant profit. As a result, the “administrative payoffs” constitute the core of the government officials’ incomes (Satarov 2002). There are many definitions of corruption, but there is no absolute legal clarity that would encompasses a set of behaviors and/or actions that could constitute a scientific definition. The term corruption indicates a system of relations between state officials and criminal organizations based on illegal deals directed against the

Rossiiskaya gazeta. March 13; July 15; December 5, 2003. Information Science for Democracy founded in 1990 is one of the first Russian NGOs. In its activities, INDEM addresses a wide range of issues: anticorruption, justice assistance, governance reform, political, ethnic, federalist and regional issues, international cooperation, etc. http://www. indem.ru/en/index.shtml. 29  Corruption in Russia reached the highest level for the past eight years. Novye Izvestiya, October 24, 2008 http://www.newsru.com/russia/24oct2008/corrupt.html. Accessed November 24, 2008. 27  28 

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interests of state and public. When taking bribes, a high-ranking employee of the state enterprise, or a government office, starts working for two organizations – the state on the one hand and his criminal employers on the other. The complexity in understanding corruption across jurisdictions is in accepting that there are different definitions, different expectations and traditions, different opportunities and options, and different sanctions for violations.30 Corruption not only stimulates or develops crime, but also raises any criminal activity to the status of a new rule adopted by society, by challenging legal and law-abiding activities or even entirely replacing them. Corruption is inseparable from power, and so it invariably begins in state institutions – legal, administrative, and law enforcement, and then spreads into other spheres of social life. A growing criminal system seeks to penetrate the society in which it operates, and, as it does so, it becomes an integral element of that society’s functioning. The arbitrary behavior of authorities, stimulated by bribes and illegal services, leads to the bureaucratic degeneration. As a result, all the elements of the state structure suffer severe deformations.31 The state apparatus increasingly functions in its own interests, which are primarily the interests of state officials. Government policies and legal norms function as a cover for bureaucratic greed. The power structure starts acting in unison with organized crime suppressing normal societal activities and promoting illegality and injustice. The social order itself begins to acquire criminal forms, and lawlessness becomes the law. Law-enforcement agencies table actions against the occasional or insignificant law-breakers, while systematically conducting large-scale criminal operations themselves. Covering up of mercenary goals with the slogans of what is valuable for society’s activities becomes a universal phenomenon that captures and distorts public relations. Thus, it becomes obvious that the phenomenon of corruption is inextricably connected with the state’s power. Its social roots are formed together with those of the state structures.32 They are fed by the state officials’ freedom of activity and separation of their interests from those of state and society. Due to the aforementioned factors, it must be regarded not as a concrete crime, but rather as a complex combination of the similar types of criminal activities (Nuijten and Anders 2007). A major obstacle to combating corruption in pre- and post-Soviet Russia, from a practitioner’s point of view, was the lack of a legal definition of corruption and its categorization in criminal code. In order to define a legal frame of the phenomenon in anticorruption laws, corruption, as a term, must be defined and agreed upon among the lawmakers. In Russia, due to its political and legal nature, issues involving corruption were studied mainly by criminologists. Only in the last three or four decades, corruption

Beare (1997). Ibid. 32  Nuijten (2003). 30  31 

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has became recognized as a social phenomenon. Those studies are particularly important because they consider corruption to be an objective phenomenon and to a certain degree of a pattern, while under the Soviet system corruption was considered an exception, an isolated incidence, instead of a distinctive phenomenon. Under the Soviet system corruption existed in reality, although primarily on a smaller scale (Kuznetsov 2000). Moreover, it was not perceived as a phenomenon, hence the fight against corruption was waged on a local scale and pursued in incidental instances, rather than on a system-wide basis. Finally, the development of a theoretical study of corruption was, to a large degree, conducted by western scholars. For example, C. Friedrich viewed corruption within the limits of a “conventional” approach, as behavior deviating from norms prevailing in the political sphere, and caused by motivation to receive personal benefit on account of the ­public sector. He judged corruption almost as an unequivocally negative phenomenon, “a pathology of politics” that encompasses government officials, institutions, and is an indispensable attribute of politics.33 Therefore, while the ultimate victory over corruption is a utopian issue, it does not exclude the necessity to vigorously pursue its eradication, so that its pathogenic elements do not flourish and destroy the political system.34 At the same time, J. Abueva, D. Bayley, N. Leff, and C. Leyes opposed the ­unilateral approach to corruption as a public pathology. They emphasized that ­corruption could carry out positive functions by way of the integration, development, and modernization of “third world” societies.35 Rose-Ackerman conducts her research within the limits of an economic approach and considers it as a form of social exchange, while classifying corruption payments as a part of the transaction costs.36 In such a case, corruption is associated with excessive government intervention in economic processes. Concurrently, M. Olson argued in his theory of collective benefits, that in some countries such as the Netherlands,37 where the levels of government participation in the economy are high, corruption nevertheless remains at a low level.38 Beginning with the 1990s, a number of studies on corruption were published in Russia (P. Sedov, V. Astanin, E. Demy, N. Demidova, I. Golosenko, V. Kuvaldin, and A. Safronov) covering the period of seventeenth to nineteenth centuries. Through a historical analysis of officialdom, various causes of corruption were defined, the motivations behind corrupt behavior were specified and contradictions in the legal process became evident.39 Friedrich (1972). Simon and Eitzen (1990). 35  Abueva J. The Contribution of Nepotism, Spoils and Graft to Political Development. East–West Center Review. 1966. 3; Bayley D. H. The Effects of Corruption in a Developing Nation. Western Political Quarterly. 1966. Vol. 19:4; Leff (1964). Vol. 8:3; Leyes C. What is the Problem About Corruption? Journal of Modern African Studies. 1965. Vol. 3:26. 36  Rose-Ackerman (1978). 37  Index of Economic Freedom, 2008. http://www.heritage.org/Index/country.cfm?id=Netherlands. 38  Olson (1982). 39  Safonov (2000). 33  34 

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The studies of E. Ozhiganov, V. Kuznetsova, V. Komissarov, and G. Borzenkov40 offer formulations that define corruption from the Russian’s society point of view. For example, E. Ozhiganov divides modern corruption into bureaucratic and political, compulsory and coordinated, and centralized and decentralized.41 Likewise, Y. Kuzminov considers corruption in the wide scope, abuse of one’s official duties for the sake of financial compensation and the narrow scope, bribery of state ­officials.42 Shabanova considers the phenomenon of corruption as interactions in “bilateral solidarity,” and not as legal interactions in the highest levels of political hierarchy. This is demonstrated by a conspiracy to participate in an illegal expenditure of budgetary means, signing loss-making contracts, unprofitable state’s property privatization, and adoption of laws in the interests of lobbying groups.43 In most studies, corruption was examined from a legal point of view and not as a sociohistorical phenomenon of public service. For example, Astanin and Golovanova44 conclude that corruption, as a social phenomenon, was inherent in public service during the entire history of government in Russia. The magnitude of corruption depends on sociopolitical and economic environments; therefore, it is impossible to eliminate corruption utilizing solely measures of legislative restriction. The scope of corruption becomes wider as social contradictions within the state become more severe. Primary causes of corruption are the weakening political authority and contradictions and delay in legal enactments. Characteristic display of corruption in Russia is instances in which the posts of government officials overlap with those in commercial structures, and the allocation of the state’s financial resources.45 Refined bribery and embezzlement of public funds became the basic productive source of income, especially in temporary governmental positions institutionalized by fraudulent Russian business customs.46 A number of scholars, studying the current condition of corruption,47 stress three models of corruption: monopolistic, deregulated, and competitive. Afanasev, for example, suggests that corruption results from specific power structures in Russia and the establishment of patron–client relations within its society. He reveals the tendency of institutions and corporations to merge into a “unified lobbying organism” on the basis of state capital, the use of governmental institutions for personal enrichment, and the conversion of private and corporate interests into a practically single effective authority.48

 Kuznetsova (1993). Ozhiganov (1999). 42  Kuzminov, Ya. Govorim vlast, podtazumevaem koruptsia. Moskovskie novosti. 1999. 45. 43  Shabanova (1999). 44  Astanin (2001). 45  Volzhenkin (1998). 46  Luneev, V. Korruptsiya uchtennaya I fakticheskaya. Gosudarstvo I pravo. 1996. 8. 47  Vodoleev (1995); Kudryavtsev et al. (2000); Kirpichnikov, A. (1997). Vzyatka I korruptsiya v Rossii. St. Petersburg.; Timofeev, L. (2000). Institutsionalnaya korruptsiya. Moscow. 48  Afanasev (1997). 40

41 

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Dolgova suggests that corruption, as a social phenomenon, is characterized by a “payoff” and the extent to which state and other employees can be bribed. In addition, the state officials use their authority in pursuit of personal or corporate interests. Thus, the officials’ ability, authority, and opportunities are connected.49 The essence of corruption lies in the deceitfulness of government officials, and the pattern of relations that is based on illegal transactions to the detriment of the state and public interests. Others, for example, Lopashenko examine corruption within a narrower scope. She believes that in defining corruption, it is necessary to be guided by the traditional meaning of the word. The term “corruption” derives from the Latin corruptio, which is often translated as “payoff.” It is specifically payoff that leads to deceitfulness of the bribed and serves as a characteristic of corruption. Payoff is the core basis of corruption and is always, without exception, present in it. The abuses of officials and other state’s employees, who simply stand by, even those who have malevolent character but who are not connected with the payoff, cannot be considered corrupt. In terms of public danger, acts of corruption are not comparable with official and public service offenses. They are specifically more dangerous because they “always represent a transaction between an official or public servant and an individual who is interested in receiving certain benefits.”50 The international practice combating corruption also understands it as a transaction allowing private citizens to gain access to public resources (contracts, finances, decision-making, etc.) via offerings of dishonest benefits, as there is neither transparency nor competition.51 There is also a broader understanding of corruption, which is not reduced to “transaction” and “deceitfulness” of the employees. It includes other ways of exploiting their official positions for mercenary purposes. Volzhenkin believes that corruption is a social phenomenon, caused by the decomposition of state authority. That is when public servants authorized to perform state-sanctioned functions use their positions, status, and authority for personal enrichment or for the benefit of certain groups’ interests.52 Mishin, on the other hand, views the essence of corruption as the abuse of official powers by government officials for the benefit of their personal (individual and group) interests’.53 Both of these approaches underscore the importance of defining corruption; however, it is preferable to examine this phenomenon from a broader scope. First, the Latin word corruptio means not only “payoff,” but also “decomposition,” ­preventing corruption from being defined simply as employee deceitfulness.

Dolgova (2001). Lopashenko (2001). 51  Johnston (1999); Kaufmann, D. (1997). Corruption: the Facts. Foreign Policy. Summer, 107:114; Cheryl W. Gray and Daniel Kaufmann, Corruption and Development. Finance & Development, March 1998, Volume 35, Number 1. 52  Volzhenkin (1998). 53  Mishin (1991). 49  50 

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Second, while examining corruption from a narrower scope, it is evident that a strong emphasis on corruption often manifests itself as a transaction, although it is not, in essence, limited to this notion (Luneev 2000). At the root of any corrupt transaction is the transfer of illegal compensation to an official and the subsequent abuse of his or her position. This is also characteristic in such unilateral actions as assignment and expenditure, accomplished through the use of an official position and the abuse of official powers, in some instances, with intent to hinder lawful enterprise activity. Undoubtedly, such forms of corruption contain an incomparable degree of danger to public interests, yet their origin and development are caused by practically the same elements.

Factors Promoting Corruption One of the most important factors promoting corruption is the poor regulation of the property rights system. Instead of a system of active property rights, there is a very complex system of mutual relationships among governors, law-enforcement officials, and the courts. Such relationships became embedded in the social fabric, which was formed within the last decade and grew rapidly in the transitional period. At the same time, within the period of private property formation, the privatization of the state took place. The rights over the supreme power and state resources allocations have become the property of the new elite. These new “rights” of old elite and bureaucracy in property distribution embraced the army, the right to collect taxes, the courts, and even the right of printing money.54 Most of the socioeconomic factors promoting corruption were generated during the transitional period. Among them are growing poverty and property differentiations as a result of ill-thought state property privatization, instability in the economy, 1997 financial crisis, and – last but not least – nonrestrictive business ethic principles in all spheres of economic activity. Thus, the hope that economic growth might be a mean of reducing corrupt activities should be cast away. With the disintegration of the old Soviet system, a need for new economic structures in establishing tight relationships with the old elite led to the absorption of the old elite into new structures. Many oligarchic groups had employed top management from former senior KGB staff, the Ministry of Internal Affairs, and the central government. An official version of this policy was the “continuity of professionalism.” However, it was more likely to assist in retaining the worst Soviet traditions, including the old system of mutual relationships based on the rendering of joint services. In these new economic conditions, it has continued to strengthen the growth of corruption. The disintegration of the old political and economic systems generated a huge legal vacuum and, at a later stage, confusion. If, for example, tax regulations were not

Matusovskii (2002).

54 

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clear and specific, the economic relationships were practically illegal. The system of taxation adopted by Yeltsin’s government placed all Russian people not only in immoral, but also in criminal positions. Thus, keeping the population in semicriminal conditions was the means of maintaining power by the ruling elite. This led to a crisis in law-enforcement agencies. Having lost their ideological principles, they ceased to work for the state, but still did not work for the society either. Instead, they started working for self-preservation, and then personal enrichment, gradually turning the criminal justice system into a commercial entity (Ovcharov 2003). Corruption, which is deeply rooted in Russian culture, can be illustrated by an excerpt from a recently conducted interview. The interviewer: Let us assume that corruption is not at present in our society. The expert: With the current laws? The interviewer: Yes. The expert: If the existing laws were fully obeyed, it would be a catastrophe. It would mean that society would stop in its development, the economy would collapse.55 Corruption in Russia is interwoven into societal relations and the problem is that without it the economy could collapse. Corrupt networks between state authorities and businesses exist at every level throughout the society, from garbage removal to school textbook supply. It is important to note the corruption practices of local and top officials. One of the distinctive features is that the local officials, who receive bribes, are simply commercializing state services. At the top level, generally speaking, there are long-term ­corrupt relations, which merge government with private business interests. However, strong relationships between these two entities exist in practice as well. First of all, petty bribery existed throughout the entire Soviet regime. Second, local corruption developed as a consequence of upper level corruption. The state system created a situation in which the officials and businessperson were not able to achieve anything. Such rules of the game grew from top to bottom. Third, there was a public perception that “if high-ranking officials and politicians are taking so much, then we not only can but must do the same.”56 In addition, the growth in corruption at the local level was perpetuated by general poverty and low morale. For the large number of officials involved in corruption, a pyramid network continues to exist. It affects top-level officials of the Ministry of Internal Affairs who cover-up the bribery and racketeering of local officials involved in the “control” of prostitution and drug trafficking. Such rapid growth in the rate of corruption is a consequence of the demolition of the old social system and controlling institutions. Radical reforms were doomed to foster criminalization, legal vacuums, instability, lack of rule of law, and a

Kuzminov (2000). Ibid.

55  56 

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b­ ackwardness of the judicial system. This was accompanied by the further disintegration of moral values. Within such a structure, a corrupt philosophy developed – “grab everything you can, and run before you got caught.”57 Today there is the new tendency, not to grab and escape, but to take greater sums, albeit, less often. People think in the long-term, they care more about keeping the position they have than about the short-term benefits from small bribe transactions. This is a new element of corruption found in Russia. Now part of the profit taken by corrupt networks from their activities are redirected back to strengthen and develop the networks themselves. Such corruption became one of the new spheres of investment activity. Numerous individuals involved in corrupted enterprises have experienced obstacles, such as state security, which they were not able to overcome. Therefore, if corruption is viewed only as a means of expediting processes, then many officials gladly receive bribes. However, if, for example, military officers feel an infringement of the state or personnel interests are involved, they will cease taking bribes. For others, like police officers, moral standards are even dimmer and with each successful transaction their appetite grows. This immorality, which has become the norm, has lead to the creation of substitute moral values among people in business management. Concepts such as “honest– dishonest” and “decent–dishonorable” have special meanings. Conducting illegal transactions may not be considered wrong. However, it is immoral to break a promise and not execute the negotiated condition and promise. In other words, killing somebody maybe considered a normative behavior, but it is impossible to betray or deceive somebody on a personal level. Every day in Russia, decency and incorruptibility are considered to be synonyms with clumsiness, failure, and simple stupidity. To the contrary, bribes in the form of gifts are valued as a form of gratitude, or blagodarnost’ for services rendered and, from this perspective, the law is something that was imposed by the state and does not need to be obeyed; only fairness generates moral standards. Two major factors play an important role in changing the society’s corrupt moral standards. One is the political will of the higher authority of the state that could signal to the population and corrupted officials that the illegal practice must be changed. The other is the media, which should publicize each act of corruption as well as the successes achieved in counteracting corruption.

Corruption and Public Service In determining the factors that cause corruption in public services, low salaries and lack of social guarantees at retirement and legal vulnerabilities must be considered. Some bureaucrats, experts say, realize that they probably got their bureaucratic

Cheloukhine and King (2007: 117).

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power for just 2 or 3 months of probation period and then could be thrown out of the system. The same experts say that at the beginning of the 1990s a decreasing salary for law-enforcement officers was instituted in order to get rid of the experienced and uncorrupted professionals. At the same time, government officials (mostly high-ranking bureaucracy) were well protected. They were afforded with free-of-charge government summer dachas, full health coverage, expensive cars, and subsidies for better food. Others argued against a direct influence of salary on the level of corruption. They state that regional authorities have established for themselves much greater salaries than federal authorities, and yet they have not stopped taking bribes. A third argument asserts that bribes will always be more than the salary, regardless of how high it is. As to the question of whether there is some risk for officials who digress from corrupt practices, the opinions are divided. Some believe that outsiders, disassociating themselves from corrupt activities, will be forced out of public service. Others believe these officials have nothing to be afraid of, especially in terms of the threat of a physical punishment. A third group believes that such officials will be bypassed since they are not corrupt. In reality, all these views are accurate.58 Since the 1990s, the buying and selling of high-ranking positions in the government, from deputy minister and chief of department to the members of secretaries, emerged as a new phenomenon. Two-third of ministers and almost all vice-premiers are “noncommercial” posts because they have no authority in terms of financial and natural resource allocation. Therefore, the positions of secretary, heads of departments, and those who draft decision proposals are much more valuable. The sums vary considerably. The bribe for the post of deputy minister ranges from $50,000 to $500,000; and $1 million for the post of a minister.59 The final price to be paid depends on the departmental structure and the associated and implied powers. The ideological connivance in corruption was accompanied by a number of institutional changes that inevitably led to a considerable growth of corruption. The first of these changes was the practice of licensing the export of raw materials and products in their primary processing stage (oil, fuel, and ferrous metals). The prices of raw materials, although growing, were still low and close to those of the Soviet years, while the rate of the ruble dropped tenfold and then many-hundred-fold. No control existed over the large sums obtained from exports. Contracts were signed for ridiculously low prices, which suggested that large sums of monies were being paid directly to the Russian officials involved.60 Among the recent cases of corruption, experts61 identified the following behaviors: • Buying and selling high positions within the Russian government • Allocating quotas on crude oil export

Kudryavtsev et al. (2000). Ivanov (2005). 60  Sergeev (1997). 61  Davydova (2000). 58  59 

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• Releasing or selling shares in publicly held enterprises at a loss profit level by the regional governments • Violating property rights • Bribing decision-making officials at the arbitration courts • Filing deliberate bankruptcies of enterprises, in order to intercept the property • Bribing tax police to arrest competitors, with the property often being resold to the briber • Using law enforcement as “roofs” for organized criminal groups • Illegally terminating criminal prosecutions The following is an attempt to rank the most corrupted spheres of the Russian economy, starting with the most corrupt: • • • • •

Licenses and quotas on exports (oil, metals, and energy resources) Ministry of Finance tax offsets Social security benefits and those having budgetary accounts Barter and natural offset of debts in regions (plundered 30–40% of total debts) Railway transportation (the cost of transporting the same cargo can differ significantly, depending on the arrangements made with the local public official) • Agricultural entrepreneurship (preferential financing and debt write-off)62 Most of the Russian domestic politics is made up of bribes, payoffs, and corrupt favors. Such practices are widely used for political campaign financing, personnel assignments, and appointments. At the same time, Russian political campaigns are a litmus test that identifies the level of corruption. Political competition inevitably makes any actions public, which leads to a corresponding public opinion and civic pressure toward corrupt politicians.63 In the 2004 State Duma elections, a new approach dominated the campaign: “buy and sale” deputy mandates either at the level of one-mandate districts or at the level of party candidates. For example, one businessperson confirmed that for approximately $200 million it was possible to buy half of the State Duma and have 200 dedicated people in it. However, it is too expensive, “there are 30–40 influential deputies in the parliament, which is enough to push through necessary laws.”64 In the first years of democratic elections, these structures were investing their financial resources in themselves. In the present time, they prefer simply to bribe already elected deputies in order to lobby for their interests. The reason for this change of strategy is simple. During the first period of the Russian reforms, nonstate structures did not have enough financial resources. In contemporary times, corruption networks invest significant financial resources in obvious favorites. Russian oligarchic structures no longer concern themselves with who  will win the elections. Investing in all elections campaigns became too

Cheloukhine (2000). Cheloukhine and King (2007: 119). 64  Ivanov (2005). 62  63 

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4 Corruption in Russia: Past, Present, and Future

expensive, unpredictable, and at the end less profitable. Therefore, bribing an elected deputy to lobby for a desired outcome is more profitable. Experts explain such developments by the lengthy transitional period, shortcomings of the electoral legislation and, in particular, it’s financing process. Practically, each action of the Russian legislator has its price. For example, the appointment of the deputy to the post of committee chairperson would cost approximately $30,000. The price for any bill submission and its consideration by the State Duma of the Russian Federation is about $250,000. Deputies of such key committees, for example, budgetary, receive approximately $30,000 per year from illegal, corrupt transactions; whereas their legal wages are approximately 1/15th to 1/20th of the bribes they receive.65 There is almost a competitive market of corruption services and bribes in the State Duma. Lobbyists are constantly at work for the rates of each deputy service and for each voting. The state budget is the major target that, on a regular basis, is lobbied in the State Duma through corruption networks. In many cases, this system of decision lobbying in the Russian Parliament is rather convenient for executive authority. It is not a necessity to build a long-term political relationship with all deputies, to bribe some of them is much easier and much cheaper.

Corruption in the State Administrative System Beginning in 1991, over 270 legal decrees to combat corruption were passed in Russia, but corruption permeated all levels of the government. It was a period of intensive infiltration of corruption into the government sector and development of corruption networks. During these years, new manifestations of corruption, which evolved from previously existing forms, emerged and altered themselves according to political and social changes. State employees perceive their official duties as commercial goods, which is the essence of corruption that poses a real threat to the standard and lawful functioning of the government and its personnel. Corruption became more of a norm, than an exception, also encompassing the political, authoritative, and economic elite. The cause for unrelenting corruption is not that the Russian people are genetically programmed to pay bribes, but that the state still sees them as its ­vassals rather than its masters. The situation is further complicated by the severe circumstances surrounding the state of corruption within law-enforcement agencies. Beginning in 1993, the Main Information Department of the Ministry of Internal Affairs of the Russian Federation has been collecting data on the corruption of the state officials. However, in the 1990s, these data sets were strictly classified. The authorities did not publicized data about corrupt officials and criminal cases rarely reached the stage of final investigation or even more rarely, the courts. They refrained from publishing complete annual statistical reports, just as during the Soviet era.66

Klyankin and Timofeev (2000). Safonov (2000).

65  66 

Corruption in the State Administrative System

73

The most significant problem is that the fight against corruption does not have an adequate legal base in Russia: there are no laws on corruption or on legalizing the funds accumulated in the course of business activities, as no appropriate articles exist in the Basic Law on Civil Service (1995). There is no independent government agency capable of fighting corruption. These negatives reflect a very high level of corruption of state officials in the country. The Basic Law on Civil Service was created during 5-year period. Its Articles 11 and 12 provide certain restrictions on the official activities as well as the officials’ duty to report their income annually. Out of 12 points dealing with possible violations, 10 involve corruption. However, this law as well as the earlier adopted Regulations on State Service extend only to lower and middle-rank personnel. Officials of the category A, such as the heads of the legislative and executive authorities, people’s deputies, ministers, judges, and other top federal level officials, were out of the law’s reach. In particular, regulations involving the declaration of officials’ incomes apply only to the officials themselves and not to their family members as well.67 The property which corrupt officials buy or receive as a bribe is usually registered in the names of their relatives. The new Russian top officials are free from any previously subordinated authorities and any moral obligations. Within 2008–2010, more than 15 ministers of the economy and finance, their deputies, or the deputies of the Chairman of the Government were replaced. A majority of these received leading posts in the largest private commercial banks, companies, or firms the next. A typical example of how the Russian authorities obstruct the development of the legislative to combat corruption is the adoption of the Law to Combat Corruption. There were ten drafts of this bill prepared, and the Russian Supreme Soviet adopted one of them in 1993. But then President Yeltsin and his closest officials sent the bill back for further work because it seemed to them being unnecessarily restrictive to them.68 The State Duma adopted the law only in December 1994. But the Upper House – the Federation Council – did not like the provision of making the declaration of incomes obligatory for top state officials and members of their families. Such financial disclosure of the incomes of the state officials and the members of their families is a norm in democratic countries.69 The rejection of the law after its first reading shows that while personally accepting Western freedoms and privileges for themselves, the Russian top officials refused the responsibility and duty of declaring their incomes. Moreover, they treated such declarations as a return to totalitarianism. The Federation Council adopted the law On the Fight against Corruption only in December 1995. However, President Yeltsin again refused to sign it. The President branded this as violation of the Constitution, citing Paragraph 1 of Article 23 of the Constitution of the Russian Federation and Article 12 of the Law on the State Service.

Cheloukhine (2000). Ibid. 69  Cheloukhine (2000). 67  68 

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4 Corruption in Russia: Past, Present, and Future

According to these articles, only a top official, but not members of his ­family, must declare his income. However, the appeal to Paragraph 1 of the Article 23 is not proper here. The article stated: “Every individual has the right to the inviolability of their private life, personal, and family facts and to defense of his honor and good name.” Justifying the President’s behavior, his assistant brought as the most important argument a possibility of repressions similar to Stalin’s 1937 purges.70 A paradoxical situation existed in Russia under Yeltsin. On the one hand, the issue of the corruption of top state officials was one of the most discussed topics in mass media. The President, in his address to the parliament, denounced the delays and sluggishness in fighting corruption.71 On the other hand, it was the President’s administration which had hindered the adoption of anticorruption laws for many years. In Western countries, the exposure of top officials in corruption usually results in investigations and possible court proceedings. In Russia, however, other traditions and laws are in force. During the Perestroika, the collapse of the USSR and the following transition to the market economy, an old truth has been proven again: the largest fortunes are made during the destruction of old empires and the emergence of new states. The above-mentioned conditions stimulated criminal activity of new state officials. Paralyzes of law-enforcement structures contributed to this phenomenon. It is widely assumed in Russia that every official has his price. The price for information about old people living alone from a housing-office official is $500. The price for loans on favorable conditions by a person in the banking and finance system is much higher. According to sources in the Ministry of the Internal Affairs, up to 40% of the total amount of credits and loans return to line the pockets of such benefactors.72 During Putin’s time, data on corruption was no longer treated as information intended “for official use only,” and public access to it became open and unrestricted. The State Duma affirmed that the main threats to the existence of the state and society included: • • • •

Widespread expansion of criminal lobbyism Mercenary contracts by officials Investment in commercial structures at the expense of the state budget Transfers of state property into management by commercial enterprises that were unfounded and unprofitable for society • Creation of bogus enterprises and illegal operations undertaken outside the established economy • Merging of public service duties with participation in commercial organizations • Wrongful intervention with the activities of law-enforcement agencies73 Rossiiskaya gazeta, January 16, 1996. Poslanie Prezidenta RF Federalnomu sobraniyu. Rossiiskaia gazeta, February 27, 1996. 72  Argumenty i fakty. 48, 1994, p. 8. 73  The State Duma Informative Bulletin (Informatsionnyi bulleten Gosudarstvennoi Dumy FSRF). 10:3. 1998. 70  71 

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General neglect of the proper law-enactment procedures allowed for passage of legal decisions in the mercenary interests. Their emerged a necessity to enact a law on lobbyism and also a law dictating and delineating proper procedures for passing other laws. The common public attitude toward corruption could be summarized as follows: If it is likely to take bribes in one area, then why not do so in another. If the mass media spoke about the widespread bribery of the State Automobile Inspection74 (GAI) employees as being generally acknowledged and legally existent, then a nurse who bribed a GAI official will get back the paid sum from her patients. The second fundamental factor of corruption expansion was the fact that the state, although it having proclaimed itself democratic and lawful, was not such in reality. By pursuing poorly thought-out actions during its transition to a market economy, the state became a generator of crime. Such a state should be deemed criminal, one where authority becomes criminal-based, an institution generating a social behavior. Russia has entered the ranks of the 20 most corrupted countries in the world, and is approaching, if it has not reached it already, the level where corruption becomes a core obstacle on the path of its development.75 Corruption has a direct influence on governmental mechanisms and on a majority of economic processes, while causing the degeneration of authority and transforming it into a tool of criminal operation in society. Being a complex social phenomenon, corruption leads to a dysfunctional operation of state institutions and their management, while placing the functioning of social network under a threat of decline. In the late 1990s, the loss from corruption in Russia had already reached 25% of the gross national product.76 At the same time, the number of court cases filed against corrupt individuals was extraordinarily small. At the end of 1996, a number of Russia’s top officials were charged with misappropriating budget funds and depositing those funds in commercial banks in order to get high interests. The former Deputy General Procurator A. Ilushenko was among those arrested for this type of corruption. The former member of the State Duma S. Stankevich, who was charged for receiving a $10,000 bribe and escaped from Russia, was found in Poland in 1997, though a Polish court refused to extradite him to Russia. Then the deputy Premier Minister A. Chubais was paid $95,000 for an unwritten book on Russian privatization, by a company whose owner financially benefited from Chubais’ decision on privatization of the state property. President Yeltsin later fired him, but no further action was taken. The state fought corruption irresolutely and

Gosudarstvennaya avtomobil’naya inspektsiya, GAI, State automobile inspectorate – the Russian traffic police responsible for the regulation of traffic, investigating traffic accidents, and manning the stop lights. GAI officers are called “GAI inspectors” in Russia. 75  The international watchdog’s newest “Corruption Barometer” report the findings that Russia has slipped from 120th to 143rd place, out of a total of 160 countries. As RIA Novosti reports, Russia received a rating of 2.3 on a ten-point scale, equating it with countries like Gambia, Indonesia, and Togo. 76  Rimskii (2000). 74 

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ineffectively, and it is not incidental that Russian citizens exhibit a low level of trust toward law-enforcement agencies. Sociological studies77 of 1993, 1999, and 2001 illustrate that the majority of respondents perceived corruption in tolerant terms. The highest degrees of corruption were in the areas of taxation, the judicial system, law-enforcement bodies (particularly in the GAI), public health, and property disputes. For example, three quarters of the (interviewed78) Russian population (74%) responded that there is “high” or “very high” rate of corruption in Russia (30% responded as high and 44% very high); only 19% of respondents think that the corruption rate is “moderate,” and 1% that it is “low”; no one has agreed that there is no corruption in Russia (Table 4.1). About a half of respondents have either received or have given bribes, undertaking these actions in varied aspects of their lives. More than half (52%) admitted giving gifts and money to doctors, surgeons, and nurses (Table 4.2). One-third (36%) of the respondents admitted that they bribed teachers or school administration in order to “solve” their problem (in 2006, e.g., that rate was 29%).

