eye.gif (5286 bytes) Point of VIEW.

A purely analytical perception...

Corruption Biggest Fear in Russia


Strange alliances were created during World War II. No two countries could have been less alike than Japan and Germany, Japan, closed to most of civilization for hundreds of years and Germany who had marched through Europe time and time again in their quest for dominance. And yet, had it not been for Japan's overreaching attack on Pearl Harbor, who knows what the ultimate result of the conflict would have been. Just as Japan and Germany did not appear to be well suited dancing partners; neither did Russia and the United States. The Soviet Union was the antithesis of American Democratic thinking, yet the joined together for a time during the war with a positive result.


Not one expected that the euphoria of defeating the Axis would cause harmony and brotherhood in the postwar period. Stalin continued his adventures in Korea, Vietnam, Cuba and Eastern Europe. The West, weary of conflict, fought a battle of containment. In a true test of the relative efficiency of the two systems, Russia drew the totalitarian states of Iraq, Libya, Uganda and Syria, among others, into its orbit. These were the kinds of folks that everyone wanted as dinner guests, although it was never clear in advance, who the diner would be.


Thus, the Soviet System attracted primarily rogue states and militarily controlled satellites.  The competition was unbalanced because the United States viewed global recovery as in its best interests; it wanted to sell the world goods produced by the  awesome industrial machine that had be en created to win the war. Russia, with its cities in ruin and it production facilities in a state of collapse, chose subjugation as its direction.  




Most of the World wanted peace after the war ended, and hopes were high among the uninformed that the United Nations would create global harmony. That turned out to be more of a hallucination than a dream, as the Soviet Union began building walls throughout its territory to keep its people enslaved, while spreading its communist gospel by way of stealth, threat and military power.


There were really only two countries in the post World War Two era, the United States and Russia. While other members gave lengthy discourses on the state of global affairs within the hallowed walls of the Security Council and the General Assembly, only two votes mattered; the rest was a charade. Primarily then, the UN was established as a civilized forum for the United States and Russia to air their diametrically opposed propaganda. It was never meant to succeed as advertised.


“With the defeat of the Reich, and pending the emergence of the Asiatic, the African, and  the South American Nationalism’s, there will remain in the world, only two Great Powers capable of confronting each other—the United States and Soviet Russia.”


“The laws of both history and geography will inevitably return these two Powers to a trial of strength, either military or in the fields of economics and ideology. These same laws make it inevitable that both Powers should become enemies of Europe. And it is equally certain that both these Powers will, sooner or later, find it desirable to seek the support of the sole surviving great nation in Europe, the German people. “ ([1])




No disputes were settled by the two powers on neutral territory, within the confines of the United Nations, or anywhere else for that matter. The Berlin Crisis, the Cuban Missile Crisis, the Korean and Vietnam Wars were resolved by strength, not words.  These crises ended when it became apparent to one, or both, of the participants that the other would not back down. In each of these events, global destruction was always a chilling possibility, and yet no world organization could interfere with the process.


As these Goliath’s pursued their own agendas, the United Nations, and others, gave heroic speeches of what ought to be done. While they spoke, millions died in Cambodia at the hands of a manic, despotic government. People starved in Africa, were jailed in Russia and China for speaking their minds, and were slaughtered on the streets of Jerusalem because oil became more valuable then human flesh.


While the first tier was made up of two countries, Russia and the United States, the second tier was a combination of nations sharing common bonds. The Arabs were bound by religion, the oil producers by petroleum, the rich countries by wealth, the poor by poverty, and the militarily strong by mutual distrust.  The only universal bond was the fear of nuclear holocaust. Unions of nations not falling into any of the above categories joined together, if only because of their status as world class pariahs.


Some Countries Are Just More Equal Than Others


As part of the formation of the United Nations, the International Monetary Fund (IMF) and the World Bank were theoretically created to insure that historically hapless countries got a chance to grab at the gold ring, while simultaneously creating a bank of last resort for nations to call upon when economic earthquakes occurred. This was the professed theory but far from what was practiced.  Although Russia was a member of the United Nations as well, the deck was stacked against it by the West and the funds distributed by the World Bank and the International Monetary Fund never seem to find their way behind the iron curtain. To a degree, the West's reasoning went something like this; we find no fault with the Russian People and they have suffered mightily during the war. On the other hand, if we supply funding to rebuild their infrastructure, it will only be used to rearm and threaten our very existence.


The United States had one more ace up its sleeve, the well formulated Marshall Plan, a $14 billion loan package covering 16 European Nations including Germany, for critically needed items such as food, medicine fuel and fertilizer. Again, we say that, being well aware that the only reason for such a generous program was to contain Russia and to create a market for American products. After all, with an industry geared up to a degree never before witnessed, what would America do? Just close it down? In spite of its chauvinistic nature, the good the it created internationally by hastening the rebuilding process was unparalleled in history. Not only was the amount committed to the program vast, but also the debt elements contained within its parameters were soon forgiven and it became the largest humanitarian project known to man.


Thus, the United States was able to contain Russia from both an economic and a military point of view. In order to compete even as a distant second, the Soviet Union began  living far beyond its means. Its system created rewards for failure; in a planned economy, targets had to be achieved at any price. That price ultimately turned out to be inferior products, layers of unnecessary bureaucracy, and the subjugation of peoples only waiting for a chance to escape from a cumbersome and monolithic system.


Really High Stakes Poker


Each time Russia came up with a straight, the West produced a full-house. The ante was escalating at a fearsome pace when the United States produced a royal-flush with President Reagan's Star Wars Program. Russia folded with a case of advanced economic exhaustion and the walls came tumbling down.


The former members of the Soviet bloc were freed at this point to participate in organizations like NATO and the European Community. Russia pledged that it would convert its factories of destruction into consumer product facilities provided that the West agreed to create a new Marshall Plan. The United States for its part was ready to oblige, but insisted that Russia get its musty economic house in order first.


That meant purging the old system of its bureaucrats, installing free enterprise, destroying trade barriers, and reforming the banking system so that it could function in tandem with other global partners. A natural component of the reform of the financial infrastructure, according to reformers both Western and internal, was the break-up of state-run enterprises and the sale of their assets to the people.  This, they reasoned, would  create a sense of ownership and would foster increased quantity and quality of production.


Western economists failed to recognize that generations of economic and political slavery had created a culture inimical to markets.  In many of the former Soviet satellites, the people continued to live as they did under the old system, avoiding work, delegating authority and passing opportunities on to the few who cared to seize them. For this reason, nothing much changed.  Communist bosses who were formerly in control, continued to run the factories. The Mafia bought and paid for the government,  which enlisted the KGB as its enforcement arm.  As fast as the nave population could put its money into Russian mob-controlled banks, the mob funneled it out of the country and into Western financial institutions.


