Early Thursday morning, June 8, 1995, FBI agents burst into an apartment in Brighton Beach and placed a burly, balding Russian under arrest. Subsequently, when he was taken to the Federal District Court in Brooklyn for a preliminary hearing on charges of extortion, the FBI identified him as Vyacheslav Ivankov, a man known as “Yaponets” (The Japanese), who has long been considered one of the kingpins in the shadowy but increasingly active Russian underworld. The arrest was the most tangible evidence to date that Russian syndicates had spread into North America.
It should have come as no surprise that Russian gangsters are active in the United States. In his timely book describing the crime scene in post-Communist Russia, Comrade Criminal, Stephen Handelman reports that at a meeting of Russian crime lords, held as the Soviet Union was collapsing, in December 1991, Ivankov had been delegated to come to the United States to investigate “commercial opportunities.” Presumably, the public will learn more about the opportunities he identified when Ivankov and his eight codefendants are brought to trial.
The threat of Russian criminals operating in the United States is not trivial, but there seems no reason to doubt that American police can prevent a large-scale entrenchment here if they give the problem adequate attention. And they seem to be doing so. Zachary W. Carter, the US attorney in the eastern district of New York, told The New York Times following Ivankov’s arrest that federal authorities are determined “not to permit Russian organized-crime groups to mature the way domestic crime groups have.”
The growing crime in Russia should be of great concern because we cannot be confident that Russian police, prosecutors, and courts are capable of coping with it. If Russia does not develop effective means to control the spread of organized crime, the results can have a deeper impact on our lives than the activities of a few criminals in our own midst. Rampant criminality is now the most formidable barrier to a democratic free-market society in Russia. It creates conditions that could bring a dictator to power or—perhaps even worse—begin a process of fragmentation that would destroy any effective central government in the country.
The US Congress rarely summons State Department officials to testify on foreign criminal activity, but concern about conditions in Russia caused the Senate Select Committee on Intelligence to invite James F. Collins, the department’s senior coordinator for Russia and other ex-Soviet states, to testify on the subject on March 15 of this year. 1 Before outlining the US policies designed to protect American citizens and to assist the Russian government in coping with the problem, Collins pointed out that
crime now poses—some three-plus years after the end of the Soviet Union—a major challenge to the governments and the citizens of the NIS [New Independent States] as they pursue the uncharted road from communist totalitarian authority to democracy and market economies.
He pointed out that the number of economic crimes in Russia increased by 14 percent in 1994, and drug-related crimes by 40 percent. Criminal elements seem to control an enormous portion of retail trade. According to Collins, “unregistered”—i.e., not legally reported—imports and sales of consumer products accounted for some 46 percent of all retail sales in Russia. Though some “unregistered” trade may be carried on by otherwise honest traders trying to avoid punitive taxes, most of it probably involves organized criminal groups acting under the protection of crooked officials.
When Russians speak of organized crime, they normally refer to “the mafia” (or mafiya, as Handelman spells it, to distinguish it from its Western counterpart) in the singular. However, organized crime in Russia is emphatically not part of one gigantic organization. There is a multitude of gangs, and in addition thousands of organized groups with origins in the former Communist Party apparatus, the state industries, the military, and the KGB. Handelman’s vivid picture of this obscure and confusing world is based not only on a thorough study of the available literature on the subject but also, and most notably, on lengthy interviews with Russian police investigators and prosecutors, journalists who specialize in the crime beat, businessmen in a position to observe the mobsters, and even some of the criminals themselves. His is by far the most lucid and informative treatment of this important subject that has appeared in print.
Among the virtues of Comrade Criminal are its clear account of the various types of illegal groups and its description of their origins and development. The professional criminals with the longest history as a coherent organization are the vory v zakone, “thieves in the law,” who existed in tsarist times and retained their organization throughout the Soviet period. Their leaders spent much of their lives in prison but maintained their authority over their criminal organizations while in or out of custody. Vyacheslav Ivankov, for example, was released as recently as 1991 from a ten-year sentence in a Siberian prison. Traditionally, the leaders lived an almost ascetic life and put most of their profits from criminal activity into a common fund. They lived by a strict code of silence and mutual protection (not unlike that observed by the “men of honor” in Sicily) and were vehemently anti-Communist. They often bribed Soviet officials, but no member who had been associated with any Communist organization, even in his youth, was allowed to become a vor v zakone; he would instead be relegated to a subordinate position in the gang.