Table 4.1  Official corruption index in Russian Federal districts Very High

60

High

Moderate

Low

50

40

30

20

10

0 Central

North-West

Southern

Volga

Ural

North

Far East

Source: All-Russia survey was conducted on September 6–7, 2008. Interviewed 1,600 people in 140 cities and towns of 42 Federal Regions, Oblast, and Republics. http://wciom.com/

Corruption causes and ways to fight it. VTsIOM, Moscow, 2008. 1048. All-Russia survey was conducted on September 6–7, 2008. Interviewed 1,600 people in 140 cities and towns of 42 Federal Regions, Oblast, and Republics. http://wciom.com/. 77  78 

Corruption in the State Administrative System

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Table 4.2  Bribes broken by environmental factor 60

2006

2008

50

40

30

20

10

0 Health Care Law Enforcm Include GAI

Education Matter

HR in gettig job

Judicial System & Court

Passport & Visa servise

Business Registrn

Source: All-Russia survey was conducted on September 6–7, 2008. Interviewed 1,600 people in 140 cities and towns of 42 Federal Regions, Oblast, and Republics. http://wciom.com/

Almost each third Russian driver (28%) has bribed the State Automobile Inspection official (GAI).79 In 2008, for example, 1,300 individuals were prosecuted for taking bribes (Table 4.3). The highest number of those, 31%, are lawenforcement officers, judges, prosecutors, lawyers, and deputies in legislative bodies of municipal and regional levels80; the next most corrupt, 20%, are doctors and medical staff; and the third group are governmental officials. As for corruption, 1,642 state officials were charged, among them 62 Federal and regional Deputy of the Parliament, 3 judges, 8 district attorneys, and 70 detectives.81 Representatives of small- and mid-size businesses82 demonstrated the most negative dispositions concerning corruption. Thus, the major condition for fighting corruption is its proper identification in the consciousness of Russian citizens, especially since practically not a single citizen is able to avoid encounters with corrupt officials. The general consciousness of the citizenry does not accept the fact that corruption, in addition to being more extreme than bribery, is also multifaceted. Ibid. Kulikov, V. Korruptsia s’edaet tret’ byudzheta Rossii. Accessed September 30, 2008 http://www. newsru.com/finance/30sep2008/korruption.html. 81  In 2008, corruption rating lead by the police. Interfax. January 29, 2008. 82  Ibid. 79  80 

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4 Corruption in Russia: Past, Present, and Future

Table 4.3  Index of corrupt institutions 2006

35

2008

30

25

20

15

10

5

0 GAI

State & Muncipal Admn

Law Enfrcmt

People's Culture

Medical Service

Education Fed Gov

Judicial System

Business

Source: Kulikov, V. Korruptsia s’edaet tret’ byudzheta Rossii. Accessed September 30, 2008. http://www.newsru.com/finance/30sep2008/korruption.html

Commencing with the individual and isolated transactions, corrupt persons begin to form organized and coordinated actions, uniting into criminal communities. The activities of such corrupt networks are evidenced by the formation of mutually beneficial relations and interdependence between officials positioned not only on the same verticals of management, but also across various levels of management within different departments and institutional structures. Corrupt networks are closely connected with the organized crime. The structures of corrupt networks include: groups of government officials that ensure expected outcomes; commercial and financial structures that siphon received benefits, privileges, and incomes; protection received from representatives of law-enforcement agencies such as the Ministry of Internal Affairs, FSB, Offices of Public Prosecutor, tax auditors, and judges.83 As INDEM’s expert explains, before 2003 officials simply took a cut of businesses’ profits.84 After Yukos case, they started to take the businesses themselves. Nowadays businesspersons pay bribes as much to be left alone as to get something done. They call it a “bribe of survival or legal extortion.” For example, the Institute for Public Projects (INOP), with the participation of the Institute for Comparative Cheloukhine, S. (2008). Problem of Policing Economic Crime in Russia. Law Enforcement Executive Forum Journal. Volume 8, Issue 4. 84  Grease my palm. Bribery and corruption have become endemic. The Economist, November 2008, p. 10. 83 

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Social Research (CESSI), conducted a study “The Nature and Structure of Corruption in Russia,” in which they interviewed 36 experts from those institutions. The INOP-CESSI study also produced a “price list” of bribes. According to the list, a place on a party list for a State Duma election cost $2 million–$5 million while getting legislation introduced in the Duma for consideration costs $250,000. According to Satarov, INDEM’s research found that the size of the bribe required to be named a government minister during the Putin period was 150 times higher than during the Yeltsin period and that while the standard size of a kickback in 2000 was 10–15% of the value of the government contract, order, purchase, etc., it had reached 30–50% by 2005 and today it is in the range of 50–70%.85 For a large private company to win a goszakaz, or state purchase order, it must pay a third of the order’s total value; to participate in a national project, it must pay 30–40% of the project’s total value; to get a line item in the federal budget, it must pay 3% of the project’s total value. A large private company must pay $1 million–$5 million to get a license, prevent a license it already has from getting revoked, or get a competitor’s license revoked. For a small business to ensure that a transaction is carried out, it must pay a third of the transaction’s value and in order to get “help” from officials, a small business must pay 10% of its total profits. Getting customs duties reduced costs 30–50% of the sum on which the duties were assessed; getting tax arrears written off costs anywhere from 30 to 50% of the sum of the arrears. To acquire the Central Bank to begin examining documents costs a commercial bank $500,000, while winning the right to transfer federal budget funds costs a bank 5% of the sum of the transfer. To win a case in a civil court or an arbitration court costs 10% of the awarded damages. To win a grant costs a charitable foundation 20–30% of the value of the grant.86 Therefore, corruption has grown into a systemic crisis, which has struck the government of modern Russia. The problem in combating modern corruption lies in the fact that corruption is connected with abuses of the law or of ethical and moral standards. However, quite often, corrupt officials perform duties precisely ascribed to them by the law. It is not quite fair to suggest that such actions by these officials cannot be corrupt, in particular since the avaricious motives of these actions are reinforced by the presence of clientele-type relations (Zubov 2001). During the post-Soviet transitional period, there was a great delay in the enactment of acutely needed laws: “On fight against corruption in the public service system,” Federal laws such as “On fight against corruption,” “On counteraction of legalization (laundering) of illegally received incomes,” “On declaration of sources of incomes and expenditures by private individuals.”87 In December 2008, the State Duma Deputies finally approved the presidential draft of the Law “On Counteracting Corruption.”

Jonas Bernstein “Will Russia’s next anti-corruption campaign succeed where others failed?” Eurasia Daily Monitor Volume:5, Issue:18. 86  Bernstein (2008). 87  Transparency International Russia. Center for Anti-Corruption Research. http://www.­transparency. org.ru/CENTER/index.asp. 85 

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Many experts noticed that the adopted law, in the juridical sense, cannot be even considered a declaration, because it does not define the concept of corruption. The main anticorruption measure, “a must property declaration by the official’s ­family members,” will begin only in 2010. Thus, to corrupt individuals, a minimum of a year-long deferment is afforded to “fix” the undeclared property. However, if additional amendments will be accepted, thank to legislative procedures, this period can be extended to an unspecified time. For example, Article 1 of the law “On Counteracting Corruption” lists the compositions of crimes, which were already envisaged by the criminal code in 1997 and 2002. These are bribery, abuse of official authorities, commercial bribery, extortions, etc. For example, Article 9 (State Duma Deputies did not approve its first version) required an official “to inform the employer, the attorney, or law-enforcement agencies in writing about known facts of other state officials corrupt actions and/or abuse of their authority in pursuit of financial gains.” In everyday reality, if this article had been approved, all types of corrupt networks and actions would cease to exist soon. However, Deputies excluded this part from the bill which was signed later by President Medvedev into law.88 State officials are obligated to report to law-enforcement agencies only about cases, when bribes were offered personally to him or her. However, since all corrupt networks have vertical and horizontal structural relationships, such regulation is clearly doomed to fail. Another section, Article 10, required the submission of the property declaration by the state official’s family members. Although, Deputies adopted this article, it was done with major modification: one should submit a report (on ownership of land, houses, apartments, and vehicles) only for spouse and children up to 18 years old. The deficiency found in the counter-corruption bill is obvious. Property will be registered or re-assigned to brothers, sisters, and mothers-in-law, and after their children reach the adulthood age, the property title will be transferred to them. Such interpretation of these most important innovations diminish the effectiveness of the anticorruption bill, if not reduce it to zero. Other anticorruption ­measures, also approved by Deputies, in comparison with those described above appeared inconsequential. For example, an official should not receive gifts if ­values exceed 3,000 rubles (about $100). However, there is no condition on how often one could take a small gift per week or per month. In addition, 2 years after departure from the governmental position, an official should not be able to work for those commercial and noncommercial organizations that he or she supervised previously. However, the anticorruption bill has in the addendum a “liberal” lessening rule: officials will be able to work in “previously supervised” business, if a special commission approves this request. It seems that Deputies tried to leave every possible doors open for corrupt actions and did not concern themselves with the consequences of these devious behaviors. Thus, while it is possible that Medvedev’s declared war against “legal nihilism” might succeed where Yeltsin’s pledges to fight corruption and Putin’s “dictatorship

Russia: Integrity Indicators Scorecard. Global Integrity Report. (2008). http://report.globalintegrity.org/Russia/2008/scorecard/86. Accessed January 26, 2010. 88 

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81

of the law” failed, it may be time to recall the phrase made famous by former prime minister Viktor Chernomyrdin: Khotelos kak luchshe, a poluchilos kak vsegda – “We wanted better, but it turned out as always.” Corruption appeared in conjunction with the formation of Russian statehood and the emergence of superior–subordinate relations. The tradition of presenting “reverences” and offering gifts as tokens of respect to the official for performed work are the starting points of corrupt attitudes. State employees perceive their official duties as commercial goods, which is the essence of corruption that poses a real threat to the normal and lawful functioning of the government and its management personnel. Corruption became more of a norm, than an exception, also encompassing the political, authoritative, and economic elite. The principal causes of corruption are the State weakness, a well-developed illicit economy, exploited methods of privatization, political lobbying, and the destruction of established social and legal control over activities of state employees. Among factors that stimulate the growth of corruption are: weak incentives for the promotion of state employees and a legal system that does not provide proper depiction of corruption within its system of government. The sustenance and development of corruption in the mid-1990s allow us to stress a number of tendencies of corruption: arising in the economic sphere, it rather quickly infiltrates the political sphere, deforming the government, legal ­system, economy, and morality; corruption is interrelated with the underground economy and its amalgamation with organized crime, causing the state to lose its regulatory role and appropriation and traditional legal functions; corruption and organized crime become drivers for the reorganization of a society; finally, the growth of crime and corruption serves as evidence of changes within the established social order. All this attests to the fact that the emergence of crime under such conditions, and in every form, becomes a vital element of economic life and is most profitable activity. The extent of the modern system of state and government corruption and the manner in which it is displayed intrinsically differ from all previous periods of Russian history. On the one hand, the elimination of the Soviet state controlling system created a void that supported the massive development of corruption, which existed among state employees under the Soviet system. On the other hand, the transition to a market system, in its worst form, under the Yeltsin regime, revealed new spheres of corruption. For example, the illegal appropriation of state-owned property, ample displays of lobbying by oligarchic and clan interests, support and financing of political structures in exchange for the entrance of corrupt officials into authoritative structures, and for the purposes of developing their own businesses. Corruption acquired a socially institutionalized nature, becoming an element of the regulatory system, which was interconnected with social, political, and economic institutions. The institutionalization of corruption resides in the transition from criminal acts by individual officials into a mass social phenomenon, which acquires a habitual character within a country’s socioeconomic structure.

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Among the specific causes that stimulated the expansion of corruption in the 1990s are: • • • •

Political instability Disintegration of the official system of control Difficulties in overcoming a totalitarian regime Abrupt transition to a new socioeconomic system which lacked legal foundation and legal culture • Inexistence of private property during the Soviet period This new form of corruption is changing the structure of the Russian economy. Yeltsin-era corruption ended in a state-owned property auctions, even if they were not legitimate but rather staged ones that reflected the agenda of the corrupted networks. The new corruption, under Putin, ends in the nationalization of business. Nationalization is not quite the right word, because sometimes state property is ­quietly transferred into private bank accounts. Moreover, even where a business is formally controlled by the state, the profits from share sales may never be collected. Thus, specific features of corruption in modern Russia lie in its institutionalized nature, formation of corrupt networks, and factual existence of a secondary (informal or shadow) authority. Such authority is based on corrupt relations that infiltrate all spheres of state institutions including law enforcement, education, medicine, and armed forces. The question ending this chapter illustrates the problems defined in the following chapter, which deals with the ways to fight Organized Corruption Networks. If we accept the existence of endemic and widespread corrupted networks, we must ask what are the law-enforcement mechanisms put in place to fight this epidemic? If the law-enforcement mechanisms are put in place what specific strategies are deployed to disrupt the corrupt behaviors? As we learn from the experiences of other countries fighting organized crime activities through multiple law-enforcement strategies, the necessary component to achieve any success in the war against organized crime is a clean and noncorrupted force/s that engage in a thorough information sharing and exchange. If the aforementioned principle is missing, the sheer numbers of law-enforcement officers deployed will not suffice to counter and minimize the problem. Therefore, integrity of the law-­enforcement system together with a professional approach to solving the criminal activity are the ingredients deem necessary to any effective response. Integrity and professionalism will be, by default, related to the compensation the law-enforcement forces receive for their efforts, a problem of itself that we will tackle further in the following chapter.

References Acemoglu, D. & Verdier, T. (1998). “Property Rights, Corruption and the Allocation of Talent: A General Equilibrium Approach,” Economic Journal, Royal Economic Society, vol. 108(450), pages 1381–1403. Afanasev, M. (1997). Klientelism i rossiiskaya gosudarstvennost. Moscow.

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Astanin, V. (2001). Korruptsiya I borba s nei v Rossii vtoroi poliviny 16-20 veka: Kriminologicheskoe issledovanie. Moscow. Abueva J. (1996). The Contribution of Nepotism, Spoils and Graft to Political Development. EastWest Center Review. 3. Bayley D. (1996). The Effects of Corruption in a Developing Nation. Western Political Quarterly. Vol. 19:4. Berlin, P. Russkoe vzyatonichestvo kak sotsialno-istoricheskoe yavlenie. Sovremennyi Mir. 8: 48, 54 1910. Moscow. Beare, M. (1997). Corruption and organized Crime: Lessons from history. Crime, Law & Social Change 28: 161. Bernstein, J. Researchers study the “nature and structure” of Russian corruption. The Jamestown Foundation, February 11, 2008 http://www.jamestown.org/edm/article.php?article_id=2372793 Cheloukhine, S., King, J. (2007). Corruption networks as a sphere of investment activities in modern Russia. Communist and Post-Communist Studies, Volume 40, Issue 1, March 2007, 107–122. Cheloukhine, S. (2000). Corruption and organized crime in changing Russian society: economic, social, and legal aspects. Proceedings, VI World Congress ICCEES. Divergences, Convergences, Uncertainties. Tampere, Finland, August 2000, p. 83. Dolgova, M. (2001). Criminology. Moscow. Davydova, T. (2000). Corruption Immortal? Clean Hands, Moscow. Friedrich C. (1972). The Pathology of Politics: Violence, Betrayal, Corruption, Secrecy, and Propaganda. N.Y.: Harper & Row. Gilinskiy, Y. (2005). Corruption: Theory and Russian reality. In R. Sarre, D. Das and H. J. Albrecht (eds). Policing Corruption: International Perspectives, 157–68. Lanbam, Boulder, New York. Ivanov, S. (2005). Buy and sell. Argumenty i fakty 21: 6–8. Komissarov V. (1993). Ugolovno-pravovye aspekty borby s korruptsiei. Vestnik Moscow University. Seria 11. Pravo. 1. Kolodkin, L. (2002). Administrativno-pravovye problemy preduprezhdeniya korruptsionnoi i organizovannoi prestupnosti. Gosudarstvo I pravo. 104. Kluchevski, V. (2002). Russkaya istoriya. Kniga pervaya. Lektsiya 37. p. 566. Moscow. Klich, A. (1996). Bribery in economies in transition: the Foreign Corrupt Practices Act. Stanford Journal of International Law 32, 127. Klyankin, I., Timofeev, L. (2000). Shadow Russia. Socio-Economic Study 3:45. Kudryavtsev, V., Luneev, V., Naumov, A. (2000). Organizovannaya prestupnost i korruptsiya v Rossii. (1997–1999). Moscow. Kuzminov, Ya. (1995). Govorim vlast, podtazumevaem koruptsia. Moskovskie novosti. 45. Kuzminov, Y. (2000). Corruption Behavior Becomes a Norm. Clean Hands, Moscow, pp. 4–36. Kuznetsova, N. (1993). Korruptsia v sisteme ugolovnykh prestuplenii. Vestnik Moscow State University. Seria 11. Pravo. 1:21. Kuznetsov, I. (2000). Korruptsia v sisteme gosudarstvennogo upravleniya: sotsiologicheskoe issledovanie. St. Petersburg. Luneev, V. (2000). Geografiya organizovannoi prestupnosti i korruptsii v Rossii. Gosudarstvo i pravo. 11:27. Lopashenko, H. (2001). Korruptsiya: soderzhanie i problemy pravovoi reglamentatsii. Ugolovnoe pravo. 2:99. Leff, N. (1964). Economic Development through Bureaucratic Corruption. American Behavioral Scientist. Vol. 8:3. Matusovskii, G. (2002). Financial Crimes (Criminology Methods). Organized Crime and Corruption, Research, Evaluations, and Information, St. Petersburg, pp. 62–76. Montesquieu, Charles. The Spirit of Laws. Book II. Of Laws Directly Derived from the Nature of Government. http://www.constitution.org/cm/sol-02.htm. Accessed November 22, 2008. Mishin, G. (1991). Кoruptsiya: ponyatie, sushchnost i mery ogranicheniya. Moscow. Melnik, N. (2001). Mekhanizm prestupnogo korruptsionnogo povedeniya. Ugolovnoe pravo. 1.

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Mokhtari, M., Grafova, I. (2007). Corruption: Theory and evidence from the Russian Federation. Economic Systems, Volume 31, Issue 4, December 2007, 412–422. Nuijten, M. (2003). Power, Community and the State: The Political Anthropology of Organization in Mexico. Pluto Press. Nuijten, M., Anders, G. eds. (2007). Corruption and the Secret of Law. A Legal Anthropological Perspective. Ashgate Publishing. Ozhiganov, E. (1999). Ponyatie i struktura korruptsii. Sotsiologia vlasti: Informatsionnoanaliticheskii bulleten. Sotsialnye prava rossiiskikh grazhdan I ikh realizatsiya. Moscow. Ovcharov, A. (2003). Korruptsiya v sisteme tenevykh ekonomicheskikh otnoshenii. Volgograd. Olson, M. (1982). The Rise and Decline of Nation: Economic Growth, Stagflation, and Social Rigidities New Haven: Yale University Press. Johnston, M. “Unpredictable Rules, Dishonest Competition, and Corruption: Costs for Development and Good Governance”. Asian Development Bank, OECD. Conference on Combating Corruption in Asian and Pacific Economies. 29 September 1999 Polnoe sobranie zakonov Rossiiskoi Imperii. V. 1. No. 7157, V. 5. No. 2871, 1987. Moscow. Rimskii, V. (2000). Poteri ot korruptsii. Gumanitarno-politicheskii Tsentr Strategiya. St. Petersburg. Rose-Ackerman S. (1978). Corruption: A Study in Political Economy. N. Y.: Academic Press. Rossiiskoe zakonodatelstvo 10-20 vekov. V.1 (1984). pp. 332-337; V.3. 1985. Moscow. Satarov, G. (2002). Teplo dushevnykh otnoshenii: koe-chto o korruptsii. Obshchestvennye nauki i sovremennost. 6:19, Moscow. Safonov A. (2000) K istorii korruptsii v sisteme gosudarstvennoi sluzhby. Korruptsiya i borba s nei. Moscow. Sergeev, V. (1997). The Wild East. Crime and Lawlessness in Post-Communist Russia. M.E. Sharpe, Armonk, NY. Sobranie Uzakonenii RSFSR. 1:8. 1923. Moscow. Simon D., Eitzen D. (1990). Elite Deviance. Boston: Allyn and Bacon. Shabanova, M. (1999). Nepravovaya svoboda i sotsialnaya adaptatsiya. Svobodnaya mysl. 11. Vodoleev, G. (1995). Korruptsiya. Khronika sobytii. St. Petersburg. Volzhenkin, B. (1993). Vzyatonichestvo v istorii sovetskogo ugolovnogo zakonodatelstva: 1918–1927 Pravovedenie. 2:59–67. Volzhenkin, B. (1998). Korruptsiya. St. Petersburg. Zubov V. (2001). Korruptsiya v srede rossiiskogo chinovnichestva: istoricheskie korni i osobennosti. Chinovnik. Moscow.

Chapter 5

Organized Crime, Businesses, and Local Bureaucracy

During the Russian market transition and state property privatization, criminal activities in the shadow economy, which existed throughout the Soviet era, were transformed into legal operations and businesses. Business-minded people, who previously had to operate in the sphere of illegality, found themselves relieved of many legal restrictions, and thus faced new opportunities for economic endeavors. The origin of crime in Russia revealed two interdependent tendencies: the “economization” of organized crime and the raising of the organizational level of economic crime itself. It reveals that, first, the illegal distribution of state property has been completed. Second, many criminal authorities were killed in the turf war between rival groups in the mid-1990s, while others ended up in prisons. Third, the  remaining criminal avtoritety (authorities),1 a substantial number, have either successfully legalized their business and led a law-abiding life, or have joined a criminal network. The dynamic of crime advanced in the following manner: crimes in the Soviet economy have evolved into economic crime committed by businesspersons within the sphere of economic activity; moreover, economic crime has evolved into organized economic crime, and has further evolved into the organized corruption network.

Contours and Tendencies of Russian Organized Crime Having penetrated the economy, the growth of organized crime has become a major threat to Russian society’s development. Scholars argued that this, in many ways, was typical for any country in transition; however, given Russia’s size and importance, this case is a special one. Therefore, it is only logical that Western law-enforcement agencies, criminologists, and political scientists display a strong interest in the ­phenomenon of Russian organized crime and corruption. Each criminal organization usually has two or three group commanders operating in different regions.

1 

S. Cheloukhine and M.R. Haberfeld, Russian Organized Corruption Networks and their International Trajectories, DOI 10.1007/978-1-4419-0990-9_5, © Springer Science+Business Media, LLC 2011

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Since the collapse of the Soviet Union, Russian organized crime has been referred to as the “Russian mafia,” even if this term does not completely coincide with the standard portrayal of gangsters from the criminal world. The term “mafia” has a very specific meaning in the West, but Russians apply it loosely to all organized crime, or, indeed, to the government. In fact, there is nothing in Russia quite like the Cosa Nostra, with its deep roots in rural Sicily, its elaborate rituals, and its tradition of silence. Two aspects should be emphasized here. First, according to many Western scholars, a rapid growth and diversifications of Russian organized crime have turned Russia into a unique laboratory for the study of new forms of crime, common to many countries, and for forecasting grounds for its future development. Second, Russian organized crime has already become a serious problem for law-enforcement agencies in many European and North American countries. Russian criminal syndicates conduct the most sophisticated criminal operations ever seen in USA due to their access to expertise in computer technology, encryption techniques, and moneylaundering facilities that process hundreds of millions of dollars.2 For instance, recent evidence has shown that the vacuum left after the destruction or weakening of Cosa Nostra-type organizations (after these organizations were either eliminated or seriously disrupted by the law-enforcement agencies) is quickly filled with groups from Russia.3 A dominant feature of ongoing American research on Russian organized crime is the assumption that Russian organized crime differs significantly from the type found in USA, and the essence of this difference lies between the two mafias. However, J. Albini asserts that there is no united and centralized national organization that could be referred to as a “mafia.”4 There was also no mafia in the Soviet Union in the way Americans refer to this phenomenon. There was no single criminal organization involved in corrupting politicians and dictating conditions to them. The Soviet mafia was something different. The mafia and the swollen state that ruled both politics and economy in an arbitrary manner became one and the same. The entire state was run by one single vertical executive power, that is, the Communist Party. It was this state that, at the same time, was corrupting industrial managers and looking for any possible support from criminals. In an ordinary Russian mind, the word mafia remains synonymous with political power, rather than with traditional organized crime in the Western sense.5 Such an ordinary understanding indicates

FBI Chief: Russian Mafia Pose Growing Threat to US. The Washington Post, Oct. 2, 1997, A18. See also: Russian Mob, Drug Cartels Joining Forces. Money Laundering, Arms Sales Spreading Across Caribbean. The Washington Post, Sept. 29, 1997, A16. Russian Crime boss Jailed for US Extortion Scheme. The Toronto Star, Jan. 30, 1997, A17. 3   Oversight Hearing on Organized Crime. Strike Forces, Washington, Ser. 14, June 20, 1989, 222. 4   Albini J. The American Mafia: Genesis of Legend. NY, 1971, 88. 5  See Serio (2008: 5–20). 2 

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that there is still no real separation of powers in the sense of the classic Italian Mafia. For example, Joseph Serio sees the Russian mafia as “Ivan Ivanovich, crime groups, the State, Communist Party, and the All-Union mafia types in the Russian population’s mentality.”6 Judicial officials have yet to show their independence from the executive branch which is where real power is, laws may be adopted by the Parliament, but the President, who is deeply influenced by clans, rules by decree. As long as the vertical power structure remains in place – whether it is called the Communist Party or the Russian President’s regime – abuse of power is inevitable. The term mafia should be applied in relation to the specific mafia methods used by certain criminal organizations in different countries. Based on their hierarchical structure, mafia organizations use the following methods to achieve their goals in maximizing financial returns: • Violence or threat of violence • Illegal production of the goods and services to gain maximum profits • Certain level of protection from the powerful structures, which is necessary for the uninterrupted conducting of illegal operations7 The obvious conclusion drawn here is that there are no significant differences between the American and Russian mafia: the forms of these criminal associations and the diverse mafia methods used are reflective of the current social conditions and stages of the development of the society. The same has been true for organized crime organizations: their form and methods are determined by the existing socioeconomic, political, and cultural conditions of each country. The term mafia has been frequently misused by associating it with organized crime. This is a result of the different analytical approaches in the study of criminal organizations. According to J. Albini, the differences between mafia and organized crime are determined primarily by hierarchical structure and size. However, according to V. Luneev, the differences between these organizations lie in their functions, which determine their structures, sizes, and other qualities (Luneev 2002). We support the latter view, i.e., the functions of the organizations are the main determinant of whether the organization is classified as mafia or organized crime. Based on its functions, organized crime can be classified into the following types: (1) Organized crime of the political and social type. Its goal is not monetary profit, but support or destruction of the existing social system (terrorism, chauvinistic organizations,8 and gangs). (2) Organized crime of the group type. The basis for the existence of such organizations is group psychology, a specific social prestige that is attained by membership status in such an organization. (3) Orga­ nized crime of the mercenary type. The goal here is gaining the maximum profit.

Ibid. Albini, p. 89. 8  Ultra-nationalists similar to the Ku Klux Klan, skinheads and other neo-fascists. 6  7 

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Forms of criminal activity such as theft, racket, and forgery are the most typical of this type of organized crime. (4) Syndicate-type organized crime. This type can be characterized as mafia type because it uses mafia methods. Its main goals are gaining maximum profit out of illegal production, and sale of goods and services using violence and protection of powerful structures.9 Western scholars and law-enforcement authorities, who encountered the problem of organized crime much earlier than their Russian colleagues, are more aware and concerned about the danger presented by organized crime groups. For example, Stephen Handelman argues that the collapse of communism and the Soviet state destroyed the system of social control, in general, and the system of criminal justice, in particular. The new conditions, the complete absence of legal regulations aimed at organized crime, have become a favorable environment for its unconditional development. The Russian Federation started creating a free trade market economy without having any legal norms and regulations necessary for its efficiency.10 The inability of the Russian State to implement and support the rule of law had created conditions for a unique criminal-type entrepreneurial niche. In it, the new criminal elite are being intensively formed. Former FBI Director Louis Freeh, who visited Moscow in June 1994, was not quite right when he said that Russians had very quickly become aware of the danger of organized crime. He emphasized that it took 50 years for the Americans to reach this point. In reality, organized crime in USA between the 1920s and 1960s was developing and maturing more slowly than it is in Russia or in USA today.11 However, with the appearance of the new threats (racketeering, human trafficking, and drug business), an understanding of these dangers took place rather quickly. By this time, laws on racketeering, drug control, and safety in the streets were already in force. Directly, or indirectly, these laws worked against the spread of organized crime. Thus, in 1970, the National Council for the Control of Organized Crime was created. The next step was the adoption of the Act on the Constant Criminal Enterprise (CCE), primarily directed against those who participated in the large-scale drug trade. In 1978, a new law on enterprises subjected to racket and corruption (RICO)12 was adopted. According to this law, a person’s participation in the activity of the enterprise in the form of racketeering was considered illegal. In different ways, the fight against organized crime is a matter of the Acts on Thorough Control over Crime (1984), the Responsibility of Money Laundering (1986), and the Control over Forcible Crime (1994).13 Luneev V. “Organizovannaia prestupnost’ v Rossii: osoznanie, istoki, tendentsii”. (Organized Crime in Russia: Realization, Sources and Tendencies). Gosudarstvo i pravo, 4, 1996, 101. 10  Handelman, Stephen. “The Wild East”. The Atlantic Monthly. Vol. 273, 6, 1994, 79. 11  Grigg, W. Cozy with the KGB. The New American, volume 13, number 20. September 29, 1997. 12  In 1970, Congress passed the Racketeer Influenced and Corrupt Organizations (RICO) Act, Title 18, United States Code, Sections 1961–1968. http://caselaw.lp.findlaw.com/casecode/uscodes/18/ parts/i/chapters/96/toc.html. 13  Nikiforov, A. (1991). Gangsterism v SSHA: suschnost’ i evoliutsiya. (Gangster Activities in the USA: Their Essence and Evolution). Moscow. 9 

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Italian legislative authorities had to react to an expansion of crime with even more severe measures. Between 1956 and 1990, 16 laws were adopted to control the mafia. However, due to the specifics of the Italian mafia (e.g., code of silence), it has become almost impossible to prove any fact of conspiracy. A new Italian antimafia law was adopted in 1992 (article 416 BIC of the Criminal Code).14 According to this law, for example, participation of a group of three or more people in criminal activity was considered mafia-type criminal activity and is punishable with imprisonment for 15 years. The Russian criminal world has a strict hierarchy that represents a three-layer organization including government officials, business people, and gangsters.15 It has penetrated into all layers of society and the economy; its leaders more often than not settle outside Russia, and control their criminal business inside the country from there. Modern criminal activity became transnational and was conducted within the territories of several countries, hence the mechanisms of receiving criminal income turned into a global operation. Finally, Russian Mafiosi abroad do not lower themselves to the level of shooting in the streets, robbing banks, or attacking law-enforcement forces. Instead, they act legally, and many of them are co-founders of commercial banks and internationally registered business. However, if we define the term mafia functionally, as some experts do,16 as a criminal group supplying private “protection,” then there are, indeed, powerful mafia groups that operate in Russia.

Filling in the Void Through Organized Crime The growth of organized crime in the Soviet period went through several stages. The first stage, 1920s–1950s, was characterized by the existence of the vory v zakone (thieves-in-law) organization. During this time, the Russian organized crime activities may be characterized as a mercenary criminal type, which did not reach the level of the criminal associations using mafia method. The second stage, from the 1960s to the end of the 1980s, was transitional, when the command-administrative system reached the peak of its development and went into decline. During those years, the first criminal syndicates were formed. In addition, the third, contemporary, stage was connected to the collapse of the USSR and its socioeconomic and legal systems. At this stage, organized crime acquired its modern forms. Syndicalist (mafia-type) criminal activity began spreading the sphere of its action by crossing national borders.

14  Santino, U. Law Enforcement in Italy and Europe against mafia and organized crime. Centro  Siciliano di  Documentazione “Giuseppe  Impastato” – Onlus. Accessed May, 30 2009 http://www.centroimpastato.it/otherlang/mcdonald.php3. 15  Finckenauer, J., Voronin, Y. (2001). The Threat of Russian Organized Crime, NCJ Issues in International Crime. 16  Abadinsky, H. (2009). Organized Crime, Wadsworth Publisher.