The citizens of the former Soviet Union were not the only "victims; as the World Bank and the IMF stepped up to the plate, these funds too were diverted from their intended targets. The ruble took a fearsome pounding and the fledgling stock market collapsed in a heap.   


The World Economic Forum Rates Russia at the head of a long list of underachievers; it wins the lottery in both the “Least Competitive” and "Smallest Growth Potential” categories.  Recent estimates that Russian Mafia money secreted in Swiss Banks has eclipsed the $40 billion mark does force us to agree that Russian criminal enterprises have been over-performing for some time now. Despite this massive generation of funds, however, Russia is insured its spot at the bottom of the barrel for a while.  The criminal sector's share, taken as a percentage of Russia’s GDP, is still a nominal figure.


Other countries making taking the booby prize in both categories are: Ukraine, Zimbabwe, Greece and Hungary. Russia and Ukraine won plaudits because of the unsurpassed corruption and government incompetence. 


The International Institute for Management Development holds itself out as the global expert on national competitiveness; in its most recent survey in 1998, the I.M.D.  almost dropped Japan off the chart. Russia came in last out of the 46 countries analyzed but found increasing competition for last place from India and Brazil. The prime cause of countries not doing well on the survey were for reason of corruption, bureaucracy and lack of reforms according to the World Competitiveness Yearbook


The Russian market, with an estimated capitalization of $120 billion, showed little or no discernable decline in many issues when global markets collapsed because stocks had become so thin they couldn’t be bought or sold. Even when a transaction closes, the odds against it clearing are fairly high. The process takes up to a month and the chance of the contra-party remaining in business becomes more problematic with each day that the transaction remains unsettled. Even when the contra-party remains in business, they decline to settle because they are displeased at the market performance of the security since the trade was executed.





The laws against this type of behavior are impossible to enforce.  Even Russian banks have become regular defaulters on legitimately executed transactions.  Further removing any possible feeling of warmth and fuzziness in the Russian marketplace was their unique circuit breaker system, patterned after trading halts on the New York Stock Exchange. The only difference is that on Oct 27th, 1997 when the NYSE stopped trading, it was for a short period of time to give people time to catch their breath.  By contrast, The Russian Trading System, which was the main market system, halted for over three hours and the secondary markets did not open at all.


Countless millions have been spent in an effort to develop a sound market in Russia; yet they still lack a common settlement system, depository, central marketplace registrars, and regulators. To complete a transaction, the seller must travel to the company’s offices and sign its stock register. The computerized system fails when volume increases nominally. Russia will soon join the big leagues as part of the system of international indexing of currencies and securities.  It has recently been allocated a 6% share of the world’s securities basket for indexing purposes by the World Bank. In order to index their funds against the world market, fund managers must own stocks that are part of the index.  Since Russian stocks are now part of the index, money will begin to will flow into the unprepared Russian stock market with increasing vigor.  By international standards, Russia has not taken a positive step to prepare for the event in over two years. Picture the money manager trying to price his international portfolio on a day when the Russians decline to even open their markets.




With their money being stolen by local banks and inflation, the people determined that there must be a better way. Thus when MMM came calling, the people were ready to listen. In the United States we are all familiar with a Mr. Ponzi, who once attempted to steal all of the money in Boston. The people at MMM, it seems, were admirers of the Ponzi-type pyramid scheme, and thought that they could do him one better by stealing an entire country.  After advertising a similar fraud through the Russian newspapers and television, the perpetrator, the president of MMM, ran for office and was duly elected. According to Russian Law he could not be prosecuted. His theft made Ponzi look like Little Lord Fauntleroy; it left tens of thousands of people penniless. Yet today he serves in one of the highest elected offices in Russia and goes unpunished. ([2])


Elsewhere, savvy investors might have smelled a rat earlier. But this was post communist Russia, where capitalism is wild, woolly and new. The come-on, in any event, had been slick and seductive: pervasive TV commercials that wafted visions of apartments in Paris and vacations in California, and preposterous returns of 2,000% annually with no minimum investment. With those tactics, it did not take long for 5 million Russians to pour money into the offices of the MMM investment firm, the country’s biggest and best-known stock fund.


MMM officials were hard pressed to bundle the currency investments into tidy packages and get them out of the country as fast as the money came in. Many say that the logistic effort put out by company officers in secreting these funds ranks along with the building of the Egyptian Pyramids in terms of economic engineering. Naturally, everyone lost everything they had put into the fund and were made unhappy in the process, but this indeed was still Russia, and in Russia, there is always another day. 




The Russian people as a rule are well educated and as they became more and more exposed to the outside there became a desire to go on-line and see the world. American Online (AOL) saw this pent up demand as an opportunity to sell their product in a virgin territory. The system had only been operational for a short period of time when Russian hackers simply broke into AOL, ripped off the credit card numbers, the passwords and the phone numbers from the system, and used them from another location. The criminal usage became so heavy that AOL shut down the system entirely, disadvantaging over 2,000 customers in that country. The crux of the matter is not that it was an interesting crime, but the fact that there is nothing anyone can do about it.


“Russia’s new criminal code mandates a prison sentence of two to six years for “manufacturing false credit or payment cards for the purpose of fraud.” But it does not include a provision for electronic or telephone fraud. Fines for the disruption and misuse of computer networks are included, but again the code does not cover electronic or telephone fraud.” ([3])





Russia effectively gave away the store shortly after the Berlin Wall came down. The Russians were so anxious to please Western financiers that they gave away some of the country's leading enterprises through their disastrous coupon system. Worse yet, the citizens, not really understanding the value of what they had been given, traded what they perceived as worthless pieces of paper for valuable consideration like cigarettes and canned goods. Well-placed individuals were able to buy up the certificates en masse and  purchase the State's assets for a pittance.  When the music stopped, the same people were running the show.




Since then, the privatization process in Russia has gone down hill. A recent story out of Moscow illustrates how convoluted the process has become. The First Deputy Prime Minister in charge of privatization is the self-proclaimed reformer, Anatoly B. Chubais. Oneksimbank, a recently privatized financial institution, owns a company by the name of Segodnya Press. Segodnya press promised Prime Minister Chubais and several other prominent individuals  $90,000 each for "their contributions to a history of privatization" to be published by Segodnya. Obviously, Chubais was the individual primarily responsible for negotiating the terms of the Oneksimbank acquisition. If that wasn't enough, when Oneksimbank acquired another financial institution, Syyazinvest, Chubais clearly came out on the side of the winning bidders, creating an anonymity not seen in the Kremlin's hallowed walls in the last decade.