With the cooperation of Soviet officials in their pay, the vory v zakone controlled most of the “shadow economy” during the Soviet period. During the late 1980s, the legalization of some private commercial activity gave the vory v zakone new opportunities to expand into legitimate activity and, apart from the Communist Party and government bureaucracy, they were the only significant group with access to the capital necessary to establish business of any size. Furthermore, they had experience in operating in a market economy of sorts—not a free market, to be sure, but one not controlled by Gosplan.
Gangs controlled by the vory v zakone would have been a problem for any Russian government trying to convert a command economy to one based on market principles. The problem could have been managed by even a modestly effective law-enforcement system if the traditional criminals had not been joined by a flood of newcomers from a different sort of criminal organization, the Communist Party of the Soviet Union. Even before the Soviet Union collapsed in December 1991—certainly from 1990 and possibly beginning earlier—Party officials began to divert funds into commercial enterprises and foreign banks. In addition to its own resources, the Party could draw on government assets whenever it chose, since it totally controlled the state bureaucracy.
Handelman brings to light one factor which has received little attention in the West, the Communist Party’s association with organized crime from its very inception. Lenin, Stalin, and the other Bolshevik founding fathers much admired the conspiratorial mores of the criminal world, a world they came to know well in the tsar’s prisons. Much of Bolshevik Party structure and its code of conduct were modeled on these criminal gangs, and in its early years the Party obtained a large part of its financing from criminal activity such as bank robberies. Even when the Bolsheviks had created a government totally under their control, Party business continued to be handled in a conspiratorial manner, including a requirement of absolute obedience and observance of a strict code of silence in regard to “Party matters.”
When I was ambassador to Czechoslovakia, in the early 1980s, I heard of an incident that illustrates the point. Though I was unable to confirm that it actually occurred, it was plausible and my Czech sources were convinced that it was true. By their account, an enterprising translator had convinced a local publisher that it would be a good idea to issue a Czech translation of Mario Puzo’s The Godfather. It showed, he explained, the moral decadence of Western society and, by implication, the virtues of “socialism.” Expecting a best seller, the publisher ordered a printing of 200,000 copies. But before they were put on sale, officials in the ideological section of the Party Central Committee had to give the book their imprimatur. When they read it, the ideological watchdogs were aghast. They accused the publisher of subversive intent for daring to publish a book which was obviously a veiled description of the modus operandi of the Czechoslovak Communist Party. Unfortunately for the Party censors, publication had already been announced and if the book did not appear at all, speculation about the reason could be damaging. Therefore, the publisher was ordered to pulp all but a few thousand copies, which could be sold discreetly to reliable Party members.
Communist Party finances remain to this day the best-kept secret of the entire Soviet period, except that some transfers to foreign Communist parties have been documented. Nobody has a clear idea of what really happened to the vast sums that were in the Party’s coffers during its final months. Yeltsin demanded at the 1990 Party Congress that all members of the Central Committee be given access to the Party’s financial books, but this proposal, along with others he made, was ignored, and he resigned his Party membership on the spot. When charges that Party funds were being misused became louder in 1991, an official investigation was launched, only to peter out without any announced result. Circumstantial evidence, including the August 1991 suicide of Nikolai Kruchina, the Party’s chief financial officer, just before an investigation was to start, suggested that there were secrets some wished to bury. If so, they are still buried, and the conclusion most observers have drawn is that Party funds were hurriedly sent abroad or laundered through front organizations and are now being used for the benefit of persons well enough placed to discourage further serious investigation.
Apparatchiks turned entrepreneur could rely on support from likeminded Party officials, well trained in conspiratorial techniques and with valuable contacts among key elements of the bureaucracy such as the tax office, the customs administration, and regulatory authorities, not to speak of the police and former KGB. And they were not the only newcomers to Russian gangland. Other groups formed around industrial managers who set out to milk the enterprises they managed and to acquire ownership control of them as the privatization program went forward, and also around current and former KGB officials. Most notably and dangerously, military officers became the principal source of a flood of weapons which spread through the underworld in Russia and the other Soviet successor states following the Soviet Union’s collapse.
