organised crime in Russia

The emergence to international prominence of Russian organised crime groups is a characteristic of the period after 1990. However, systems of traditional organised crime in Russia date back centuries. During the revolutionary period of 1917-20 criminal gangs proliferated. The criminal underworld was known as the "vorovskoy mir" or "thieves' world". The establishment of the Soviet Union brought order and stability and the new security service the NKVD (forerunner of the KGB) dealt severe blows to criminal organisation. However after 1924 the Soviet Union, (the Union of Soviet Socialist Republics - USSR) now ruled by the clique led by Joseph Stalin, placed increasing numbers of political dissidents, alongside ordinary criminals, in the system of forced labour camps known as the Gulag. It was here, in the internal life of the prison camps that organised crime underwent a revival. Prison gangs, known as "vory v zakone" or "thieves of the code" developed a powerful system of organisation of mutual support. It should be understood that the gulag was a vast penal network of around 470 camp complexes, of which many were located in the wastes of Siberia and the Soviet Far East. The death rate from starvation and overwork was high and is estimated to have been in the millions during the Stalin period which ended in 1953 after which time the population of the camps was reduced.

This is quite a different origin to, for example the Sicilian Mafia. Rather than being organised around strong men and their families exercising a semi-public power and status due to the weakness of the official state, the origins of the Russian Mafia in prison gangs was very much a response to the overwhelming power of the Soviet State. A second important difference is that the gangs were composed largely of robbers and thieves. Rather than groups giving protection to powerful interests and people who placed themselves under the protection of the Mafia they provided no 'services to the community' but concentrated on simple predatory crime and the accumulation of wealth.

Nevertheless the prison gangs adopted codes of conduct, rules, values, and sanctions that bound them together in a strong organisation led by the elite “vory v zakone,” This organisation of thieves maintained the rituals and bonds and the climate of trust between thieves, and vows of silence which were necessary for the effective conduct of organised crime. Outside the labour camps they had their own secret courts that enforced the codes of honour and tradition in a manner very similar to that of the Sicilian Mafia. Just as joining a traditional Mafia family often involved the mixing of blood and swearing of oaths, so acceptance into the 'Vor' was often marked by tattooing which would reflect the rank of the individual and his criminal achievements.

The table below summarises the main similarities and differences between the traditional Sicilian Mafia and the traditional Russian gangs

Corruption in the USSR

It is important to understand that organized crime and political corruption go back to the core features of the old system. The Soviet Union was ruled by a vast bureaucracy. The route to the top was through membership of the Communist Party, the only official political party in the USSR. In western countries there is the political elite of politicians and senior civil servants (who are often wealthy before they go into politics) and then there is the business elite, outside politics, of wealthy business people, stockbrokers etc. In the Soviet Union these two groups were one and the same. There was no formal ownership of private property, real estate, stocks and shares etc. To get your hands on wealthy and a secure lifestyle you had to rise up through the ranks of the Communist Party apparatus rather than make a killing on the stock exchange as you do in the west. Whereas the skills of the western millionaire lie in the sphere of business acumen, the skills of the soviet ‘millionaire’ lay in political manoeuvring. The general name used in the rest of this text for the Soviet ruling class which, as I have said, combined the business and political elites in a single structure, is ‘the bureaucracy’

It followed from this structure that the bureaucracy were heavily involved in criminal and corrupt activities. There was no formal legal ownership of wealth and the actual possession of wealth – a country house or ‘dacha’, a luxury flat in Moscow, caviar every day, a chauffeur driven car was a result of political control rather than legal ownership (if you lost your political position in the bureaucracy then you lost all the above luxuries). But the possession of political and administrative power meant the ability to illegally divert ‘extra’ resources in your own direction and that of your friends. Just like in Britain a corrupt government minister might divert departmental funds for his or her own personal use, the Soviet bureaucracy engaged in massive corruption.