It now turns out that the government official directly responsible for the sale also received a book advance of $100,000 from a Swiss company allied to Oneksimbank. This caused his resignation, but he has been reincarnated as the head of a pseudo non-profit company that appears nowhere in Russian charitable registries. The major contributor to this non-existent charity turns out to be Anatoly Chubais and his co-authors.  Guess the name of the organization that is the beneficiary of this largesse and win one free Russian privatization. Amazing you should know the answer: "the Special Fund to Protect Private Property in Russia" or "Montes Auri",  for short.   Chubais is running an eleemosynary slush fund.  This champion of "the peoples" rights seems to have a warm spot in his heart when it comes to foundations. He received a five-year loan from his own foundation of $3 million at no interest. Interestingly enough, if this money was just invested in the bank at the current interest rate, the loan would repaid before its due date with its own interest.  Meanwhile, back at the ranch, the loan came from Stolichny Bank, a benefactor of Chubais hubris in a previous privatization. The only difference between Russia today and Russia yesterday is that in the old days, senior government  officials could do whatever they wanted and no one would ever be the wiser.   Today they can do whatever they want and everybody knows what they have done, but no one can do anything about it.  The system has made a huge stride forward.


But then again, Russia is a country of capitalists who don’t seem to want to work within a capitalist system. In a survey sponsored by the U. S. Treasury, it was found that the average Russian lives substantially above the level of his earnings. Thus, the analysis indicated that the gross domestic product of the country is underestimated by approximately 50%. During the communist regime, state companies were always overstating what they were producing in order to curry favor with the central government. This philosophy took the most rapid U-turn in history when, after privatization, the government started trying to collect taxes.  Flexible bureaucrats quickly learned that more money stuck to the bottom line if they underestimated their production and profits. This certainly accounts for some part of the discrepancy in the estimated GDP. Most of the balance probably arises in the "shadow economy".  Russians learned long ago that they cannot live on their illusory pensions and salaries; like many Americans, they take off-the-books second jobs that produce non-taxable supplemental income. Goskomstat, the State Statistics Committee, has found the task of monitoring production and income so daunting that its report could not  be completed.                


Isvestia has reported that in its opinion "more than $100 billion in Mafia profits have been illegally siphoned out of Russia and secretly invested abroad". Obshchaya Gazeta, a weekly Russian newspaper started published a list of bribes that are being paid to officials. "Traffic policemen can be bought off for an $8 bribe, housing officials for $58, and municipal employees for about $580." [4] Even officials in charge of law enforcement have been accused of turning the other way when crimes against the people and the State have been committed. The Russian prosecutor-general, Alexei Ilyshenko, has been accused of allowing corrupt officials run rampant in terms of accepting bribery under his watch. Not only has the Russian Press accused him of allowing his in-laws to get away with running an illicit company, but also his own staff clamored for his resignation because he tried to cover-up the scandal. 


Even officials such as Russia's former Prime Minister, Viktor S. Chernomyrdin, whom many believe to be above reproach, have turned a blind eye to government corruption.  The New York Times reported that "Russia is now a state so webbed by official corruption that foreign businessmen, economists and Russian analysts regard it as the largest impediment to the growth of investment and the market economy. The American Chamber of Commerce in Moscow claims that official corruption ranks with tax instability, licensing confusion and disregard for intellectual property rights as the main reasons why foreign investors hesitate to do business in Russia. All of these factors rank ahead of fears about organized crime.  In spite of the above, economists have estimated that almost 80% of the commercial and financial business in Russia is in the hands of criminal elements. In the last five years, the total number of crimes commited by Mafia type organizations has risen 15 times and more than 9,000 groups have been identified participating in Russia employing over 100,000 people. ([5])






Even these things are minor league when you look at some of the actions of individual Russians. Take the example of the Russian General in charge of almost two thousand troops on the Croatian border with Serbia. He is charged with selling the United Nations' tanks in exchange for a Mercedes, managing a brothel, and selling United Nations fuel to the Serbs in exchange for cash. For political reasons no charges were in brought against the errant army officer.


When it comes to privatization, Russian corruption is particularly dangerous to the State. Economists have noted a 180-degree shift in the way managers do business in Russia. In the old days, it was critical that bureaucrats meet tougher and tougher production schedules, naturally to not have achieved state objectives would result in dismissal or worse, the objectives were always met if only on paper. Today's managers in Russia have learned that this is not the way to do things in a more democratic environment. The higher the levels of production that are achieved, the greater the amount of taxes that the state would attempt to collect. Thus, being penalized for success, Russians have learned that under-reporting for the first time in their history brings far greater rewards.


On the other hand, corruption was a way of life in Russia and even during the times of Stalin, officials were rewarded with extra benefits for labor above and beyond the call of duty. Cars, houses by the ocean and servants were standards in spite of the rigid communist system. Thus, when the system changed, with officials not wanting to foreign ownership completely take over Russian industry, the voucher system was invented which literally gave away billions of dollars of Russian assets for no return to palliate that paranoia. This action kept alive the working lives of Russian Bureaucrats who now had an opportunity to steal cash as well as assets allowing a field day to be had by all.  Thus, no competitive yardstick existed within the economic community to compare the results of similar privatizations in that they were all equally corrupt. Had at least some of the country's assets been sold to foreign buyers, the results would have been both dramatic and transparent. Put into that framework, some sort of competition would have existed among similar businesses for quality, quantity, profit and taxes paid.

This was not the only problem, though. Russia had not had a market based economy in decades and was ill equipped to compete on a global basis. Their citizens, while intelligent, lacked a fundamental knowledge of the mechanics of world trade. In addition, Russia was an economy riddled with red tape. While the walls were quick to come down, the bureaucracy that had accompanied them seemed monolithic. Laws did not exist to adequately protect buyers, sellers and intellectual process. Those regulatory initiatives that existed were dated and time consuming. Talented people in sophisticated management arenas did not exist, and even if they had been available, they could have done better in other climates. Dealing with trade unions, workers collectives and agrarians was enough to drive even the most stable manager to drink. Transparency existed in name only and professions such as accountants, business lawyers, rating agencies and regulators. Courts capable of interpreting the intellectual property morass did not exist, and for that reason for some period of Russia's most prized inventions lay hidden in their authors' mattresses. 


  The Mafia and Other Pleasantries


In 1994 the then head of the CIA in an address to the United States Congress indicated that in a Russian poll in response to the simple question;  "Who controls Russia?" a plurality of 23% responded "The Mafia", 22% responded with "No one", 19% responded "I don't know", and only 14% responded "President Yeltsin". Even chauvinist President Yeltsin indicated that Russia had evolved into "the superpower of crime". And the head of the Federal Bureau of Investigation classified the Russian Mafia as "the greatest long-term threat to the security of the United States."  Some say that Russia has evolved into a "Mafiocracy" which may accomplish in an economic sense, what Stalin and the Russian military were never able to do:  that is, overpower the United States. Russia, historically a builder of shoddy goods, has finally come up with an export that is world class, its criminals.  If taxes were paid to the central government on illicit earnings, Russians would be paving the streets of Moscow with gold.