Vadim Bakatin, who served as Gorbachev’s minister of internal affairs from 1988 to 1990 and as KGB chairman (with a mandate to liquidate the organization) in the fall of 1991, told Handelman in 1993: “Our bureaucrats, police, procurators, judges, even the KGB, were merging with the underground world. It was a critical change in the development of crime in our country.” When law enforcement officers in Moscow showed Handelman mug shots of the eighty persons considered to be the leading criminals in and near Moscow in 1993, he noted that fewer than a quarter of them were vory v zakone. Most were listed as industrial managers or business directors and obviously had come from the Communist nomenklatura.
Virtually any Westerner with ties to the Russian business community has a stock of anecdotes that illustrate a magic passage from official to entrepreneur. At a business conference in Moscow in November 1992, I ran across an old acquaintance who worked as a banker in Western Europe. He remarked that he had just received a most surprising request: a Russian he had not met previously had approached him for investment advice, remarking that he had available $38 million in banks outside Russia. “Do you know where he got that kind of money?” I asked.
“Oh yes,” he said. “He was quite frank about it. Just two years ago he was a colonel at a military base in the Baltic. He had sense enough to see the handwriting on the wall, sold off the petroleum he had stored on the base, and now has parlayed that stake into the $38 million.”
If the ex-colonel in question made his money just from petroleum, as he claimed, he was more responsible than many of his colleagues, who sold off their arsenals.
The Russian government has proved utterly incapable of containing the frenzied grab for assets that has accompanied its movement to capitalism. Its inability has derived in part from its policies in 1992 when it abandoned most economic controls before it developed the institutions essential for a market economy. It adopted self-defeating measures such as confiscatory tax rates that invited evasion and artifically low domestic energy prices that created incentives for vast corruption in the energy export trade. Even more fundamentally, however, the failure to control crime occurred because many elements in the government became partners in criminal enterprises. Lacking any meaningful conflict-of-interest laws, and with many ministries run by people more interested in feathering their own nests than doing their jobs, the Russian government itself became a major source of the problem of growing criminal activity.
A Russian friend who managed a medium-sized firm in the provinces told me in 1993 that he had been offered a ministerial portfolio in Moscow the year before. He turned it down because he was setting up his firm on a private basis and wanted to finish the job, and furthermore had no desire to move to Moscow. Six months later the person appointed to the position which had been offered to him approached him with a request to invest a million dollars in his firm.
“I have known ‘Sasha’ [the minister in question—not his real name] for years,” my friend observed. “Before he took the job in Moscow, he didn’t have a kopek to invest. But in six months he had a million of hard American cash to throw around. Unfortunately, most of them are like that.”
Although President Yeltsin has repeatedly declared the war on crime to be his top priority, it is not surprising that his law-enforcement agencies have only meager results to show, despite periodic anti-crime campaigns launched with much fanfare. Two of the most spectacular recent murders, that of the journalist Dmitry Kholodov, who was killed in October 1994 while investigating corruption in the army, and that of television anchor and executive Vladislav Listyev, who was assassinated on March 1, 1995, are still unsolved, despite promises from Yeltsin and other top officials that those responsible would be swiftly found and punished. Although the current parliament has been in office only a year and a half, three of its members have already been murdered, apparently by hired hit men.
Handelman documents numerous instances in which investigators were called off cases by their superiors, apparently because the investigation was making some important official uncomfortable. And while gangsters are arrested from time to time, the arrests often seem as much the result of intergang warfare as of police efficiency, with criminals using the authorities to eliminate rivals. Some people have speculated that the Russian army command might have pressed Yeltsin to authorize the attack on Chechnya last December in order to distract attention from the growing evidence that its senior officers were deeply involved in the illegal diversion of arms and supplies—including to the very Chechen regime they set out to suppress.
Were it not for the widespread violence connected with criminal activity, many might consider the ugly scramble for commercial assets a regrettable but essential prelude to a capitalist economy. After all, there was no legitimate private capital in the Soviet Union and aggressive attempts by officials and managers to secure a place in the new economic system are only to be expected. However irregular the initial gains might be, some have argued, the new capitalists can retain their assets over the long run only if they learn to compete in a market economy. According to this view, one should, in the words of a Wall Street Journal editorial, “cut them a little slack.”