Arkady Vaksburg, a prominent Russian lawyer and journalist showed, in his book 'The Soviet Mafia' how regional party bosses in the constituent republics of the USSR looted their republics much like third world dictators siphon the people's wealth into Swiss bank accounts. Falsification of statistics, especially rife during the Brezhnev period, was a favourite method by which the bureaucracy illegally accumulated private wealth, and it illustrates the way in which the very working of the Soviet system encouraged such corruption. For example the Central Committee would demand - totally unrealistically - that the Uzbeck cotton crop exceed the previous years’ - equally fictitious - target by 20 per cent. Despite the impossibility of the targets the record crop would appear on paper though the double or triple counting of harvests. Moscow ministries would pay for the fictitious crop and the regional party bureaucrats would pocket the difference.

After the death of Soviet Premier Leonid Breshnev, some of these mafia methods within the bureaucracy were exposed. Breshnev's successor Andropov was former KGB boss and had in fact conducted his own private investigations into the scale of corruption and ordered a number of arrests when he came to power. During the brief Andropov period a number of the Breshnevite old guard bureaucrats are reported to have committed suicide. Mikhail Gorbachov, who was the most famous and last leader of the USSR, rose up through the ranks as Andropov’s deputy and one of his main missions was to root out corruption within the bureaucracy.

But the impulse to corruption at all levels was strong. The Soviet Union was a relatively poor country, and the massive military competition with the United States and its Western allies during the Cold War meant that a lot of resources were diverted to military and scientific uses which otherwise might have gone on improving the living standards of the masses. Most consumer goods were rationed and in short supply. As is common in such cases of shortages in any country an ‘informal market’ operates where goods that have been siphoned out of the normal channels sell illegally at a higher price.

An understanding of the power of organized crime in Russia and other parts of the ex-Soviet union today, has to start from the fact that the basis of its growth was laid in the very nature of the rule of the bureaucracy. Widespread corruption and illegal diversion of resources at the top created an atmosphere in which more familiar forms of organised crime could flourish at street level. Illegal street markets were controlled by organised crime gangs who, in turn, paid off officials and police to look the other way. Additionally in all the big cities, as in any country in the world, organised crime gangs ran prostitution, gambling, protection rackets etc. But the point was that they had a link to the organised corruption of the elite. Regional party bosses would often unofficially hire organised criminal thugs to protect them from any too close investigation into the sources of their own wealth, corrupt bureaucrats would illegally sell produce to crime gangs for distribution in the illegal informal economy.

Under the old Soviet system then, the bureaucracy engaged in widespread corruption. This gave a number of opportunities to organised crime groups. But the always were the subordinate players. No criminal group came anywhere near the power of the Soviet state apparatus – the army and the KGB secret police – when it came to getting things done. There was only a minor role for organised crime in providing ‘protection’ and ‘mediation’ services

Patricia Rawlinson, offers an insightful assessment of the relationship between organized crime and the state in Russia. "The history of organized crime in Russia," she writes, "...has been a history of responses by legitimate structures to the presence of the former." By legitimate structures she refers to the political, economic and criminal justice system - in short, the state. Her interpretation makes the legitimate structures the initially dominant partner, since it is their responses to organized crime which determine, up to a certain point, organized crime's development. Rawlinson explains her analysis within the framework of an intriguing model called the Chameleon Syndrome, which traces the ability of organized crime, through interactions with the legitimate structures, to merge with and eventually play a proactive role in the Russian state. Organized crime was able to assert itself because the legitimate structures increasingly relied on the former's services for survival. Looking at the history of Russian organized crime and its relationship with the state through the Chameleon Syndrome allows us to appreciate why the Russian perception of organized crime is synonymous with the state mafia. (Patricia Rawlinson "Russian Organized Crime: A Brief History" in Phil Williams ed. (1995) Russian Organized Crime: The New Threat? London: Taylor & Francis (p 50.)