A renowned Russian writer and Nobel prize-winner Alexander Solzhenitsyn, the Russian Nobel prize-winner put the problem concisly when he wrote, "Russia has no semblance of democracy and is far from real market reform. Russia's present rulers are hardly better than the Communists. A stable and tight oligarchy of 150-200 people is deciding the fate of the nation. For the past 10 years, leaders have robbed their own people of national wealth, pocketing billions of dollars, impoverishing millions and possibly leading to the death of thousands. Russia's economic chaos is the result of nearly criminal reforms that have created a new class of Mafia capitalists."


But instead of taking Solzhenitsyn's word for what has occurred, one only has to take a short look back in history and draw his own conclusions. In 1993, the chair of the State Anti-Corruption Committee, Vice President of Russia, Alexander Rutskoy, told the Supreme Soviet that literally every important member of Yeltisin's hierarchy was actively involved in corruption. The Supreme Soviet was incensed and instructed Prosecutor General Stepankov and Minister of Security Barannikov to begin articles of criminal prosecution against the accused lot and ordered them discharged. Not a bad start.


Yeltsin for whatever reasons, stepped into the fray by, in one fell swoop, discharging the Vice President, the Prosecutor General and the Minister of Security with the statement that it was they, rather than his henchmen, who were corrupt.  The man that Yeltsin named to replace the three, Alexei Ilyushenko, who became the new Prosecutor General, and whose mandate was to head the war on organized crime, was arrested for corruption and is now residing as a long term resident in a high security Moscow jail cell. The people still claim that the government remains riddled with criminals but not longer does the government carry out investigations of charges of corruption for fear that no one will be left standing when the blood bath ends. 



"In Russia today, there are over 5,000 gangs, 3,000 hardened criminals, 300 mob bosses, and 150 illegal organizations with international connections. The Russian Ministry of Internal Affairs has recently estimated that there are over 700 vory (Mafia organizations) of which over 100 are operating from prison cells. Approximately 40,000 Russian business and industrial enterprises are controlled by organized crime. Their combined output is higher than the gross national product of many members of the United Nations. The Russian Mafia is estimated to turn over in excess of $10 billion a year. More Russians died of criminal violence in 1993 than were killed during nine years of war in Afghanistan. In 1994, criminals took 118 people hostage in Moscow alone. Ten Western businessmen were kidnapped for ransom in 1995, and one of them was murdered. The situation in the other Newly Independent States of the former Soviet Union is worse, with criminal gangs even controlling the value of some national currencies".(7) The Criminal Time Bomb, Peter Daniel DiPaola In additition, bombs directed at economic and political enemies registered 886 on the Richter scale in 1996 campared with a paltrey 18 only two years before and in that same year, 21,000 crimes were believed to be committed by crime sysndicates in Russia. ([6]) 





The only people left with money in Russia when Privatization began were high-ranking bureaucrats and the Mafia. Thus, when movement began in this direction, the Russian Tass-Krim Press reported that the Mafia had gained control of "between fifty percent and eighty percent of all shops, storehouses, depots, hotels, and services in Moscow."3(32)   Bureaucrats were able to transfer scores of state-owned properties into their own names. If they didn't have the cash to make the acquisition, they were able to borrow from the banks at almost non-existent interest rates. "All the lucrative state properties have already been seized," charged Serik Abdrakhmanov, a deputy of the Kazakh parliament, at the end of 1992. Thus, the Mafia or state officials always seem to have their fingers in the pie. 


The situation in terms of natural resources is almost as bad. Oil, timber, steel and other products are routinely put aboard public means of transportation by the Mafia and shipped to various ports for overseas delivery. The country is being high-graded of its resources at an alarming rate and the fact that it takes place so effortlessly even when enormous cargoes are moved speaks volumes for the Mafia's logistical system. Obviously, people must be well placed along the entire route for such a massive theft to occur in broad daylight and bribery is the manner in which the wheels are greased. The Russian Internal Affairs Ministry has estimated that fully one half of the Mafia's cash income is used to payoff bureaucrats and judges. Furthermore, unlimited money can be used for lobbying and controlling political elections. There are no limiting regulations in Russia to tone down the amount of funding that can be thrown at an election. Thus, if a political party wants to stay in office, Mafia money is a critical element in remaining in power.


Because of these strange election laws where literally anything goes, a succession of gangsters has been running for the Duma. There are extremely good reasons for them wanting to hold office including the most important one, immunity from just about everything. Once elected, they are literally beyond the reach of the law. Among other things, they cannot be questioned, detained or searched relative to any criminal investigation. Thus, if justice believes that they have committed a crime, no discovery process is available to law enforcement people to prove their case. In addition, even if they are caught in the act, they cannot be charged, arrested, tried or convicted for either the crime they were believed to have committed or even for something that occurred before they took office.


Once in the Duma, they become sacrosanct. Getting elected to office in Russia can be a lot cheaper than hiring a lawyer and the risk of conviction drops to zero once in office. Moreover, criminal activity has a certain cachet about it; in many elections, opponents are afraid to use their opponents criminal connects as a factor in their campaign because its use could backfire and literally insure the criminal's election because of the high esteeme in which this element is held.   Within a society in which criminality is a norm, an honest person posses an extreme threat to the criminals well being. Thus, there can be no advancement for the person toeing the straight and narrow because the better jobs are controlled by "connected" people. In reality, Russia has already crossed over the line and it would take a miracle to pull its society back unto non-criminal path.   


But the Mafiosa doesn’t necessarily need to hold office to have immunity. Well placed threats are a powerful weapon available to these people to avoid prosecution and then if everything else fails, officials or candidates for office can be made to disappear right before an election. Thus a vacancy can be created in the Duma at will should the need arise. This is the way that Sergei Mavrodi, the inventor of the MMM pyramid scheme escaped prosecution. In the region in which Mavrodi lived, when the elected Duma official was murdered and Mavrodi was placed on the ballot and won in a literally uncontested race for the vacant position.


Sometimes elective office is too much trouble when there are easier methods of achieving the desired result. In exchange for serious donations to political parties one can be appointed to a sensitive commission investigating the area of endeavor that the criminal element is involved in. The case of Vlaimir Podatev is classic. The Human Rights Commission under the aegis of the President of Russia's Public Chamber was created to investigate among other things, civil rights violations created by criminal elements in the state. Vladimir, The Poodle, Podatev had first hand experience in this area as a convicted criminal in three critical areas; theft, armed robbery and rape. He was able to convince the committee that his expertise would be a valuable asset in their investigation. That along with a substantial bribe was enough to through the entire Commission into chaos, which was the intended result in the first place.



A simpler and more sophisticated method of insuring victory in an election is control of the press. When privatization was in its infancy, the Mafia bid and won newspapers, radio and television stations as well as other forms of media. Thus, should they desire, the media can retain whatever control of the newspaper they wish, as long as there are no issues involved which are important to the owners.  However, when an election comes up having important implications, all efforts at even handedness are forgotten and the drums are well beaten for their candidate. The press can be controlled without owning it as well, beating up a few reporters every now and then has convinced publishers to see an election the Mafia's way.