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Political, economic, and legal circumstances in the USSR were different from those of USA in the 1930s. In the USSR, an extreme shortage of food and consumer goods was evolving rapidly, as did the amount of unused cash in the hands of the population. Organized crime groups set about supplying the population’s growing demands through its illegal sources and operations. The growth of the shadow economy was the main catalyst in the formation of the structures of organized crime. Racketeering, robbery, and other crimes were dangerous but predominantly secondary. As already indicated in the previous chapters, the roots of the Russian mafia lie in the innermost depths of the Russian shadow economy. Russia’s transition to capitalism and privatization of the state property introduced new opportunities for economic crime. It used the state funds as well as administrative and law-enforcement institutions to achieve its goals. Depending on the character and forms of activity, there are two main categories of Russian organized crime: gangster and economic (white-collar) crime. The methods of the first one are theft, racketeering, forgery, and murder. The white-collar criminals conduct illegal operations with the state property and securities. There is a general assumption that the distinctive feature of Russian (organized) crime, in contrast to European “transit crime,” is the control of economic sectors or regions (Finckenauer and Voronin 2001; Varese 2001; Galeotti 2002). Russian experts began to study this problem toward the end of the 1980s (Gurov 1988, 1990, 1995; Dolgova and Dyakova 1989; Vaksberg 1991). Early on, a distinction was made between organized crime and “traditional or economic crime in the so-called shadow economy.”17 It was assumed that economic crime in general is an economic phenomenon and that organized crime represents itself as a component of economic corruption.18 In the Russian context, economic corruption comes in the form of an unstable and inefficient government, a relatively high level of corruption among its leadership, and the use of authority to achieve private and personal profits. Many experts have approached economic crime without stigmatizing it a priori as part of the general criminalization of the economy. Rather, they view it as a “generic response to a part of the post-Soviet transition,” and analyze economic crime within the context of the functioning of state, law enforcement, privatization, and market institutions in post-Soviet Russia (Shelley 1995; Larichev 2002; Ledeneva 2000; Boldyreva 2001; Gilinskiy 2002; Volkov 2002a, b; Molokoedov 2005). In Russia, a discussion about economic crime needs to take place within the context of a discussion about organized crime. Depending on the character and forms of activity, at the present time there are two main types of crime: violent crime (committed by members of long-established crime organizations) and economic crimes (Alekseev and Demidov 1997). The methods of the first one are theft, racketeering, forgery, and murder, as gang members satisfy people’s irrational

Krusmann (2004). Economic Corruption defines unstable and inefficient government and its relatively high level of corruption among its leadership, the use of authority to achieve private and personal profits. 17  18 

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need for narcotics, weapons, and prostitution. Economic crime, on the contrary, has a completely bureaucratic nature. People in the financial and business sectors, together with state bureaucrats, conduct illegal operations involving funds, property, and securities from the state and commercial institutions. Each type of crime has its own root causes, but a key factor that explains the increase in both types of criminal activity is the inconsistency between the economic reality and the legaladministrative system. Consequently, organized crime serves as a way to overcome legal contradictions between the bureaucratic system and the market economy. In the USSR, shadow economy businesspersons were also engaged in the production of consumer commodities, from shopping bags to the assembly of cars. One of the central features of the shadow economy’s infrastructure was the market of criminal services provided by organized crime. It was the organized crime groups that set about meeting the population’s growing demands through its illegal means and methods. The growth of the shadow economy was the main catalyst behind the formation of organized crime. Racketeering, robbery, and other crimes were dangerous, but predominantly secondary in nature. In the Soviet era, there were a few crucial factors contributing to the components of shadow economy. One was the bureaucratic nature of the soviet nomenklatura, with disobedience of laws creating a sense that laws were ideologically loaded and, therefore, dysfunctional. Another was communist nomenklatura, with its strict division between state and party structures rested on a pragmatic/cynical approach to obeying the laws of higherarchy (the trait that can be traced back to Tsarist times). And the other crucial component of the shadow economy, the tsekhoviki, black market entrepreneurs,19 emerged only late in the Soviet history. In reality, one of the most negative consequences of the Soviet economy’s collapse was the economy of scarcity, which consequently created an underground market of goods, services, and business. Goods were produced in specially organized underground shops, and then sold (but never accounted for) in shadow retail markets. The businesspersons in this shadow economy, the tsekhoviki, performed the function of satisfying people’s rational needs via the underground market, a function Soviet bureaucracy itself could not perform. Therefore, under the Soviet system, economic crime was a direct product of the command economy. These shadow economy entrepreneurs created well-organized relationships with the administrative officials. By bribing officials with money, goods, and services, the tsekhoviki developed countermeasures to protect their safety and immunity. At the same time, administrative officials became a part of this criminal enterprise.20

Tsekhoviki are the entrepreneurs in shops, underground enterprises, and large factories who illegally produce consumer goods. 20  Cheloukhine, S. (2008). The Roots of Russian Organized Crime: From Old-Fashioned Professionals to the Organized Criminal Groups of Today. Crime Law and Social Change, Springer. 19 

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Simultaneously, tsekhoviki became very vulnerable due to the growing lawlessness. To the leaders of organized crime groups, the shadow economy was not only a source of stable profit and the means of laundering money, but also the way to integrate into the legal economy. In the 1980s, the underground pan–Soviet Union assembly of thieves-in-law21 set a 10% profit deduction from the tsekhoviki to be put toward the thieves’ obsshchak.22 There were two meetings of the thieves-in-law that transformed the criminal world into what is known as the Russian Mafia. At the assembly in Kiev in 1976 (Ukraine), the thieves-in-law adopted some changes to its code. The most explicit was that a thief-in-law should not necessarily spend time in prison, and the other was that they could cooperate with shadow businesspersons. The other all-Soviet Union thieves-in-law assembly took place in Southern Russia in 1979. The tsekhoviki agreed to pay krysha, or protection, to the thieves-in-law who attended the meeting.23 The so-called civilized racket24 of the shadow economy in the USSR evolved from direct control to “protection” and investing in company shares. The civilized rackets varied from personal security to participation in product distribution and supply, bribing of Soviet government officials, and even counterintelligence against competitors. Thus, the shadow economy structures were finally merged with the organized crime avtoritety. The top of the scale was reached; there could not possibly have been any stronger link between the two. With the beginning of Perestroika25 and the 1988 law on cooperatives,26 allowing small private enterprises, shadow businesses became legal. Thus, yesterday’s criminals became rich and legally functioning businesspersons, known as “new Russians,” almost overnight. From the 1960s until the 1990s, the crime rate in the USSR was five to eight times lower than that in the Western countries. However, after Gorbachev’s Perestroika of 1988, a sharp decline in auditing and the constant reduction of law-enforcement oversight caused an almost twofold increase

A thief-in-law (vor v zakone) commits crimes for which he cannot be charged by the existing Soviet criminal code. Vory v Zakone means “thieves who follow a code” called vorovskoi zakon, or “thieves’ code” has to be followed by one and all, for fear that you be punished by the vorovskaia spravedlivost or “thieves justice” administered by the skhodka, the thieves court. 22  Thieves’ communal fund. 23  Gilinskiy, Y. Kostjukovsky, Y. (2004). From Thievish Cartel to Criminal Corporation: The History of Organized Crime in Russia. In C. Fijnaut, L. Paoli (eds.), Organized Crime in Europe: Concepts, Patterns and Control Policies in European Union and Beyond (pp. 181–202). New York: Springer. 24  Ten percent profit deduction from the tsekhoviki to be put toward the thieves’ obsshchak. 25  Political and economic reforms introduced in June 1987 by the Soviet leader Mikhail Gorbachev. Its literal meaning is “restructuring,” referring to the restructuring of the Soviet economy. Perestroika is often argued to be one of the reasons for the fall of communist political forces in the Soviet Union and Eastern Europe, and for the end of the Cold War. 26  The Soviet Union Law on Cooperatives, enacted in May 1988, was perhaps the most radical of the economic reforms during the early part of the Gorbachev era. For the first time since V. Lenin’s New Economic Policy, the law permitted private ownership of businesses in the services, manufacturing, and foreign-trade sectors. 21 

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in economic crime. Between just 1991 and 1993, the rate of economic crime rose from 1,463 to 2,014 (per 100,000).27 In 2000, Russia with a population of 145 million, surpassed three million (3,001,748) registered crimes. Even the former Soviet Union with its 280 million people never reached this number (the maximum crimes, 2,786,605, were registered in 1990). In the Soviet Russian Federation, in 1990, the highest index of registered crimes was less than two million, 1,839,451.28 However, the crime rate published by the Soviet Union does not necessarily reflect the total number of crimes committed during that time. In those same years, fundamental changes took place in the sphere of the dying Soviet economy. With the destruction of state control, the criminal nature of the legislation driving privatization, a lack of laws regulating market economy, and an unfair criticism of malfunctioning law enforcement, the “new Russians” began to insert themselves into the market economy. At best, they were unqualified and inexperienced dilettantes; usually, though, they were connected to criminal groups and family clans of the former shadow economy. Throughout ill-designed privatization of state and public property, Russia’s transition to the market became a grab-all criminal opportunity for the party nomenklatura29 and organized crime groups. During the first years of privatization, these processes included expatriation of funds and resources, and the use of state ownership for personal enrichment. It was a period of illegal GNP allocation in favor of criminal enterprises using fraudulent banking, finance and foreign trade operations, currency exchange, and consumer markets. This increased scope of enterprises, most of it still illegal under the existing Russian Criminal Code (Naumov 1997) (the same as used that under the Soviet system), expanded the economic crime even further. Moreover, during 1995, the turnover of shadow capital across the country reached 45 trillion rubles of 200.9 trillion of Russia’s GDP.30 As the market institutions developed, the old Soviet administrative control withered, and economic, financial, tax, customs, and border control laws regarding the market economy began to form in 1995. There were no appropriate laws to handle the new rising business opportunities. If, for example, the tax regulations were not clear and specific, the economic contracts were practically illegal because accountants and law-enforcement authorities used different laws, documents, and regulations. The system of taxation, adopted by President Yeltsin’s government, placed all Russian people not only in an immoral position, but also in a criminal one. Thus, keeping the population in semi-criminal conditions was the means of maintaining power by the ruling elite. The law-enforcement system was being 27  Luneev, V. (1999). Prestupnost’ 20 veka. Mirovye, regional’nye i rossiiskie tendentsii. Moscow, Norma. 28  Prestupnost i pravonarusheniya (1997–2001). Statisticheskii sbornik. Moscow. 2002, p. 11. 29  The system of patronage for senior positions in the bureaucracy of the Soviet Union and some other Communist states controlled by committees at various levels of the Communist Party. 30  Voronin, Y. The Emerging Criminal State: Economic and Political Aspects of Organized Crime in Russia. Journal of Contemporary Criminal Justice, 11:4, 1995, 213–243.

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weakened and paralyzed by continuous political reorganizations, poor supplies, and retiring qualified personnel. Out of fear of reproach for inhumane treatment of criminals, law-enforcement system appeared unable to fight not just organized crime, but even domestic crimes. This led to a crisis in law-enforcement agencies. Having lost ideological principles, they ceased to work for the state. Instead, they started working for self-preservation, and then personal enrichment, gradually turning the criminal justice system into a commercial enterprise.

Four Prongs in Defining (Russian) Organized Crime31 Each kind of organized crime has its own root causes, but a key general condition favorable to the spread of criminal activities is the existence of contradictions between economic reality and the legal-administrative system. Organized crime serves as a way to overcome those contradictions. The shadow economy and underground market performed the function of exchange, which the bureaucracy itself could not perform. In the USSR, the crime rate, in general, showed an increased trend during the late 1980s and early 1990s. Organized crime activities have increased by more than 300% during that period.32 People began to acquire the ethic of getting rich by any means, and the “do not steal” moral principle transformed into an immoral one. In this situation, legal prohibitions on criminal behaviors were becoming even less efficient. The society began to view many forms of criminal activity as a normal business practice. The rapid growth of organized crime before the privatization was provoked by the destruction of the state apparatus control. A traditional administrative control was dying under the pressure of democratic changes, and the new, market-tuned methods of economic, financial, and tax control began emerging only in 1995. The law-enforcement agencies were weakened by constant reorganizations and the high turnover of qualified personnel, proved incapable of resisting any crime, domestic or organized. In 1995, the State Duma of the Russian Federation considered simultaneously three drafts of the Law to Combat Organized Crime, two of which were published and ­publicly discussed.33 Nevertheless, the Council of Federation rejected all those bills explaining the unacceptability of certain provisions due to the Russian legal state of

31  Article “Trends in Regional Criminal Groups and Their Control over the Russian Economy,” was first published by Law Enforcement Executive Forum, 2009. 9(2) 175–88. The authors are grateful to Law Enforcement Executive Forum for granting copyright permission for this book. 32  Luneev, V. Ibid., 103. 33  Pravovoe regulirovanie bor’by s organizovannoi prestupnost’yu. Proekt Federal’nogo zakona i kommentarii. (Legal Regulation of the Fight Against Organized Crime. The Draft Federal Law, Comments). Schit i mech, October 27 (40), 1997, Moscow.

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affairs. In one of the rejected bills, organized crime was defined as a product of organized criminal formations, criminal groups, and organizations and associations.34 The first feature is the growing number of people who jointly undertake criminal activity on a systematic basis. In such groups, there is a clear subordination, in line with criminal traditions, when power is concentrated in the hands of one or several leaders. The number of participants range from five to several hundred. Such groups differ by the level of their organization, structure, and types of criminal activity. The second characteristic is the economic activity of criminal groups receiving monetary and material profits. Therefore, this is a fundamental and distinctive feature of Russian organized crime. The third feature is corruption, which will be discussed in greater length in this chapter. Russian criminal organizations differ from each other in several ways (as previously mentioned in more detail in Chap. 3) which are related to the structure and types of criminal activities, the funds for in-group support and external bribery, the codes of accepted behaviors, infrastructure division, and the counterintelligence activities. According to law-enforcement agencies’ data, in 1996, there were 3,000 independent criminal groups in Russia, 70 of them were formed as ethnic, and 362 as inter-regional groups. The total number of soldiers of the criminal world in Russia (in 1998) was about 600,000. In the past decade, 40% of entrepreneurs and nearly 70% of the commercial structures were involved in criminal activity.35

Late 1990s and Beyond: Ethnic, Regional, and Transnational Dimensions The beginning of the 1990s was marked by racketeering and extortions from small shops, kiosks, and restaurants; by the end of the 1990s, a well-organized system of protection (kryshi) emerged as the dominating system that threatened large enterprises and banks, contracts in security, and marketing services. The privatization of government functions was completed by corrupt networks formed by members of organized crime, government officials, and law enforcement.36 Quite often, the organized crime leaders or lieutenants were part of an enterprise’s board directors or of a bank. Hence, the legal and illegal structures in Russia were closely interconnected. In the mid-1990s, Tatarin, a member of the Kazan criminal group stated “… what is organized crime now? Well, it is business. All with no exception are involved in concealment of incomes, and everyone works with ‘black cash.’ If there are problems with a competitor, it would be solved the old fashioned way, by force. Rossiiskaya gazeta, October 25, 1995. Argumenty i fakty, 30, 1996, p. 6. 36  Cheloukhine and King (2007). 34  35 

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Moreover, if a business is big and successful, then contract killing is the only way to fix a problem.”37 Examples of some typical situations when businesspersons are compelled to become involved in criminal activity include bribery required upon the following: • The registration and licensing of a business • Signing a property lease • Obtaining licenses on the enterprise activity from sanitation services and fire inspection • “Greasing” for bank credit or loan (20–40% in cash must be kicked back to the officials at the decision-making level) • False report to federal tax service and customs • Coercion to cooperate with criminals, employing criminals or their associates within the businesses’ administrative body (in order to control them from within) Lack of legislation and the corruption of law enforcement and justice agencies have forced Russian society to fill the legal vacuum with the criminal methods of thieves’ arbitrations and decision implementation. Hence, the basic tendency of crime in the past decade has been the complete transformation of organized crime into a legal business; money laundering through legitimate structures; and organized crime leaders’ aspirations to enter into political structures. At the same time, the economization and politicization of organized crime have led to a reduction in the bloody fights between competing groups. Although single murders were still taking place, street shootings have practically stopped. Gangsters have become wiser and more refined. They have spent millions of dollars getting their leaders elected into political or administrative positions, and have obtained legal immunity for illegally earned money. In the beginning of the 1990s, the criminal world was experiencing a strain on its internal relations. Young criminals, sportsmeny (sportsmen), refused to accept the ascetic thieves’ moral code and did not recognize any criminals’ authority over them. Between 1993 and 1995, a series of contract assassinations of the thieves-in-law led to fighting and essentially a war between criminal generations, which eventually tempered by 1998. The fact of the matter was that the old-school criminals did have incommensurably greater authority and connections in prisons and with the bureaucracy. The old-school thieves exhibited tremendous experience in organizing criminal activities and, therefore, the sportsmen were compelled to cooperate.38 According to Chelyabinsk entrepreneurs’ survey, 30 of 40 owners of large enterprises thought that it was impossible to do business without breaking the law, and 90% of all respondents were convinced that it was impossible to do business without bribing state officials. Thus, 65% of businesspersons bribed state officials in financial

Rasinkin, V. (1995). Vory v zakone i prestupnye klany, Moscow, p. 76. Rasinkin, V. (1995). Vory v zakone i prestupnye klany. Moscow, pp. 31–5.

37  38 

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and auditing bodies, 32% bribed police officials, and 27% bribed judges and prosecutors.39 According to some estimates, criminal organizations were holding control over 35,000 enterprises, including 400 banks and 1,500 state enterprises.40

Ethnic and Regional Component of Russian Organized Crime One characteristic of contemporary organized crime groups in Russia is the ­concentration and operation of these groups around large cities and industrial centers. The Moscow organized crime groups and thieves-in-law dictate a criminal policy to all groups. For example, in Moscow, for a number of years, there was a turf war between criminals and bay-leaf sellers, lavrushniki, natives of the Caucasus. Slavic native criminals claimed Moscow as their sole enterprise region. In 1996 and 1997, the new group from Trans-Siberia began to gain its influence on criminal clans. It has guided the new conflicts in repartition of property, spheres of influence, and money. At the end of the 1990s, thieves and criminal authorities stopped hiring “bulls” (fighters, low-rank members of organized crime), but often hired economists, lawyers, and managers. They have succeeded in the energy supplies market, the fuel industry, construction, and, to a lesser degree, car dealerships. The middle levels, foremen, have also organized their enterprises. Being engaged in real estate, thieves’ lieutenants began to involve departments in charge of passports and visa services and local police in their criminal network. As for the nonaligned criminal groups, presently there is only one group operating, the Tambov’s group, though it has lost its former power. From the ethnic criminal communities, the Dagestan, Chechen, and Georgian groups are very active, and the Azerbaijan group still controls the city markets and drug trade. The control over prostitution is carried out by the Dagestan and Georgian groups, although there are also Slavs in this area, however very few. Illegal drug trafficking is in the hands of the Azerbaijani and Tajik groups. The Dagestan and Chechen groups are involved in the arms trade, in cooperation with the Slavs. Gambling, until the fall of 2006, was under the control of the Georgians. In 2005–2008, the conflict between the Slavs and the ethnic groups became very intense and complicated. Within a criminal organization, nationality and ethnicity do not usually play an important role, but it has always been an issue between criminal groups. Russian law enforcement is well informed regarding the activity of criminal groups, and is often interested in the deadly conflicts between them. One view is that during these disputes, criminals are killed and that, in a way, enhances the life of ordinary citizens. On the contrary, the police are concerned about new leaders in the

Smol’kov V. “Predprinimatel’stvo kak osobyi vid deyatel’nosti” Sotsis, 2, 1994, p. 18. Argumenty i fakty 48, 1994, p. 10.

39  40 

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criminal world because the element of their influence is unknown and unpredictable. However, there is also a third side to the problem: too often, law-enforcement agencies are very interested in the activity of a certain group since they themselves are involved in that criminal network. The situation with criminal authorities in the former USSR republics has ­worsened because the institution of thieves-in-law started developing in different ways. While in post-Soviet Russia, the administration of camps and prisons was conducting a tough battle against thieves-in-law, law enforcements agencies in Georgia, Armenia, Azerbaijan, and the republics of Central Asia did not enact any changes. Their administrative and state officials, realizing the importance of the thieves’ authority inside and outside prisons, created favorable conditions for criminals and began to accumulate dirty money, and turn them into the tool of corruption. Because of corruption, nepotism, and joint criminal actions against the state, formal and informal powers merged. The numbers of high-ranking thieves-in-law in the former USSR in 1997 were 33% Russians, 31% Georgians, 8% Armenians, and 22% Kurds, Abkhaz, and Kazakhs. In fact, by 1997, the title of thief-in-law had become a subject of sale, and some were willing to pay as much as $850,000 for a thief’s title.41 Ethnic communities also have a significant influence in large Russian cities, especially Moscow and St. Petersburg. The most active groups are Georgian, Chechen, Azerbaijani, Tatar, Armenian, and Gypsy. These groups by far lack equality and homogeneity concerning their interests, structure, or method of action. What brings them together is the idea that they are guided by national culture, traditions, and, in some cases, religion. In contrast with the Slavs, their groups were created within the limits of ethnic communities, allowing greater mobility and the opportunity to retreat to their countries of origin. Many former Soviet states not only neglected to take any action to arrest their citizens who committed crimes in Russia, but they also privately supported them and their actions. Moreover, all these state present an insurmountable barrier to law enforcement, with their national languages. The Chechen groups rearranged their criminal actions within financial activities. Operations involving false payment by proxy (avizo)42 and counterfeit money were fully supported by the terrorist-run State Ichkeria.43 On the contrary, they also carried out terrorist activities such as contract killings, bombing, and kidnapping, with both criminal and political motivations. The Chechen criminals are the only group that does not recognize any thieves-in-law or criminal authorities in all former Soviet territories. The Georgian criminal group enjoys strong influence in places of imprisonment, whereas the Slavic criminal underworld was seemingly more divided; not all thieves are supporters of rigid discipline and adherence to an ascetic way of life. All criminal groups from the Caucasus region operating in Russia often act as allies.

Dikselius, M., Konstantinov, A. (1997). Banditskaya Rossia. St. Petersburg, p. 34. Fituni (1998). 43  The Chechen Republic of Ichkeria is the unrecognized secessionist government of Chechnya. 41  42 

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The Tatar criminal communities were formed in the beginning of the 1980s. In the cities of Kazan and Almet’evsk in the Tatar Republic, there were a number of hooligan youth groups. Organized crime leaders skillfully used them in order to recruit members. By the mid-1980s, these groups had already established working in what is referred to as “shifts” method. The active group arrives in a city, commits crimes, and disappears into the outer regions of the Tatar Republic; soon after, another group comes. A decade later, the Kazan criminal group was involved in the banking sector, hotel business, and security services. Traditional businesses controlled by the Kazan group are the rendering of funeral services and drug trafficking. Gypsy criminal groups are traditionally involved in smuggling drugs. Gypsy camps have excellent communication between their leaders (barons) and thanks to their mobility; they pose a serious criminal threat to law enforcement. After the disintegration of the USSR, many former states attained sovereignty, but at the same time lost access to vital resources. Thus, the Chechen Republic is the major transaction territory for illicit drugs (mainly heroin) and weapons, as well as human trafficking. All of the illegal homemade gasoline is sold to Russia, the Ukraine, and Georgia. The Ukraine is the main supplier of both ready-to-use narcotics and raw materials for their manufacture. Kyrgyzstan is home to the third largest poppy plantation in the former USSR after Tajikistan and Uzbekistan, and organized crime has a very big stake in the narcotic business, and the sale of contraband nonferrous metals and gold to the Baltic States, Russia, and China. The struggle to control certain territories and businesses has reached the Slavic organized criminal community as well. Criminal groups from the Caucasus control most of the illegal operations; however, Russian law-enforcement places them in the category of the Slavic group or one of the groups that cooperate with it. Organized crime allocates huge financial resources for merging with legal, social, and political institutions. The plethora of opportunities to launder, convert, and supervise huge financial resources places organized crime on a new functioning level, in which it can apply direct or indirect control over economic policy and politics. Supporting the state Duma deputies in lobbying their interests at the federal decision-making level gives organized crime groups the necessary economic freedom. Organized crime, bringing their style of solving problems into the economy and politics, has become a mechanism that defines contemporary Russian state development.44 One of the reasons for the flourishing of organized criminal groups and their illegal economic activity in contemporary Russia is the corruption networks and misuse of financial resources. During the last few years, the new processes in the development of organized crime and its cooperation with foreign capital have become obvious. The core of these processes is that Russian organized crime has a clan-type structure and conducts its activities through legal financial structures

44  Shelley, L. (1995). Post-Soviet Organized Crime. European Journal on Criminal Policy and Research, 3:4, pp. 7–25.

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relying on the massive support of foreign capital. Many foreign investments in Russia legally pass through the economic structures that the Russian organized crime groups control. The situation developed in the following way: first, Russian enterprises controlled by the criminal groups acquire the status of transnational corporations. Second, these financial and industrial structures open twin firms abroad with the purpose of money laundering. The final step is the intertwining of Russian and foreign companies through the purchasing of shares, in order to disguise the real (and criminal, as in the case of “Benex,” YBM Magnex45) owners and origin of the capital. (See Chap. 8 for more details on this process and its impact on transnational organized crime.) Organized crime in other countries, on the contrary, has reacted to Russian groups in its specific way. At the highest levels, the Italian and American mafias and the Colombian cartels have had meetings with the Russian mobs. They have negotiated deals on illegal commodity markets and changes in routes and destinations for drugs and weapons. At the same time, Russian crime leaders have outlined their areas of interest in money laundering, prostitution, in populated by Russian ethnic group territories.46 Criminal organizations first penetrate the spheres of social life where the state institutions are inefficient or not working at all. They are carrying out the functions of arbitration, court, protection, taxation, and legislature. The organization47 and structure of contemporary Russian organized crime can be illustrated through Chart 5.1. All three formations have various types of interrelations. There is a popular belief that any gangster dreams of becoming a businessperson. Thus, according to this statement, formation 2 gravitates to formation 3. On the contrary, by virtue of natural and sometimes judicial processes, formation 2 passes into ­formation 1.

1.Traditional OldFashioned Crime

2. New Criminals, aka ‘Sportsmen”

3. Shadow Economy Illegal Business

Organized Corruption Network

Chart 5.1  Structure of contemporary ROC

Foreign Loans Diverted in Monster Money Laundering? The Mafia, Oligarchs, and Russia’s Torment. http://www.worldbank.org/html/prddr/trans/julaug99/pgs1113.htm. 46  Douglas Farah. Russian Mob, Drug Cartels Joining Forces. Washington Post Foreign Service. September 29, 1997. P.A01 http://www.washingtonpost.com/wp-srv/inatl/longterm/russiagov/­ stories/mafia092997.htm. 47  Kostukovsky, Y. “Dannye ob organizovannoi prestupnosti.” http://www.narcom.ru. Accessed July 12, 2006. 45 

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In turn, formation 1 obviously aspires to usurp control over formations 2 and 3. In addition, the accessory to formation 3 enables to take a favorable place in formation 1 (by virtue of the commercialization of some traditional criminal relations). If transition from formation 1 into formation 2 is impossible for demographic reasons, the transition from formation 1 into formation 3 opens the way to power structures. When considering the affinity of formation 3 to power structures, it is necessary to note a resistance in this formation to any transitions from formations 1 and 2. Finally, the transitions from formation 3 into formations 2 and 1 are possible because Russian business, in general, is closer to criminals than it is to legal structures. In this table, the power structures48 were intentionally not specified. On the one hand, they control and supervise all financial resources; on the other, a priori the power structures exist to fight organized crime. Significant numbers of criminal authorities have been elected into political offices either directly, or through people affiliated with those who are able to lobby for a desired decision. Corruption of power structures and law enforcement at all levels facilitates the action of criminal groups and their leaders. Additionally, criminal groups appear to be capable of managing some social problems. For a number of years, the godfathers of small Russian towns have been considered the highest authority. Criminal money has supported sports, children’s homes, retirement houses, hospitals, drug clinics, and so forth. In Moscow, there is even a theater functioning on grants from criminal groups: some gangsters also supply local police with vehicles, fuel, and clothing (Chart 5.2).49

Chart 5.2  Russian OCG operational Russian power structures include FSB, MVD, Secret Service, and Defense Department. Dolgova (2004: 17–22).

48  49 

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5 Organized Crime, Businesses, and Local Bureaucracy

The process of organized crime formation has reached the level where every criminal group has to defend its own interests. Russian criminal groups have formed about 150 network associations and divided the country into zones of influence and business activities.50 Those activities became increasingly diverse and include the following: • • • • •

Creation of own criminal structures, banks, and enterprises Establishing control over enterprises directly or through takeover of shares Penetration into the banking and credit financial system Creation of public foundations for money laundering Takeover of the most profitable spheres of the economy

Among the most important features of Russian organized crime is the changed social character of its personnel. Today, the command positions in criminal organizations are usually occupied by white-collar criminals and not by the classic “godfathers.” Another distinctive feature of Russian organized crime is its connection to ­corrupt officials at different levels of the state structure authorities: from local to federal. The ease with which criminal capital is made in Russia is explained by the fact that mafia-type organizations influence the administrative bodies through lobbying and corruption, pushing them toward certain decisions and adopting appropriate laws and regulations.51 In any country, political elites and officials at different levels of the state structure may be vulnerable to the various forms of criminal behavior. The most dangerous functional or professional forms of such behavior are state terrorism (violence of the state power) and state corruption (venal of the state power). As the market institutions developed, the old Soviet administrative control withered, and the economic, financial, tax, customs, and border control laws regarding the market economy began to form in 1991. The constant escalation of organized crime in Russia for the last two decades became not only evident but also threatening for general social and economic security. Concerned with increasing crime, legislators have made some amendments to law and criminalized certain organized criminal activities: For example, Article 241 of The Criminal Code of the Russian Federation52 has been modified by federal l aw (162FZ from December 8, 200353) and now includes “organized prostitution” provisions; Article 322.1 has been modified by federal law (187-FZ from December 28, 200454) to include a provision on organized illegal migration.

 Argumenty i fakty 30, 1996, p. 8. Albini et al. (1995: 103). 52  The Criminal Code of the Russian Federation. Adopted by the State Duma on May 24, 1996; Adopted by the Federation Council on June 5, 1996 Federal Law No. 64-FZ of June 13, 1996 on the Enforcement of the Criminal Code of the Russian Federation. http://www.russian-criminalcode.com/ Accessed May 31, 2009. 53  Act No. 162-FZ of 8 December 2003 to amend and supplement the Penal Code of the Russian Federation. Rossiiskaya Gazeta, December 16, 2003, pp. 10–12. 54  Act No. 187-FZ of 28 December 2004 to amend the Penal Code, the Penal Procedure Code and the Administrative Offenses Code (Text No. 13). Sobranie Zakonodatel’stva, January 3, 2005, No. 1, pp. 46–48. 50

51 

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103

The developing Russian market reduced the state’s control over many economic transactions, thus resulting in the failure of law enforcement to work effectively. Consequently, these processes strengthened the criminal groups already operating in the illicit economy and opened new opportunities for illegal businesses. Economic and political instability, lack of trust in the newly created commercial and financial institutions, and the aspiration to decrease taxable income (or simply not to pay at all) turned all economic transactions into large criminal enterprises. At the end of the 1990s, there was no state or any segment of the economy which had not been under some control of organized criminal groups.55 Among other factors, criminalization of the transitional economy was to “cash-only” transactions at the whole economy level. Absence of control over monetary policy (cash circulation) and noninterventionist actions of law enforcement toward illegal businesses led to tax evasion, delays in payments, and a shrinking state budget. “Cash-only” payments griped not only the market in services and retail, but also 30% of monthly wholesale circulation, worth between 41 and 42 billion rubles ($18 billion). All branches of the Russian economy have experienced a shift in the structure of payments toward ­barter or cash only. The increase in payments in cash by 1998 went up to 67% nationwide, especially in meat, construction materials, textile industries, and retail.56 In the period from 1993 to 1999, for example, registered economic crime almost tripled, growing from 110,000 to 303,822 incidents,57 1,300 of which, according to the new Criminal Code, Chap. 22, were committed by organized crime groups. In the first 4 months of 2000, there were 141,519 registered crimes, which was an increase of 20.5% over the same period in the previous year.58 During 2000, the following economic crimes were registered: • In finance, credit, and loans, 40,592 crimes (13.4% increase over the previous year) • In the consumer market, 26,543 crimes (8.7% increase) • In international trade, 4,687 crimes (1.5% increase) • In privatization of state property, 2,751 crimes (0.9% increase) • Crime against property, 106,849 crimes (35.2% increase) By 2001, there were already 382,400 registered economic crimes. The majority of those (50.7%) were crimes against property, 47.0% of which was illegal appropriation and misallocation of funds. The next category, 10.4%, was crimes against the state’s interests and service, half of which is the corruption of state officials. The remaining parts include crime in the industrial sector (20.0%), crimes against commercial interests of a corporation (3.0%), and other economic crimes (15.9%).59

Report of the Minister of Internal Affairs Sergey Stepashin to the public. Clean Hands, 1999, 2: 65. Grib (2001: 12). 57  Gurov (2000: 37). 58  Organizovannaya prestupnost’ I korruptsiya (2000: 99). 59  Kidanov (2002: 31). 55 

56 

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5 Organized Crime, Businesses, and Local Bureaucracy

While in the past few years the number of registered economic crimes has decreased (partly due to the decriminalization and abandonment in 2003 of Article 200, “Consumer Fraud,” of the Criminal Code), law enforcement is convinced that this is not a result of their success but simply of corruption cases going unrecorded. Often, corruption networks coordinate the activity of the organized criminal groups or even merge with them.60 Deputy Chairman of the State Duma Security Committee D. Ilyukhin indicated that organized crime through corruption has infiltrated “all corridors of government” and that sometimes it is difficult to differentiate where the real power is and where the organized crime that controls this power is (see Table 5.1).61 In 2005, more than 10% of violations of Article 290, “Acceptance of Bribe,” were committed by organized criminal groups. A significant number of these cases related to governmental officials. For 8 months in 2008, there were more than 3,000 corruption cases. Almost a quarter of those, involving 757 people, included law-enforcement officers, judges, procurators, lawyers, and deputies in legislative bodies at the municipal and regional levels.62 The more the Russian society becomes a market economy, the more we witness a significant growth in economic crimes. For example, in 2007, the Russian Ministry of the Interior reported 2,760,000 registered crimes, and 394,000 of those were serious, including economic crime. Compared to that in 2006, for example, economic crime grew by 2.0%, totaling to 195,000, of which 23,000 were for tax evasion. Thus, economic crime in 2007 grew by 2.1% over 2006.63

Table 5.1  Corruption and related crimes in Russia 2000 2001 53 84 Article 183. Illegal receipt and disclosure of information of commercial and bank secrecy 1 0 Article 184. Bribery of participants and organizers of professional sport Article 204. Commercial bribery 2,146 2,542 Article 290. Acceptance of bribe 4,281 4,797 Article 291. Bribery 2,766 3,112 Article 304. Provocation of bribe 4 3 or commercial bribery Source: Dolgova (2006: 18)

2002 130

2003 287

2004 632

2005 645

0

1

0

0

2,780 4,553 2,758 3

2,495 4,425 2,921 1

2,020 5,273 3,655 0

2,178 5,720 4,101 4

Cheloukhine and King (2007: 112).  Gosudarstvennaya granitsa, organizovannaya prestupnost, zakon i bezopasnost Rossii, 2006. 62  Kulikov (2008). 63  The Ministry of the Interior of the Russian Federation, Interfax, September 2007. 60  61

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Organized Crime Infiltration into Regional Economic Structures According to the Ministry of the Interior (MVD), in 1996, there were 3,000 individually operating criminal groups in Russia, 70 of them were formed ethnically and 363 were organized inter-regionally.64 The remaining were operating on a regional level.65 The total number of members in the Russian criminal world was about 600,000, which does not include about 40% of entrepreneurs and nearly 70% of commercial structures, which were also involved in criminal activity.66 Ten years later, in 2007, according to the MVD Department for Combating Organized Crime and Terrorism, there are only 450 organized crime groups with about 12,000 members. These numbers include only those involved in killings, raids, drug trade, and human trafficking. The same source indicates that the number of semi-legally operating organized crime groups, which provide “roofs” or protection services to businesses, is about 10,000, with 300,000 soldiers. Officially, these criminal group members are employed as security officers protecting business and financial operations owned by organized crime and illegal economic leaders. Currently, the size of the illegal economy operations in Russia is about 20–25% of the GDP67 (see Table 5.2). Table 5.2  Dynamic of registered crimes committed by organized criminal groups (according to information from “1-OP” MVD R.F.) 2005 2000 2001 2002 2003 2004 Number of completed investigations 34,231 32,020 24,716 29,795 29,420 30,078 on crimes committed by organized criminal groups or organized criminal societies 33,350 31,053 24,107 28,237 28,905 29,632 Number of cases presented at courts based on completed investigations n/a 118 123 141 224 244 Number of registered crimes according to Article 210, “Establishing organized criminal society (criminal organization),” of the Criminal Code of Russia n/a 241 183 188 412 388 Number of registered individuals committing crimes according to Article 210, “Establishing organized criminal society (criminal organization),” of the Criminal Code of Russia Members of OCG convicted and 3,096 2,988 2,360 1,789 1,558 n/a sentenced Source: Dolgova (2006: 36)  Ibid. According to the MVD Chief Directorate for Combating Organized Crime, almost half of organized crime groups are fully equipped with firearms. Thus, in 1 year, from 1994 to 1995, criminal groups spending in buying firearms increased for nearly one billion dollars. As a result, in 1995, 16,780 crimes were committed using firearms and explosives. 66  Argumenty i fakty, (1996), p. 5. 67  Ibid. 64

65 

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5 Organized Crime, Businesses, and Local Bureaucracy

One of the most serious trends is that 92.2% of crimes committed by organized criminal societies (organizations) are categorized as dangerous and very dangerous. Almost all of these crimes are property related and economic crimes: 45.9% economic, 17.8% illegal drug trafficking, 12.9% larceny/theft, 6.1% robberies, 2.8% extortion, and 2.7% contraband.68 Due to the economic focus of organized crime groups’ activities, they tend to be concentrated in industrially developed areas such as the Central, Volga, Ural, WestSiberian, and Far East regions. The Ministry of Interior Chief Directorate for Combating Organized Crime, analyzing criminal cases by regions, defines the ­following dominant criminal businesses in the economy.69 In Central Russia, swindling, illegal business, bribery, and corruption are the most predominant types of crime. Organized crime controls individual entrepreneurs and small- and medium-size enterprises operating in the municipal markets, the administration of which includes leaders of those criminal groups or their protégés. In the Volga region, the growing influence of organized crime influence has extended into the consumer and raw material markets, and into banking, the financial sector, and foreign trade. Organized crime groups exploit Volga River ports and transportation systems in order to expand their inter-regional activity to an international level. Extensive use of trade operations outside the Volga region and even Russia contributes to money laundering through all types of illegal trafficking. In the East-Siberian region, organized crime controls illegal alcohol production and trafficking, oil and natural gas refineries, and energy suppliers. The Far East region traditionally was a part of the Russian defense industry (e.g., ship building manufacturers and naval bases) and the energy and natural resources sector. This region has strong organized crime groups with diverse ethnicities. It is run by the Thieves’ Council, with about 1,800 persons; the criminal group “Sportsmen,” with about 200 persons; and the ethnic groups, including 140 Chechens, about 190 Azerbaijani, and 16 Koreans. The recent growth of criminal groups from China, dealing in illegal goods, drugs, and human trafficking, poses a threat to Russia’s traditional organized crime groups. All these groups constantly extend their inter-regional and international operations and sealed treaties with the organized crime groups of Japan, South and North Korea, China (not only in the northern provinces, but also in the southern provinces that have offshore zones), and USA. A distinctive feature of organized crime in the region is the merging process of organized crime groups that specialize in contract killing and kidnapping, with others operating in the economy and banking. A significant part of the illicit capital earned and concentrated through ill-taxation policies strengthens the organized crime potential in the region.

