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.
LEVELING THE PLAYING FIELD
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.
MUCH
ADO ABOUT NOTHING
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 naïve 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.
BETTER
YET, SEND A GUY WITH A GUN
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.
NO,
"MMM" IS NOT CANDY THAT
DOESN’T MELT IN YOUR HAND
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. ()
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.
MOTHER
RUSSIA
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.” ()
PRIVATIZATION
WITHOUT PROFIT, OR THE RUSSIAN SYSTEM GIVES IT AWAY TO THE PEOPLE WHO WERE RUNNING
IT BEFORE
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.
IN
SPITE OF EVERYTHING HE STOLE, HE IS THE BEST WE HAVE.
I JUST HOPE THAT HE ISN'T SO OBVIOUS IN THE FUTURE
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." 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. ()
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. ()
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."
.
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."
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.
IGNORING RUSSIA'S CRISIS OF CRIME
(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 IN RUSSIA: NO DEMOCRACY WITHOUT MORALITY
By BARBARA VON DER HEYDT1
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
Point of VIEW. 