The transition to capitalism

At the beginning of the 1990s the Soviet Union collapsed as a coherent political entity and the individual republics which had made up the USSR moved in different directions. The majority, including the largest member, Russia, chose to dismantle the system of detailed state control of the economy, to sell off state companies to private business and to generally adopt democracy and the capitalist and free market economic of its erstwhile enemies. The conditions under which this transition took place provided, as we shall illustrate below, a tremendous boost to the development of organised crime

By the end of the 1980s the Soviet system was in disarray, the military competition of the Cold War having exhausted its resources. Mikhail Gorbachov who wanted to consolidate reform within the existing Soviet system was ousted by the current Russian leader Boris Yeltsin. From this point on we speak of Russia rather than the Soviet Union or the USSR. The USSR was a vast federation of allegedly independent republics but in fact ruled from Moscow. One of the first things to happen was that these other republics moved to independence. Places like Kazakhstan, Uzbekhistan, Georgia, Ukraine, etc. are no longer part of the USSR but independent states, though obviously with close historical ties to Russia which was the leading republic in the Soviet Union. To make matters more complicated Russia itself is a federation of smaller regions, not all of which are happy with the existing set up. You may have read about the civil war in Chechnya for example where a large proportion of the population want independence from Moscow. We are dealing now with a part of the world which for 80 years was kept very stable under the domination of the Soviet system now becoming one of the more unstable areas of the world.

Under the premiership of Boris Yeltsin the decision was made that the only viable route out of increasing unemployment, poverty and lack of economic development was to make a transition to the free market capitalism. This policy, plus democratic reforms which ended the domination of the Communist Party bureaucracy over the state apparatus, now characterises the Russian system. The Communist Party still exists, but simply as a political party rather than as coterminous with the state apparatus. The transition to capitalism has faced a number of serious obstacles. Two in particular have provided fertile ground for the development of organised crime

The transition took place under conditions of extreme economic deprivation and shortages. The government cut public spending and many members of the armed forces, police and state security (KGB) found themselves unemployed. There was something like a 50 percent fall in real incomes during the 1990s. Crime rates rose during the same period by somewhere in the region 190 percent. Social polarisation between new capitalists who were enriching themselves in the new market economy (by the mid 1990s they were between 5 and 12 percent of the population) and the poor, increasingly unemployed, workers and former soldiers and state employees increased massively. The gap between salaries of richest and poorest 10 percent of Russians grew to 26 times in December of 1995. In Moscow the formation of the upper class took place faster. Approximately 21 percent of the population (nearly 32 million) in Russia 1997 had incomes below the poverty level. Many Russians, including many former government workers turned to crime, others joined the large numbers of Soviet citizens who moved overseas primarily to the United States and the Mafia became a natural extension of this trend.

Under such conditions the old informal economy of smuggled goods sold in street markets assumed a major importance. This increased the power of the criminal groups who controlled these markets. Secondly, for a long period there was no proper legal framework for private enterprise. By 1991 the private sector contributed 14 percent of national industrial production but there was still no clear legal title to private property in the means of production. An illustration is the problem of copyright law. Under the Soviet system where there was simply one state publishing house the problem did not arise. But now there are a proliferation of independent publishers. One recent example (1992) was that the publisher of a Russian translation of ‘Gone with the Wind’ who paid an American publisher for the translation rights found at least 10 other publishers were putting the book out as well. He couldn’t sue them for violating his translation rights because his purchase of sole rights from the American publisher could not be enforced in the Russian courts. Under such circumstances, where there is no legal redress for the enforcement of rights, the recourse to threats and armed force as a way of enforcing ones ‘rights’ is of course attractive.