The simplest strategy of all is to bribe the editor every now and then when it becomes important. Should the paper not accept the proffered bribe, it is a simple matter to beat the daylights out of staff members. Legal means are also used to make a point. When the media does not go along with the game, a good lawsuit against the editor usually has a calming effect on him. Because the legal system in Russia is so chaotic, a series of similar libel and slander lawsuits filed simultaneously throughout the area where the paper is read usually can make a strong point. While the Mafia can easily afford a multiple front legal battle, almost any form of media is no match for these big guns.


A number of efforts were made early on to level the electoral playing field by deliberately excluding the Mafia and the bureaucrats. A study done by the Russian Academy of Sciences' Analytic Center concluded that "thirty-five percent of all capital and eighty percent of all voting shares have now moved into the hands of criminal capital…".  Thus, even though the Mafia did not get the first bite of the apple, they were still able to garner control of the privatized shares and thus exert control from that point of view.  In the end, the result was always the same



While a criminal element in any society is not a welcome sight, in Russia there was no one there to grab the reins and criminals filed the vacuum. Organized crime was not something that sprang full-blown into life. The Mafia had literally existed since the time of the Czars and the black and gray markets came into being in the 1960s as a vehicle for efficient commissars to unload overproduction at discount prices. Much like criminal elements throughout the world, on the pinnacle of the pyramid the Russian equivalent of the godfathers. In Russia they are called vory v zakone, or vory for short which means which literally means Thieves-within-the-Code.


Where no infrastructure exists, the Mafia supplies one and God help those that break the rules. These organizations respect each other's territory for the most part just as they do in the United States and battles between the families is extremely rare. So confused was the situation as to who is who in Russian crime, the Mafia was originally referred to as the corrupt hierarchy of Russian Governmental officials. According to Professor Louise Shelley, "This unusual coalition of professional criminals, former members of the underground economy, members of the former Party elite, and the security apparatus defies traditional conceptions of organized crime groups . . . ."2(26)Criminal societies are if nothing else hierarchical.  In effect, rogue states create their own society.


When a Moscow policeman bringing home substantial less than a factory worker, there is little issue to be taken with government estimates that 95% or more of the police department is believed to be in the Mafia's pocket. Among law enforcement officials, life is on the line every day of the week and for what? The equipment that they are given to pursue the highly modernized Mafia soldiers is archaic; police cars, for example, are so untrustworthy that some precincts have taxis on standby to fill the gap when one of their own vehicles breaks down.


And what if the police department were not clearly moonlighting for Mafia families? It would not make a lot of difference.  Russian law is in such a state of evolution that many white collar crimes have not yet been defined as such on the books. Thus, knowing someone is doing something wrong is not enough; they have to be doing something wrong that is patently against the law. Many policeman just gave up trying to do their job when faced with a criminal element that was back on the street before the cop had left the courthouse.  Claire Sterling published the following statistics:  "by 1991, 20,000 police officers were being fired yearly for collusion with the Mafia--double the rate under Brezhnev."4 


"In the initial years following the fall of Communism, Russia had: "no mechanism for controlling private banks, no sanctions for money laundering, no screening for civil service applicants, no inspectors to check the source of foreign capital, no tax audits, no legal provisions against organized crime, and no protection for government witnesses."5(50) The absence of appropriate legislation paralyzed the police to the point where some Russian citizens concluded that the police had stopped functioning. 5(51) These citizens lived in fear while the absence of appropriate laws created a situation in which gangsters did not need to fear prosecution." The Criminal Time Bomb: An Examination of the Effect of the Russian Mafia on the Newly Independent States of the Former Soviet Union Peter Daniel DiPaola(1)


DiPaola goes on to point out the fact that when the Soviet Union collapsed, many bureaucrats accustomed to the better things in life were thrown out of work. This was at the same time that the Mafia was beginning to flex its muscles.  The Mafia this cadre of out of work social servants a gold mine. The aparatchiks had something on everyone and knew how to get things done within the government morass. They knew who had done what to whom and how to twist each little piece of information to maximize its effect. The Mafia lucked into a treasure trove of intellectual property and talent totally by accident. Add to these fellows the informants that had historically worked for them, and you had an enormous resource for evil. Even out of work scientists joined the criminal organizations. 


In one case scientists working for the Mafia were directly responsible for the creation of a powerfully addictive drug which found immense favor on the streets of Russia's largest cities. Clean cut collegiate types view the Mafia as their first choice of occupation when the schooling is completed just as an American Harvard graduate would be looking to interview at a Wall Street Brokerage House.   And why not? Just as the Harvard graduate is looking to cash in on his knowledge, so is the young Russian.  after all one hit can earn the youngster what a factory worker will slave 10 years to attain. With a labor pool such as this one, it is evident that the Mafia will be around for a long time.


And given that so much of what the Mafia does is not even considered criminal, it creates an interesting moral breeding ground. Theft is a way of life in Russia.  Thus, when the Mafia is able to do it better and bigger, they are admired. They flout the law and beat it time and again, because the law for the most part does not even exist in the world where everyone is a criminal. Marshall I. Goldman, a renowned authority on Russia stated that "because of the pervasiveness of the state, both politically and economically, it became socially and morally acceptable--politically correct if you will--to cheat the state."7(72) With the collapse of the Soviet Union, people were given a serious opportunity to participate in criminality at a grass roots level for the first time, and jumped on the bandwagon with a vengeance.


A study done by the Brookings Review found that, "failure to pay for goods or services ordered and delivered exacts virtually no official penalty."7(78) Since the Spring of 1995, "fully forty-five percent of the aggregate volume of accounts receivable in all Russian industry were delinquent."8(79) With no help forthcoming from the State, entrepreneurs started turning more and more to the Mafia to help them make collections. This has had a startling benefit that was totally unanticipated. The backlog for contract cases to be heard in Russian Courts has dropped to almost absolute zero, giving overworked judges a breather.


So you are a businessman who has been sent by your company to move their product line in downtown Moscow.  What is the first thing you do after checking into your hotel room? You have got to get krysha or roof. This means that you have to buy protection from the mob. This is a country in which eighty percent of all commercial banks and private businesses makes a regular payment for the privilege of doing business. The going rate is currently about 50% of the business net profits. Worse yet, if the payment is not received punctually, a hard currency surcharge is added to the tune of approximately twenty-five percent a month. On the other hand, the alternatives are not readily apparent.

Was the United States any different? Although our empire builders did not necessarily kill their opponents in cold blood, they drove them as quickly as possible to economic Nirvana. And while we are on that subject, Vanderbilt, Fisk and Gould all had their hired assassins and even possessed navies and militias. They held court in regions where they exercised total control of the system and where laws were created to aid them in their endeavors. How many now legitimate people gained their fortunes from transporting liquor during prohibition?  Were there any robber barons that once in control of company didn't print new shares on their own presses as the need occurred?


