RUSSIAN ORGANIZED CRIME SPREADS BEYOND RUSSIA’S BORDERS, SQUEEZING OUT THE LOCAL COMPETITION

Russian organized crime spreads beyond Russia’s borders, squeezing out the local competition

By Stanislav Lunev

Organized crime in Russia is attracting ever greater attention nowadays, not only from specialists in the field, but also from the general public all over the world, which is uneasy about the growth of its influence far beyond the borders of Russia itself. There is reason for this uneasiness, since, in expanding their sphere of influence to other countries, Russian mafiosi are no longer limiting themselves to crimes against emigres from Russia and other former Soviet republics. Now, they are also operating against the local population in the countries that have taken them in, using traditional Russian methods, with more brutality and on a more sweeping scale than the representatives of the Sicilian, Colombian, and other mafia structures have ever permitted themselves.

Just two years ago, of the almost 6,000 Russian criminal syndicates, there were more than 200 Russian mafia structures operating in 29 different countries, closely coordinating their activity with local criminal groups. (1) Taking virtually unlimited funds with them from Russia, buying up property from Buenos Aires to Berlin, paying for $3-10 million properties in cash — with one-hundred dollar bills — Russian criminals first made themselves at home, getting involved in their traditional racketeering and extortion, control over prostitution, and other forms of illegal business. But gradually they consolidated their positions and began to intervene actively in the economic life of the countries in which they resided, combining the establishment of control over industrial and financial structures with drug trafficking and gambling, as well as competing with the local mafiosi who had first supported them — naturally, for a price.

It isn’t hard to say how the process of dividing up the markets among the Russian and local American, European, Asian, and other local criminal groups — which has already begun — will turn out. For example, the Russian press reports that the Israeli criminal world is now in a panic. (2) A series of contract murders of that country’s highest criminal authorities has confused the local police, and has allowed the aggressively-inclined criminal newcomers to seize control of the profitable sphere of blackmail and extortion.

In particular, it is reported that at the end of February the body of Yakov Kolhaun, who was one of the best-known gangsters in Israel, was found on a highway not far from Tel Aviv, shot in the head in what was clearly a professional hit. He became the tenth Israeli criminal boss liquidated since "war" had been declared against the local organized criminal groups. In the opinion of Israeli specialists, all of these crimes have a number of distinguishing features which makes it possible to call them "Teflon crimes," since no traces of the perpetrators are left at the crime scene, so no physical evidence can be obtained against them, and the bullets are so thickly smeared with grease that criminal investigators cannot tie them to a specific gun.

There are other recorded contract murders which have the same "handwriting." In all cases, the victims were top figures of the Israeli criminal world. These murders cleared the way for new criminal authorities from abroad. According to Israeli statistical data, the crime rate has increased with the influx of immigrants. And new arrivals from the former USSR quickly mastered the new conditions and began to squeeze out their competitors. These "new Israelis" began actively to exploit gaps in the nation’s currency and financial legislation in order to launder their money.

It must be noted that organized crime has existed for a rather long time in Russian history, but before the "period of stagnation" and the beginning of so-called "perestroika" in the former USSR, it had no special weight or significance. In the late 1970s and early 1980s, however, with the development of Soviet "shadow capital" and the production of underground entrepreneurs (who have since become public officials and multimillionaires), a structure was needed. This structure, which made use of years of experience of "underground work," could guard these rising property owners and provide them with other services, ranging from buying off Party and government bureaucrats to regulating relations with their competitors, including their physical removal. This development was the dawn of the so-called "Russian mafia," which received enormous sums from the "shadow businessmen" of the underground economy and began to create the real mafia structures, which, today, have proliferated throughout the state structure and economy of the Russian Federation, and led many experts to call it nothing less than a "criminal state."

One event that was of special significance in the establishment of Russian criminal groups was the government privatization program conducted in Russia in 1992. At that time the Russian mafiosi and their proteges from the former Soviet party and government establishment, who already had enormous sums of money at their disposal — not to mention "their own people" at all echelons of the Russian state structure — began to buy up former state enterprises for a song. The way privatization was conducted, law-abiding Russian citizens could not have enough money to acquire factories, so the battle at the privatization auctions was waged between representatives of former underground mafia structures, who by that time had become respectable financial-industrial groups, firms, companies, and banks.

Naturally, none of the bidders for the former state enterprises had any incentive to raise the prices, and the victors ultimately were those who had a lot of money, who had influence among the powerful, or who played by the most brutal rules. The speculation with "privatization vouchers" — run by the government — did a lot to help establish the most powerful criminal groups, who bought up these vouchers for pennies and acquired at laughably low prices giants of Russian industry worth billions of dollars.