Thirdly, as a glance at the map above will show, Russia is well placed as regards the international heroin trade. Bordering both on Afghanistan, where the majority of the worlds illegal heroin crop is grown, and on the Balkans - itself an area thrown into crisis during the 1990s with the breakup of Yugoslavia - Russia was an ideal territory for the opening up of a new northern route for heroin trafficking. Added to this the massive economic crisis and cuts in state spending on police, military and security services meant that law enforcement agencies were in a weak position in relation to the traffickers and other organised criminals

The result was an expansion of organised crime throughout all areas. The 'vory' assumed a leading role in this development. They were the most organised and powerful. Their origins in prison fraternities faded into the past as they become powerful territorial mafias and became more like their Sicilian counterparts in terms of the control of territory and populations and also penetration into business and politics. Smaller or more flexible gangs of smugglers and traffickers passed under their 'protection' rather like smaller drug dealers paid protection money to the Sicilian and American Mafias. Because of the rapid development of economic crisis in Russia and the vast changes under way during the 1990s, they become, if anything, more pervasive in Russian society than their counterparts in the West. According to the CIA Handbook of 1996

"Unlike organized crime in other countries, which controls only such criminal activities as drug trafficking and gambling, and specific types of legitimate enterprise such as municipal trash collection, the Russian crime organisations have gained strong influence in a wide variety of economic activities. In addition, beginning with the collapse of the Soviet Union and the weakening of border controls, Russia has been drawn into the network of international organized crime. In this way, Russia has become a major conduit for the movement of drugs, contraband, and laundered money between Europe and Asia. In 1995 an estimated 150 criminal organisations with transnational links were operating in Russia.

"Among the main targets of organized crime are businesses and banks in Russia's newly privatised economy and foreigners--both individual and corporate--in possession of luxury goods or the hard currency (see Glossary) to purchase them. Many of Russia's mafiya figures began their "careers" in the black market during the communist era. They are now able to operate overtly and are increasingly brazen. Many current and former government officials and businesspeople have been identified as belonging to the mafiya network.

"The 1994 report to the president described collusion between criminal gangs and local law enforcement officials, which made controlling crime especially difficult. The enforcement problem, which became acute in 1993, was exacerbated by overtaxation, confusing regulations, and the absence of an effective judicial system. By 1993 criminal groups had moved into commercial ventures, using racketeering, kidnapping, and murder to intimidate competition. In 1994 an MVD official estimated that there were 5,700 criminal gangs in Russia, with a membership of approximately 100,000.

"In March 1995, Vladislav List'ev, a prominent television journalist, was assassinated. List'ev had been a supporter of efforts to stop corruption in state television, where large amounts of advertising revenues were being extorted by organized crime. A Russian news agency reported that, between 1992 and mid-1995, there had been eighty-three attempts--forty-six of which were successful--to kill bankers and businesspeople. In 1996 contract killings remained a regular occurrence, especially in Moscow.

Expansion of the drugs and trafficking of heroin and other items, particular due to the favourable position of Russia as a link between Western Europe and South Asia

Expansion of the informal economy of smuggled and 'black market' goods, due to shortages and economic disruption. The major outlet for these activities were the various street markets that developed in big cities and the network of 'kiosks' which they contained. These markets were a meeting place for smugglers of all types and fell under the protection of the powerful 'vor' gangs

Penetration of the world of business and banking. The most well organised Mafia groups were able, during the turmoil of the 1990s, to expand their activities in business and particularly the banking worlds- both running protection rackets and owning businesses themselves. This was an important development which facilitated the money laundering activities of the Russian Mafia.

Expansion of private protection. The weakness of the state law enforcement agencies combined with weakness of the legal system to deal with the complexities of a new capitalist market economy enabled Mafia groups to establish 'private security' companies to sell protection to companies and powerful interests.

Drugs

The opening up of the territories of the USSR which were officially at least a ‘drug free zone’ has meant new trade routes – for example the last major war fought by the Soviet army was in the 1980s in Afghanistan. The result was not favourable to the USSR but had the effect of opening up new drug supply routes from Afghanistan through Russia and the Balkans and then on to Western Europe: much as the earlier American ‘adventure’ in Vietnam had done much for heroin supply routes to the US. This has strengthened the activities of organised crime groups. Russian groups have now become active on the international stage, making alliances with the Sicilian mafia and the Latin American cocaine groups for the international distribution of drugs and for money laundering. The number of criminal organisations is estimated to have grown from 3,000 in 1990 to 8,000 in 1995.