Just as Russia is now the Wild West, so was America in the late 1800s and early 1900s.  Yet, the ultimate consumer protection is found in the Mafia putting their seal of approval on a transaction, bringing their enforcement procedures into the abyss created by a lack of consumer protection in Russia. The Mafia has shown extreme skill in developing business with viable products and with employees keeping regular schedules. The criminal element may eventually be seen as the group that enforced order in a lawless environment, creating a bridge to free enterprise.


Yet, the possible long-term benefits of Mafia activity may be outweighed by its short-term destructive effects.   The Mafia exacts an implicit tax that supplants the legitimate tax system.  The Soviet State would have used at least a portion of legitimate tax revenues to support the economic infrastructure, including law enforcement and civil works needed by business.  By contrast, the Mafia makes no investment in infrastructure.  Rather, as pointed out above, it seems to be a driving force behind capital flight.


If the Mafia as the controlling force in Russia has no commitment to support social or political institutions and even less commitment to a vision of the purpose and future of society,  the question becomes whether any institutions can survive long enough to take root.  Freedom of the press, one of the most prized aspects of Western democracy, may never get the chance to develop in the former Soviet Union.  This shadow government has adopted the old Soviet intimidation tactics, threatening, beating and assassinating reporters and editors and buying out their businesses.   With no one to report on their criminal activities and a host of papers ready to polish their image, mafiosi manipulate public opinion to a degree that puts Soviet press control to shame.


This manipulation of opinion may have spread so far as to effect U.S. domestic perceptions of  current events in Russia.  As the Washington Times recently reported:


 At the G-8 (G-7 plus Russia) summit in Denver last month, President Clinton said that if Russia continues on its present course "we will see more good things ahead." Did the president inadvertently give Russia's organized crime syndicates a green light? Knowledgeable Russian voices are saying that the United States, by not facing facts about today's Russia, is creating the climate for the further criminalization of the state.


Even Yuri Luzkhov, the powerful mayor of Moscow and a candidate to succeed President Boris Yeltsin in 2000, who is not exactly a paragon of probity, said in a recent interview that Russia now faces "unlimited criminalization of the economy and of the government itself." But the Clinton foreign policy team has adopted the ungainly posture of the proverbial ostrich and cannot see that Russia is now controlled by a semi-criminal oligarchy, a small circle of financiers and those in government who do their bidding.


Grigory Yavlinsky, the leader of the liberal reform party Yabloko, recently decried U.S. misrepresentations. "The path which Russia is traveling cannot be hidden forever," he wrote in the New York Times Magazine. "And the longer it is concealed, the higher the price will be - for everyone."[7]


The influence of Russian organized crime has spread to the former Soviet satellites, which are quickly relinquishing their hard-won freedom for the Mafia yoke.  One-third of all the serious crimes in Poland were attributed to the "Russian Mafia." . . . In Sofia, Bulgarian police reported that it was virtually impossible to open a business without paying protection money to Russian gangsters. Over an eighteen-month period between 1991 and 1993, Russian gangs were responsible for at least a dozen murders in Berlin.18(184)

In addition to those crimes, Russian mobsters committed murders in New York City18 and Los Angeles,18 and they are quickly becoming preeminent players in global money laundering,18 drug distribution,18 and prostitution.19 Nevertheless, despite growing mafia involvement in those areas, it was the risk of Russian gangsters smuggling nuclear weapons out of the country that led U.S. Senator Sam Nunn to state, "organized crime in the former Soviet Union is fast becoming not only a law enforcement nightmare, but a potential national security nightmare."19 Indeed, according to a group of Russian generals and admirals, it is not a question of whether nuclear weapons will be smuggled out of Russia. Rather, it is a question of when.19(191)


The American Bar Association, the Soros Foundation, and the Agency for International Development to mention only a few, have tried to assist Russian institutions in developing a "culture of legality".  However, the culture of the "shadow economy", which citizens of the former Soviet Union have identified with economic survival for decades,  is virtually certain to dominate the landscape.  The cynicism and resistance to law enforcement that are associated with the shadow economy in turn create a fertile breeding ground for the Mafia.  As social institutions associated with the Communist era crumble, the Mafia moves into the vacuum with a vengeance. 


The Russian Mafia has not confined its brutal repression to Russian citizens.  Paul Tatum, an American partner in the Russian business "Garden Ring Market", suffered character assassination and threats of violence.  His passport was revoked, and when he refused to capitulate to demands to relinquish his share of the business, he was shot in an apparent mob hit.  Russian authorities and the FBI concluded that his bodyguards were accomplices in the killing.  Before his murder, Mr. Tatum authored an article in the Wall Street Journal that described the frustrations of U.S. investors in Russia.  An excerpt follows:


Anyone trying to locate the foreign partner of Garden Ring Supermarkets, one of the first international joint venture grocery chains in Moscow, will be out of luck if they phone the store office. "The former partner has left," the secretary will say, "and we don't know their new number."

The partner was recently thrown out of the supermarket's properties in Moscow by the police. The local authorities were not enforcing a court decision, but acting on a simple request from the Russian partner. "Now after the fact we are preparing to go to court," says Kieran Walshe, chairman of Iriasto.

As often happens in these sorts of disputes in Russia, allegations of a payoff to the local authorities have been hurled about as usual, the allegations of extortion are anonymous and without evidence. Whatever prompted the police action, the case demonstrates the difficulty in Russia of settling disputes the civilized way -- through the court system.

Even if a foreign business partner in Russia manages to get to court before a dispute becomes 'physical,' it faces a range of disadvantages not the least of which, as most businessmen in Russia acknowledge, is the potential of a graft-induced decision. Unfortunately, even fair decisions, whether coming from the Russian commercial or arbitration courts, often lack enforcement mechanisms. President Boris Yeltsin has addressed some of these issues in recent decrees, but they have proven inadequate: the current leadership vacuum in Russia means they will probably stay that way for some time.

 When a dispute arises, most foreign businesses try to have the case heard by the International Arbitration Court of the Russian Chamber of Commerce. It is seen by legal experts and businessmen as the fairest and quickest (cases have been resolved within one month) method of addressing a commercial conflict. Russia's only arbitration court is run according to the standards of the International Chamber of Commerce, and foreign arbitrators, for the first time recently, have been able to argue in court.

But whether an arbitration court inside or outside of Russia is used, it is never clear whether the decision will be enforced in the country. Russia is a member of the New York Convention on the Recognition of International Contracts, which obliges Russian authorities to abide by the decisions made by the non-Russian international arbitration courts. But those enforcing arbitration decisions are poorly paid bailiffs from local commercial courts: some are easily tempted into delaying or ignoring settlements.