Ibid., p.33. Sluzhbe po bor’be s organizovannoi prestupnostyu MVD Rossii – 19 let. http://structure.mvd.ru/ struct/3306/100113/5012/; Accessed October 17, 2009. 68  69 

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In Moscow’s region, the major areas of criminal group activities are the illegal alcohol beverages market, weapons, stolen cars, drug trafficking, insurance, and secondary markets for oil. For example, according to the Russian Department of Motor Vehicles, in 1995 alone there were about 400 daily registered cases of stolen vehicles. The nonexistence of a centralized computer system between patrol cars and the headquarters keeps the solving of these crimes low – for stolen cars, it was 21.0%; joyriding, 57.0%; armed assaults on drivers and passengers, 43.0%; and robberies, 22.0%.70 Ten years later, in 2007, a car was stolen every 53 min only in St. Petersburg (total 8,514, although this was 187 fewer than that in 2006). The situation with car theft has definitely changed since 2000. If at that time thieves hunted for “premium-class” cars costing more than $50,000, then in 2007 they turned to mid-priced vehicles. The most attractive mid-priced cars for thieves were the Toyota Corolla, Mitsubishi Lancer, Ford Focus, Mercedes, Mazda 6, and VAZ models. A growing tendency toward stolen vehicles for sale or personal use has created a well-developed market of intelligence services by various criminal ­networks inside and outside Russia.71 In the Moscow region, a large number of enterprises are controlled by criminal groups, divesting local and federal budgets of taxes and terrifying investors. The deficiency of proper legislation to control law enforcement and corrupt state officials creates a favorable condition for money laundering and illegal financial operations. Law-enforcement agencies that monitor criminal groups in the Moscow region confirm the existence of a well-organized criminal group’s central management. According to the Russian Federal Customs Service, for example, there are about 30,000 business-like, “something ephemeral” small enterprises in Moscow that are engaged in cashing in funds, converting currency, and wiring it to Cyprus or Caribbean offshore banks to avoid taxation. Moreover, there are dummy business enterprises, so-called pomoika,72 that are registered and licensed in a free-economic zone of the North Caucasus in the Republic of Ingushetia in the name of the individuals whose passports were stolen. In 2005, throughout such dummy businesses, $391 million were ready to be “cashed in” at any bank within the Russian Federation.73 For the North Caucasus, especially the Republics of Dagestan, Chechnya, and Ingushetia, a decline in living conditions, a lack of social guarantees, and social polarization became the main causes of the economic criminalization. The major grounds for social and criminal tension in the region are disguised by the struggle for national interests by various clans, and the use of organized crime and corruption to infiltrate the state administrative and financial bodies. These organized

Bayahchev (1997: 13). Cheloukhine and Sergevnin (2009: 178). 72  Pomoika literally is garbage pit, but in the Moscow region’s criminal slang, it is also an enterprise specializing in money laundering services. 73  Kolesnikov (2008). 70  71 

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crime groups’ modus operandi are kidnapping, murder, robbery, and contract ­killing as well as economic crime. Most economic crime in the North Caucasus consists of plundering; counterfeiting; roguish operations with the use of fictitious credentials, figureheads, or commercial structures in the grain and wine markets, the petroleum business, and financial institutions; and licenses in alcohol distribution and the consumer market. Another criminal region is in the area of St. Petersburg. Russian politicians and the media depict the city as the all-crime capital of Russia and compare the criminals there to the American gangsters of the 1930s. Whether this is correct or not is arguable, but the truth is that influential organized crime groups are profoundly imbedded in St. Petersburg’s political and business life. Organized crime, which existed during the Soviet era and operated the illegal economy, has legalized its business and truly flourished over the past decade. The complete privatization of state property has allowed criminal organizations to take over legitimate businesses, invest capital abroad, and legalize their proceeds. The St. Petersburg business community, more than any other, is the focus of violent attacks by organized criminal groups. A 2004 survey of 394 businessmen in this area stated that 80% of them were victims or knew other entrepreneur-victims who suffered from violent crimes; 50% were aware of instances of businesspeople having been murdered; 14% had suffered severe bodily injuries; and 40% indicated that they received threats of violence against them. These threats were enforced with demands to pay a debt or share confidential business information in 55% of the cases and to pay a protection fee in 45% of the cases. About 10% of those surveyed indicated that there was a real threat to their lives at the time of the survey.74 In St. Petersburg, in the period of the turf war, the three primary criminal groups – the Kazanskaya, Malyshevskaya, and Tambovskaya – absorbed the smaller criminal groups. The Tambovskaya criminal organization takes its name from the city of Tambov, nearly 1,000 km from St. Petersburg. The group is mainly composed of people from Moscow and St. Petersburg, with criminal business expanding in Russia and the European Union. The conflict between the Tambov and Malyshev groups started back in 1987 during the division of the clothing market near Devyatkino railway station. Malyshev (in the criminal world he was nicknamed Malysh, translated as “Baby”) created his group in the late 1980s out of representatives of several organized criminal communities. Back then, Malyshev’s hit man, known as Broiler, killed one of the leading participants of the Tambov companionship. Starting from that very moment, the two largest criminal groups in St. Petersburg were constantly at war. The Tambov group finally became the leaders and managed to occupy prominent posts in the regional fuel and energy business, meat-processing industry, and the real estate market. The Kazanskaya group, made up of gangs from Kazan city, began its operations in St. Petersburg at the end of the 1980s. The group is active in the timber, banking,

Matveeva (2004: 148).

74 

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and fuel business, and is vigorous in traditional organized crime enterprises such as gambling, prostitution, and drug trafficking. The Chechens ethnic group is much smaller but powerful, ruthless, and independent. The group is organized along ­ethnic lines that have strong ties to Chechnya and Ingushetia, and is involved in international weapons and drug trafficking. The Malyshevskaya75 group specialized in dispute settlements and kidalovo – a fraudulent contract (a  well-thought-out operation with the purpose of receiving money or goods through deceit). At the beginning of the 1990s, the Malyshevskaya group began to provide protection and support in executing commercial contracts, combining legal and illegal businesses. Malyshev was active in uniting uncoordinated groups, and by the end of 1992, he succeeded in consolidating several criminal groups, which numbered up to 3,000 active members. Eventually, his “criminal empire” had iconized the leader, and very soon St. Petersburg witnessed a large number of criminals acting on Malyshev’s behalf. The discontent among his rivals and the activities of lawenforcement agencies grew very fast. Malyshev was arrested and after spending 3 years in a Russian prison, he secured his release by bribing law and government officials. In 2002, being wanted in Estonia for document fraud, and after his arrest in Germany on the request of the Estonian authorities, Malyshev moved to Spain. Here, he got married and took his wife’s last name, Gonzalez. He settled in Malaga under that name, where other members of his group moved later on. Petrov was one of Malyshev’s newly acquired neighbors. It is not just his criminal past that connects Malyshev to the latter: Malyshev’s and Petrov’s children are co-founders of a large chain of jewelry stores in St. Petersburg, called “585.” His group may have lost its supremacy and size, but nonetheless, still controls operational structures in oil refineries, foreign trade operations, and metallurgy. The Tambovskaya group was one of the first in the city and was named after the city Tambov – the native city of its leader Kumarin. For a very long time, Tambov’s group was engaged in racketeering, extortion, and contract killing. The Tambovtsy76 was one of the first criminal groups to begin developing tight contacts with legal businesses and to give special attention to banking, the construction business, and energy suppliers. In the early 1990s, the group began growing rapidly, merging with former sportsmeny77 and, as the Malyshevskaya’s group had done, absorbing small gangs. In addition, the upper echelon of the Tambovskaya group included former boxing coach and former Liberal Democratic Party Duma representative Mikhail

Named after the group’s leader, Malyshev. Tambovtsy, the term among criminals that identifies their affiliation to the region (Tambov city) or a leader. 77  Young criminals, sportsmeny (sportsmen), refused to accept the ascetic thieves’ moral code and did not recognize any criminal’s authority over them. Between 1993 and 1995, a series of contract assassinations of the thieves-in-law led to a war between criminal generations, which finally calmed down by 1998. 75  76 

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Gluschenko78 (nicknamed “The Ukrainian”). Tambovtsy also worked under the leadership of the Gavrilenkov brothers, the leaders of the Velikoluksk city gang; under the director of the Scorpion private security enterprise A. Yefromov (prosecuted in 1999); and under Oleg Shuster, a businessperson who owned St. Petersburg’s television Channel 11. Each of them supervised several gangs. Thus, in 1999, the number of members in the Tambovskaya gang ranged from 300 to 500 people. The Tambovsy were engaged in typical violent entrepreneurial activities. They were involved in security services and controlled the legal and illegal operations of companies and small enterprises, from importing office supplies and ­technology to exporting lumber and crude oil. In 1990, part of the Tambovskaya gang was sent to prison, including Kumarin and Ledovskikh, but by the beginning of 1994, they were all free. The main threat to the gang structure came not from the police and prosecutors but from internal conflicts, which began in 1993. One faction, the Velikoluksk gang, stole a shipment of wine worth more than one million dollars from a businessperson protected by Kumarin’s group. Returning neither wine nor money, the gang killed the adversary faction’s leader. In June 1994, Kumarin miraculously survived an assassination attempt. After an internal investigation and the requisite turf war, the leaders of the Velikoluksk gang, the Gavrilenkov brothers, were assassinated.79 Consequently, Kumarin succeeded in consolidating power over the group and by 1995, he actively began redirecting its activities toward investments in legal businesses. Therefore, the structure of the organization began changing. Typically, gangs would provide protection broker deals for companies and acquire 20–30% of the profits. The executives of such companies were viewed as the sources of income. In many cases, gangs typically took the businesspersons’ assets as if they were owned by the gang. However, when the gang started investing its profits, the “trusted” businesspersons appeared in the organization. They were fully authorized members and managed the gang’s investments (Aslakhanov and Maksimov 1995). Soon, they became coowners of large holding companies and acted as executives. For example, many of Tambovskaya gang’s commercial projects were accomplished with support from Vyacheslav and Sergei Shevchenko, then representatives in the St. Petersburg Duma and legislature, respectively.80 Both of them owned chains of stores, nightclubs, radio stations, and publishing houses. Viktor Novoselov, the speaker of the St. Petersburg legislature, also provided local political protection to the Tambovskaya group. Quickly, the Tambovskaya group’s strategic interests shifted from private protection to energy resources in Russia’s northwest. In the early 1990s, the main fuel supplier for this region was the Siberian oil and natural gas production company Surgutneftegaz.

78  According to the MVD Department for Combating Organized Crime, Mr. Gluschenko ordered Bob Kemerovsky to kill criminal authority Kostya-Tomb. Kemerovsky was acquitted of murder but was sentenced to 21 years in prison for other crimes. 79  Vadim Volkov. Not a word about the past. Expert, 2002. #15(322) http://eng.expert.ru/society/ new10.htm. Accessed January, 25 2010. 80  Kovalyev (2002: 2).

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It owned the majority of petroleum storage facilities, gas stations, and other petroleumrelated properties. City and provincial officials were dependent on the price policies and production of this Siberian monopoly. The 1994 fuel crisis required the market to have complete transparency. In order to change the situation, it was necessary to bring in new players and create competition in the petroleum market. However, authorities made a decision, which gave them a great amount of control over the market and allowed them to take advantage of the ­circumstances. The general idea of this plan, which the Tambovskaya gang began putting into action, was to cut off the local petroleum infrastructure from the parent company, take over the local St. Petersburg branch of Surgutneftegaz, and unite it with other providers of oil and natural gas. By making both advantageous offers and manipulating property rights, the Tambovskaya group implemented this plan in 3 years. At the same time, following the lead of Moscow’s city government, the St. Petersburg government decided to create a municipal company in order to protect the local consumers’ interests. In September 1994, the city administration along with a group of leading businesspersons founded the Petersburg Fuel Company (PTK).81 By 1998, all of Surgutneftegaz’s former franchises, as well as new assets accumulated by the Tambovskaya group, officially became part of the PTK Holding Company. Taking his mother’s name, Kumarin (now Barsukov) became the deputy president of the company, and Yuri Antonov, the deputy governor of the region, became the president. The Tambovskaya gang used the PTK as a kind of a Trojan horse. The more the gang got involved in acquiring and running various businesses, the more it had to obey laws and rules that differed from those of the criminal world. The Tambovskaya gang began to rely more on professional managers, financial advisors, and accountants. Previously demonstrating their absolute disrespect for the law and public opinion, they ultimately found themselves hiring lawyers, accountants, public relations professionals, and even police units to protect and manage their assets.82 Among those employed by various criminal groups and networks, law-enforcement officials estimate the following: • • • • •

54% of accountants and finance majors 39% of commercial and state-run bank employees 28% of federal customs officers 43% of financial inspectors and tax police 22% of experts in computer technologies (such as system administrators and hackers)83

In 1994, V. Putin, as a deputy mayor of St. Petersburg, awarded the exclusive contract to St. Petersburg Fuel Company (PTK), to supply gasoline to the city. At the time, Smirnov was a major shareholder in the PTK, and local media reported that the company was controlled by the Tambovskaya gang. In the mid-1990s, the high-profile contract killings of major players in the fuel market rocked the city. In 1998, Smirnov took over PTK and appointed Barsukov as his deputy. 82  Volkov (2002b: 46). 83  Cheloukhine and King (2007: 117). 81 

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Criminal groups’ constant profit interests forced them to imitate the business elite themselves and follow market demands, which gradually transformed their criminal reputation into accountability. Thus, the PTK, trying to obey the law, found itself in the position of advocating for the state institutions, ensuring their property rights and security. However, in late 1999, the situation deteriorated, and the group began to lose some of its key members. In October, V. Novoselov was killed when his government car exploded and in the beginning of 2000, former member Sergei Shevchenko was arrested. Soon afterward, a former wrestling coach and close Barsukov advisor, Georgy Pozdnyakov, was also killed. The campaign slogan, “St. Petersburg is Russia’s mafia capitol,” was used by the current governor’s opponents, and this only added to the business group’s problems.84 The Tambovskaya group responded to this challenge in an unusual way, which demonstrates that the rules of the game were rewritten. Barsukov published an article entitled “Tambov or St. Petersburg: They Are Just Russian Cities.” The title expresses the group’s desire to clean up the City of Tambov’s image and redefine itself as a group of citizens working for the common good. Barsukov protested the term mafia capitol and wrote about the good that the PTK was doing for the city. Barsukov stated that the PTK supplied fuel for about 90% of public transportation, for which the city held 14.5% of the holding’s shares, and the company employed 2,500 people. Despite all these efforts, he was forced to leave his PTK’s vice president position. This, however, did not lead to a loss of control over the company. It was merely a manifestation of the principle of ownership and management separation. Moreover, according to the gang’s founder, “We are not just involved in [the] oil and fuel business, but also in real estate and food retail. I really think that we’ve only just begun [internationally].”85 Tambovskaya members had established their headquarters in the Balearic Islands, and in Levante and Costa del Sol, Spain. From these locations, the group administered activities of arms and drugs trafficking, extortion, tobacco, and sapphire trafficking; ­extortion; and corruption. Money was laundered through Swiss investment banks, and Cypriot and Latvian financial heavens.86 The Uralmash criminal group was named after a region of Ekaterinburg belonging to the Ural Machine Factory. Its founders were local athletes S. Vorobyev, A. Khabarov, S. Terentyev, S. Kurdyumov, and the Tsyganovy brothers, who had gained experience in the Soviet era black market operations. Uralmash succeeded in controlling the local markets and arranged underground alcohol production and distribution. In late 1991, when the Ural Machine Factory ran out of cash and could not pay wages, the Uralmash gang offered to bail them out in return for the use of several facilities, including the local cultural club, which became the group’s headquarters.

Volkov (2002a). Ibid. 86  Spain detains 18 in swoops against Russian mafia. Europe News June 13, 2008. http://www. monstersandcritics.com/news/europe/news/article_1410932.php/Spain_detains_18_in_swoops_ against_Russian_mafia__1st_Lead_ Accessed June 13, 2009. 84  85 

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Like hundreds of other gangs, Uralmash made 20–30% of their profits from local businesses, which they provided with security and contract services. However, in contrast to other criminal gangs, the Uralmash gang began actively investing in ­controlled companies. In 1992–1993, Ekaterinburg witnessed an intense “turf war,” in which the Uralmash group faced the Central and Blues criminal gangs. The Central group was made up of athletes and urban youth who hung around the city’s central market. The Blues lost the turf war and returned to only criminal forms of business. The confrontation between Uralmash and the Central group resulted in K. Tsyganov and the Central group leader O. Vagin being killed, as well as the death of several dozens of the avtoritety and other businesspeople. However, the turf war was to the Uralmash gang’s advantage. Consequently, the Central gang stayed in the hotel, gambling business, and trade, while Uralmash became actively involved in copper processing, utilities, and telecommunications. At the same time, the gang conducted a charity campaign, subsidizing public transportation and sports programs. In the spring of 1993, Ekaterinburg’s RUBOP87 arrested Grigory Tsyganov for extortion. At a press conference, local authorities announced that they had nailed an organized crime boss, and declared the Uralmash group as an organized criminal association. In response, A. Panpurin, one of the city’s leading businessmen, president of the Eurasian Company, and director of the Urals Brokerage House, called a press conference and presented a different point of view, namely that “Uralmash is a company, not a criminal organization” and that the group had reoriented itself toward socially useful activities. According to Mr. Panpurin, “Uralmash’s way of doing business compared to other companies is extremely civilized, transparent, and democratic.”88 Mr. Tsyganov was portrayed as a stabilizing factor for the company, who maintained the balance of power, which could be destroyed by his arrest. Soon after, Tsyganov was out of jail. Members of the Uralmash criminal group supervised about 200 companies, 12 commercial banks, and partially controlled 90 additional companies.89 The investment groups were concentrated in Europe Holding, which processed copper, the Uralnefteprodukt petroleum-processing complex, and the Uralvestkom and Continental-Link cellular networks, as well as car dealerships and breweries. By the mid-1990s, the Uralmash criminal group transformed into a regional business group with the semi-official name of Uralmash, and the criminals turned into legitimate businesspersons. The Kostya-tomb group (Yakovlev) appeared in St. Petersburg in the early 1990s. The leader of the group and his friend nicknamed “Kudryash” (Kudryashov) were members of the Moscow criminal gang. In particular, the affiliation with

RUBOP – the MVD regional organized-crime directorates – was formed to fight organized and economic crime by commando teams and investigators in so-called operative investigative bureaus in seven federal districts. 88  Volkov (1993). 89  Ibid. 87 

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Moscow provided this group with qualified support and protection. Therefore, Yakovlev was welcomed in city business and by the political elite, and had influence on the regional mass media. The Kostya-tomb gang was in charge of the import of alcoholic beverages and some food industry supervision.90 The Komarovskay criminal gang (named after its leader Komar) had overseen the restaurants, hotels, repair shops, and gas stations along the St. Petersburg– Vyborg highways, and all the supplies between these cities and the various ­methods of transporting goods. The group’s influence extended to a part of these cities’ legitimate businesses and the group had tight connections with the Azerbaijani ethnic criminal community. The majority of these group members are natives of Azerbaijan, but according to law enforcement, some key positions are occupied by other ethnic group representatives from Dagestan, Ingushetia, and even Russia. This group controls St. Petersburg’s markets and small shops and the organized distribution of illegal drugs throughout the area. According to the Ministry of the Interior, the Republics of Ingushetia and North Ossetia have the highest rate of economic crime, 20 and 19%, respectively. Law enforcement, since the collapse of the Soviet Union and the war in Chechnya, has seen the North Caucasus as the region with a ­constantly collapsing economy and thievish local administration. The Far East region is the third most affected region in Russia by economic crime, with 18% of all registered crimes. The Moscow and St. Petersburg regions are number 4, with about 16% of economic crimes. The central MVD headquarter experts comment on the high economic crime rate in Moscow and St. Petersburg with confusion. Since all of the elite MVD workforces are located there, it seems that economic crime should be lower in these regions. However, since all political, economic, and financial decisions are made in Moscow, economic crime is very high there.91 In Russia, the most attractive economic sectors remain the fuel and energy ­sectors, the real estate market, and operations involved with strategic raw material. Using created or controlled commercial banks and financial structures, criminal groups ensure an uninterrupted financial guarantee of actions in attracting a required capital and people. Criminal associations attempt to acquire packages of enterprises and banks, controlling shares and infiltrating the international trade business. Organized crime has created an extensive criminal network, which controls commercial and financial enterprises and invests its proceeds in legal industries with various forms of property.

Sergei Mostovschikov. The end of organized crime in Russia. The new generation of Russian gangsters will. Expert #26, June 12, 1999 http://eng.expert.ru/society/new13.htm. Accessed January 25, 2010. 91  Alex Anishyuk. Russia Ranked No. 1 For Economic Crime. The Moscow Times. 20 November 2009 http://www.themoscowtimes.com/business/article/russia-ranked-no-1-for-economic-crime/389976. html Accessed January 25, 2010. 90 

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The use of export–import transactions and legal enterprise’s activity serve as a convenient cover-up to conduct large-scale frauds with uncontrolled profit, a major part of which is transferred to foreign bank accounts and assists in money laundering. To avoid intersecting with law enforcement, they use figureheads connected to corrupt government and law-enforcement officials. While the state is persistently reorganizing law enforcements, the actual reform that would improve their performance has not occurred. Police, still, may arrest a group of criminals caught in illicit acts, but the lack of conspiracy laws means police cannot arrest the leaders so long as they were not directly involved in the crimes. Criminal groups have infused their criminal profits into various commercial enterprises and joint ventures where they legally operate fuel and energy enterprises. Supported by corrupt state officials, and enterprise and banking managers, organized crime groups manipulate exporters of hydrocarbon materials, price arrangements, trade operations, and the allocation of currency received from uncontrolled exports. How does one interrupt or interfere in the collaboration between criminal groups and corrupted state officials? The very obvious strategy is focusing much energy on the detection and prosecution of the latter. However, when a problem is as endemic as it appears to be in today’s Russia, the obvious solution becomes an unattainable goal. In other countries experiencing similar pains of transition from a communist to a democratic way of government, the local media becomes a very powerful tool to expose such corrupted exchanges. For example, in Poland, during the late 1990s and early 2000, various media outlets were very successful in bringing to the public knowledge numerous accounts of corrupted and criminal exchanges between the organized crime groups and corrupted politicians, forcing a governmental intervention that if not eliminated, at least interrupted the profitable procedures. It is possible that this strategy is still not a well-defined one and represents more of a contour of a response rather than a solid solution, but it is certainly worth looking at.

References Alekseev, A., Demidov,Yu. (1997). Borba s novymi vidami prestuplenii v sfere ekonomiki. Vestnik MVD, 6. Albini, J., R. E. Rogers and V. Shabalin. Russian Organized crime: Its history, structure and function. Journal of Contemporary Criminal Justice, vol. 11, No. 4, December 1995: 213–243. Aslakhanov, A., Maksimov, S. (1995). Organizovannay prestupnost i korruptsiya v sfere ekonomiki: sostoyanie i prognoz. Kriminalnyi vestnik, 32, 12–17. Bayahchev, V. (1997). Krazha avtotransporta sovershennaya organizovannoi prestupnoi gruppoi. Vestnik MVD R.F., 5. Boldyreva, T. (2001). Economic Crime in Russia, Problems of Economic Transition, 44(1), 23–28. Cheloukhine, S. & V. Sergevnin. Trends in Regional Criminal Groups and Their Control over the Russian Economy. Law Enforcement Executive Forum, 2009. 9(2) 175–188.

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Cheloukhine, S., & King, J. (2007). Corruption networks as a sphere of investment activities in modern Russia. Communist and Post-Communist Studies, Elsevier. 40(1), 107–122. Dolgova, A. (2006). Tendentsii prestupnosti, ee organizovannosti, zakon i opyt borby s terrorismom. Moskva: Kriminologicheskaya Assotsiatsiya. Dolgova, A. (2004). Prestupnost v Rossii nachala 21 veka i reagirovanie na nee. Moscow. Dolgova, A., Dyakova, S. (1989). Organizovannaya prestupnost. Moscow, Yuridicheskaya literatura. Finckenauer, J., & Voronin, V. (2001). The threat of Russian organized crime. Washington, DC: U.S. Department of Justice, Office of Justice Programs, National Institute of Justice. Fituni, L. (1998). Russia: Organized Crime and Money Laundering. Journal of Money Laundering Control. 1:4. 360–73. Galeotti, M. (2002). Russian and post-Soviet organized crime. Surrey, UK: Ashgate. Grib, V. (2001). Teoreticheskie i organizatsionno-takticheskie osnovy borby s organizovannoi prestupnost’yu v Rossii. Moscow. MVD. Gilinskiy, Y. (2002). Crime Prevention. A Community Policing Approach in Russia. In Lab and Das (Eds.), International Perspectives on Community Policing and Crime Prevention. Upper Saddle River, NJ, Prentice Hall, 180–91. Gurov, A. (1988). “Lev prygnul,” Literaturnaya gazeta, 34:3. Gurov, A. (1990). Professional Crime. Past and Present. Moscow: Yuridicheskaya literatura. pp. 23–30. Gurov, A. (1995). Ispoved vora v zakone. Moscow. Gurov, A. (2000). Kriminogennaya situatsiya v Rossii na rubezhe 21 veka. Moscow: VNII MVD Rossii. Kidanov, R. (2002). Organizovannye formy ekonomicheskoi prestupnosti. Vladivostok, Russia. Kolesnikov, V. (2008). Fenomen rossiiskoi organizovannoi ekonomicheskoi prestupnosti. Retrieved from http://jurfar.spb/centers/traCCC/article/kolesnikov.htm. Kostujkovskii, Ya. Organizovannay prestupnost’ v Rossii (na primere Sankt Peterburga) http: www. aferizm.ru/criminal/ops_spb.htm. Kovalyev, V. (2002). Convicted deputy gives up. The St. Petersburg Times (February 8). Krusmann, T. (2004). Anti-organized crime policies in Russia. In C. Fijnaut & L. Paoli (Eds.), Organized crime in Europe: Concepts, patterns and control policies in the European Union and beyond. New York: Springer. Kulikov, V. (2008). Korruptsia s’edaet tret’ byudzheta Rossii. Retrieved April 30, 2009, from www.newsru.com/finance/30sep2008/korruption.html. Larichev, V. (2002). Organizovannya prestupnost v sfere economiki. Zakonodatelstvo i ekonomika, 9, 12–23. Ledeneva, A. (2000). Economic Crime in Russia. Kluwer Law International: The Hague. Luneev, V. (2002). Rynochnaya ekonomika i ekonomicheskaya prestupnost’ v Rossii. In V. Luneev and V. Borisov (Eds.), Ekonomichskaya prestupnost’. Moscow: Yurist, 10-34. Matveeva, N. S. (2004). Criminalnoe nasilie v sfere biznessa i zashita ot nego v ozenkah rossiiskikh predprinimateley. In Criminalnoe nasilie: Obschie problemy i opit borbi v Respublike (Saha) Yakutia (pp. 148–149). Moscow. Molokoedov, V. (2005). Sraschivanie organizavannoi ekonomicheskoi i prestupnpsti kak novaya forma kriminalnoi aktivnosti. Vladivostok Center for the Study of Organized Crime. Naumov, A. (1997). The new Russian criminal code as a reflection of ongoing reforms. Criminal Law Forum, 8(2), 223. Organizovannaya prestupnost i korruptsiya: Issledovania, obzory, informatsiya. (2000). Sotsialnopravovoi almanakh, 2, 99. Serio, J. (2008). Investigating Russian mafia. Durham, NC: Carolina Academic Press. The criminal code of the Russian Federation (Part 2, Section 7, Chapter 22). Adopted by the State Duma on May 24, 1996. Retrieved April 30, 2009, from www.russian-criminal-code.com Uroven ekonomicheskoi prestupnosti v regionakh Rossii. Retrieved April 30, 2009, from www. raexpert.ru/editions/panorama2005-19/part3.

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Vaksberg, A. (1991). Sovetskaya Mafia. Stockholm. Varese, F. (2001). The Russian mafia. Oxford, UK: Oxford University Press. Volkov, V. (1993, May 29). Uralmashevskie. Vechernii Ekaterinburg. Retrieved December 7, 2008, from www.rustrana.ru/article.php?nid=1041. Volkov, V. (2002a). Not a word about the past. Expert, 15(322). Retrieved April 30, 2009, from http://eng.expert.ru/society/new10.htm. Volkov, V. (2002b). Violent entrepreneurs. Ithaca, NY: Cornell University Press.

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Chapter 6

Ways to Fight OCNs: Law-Enforcement Services

Structure and Legislation It was not until January of 1997 that the Criminal Code of the Russian Federation, Chapter 22, defined “offences in the area of economic activity.” The definition was included in the chapter sections of the Criminal Code of the Russian Federation and comprised a structure of crimes, the majority of which were relevant to the developed market economy.1 An essential characteristic of the new Criminal Code is the specific targeting of organized crime. Article 35 sets out the legal definition and the special features and limits of responsibility for committing a crime by a group of persons, a group of persons having a prior agreement, an organized group, or a criminal association. For example, a person who creates or supervises a criminal association (criminal organization) is subject to criminal responsibility for its organization and supervision, and for all the crimes committed by the association if the crimes were within the person’s intent. The commission of crimes by a criminal association entails more severe punishment.2 The new offences introduced appear to be typical responses to white-collar crime, but in the Russian context, they are mostly relevant to the sphere of organized crime. They include related crimes combined into the following nine categories: • • • •

Illegal entrepreneurship Illegal banking activity Fraudulent entrepreneurship Legalization (laundering) of money assets or other property acquired by illegal means • Illegal receipt of credit • Compulsion to conclude or refuse to conclude a transaction • Production or sale of counterfeit credit card and other payment documents

Criminal Code of the Russian Federation (1996). Naumov (1997).