Unfortunately, the surge of criminality in Russia has not been a matter just of cutting corners in order to extract as much personal benefit as possible from privatized state assets. It is intimately associated with much more dangerous kinds of criminal behavior: sharp increases in drug trafficking and drug use, gang warfare, widespread illicit trade in arms, white slavery, and—perhaps most ominously—a growing underground trade in fissionable material, such as plutonium. Moreover, the attempts to close markets to competitors or even eliminate them physically—the fundamental objective of much gang warfare—can make the development of a true market system impossible.
The corrupt bureaucrat is also no friend of a free market. Nobody has expressed this truth more eloquently than the former prime minister Yegor Gaidar, who, Handelman tells us, wrote as follows, in the weekly magazine Ogonyok in 1994:
The Russian bureaucrat has today been given ideal conditions for getting rich: the conversion of power into property. [He] has unlimited possibilities to take individual, uncontrolled decisions, handing out quotas to export produce, credits, and subsidies, support for individual banks, and so on. The conditions of our chaotic economy encourage him to open his own account in a Swiss bank. This is a very powerful force…that requires an unstable economy…. It does not need real market relations, which would throw bureaucrats out of work and out of power.
Criminal activity can also alter the political climate by turning much of the public against economic reform altogether. While Russian society has always been highly stratified, it has rarely exhibited such extremes of obvious wealth and poverty as it does today. (The Communist Party elite tended to hide its affluence rather than flaunt it.) According to official statistics, which may understate the income of the well-to-do, 1,127,000 people (0.7 percent of the population) were earning $300,000 a year or more in early 1994, while 27 percent were classified as “poor” (able to buy food but not much else) and 33 percent had incomes at or below that required for subsistence.2 In the spring of this year, Izvestiya quoted a senior official who estimated that there was at that time $100 billion in Russian capital illegally invested abroad. This capital flight occurred not only as the result of criminal activity but also because the government failed to protect investment at home. The capital flight deprives the country of badly needed investment funds and undermines attempts to stabilize the ruble. It also serves as implicit refutation of those who argue that Russia’s problems result from too little foreign aid.
Pervasive corruption has siphoned off official funds and exacerbated the deterioration of public services in Russia. Health care, never very good, has become even worse, with outbreaks of epidemics of diseases that had almost been eliminated, a rise in infant mortality, and an accelerating decline in life expectancy. Government funding of education, science, and culture has been cut sharply, causing distress among many intellectuals who see their compensation fall and their job security vanish. Few have been able to adapt quickly to the commercial valuation of services that the state has traditionally subsidized.
Tension between the haves and have-nots is rising to dangerous levels in Russia today. The decline in living standards of the poorest citizens creates fertile ground for demagogues claiming what is needed is a strong hand. As Tamara Lomakina, a newspaper editor in Yekaterinburg who was beaten up when she ran a series of articles on local crime, explained to Handelman: “If people begin to equate freedom and democracy with crime and anarchy, they will support political forces who say they can eliminate the bespredel [disorder] by strong-arm measures.” Following the December 1993 election, few people were surprised when pollsters found that most of the votes both for Vladimir Zhirinovsky’s misnamed Liberal Democratic Party and for the Communist Party had come from voters near the bottom of the economic heap. Since their condition has not yet improved substantially, the prospect is for another defeat of democratic reformers in the elections scheduled for December 1995.
Some Russian intellectuals, who should know better, have wondered aloud whether a period of authoritarianism is not required to bring order to the economy and curb lawlessness. Chile’s General Pinochet is often cited as a model in this respect. This is, however, a fatuous hope, since conditions in Russia are not at all comparable to those in Chile when Pinochet took over, entirely aside from the questionable assumption that Pinochet is largely responsible for the current health of the Chilean economy.
In fact, in the Russian context, the political groups that are most likely to try to emulate Pinochet are hardly free of mob connections. Although they rail against the lawlessness and the “mafiya,” they seem in fact mainly angry at foreign businessmen, Russian economic reformers, whom they accuse of corruption, and non-Russian gangs such as those made up of Chechens and Azerbaijanis. Handelman cites numerous indications of the links ultra-nationalist groups of both left and right have with the vory v zakone and the comrade criminals from the nomenklatura, the KGB, and the military. Should such forces ever come to power they would likely cause the criminal grip on the Russian economy to tighten. Russian gangs have proven to be highly pragmatic in their political choices. Many helped finance the campaigns of democratic reformers in 1991 since they wanted to break up the Soviet system. But now that further economic reform would restrict their business, they have found more congenial forces to support.