If arbitration court decisions are sometimes unenforceable, it is the commercial court decisions themselves that are often suspect. Russia's commercial courts were developed in just the past two years and lawyers emphasize that these venues remain unreliable. "There are decisions made by the courts that are not supported by the facts," says senior associate Eric Michailov at White and Case. "And often, if a party decides to appeal to a higher court, there is no knowing which court's decision will be upheld by local authorities."[8] 


Mr.Tatum's murder illustrates the degree to which Mafia control has pre-empted the fledgling legal institutions of Russia.  No wonder American businesses are reluctant to invest in the former Soviet Union.

 As a result of the threat the Mafia poses, governments around the world are justifiably concerned with its development. If the Mafia does become entrenched in the former Soviet Union, the world will have to fear both the Mafia and a more militaristic Russia. This result will occur because all States have a basic need for security.19(192) As the Mafia's power in Russia grows, the amount of transnational crimes it commits will increase because of domestic market saturation. In response to this increase, the other nations of the world will begin to pressure Russia to control its crime problem. However, because of the presence of criminals and corrupt officials in the Russian legislature, the government will not take effective action against the Mafia. As a result, foreign nations will increase the pressure on the Russian government and may even refuse to invest in or trade with Russia. If this happens, Russia's economic plight will worsen, public discontent will increase, and the Russian people will elect a more conservative and nationalist government. This government will feel increasingly threatened and isolated by the actions of the other world nations. It may attempt to remedy its security dilemma by increasing its military preparedness and armaments, a course of action which could increase international tensions and threaten a return of the Cold War.


(c) 1997 Washington Times. All rts. reserv.

09206069 Ignoring Russia's crisis of crime Washington Times (WT) - Friday, July 25, 1997 By: Arnaud de Borchgrave - THE WASHINGTON

TIMES Edition: Final Section: COMMENTARY Page: A19 Word Count: 897

TEXT: At the G-8 (G-7 plus Russia) summit in Denver last month, President Clinton said that if Russia continues on its present course "we will see more good things ahead." Did the president inadvertently give Russia's organized crime syndicates a green light? Knowledgeable Russian voices are saying that the United States, by not facing facts about today's Russia, is creating the climate for the further criminalization of the state.

Even Yuri Luzkhov, the powerful mayor of Moscow and a candidate to succeed President Boris Yeltsin in 2000, who is not exactly a paragon of probity, said in a recent interview that Russia now faces "unlimited criminalization of the economy and of the government itself." But the Clinton foreign policy team has adopted the ungainly posture of the proverbial ostrich and cannot see that Russia is now controlled by a semi-criminal oligarchy, a small circle of financiers and those in government who do their bidding.

Grigory Yavlinsky, the leader of the liberal reform party Yabloko, recently decried U.S. misrepresentations. "The path which Russia is traveling cannot be hidden forever," he wrote in the New York Times Magazine. "And the longer it is concealed, the higher the price will be - for everyone."

Addressing the United States, Mr. Yavlinsky said: "You are expanding NATO because 100,000 people were killed in Chechnya, because we have an unpredictable leadership, because we have corruption, because there are enormous failures in economic reform. You should say so openly. I know that an enormous investment of time and money has been spent by the U.S. government, by the private sector, by foundations and universities in promoting the myth that Russia has achieved democracy. It would take great courage to admit that the taxpayers' money was wasted. But it is always better to be honest."

This "false political picture of what is going on in Russia is creating the climate for business failure," Mr. Yavlinsky wrote. He and his close friend Boris Nemtsov, the first deputy prime minister in charge of reform, know that the greatest single threat to a nascent democracy is institutionalized corruption and organized crime, and the political and economic distortions they have already generated.

In March, Mr. Yeltsin launched his sixth campaign in as many years against organized crime and its high-ranking protectors. He ordered all his ministers and senior officials to submit a list of all their personal assets. Country dachas and modest local bank accounts were harmless enough to disclose, but foreign bank accounts invariably were concealed. Russia's Central Bank recently authorized the transfer abroad of $800 million to pay the country's most pressing bills. Within two weeks, Swiss banks alone had received $8.5 billion from Russia, according to the head of a large Swiss financial institution. An estimated $150 billion has left the country since 1992.

Russia's Ministry of Internal Affairs (MVD), which is in charge of combating organized crime, reckons that 40 percent of private business, 60 percent of state-owned enterprises, and more than half of 1,747 banks are controlled by crime syndicates. All told, roughly two-thirds of the Russian economy is under the sway of organized crime. Rep. Benjamin A. Gilman, New York Republican, the chairman of the House International Relations Committee, calls Russia "virtually a full-fledged kleptocracy." All major Western intelligence services have reported to their political masters that Russia's syndicates enjoy the protection of the ruling oligarchy that consolidated its power during Mr. Yeltsin's illnesses in 1996. But Western governments continue to look the other way, much the way their predecessors pooh-poohed Soviet links to international terrorist groups during the Cold War.

Russia's 200 largest crime gangs (out of some 8,000 groups that operate throughout the former Soviet republics) are now global conglomerates. The 26 principal syndicates have established a presence in the United States, where they negotiated division of labor arrangements with American, Sicilian, Colombian and Mexican criminal organizations. FBI Director Louis Freeh has testified before congressional committees that these clandestine groups have established working relationships with counterparts in 50 other countries, up from 29 countries in 1994.

What Mr. Clinton meant by "good things ahead" if Russia stays the course is not clear. But it is becoming increasingly clear that foreign policy is being formulated on an erroneous Russian model. Sen. John Kerry of Massachusetts, the ranking Democrat on the Senate subcommittee on Terrorism, Narcotics and International Operations, wrote in his recent book, "The New War," that "the real power lies with the Russian godfathers and their allies - former KGB officials with important positions in the economy, whether privatized or still under state control, and corrupt politicians in high office."

In its July 12 special Russian survey, the Economist said, "Five years of reform, and most Russians are far poorer than they were. A few are far richer, and they are the ones who seem to be running the show. It is not that the vulgarians are at the gates; they are inside them."

Three years ago, Mr. Yeltsin described his own country as "the biggest mafia state in the world" and "the superpower of crime." By looking the other way, and continuing to dole out the aid, the United States and its allies have only made matters worse. The time has come to heed Mr. Yavlinsky's advice -better to tell the truth.

Arnaud de Borchgrave is editor-at-large of The Washington Times.




Committee Brief No. 13, June 21, 1995



Corruption threatens to strangle the new democracy of the former Soviet Union in its infancy. Glasnost and perestroika have been replaced by naglost (brazen insolence) and perestrelka (shootouts). Whether order based on both freedom and responsibility can emerge from the rubble of collapsed communism is an open question. There is no rule of law, no clear definition of property rights, no genuine democracy or market economy for most of the newly freed peoples.