1  2 

S. Cheloukhine and M.R. Haberfeld, Russian Organized Corruption Networks and their International Trajectories, DOI 10.1007/978-1-4419-0990-9_6, © Springer Science+Business Media, LLC 2011

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• Forging acts in bankruptcy, international bankruptcy, and fictitious bankruptcy • Contraband, customs payment evasion, and tax crimes3 A novel feature of the special part of the Criminal Code is the introduction of norms on punishment for economic crimes (chapter 22), crimes by corporate executives in violation of their official duties (chapter 23), environmental crimes (chapter 26), and crimes related to computer information (chapter 28). With a few exceptions (such as smuggling and consumer fraud, traditionally called “economic” crimes in Soviet criminal law), the majority of the specified crimes are a new phenomenon in Russia, and the difficult process of building a market economy has dictated the necessity to create some responsibility for committing these transgressions. The new code effectively combines two approaches to the legal protection of interests in the economic sphere. It is tasked to protect honest entrepreneurial activity and all citizens from dishonest activity or fraud. This includes illegal banking activity and pseudo-entrepreneurial commercial organization without the intention to provide legitimate entrepreneurial or banking services. Such “enterprises” were set for the purpose of obtaining credit and tax breaks, laundering money or illegally obtained property, procuring credit, avoiding debt repayment, deliberately establishing false bankruptcy, and committing securities exchange fraud. However, in practice, this did not ensure true protection of legitimate business persons because the law is not enforced. The previous Criminal Code covered none of these activities.4

Corruption in Russia: Enemy Number One Despite significant changes in the Russian Criminal Code, between the years 1996 and 2004, the success in combating organized crime was very limited. Both white-collar crimes and organized crimes, referred to under the same umbrella of “­corruption” continued to rise. Moreover, on November 12, 2009, President Dmitry Medvedev, during his address to the Federal Assembly of the Russian Federation assessed the current state of corruption as one of the main obstacles to his government. He expressed a conviction that it is quite clear that the fight against corruption must be waged on all fronts: from legislation, through law enforcement and the ­judicial system to the social intolerance of these evil phenomena, including domestic ones.5 The situation has become gravely serious. As President Medvedev stated that during the first 6 months of 2009, more than 4,500 cases of corruption were brought to prosecution, 532 officials of government authorities and local self-government bodies were convicted, as well as more than 700 law-enforcement officers (Chart 6.1).6 The Criminal Code, ibid.  Naumov, p. 224. 5  See: President of Russia Official Web Portal, November 12, 2009 http://eng.kremlin.ru./ speeches/2009/11/12/1321. Retrieved February 12, 2010. 6  Ibid. 3  4

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60 50 40 30 20 10 0 Port Authority Police

Customs Officers

Charged for bribery

Chart  6.1  Bribes in law enforcements. Source: Vzyatki v 2009 brali schache chem ranshe, priznali v transportrnoi prokurature (Bribes in 209 took more in Port Authority Police. Translation, S.C.) http://www.newsru.com/russia/30jan2010/zvyatki.html. Accessed January 30, 2010

One of the speakers during the same Assembly session, the Minister of the Interior, provided additional, quite horrifying figures: during the first 10 months of 2009, his ministry alone investigated 40,000 cases, up to 11% from the previous year.7 Russians pay $300 billion in bribes each year, according to the government’s own figures.8 And it is getting worse – and quite rapidly worst. Despite the economic crisis, officials say that the average bribe has tripled in size since 2008.9 According to the most recent interview with two-stars General Alexander Bastyrkin, head of the Inquiry Committee of the Main Public Prosecutor Office and the two-stars General Alexei Anchikhin, head of the Investigative Committee of the Ministry of the Interior,10 it appears that the corruption, referred to as a cancerous phenomenon in Russia, is spreading with an excessive speed. The Generals provided quite well-documented facts during the interviews. It should be added here that these two Generals, quite probably, know how deep this problem really is. Bastyrkin is in charge of over 16,000 criminal prosecutors, and Anchikhin oversees a cadre of as many as 52,000 investigative officers.11 As recently as February 2010, the newly unveiled great corruption scandal created quite a shock in the public opinion in Russia. This time it concerned the OMON (Special Purpose Police Squad), the elite Russian police (Militsia) formation.12

Feifer (2009). Feifer, Ibid. 9  Ibid. 10  “Rossiyskaya gazeta”, Moscow, February 3, and February 10, 2010. 11  See further, in Note 18. 12  A detailed description of OMON can be found below in this Chapter, in the section “The Police Service (Militia: Militsiya)”. 7  8 

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According to “The New Times” (“Novoye Vremya”), a prestigious Moscow’s weekly newspaper,13 within the OMON formation, a gigantic and systemic corruption phenomenon was firmly in place, which involved, practically, all the OMON members, from the very top commands to the lowest bottom level. The scandal was exposed when a group of variously ranking officers from the formation sent a report to the President of the Russian Federation and to the Main Prosecutor Office providing, in detail, fact about what was going on within the unit. The “The New Times” edition, dated February 8, 2010, provided photocopies of this report, including quite horrifying details.14 A similar situation can be found with the Russian Federation Armed Forces, based on the interview with the two-stars General Alexander Sorochkin, which was conducted on February 12, 2010, for the Moscow daily “Nezavisimaya Gazieta.” The General stated that crime within the Russian Army continues to rise very fast. For example, the numbers of unveiled corruption cases in 2009 were one-third higher than in 2008.15 Given the current situation in Russia, where corruption is so common and so far reaching, including even a great part of law-enforcement high-ranking officers, Medvedev’s appeal to the Russian Federal Assembly that: “… zero tolerance of corruption should become part of our national culture, and an intrinsic part of who we are,”16 will undoubtedly remain only in the sphere of wishful thinking.

Russian Federal Law-Enforcement Agencies As of 2010 more than 30 federal law-enforcement agencies exist in the Russian Federation (RLEA). This chapter will describe only the most important of them from the perspective of targeting organized crime activities.17 Although we refer, throughout this book to various law-enforcement agencies that are involved, either directly or in a peripheral manner, in countering organized crimes activities, the goal of this chapter is to highlight the “machine” from a broader perspective. This specific insight will allow the reader to understand the depth of the problem and the current inability to eliminate or even minimize the occurrence of organized criminal activities.

Baranov and Aronov (2010). See: http//newtimes.ru/articles/detail/14721. 15  Nezavisimaya Gazeta, February 12, 2010, http://nvo.rg.ru/printed/236866, Accessed February 14, 2010. 16  Ibid. 17  Thereinafter, in this Chapter, all Russian terms, with some exceptions, are named in English accordance to Dr Mark Galeotti, A Glossary of Russian Police & Security Service Acronyms and Abbreviations. Retrieved 20 March 2009 http://www.keele.ac.uk/depths/hi/resorces/modern%20 resources/PoliceGlossary-v3.pdf. 13  14 

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The Ministry of the Interior (Ministerstvo Vnutrennikh Del) This ministry encompasses most of the federal law-enforcement agencies and ­presently controls, in total, about one million of armed men and women serving in various subordinated services, troops, and organizations. The Ministry of the Interior (MoI) was first established under the rule of Czar Alexander the First in 1802, and has been one of the most important guarantors of internal security, order, and stability, since that time. During more than two centuries of its existence the ministry was, quite frequently, reorganized in a substantial manner, in accordance with the changing internal situation in this country. Among the very recent restructuring reforms, just in post-Soviet Russia, some key departments from the MoI where transferred to other ministries and vice versa. Responsibility for the correctional institutions, such as prisons and jails, was transferred to the Ministry of Justice; firefighting was subordinated to a new Ministry for Emergency Situations. On the other hand, the Federal Migration Service responsible for passports, visas, and migration was included in the organizational structure of the MoI.18 Currently, the main components of this Ministry include: • • • • • •

The central administration The Ministerstvo Vnutrennikh Del (MVD) regional administration The Police Service (Militia) Internal Military Troops (Vnutrennie Voiska) Federal Migration Service (Federal’naya Migratsionnaya Sluzhba) The MVD forensic, logistical, research, and educational institutions of central subordination

The MVD Central Administration The Minister of the Interior is appointed by the President of the Russian Federation (based on the Constitutional provisions) as proposed by the Prime Minister of the Government. Since March 9, 2004, the Minister of the Interior is an Army General (four-stars), Rashid Nurgaliev. He has five deputy ministers, who coordinate ­various, subordinated, structural bodies.

18  The most used here sources, concerning the MVD are the following: MVD official Website in Russian: http://www.mvd.ru./struct; retrieved – updated February 13, 2010. POLIS – Policing Online Information System- Russian Federation: http://polis.osce.org/countries/details.php?item_ id=&print=print Retrieved February 6, 2010. A substantial portion of the data presented in this Chapter on the structure and missions of this ministry is taken from: Peyser and Vitsin (2005). Thereinafter: Peyser and Vitsin.

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Among the 20 various departments of the ministry, the most important one seems to be the following: • • • • • • • • • • •

Inquiry Committee (Sledsvtiennyi Komitet)19 Information and Analytic Center Organization and Inspection Department Internal Security Department Central Office for International Cooperation Legal Department Organized Crime and Terrorist Department Cyber Crime Prevention Department Public Order Department Economic Security Department Criminal Investigation Department20

The recent development in the functional structure of this ministry was the far reaching reorganization of the Organized Crime and Terrorist Department, which was disbanded and replaced, as of December 2008, by a new, much more powerful body: the Center for Combating Extremism (Tsentr po Protivodeistvu Ekstremizmu).21 However, from the description of the extreme organizations that now will be the target for the Center’s activities, it appears that these are not only all religious, and/ or nationalists extreme terror organizations, such as, for example, the current Chechen or Ingush armed underground but also other organizations like the Russian National – Bolshevik Party, disbanded by the Court in 2005. It is rather surprising that the target groups defined as extremist included also movements and organizations in the Russian Federation such as anarchists, antifascist, and antiglobalists and all kinds of Autonomists and even some human rights movement.22 In light of the above interpretation the term “extremism” is in contradiction with the other institutions of the MoI, and more specifically the Public Council – the higher advisory committee. It is comprised of 43 members, men and women. The members of the Public Council represent all main religious movements in Russia; some civil rights committees, mass media, culture and human rights institutions. The Council was established recently, for the very first time in the almost three centuries of the history of the Russian Ministry of Internal Affairs. Its purpose is to serve as society’s direct oversight mechanism of the day-to-day activities of the MVD, to ensure that they are fulfilled in a legal way and that civil and human rights are not violated. It should be noted here that there are not any openly available

19  Among all listed here MVD departments the Inquire Department – Slesdstvennyj Komitet; it commands with an army of investigators. 20  For a detailed organizational structure of the discussed ministry see its official website: http:// www.mvd.ru/struct/ Retrieved February 14, 2010. 21  This was unveiled by the opposition daily newspaper Novaya Gazeta, No. 34, April 3, 2009 http://www.novayagazeta.ru/data/2009/034/00.html. Retrieved April 4, 2009. 22  Ibid.

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sources which would enable us to verify if this body is a real oversight mechanism or instrument of control or merely a propaganda puppet.23 According to recent developments (February 2010), the Public Council was also charged with the responsibility of monitoring the Militsiya’s activities in the area of the respect for human rights, and its span of oversight was introduced also on a regional level, namely in the province (oblast’) commands of the Militsia. The Regional MVD Administration The Russian Federation comprises 84 constituent subjects, including 21 autonomous republics, 53 provinces (7 krais and 46 oblasti), 7 autonomous districts (okrugs), and 1 autonomous oblast’. Moscow and St. Petersburg are federal cites, each forming a separate constituent entity of the Russian Federation. In addition to this, in 2000, the territory of Russia was divided into seven super entities, or Federal Districts – Federalnyi Okrug.24 Very recently, in January 19, 2010, a new district was established – the eighth Federal District: the Northern Caucasus, which represents the split from the Southern Federal District.25 All of the above listed entities have their Offices of the Interior, with dual subordination: to the Federal Ministry of the Interior (which is the primary kind of subordination) and to the regional government.

The Police Service (Militia: Militsiya) The name Militsiya originates from early Soviet history, when the Bolsheviks wanted to associate their new law-enforcement authority with the self-organization of the people and to distinguish it from the “bourgeois class protecting” police. Originally, Militsiya was created in 1917 under the official name “the Workers’ and Peasants’ Militsiya.” This is the primary, most powerful, and multifunctional Russian law-­enforcement agency. The Militsiya currently operates on the basis of the Law on Militsiya of April 18, 1991 (with subsequent amendments), in accordance with which the

Source: http://eng.mvdrf.ru/sovet/5119/. Retrieved March 29, 2009. For updated information see: http://www.mvd.ru/news/15523/. Retrieved February 14, 2010. 24  They are the following: Central, North West, Siberia, Ural, Far East, South, Volga. They were created by the Decree of the President of Russian Federation (then – V. Putin) in May 2000, as a part of a wider program designed to reassert federal authority. See Federal Districts of Russia, in: http://rt.com/Russia_Now Basic facts/Administrative division.html Retrieved February 1, 2010. See also http://www.inwestinrussia.info/en/russia/adm/. Retrieved March 23, 2009. 25  For a detailed assessment of this move see: Central Asia-Caucasus Institute-Analyst, http:// www.cacianalyst.org/?q=node/5261/print. Retrieved February 12, 2010. 23 

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Militsiya protects the life, health, rights and freedoms, as well as the property and interests of individuals, legal entities, society, and the government.26 Presently, the Militsiya has the authority, typical and similar to the ones of police forces in other countries, to conduct investigations; detain individuals; and using force to restore order. Its mission includes protecting the safety of citizens; fighting crime and minor violations of the law; detecting and solving crimes; maintaining public order; defending private, governmental, municipal, and other forms of property; and assisting individuals and legal entities in protecting their rights and legal interests.27 In July 2002, the new Criminal Procedure Code came into force and substantially changed the rights and responsibilities of the Militia. The shift from an inquisitorial to adversarial process has paved the way for further reforms. The new Code placed the Militia, at least formally, among the police services of the free, democratic countries of the world.28 Supervision of the legality of police activities is carried out by the General Prosecutor of the Russian Federation and its offices in the subjects of the Federation. Members of the police may unionize to protect their socioeconomic interests in accordance to the law; however, the police are prohibited from striking. As of November 2006, the Russian police service has had, in rounded-up figures, 821,000 men and women, among them 661,000 uniformed, sworn police officers.29 There are 437 police officers in the rank of one-, two-, and three-star generals (with the addition: militsii). The police has its central headquarters in Moscow. It consists of the Main Chief of Police, his deputies, and a number of various subordinated departments and research, logistical, and administrative units. The Russian Police is an active member of the Interpol and Europol. Thus, Offices for Cooperation with Interpol and Europol are situated within the central headquarters. There is also an office for the cooperation with police in the former republics of the Soviet Union. The Criminal Police Service The Criminal Police is the backbone of the Russian Police Service. It is highly centralized and primarily subordinated to its own higher level command, rather than to the local government. Its territorial structure is rooted in the very central, federal level, which constitutes the basis for the powerful Police High Command, headed by a three-stars general, through Police Commands on all the subsequent administrative levels to the very low administrative subunits – the Raion – District. Peyser and Vitsin (2005), pp. 1274–1279. Ibid, p. 1276. 28  For more details on this Code see Ibid. 29  All figures quoted in this section were taken from the Russian official news paper Rossiiskaya Gazeta, federal edition, No. 4219, November 10, 2006. http://www.rg/2006/11/10/draguncov. html. 26  27 

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The rather unique approach of the Militsiya policing is the system of territorial patronage over citizens. In Russia, this system has existed, without any substantial changes, since the Czars’ times, through the Soviet era, until the present time. The cities as well the rural settlements are divided into Uchastki, plural: Uchastki – English: “Quarters” or “Zones” with a special Uchastkovyi militsioner (“quarter policeman”) assigned to each (Zone Authority Police).30 The main duty of the “zone policeman” – or the Zonal Authority Police officer – is to maintain close relationship with the residents of his zone and gather information from its constituencies. In particular, this policeman should personally know each and every ex-convict, substance abuser, young thug, etc., in any given zone and visit them regularly for preemptive and proactive influence, and especially within the framework of combating local drug dealers. He is also responsible for tackling other offences, such as family violence, loud noise, residential area parking, etc. Another important mission of the Zonal Authority Police is to assist the Criminal Police in carrying out their investigations. Uchastkovyi is also the main, and actually the real, police force in remote areas and small settlements, where permanent police subunits are not established. The zonal policemen reside in separate small offices within their quarters and maintain office hours for the citizens during the weekdays, it is believed that in the cities the Zonal Authority Police use the doormen’s and/or house supers as their primary informant sources. This system slightly resembles the origins of the US sheriff systems, although there are some notable differences. The zonal policeman (Uchastkovyi) is neither a chief law-enforcement officer in a given community nor one who responds to all the traditional police functions (such as investigations, arrest, or other specialized police functions).

Public Safety Police (Militsiya Obshchestvennoy Bezopastnosti) The Public Safety Police is the largest force among all of the services of the MoI, and is the primary interface not only between the police and citizens, but also between the citizens and government. When citizens report crimes, seek assistance in domestic disputes or local disturbances, obtain driver’s licenses, or get stopped by traffic police, the first point of contact is likely to be with the office of Public Safety Police. Its main responsibilities are typical for local police in the Western World, and include, among others: • Maintaining public order and safety • Protecting property; detecting, preventing, and stopping crime in progress and low-level violations of law

Peyser and Vitsin, Ibid, p. 1278.

30 

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• Investigating and solving crimes for which only inquest rather than preliminary investigation is required by the law • Assisting the Criminal Police where appropriate

OMON (Otryad Militsii Osobogo Naznacheniya) The Anti-Riot Police – OMON – Special Purpose Police Squad. This is a generic name for the system of special antiriot and antiterrorists Russian police units. As of 2009, there is an existing OMON unit in most of the 74 provinces (oblasti) of the Russian Federation, as well as in many major cities. Especially strong are the OMON units in Moscow and in the Moscow province as well as in St. Petersburg. Various sources assess the present total strength of OMON as up to 27,000 nationwide.31 Due to the economic crisis in Russia and the projected possible mass public unrests in the near future, there is a tendency within the government of the Russian federation to substantially increase the number of OMON policemen, especially in the industrial areas of the country. Members of OMON are supposed to be extremely fit and experts in small arms and hand-to-hand combat. Males between the ages of 22 and 30 who have completed their 2-year military service can apply to join the OMON units. The application includes detailed medical and psychological tests, and tests of physical strength and fitness. The initial training lasts for 4 months. The recruits are extensively trained in the use of different weaponry and close combat, and are also trained to follow orders at any cost. Special emphasis is put on urban combat and entering and clearing buildings. The OMON’s educational program includes also legal training, especially with regards to the use of force and arms against aggressive demonstrations within the context of crowd control. The application procedure includes a final test, where the applicant has to fight three to five trained OMON members in hand-to-hand combat wearing boxing gloves. Fewer than one in five applicants pass and are selected to join. The OMON groups use a wide range of weapons, including but not limited to AK-74 assault rifles, AKS-74 carabine assault rifles, 6A-91 compact assault riffles, and PP-Bizon submachine gun. OMON units during combat operations may also use other weaponry typical for the Russian light infantry, such as the PK machine gun, the GP-25 under-barrel grenade launcher for AK-74 or the GM-94 pump-action grenade launcher, and the Dragunov and Vintorez sniper rifles. OMON vehicles include specially equipped vans, buses, and trucks of various types, including specially constructed vehicles to spread water under high pressure to disperse crowd. OMON also use a limited number of armored personnel carriers (BTR-60, BTR-70, and BTR80). They also use blue urban camouflage uniforms and black face masks while on duty, and various Russian Army and Internal Troop’s uniforms while in Chechnya. For example: Rossiiskaya Gazeta, op.cit. p. 4.

31 

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The OMON’s origins can be traced to 1979, when the first group was created in preparation for the Summer Olympics in Moscow, to ensure that there were no terrorist attacks like the Munich massacre during the 1972 Summer Olympics. Subsequently, the unit was utilized in emergencies such as high-risk arrests and hostage crises, as well as in response to acts of terrorism. The OMON detachments were often manned by former soldiers of the Soviet Army and veterans of the war in Afghanistan and Chechnya. The present OMON structure itself is the successor of that group and was founded in 1987, with commando duties largely taken over by the MoI unit SOBR (detachment to combat dangerous criminals) and Vityaz (Prince) (counter-terrorism detachment). The OMON units were initially used as the riot police, to control and stop demonstrations and hooliganism, as well as other emergency situations, and later became accustomed to a wider range of police operations, including cordon and street patrol actions, and even paramilitary and military-style operations. Since the foundation of OMON, in 1987, there almost does not exist any one case of serious unrest and/or serious violation act on the huge territory of the Russian Federation without the subsequent engagement of the OMON units. A few of the most spectacular ones, were the cordon duties during Russia’s mass hostage crises, including the 1995 Budyonnovsk hospital hostage crisis; the 2002 Moscow Nord-Ost theater hostage crisis; and the 2004 Beslan hostage crisis. In these three operations, the overall OMON’s performance was, generally, assessed positively, both, in the public opinion and among the experts. The OMON activities in the First and Second wars with the Chechen separatists were rather well executed; at least in the view of the Russian High Command of the armed forces. Despite relatively heavy losses (to mention only one, in March of 2000), the ambush in which more than 30 OMON servicemen from Perm were killed, including nine captured and executed. Furthermore, there were some casualties attributed to “friendly fire.” In the bloodiest incident, at least 24 OMON soldiers were killed and more than 30 wounded when two OMON units (from Podolsk and Sergiyev Posad) fired on each other in Grozny on March 2, 2000. Many OMON actions, especially aimed against mass demonstrations of civilians, were frequently condemned by the public opinion for police brutality, excessive use of force, and arbitrary detention of participants. Thus, in the popular view, the OMON units represent a symbol of brutality toward the population rather than an organ of its protection against various violations of the law. The very last and most spectacular operation of OMON was the use of one of its detachment, stationed near Moscow and deployed to Vladivostok, in the Russian Far East, a distance of some 5,000 km from Moscow. The OMON unit “Zubr,” was sent by military and civil airplanes to Vladivostok, to take control of the mass unrests in this city. (The reason for the unrests was the imposition by the authorities of new used-car import taxes, a substantial burden for the population, since much of local economy is based on the use of second-hand Japanese cars. Starting out as singleissue, the peaceful protests, against taxation the demonstration took on an increasingly political character, incorporating anti-Kremlin slogans. In just a few days, mass

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solidarity ­demonstrations with Vladivostok protesters took place in St. Petersburg and scores of other cities in Russia.) The Vladivostok authorities unsure of the loyalty of the local OMON unit, as many relatives of its servicemen were among the protesters, asked Moscow for some assistance from OMON units outside this area.32 Special Task Force “Rys” (Lynx) It is also important to mention, within the structure of OMON, a specialized unit: OMSN – Otryad Militsii Specialnogo Naznachenia, – Specialized Designation Police Detachment, an antiterrorist commando force, which comprises 5,000 servicemen.33 It was established in February 1992 as the most prepared and highly trained antiterror special task force, with elite personnel always ready for prompt reaction. The mission of this unit is characterized shortly: “It plays a special role in ensuring order and safety. Modern challenges and threats of global terrorism, transnational organized crime, extremism, and nationalism present dangers for entire global community.”34 This unit tests new forms and methods of operations for all Ministries of the Interior special task forces. The major task of “Rys” servicemen now include provision of force support to investigate activities and operations, as well as other actions by offices of the interior; combating terrorismand extremism-related crimes; and carrying out counter-terrorist operations aimed at the localization and neutralization of gangs and illegally armed formations.35 Details regarding the success rate of this Task Force are not publicly released, since the existence of the unit itself, its structure, location, weapons, and tactics, as well as its day-to-day activities are shrouded in secrecy. Only the following figures may provide some sense about the nature of the performance of members of this unit. As of February 2007, 71 members of “Rys” were awarded the Medal of Valour, 59 received the Order of Courage, and five servicemen were awarded the “Hero of Russia” title.36 Among the remaining Russian police services, the most important is the Federal Traffic Police – Gosudarstsvennaya Avto-Inspektsiya – GAI. Its structure, assigned tasks, and equipment are typical of most Traffic Police in other countries. Independently of this force, within the Russian Federation there are a number of related law-enforcement forces. For example, the Transport Police (analogous of the Port Authority) which deals with the country’s huge rail–road network, the Police for waterways, and the municipal metro-underground Police. It should be noted here that the overall opinion of the population regarding the Militia – the Russian Police was highly negative during the almost 92 years of its

32  For more details on the OMON unit, see Sergey Chernov, “Wave Of Protests Sweeps Nation”, The St. Petersburg Times, December 23, 2008, p. 1. 33  This is unveiled by the Rossiiskaya Gazeta, ibid. 34  The Ministry of Interior of Russia official website: http://eng.mvdrf.ru/news/3030/?print. Retrieved April 9, 2009. 35  Ibid. 36  Ibid.

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existence. No measures of frequent reorganization were influential in shaping this view in a different direction. The Day of Russian Militsiya is held on November 10. The result of a poll conducted on November 10, 2005, published by the daily newspaper Izvestiya; shows that 72% of people are afraid of the Militsiya because the policemen are thought to often take illegal actions against innocent people.37 Another 2005 poll showed that 41% of the Russian population fears the Militsiya more than organized crime (56% in Moscow).38 Not much has changed since 2005. During the past 5 years the animosity and negative attitude toward law enfrocement officers and the police organization itself has just deepened. It is almost a tradition that continues from Soviet times when a popular saying was: “Are you a human being or a policeman?” During the past 5 years, everything points to a further demoralization within law enforcement. One of the newaspaper reporters in Moscow, Waclaw Radziwinowicz, wrote that the Russians are fed up with their law-enforcement forces, esepcially the police, whose members are involved, among other atrocities, in murders, rapes, and tortures, and even the Minister of the Interior, Rashid Nurgaliev, openly calls upon the public to resist the officers who violently attack members of the community.39 The Russian Information Agency (RIA) Novosti published some data about the crimes committed by law-enforcement officers during the first 7 months of 2009. Among the crimes committed are murders, rapes, tortures, drug trafficking, driving while intoxicated, and causing the death of 26 people in car accidents while driving under the influence.40 Andrey Makarow, one of the Putin’s party members, suggetsed that there is no way to modernize or reform the MoI and the only way to deal with police force effectively is to disband the entire enterprise and recruit new officers in the Republic of Georgia by its President Saakashvili.41 Since 93 years of existence of the Russian Militsiya (Police), there was no precedence of such a gigantic nature as the recent purge that occurred on February 18, 2010. On this day, during the working session of the MoI, President Medvedev announced the following moves, which were already published in his Decrees and other legislative acts: 1. Fired – effective immediately, were (a) Two Deputy Ministers of MoI Generals, Ovchinnikov and Yedelev (b) Eight Generals – heads of regional Offices of Interior, among them Ministers of Interior of three autonomous republics of the Russian Federation (c) Nine Generals and Colonels – heads of various police departments in Moscow as well in other cities Moscow’s daily Izvestiya, Segodnya Prazdnik Militsii, November 10, 1995, p. 1. Diderik Lohman, 1999 Confessions at Any Cost. Police Torture in Russia, Humans Rights Watch, New York–London–Brussels, p. 196. 39  Faithful Rashid in, The New Times, No. 3, February 1, 2010. 40  Gazeta Wyborcza, Rosyjska zgniła milicja, November 11, 2009. http://wyborcza. pl/1,75477,7305728, Rosyjska_zgnila_milicja.html. 41  Ibid. 37  38 

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2. The overall staff of this ministry’s Main Office in Moscow was cut from approximately 20,000 to 10,000 3. Dismissed were some top officials from other law-enforcement agencies and services, but full details remain unknown, except for the fired 20 senior Federal Penitentiary Service officials, which was announced earlier42 It seems, however, that these extreme moves represent only the tip of the ­iceberg; in addition, a lot of other important changes probably already took place or are in the initial stage of performance. The other General, whose role is very critical in the Russian law-enforcement political configuration, is General Nurgaliev, the Minister of the Interior. Nurgaliev, so far, survived this “­earthquake” in his ministry which is headed by him since 2004. The answer to this rather baffling survival query – why he survived when others were so ­violently removed could be found in his biography. An ethnic Tatar, born in 1956 in Kazakhstan, graduated from the State University in Petrozavodsk, Karelia, in 1979. He later received a doctoral degree in economics. Nurgaliev joined the KGB and for 15 years, from 1981 to 1995 served in the Karelia KGB Directorate, part of the time under the direct supervision of Nikolai Patrushev, the Security Minister of Karelia. In 1995, Nurgaliev was moved to Moscow and appointed as Chief Inspector of the Inspections Directorate of the FSB Department of the Internal Security (police within police). The then Head of this Department was Nikolai Patrushev. In 2002, Nurgaliev became the first Deputy Minister of Interior and, 2 years later, in 2004 he was promoted to the rank of four-star General, and in the Minister of Interior his post remains till today despite the last gigantic purge in his ministry.43 It is crucial to properly understand the system in which we stress that almost all successive police ranks, from Colonel to the four-star General, as well as all successive command posts, Nurgaliev owns personally to Patrushev. Nurgaliev is one of Patrushev’s close confidants, a “vidvizhenets,” which in Russian means a person who is constantly promoted by his Patron. This tradition can be traced back to Stalin who took care of such “vidvizhentsy” like Yezhov, Malenkov, or Marshal Zhukov and this seems to be the only reason why Nurgalieyev was not fired together with the other ranking officers in his ministry. In other words, the principle – “nashikh ne trogat’!” (keep our people untouched) remains well and alive in the present day Russia, as one of the most important, not

42  Nezavisimaya Gazeta’ February 19, 2010, accessible: http://www.ng.ru/printed/237312 Retrieved: February 21, 2010. Also see Isachenkov (2010). 43  Nurgaliev biography; see the Official Website of the Security Council of the Russian Federation, Personalities. Retrieved February 21, 2010.

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legally defined but factual, principles of promotions and other personnel policy inside the law-enforcement agencies and other governmental institutions.

The Internal Military Troops (Vnutrennie Voiska) In comparison with the police, which consist exclusively of volunteer professionals, some 60–65% of the personnel of the Internal Military Troops are comprised of conscripts, enlisted for a 2-year term of service. Only the senior noncommissioned officers, warrant officers, and commissioned officers are professionals. The assigned main tasks of the Russian Internal Military Troops (IMT) seem to be comparable to the role of the US National Guard. However, the IMT are highly centralized, not subordinated to any local civilian authority or local government. They act independently or in cooperation with the police and other law-­enforcement agencies (and in wartime, or other highly extreme situations, with the armed forces), fulfilling almost exactly the same role as the French Gendarmerie or Italian Carabineer. However, in comparison with the two latter formations, the Russian Internal Military Troops have more heavy combat weapons and equipment and constitute a full equivalent of the mechanized/motorized infantry troops of the regular armed forces. The strength of the IMT troops has fluctuated, during the many years of its existence, and was at about 350,000 at its highest. In the post-Soviet era, it decreased to some 250,000 but, as of April 2009, their strength is estimated at 200,000 armed servicemen only.44 The Chief Commanding Officer of the IMT – Glavnokomanduyushchii Vnutrennykh Voisk – is currently Army General (four-stars) Nikolai Rogozhin.45 The current organizational structure of the IMT is comprised of one division, ­several independent military brigades, regiments, and battalions, as well as various special task forces, including as many as 16 OSNAZ (Otryad Spetsyalnogo Naznacheniya) detachments. The above mentioned division of the IMT is the former Felix Dzerzhinsky KGBsubordinated division located in the Moscow area. In the post-Soviet era, this division was renamed as the first Motorized Special Designation Infantry Division (OMCDON) and was subordinated to the command of the Internal Military Troops. The main purpose of its existence is to be the most powerful local military force to be deployed during extreme internal situations in the capital of Russia. The IMT independent brigades, regiments, and battalions are located nationwide, in most of the main cities,

Rossiiskaya Gazeta: http://www.rg.ru/2006/11/10/Draguncov.html. Retrieved April 4, 2009. Ibid.