Just how pervasive are the criminal groups? Is Russia nothing but a criminal cesspool these days? The abundance of appalling incidents sometimes suggests that healthy economic forces in Russian society are wholly submerged. Nevertheless, serious as the situation is, it seems to me that it is neither unrelievedly bleak nor hopeless.
Admittedly, it is impossible to measure the power of organized crime in Russia in quantitative terms. Handelman and other observers have offered guesses about the proportions of different types of economic activity that may be associated with criminals; but these are guesses that are impossible to verify, and even if they could be, the implications would not be fully clear. For example, one Moscow businessman estimated that organized crime accounted for more than half of the real-estate market there. An economic research center in Moscow reported that in 1994 nearly 80 percent of private enterprises and banks in Russia paid up to 20 percent of their earnings to racketeers. Russian law-enforcement agencies told Handelman that by 1993 organized crime accounted for between 30 and 40 percent of the national turnover in goods and services, but they provided no explanation of how they reached the figure.
Even if we take these estimates as roughly correct—and they well may be—it is difficult to determine just what they mean. Is a businessman who is forced to pay 20 percent of his profit to a gang for “security services” thereby a part of organized crime? His contribution helps sustain the criminals, but the businessman would doubtless be happy to save the money if the local police could provide adequate protection. How does one distinguish between those who are victims of the system and those who run it? Or between those who hire assassins and run drugs and those who only take an occasional bribe for some official favor? They are all involved in criminal activity that tends to increase the power of criminal syndicates; but there are vast differences in the effects on society.
Honest people may well feel defeated and abandoned, but they can still be found in Russian society. Many of the people who talked to Handelman and the Russian journalists who risk their lives to expose corruption are clearly working to repel the criminal assault on Russian democracy. Most of those peripherally involved with the criminal world would much prefer to be liberated from their forced association, and they can be expected to press for greater honesty in government.
It would, however, be an illusion to think that, as time passes, the Russian criminals will automatically become ordinary businessmen, even though much of their activity today is in legitimate commerce. Nevertheless, most Russians, like most people everywhere, would prefer to behave in a more or less legal manner rather than in a clearly illegal one. If they have the opportunity to make a decent living within the law, and are given protection from racketeers, most businessmen are likely to welcome the chance to go legitimate. They will not be given that opportunity, however, until the government does more to get rid of its own criminal activities.
The Russian government cannot be expected voluntarily to reform itself, but it is likely to be under relentless pressure to do so. Even though most politicians tend to exploit the issue of crime rather than deal with it in effective ways, and all too many have ties themselves to mobsters, public demands for a cleanup are certain to continue and it is unlikely that they can be denied indefinitely.
The job must be done in Russia, but other countries can help. As the Ivankov arrest shows, Russian crime has gone international, and this places some of its activities under the jurisdiction of other countries. Vigorous prosecution of crimes committed outside Russia can limit the reach of Russian criminals and eventually expose their ties to Russian officialdom and thus force corrective action. Other countries can also do more than they have up to now to block the inflow of hot money from Russia. Cooperation between foreign and Russian law-enforcement agencies is important, even though those in Russia have been penetrated by criminal elements. If foreign agencies handle their contacts in Russia carefully, they can support the honest cops who are dedicated to fighting the crime lords.
Responsible foreign businessmen should refuse even apparently lucrative deals with Russians suspected of ties to criminal organizations or, for that matter, to corrupt bureaucrats; and they should do so not only on ethical grounds. If criminals are involved, the foreigners are almost certain to lose out in the end. And, finally, at the top political level, the Russian president should be told in no uncertain terms that until he gets a better grip on high-level corruption in his own government, his welcome at meetings of the Group of Seven and other economic conclaves will be less than cordial. Russia cannot expect to be accepted by responsible countries as a partner if it continues to allow criminals to have the power they now hold in its government and society.
July 13, 1995