A major source of information is a study by the Italian criminologist Letizia Paoli [Letizia Paoli (2001) 'Drug trafficking in Russia: A form of organized crime?' Journal of Drug Issues, (31)4: 1007-1038]. She notes that until the 1990s Russia was relatively isolated from the international drugs trade. All this changed with the end of the USSR and the 1990s saw the emergence of the professional drug dealer and traffickers linked into alliances with international drug trafficking and manufacturing networks, Police experts believe that nearly 1,600 criminal groups in Russia are engaged in the drug trade, which are composed of at least 6,000 people

But she warns against "the idea that drug trafficking is dominated by large, structured criminal groups" In her study "the crimes committed by 'organized crime groups' represent less than 1% of the total drug offences reported in Russia and in 1999 accounted for only 4. 1 % of drug trafficking cases." As a Moscow police officer put it,

"there are no Colombian drug cartels here. There are instead many small groups that are made of people belonging to the same nationality or ethnic group. There is not one single river, but many streams that flow independently on one another."

She concludes: "I hardly dare to tell it my colleagues back home, but for the moment we have no proof of a large-scale involvement of Russian organized crime in the illegal drug trade. Our investigations so far show that the latter is characterised by a low level of sophistication and organisation."

In other words the organisation of drug trafficking in Russia seems to be decentralised and in the hands of a plurality of dealers and traffickers. It conforms most likely to the 'network' model that we discussed in earlier lectures. The involvement of the large well organised groups may well be, as suggested above, one of 'taxation' of the financially lucrative drugs trade

Informal Economy

Much the same might be said of the informal economy. As noted already, the existence of an informal economy of smuggled and stolen goods goes back to Soviet times. In the harsh times of the 1990s and under conditions in which the legal system and law enforcement were imperfect the blurring of boundaries between legal and illegal enterprise increased. A perfectly legal company might source its products more cheaply from smugglers or Mafia sources. A recent survey of entrepreneurs in the Ukraine, a former Soviet republic neighbouring Russia, found that even as late as 2005 something like 40 percent of legally registered businesses starting up over the previous 3 years conducted a portion of their trade in the informal 'off the books' economy. Only 10 percent operated on a wholly legitimate basis [Colin Williams and John Round (2007) 'Entrepreneurship and the Informal Economy: A study of Ukraine's Hidden Enterprise Culture. Journal of Development Entrepreneurship. March issue]

Business and Banking

The blurred boundaries between the informal and legal economies assisted organised crime groups in penetrating the legal economy, and in particular the financial sector. The context was the rapid collapse and privatisation of the state economy during the early 1990s. There are two aspects to this. Firstly, following the collapse of the Soviet system an alliance emerged between traditional organised crime - racketeers, drug smugglers, traders in the informal economy etc. - and sections of the corrupt state bureaucracy. The racketeers had acted as pipelines for the channelling of the profits of corruption under the old Soviet regime. By the late 1980s many state bureaucrats saw the what was coming and wanted their wealth safe in a Swiss bank account or invested in luxury property in London, and so turned to the organised crime groups to help them. Currency exports is a major role of Russian Mafiya. Thus in 1996, according to Swiss private bankers, enormous private wealth was flowing into Switzerland, the world's number one private banking centre. Banking sources revealed that Russian deposits at Swiss banks had more than doubled to well over $3 billion during the mid 1990s and, with capital flight from Russia running at hundreds of millions of dollars every month, were likely to increase further. The worse the economic situation in Russia the more the elite wanted to get its money from roubles (the value of the rouble had been falling drastically on the international exchange markets) into dollars, deutschmarks, (remember, this was before the Euro) or sterling and get it out of the country into a secure investment elsewhere. Thus at one time it was rumoured by London estate agents that Russians were turning up with £300,000 in cash to buy flats in Earls Court and similar areas of London.