44  45 

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large industrial areas, and in all major provinces. In addition, there are also IMT engineering, communications, helicopter, and logistical regiments and units. The IMT combat equipment is basically the same as in the regular mechanized infantry of the army, but it also includes special crowd control vehicles. The IMT continued their transition to digital communications with the use of state-of-the-art systems for channel formation and transfer of information. Uniform systems for digital automatic telephone communications and automatic data processing were set up for these troops. Satellite communications were launched linking the main and subordinated command posts of the IMT.46 Concerning the IMT’s recent successes, the Minister of the Interior, Army General Nurgaliev underlined, that, along with other law-enforcement agencies these troops took part in 856 raids in the Northern Caucasus in 2007, neutralizing 55 leaders and members of terrorists groups. Thanks to well-coordinated and mutually agreed-upon operations by the IMT and other law-enforcement task forces, no high-profile terrorist acts have been conducted in this area since then. Steps taken by the IMT in coordination with other law-enforcement task forces have considerably lowered the risks of terrorist activities not only in the Northern Caucasus but also nationwide in Russia.47

Federal Migration or Immigration Service (Federalnaya Migratsionnaya Sluzhba) The Federal Migration or Immigration Service consists of the Main Directorates, on the central level: Research, Educational, and Logistic Departments. On a regional level, there is a three-tier organizational structure which includes the following. Federal Migration Service Offices in all seven Federal Districts (federal Okrug’s), and directly subordinate to them the Federal Migration Offices in all provinces and autonomous republics. At the lowest level there are the passport control posts on all border pass points, including ports, airports, railroad, etc. The mission and tasks of the Russian Federal Migration Service is typical of such services worldwide. Currently (2009), the General Director of this Service is Viacheslav Postavnin, who is directly subordinated to the Minister of the Interior.48 From a recent interview with Postavnin, it appears that the more recent huge problems with illegal immigration experienced by all developed countries worldwide are also a major concern for Russia. The present migration developments in the Russian Federation are accompanied by growing immigration. The available data for foreign labor without a legal status in Russia vary from 2.5 to 15 million people. The Ministry of Interior official website http://eng.mvdrf.ru.news/3315?print Retrieved April 10, 2009. 47  Ibid. 48  See the official website of Russian ministry of Interior: http://eng.mvdrf.ru/press/interview/5081 Retrieved April 11, 2009. 46 

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The information about the scale of illegal immigration is even less reliable for certain regions, particularly the border areas. Most experts claim that Russia has currently four to five million illegal immigrants. However, the Russian Federal Migration Service estimates this figure to be as high as ten million.49

The Interior Ministry Institutions of Central Subordination The Interior Ministry of Central Subordination includes numerous institutions of research, forensic, education, and logistics. An overview of two of the most critical importance is essential to understand their role in the organized crime phenomenon. The primary research institution is the All-Russian Research Institute of the Interior Ministry, located in Moscow and headed by Militsiya Major General Sergei Girco. The institute conducts and coordinates research in the areas of search and surveillance, criminal law, criminal procedure, administrative law, criminology, and other areas relevant to the ministry and its departments. The institute carries out its own research and coordinates the other research activities of MoI in the critical areas of combating crime, ensuring public safety and order, and improving the legal, organizational, tactical, and methodological foundations of police activity.50

Federal Guard Service of the Russian Federation (Federalnaya Sluzhba Ockrany) This is a federal governmental agency, mandated by the relevant laws tasked with the protection of several high-ranking state officials, including the President of Russia, as well as certain federal properties of significance. The mission of the Federal Guard Service of the Russian Federation (FGS) includes also the protection of internationally protected persons, and other very important persons. The FGS traces its origin to the Ninth Chief Directorate of the KGB, and later the Presidential Security Service also led by the KGB. Since May 27, 1996, when the FGS was formed, this agency is no longer a part of the KGB or its successors, and exists as a fully autonomous institution, subordinated directly to the President of Russian Federation. However, the coordination of operations of the FGS with other federal enforcement agencies and bodies belongs to the head of the government of the Russian Federation.51 Currently (as of February 2010), the FGS is headed by an Army General (fourstar) Yevgeniy Murov. It has roughly 20,000–30,000 uniformed personnel plus

Ibid. Peyser and Vitsin, p. 1280. 51  See FGS official website: http://www.fso.gov.ru. Retrieved February 10, 2010. 49  50 

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several thousand plain-clothes personnel. Its mechanisms of control include the “black box” that can be used in the event of a global nuclear war. The FGS also operates the secure high-level communications system and the secure subway system used by the government Metro-2. In addition, the FGS has two military style organized regiments: the Presidential Regiment and the Kremlin Regiment. According to the Law on the State Protection, 1996, the Federal Guard Service is a powerful institution with a range of rights and powers, including the right to conduct searches and surveillance without warrants, make arrests and even give orders to other state agencies.52

Federal Security Service (Federalnaya Sluzhba Bezopasnosti: Rossiiskoi Federatsii) FSB is the main internal security service of the Russian Federation and the main successor of the Soviet-era Cheka, NKVD, and KGB. In late 1991, the domestic security functions of the KGB were reconstituted as the Federal Counterintelligence Service (Federal’naya Sluzhba Kontrazvedki – FSK) and were subordinated directly to the President of Russia. In 1995, the FSK was renamed into FSB, granting it additional powers, enabling it to enter private homes and to conduct intelligence activities in Russia as well as abroad in coordination with the Russian Foreign Intelligence Service (SVR). The FSB reforms were further formalized by decree No. 633, signed by Boris Yeltsin on June 23, 1995. The decree made the tasks of the FSB more specific: it gave the FSB substantial rights to conduct cryptographic work, and described the powers of the FSB director and the structure of the leading organs of the FSB in details. In 1998, Yeltsin was appointed as a director of the FSB Vladimir Putin, a KGB veteran, who would later succeed as President of the Russian Federation. As President, Putin increased the FBS’s powers to include countering foreign intelligence operations, fighting organized crime, and suppressing Chechen and other Caucasian separatists. According to a decree signed by Putin on March 11, 2003, Border Guard Service was transferred to the FSB, while FAPSI, the agency of government communications was abolished, granting the FSB with a major part of its functions. The detailed structure of the FSB Federal Office is not openly disclosed and therefore whatever information is available from various, informal sources, should be treated with a high degree of caution. Without exception, all 84 constituent subjects of the Russian Federation53 have their offices of the FSB with dual subordination: to the FSB Federal Office (which is the primary kind of subordination) and to the head of the local, regional government.

Ibid. See also Notes 25 and 26.

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Thus, FSB constitutes a huge pyramid: • The Federal Office • Eight Federal Okrug’s Offices • Eighty-four Offices of the administrative Federal Level units Moreover, within most of the very important state institutions, enterprises, educational entities, and industrial factories, there are small FSB offices detached, on a permanent basis, to these units. (In addition, there is an estimated network of thousands of informers and all kind of FBS agents.) The FBS, with its estimated complex organizational structure reflects a monsterorganization, which deeply penetrates all structures of the state, including its armed forces, police, and all remaining law-enforcement agencies, as well as all levels of Federal and local government administration. Its most recent head is Aleksandr Bortnikov, appointed on May 12, 2008. FSB International Cooperation 1. The FSB cooperates with Interpol and Europol. It has provided information on many Russian criminal groups operating in Europe. 2. The FSB cooperates with Security Services of the Organization of the Independent Countries of the former Soviet Union (the Baltic States and some Caucasian states do not belong to it). 3. The FSB is an active member of the Regional Antiterrorist Structure of the Shanghai Cooperation Organization.54 In March 2003, by the decree of the President of the Russian Federation, Vladimir Putin, the Russian Border Guard Service was organizationally subordinated to the Federal Security Service – FSB, and became an integral part. The chief commander of the Border Guards (presently Army General Vladimir Pronichev) is, simultaneously, one of the First Deputies of the FSB chief director. Russia has, in rounded figures, 61,000 km of sea and land borders, of which it shares 7,500 km with Kazakhstan and 4,000  km with China. These parameters alone show how important is the security of its borders is for Russia.55 The organizational structure of the Border Guard Services includes, among ­others, the following main elements: • Units of border control • Units of foreign intelligence 54  Members of this Organization are: China, Russia and former Soviet Central Asia republics, while India, Iran, Mongolia and Pakistan have the observer’s status. http://www.agentura.ru. Retrieved 19 January 2010. 55  Russia intends to create a strong force to maintain security of the Russian part of the Arctic Ocean under the conditions of the current situation in the world. This new Regional Command is said to become Russia’s leading strategic base by 2016, as pointed out by the Moscow daily PRAVDA, 27 March 2009. For more about the Arctic Regional Border Guards Command, HQ in Murmansk, see: http://www.agentura.ru/dossier/russia/fsb structure/psfa rp u/.

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• Units of internal security (includes Counterintelligence organs) • Military Troops of Border Guard (includes aviation and naval units) • Administrative, technical, and logistical support units Command Structure A number of other law-enforcement federal agencies can be found in the contemporary Russia, which also exists in most countries around the world and their overall number and assigned tasks in Russia are, for example, very similar to those in the United States of America. This chapter already examined and described all the most important Russian LEAs. The ones that were not mentioned in any greater length (due to the scarcity of verifiable information regarding their full organizational structure and jurisdictional subordination) include: Tax Police, Customs Service, Forest Police, Prison Service, State Animal Protection Police, Federal Space Agency, State AirPort Security Units, and Federal Service for Alcohol Market Regulations, among others. In general, all Russian Law Enforcement Agencies without any exception are subordinated from the very top level only to one of the two state leaders: to the President of the Russian Federation (currently Dmitry Medvedev) or to the Prime Minister of the Government (Vladimir Putin), as described below.

Who Is the Boss? According to the Russian official source,56 the division of subordination of Russian Federal Independent (being outside ministries) Law Enforcement Agencies on the highest level is the following: Under the President State Courier Service57 Foreign Intelligence Service Federal Security Service Federal Drug Control Service Federal Guard Service Chief Directorate of Special Programs58 Administrative Directorate of the President of the Russian Federation

Under the Prime Minister Federal Anti-Monopoly Service Federal Customs Service Federal Tariff Service Federal Service for Fiscal Monitoring Federal Services for Financial Markets Federal Space Agency Federal Agency for State Border Federal Agency for Supplies of Arms, Military, and special Equipment

Federal Service for Alcohol Market Regulations

56  The official Website of the Russian Federation / The Executive Branch: http://government.ru/ eng/power/. Retrieved February 15, 2010. 57  The list presented here is in the order shown in the cited source. 58  The tasks of this Agency are not openly disclosed. However the name of the head of the Agency is disclosed: the three-star Admiral A.V. Tsarenko. https://www.usrbc.org/government/russian/ russian_government_structure/. Retrieved February 12, 2010.

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Looking at the above division of power the following question arises: Is there any governing body which, from the legislative point of view, determine targets, tasks, and activities of all these, above listed, agencies, and services? And the answer to the question is that, indeed a governance body named, THE SECURITY COUNCIL OF THE RUSSIAN FEDERATION (SC) (SOVET BEZOPASTNOSTI ROSSIYSKOY FEDERATSII) is the one that oversees the activities of the other units. The SC is composed of key ministers, key agencies, and service heads, and chaired by the President of Russia. The current activities of the SC are organized by the Secretary of the Security Council, Nikolai Patrushev. The SC is dealing with priority areas of national security, such as state security, public safety, socioeconomic security, and security in the spheres of defense, information, and the military and international affairs. This body was formed in 1992 and act in accordance with the constitution and Federal Law “On Security.” SC forms interagency commissions, which operate as its principal working bodies. Depending on the tasks, these commissions can be formed on functional or regional basis, and can be permanent or temporary. To assure academic expertise the SC have and Academic Council are staffed with experts from the Academy of Sciences and other science and educational institutions. The SC draws up crucial documents defining conceptual approaches to national security.59 Some observers’ note that, in today’s Russia the FSB is more powerful than the KGB ever was throughout its history, primarily because it does not operate under the control of the Communist Party as the KGB did in the past60. According to Michai Pacepa, “In the Soviet Union the KGB was a state within a state. Now, former KGB officers are running the state. They have the custody of the country’s 6,000 nuclear weapons, entrusted to the KGB in the 1950s, and they now also manage the strategic oil industry renationalized by Putin. The KGB successor, rechristened FSB, still has the right to electronically monitor the population, control political groups, search homes and businesses, infiltrate the federal government, create its own front enterprises, investigate cases, and run its own prison system. The Soviet Union had one KGB officer for every 428 citizens. Putin’s–Medvedev’s Russia has one FSB officer for every 297 citizens.”61 And Peter Finn of the “Washington Post” argues that the FSB is now the leading political force in Russia, which simply replaced the Communist Party.62 The secret of the currently strong position of the FSB is its main component – the Counterintelligence Service. The FSB’s Counterintelligence net covers all bodies important for the country’s political system, exactly in the same manner as its

Source: President of Russia Official Website: http://eng.kremlin.ru/articles/institut04.shtml retrieved: February 19, 2010. 60  Symposium: KGB Resurrection, interview with Vladimir Bukowsky, Ion Michai Pacepa, and R. James Woolsey, Jr., FrontPageMagazine.com, April 30,2004. 61  Symposium: When an Evil Empire Returns, interview with Jon Mikhail Pacepa, R. James Woolsey, Yuri Yarim-Agayev, and Lt-Gen. Tom Mctnerney. FrontPageMagazine.com June 23, 2006. Also see Finn (2006). 62  http://www.washingtonpost.com/wp-dyn/contect/article/2006/12/11/AR2006/12/10/html. Retrieved February 10, 2010. 59 

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predecessor operated during the Soviet era. Their official and undercover officers and/or units exist on all the strategic, operational military/naval commands, and even on tactical levels down to a company or independent platoon of the Russian armed forces, of the Russian Police, Internal and Border troops, on all levels of the central government and regional administration, all larger industrial, agriculture, market enterprises, and in all educational and cultural institutions. The FSB has, undoubtedly, subunits, agents, and/or informers in all the important SVR locations within the country and abroad. The FSB can legally infiltrate the SVR, but SVR has no such right regarding the FSB. Hence, the FSB legally have a full insight into all internal matters of all Russian institutions, on all administrative levels, while, at the same time, the FSB, is secured against such an infiltration from other services.

FSB as the Ruling Political Elite in Contemporary Russia Olga Kryshtanovskaya, director of Moscow’s Center for the Study of Elites, has found that up to 78% of the 1,016 leading political figures in the Russian Federation have served previously in organizations affiliated with the KGB or FSB. According to Kryshtanovskaya, during the Soviet-period and the first post-Soviet period, KGB–FSB people were mainly involved in security issues, while currently half are still involved in security but the other half are involved in business, political parties, NGOs, regional government, and even culture. They started to use all political institutions.63 This situation is, to some extent, similar to the former Soviet Union where, in accordance with the Nomeklatura system, all key positions in the country, from the lowest to the highest, were hold exclusively by people appointed by the appropriate Communist Party organs, and constituted close to one million of such positions. If the Kryshtanovskaya figures are correct, even only approximately, the phenomenon seems to be quite clear: the new ruling KGB–FSB elite in Russia decided to keep alive the old, Soviet-era, Nomenklatura system, reduced one thousand times from one million to one thousand positions. This overview of law-enforcement organizations in the Russian Federation provides a very clear template to explain how and why the OCN phenomenon was established and flourished, without much of a disruption despite the multitude of law-enforcement entities and organizations that, supposedly, were created to ensure law and order in the new Russian Federation. If indeed, according to our supposition, the most important law-enforcement body is the Federal Security Service – FSB, so the real boss of the entire country is presently President Medvedev, to whom the FSB is directly subordinated. Furthermore, this seems to be the opinion espoused by many observers and experts, both inside

Peter Finn, Ibid.

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Russia (for example, the authoritative, independent Moscow’s Daily published in English “The Moscow’s News,” March 2, 2008) and Western experts on Russia. However, if we take a closer look at two key persons in this area, namely Generals Patrushev and Bortnikov, slightly different picture emerges. Nikolai Patrushev, is a four-star general and Ph.D. in law, born in 1951 in Leningrad is an active member of the KGB and its successors since 1974. During his long service, he held successively higher operational functions, mainly within Leningrad/Saint Petersburg area, where also Vladimir Putin began his great career. Many of his posts were directly under Putin, as his immediate supervisor. Finally, as per Putin’s suggestion, Patrushev, by the Decree of Boris Yeltsin, replaced Putin as the Director of the FSB, in August 1999. In addition, again based on Putin’s suggestion Patrushev was nominated on May 12, 2008, by President Medvedev, as the Secretary for the National Security Council. Based on the above, he is without a doubt and for many years now, one of the closest Putin’s favorites, Vladimir Putin, who was behind the scene of his far reaching career.64 As recently as February 8, 2010, an entire traffic police unit with 19 police officers was detained on charges of repeated bribe extortion in Russia’s southern Astrakhan Region. Security officers, who worked in the region from September 2009, revealed that over the last 3 years, officers of Astrakhan’s permanent traffic police stations repeatedly demanded and took bribes from drivers and shared money according to a previously agreed scheme – from rank-and-file inspectors to senior officers. Investigators of the Russian Prosecutor’s Office Investigative Committee for the Astrakhan Region jointly with officers of the Federal Security Service regional administration detained all officers of each of the three traffic police stations and the chief of the regional traffic police department number 1. According to investigators, the officers had been passing part of the bribe money to their superiors. Arkady Kirsanov, head of the division, received at least 150,000 rubles ($4,900) a month in bribe money collected by his subordinates. The largescale operation to detain bribe-taking traffic police officers, involving officers from the Federal Security Service, the Russian Interior Ministry’s Public Order Department, and the internal security department of the Astrakhan regional interior administration, was held this month after a 3-year undercover investigation.65 Fighting Organized Crime, in the most democratic of societies, is not a simple and easily achieved task. Fighting Organized Crime with systemic and widespread corruption within the law-enforcement force appears to be mission impossible. How do we therefore restructure the law-enforcement forces and assure that the corruption is minimized if not eliminated? The answers to these queries occupy the hearts and minds of numerous practitioners and academics around the world for many decades. One of the authors of

Official Website of the Security Council: htpp://scf.gov.ru/persons/8html. Retrieved: February 19, 2010. 65  “19 Traffic Cops Detained.” The Moscow Times. February 9, 2010. http://www.­themoscowtimes. com/news/article/19-traffic-cops-detained/399277.html. 64 

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this book has been involved in studying police corruption in many countries around the world. The solutions appear to be quite simple and generic yet for a numerous reason hard to implement. First, the introduction of ethical and integrity training at the basic academy level that indoctrinates the officers about the “right” and “wrong” conduct. Second, the disciplinary actions within law-enforcement agencies need to be adjusted to reflect the most serious orientation toward the aforementioned misconducts regardless of the type of infraction. Third, internal and external accountability mechanisms need to be put in place, ranging from a fully functional internal affairs units to a hybrid of citizen and law-enforcement committees to the external and very powerful Ombudsman’s Offices like the one established by the Northern Ireland government. Purchasing detecting equipment like cameras and other recording device in officers’ cars and on their gear helps to track the behaviors in question. Finally, developing a cadre of leaders who model ethical and moral behavior within the organization is a must in any situation where the ability to abuse the rights of one’s office and the nature of the work presents so many tempting opportunities. However, given the nature of human response and building upon the basic needs everyone has, like having to feed oneself and one’s family, if the salaries and other benefits for law-enforcement officers are not adjusted to the cost of living and beyond no strategies put in place to counter corruption will ever be successful. The second problem, closely related to the adequate compensation, is found in the nature of police work around the world but becomes ever more insidious in Russia, the cross pollination between the police and the politics. As Sir Robert Peel mentioned in 1829, “take the politics out of policing and policing out of the politics” (Haberfeld 2002) we are still fighting this co-dependence in the year 2010 and nothing seems to address its poisonous nature.

References Baranov, I. Aronov N., “Slaves Riot”, The New Times, Moscow. No. 03, February 1, 2010. Criminal Code of the Russian Federation, Part 2, section  7, Chapter 22. Adopted by the State Duma on May 24, 1996 and became Federal Law No. 64-FZ in June 13,1996 (with Amendments and Addenda of May 27, June 25,1998, February 9, 15, March 18, July 9,1999, March 9,20, June 19, August 7, November 17, December 29, 2001, March 4, 14, May 7, June 25, July 4, 25, October 31, 2002, March 11, April 8, July 4, 7, December 28, 2004): http:// www.legislationline/org/documents/section/criminal-codes. Feifer,G., “Massive Corruption Threaten Russian State”, Radio Free Europe/Radio Liberty, November 27, 2009. Finn, P. “In Russia. A Secretive Force Widens”, Washington Post, December 12, 2006, p.7. Haberfeld, M.R. (2002). Critical Issues in Police Training. NJ: Upper Saddle River, Prentice Hall. Isachenkov, V., “Russian president launches massive police reform.” Associated Pres. February 18, 2010, 12:44. Naumov, A. (1997). The New Russian Criminal Code as a reflection of ongoing reforms. Criminal Law Forum, 8:2, pp. 223.

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POLIS- Policing Online Information System- Russian Federation: http://polis.osce.org/countries/ detauls,php?item_id=&print=print Peyser M. and Vitsin S., Russia, Encyclopedia of Law Enforcement (2005), Volume 3. International, pp. 1273 –1281.

Russian Federation Official Websites President: http://eng.kremlin.ru/ State Duma: http://www.duma.gov.ru/ State Council: http://eng.kremlin.ru/articles/council.shtml Security Council: http://russia.rin.ru/guides_e/3062.html Prime Minister: http://premier.gov.ru/eng. Ministry of Interior: http://www.mvd.ru/struct/ Federal Security Service- FSS (FSB): http://www.fsb.gov.ru/ Shanghai Cooperation Organization (Russia is a member of this security/police Treaty): http://www.agentura.ru.January19,2010. Ukhov, V. “Faithful Rashid – Features of National Reform MIA.” The New Time, Moscow.

Further Readings Agentura.Ru http://www.agentura.ru/english Central Intelligence Agency. World Factbook ‘Russia’: https://www.cia.gov./library/publications/ the-world-factbook/geos/rs.html. Cheloukhine, S. Corruption in Russia. An International Assessment. Philosophy of Law, 2008, pp. 7–12. Cheloukhine, S. and Lieberman, Ch. A., Reforming Power Structures: Russian-Counter Terrorism Response to Beslan, in: Haberfeld, M. R. and Agostino von Hassel, Editors, “A New Understanding of Terrorism. Case Studies, Trajectories and Lessons Learned” (2009), Chapter 14, pp. 249 – 282, Springer, NY. Encyclopedia of Law Enforcement, (2005) Volume 3, International. Entries: International Police Cooperation; Police Corruption; Police Structure: Centralized/Decentralized; Russia; Medvedev, D., Speech at Expanded Meeting of Interior Ministry Board. February 18, 2010. Official Website of the President of the Russian Federation: http://eng.kremlin.ru/ speeches/201002/181518_type8291type82913_224403.shtml. Putin, V., Address to the National Coordination Meeting of Law Enforcement Agencies Directors, November 21, 2006. Official Website of the President of the Russian Federation: http://www. eng.kremlin.ru/speeches/2006/11/21/0000type82912type82913_114307.shtml. Roudik P., Policing the Russian Federation (2008), Haberfeld M. R., Cerrah Ibrahim, Editors, Comparative Policing. The Struggle for Democratization, pp.139–164. Taylor B., Putin’s State-Building Project: The Case of Law Enforcement, Kennan Institute, Washington D.C., April 23, 2007, http://www.wilson center.org/index.cfm?topic_id=1424 WorldiQ.com. Federal Security Service (Russia), http://www.wordiq.com/­definition. Federal_Security_Service_%28Russia%29

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Chapter 7

Organized Corruption Networks

Crime, State, and Economy in Russia Within Historical Context Crime, state, and the economy in Russia have been intricately linked at least since the Brezhnev Era. A large part of the annual gross domestic product is said to have been created by the illegal economy. That meant that state-owned resources were misappropriated for private gain. One can argue that this was a “natural” response to two main deficiencies of the Soviet system: the failure to provide essential and desired goods and services and at the same time the denial of any room for entrepreneurial activity and private initiative in g­ eneral. It is probably safe to say that the prevailing notion was that, for pragmatic reasons, one was justified in engaging in these kinds of illegal activities. We also believe that the imprint of cultural traits, which goes back to the ­pre-Soviet time gramota,1 contributed to the pervasiveness of the illegal economy. The notion was that the Russian state had always served as a protector of slave owners, or as a slave master; accordingly, misappropriating state property, in a sense, meant to take something that should rightfully belong to the people in the first place. The reason for this phenomenon lies in the imperfect legal system, superficiality of reforms, traditional form of feudal relations, and indecisive replacement of officials. As previously mentioned, difficulties on the part of the state to collect taxes prevented the possibility of paying, on a regular basis, even the minimum salary. Thus, the government forced its officials to pursue extortion and involuntary collections. As we already discussed, during the Soviet times, the following attitudes toward the law created certain rules of conduct or misconduct (1) bureaucratic nomenklatura: defiance of the laws that were perceived as ideologically loaded The Gramota system was when someone was licensed to provide government services and to finance oneself out of taxes and fees set by the license holder; in return, the license holders had to pass part of the taxes up to the state; and also the person was forced to share proceeds with person higher up in order to avoid having the gramota taken away.

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S. Cheloukhine and M.R. Haberfeld, Russian Organized Corruption Networks and their International Trajectories, DOI 10.1007/978-1-4419-0990-9_7, © Springer Science+Business Media, LLC 2011

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and therefore dysfunctional; (2) communist nomenklatura: division between state and party, pragmatic/cynical approach to obeying and enforcing the laws.

The Study of Crime, State, and Economy in Russia In Russia, a discussion of economic crime does not have much validity without a discussion of the organized crime phenomenon. Depending on the character and forms of activity, there are two main types of crime: violent crimes (committed by members of long-established crime organizations) and economic crimes. The ­methods of the first one are theft, racketeering, forgery, and murder, as gangsters go about satisfying people’s irrational needs for narcotics, weapons, and prostitution. Economic crime, by contrast, has a completely bureaucratic nature. People in the financial and business sectors, together with state bureaucrats, conduct illegal operations involving funds, property, and securities from state and commercial institutions. Each kind of crime has its own cause, but a key circumstance for the increase in both kinds of criminal activity is an inconsistency between the ­economic reality and the legal-administrative system. Crime, economy, and state are intrinsically linked, but not comprehensively acknowledged and researched until the 1980s. During the Soviet era, those crimes conducted within the framework of the state economy and those in gambling, drugs, and prostitution were a separate fields. In post-Soviet Russia, we see continuity in the justification for pilfering from state-owned entities, rather than from private businesses. Components of crime, corruption, and the economy have been addressed in the literature, beginning with the late 1980s (Gurov 1988, Dolgova and Dyakova 1989; Vaksberg 1991). What has been lacking so far is a systematic analysis of the time since Putin took office as President in December 1999. Many experts have approached economic crime without stigmatizing it a priori as part of the general criminalization of the economy. Rather, they view it as a “generic response to a part of the post-Soviet transition,” and analyze economic crime within the context of the functioning of state, law enforcement, privatization, and market institutions in post-Soviet Russia (Krusmann 2004; Larichev 2002; Ledeneva 2000; Boldyreva 2001; Gilinskiy 2002; Shelley 1995; Varese 2001; Volkov 2002; Molokoedov 2005). Yet others view economic crime as pretransitional, with far-reaching historical trends (Galeotti 2000; Finckenauer and Voronin 2001). The first school misses some important continuity while the second school fails to recognize changes in how main components or main players are interrelated (crime, government, and economy).

Defining Organized Corruption Network For some period of time, there was a prevailing perception that organized crime and corruption are on the decline in Russia since Putin took power. Moreover, the decline in OCG numbers, turf wars, murder for hire, and improving small business function conditions created the image that OCG, avtoritety, and corruption had

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been defeated. On the conceptual and empirical levels, the existing literature does not capture what we argue is the newly defined crime, state, and economy under Putin. We propose to view this interaction through a prism of a new concept that we coined as: “the organized corruption network” (OCN). Most literature to date studied crime and corruption in the pre-Putin era and either did not cover the more recent period or simply failed to notice the emergence of a new phenomenon. Perhaps, there is also another objective factor. Since Putin acquired power, under the pretext of “counter-espionage,” western scholars were forced out of Russia or never allowed into Russia; therefore, the Putin era has been a phase without data collection. Except for inaccessible research in Russia and isolated media reports, no tangible information on OCNs has been published. This chapter examines this new phenomenon of OCNs, through the responses of law enforcement and businesspersons to surveys conducted in 2000, 2002, and 2008. These surveys investigated crimes in the posttransitional Russian economy and demonstrate that the phenomena of contemporary economic crime and corruption in Russia occur on a much larger scale and with more far-reaching implications than crime within the spheres of the shadow economy. We examine the material with a focus on four dimensions: (1) types of enterprises infiltrated by organized criminal groups; (2) circumstances facilitating the penetration of OCG into the economy; (3) OCG’s and OCN’s methods and forms of infiltration into the economy; and (4) what these data add to the knowledge of OCGs and OCNs and the implications of this knowledge. It is important to note, for the clarity of the material presented in this chapter, that the references to the term Organized Corruption Networks (OCN) represent the interpretation of data, as based on authors analysis of the available information. Russia’s posttransition economic crime is a complex system of social and ­economic relations for illegal profit extractions through multifarious corrupt networks. Organizing such a network involves professional criminal organizations, or groups consolidated within the region (territory), working with a strict hierarchical structure, and division of functions in the process of privatizing profit. These groups infiltrate legitimate business, state authorities, and law enforcement, using violence, corruption, and a monopoly on illegal goods and services to maintain their antisocial activities and obtain immunity from exposure in conspiracy. Criminal activity within the network has increasingly become instrumental in dividing and monopolizing both legal and illegal service markets, as a means of securing a market share and higher profits. Small- and medium-sized businesses suffer the most. For example, Golovin, who owns a tool-leasing company in Yekaterinburg, explains: “You go to the local administration to get permission for something and they send you to a private firm that will sort out the paperwork for you, which happens to be owned by their relatives.”2 In most cases, officials must join a network of shared services where no bribes are received or passed on. In such situations, the obligation to join a corruption network is accompanied with mercenary temptations: as a rule, compensation is a Grease my palm. Bribery and corruption have become endemic. The Economist November 2008. p. 10.

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stake in the network profits. These groups are organized and set up for the joint extraction of profit from corrupt activities. The corruption networks formed are both vertical and horizontal. The vertical relationships are informal, illegal interdependences between bureaucrats within one organization. The horizontal ones are between different agencies and other state institutions. These relationships are used for the organized implementation of corrupt transactions that are aimed at: personal enrichment; allocation of budget funds in favor of a network, and enhancement of the network’s illegal profit or receipt of competitive advantages by financial and commercial structures within the corrupt network to generate future earnings. Obtaining financial resources is practically always the leading goal of each corruption network. Often, corruption networks coordinate the activity of the organized criminal groups or even merge with them.3 Structures of corrupt networks include: groups of government officials; commercial and financial structures that siphon received benefits, privileges, and incomes; protection from the Ministry of Internal Affairs, FSB, Offices of Public Prosecutor, tax auditors, and judges. For example, within 8  months in 2008, there were more than 3,000 people charged with corruption. Almost a quarter of those, 757 people, are law-enforcement officers, judges, procurators, lawyers, and deputies in legislative bodies of municipal and regional levels.4 OCN can be defined through the following features: • • • • •

Activities of key individuals Prominence within the network determined by position, contacts, and skills Personal loyalties more important than social identity Network5 connections concentrated around one particular leader Low public profile – seldom known by anyone

Drawing on a variety of sources, we aim to define a typical OCN. Based on the authors’ personal interviews and observations, members of a family typically occupy the OCN’s top and mid-level key positions. This “family” has high-ranking appointed members in the FSB, MVD, Federal Customs Service, Court, Central Bank, and municipal administration in four different Russian ­districts (Chart  7.1).6 They have businesses, legal and illegal, run by either their relatives or organized crime group, or both. Customs chief officer (3 in the chart), for example, controls all transactions in import–export operations and gives preferences in taxes. A huge number of luxury cars imported from the European Union, Canada, and the USA are registered as humanitarian goods and therefore recorded tax-free. After vehicles are sold through organized crime–run dealerships, the profit, including the customs tax margin, goes to the OCN. Family members control all business transactions as well as protect the network Cheloukhine and King (2007).  Kulikov (2008). 5  “Criminal network,” – United Nations Centre for International Crime Prevention (2000). 6  For security reasons, the names of individuals and regions cannot be disclosed. 3  4

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Organized Corruption Network

2

FSB, Judicial MVD, or state officials

2

1

4

Regional bureaucracy, individuals, and business

5 Illegal business, Organized crime © S.Cheloukhine

Chart 7.1  OCN higherarchy

from intrusion and potential legal investigation. Such a network has some firsthand information about possible complains or inquires. Thus, through members employed in the MVD migration services (2 in the chart), the OCN controls the illegal labor market, deportation, and immigration. District judges make court’s decision favorable to the network or to OCN members charged with a crime. The FSB officers (2 or 4 in the chart) assess potential threats and gather intelligence to protect all network members. The network’s member at the municipal and regional administration level (5 in the chart) is in charge of business registration and licensing and is sympathetic toward the network’s economic and financial conditions. The OCN’s member at the level of district administration usually supervises the network’s position appointments, promotions, and its expansion. The top-OCN leader (1 in the chart) controls all members’ actions and consults on their important decisions; he/she also maintains the OCN contacts with the federal political and law-enforcement authorities. Here is the live example of a corrupt network or “family,” allies as B. Whitmore states.7 Until mid-2009, Yegor Stroev, Orel oblast’s long-serving Governor, was considered one of Russia’s more influential figures. He was a member of Soviet leader Mikhail Gorbachev’s Politburo of the Communist Party of the Soviet Union, speaker of the Federation Council from 1996 to 2001, and served as Orel’s ­governor since 1993. During the years he held power in the Orel region, Stroev established a perfect example of modern Russian criminal enterprise but on a smaller scale. Presiding over all this, he was a man who remembered Brezhnev and worked alongside Gorbachev, Yeltsin, and Putin. With undisputed authority, adept political skills, and a strong personality, this was a man who knew his own interests, and what interested the Kremlin.

Brian Whitmore is a senior correspondent in Radio Free Europe’s Central Newsroom, covering European security, energy and military issues, and domestic developments in Russia. http://www. rferl.org/Expert/28.html.