As the Russian press reported, last month the State Duma’s Economic Policy Committee gave its preliminary assessment of the work of regional commissions created to analyze both the results of privatization from 1992 to 1996 and the responsibility of government officials for these negative results. (3) The Duma is dominated by Communists and nationalists, and the committee’s work could hardly be described as objective. Some of its conclusions are nevertheless worth examining. According to the aggregate figures from criminal investigations and other sources, the committee said, Russia’s social and economic losses from privatization exceeded 9.5 quadrillion rubles in 1995. The economic losses from the decline in production, the loss of property, the selling of military equipment at fire sale prices, the looting of scientific and technical achievements, the illegal export of capital abroad, etc., amounted to over five quadrillion rubles.

The social losses from privatization — measured in economic terms, as a consequence of the lowering of the Russian people’s standard of living, the lowering of productivity as a result of the degradation of the generation now coming of age, the sharp turn for the worse in the country’s demographic situation, and the dramatic drop in life expectancy and the birth rate — amount to 4.5 quadrillion rubles, the Duma committee claimed. The total social and economic losses from privatization, it said, are 20 times greater than the revenue from the Russian state budget for 1996. The income from privatization from 1992 to 1996 was only 0.15 percent of the total budget receipts.

In the opinion of the committee’s chairman, Vladimir Lisichkin, privatization in Russia was "equivalent to economic sabotage, which almost completely destroyed the Russian economy." Calling privatization in Russia "a criminal act from a legal point of view," the parliamentarian noted that as a result, "a system was created which generated over 100 crimes a day." According to the MVD’s figures, in 1994, on an average day, 107 privatization-related crimes were recorded. If one takes into account that over the same period, 104 enterprises per day were privatized, it is clear that for every act of privatization, more than one crime was committed.

On the basis of this analysis of criminal wrongdoing in industry, the parliamentarians concluded that privatization — conducted hastily, unsystematically, without any scientific foundation, ignoring foreign experience, with crude violations, and in a number of cases, completely flouting elementary legality — is the main cause of the criminalization of society and the progressive growth of crime in Russia. Industries where the government sector’s share in total production was less than 15 percent were hit especially hard.

Analysis of the 500 biggest enterprises privatized at auctions yields stunning results. Some 324 factories were sold at an average price of less than $4 million each. The famous machine-building giant "Uralmash" was sold for just $3.73 million, the Chelyabinsk Metallurgical Combine, for $3.73 million, the Kovrovsky Mechanical Factory — which supplied the Russian army, the Ministry of Internal Affairs, and the security services with firearms — for $2.7 million.

It was noted by the committee that the sale of enterprises to incompetent speculators and to foreign firms which purportedly had no interest in producing a competitive product were the main factors causing the decline in production during the years of privatization. As a result, Russia lost entire branches of industry, including the aluminum industry, the cellulose-paper industry, and the graphite industry. For example, the "Grafit" Scientific Research Institute’s unique experimental factory and 30 percent of the shares of the Moscow Electrode Factory, which produces strategic graphite for military missile construction, were bought up by foreign nationals through the dummy Russian firm "Graninx." And last year, the actual owner of these enterprises insisted that "Grafit" refuse a defense order from Russia’s Military Space Forces and accept a similar American order.

Clearly, the Russian legislators’ approach cannot be called unbiased, but it nevertheless seems reasonable to conclude that many enterprises have wound up in the hands of shady wheeler-dealers. Judging from conditions in Russia today and the complete lack of confidence felt by Russian businessmen for what tomorrow may bring, the former state-owned industry acquired at auction will most likely be sold and re-sold, leaving the former owners of these factories only insignificant dividends, which will be immediately converted into the most popular foreign currency — US dollars.

But that may be the best case scenario, since Russian reality is such that even those industries which continue to operate are in many cases the object of attention of people who are not simply shady, but possibly criminal in character. For example, it is unclear who runs the auto giant AvtoVAZ in Togliatti, which produces the most popular economy cars in Russia. According to the Russian press, the notion held by many Russians that the famous auto giant on the banks of the Volga is run by its general director, Aleksei Nikolaev, or, at worst, by the chairman of its board of directors, Vladimir Kadannikov, elicits belly-laughs in Togliatti. (4)

Indeed, it has been reported that the local criminal boss Belichenko (alias "Khokhol") ["The Ukrainian"] established control over AvtoVAZ‘s main production line back in 1992, and that he organized mass diversions of automobiles for his own purposes. This "pioneer" in such criminal dealings was killed later that year. He was succeeded by a gang of racketeers under the boss Vdovin (alias – "Naparnik") ["Partner"], the biggest gang in the city, which monopolized the most profitable sector of Togliatti’s economy. This group was resisted by the gangs of Sirota and Ruzlyaev (alias "The Big Guy"), and also by a neutral Chechen gang and a gang of thieves from Zhiguli, led by four "vory v zakone" — criminal bosses who observe the so-called "thieves’ code." To avoid bloody conflicts, a system of dividing up the automobiles produced in the factory among these gangs was introduced.