A second opportunity came in 1992, with the privatisation of the old state factories and enterprises. The overriding aim of Russian premier Boris Yeltsin regime was to transfer Russian state enterprises as rapidly as possible to private investors so as to create a politically irreversible shift to capitalism. By 1996 70% large enterprises 80% medium enterprises privatised. How to sell off state property to people who had very little money and those who had were concerned to get it out of the country!

Russians were issued with vouchers corresponding to their share of the 'peoples wealth' which could be traded as shares and exchanged for actual shares in state enterprises. The buying and selling of these vouchers created a field day for both the Mafia and the bureaucracy. At public auctions of state property investors were threatened by gangsters who wanted to buy up the property cheaply. Citizens were persuaded to sell their vouchers to 'investment funds' that promptly vanished. In November 1994 traffic in central Moscow was blocked by angry investors demanding compensation for their losses to the Technical Progress voucher fund which had vanished, together with its directors. In other cases leading officials spirited away thousands of shares so that the old bureaucrats who had managed the state enterprises simply became the majority shareholders in the newly 'privatised' enterprises.

Thus at one end of the spectrum there emerged a coterie of super-rich 'oligarchs', mainly the senior members of the state bureaucracy who had managed the key sectors of the economy, in particular heavy industry, oil and gas, who ended up as the private owners of the vast enterprises they had previously managed on behalf of the state. On the other hand massive gains by organised crime which thanks to a mixture of violence and corrupt share trading, managed to establish a firm foothold in the economy. In Moscow alone it was estimated in 1994 that between 50 and 80 per cent of all new commercial enterprises, including nearly all hotels and shops are under the control of criminal groups. Moscow police estimated that 40 out of 260 private banks were in the hands of the mafia - one explanation of the relatively low rate of bank robberies in a city where law and order had virtually collapsed!

In the summer of 1994, the Russian Ministry of Internal Affairs (MVD) estimated that 25% of the Russian gross national income was derived from organized criminal activities. The MVD also believed that 5600 criminal groups were involved primarily in capital/money laundering, the drug business, and extortion.

Private Protection

But probably the most high profile activity of the organised Mafia groups was in the area of private protection: the sale of protection services to those who could afford them. The Mafia was responding to a genuine problem associated with the speed of the transition from a state controlled to a market economy. There were several aspects of the situation which are important

First, the question of a legal code. The issue here did not concern criminal law which did not need much modification in the transition from a state to a market economy. Rather the issue was that branch of civil law concerned with the regulation of the relations between companies, and between companies and consumer and investors. The issue of copyright law was mentioned earlier. In a state controlled economy such as the USSR the relations between different enterprises were administrative questions. If a raw material manufacturer failed to deliver, say, an agreed amount of steel, to an armaments factory, then the appropriate branch of the state bureaucracy would sort it out. The KGB might be called in and the manager of the steel factory could look forward to a spell in the gulag. But in a private market economy it's a question of a relationship between two independent privately owned enterprises. The armaments manufacturer would have to sue the steel company for breach of contract. This presupposes a clear law of contractual obligations, together with judges and lawyers who understood the law inside out and knew how to assemble a case for court.

Due to the rapidity of transition to a privately owned economy during the early 1990s that body of competence was lacking. The law was vague: what precisely is a contract to deliver goods? Under what conditions is it violated? All these were rather cloudy as were other aspects of the new capitalism: what is debt interest, what rights flow from the ownership of shares? what were the obligations of a company to declare its assets? what are the taxation obligations of private companies etc. Things were such a mess that some lawyers suggested simply importing wholesale the legal code of another country, Germany for example, and trying to apply it to Russia!