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Cloaked with such a holy vestment, the people on the sinful soil of Orel could do literally whatever their hearts desired. Only one thing was required of the ­governor – he remains the governor. As long as he never had to leave his post, everything would continue in an uninterrupted mode. In mid-February 2009, in Moscow, a security guard found Aleksandr Rogachov, a retired Federal Security Service general, dead in his Toyota Land Cruiser. Police claimed that Rogachov, at that time vice president of the industrial conglomerate Sistema, had been shot in the head, execution-style, with a 9 mm handgun at close range. Rogachov was Stroev’s son-in-law. The governor’s troubles did not stop there. Stroev himself faced hours of questioning by prosecutors in a corruption case against two of his first deputies, Igor Soshnikov and Vitaliy Kochuev. Moreover, Stroev was implicated in the investigation. Clarifying what happened with the irreplaceable Yegor Stroev is of secondary interest to this volume. We can assume that, at this stage, the governor lost in the unending clan feud. What is of primary interest, in understanding the criminological developments in Russia, is an answer to the hypothetical scenario which focuses on the possibility of the governor maintaining power for an additional few years. The scenario evolves as the former head of Orel is getting older, his health deteriorates rapidly, there is a void in the position previously occupied by him, and ­suddenly there is no one available to look after the interests of the big “family” that had served for years in his oblast administration. The question to be answered is – does the system collapse and everything immediately starts to fall apart? Prior to answering this question, another one needs to be posed: how many such systems can be found in Russia? The last question is: Is Russia as a country a mirror image of the Orel oblast, but on a much bigger scale? Stroev’s fall from grace dramatically illustrates why the Russian elite collectively enters into a state of panic whenever a transfer of power looms on the ­horizon. It explains why officials fight viciously to keep themselves, and members of their respective clans, in office indefinitely. It clarifies why former President Boris Yeltsin’s “family” battled so ferociously to hang on to power a decade ago, and why Vladimir Putin’s “siloviki” 8 are doing the same thing now. Furthermore, it demonstrates, yet again, that in a clan-based and personalitydriven system like Russia, political institutions and laws are mere tools for the victors to use against the vanquished.9

The term siloviki is taken from silovye struktury, Russian for force structures. These “force structures” were the intelligence agencies, armed services, and the law-enforcement agencies. Siloviki literally means an official, present, or past of one of the previous agencies. Still, not all high-level members of the silovye struktury belonged to siloviki and not all siloviki were products of the silovye struktury. The word came into usage and developed a colloquial meaning referring to members of one of the bureaucratic divisions centered on Viktor Ivanov, one of Putin’s advisers, Nikolai Patrushev, the director of the Federal Security Service, or Igor Sechin, the deputy head of the presidential administration. 9  B. Whitmore. The Fall of the House of Stroev http://www.svobodanews.ru/content/blog/1509676. html; Accessed October 17, 2009. 8 

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Leaders of criminal groups, aiming at strengthening their growing ­organizations and expanding into new spheres and territories, have united all capital under the most authoritative and powerful criminal leaders. Criminal associations began using violence to apply pressure on different players in the developing market, aiming at key positions in the emerging capitalist economy. We estimate that more than 28 large business in industrial centers – among them Moscow, St. Petersburg, Krasnoyarsk, Norilsk, Irkutsk, Rostov, and Togliatti – are controlled by criminal groups, in various stages, from the natural resources to product distribution, investments, and profit.

Crime and Corruption in Russia: Attitudes of Law Enforcement and Businesspersons10 The subject of our investigation was motivated by the fact that Putin’s FSB took over most power structures in Russia and diminished the true eagerness of law enforcement to fight organized crime. One of our sources is a study entitled Scientific Lab 211; it was conducted first between 1998 and 2000 and then again in 2002 by the Russian Federation National Institute of Scientific Research of the Ministry of the Interior (NISR MVD R.F.).12 The findings of the Scientific Unit number 2 study were also used for drafting regulations and legislation on the “Activity of Law Enforcement and Controlling Bodies in the Sphere of the Economy and Guarantee of Business Legality in the Market Economy,” and by the Russian State Duma Committee for recommendations against corruption.13 The questionnaire, designed by NISR MVD R.F., was sent to regional MVD departments and analytical centers collecting data on organized crime, economic crime, and corruption. Subsequently, about 180 law-enforcement officers were interviewed in specific Russian regions (Volga, Kemerovo, Voronezh, Novgorod, and Omsk). Similar questionnaires were used to interview about 90 experts at the Regional Departments for Combating Organized Crime in the MVD R.F., 11 detectives at Voronezh’s MVD Department for Combating Economic and Organized Crime, and 16 experts at the Chief Directorate for Combating Organized Crime of the Ministry of Interior (GUBOP MVD R.F.). At the same time, about 101 businesspersons (including senior banking and enterprise managers) of the same regions, who encountered organized crime at least 10  See Cheloukhine (2008: 185–193). The authors are grateful to Law Enforcement Executive Forum for granting copyright permission for this book. 11  Director of the Lab 2 Dr. V. Larichev supervised the conducted study and interviews. 12   The Russian Federation National Institute of Scientific Research of the Ministry of the Interior (VNII MVD RF) is the main scientific institution for MVD. The VNII coordinates research in police studies and provides policy recommendation to regional and local police. Labs 2 and 4 conduct study in combating organized crime, terrorism, and extremism. http://www.vnii-mvd.ru/. 13  Grishankov (2004).

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once, answered the questionnaire. The questionnaire (along with several ­subquestions) explored the following aspects: • Enterprises infiltrated by Organized Corruption Networks in the economic sector • Factors facilitating the infiltration of OCN into the economy • Organized crime group methods of infiltration into the economy in 2000 • Organized Corruption Network methods of controlling the economy in 2002, in the Volga Federal District Ministry of Interior, the Voronezh Regional Department of Investigation, and the Chief Directorate for Combating Organized Crime in the MVD R.F. • Suggestions/comments to combat organized crime and corruption This study also critically analyzed reports from the Volga Federal District Ministry of Interior, the Voronezh Regional Department of Investigation, and the Chief Directorate for Combating Organized Crime in the MVD R.F. as well as businesspersons. In a combined study, Volga’s MVD and the Voronezh Regional Department of Investigation examined the trends of organized crime and corruption in Russia. The following data were obtained from open publications and internal documents accessed in 2006 through the files and archives of NISR MVD of the Russian Federation.

Scale and Sectors of OCN’s National Economy Infiltration According to the Ministry of the Interior OBR (Operational Investigation Bureau)14 study on organized crime groups (OCGs) that have infiltrated the national economy, the respondents identified the following trends: • Ten percent of law enforcement is convinced that organized crime groups supervise all legal and illegal economic activities nationwide. • Sixty-five percent believe that the OCNs are one important factor in the economy, wielding a negative influence on the criminal situation in the economy. • Twenty-three percent see the OCNs as a second tier of the whole economy. • The remaining 2% do not see the OCN as having any significant influence on the criminal situation in the economy.15

The RUBOP (the Russian acronym for “Regional Department for the Fight against Organized Crime”) and the KFKM (Federal Criminal Police Committee) were replaced by the OBR, the “Operational Investigation Bureaus.” There is one bureau for each of the country’s seven federal districts. These bureaus coordinate the activities of the districts’ units dedicated to working against organized crime, economic crime, and narcotics. 15  Larichev, V. (2002). “Organizovannya prestupnost v sfere ekonomiki,” Zakonodatelstvo i ekonomika, 8, 72–84. 14 

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The geographical distribution of the criminal networks is perceived in the ­following manner: • Twenty-one percent of law enforcement pointed to networks operating within the administrative borders of a region. • Eighteen percent specified the entire territory of a region. • Three percent indicated that an entire region is part of an interregional criminal community.16 Regarding the basis for the above assertions, the respondents identified the ­following sources: • Thirty-two percent of law enforcement specified intelligence data. • Nineteen percent cited the analysis of criminal statistics. • Twenty-one percent based their assumptions on the financial and economic parameters of economic activities. • Sixty-nine percent of law enforcement said they had insider information that criminal groups are behind (i.e., they totally control) the activities of enterprises. • Only 29% of those surveyed said that they did not have such information. Therefore, we can conclude that enterprises and smaller divisions of the ­economy are the most controlled by the OCNs. The same was confirmed by a survey of employees at manufacturing enterprises ­suspected of being run by an OCN. When asked whether there was a corrupt (or organized crime) network at the enterprise where they work – or in the city and region where they live – 61% answered yes, 24% answered no, and 15% refrained from answering. Law-enforcement officials even suggested using the term “criminalized objects” for enterprises connected with or controlled by an OCN. When asked to explain what the cause for such criminalization might be, the responses were as follows: • Fifty-two percent of law enforcement cited a rise in economic crime in general. • Thirty-four percent associated the trend with mass unemployment. • Twenty-three percent believed that regions rich in natural resources attract criminal activity.17 Regarding the scale of the OCN activity, the Ministry of the Interior experts ­presented different information: • Nineteen percent believe that it is limited to a region. • Sixty percent characterize it as interregional in nature.

Larichev, V. (2003). Prsestupnost v sfere ekonomiki.Teoreticheskie voprosy ekonomicheskoi prestupnosti. VNII MVD Rossii. 90–95. 17  Shkolov, E. Deputy Minister, director of the Department of Economic Security MVD R.F. Interview with Shchit i mech. 2007. 16 

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• Six percent presume that it is carried out within the whole Commonwealth of Independent States (CIS).18 • Fourteen percent thought it acted on the international scale.19 These differences in evaluating the OCNs’ scope of operations reflect the different regions in which law enforcement are functioning and informed. Moreover, in the second case, law enforcement from the Main Anti-Organized Crime Directorate (Glavnoe Upravlenie po Bor’be s Organizovannoi Prestupnost’yu, or GUBOP) of the Ministry of the Interior appeared to be fully informed about the scope of the OCN activity – thus, the majority responded that the most widespread scope of OCN activity is interregional. Data from Moscow’s Main Anti-Organized Crime Directorate source explain the various elements that make up the OCNs. Experts at the Ministry of the Interior specified that 2% of the regional OCNs integrated into the homogeneous criminal community, with one executive center within the boundaries of a region. Smaller criminal groups, operating independently within a large criminal community, compose about 19% of the OCNs. People operating independently in various spheres of the economy and cooperating with others on a consulting basis make up 54% of the network. In addition, 24% operate independently.20 Therefore, in most cases, criminal groups autonomously carry out their enterprises in various spheres of the economy, cooperating with others only on a tactical decision-making level. Other groups operate independently within the boundaries of a large criminal community and often do not cooperate. Almost 33% of the ­surveyed experts from the Ministry of the Interior noted that each criminal group supervises a specific branch of the region’s economy. Various criminal groups specialize in joint control over one sector of the economy and there are some OCNs supervising various branches of the Russian economy.21 Hence, in most cases, ­various criminal groups maintain a distributive control over the economy. It appears that when the phenomenon first surfaced, the individual involved had little more than extortion in mind, thus they were bound to defend and even look after their victims, in order to survive violent competition. Previously demonstrating their absolute disrespect for the law, accountability, and public opinion, they ultimately found themselves hiring lawyers, accountants, public relations professionals, and even police units to protect and manage their assets.22 Among those, law-enforcement officials estimate that the following percentage of various professions is involved in OCNs: • Fifty-four percent of accountants and finance majors • Thirty-nine percent of commercial and state-run bank employees

CIS, the Russian Federation and the surrounding former Soviet republics. Statistika. Ibid. 20  http://www.rubop.ru/news.php?y=2005&m=5; Accessed May 21, 2008. 21  Larichev (2002). 22  Volkov (2002). 18  19 

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• Twenty-eight percent of federal customs officers • Forty-three percent of financial inspectors and tax police • Twenty-two percent of experts in computer technologies (such as system administrators and hackers) In addition, by bribing officials, the organized crime groups have integrated into the OCNs: • • • • •

Sixty-four percent in local government Twenty-four percent in representative bodies of the Russian Federation Forty-one percent in the executive bodies of the Russian Federation Seventeen percent in the territorial and federal government Twenty-eight percent in regional law enforcement23

Hence, it appears as though the corruption networks with the government agencies and law enforcement, in most cases, are formed and maintained at the local and regional levels.

Types and Forms of OCGs and OCNs Infiltrations and Control of the National Economy The liberalization of the Russian economy and privatization of state enterprises have essentially made organized crime groups legal, and transformed entrepreneurs with illegally gained capital into legitimate businesspersons. Through this process, the OCNs directly took many enterprises under their control or made them ­dependent on commercial structures created by organized crime groups. In 1998, for example, seven criminal groups controlled the Russian car manufacturer Lada (Auto-Vaz), with about 800 members. They controlled the process of car manufacturing, assembly, and retailing, with an annual criminal income of between $600 million and $800 million.24 Other OCNs have control over more than 40,000 enterprises with various ownerships, including 1,500 state enterprises, 4,000 joint-stock companies, over 500 joint ventures, 550 banks, and 700 wholesale and retail markets.25 Regarding the types of enterprises and businesses infiltrated by OCGs, both lawenforcement officials and business entrepreneurs agree on what constitutes the most criminalized sectors of the economy (Chart 7.2). The most criminalized sector is the fuel industry (petroleum and natural gas), in which 53% is estimated to be involved in OCGs. This is followed by the energy industry (electricity grids, etc.) with 46% involvement, enterprises of the consumer market at 40%, and foreign trade at 24%. By contrast, the least affected areas are the state budgetary institutions. Cheloukhine and King (2007). “How the Avto-Vaz was stolen.” Kompromat. http://www.compromat.ru/main/mafia/­ toliattinskie2.htm. 25  Grib (2001). 23 

24 

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7 Organized Corruption Networks Law Enforcement experts

Banks and enterprise managers

60 50 40 30 20 10 0 export-import

oil, gas and energy sectors

food and services

Banks and financial corporations

State budgetary institutions

Chart 7.2  Enterprises infiltrated by Organized Corruption Networks 2000 (%). *Chart composed (S.C.) from the response data of Larichev (2002)

Data presented in Chart  7.2 indicate that within the Russian economy, OCNs have considerably more influence on businesses in the sectors of natural resources, food and services, and banks and financial institutions, as compared to import– export and state budgetary institutions. There are some similarities and differences in the responses from the two groups of respondents. First, there are few differences in the response rates between lawenforcement officials and business persons. This supports the initial assumption that the real extent of the influence of OCNs on businesses is reflected in the survey. The two branches where the two groups of respondents deviate are natural resources and banks, and the greatest discrepancies in the response rates are especially visible in the banking sector. While 52% of businesspersons stated that they knew of OCN influence in the banking sector, among MVD respondents only 32% felt the same way. In the case of oil, gas, and energy sector, more MVD respondents reported OCN influence, 53%, than businesspeople, of which only 46% reported such influence. That means that while with regard to these two sectors of the two groups differed by 7 and even 20% points, there was a discrepancy in the share of positive responses with regard to food, services, and state budgetary institutions; and only a difference of 2% points (22 and 24%) in the case of the import–export sector. There are two possible explanations for this. First, from a law-enforcement point of view, no reports mean that no investigations have been conducted. Second, a lack of willingness to confirm the existence of OCN influence especially in the banking sector demonstrates that “that’s where the money is” and “that’s where the control through OCNs is the most extensive.”

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The differences in oil, gas, and energy sectors, and the fact that here more MVD responded than businesspeople could be explained by: • Sector still heavily affected by state ownership. • And/or after the Khodorkovsky case ownership was incorporated back into the governmental sphere. • Law enforcement investigated cases of tax evasion. • Businesspeople are less inclined to confirm because it is mostly tax evasion. • Private entrepreneurs are less involved in natural resources; therefore have fewer insights into OCN influence in this sector. Unlike at the beginning of the transitional period in the 1990s, the economic and financial activity of legal enterprises is currently concentrated in the industrial sphere and therefore, organized crime is more inclined to take it under control. In order to impose such control, the OCNs closely cooperate and, more often, merge with regional financial and industrial groups under the leadership of an avtoritetnyi predprinimatel26 of a large criminal group. Criminal networks, then force those from regional financial and industrial groups to carry the OCNs’ policy out against competitors. The OCNs organize illegal operations in loans and banking transactions and in real estate and securities, which become an untraceable form of money laundering. The high profits in fuel and energy draw steady attention from criminal structures to control those sectors. The OCNs launch intermediary firms to function as buyers of oil and manage the allocation of raw materials and processed products as well as dictate retail prices. In this way, and by including charges that are not legitimately associated with the purchase, transportation, and retail costs, the transaction costs of oil and minerals are artificially set very high. The oil-producing companies physically transfer a part of the extracted oil to a regional administration as a part of its debt repayments or outstanding taxes (Chart 7.3). Some officials, being a part of the OCNs, then transfer oil and energy products to commercial structures set up by organized crime groups; these structures then sell the product and wire the profit to a foreign bank. In most cases, what defines the oil-extracting companies as criminal is the corruption motivated by the lack of legal regulations at the registration, licensing, and taxation levels.27 Organized crime activity has also increased in the sphere of illegal manufacture and distribution of alcoholic beverages. The criminalization of this highly profitable area came as a result of the privatization of the state monopoly on the manufacture and retail sale of liquor. The OCNs are involved in the manufacture of forged and nonlicensed alcoholic beverages, collecting extra profits by distributing such products with the help of state-preferential tax rates, and exemption from customs duties, all obtained through bribery. The profit from the illegal alcoholic

Authoritative businessperson, who used to be either a vor v zakone (thief-in-law) or an authoritative (avtoritet) criminal boss. 27  Volkov (2002). 26 

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7 Organized Corruption Networks Oil producer

Foreign Bank

Proceeds

Overpriced Oil as payment for outstanding taxes

Regional Administrative Authority/OCN member

Oil rerouted “The OCNs launch intermediary firms to function as buyers of oil and manage the allocation of raw materials and processed products as well as dictate retail prices.”

Company run by OCN International market

Organized Corruption Network 3

Oil sold

2

Regional bureaucracy, individuals, and business

1

4

FSB, Judicial MVD, or state officials

5 Illegal business, Organized crime

© S.Cheloukhine

Chart 7.3  Debt or outstanding taxes repayment

beverages market in 2004 was between $220 million and $230 million, which make up practically half of the overall alcohol market. Licenses are issued to newly created enterprises without examining a region’s demand for alcoholic ­beverages or even the enterprise’s production capacity. More than ever, licenses are simply obtained by bribery and sweet deals. Law-enforcement officials and businesspersons made similar observations on circumstances facilitating the infiltration of organized crime groups’ control over the territories and economy. Thus, law enforcement and businesspersons put the corruption of government officials, at 50 and 72%, respectively, in the first place (Chart 7.4). The question here is more about organized crime groups in a conventional sense exerting influence on businesses and business activities rather than about OCNs. The assumption underlying the specific question is that there are different factors that are conducive to OC groups gaining influence over the legal economy. The first observation is that there is clearly one factor that appears to be crucial in the opinion of the respondents: corruption of state officials. The second observation is that the share of MVD respondents naming corruption as a facilitating factor was significantly smaller than the share of business respondents. Although less than 30% of respondents in either group believed that any of the other factors listed in the questionnaire were important; almost 50% of MVD respondents and over 70% of business respondents expressed the opinion that OCG penetration of the economy was facilitated by the corruption of state officials.

Types and Forms of OCGs and OCNs Infiltrations and Control of the National Economy 80

Law Enforcement Officers

159

Banks and enterprises managers

70 60 50 40 30 20 10 0 Lack of state Corruption of state control in the officials economy

Strong OCG influence

Lack of professionalism among law enforcements

Indifference of Coincide of OC state officials to and llegal economy people’s needs leaders interests

Chart  7.4  Factors facilitating the expansion of organized crime infiltration into the economy, 2000 (%). *Chart composed (S.C.) from the response data of Larichev (2002)

Discrepancy between corruption and the other factors listed in the catalog may follow from the following assumptions: • • • •

Corruption is part of social life in the Soviet Union/Russia. Criminals bribe to obtain loans. Criminals bribe to obtain business licenses. Criminals have the funds to expand their influence over the economy, and the only thing that stands in their way is the same obstacles that legal investors would also face. • Criminals can remove whatever obstacles exist to gain influence over the ­economy by bribing law-enforcement officials and judges. It is interesting to note that “consensus of OCG criminal and legal economic interests” is not seen as an equally important facilitating factor given, for example, by Volkov (2002), Varese (2001), and others. This could be an indication that in 2000 the demand for extra-legal services provided by criminal groups, namely, debt collection and conflict resolution, has decreased compared to the situation in the early to mid-1990s. The third observation from Chart  7.4 is a discrepancy between MVD and ­businesspeople with regard to “strong OCG influence”: • OCGs influence through various channels: business people still lack the legal regulations of business, some cases of extortions taking over companies/­ businesses, simply killing competitors – fear/intimidation factor, shadow economy run by organized crime.

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• MVD are more inclined to say that OCGs have lost their influence – this would be justified because a lot of criminals have been killed in turf wars, some imprisoned, the rest went through a process of transformation into “legitimate” businesspersons investing proceeds in legitimate businesses; business people do know these people who have assumed a legal identity and who are no longer targeted by law enforcement. The discrepancy in the view on state control over the economy reflects ­differences in ideology. Although law-enforcement officials may still adhere to the concept of a “strong hand,” businesspeople quite naturally want to have less state regulations and interference in business. The OCNs’ most typical techniques for maintaining their influence are bribes, free services, and favorable conditions in financing, low- or no-rent housing, and personal favors. Government officials maintain ongoing contacts with the businesspersons at all levels of the economy. Alongside those are weak governmental ­regulations, unresponsiveness of authorities to citizens’ needs, and the concurrence of criminal leaders’ interests with entrepreneurs in the shadow economy. Consequently, about 30% of law enforcement and businesspersons reported the coercion of enterprise directors through OCNs members in various transactions with commercial structures controlled by OCNs; using laundered money to buy shares in an enterprise or the whole corporation; conducting illegal financial operations through OCNs’ fictitious enterprises. At the same time, law enforcement (only 9%) and businesspersons (25%) disagree on such forms of control as money, natural resources, or extortion from the enterprises’ managers. The divergence in evaluating the form of control, on the one hand, is understood as an enterprise director’s unwillingness to honestly report on its encounters with OCNs and thus, the majority of law-enforcement officials considered such phenomena practically nonexistent. On the other hand, it is impossible to conclude that extortion tactics have changed. OCNs do not demand money directly, but veil it by rendering security and other services to the enterprises. A  considerably small percentage of law-enforcement officials (17%) believed that OCNs control government authorities and law enforcement – this perhaps reflects an unwillingness to respond to that question because their answers might implicate them in such criminal processes. Accordingly (Chart  7.5) responses to the open question: what illicit techniques do OCNs use to control the economy – refer both to techniques to gain control over legal enterprises (buying controlling shares, coerced infiltration, and corruption cell) to exercise control (illegal transactions via dummy enterprises) or to both (extortion and compulsion to a contract via OCN). The first observation from Chart 7.5 is that some methods of operations are more commonly mentioned than others. Two of those most often referred to include buying control of shares and illegal transactions via dummy company, which appears to make some sense and coincides in practice. The combination of buying shares is the most common way to gain control, and setting up dummy companies to siphon off assets as the most common way to take advantage of control.

Types and Forms of OCGs and OCNs Infiltrations and Control of the National Economy Ministry of the Interior experts

161

Banks and enterprise managers

50 45 40 35 30 25 20 15 10 5 0 Extortion

Compulsion to Illegal a contract via transactions OCG via dummy enterprises

Buying controlling shares

Corrupt Coersed Network infiltration into Operations banks, enterprises board directors

Chart 7.5  Organized crime group methods of infiltration into the economy, 2000. *Chart composed (S.C.) from the response data of Larichev (2002)

The second observation is that extortion and the positioning of criminals in e­ nterprises are the two least common methods to gain and exercise control: (a) extortion through the old-fashioned arm twisting is still there, but no longer to the extent of the past; (b) coerced infiltration does not mean exposing criminals, not stereotypical thugs, but rather relatives with an MBA degree, or someone else who culturally fits into a legal business environment. Compared to the extortions of the past, the more sophisticated methods of the present may be more difficult to detect and have no paper trail. Extortion is now covered up by high-ranking officials; decisions by these high-ranking officials ­cannot be challenged by MVD respondents. For business people, mentioning the existence of the network or acknowledging its existence would be, in practice, suicidal. The third observation is the appearance of a new structure, the corrupt network (corrupt cell), which is involved in the outwardly legal financial and entrepreneurial activities of business people (banks and other business). The discrepancies between the responses of law enforcement (17%) and businesspersons (40%) to “network reports/investigation,” can be explained by the assumption that law-enforcement respondents knew more than they revealed in the survey. The reason for the limited response might be rooted in the possibility of their

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own involvement or that of their supervisors, in the network and thus, by default, the lower reporting and investigation rate. Another discrepancy is in responses to extortion, 25% points in businesspeople and 8% in law enforcement. In personal communications with the authors, in the summer of 2006, businesspeople admitted that they are still being extorted but refrain from reporting this to law enforcement because law enforcement is part of the extortion scheme. In 2002, the NISR MVD R.F. Scientific Lab 2 repeated the study tasked for drafting regulations on the “Activity of Law-Enforcement and Controlling Bodies in the Sphere of the Economy and Guarantee of Business Legality in the Market Economy,” and the recommendations for the State’s Duma Committee against ­corruption and the results were quite different (Chart 7.6).28 The study indicates that organized crime groups, in order to achieve control over the enterprises, began buying controlling shares or even the entire company.

Volga District of the Ministry of the Interior Voronezh regional department of investigation The Chief Directorate of Fight Organized Crime MVDRF 80 70 60 50 40 30 20 10 0

Forced bankruptcy Coerced infiltration Buying enterprise Compulsion to a in changing into bank, or controlling shares contract through ownership enterprise board controlled directors structures

Corrupt Network operations

Chart  7.6  OCN’s methods and forms of control over territory and the economy, 2002. *“Organizovannya prestupnost v sfere ekonomiki,” Zakonodatelstvo i ekonomika, 2005. 10, 33–40. (“Organized Crime in the Economy” Legislature and Economy) Ibid.

28 

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According to the study, about 25% of criminal groups (almost 50% in economically developed regions) launder criminal proceeds throughout legally operating commercial structures by purchasing real estate and shares in enterprises and investing in various businesses. More often, they began to use legal bankruptcy procedures and other schemes to change the enterprise’s proprietor and administrative personnel. It is also common practice to use violence and intimidation to vehemently put the OCNs’ people into key management positions, as is forcing managers to commit transactions through OCN-controlled commercial structures. As mentioned previously, prior to 2003, officials simply took a cut of the business’ profits. After the Yukos case, they started to take over the businesses themselves.29 This process has become especially widespread in recent years. According to the Ministry of the Interior data, 550 banks (more than 50% of which are officially licensed) are under criminal manipulation and control.30 If in previous years, security services, blackmail, and even physical ­violence were used in an attempt to establish control over bank officials, now economic ­methods – buying up shares or management, for instance – are employed. At the first stage, the bank that encounters financial difficulty (in itself artificially provoked by plunders in proceeded loans) is forced to sell its controlling shares, and subsequently a group loyal to the OCN is placed in the bank’s board. Using money laundered through OCN-controlled commercial structures, the bank can quickly increase its authorized capital. Thereafter, just by utilizing the existing organizational structures and conducting all types of contracts on behalf of the bank, the OCN can perpetrate massive financial fraud. A typical illustration of an OCN’s operation is Dagestan’s commercial bank Khasavyurt. Between 2002 and 2005, through various schemes, an OCN-affiliated bank employee illegally appropriated $670 million and €130 million from the bank’s customers.31 The OCNs, in order to establish control over highly profitable enterprises and banks, conduct the following operations: • Buying shares by supplying desperate enterprises with criminally earned cash • Using forced bankruptcy procedures to change the proprietor and the administrative personnel • By violence or a deceit, placing people loyal to the OCNs into key positions in the enterprise and government in order to privatize profit

Grease my palm. The Economist, November 29th, 2008, p. 10. Shkolov, E. Deputy-Minister, director of the Department of Economic Security MVD R.F. Interview with Shchit i mech. 2007. 31  The Ministry of Interior RF. Interfax, November 9 2007. 29  30 

164 80

7 Organized Corruption Networks MVD experts 2000

MVD experts 2006

70 60 50 40 30 20 10 0 Extortion and/or forced Compulsion to a Buying controlling Coerced infiltration Corruption Network security contract via controlled shares into bank or enterprise operation structure board

Chart 7.7  Methods and forms of control over the economy

• Forcing managers or directors of the enterprises to perform all financial transactions with commercial structures under the OCNs control (Chart 7.7) To conduct such actions, the OCNs actively bribe representatives of the government, law enforcement, and private security structures. Such practice is typical only for the highest criminal elite seeking to expand their business as well as guarantee immunity from potential charges. The OCNs represent a grave threat to economic and legal transformations in contemporary Russia. As a form of organized business association, the OCNs have engaged in shaping a new economic regime by violently penetrating other businesses and legal institutions. They also infiltrate the state and political organizations. Ill-thought judicial reforms and the illegal transfer of huge public funds and property into private hands have all played a crucial role in the escalation of economic crime and corruption. While the state is persistently reorganizing law enforcement, the actual reform, which would improve their performance, have not occurred. Police still may arrest a group of criminals caught in illicit acts, but the lack of conspiracy and anticorruption laws means police cannot arrest the leaders so long as they were not directly involved in those crimes. Existing laws offer no means for seizing records of fraudulent companies or checking the criminal provenance of bank accounts. Most of the proposed measures are directed against people outside the legal system, instead being directed at reforming the system itself. Tougher punishments for petty clerks providing fake

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business registrations will not work as long as network ­corruption – involving ­high-ranking police officers, prosecutors, and even politicians – is left untouched. Organized crime strives to increase and legalize its income by infiltrating into economic and financial systems through corrupt relations. Criminal associations attempt to acquire packages of enterprises and controlling shares in banks and infiltrate international trading structures. Creating extensive networks of controlled commercial and financial enterprises, the OCN invests in profitable industries with various forms of property. The use of export–import transactions and the activities of legal enterprises serve as convenient cover-ups for conducting large-scale fraud with uncontrolled profit, a major portion of which is transferred to foreign bank accounts, thus assisting in money laundering. Organized corrupt networks established by criminal communities in various spheres of the government promote an outlet for Russian organized crime to emerge on an international stage. While organized crime communities, which are formed within state establishments, are not specifically connected with the criminal world, they are, however, characterized by their structure, actions, and ultimate goals, as criminal. The important feature of the Russian situation is that the OCNs have crossed traditional borders and penetrated spheres of international security. Within approximately the past decade, half international and transnational crime became the biggest problem facing law-enforcement communities around the world. The question evolving from this chapter is directly related to the ability to effectively curb the spread of this phenomenon. What are, therefore, the necessary mechanisms that need to be established to counter the transnational spread of the Organized Corruption Networks? The first, and already in place mechanism, has to do with various multilateral treaties that outline the numerous types of illicit conducts and subject them to detection and prosecution that transcend cultures and borders. This approach, however, faces one fundamental obstacle having to do with standardized definition of what constitutes organized crime activities and what reflects an acceptable business conduct. There is very little disagreement about the need to criminalize human trafficking, for example; however, there are plenty of legitimate explanations that justify the conduct of various “businesspeople” who engage in establishments of profitable business around the world. The fact that these businesses and other enterprises are built and created with funds obtained from various ­corrupted transactions becomes not just a challenge in itself to prove and ­prosecute but also a moral dilemma for the local politicians. What if the aforementioned ventures provide a much needed employment opportunities for the local population? What if these semilegal ventures (we use the term “semilegal” in a lose sense based on the source of the funding) provide services to the local population that otherwise would not be supplied or provided by the legally elected governments? There are many additional questions one could pose regarding this complicated issue, they are moral, ethical, and first and foremost very pragmatic in nature. Supplying the voters with the services and employment opportunities guarantees or almost guarantees the reelection.

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It is beyond the scope of this book to engage in further debate about the pros and cons of illicit economies that provide for legal opportunities. The history of many nations development, including the USA, is replete with such examples; however, if there is some larger picture that we aimed at the solutions are surprisingly straightforward. The decisions to criminalize and outlaw certain behaviors are in the hands of the politicians and the public who elects them. We do have the politicians that we deserve and, by default, we face the consequences of their actions and inactions.