It isn’t hard to guess where the money earned in Russia by illegal means is being sent, since mafia groups are absolutely uninterested in investing it in the sphere of production (as happened in the U.S. during the twenties and thirties). As the Russian press reports in this regard, the drain of capital from Russia has reached $2 billion per month. (5) According to Academician Leonid Abalkin, in 1996 alone no less than $24 billion was sent abroad, and this figure is close to the Central Bank of Russia’s unofficial figures. The most widespread means for raising such capital is to sell raw materials at a rate lower than world prices, and afterwards, to divide the difference between the participants in the transaction. The outflow of enormous sums of money, according to Russian economists, raises a number of serious questions as to the future of the well-publicized economic reforms in Russia.

The uncontrolled flow of natural resources and capital to the West, according to specialists, encourages the development of an economy of smugglers and speculators, but discourages producers. The outflow of money also creates a serious dilemma for Western political figures, who no longer know whether or not to support Russian market reforms. And foreign banks no longer want to offer big loans or massive aid in hard currency, since so much of the money sent to Russia makes a 180-degree turn and ends up in untouchable private accounts in Western banks. Given such conditions, one can hardly speak of Western corporations making long-term investments in a region whose economy has been significantly destroyed by corruption and the hunt for instant profit.

Naturally, the owners of this money will follow their money to Western countries. At first, they will buy estates and other property and try to acquire the image of respectable immigrants. But, since they are accustomed to enormous financial profit from criminal activity in their former homeland, they are likely to return gradually to similar activity in their new home, causing serious problems for local law-enforcement agencies. This would seem to be borne out, for example, by the criminal case recently opened by the FBI against a former Russian citizen, Ludwig Feinberg (alias "Tarzan"), and his accomplices, Cuban immigrants Juan Almneida and Nelson Yestera. They are accused of criminal conspiracy, drug trafficking, running prostitution rings, and other crimes.

As was reported in Literaturnaya gazeta, the most vivid detail from the indictment in this case was the criminals’ operation to acquire a "Piranha"-class submarine from the Russian naval base in Kronstadt for $5.5 million. (6) It is assumed that this submarine, which is capable of holding 15-20 tons of cargo, was intended to be disguised as an oceanographic vessel in order to supply cocaine to the ports of North America. The buyers of the submarine had also hired a retired Russian admiral, who had agreed to sign a two-year contract, and had taken on the obligation of recruiting a crew.

This plan does not seem at all far-fetched, given that these criminals had already supplied the Colombian drug business with several Russian military helicopters at a price of one million dollars each. Scurrying around all over Florida, other parts of North America, Latvia, Russia, Panama, Finland, and other countries, the gang set up a drug distribution network. The criminal activity of this group was exposed by American law-enforcement agencies. But it is no accident that "Tarzan" is called "a typical representative of Russian organized crime," which has established its influence in Miami, Los Angeles, New York, and many other U.S. cities. Representatives of the American criminal justice system can as yet give no answer to the question of how many "Tarzans" are out there.

But these criminal groups have already become quite dangerous. In establishing strong local mafia structures, Russian criminals are not only establishing their own control over traditional forms of criminal business; they are also actively penetrating local financial and industrial institutions, undermining the American, European, and other economies. Having enormous financial resources at their disposal, and taking advantage of the services, the experience, and the knowledge of displaced former members of the Russian security services, these criminal groups constitute not only a direct economic threat, but also a political threat to the countries harboring them — a threat that grows by geometric progression with each passing day.

NOTES:

1. The Washington Times, October 24, 1995

2. Delovoi mir, No. 52, 1997

3. Delovoi mir, No. 49, 1997

4. Delovoi mir, No. 50, 1997

5. Delovoi mir, April 2, 1997

6. Literaturnaya gazeta, No. 10, 1997

Translated by Mark Eckert

Stanislav Lunev was formerly a colonel in Soviet Military Intelligence [GRU].