There were of course commercial courts in existence. Indeed many of the larger enterprises settled their disputes through the system known as 'Arbitrazh' (arbitration) through tribunals that had existed in the Soviet period. But this did not necessarily overcome a second set of problems: enforcement of court decisions. It was often up to the plaintiff to secure the enforcement of a court decision or at least pay the costs. Firms owing money as a result of a court or tribunal decision would often find ways to silt the money away through secondary bank accounts and similar devices. The people who felt these problems most acutely were the new small and medium sized enterprises who, with limited resources, needed speedy settlement and enforcement of disputes.

This brings us to the third aspect of the situation: the weakness of law enforcement. From one of the strongest Russia now became one of the weakest states in Europe: the collapse of the old hierarchy based on the Communist Party and the bureaucracy had put nothing in its place. On the contrary, the economic collapse during the 1990s saw massive cuts in state spending-cuts in police, military, security services just at a time when the new legal structure needed more personnel and uncorrupted ones. With the collapse of the USSR the vast military and police apparatus has been pruned down. From 1993 the reduction in the size of the Soviet armed forces had resulted in an annual discharge of between 40,000 and 50,000 officers. There were similar cuts in the police. Also there was a massive problem of soldiers and their officers, who have not received salaries, or received them only erratically, selling off high grade military material to the free market. Corruption was widespread. In 1998 the head of the State statistical office was charged with helping some of the big oligarchs to evade taxes. Meanwhile the popular image became that of tired but dedicated police officers in clapped out old cars trying to chase powerful gangsters driving the latest imported SUVs.

The result was a widespread loss of legitimacy by the state and its various agencies. This was illustrated by various surveys conducted during the mid 1990s. Frederico Varese in his book on the Russian Mafia [F. Varese (2001) The Russian Mafia: private protection in a new market economy. Oxford: Oxford University Press] reports the 'New Russia Barometer' Survey conducted in 1993-4 which asked respondents: ‘if you had a grievance, would you expect fair treatment from.. and then mentioned various agencies. Only 20 percent of respondents reckoned they would get fair treatment from the police and courts. The highest was the social security system (70 percent) A similar survey in 1993 conducted by Glasgow University found that only 16 percent of respondents expected fair treatment by public officials.

Russia was very much now like Sicily on a gigantic scale; the weakness and corruption of the central state created a space for various forms of private, including criminal, agencies to provide the services which the state should have been providing. The Italian sociologist, Frederico Varese made the comparison explicit

"The absence of a credible state, which provides rights and enforces them, undermines not only trust in the state, but also among citizens. The business community has so far not developed a set of rules of the game which holds in the absence of an enforcing central agency. There is in fact a high rate of crimes committed by business people against other business people. A number of cases have been reported in which the arrested criminals were members of trade and purchasing co-operatives with ambitions to rid themselves of their competitors, employing guns and explosives." (245) [Varese, F. (1994) 'Is Sicily the Future of Russia? Private Protection and the rise of the Russian Mafia.' European Journal of Sociology (25)2: 224-258]

The result was a massive expansion of private security companies of various shades. The cuts and unemployment in military, police, and security agencies had produced large numbers of highly trained men looking for work. Meanwhile firearms were easily acquired. From the point of view of the small company, anxious to recover its debts from someone who refused to carry out a court order then why wait for a cumbersome legal process and half hearted interventions from an over-worked, under-paid police force when, for a price, men in dark glasses and leather jackets, a fast car and some impressive weaponry, would do the job in no time at all!

Many private security companies, founded often by former KGB officers, were perfectly legal and very much like their western counterparts such as 'Group Four' or 'Securicor'. They would perform similar functions such as guarding business premises, banks etc. The mafia, however occupied the illegal end of the spectrum. They hired themselves as contract enforcers, collectors of bad debts, settlers of disputes, much like the Sicilian Mafia. They would even engage, on behalf of companies which they partly owned, in the elimination of competitors. In a similar way to the Sicilian Mafia they would organise protection rackets on profitable companies, shops and restaurants. They would use their wealth to extend loans to enterprises in need of credit, which they would then take part-ownership of.