References United Nations Centre for International Crime Prevention. (2000). Assessing Transnational Organized Crime: Results of a Pilot Survey of 40 Selected Organized Criminal Groups in 16 Countries. Trends in Organized Crime, Volume 6, Number 2 (December 25, 2000), pp. 44–92. Boldyreva, T. (2001). Economic Crime in Russia, Problems of Economic Transition, 44(1), 23–28. Cheloukhine, S., King, J. (2007). Corruption Networks as a Sphere of Investment Activities in Modern Russia. Communist and Post-Communist Studies, Elsevier. 40:1, 107–22. Cheloukhine, S. (2008). Problem of Policing Economic Crime in Russia. Law Enforcement Executive Forum Journal. Volume 8, Issue 4. Dolgova, A., Dyakova, S. (1989). Organizovannaya prestupnost. Moscow, Yuridicheskaya literatura. Finckenauer, J. & Yu. Voronin. (2001). The Threat of Russian Organized Crime. Washington, D.C. : U.S. Dept. of Justice, Office of Justice Programs, National Institute of Justice. Galeotti, M. (2000). The Russian Mafia: Economic Penetration at Home and Abroad. In A. Ledeneva and M. Kurkchiyan (Eds), Economic Crime in Russia. Kluwer Law International: The Hague, 31–42. Grib, V. (2001). Teoreticheskie i organizatsionno-takticheskie osnovy borby s organizovannoi prestupnostyu v Rossii. Moscow. MVD. Grishankov, M. (2004). State Duma Committee Against Corruption recommendations, December 14, 10:1. Gilinskiy, Y. (2002). Crime Prevention. A Community Policing Approach in Russia. In Lab and Das (Eds.), International Perspectives on Community Policing and Crime Prevention. Upper Saddle River, NJ, Prentice Hall, 180–91. Gurov, A. (1988) “Lev prygnul,” Literaturnaya gazeta, 34:3. Hignett, Kelly. (2009). Russia’s battle with crime, corruption and terrorism. Global Crime. 10(3), pp. 284–286. Krusmann, T. (2004). Anti-Organized Crime Policies in Russia. In C. Fijnaut and L. Paoli (Eds.), Organized crime in Europe: concepts, patterns and control policies in the European Union and beyond. Springer. Kulikov, V. Korruptsia s’edaet tret’ byudzheta Rossii. Accessed Sept. 30 2008 http://www.newsru. com/finance/30sep2008/korruption.html Larichev, V. (2002). Organizovannya prestupnost v sfere economiki. Zakonodatelstvo i ­ekonomika, 9, 12–23. Ledeneva, A. (2000). Economic Crime in Russia. Kluwer Law International: The Hague. Molokoedov, V. (2005). Sraschivanie organizavannoi ekonomicheskoi prestupnpsti kak novaya forma kriminalnoi aktivnosti. Vladivostok Centre for the Study of Organized Crime.

References

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Shelley, L. (1995). Privatization and Crime. The Post-Soviet Experience. Journal of Contemporary Criminal Justice, 11(4), 244–56. Vaksberg, A. (1991). Sovetskaya mafia. Stockholm. Varese, F. (2001). The Russian Mafia. Oxford University Press. Volkov, V. (2002). Violent Entrepreneurs. Cornell University Press. Williams. P. (1997) Russian Organized Crime: The New Threat? Frank Cass Publishers Williams, P. (2001a). “Transnational Criminal Networks,” in John Acquilla and David F. Ronfeldt (eds.), Networks and Netwars: The Future of Terror, Crime and Militancy, Rand Corporation.

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Chapter 8

The International Reach: Comparative Dimensions of Russian Organized Corrupted Networks

International Trajectories: Tentacles of the Organized Corrupted Networks In the 1990s, after the collapse of the Iron Curtain, Russian organized crime found itself with unlimited access to financial resources and mobility. A new wave of emigration, business travel, and tourism quickly exported crime to other countries. A significant number of thieves-in-law and criminal authorities from Odessa, Rostov, Kiev, and Kishinev, as well as Moscow and St. Petersburg, have filled up the criminal niche in Israel, the USA, Canada, Germany, and other countries. Foreign law enforcement agencies have begun to realize the danger of Russian organized crime after street shootings and explosions in New York, London, Hamburg, Paris, and Prague. Hungary and the Czech Republic have become attractive destinations for investments, illegal business, and money laundering. Poland has been used for illegal weapons transactions, stolen cars, and human and drug trafficking, and it has became the second largest manufacturer of synthetic drugs in Europe after the Netherlands. Traditional spheres of Russian organized crime in Europe are the narcotics business, prostitution rings, human trafficking, and operations with dangerous nuclear materials, arms trade, stolen vehicles, insurance fraud, and contraband paintings. Western countries have reacted to the intrusion of Russian criminals with ­multiple arrests and trials that led to a number of those criminal leaders being imprisoned in the USA, Austria, Spain, Italy, and Israel. For example, when Viacheslav Ivankov (a.k.a. “Yaponchik”) was arrested in the USA, FBI agents seized his personal writings in which the expression “the family of eleven” appeared repeatedly. Under the control of this family in every region, the criminal leaders have an unprecedented influence on the administrative structures. The “family of eleven” also controls over 300 small subdivisions that successfully act in more than 14 other countries, including Poland, the Czech Republic, Hungary, Austria, Germany, France, England, northern Italy, Greece, Cyprus, Israel, parts of the USA (New York, Florida, and San Francisco), the Caribbean Islands, Canada, and Colombia.1 According to the FBI, only in the USA Cheloukhine, S. (1998). Organized Crime in Changing Russian Society: Economic, Social, and Legal Aspects. Nathanson Centre, Toronto Canada.

1 

S. Cheloukhine and M.R. Haberfeld, Russian Organized Corruption Networks and their International Trajectories, DOI 10.1007/978-1-4419-0990-9_8, © Springer Science+Business Media, LLC 2011

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victims lost $150 million, in a scam ­orchestrated by one Semion Mogilevich who was the mastermind of the YBM scandal that defrauded investors in the Canadian-based company out of an ­estimated $650 million and undermined the confidence in the Canadian stock markets. YBM built up a stock with a market value that peaked at almost $1 billion and was trading at $20.15 a share in March 1998 even though regulators were aware of allegations that it had links to Russian organized crime.2 Authorities say the scheme involved preparing bogus financial books and records, lying to Securities and Exchange Commission officials, offering bribes to accountants, and inflating the stock values of YBM, which was headquartered in Newtown, Pennsylvania. In a raid in 1998, FBI agents found a treasure trove of documents: purchase orders, invoices, shipping orders, and even technical drawings, everything a ­legitimate business would produce. According to an FBI Special Agent Mike Dixon, there was one thing missing, there were no magnets, it was all a sham. In essence, what Mr. Mogilevich’s companies were doing was moving money through bank accounts in Budapest and countries throughout the world and ­reporting these to the investment community as purchases of raw materials and sales of magnets. Since the company was publicly traded, anyone owning the stock would have made a lot of money. Mogilevich controlled large blocks of stock from the outset and made a substantial amount of money in this process. Investors lost millions that ended in the pockets of Mogilevich and his associates. He and his associates were indicted in 2003 on 45 counts of racketeering, securities fraud, wire fraud, mail fraud, and money laundering. The FBI believes Mogilevich moved on after YBM and began manipulating international energy markets, giving him a large sphere of influence in other nations. Law enforcement authorities believe that Mogilevich had control or influence over companies involved in natural gas disputes between Russia and the Ukraine. Authorities assert that Mogilevich, who has a degree in economics, from the Ukraine, is known for his ruthless nature but also for his business acumen, which led to his nickname “the Brainy Don.” According to law enforcement officials, he has overseen criminal enterprises stretching from Central Asia to Philadelphia specializing in arms trading, human trafficking networks, and money laundering and securities fraud. Indicted in 2003 on racketeering charges in the USA and accused of bilking investors and middlemen out of $150 million in financial schemes involving the aforementioned YBM Magnex International, a holding company in Buck County, Pennsylvania, Mogilevich escaped the jaw of the American Justice system. Russian authorities arrested him in 2008 on tax fraud charges, but since the USA does not have an extradition treaty with Russia, he remained beyond the reach of US law enforcement. He is now free on bail. According to the official sources, Mogilevich was also involved in a major money Ian MacLeod. U.S. puts $100,000 bounty on suspected Russian crime boss. National Post, October 21, 2009. http://www.nationalpost.com/news/world/story.html?id=2130088. Accessed October 26, 2009.

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laundering scheme involving the Bank of New York that totaled close to $10 billion coming out of Russia. The “brainy Don” had allegedly moved funds from Russia’s Inkombank, which he acquired in 1994 and eventually moved the funds out of the country to various off shore accounts. In addition to his financial crimes, Mogilevich has also overseen prostitution and human smuggling rings coming out of Hungary and the Czech Republic. He has a very sophisticated, well-educated, loyal group of associates. He hires top-notch consultants, attorneys, and risk management firms to assist and protect him in his criminal ventures.3 A very interesting case study, with very significant implications for the projected future of the Organized Corrupted Networks evolved in Spain, including the tentacles of the infamous “brainy Don.”

The Spanish Connection Since the break-up of the Soviet Union, the Russian mafia has gained grounds in Spain, exploiting lax property laws and limited police resources to launder millions in property deals through bogus firms and in tax havens such as Gibraltar. Thus, what we refer to as the “Spanish Connection” represents what the authors of this volume see as the prelude to the implications for the future. Thus, for example, recent operation, code-named “Troika,” coordinated by Audiencia Nacional judge Garzon, brought to light the infiltration of Russian mafia into tourism business in Costa del Sol: Marbella, Malaga, Alicante, Madrid, and Majorca. In one day, 20 natives of Russia were arrested. They were members of the so-called Tambovskaya-Malyshevskaya criminal gang, which was involved in money laundering, weapons and drug trafficking, documents fraud, smuggling of sapphire and tobacco, as well as extortion, illicit association, and contract killings. The list of people arrested includes criminals of high rank avtoritety, such as Gennady Petrov and Vitali Idrilov. The latter is the founder of Russian mafia in Spain and runs tens of business locally. Idrilov, at the moment of the arrest was on bail as he was already charged in 2005 for money laundering and falsification of documents. They are currently charged with criminal association and money laundering.4 Moreover, police seized 23 luxury cars including Bentleys and Ferraris and €200,000 in cash. The Dalí painting, signed by the Surrealist master and dated 1949, was found at a luxury mansion in Valencia linked to Petrov. More than 100 bank accounts containing a reported €14m were also frozen. The operation was carried out simultaneously in several places, including Marbella, Nerja, Malaga, Torrox, Palma de Majorca, Javea, El Campello, Valencia, and Madrid. Jeanne Meserve (2009, October 24). Govan, F. Russian politician investigated in Spain over Mafia connections. Telegraph October 19, 2008. http://www.telegraph.co.uk/news/worldnews/europe/spain/3226931/Russian-politicianinvestigated-in-Spain-over-Mafia-connections.html. Accessed June 13, 2009.

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The first large amount that the gang of Alexander Malyshev invested in Spain was supposedly coming from the funds of the KGB and the Communist Party of the Soviet Union. One of the leaders of the group, Gennady Petrov, was bragging that the Mayor of St. Petersburg was his step-and-fetch-it (what do you mean here?) and that in Russia his people are not threatened with any prosecution whatsoever.5 Petrov, who is believed to head the Tambovskaya-Malyshevkaya gang from the sunny climes of Calvi, one of the most exclusive villages in Majorca, counts among his neighbors Pilar de Borbón, the sister of King Juan Carlos of Spain. Accustomed to handing out tips of €500 (£393) and not looking at the price tag when buying designer jackets, Petrov lived at his €20m mansion surrounded by tight security. Popov, the native of St. Petersburg, had his first criminal charges brought against him during the Soviet times for two manslaughters: one was premeditated and the other one involuntary. After completing his sentence in prison, he returned to his hometown where he operated under the protection of the future head of the Tambov criminal group, Vladimir Kumarin. Gennady Petrov, who is in his 50s, arrived in Spain in the early 1990s and allegedly used cash from the former KGB and communist party to buy a luxury hotel in Mallorca. Various sources confirmed that the ringleaders of the criminal groups and ­corrupted Russian Secret Service agents were involved in a network business under the guise of PTK Oil Company. Upon conspiring with the Russian officials, the group’s ringleaders were convinced that they would never be facing any prosecution in Russia: whether political or criminal. These are the reasons why Spanish authorities had a hard time fighting the Russian criminal networks, because there is no cooperation from the Russian government. The history of Petrov’s business in Spain goes back to 1990s, when his group acquired the Palmira Beach Hotel in Pegera for the equivalent of today’s 15 million Euros during the time of the economic crisis.6 After the collapse of the USSR, the operation failed due to constant delinquency in payments, and as a result of the court proceedings Petrov’s group lost the hotel. The papers that exposed Petrov’s links to Russian Secret Services were discovered from a drunken KGB colonel who lost those documents.7 The origins of this enterprise can be traced to the “brainy Don,” Semion Mogilevich, the alleged mastermind of the YBM Magnex. The gang was the most brutal in Russia, allegedly set up a Web of front companies in Spain to launder ­millions in illegal property deals gained from criminal activities in Russia and the former Soviet states.

Ibid. Bizzarri (2008). 7  Ibid. 5  6 

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Implications for the Future As we put the final touches on this manuscript, two events, very indicative of the future trends of Organized Corrupted Networks, are reported by various media outlets. First event occurred on March 20, 2010, when Sergey Motin, Head of Operative-Search Bureau (OSB) No. 11 of the Ministry of Internal Affairs (MIA) of Russia, was taken into custody on suspicion of large-scale contraband. According to the Investigatory Committee, the arrest was preceded by searches conducted by inspectors at the Department for Transports Legal Order of Russian MIA, where the detainee worked, “in the course of which evidences were obtained of Motin’s participation in organized criminal group.” The Colonel was arrested and charged with an involvement in criminal case dealing with contraband of goods across the customs of Sochi and Maikop airports in 2005–2006. As reported by the “Gazeta.Ru,” “Militia Colonel Motin was in charge of ensuring safety of the criminals engaged in contraband. He received some 100,000 US dollars per month for that.”8 The decision to arrest him was caused by his threats to witnesses and suspicion that he can escape from the investigation. The other very telling event occurred in very close proximity to the first one, on March 16, 2010, at least 69 alleged members of the Russian Mafia were arrested in a European crackdown across Europe. The suspects were accused of robbery, drug smuggling, money laundering, and other related crimes. The crackdown, referred to as “Operation Java,” illustrates the global reach of the Russian Organized Corrupted Networks, with a range of operation spanning countries in Western and Eastern Europe and as far as Australia and Singapore. According to the media reports, who quote a number of Swiss prosecutors, these criminal ventures are perfectly structured, highly hierarchical ­international criminal organizations, directed from Spain and mainly active in robbery, burglary, and receiving of stolen goods. A source in the Spanish police added that the criminal groups also raised money in Ireland, Sweden, Belgium, Britain, and Turkey.9 These two events are analyzed within the context of another organized crime phenomenon, from another country stamped by the impact of a strong Communist party system – the People’s Republic of China. As Morrison (2009) contends in his insights into the Chinese corruption networks phenomenon, there are a number of factors that contribute to the establishment and profitable existence of such networks in a political structure of a communist party and since today’s Russia is a direct descendent of a communist government philosophy and their OCN are definitely traceable to the Soviet ­system,

http://krasnodar.eng.kavkaz-uzel.ru/articles/12873/. Jonathan Adams, Correspondent (The Christian Science Monitor; posted March 16, 2010 at 8:22 am EDT).

8  9 

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we find these component of particular relevance to the comparative ­perspective and projections for the future developments: • The corruption requires a marriage between a criminal gang (to intimidate) and a network of corrupt local officials (to manipulate a weak legal system). • The corruption generates huge profits to feed and reinforce the networks. • The corruption requires relatively small steps by individuals operating within the network. • The court system offers no protection; judges can easily be corrupted. • The Communist Party does not have an effective way to supervise and discipline corrupt local officials. • The entire focus of Communist Party intervention is to contain the controversy. • Learning how corruption works in China requires penetrating deeply complex and hidden networks.10 If we apply Morrison’s formula to project the future of OCN, especially in light of the two recent events depicted above, we can extrapolate that Russia in 2010 is still entangled in a complex Web of marriage between the criminal gangs or the OCN and the network of corrupted officials like Sergey Motin or similar illicit activity in the Russian Navy recently reported by Sieff (2009). These types of criminal activities that Motin and others were involved in certainly generate huge profits and require relatively small steps by the involved individuals. Furthermore, as some of the OCN members stated that the courts offer all the protection to the criminals involved and although there is no more Communist Party in charge of the supervision and discipline, the current Russian justice system can obviously not cope, successfully, with the growing phenomenon and the official intervention appears to be more of a lip service to the demanding public to contain the controversy rather than a real crackdown on these types of activities. The very telling last observation stating that “learning how corruption works in China requires penetrating deeply complex and hidden networks” brings us to the end of this volume and the final paragraphs of disclaimer about its contribution to our understanding of the specific modality of organized crime activity, termed by the authors as Organized Corrupted Networks. Not enough empirical studies have been conducted in the field for a claim that the theory we present is firmly grounded in social science research; however, the materials presented are heavily referenced and present a picture of consistent nature regarding the etiology, history, and the present developments of the Organized Corrupted Networks. While the European law enforcement forces, in what appears to be as a semicoordinated effort, descend on the Organized Corrupted Networks members around the world, what remains to be seen is the effectiveness of this rather disjointed attempt. As Holmes (2009) posits in the article about the problems with quantitative data sources regarding the true picture of organized crime activity in a given country,

Morrison (2009).

10 

Implications for the Future

175

we can extrapolate from these problems to identify the obstacles to an adequate law enforcement response to this phenomenon. The three factors that reflect the ­obstacles in effective assessment of the nature, scope, and intensity of organized crime modalities will also impede an effective coordination between law enforcement forces facing these types of crime and they are: (1) “the definitions and categorization of particular types of crime vary” from country to country (for the same problem, see Orlova 2008); (2) the cultural context affects the propensity for and quality of police reporting; and (3) citizen propensity report can change depending on the context. Following Holmes and Orlova, another study by Kleemans and Van de Bunt (2008) add additional dimension to our predictive theory regarding the future of Organized Corrupted Networks. The authors hypothesize that many organized crime studies do not sufficiently recognize the fluidity of licit and illicit networks, most specifically in a work setting. They highlight several factors in occupations that seem to contribute to the opportunity for actors to begin engagement in ­organized crime: (1) international contacts and travel movements as part of the occupation; (2) the level of freedom of discretion and movement for the worker; and (3) how much social interaction the worker has. In the era of globalized ­contexts where, almost every profession has some national and international ties and relationship, Kleemans and Van de Bunt definitely account for, at least a partial, explanation of the multicountries arrest that took place in March of 2010. People travel for work-related opportunities, invest in many places around the world, and therefore their mobility and financial activities do not generate, at least not automatically, an interest within the local law enforcement agencies. The final words concur with Brovkin (2003) who argues that where corruption is institutionalized in a way that obligates officials to engage in corruption, these countries, particularly Russia, Ukraine and Kazakhstan are “short circuiting their own future. They get stuck in a vicious cycle of self-sufficiency.” He attributes contemporary global pressures as reasons why leaders such as Putin and Vincente Fox attempt reform measures rather than perpetuate the corrupt system. The numerous crackdowns on organized/corrupt organizations orchestrated by various politicians for the reason of political correctness, rather than a profound desire to rid the given country of the cancerous-like activity, pose no deterrence to the cancerous phenomenon that in light of lack of aggressive efforts applied toward its eradication flourish and expand as cancerous cells do when not treated with appropriate doses of radiation. Throughout the various chapters of this book, we identified the numerous root causes of corrupted behavior and proposed some unpretentious solutions that despite their modest appearance require the buy of hearts and minds of the local politicians and, in a more global sense, the world’s community. Accepting certain behaviors as “mala in se” rather than “mala prohibita” requires a transformation in the way people around the world were and are socialized for centuries if not millennia. Viewing law enforcement as a profession that needs to be adequately compensated and respected to enable its members to deliver the services they are charged with delivering requires a shift in peoples’ perceptions that go back to the times of Augustus Cesar and his Praetorian Guard. Achieving a consensus on

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s­ tandardized approach to various types of conducts and behaviors requires more than just establishment of a larger structural framework. As we see from the struggles of the European Union to ratify its Constitution, the solutions to a unified front in fighting Organized Corruption Networks are far from a fait accompli. The Western democracies, who themselves struggle with home-grown and locally and historically embedded problems of organized crime and corruption, in their most sincere efforts to combat the phenomenon will be severely curtailed in their success due to the prosperous grounds in Russia, the country that exports goods of multifaceted nature, and among them – Organized Corruption Networks.

References Bizzarri, S. (2008). Spain: Russian mafia decapitated. Narcomafie. July 2008, http://flarenetwork. org/blog/2008/11/13/spain-costa-del-sol-or-costa-del-crime/#narcomafie. Accessed June 13, 2009. Brovkin, V.N. (2003). Corruption in the 20th Century Russia. Crime, Law, and Social Change. 40(2-3), 195-230. doi: 10.1023/A:1025741929051. Holmes, L. (2009). Crime, organised crime and corruption in post-communist Europe and the CIS. Communist and post-Communist Studies. 42(2), 265-287. doi: 10.1016/j.postcomstud. 2009.04.002. Kleemans, E. and Van de Bunt, H. (2008). Organised crime, occupations and opportunity. Global Crime. 9(3), 185-197. http://ejournals.ebsco.com/direct.asp?ArticleID=4BDCA50E71959380 574E Morrison, Ed (2009). Xi’an Lantian’s Criminal Network. July 30, 2009 by Ed Morrison. Jeanne Meserve (2009, October 24). FBI: Mobster more powerful than Gotti. The CNN. http:// www.cnn.com/2009/CRIME/10/21/mogilevich.fbi.most.wanted/index.html. Accessed October 26, 2009. Orlova, A. (2008). A comparison of the Russian and Canadian experiences with defining “organized crime”. Trends in Organized Crime. 11(2), 99-134. doi: 10.1007/s12117-008-9035-z. Sieff, M. (2009). Russia Defense Watch: Arms ring busted. UPI Security Industry. Retrieved from International Security & Counter Terrorism Reference Center database. http://krasnodar.eng. kavkaz-uzel.ru/articles/12873/.

Index

A Act on the Constant Criminal Enterprise (CCE), 88 B Border Guard Service, 136–137 Bribe of survival or Legal extortion, 4, 78 C Corruption in Russia factors promoting corruption blagodarnost, 69 continuity of professionalism, 67 law-enforcement agencies crisis, 68 legal vacuum, 67–68 official pyramid network, 68 property rights system, 67 substitute moral values, 69 law enforcement services bribes in law enforcement, 121 cancerous phenomenon, 121 current state corruption, 120 OMON formation, 122 Russian Federation Armed Forces, 122 and public service corruption behaviors, 70–71 decision lobbying, 72 domestic politics, 71 ideological connivance, 70 Russian legislator, 72 2004 State Duma elections, 71 social and historic phenomenon compensation and boundless extortion, 54 decree “On Bribery,” 57 giving reverences, 55

Russian Code of Law, 55 sociology of officialdom, 56 Soviet and post-Soviet schools debates definitions of corruption, 62–63, 66 government policies and legal norms, 63 illegal compensation transfer, 67 international practice, 66 legal point of view, 65 models of corruption, 65 payoff characteristic, 66 political corruption, 61–62 pure criminal activity, 62 social exchange, 64 as social phenomenon, 65–66 state official involvement, 62 unequivocally negative phenomenon, 64 in Soviet times authority and business mergers, 60 business registrations and licensing, 61 contract of elites, 59 cooperative enterprises, 60 greasing role, 61 joint ventures creation, 60 law-enforcement system, 60–61 private entrepreneurships, 59 ruling party corruption, 57–58 totalitarian system, 58 state administrative system anti-corruption measures, 80 Basic Law on Civil Service, 73 corruption expansion causes, 75 environmental factor, 77 fighting organized crime, 82 INDEM’s expert explanation, 78–79 index of corrupt institutions, 78 individual and isolated transactions, 78

S. Cheloukhine and M.R. Haberfeld, Russian Organized Corruption Networks and their International Trajectories, DOI 10.1007/978-1-4419-0990-9, © Springer Science+Business Media, LLC 2011

177

178 Corruption in Russia (cont.) influence on governmental mechanisms, 75 Law to Combat Corruption, 73 legal decrees, 72 legal nihilism, 80–81 official corruption index, 76 post-Soviet transitional period, 79–80 principal causes, 81 private company, 79 property declaration submission, 80 public attitude, 75 small and mid-size businesses, 77 socially institutionalized nature, 81 sociological studies, 76 state and society threats, 74 superior-subordinate relations, 81 sustenance and development, 81 systemic crisis, 79 Upper House-the Federation Council, 73 Cosa Nostra-type organizations, 86 Criminal Police Service, 126–127 Critical theory, 15–16 D Differential association theory, 10 Dvinsk statute, 54 F Federal Guard Service (FGS), 135–136 Federal Migration Service Federal Guard Service (FGS), 135–136 FSS (see Federal Security Service) The Interior Ministry of Central Subordination, 135 Postavnin interview, 134 three-tier organizational structure, 134 Federalnaya Sluzhba Bezopasnosti (FSB). See Federal Security Service (FSS) Federalnaya Sluzhba Ockrany. See Federal Guard Service Federal Security Service (FSS) Border Guard Service, 136–137 Counterintelligence Service, 139 detained traffic police unit, 141 Generals Patrushev and Bortnikov, 141 international cooperation, 137–138 KGB-FSB people, 140 office pyramid, 137 organizational structure, 137

Index real boss, 140 reforms, 136 SVR locations, 140 Federal Traffic Police, 130 G General strain theory (GST), 19 Gorbachev’s reforms administration innovations, 43 Annual Report of the Ministry of the Interior for 1994, 50 capitalist bureaucratic elite, 42 CIS International Committee on Statistics, 47 consequences, 44 contradictions, 43 crime affecting economy, 48 criminalized economic policy, 50 critical crime cause, 47 democratic transition, 50–51 draft proposals on legislation, 46 economic and political advantages, 45 economic crime, 48–49 Glasnost, 43–44 Gosplan, Minfin and Gosstroi, 43 ill-designed privatization, 46 KGBization, 50 Komsomol functionaries, 44–45 mafia method, 42 rejected bills, 46 Soviet state and CPSU destruction, 45 state property allocation, 49 two stages, 44 Yabloko faction, 42–43 Gosudarstsvennaya Avto-Inspektsiya (GAI). See Federal Traffic Police GULAG system NEPmen, 37–38 NKVD, 38 prison and camp administrations, 38 property/violent and economic crimes, 41 shadow economy, 39–40 suki, 39 syndicated criminal activity, 39 Gypsy criminal groups, 99 I Immigration Service. See Federal Migration Service Institute for Public Projects (INOP), 78 Internal Military Troops (IMT), 133–134

Index

179

K Kryshi system, 95

N New institutional economics, 14–15

L Law enforcement services corruption in Russia bribes in law enforcement, 121 cancerous phenomenon, 121 current state corruption, 120 OMON formation, 122 Russian Federation Armed Forces, 122 Criminal Code, 119–120 Federal law enforcement agencies (see Ministry of the Interior)

O OMON OMSN, 130 origin and foundation, 129 special anti-riot police, 128 spectacular operation, 129 symbol of brutality, 129 total strength, 128 training and recruitment, 128 Organized corruption network (OCN), 2–3 crime, state and economy, Russia, 145–146 defining features, 148 fighting ways (see Law enforcement services) future implications Brovkin words, 175 Chinese corruption networks, 173–174 crackdown behaviors, 173 media outlet reports, 173 Morrison’s formula, 174 obstacle factor, 174–175 operation Java, 173 Swiss prosecutors, 173 Western democracies, 176 hierarchy, 147 international trajectories criminal leaders imprisonment, 169–170 FBI raid, 170 Iron Curtain collapse, 169 Mr. Mogilevich’s companies, 170–171 law enforcement and businesspersons attitudes, 151–152 members of a family, 148 national economy infiltration bribing official integration, 155 criminalization cause, 153 element making up OCN, 153 estimate of professions, 154 geographical distribution, 153 MoI information, 153 sources, 153 trends, 152 OCG types and forms (see Organized crime groups) post-transition economic crime, 147 Putin era, 147

M Militsiya. See Police service Militsiya Obshchestvennoy Bezopastnosti. See Public Safety Police Ministerstvo Vnutrennikh Del (MVD). See Ministry of the Interior Ministry of the Interior (MoI) division of power, 139 establishment, 123 Federal Migration or Immigration Service Federal Guard Service (FGS), 135–136 FSS (see Federal Security Service) The Interior Ministry of Central Subordination, 135 Postavnin interview, 134 three-tier organizational structure, 134 Internal Military Troops (IMT), 133–134 KGB officers, 139 MVD central administration, 123–125 police service (Militia) authority, 126 central headquarters, 126 Criminal Police Service, 126–127 Criminal Procedure Code, 126 Dr. Nurgaliev role, 132 Federal Traffic Police, 130 ‘keep our people untouched’ principle, 132–133 Lynx (see Rys force) Militsiya origin, 125 negative opinion, 130–131 OMON (see OMON) president Medvedev announcement, 131 Public Safety Police, 127–128 regional MVD administration, 125 Security Council (SC), 139

180 Organized corruption network (OCN) (cont.) Spanish connection, 171–172 Stroev family allies, 149–150 structures of, 147 Organized crime groups (OCG) alcoholic beverage distribution, 157 bank difficulty, 163 buying shares, 160 control over territory, 160 criminalized sectors, 155 criminals extortion and positioning, 161 debt/outstanding taxes repayment, 158 differences in sectors, 157 economic and legal transformations, 164 economy control, 160, 164 enterprises control, 155 expansion into economy, 159 export-import transactions, 165 government officials contacts, 160 intermediary firms, 157 international stage, 165 legal enterprises activity, 157 multilateral treaties, 165 NISR MVD study, 162 response rates, 156 Organized crime theories critical theory, 15–16 general strain theory, 19 kinds of trust, 16 legal definitions, criminal organization, 17 new institutional economics, 14–15 organized crime definition, 16 rational choice theory, 13–14 Russian organized crime theories cultural specificity, 18 problems identified, 17 Russian security apparatus, 18 Transparency International Corruption Perceptions Index, 18 social control theory, 11–12 social disorganization theory, 11 social learning theory, 10–11 social strain theory, 12–13 Otryad Militsii Osobogo Naznacheniya. See OMON P Petersburg Fuel Company (PTK), 111–112 Police service (Militia), 125–126 Post Soviet era changes, 2, 18, 48, 133 Pskov court statute, 54 Public Safety Police, 127–128

Index R Racketeer, 36–37 Rational choice theory, 13–14 Russian Code of Law, 55 Russian organized crime bureaucratic and communist nomenklatura, 91 civilized racket, 92 contours and tendencies Act on the Constant Criminal Enterprise (CCE), 88 Cosa Nostra-type organizations, 86 functional classification, 87–88 Italian mafia, 89 Parliamental laws, 87 Russian mafia, 86–87, 92 three-layer hierarchy, 89 vs. United States, 86 Western scholars and law enforcement, 88 crime rate, 92–93 crime theories, 17–18 criminal behavioral patterns criminal activity centers, 33 tattoo images, 33–37 ethnic, regional, and transnational dimensions cash-only transactions, 103 Chechen groups, 95 Colombian cartels, 100 contemporary ROC structure, 100 corruption and related crimes, 104 financial resource allocation, 99 Georgian criminal group, 98 Gypsy criminal groups, 99 kryshi system, 95 large enterprises owners, 96–97 lavrushniki, 97 nepotism and joint criminal actions, 98 old-school thieves, 96 organized prostitution provisions, 102 registered economic crime, 103–104 Russian law enforcement, 97–98 Russian OCG operational, 101 Slavic organized criminal community, 99 sportsmeny, 96 state structure authorities, 102 Tambov’s group, 97 Tatar criminal communities, 99 Tatarin, 95–96 European transit crime, 90 Gorbachev’s reforms (see Gorbachev’s reforms) grab-all criminal opportunity, 93

Index growth in the Soviet period, 89 GULAG system NEPmen, 37–38 NKVD, 38 prison and camp administrations, 38 property/violent and economic crimes, 41 shadow economy, 39–40 suki, 39 syndicated criminal activity, 39 infiltration into regional economic structures collaboration between groups, 115 dangerous and very dangerous crimes, 106 dynamic of registered crimes, 105 East-Siberian region, 106 Ekaterinburg’s RUBOP, 113 export-import transactions, 114 Kazanskaya group, 108–109 Komarovskay criminal gang, 114 Kostya-tomb group, 113–114 Malyshevskaya group, 109–110 members in criminal world, 105 Moscow region, 107 North Caucasus region, 107–108 Petersburg Fuel Company (PTK), 111–112 St. Petersburg area, 108–109 Tambovskaya group, 109–110 Uralmash criminal group, 112–113 Velikoluksk city gang, 110 Volga region, 106 mercenary criminal type, 89 monetary and material profits, 95 old Soviet administrative control, 93 professionalization Count Rumiantsev and OrlovDavydov, 24 criminal castes, 26 Darya Saltykova order, 25 farmazonshchiki, 28 ideological prisoners, 28 Ivans, 27 Kain, professional theif, 25–26 maliny, medvezhatnik and shnifery, 27 the Ulozhenie, 25 shadow economy businesspersons, 91–92 Soviet period, the vory v zakone (see The vory v zakone) state control destruction, 93 transition to capitalism and privatization, 90 tsekhoviki, 91 vs. traditional or economic crime, 90

181 Russian security apparatus, 18 Rys force, 130 S Social control theory, 11–12 Social disorganization theory, 11 Social learning theory (SLT) differential association theory, 10 social forces, 11 transnational organized crime, 10–11 white collar criminality, 10 Social strain theory, 12–13 2004 State Duma elections, 71 T The avtoritetnyi vor, 29 The avtoritety, 2, 32, 92, 113, 171 The farmazonshchiki, 28 The fraera, 32 The gangsters, 32 The Interior Ministry of Central Subordination, 135 The ksiva, 30 The maliny, 27 The medvezhatnik and the shnifery, 27 The muzhiki, 32 The polozhenets, 29, 30 The shesterki, 32 The Ulozhenie, 25, 55 The vor polnota, 29 The vory v zakone code of the vory, 31 criminal groups substructure, 32 crowning procedure, 30 financial activities, 32 ksiva, 30 Russian penitentiary system, 29 1930s and 1940s, 29 thieves’code infringement, 30 Transparency International Corruption Perceptions Index, 18 Turf wars, 108, 113 U Uchastkovyi, 127 V Vnutrennie Voiska (VV). See Internal Military Troops (IMT) Y Yeltsin-era corruption, 5, 82