Duma experts have issued a report estimating that 25 to 30 percent of the members who will be elected to the parliament in the coming December elections will represent influence of the criminal structures, either openly or covertly, and will be a significant force capable of influencing policy decisions to benefit the mafia.4 No real economic or political force is capable of implementing an anti-corruption campaign, because it is increasingly difficult either to do business without encountering illegal or corrupt practices or to get elected without the money they produce. responsibility nor morality," says Alexander Mitroshenkov, editor of Poesk. (8)

The result is visible in Russia's prisons, where detainees wait for a trial in cells so overcrowded that they can sleep, sit, or stand only in shifts. The Deputy Director of the Russian Federal Prison System, Valery Orlov, reflects on the explosion of criminality: "In a law-abiding person, there is something holy left. If it is absent, he turns to robbery, crime, violence, and murder, mainly for material gain. Such a person doesn't feel responsible for his own actions." (9)

Communism's Poisonous Legacy


Among the most alarming symptoms of sickness are those in young people. Young Russians were asked last year what professions they would like to pursue. A majority answered they would prefer racketeering and prostitution because they could "earn hard currency, travel and meet people." In a poll of Russian children this spring, they were asked what would prevent them from stealing. Of 100, 99 answered they would be afraid of getting caught. One said he would not steal because it is wrong.


Deadly Consequences of Corruption


Evidence of corruption and collaboration with organized crime abounds. According to a report prepared for Boris Yeltsin by the Analytical Center for Social and Economic Policies, three quarters of Russia's private enterprises pay 10 percent to 20 percent of what they earn to criminal organizations.15 Some 40,000 state and privately run companies, including most of the country's banks, are controlled by 150 criminal syndicates. (16) Altogether there are as many as 3,000 to 5,000 gangs. (17) Known generically as the Mafia, these interlocking bands of organized crime exercise control over their own specific regions of a given city, a region of the country, and a segment of the economy. Some specialize in forging documents, others in drug and weapons trafficking, illegal monetary transactions, auto theft, prostitution, smuggling of raw materials and military hardware, extortion, bribery, and executions. (18)


Politicians vowing to crack down on crime have become its victims. Three members of the Russian Duma have been shot in gangland-style executions. The leader of the Christian-Liberal Party of Crimea was executed in June 1994, as was his successor two months later. The Chairman of the National-Democratic Party of Georgia was gunned down in December 1994. (19)


Those who have uncovered corruption and brought it to light publicly have done so at their peril. Vladislav Listyev, Russia's popular TV journalist, who had recently been appointed executive director of Russian Public Television, was gunned down March 2 this year. Listyev had begun revising policies on advertising revenues to break the "circle of corruption." (20) No traces of the hitmen have been found. As one Muscovite observed wryly, "Who wants to investigate Listyev's death? He will be next."


When a new Russian car was stolen this May in Moscow several days after a Duma advisor purchased it, he reported it to the local police. They advocated getting in touch with the criminal elements in his region, suggesting that he could get the car back by paying half its original purchase price. The police offered to help him contact the mafia. This kind of maneuver has become standard procedure, confirm other Russians. (21) Rings of auto thieves in Europe smuggle cars from Germany to Poland, or into the Czech Republic -- so many that insurance companies have placed agents on site to purchase cars back from the mob.

Violent and Economic Crime Rising

The Russian Ministry of the Interior reports that in 1994 violent crime increased, as did economic crime. Police recorded 5,000 murders in Moscow alone in 1993; there were 10 percent more in 1994. Kidnappings increased threefold last year, with 272 cases in Moscow alone. Smuggling rose dramatically, 13 times the amount discovered in 1993. Illegal currency transactions were up 60 percent. Three times as many investors were deceived in 1994, losing $4 billion worth of investments.22 More than 14,000 persons were reported missing last year, feared to have been killed by gangs who duped them into signing over rights to their privatized apartments in return for lifetime support. These victims, many of them elderly women, simply disappeared.23 Some 16,600 cases of criminal activity by government officials were reported for 1994, about a third of them involving bribery. However, these statistics on crime most certainly represent only a fraction of the reality.

The report by the Russian Ministry of the Interior also documents threatened acts of sabotage for ransom in 1994. A criminal band demanded $1 million not to poison the city water system of the town of Vladimir. In Maikop, bandits demanded $100,000 not to blow up a hospital. In both cases, the criminals were arrested and the act thwarted, but the potential for such future threats is obvious and chilling.

Former KGB agents are now employed in industrial intelligence, peddling their information to the highest bidder. Military weapons are routinely stolen and sold to gangsters: nearly 6,500 cases of such theft were reported in 1993, including machine guns, hand grenades, and explosives.24 More menacing yet are the attempts of organized crime to steal nuclear material for sale on the international black market. Mikhail Yegorov, head of the organized crime department of the Russian Ministry of Internal Affairs, acknowledges 47 investigations into attempts to steal radioactive materials in Russia. (25)  However, German intelligence sources estimate the number of sales of nuclear material from former Warsaw Pact countries and the former Soviet Union at "between 300 and 350." (26)

Natural resources such as timber, oil, and precious metals have been hemorrhaging over the borders of Russia. The Russian Interior Ministry claims smuggling of oil and other resources jumped 50 percent from 1992 to 1993. (27) Copper, nickel, and cobalt are bought up at subsidized local prices and spirited over the borders for lucrative sales abroad. Although Estonia produces no metal, enough passed through it in 1993 to make the tiny country one of the world's largest metal exporters. (28)

The same principle applies to focusing aid to a limited number of geographic regions where the U.S. can make a difference. A country stretching over ten time zones is too big to help with diffuse efforts. Moscow, St. Petersburg, Nizhny Novgorod, Vladivostok, and the Ural mountains region are good candidates for focused efforts.

June 13, 1997, Reuter


[1] Adolph Hitler, 1945.


[2] "Poof Go the Profits", Times Domestic, 8/8/94 volume 144, No. 6. Barbara Rudolph Reported by Sally B. Donnelly/Moscow.

[3] America Online Cuts Service To Russia Because of Fraud, By Elizabeth Weise, 1/9/1997 The Associated Press.

[4] Austrailian, 6 August 1995.

[5] Russian Organized Crime Tightens Grip, Imperils Reforms, by Gareth Jones, Reuters.

[6] Reuters, 1997

[7] Ignoring Russia's crisis of crime Washington Times (WT) - Friday, July 25, 1997 By: Arnaud de Borchgrave - THE WASHINGTON TIMES Edition: Final Section: COMMENTARY Page: A19

Don't Get Caught in a Contract Dispute in Russia By Paul Tatum, President & CEO, Americom Business Centers, Moscow, Russia As Published in the Wall Street Journal Europe September 26, 1996 - 38 days before Paul Tatum's murder.


2005 Chapman, Spira & Carson, LLC
111 Broadway. New York, NY. 10006 Tel: 212.425.6100 - Fax: 212.425.6229

Terms of Use  |  Privacy Policy  |  Email