The effect of mafia capitalism

Some commentators during the 1990s argued that organised crime played a progressive role in the maintenance of law and order, by providing a way of enforcing contracts, which made business possible until a properly enforced legal system was in place. Thus Phil Williams quotes one Russian analysis describing the role of the Mafia:

“Russia's criminal world... has become the only force that can give stability, that is capable of stamping out debts, of guaranteeing the banks repayment of loans and of considering property disputes efficiently and fairly. The criminal world has essentially taken on the state functions of legislative and judicial authority.” (quoted in Williams 1997: 5-6)

Thus the argument was that we have to tolerate the Mafiya because in fact they are showing the entrepreneurial spirit of capitalism and that once the situation stabilises these people will move out of corruption and crime to become the dynamic entrepreneurs of tomorrow’s new Russian capitalism. They are seen as the new ‘robber barons’. (the phrase ‘robber barons’ refers back to the mediaeval bandit knights who plundered the countryside. The phrase was used by American historians to describe the activities of the great industrialists like J.P. Morgan, John D. Rockefeller who, during the latter nineteenth century broke every rule in the book and violated lots of laws but ended up making great fortunes and consolidating the industrial base of the United States. The idea is that the Mafia are going to fulfil a similar role in Russia. Thus John Anderson, a US authority on banking and finance believes that the mafia, by reinvesting its money in Russia itself, assists the development of modern capitalism. "They (the Russian mafia) are robber barons like the Rockefellers and the Morgans. Today's mafioso is tomorrows banker and industrialist." (The Guardian 27 May 1994)

But this is definitely a minority view which cuts little ice even with other generally pro-capitalist commentators. Claire Sterling, in her book 'Crime Without Frontiers' documents how firms under mafia control "contributed nothing, produced nothing, risked nothing, created no wealth save for the country's 100,000 new millionaires, who simply robbed what was there." The main aim of organised crime is, as noted above, the export of capital and speculation on the international money markets. In 1993 transfers of currency out of Russia, legal and illegal, are believed to have been between 12 and 15 billion US dollars. This is far greater than the total of foreign aid and investment coming into Russia from the West. The mafiosi running large sections of the banking system are interested in anything but 'laying the foundations for tomorrow's capitalism'. The western press carried the tale of some 'honest' Russian capitalists who had tried to wire some money from Chelyabinsk to Moscow. The money took nine months to arrive and the bank had to be bribed to cough up. The account had been spirited away for use in currency speculation. (Guardian 10th May 1994). The result is that the small bourgeoisie remain small. They are forced into business using only ready cash and trading in rapid turnover goods such as imported western luxury items for the consumption of Russia's new rich, a consumption hardly likely to boost the home market for new capitalist enterprise.

Rather than being a dynamic force for the development of the market economy, the Mafia seem to play a more parasitic role which is against the interests of economic development and which places a millstone around the necks of honest business entrepreneurs in Russia.

The current situation

The current president, Vladimir Putin, himself a former KGB officer, has vowed to wage war on organised crime. To his advantage is the fact that the Russian economy is now booming, thanks to increasing demand from the West for Russian oil and natural gas. Reforms to the Criminal Code in 1992 brought guarantees, such as limits on detention of suspects, which were absent under the old system. In particular Putin has reversed some of the tendencies to privatisation and brought aspects of the economy back under state control. In particular Putin has moved against some of the so-called 'oligarchs'. The arrest in 2003 of Mikhail Khodorkovsky - the former head of Yukos, one of Russia’s largest oil companies – on charges of tax evasion, fraud, forgery and embezzlement largely stemming from the ‘loans-for-shares’ privatisation deals concluded in 1994 and 1995 has been regarded as a signal of a new tough regime. In 2002 after a wave of contract killings of businessmen by the Mafia, Putin admitted that "Organised crime still controls a considerable portion of the country's economy." It remains to be seen whether he can make any significant inroads.

Organised Crime in Russia

Introduction