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Impact of Russian organized crime on U.S. business

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Title:
Impact of Russian organized crime on U.S. business
Creator:
Giduck, John P
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English
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vi, 228 leaves : ; 29 cm

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Degree:
Master's ( Master of Social Sciences)
Degree Grantor:
University of Colorado Denver
Degree Divisions:
Department of Humanities and Social Sciences, CU Denver
Degree Disciplines:
Social sciences

Subjects

Subjects / Keywords:
Since 1991 ( fast )
Organized crime -- Russia (Federation) ( lcsh )
Commerce ( fast )
Economic history ( fast )
Organized crime ( fast )
Economic conditions -- Russia (Federation) -- 1991- ( lcsh )
Commerce -- Russia (Federation) -- United States ( lcsh )
Commerce -- United States -- Russia (Federation) ( lcsh )
Russia (Federation) ( fast )
United States ( fast )
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bibliography ( marcgt )
theses ( marcgt )
non-fiction ( marcgt )

Notes

Bibliography:
Includes bibliographical references (leaves 222-228).
General Note:
Submitted in partial fulfillment of the requirements for the degree, Master of Social Science.
General Note:
Department of Humanities and Social Sciences
Statement of Responsibility:
by John P. Giduck.

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|University of Colorado Denver
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Auraria Library
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ocm36960457
Classification:
LD1190.L65 1996m .G53 ( lcc )

Full Text
IMPACT OF RUSSIAN ORGANIZED CRIME ON U.S. BUSINESS
by
John P. Giduck
B.S., Pennsylvania State University, 1981
J.D., University of Denver, College of Law, 1984
A thesis submitted to the
University of Colorado at Denver
in partial fulfillment
of the requirements for the degree of
Master of Social Science
1995


This thesis for the Master of Social Science
degree by
John P. Giduck
has been approved
by
Ernest Andrade
/3 ZWffx
Date


Giduck, John P. (M.S.S., Social Science)
Impact of Russian Organized Crime on U.S. Business
Thesis directed by Associate Professor Mary E. Conroy
ABSTRACT
Organized crime has been an endemic aspect of
Russian society since the early days of the tsars, long
pre-dating the October Revolution of 1917. The
traditional notion of a Russian organized crime leader,
or vor v zakone, is that of a romantic prisoner, living
an ascetic existence, ruling the crime world from his
cell. Historically, these vory were committed to a code
which called for the pedantic regulation of all criminal
behavior. They continued to thrive in the Communist era,
sworn to avoid all involvement with the government or
politics.
Today, Russian organized crime is called the mafiya.
The new vory running the crime networks have rejected the
old code, and have instead indulged themselves in
decadent lifestyles and exploitation of every profit
yielding crime. Drug smuggling and distribution, bank
fraud, extortion, prostitution and contract murder are
all reported to be growth industries for the mafiya. The
rise in overall crime has been widely reported, and both
the American newsmedia and government have added to the
propagation of hysteria regarding the mafiya. Countless
stories have been published and recycled, portraying the
victimization of American businesspeople by the Russian
crime groups. Today, many companies decline to conduct
business in Russia due to a belief formed from such
reports.
But this hysteria is misplaced. Russian crime
statistics, together with a survey of U.S. businesses
conducted for this paper establish that few American
people and businesses suffer any crime at all in Russia.
The majority of the crime which is experienced falls in


the category of property crimes. Murder of Americans is
virtually non-existent, with incidents of robbery,
assault and even extortion surprisingly few. Overall,
the rate of crime in the Russian Federation is but a
fraction of that in the U.S.
Notwithstanding the information disseminated to the
public regarding this phenomenon, there is no evidence
that Russian organized crime has had any significant
impact on U.S. business, or that Americans working and
living in that country are at any significant risk from
these groups.
This abstract accurately represents the content of
the candidate's Thesis. I recommend its publication.
Signed:


CONTENTS
Chapter
1. Introduction .................................. 1
2. Early History and Development of Organized
Crime in Russia................................ 6
2.1 Beginnings of Crime in Russia ................. 6
2.2 Early Russia Through Early Soviet Period . . 11
2.3 Russian Organized Crime in the Soviet Union 12
2.4 Russian Organized Crime in the Early Post-
Soviet Years...................................24
3. Defining Russian Organized Crime ........... 31
3.1 The Need to Define ROC ........... 31
3.2 Russian Organized Crime ...................... 34
3.3 The People Within Russian Organized Crime . 39
3.4 ROC Statistics................................ 44
3.5 Structure and Hierarchy of ROC............ 51
3.6 The Identified ROC Groups..................... 58
.3.7 ROC Criminal Activities....................... 62
3.8 Threat to U.S. Business....................... 71
4. Business Climate of Russia .............. 80
4.1 U.S. Business Concerns........................ 80
4.2 Social Environment ........................... 83
v


4.3 Political Scheme and Future .................... 86
4.4 Russian Law and Legal Reforms................... 94
4.5 Law Enforcement In Russia.......................105
4.6 Organized Crime and the Russian Economy . 113
4.7 Environment of Business.........................124
5. Russian Crime Statistics ...................... 141
5.1 General Criminal Activities ................... 141
5.2 Incidents of Crime Against Americans in
Russia ....................................... 149
5.3 Statistical Analysis of Serious Crimes .... 155
5.3. a Period Through 1992 ........................ 156
5.3. b Period Through 1993 ......................... 158
5.3. c Period Through 1994 ......................... 159
6. Field Research..................................171
6.1 Research Format.................................171
7. Conclusion......................................185
Endnotes ............................................188
Selected Bibliography .............................. 222
vi


1
Introduction
Scarcely a week goes by that the American news media
does not carry a report on Russian organized crime, being
sure to graphically detail any number of gruesome
murders, stories of kidnapping and extortion, bombings of
homes and businesses. Most of these reports, which are
detailed in later chapters, either draw the express
conclusion that American companies and their employees
are the frequent targets of these Mafiya* activities, or
present their information in such a manner that such is
inferred by the general public. Indeed, these reports
have become so ubiquitous that an axiomatic belief has
emerged within the U.S. business community that American
companies and employees are routinely targeted by Russian
organized crime groups, and victimized by racketeers on a
regular basis.
They hypothesis of this research is as follows: that
Russian organized crime activities have not substantially
*
Throughout this paper the Russian version spelled as mafiya
will be used only with regard to Russian organized crime groups,
whereas the more commonly spelled mafia will be used when referencing
more commonly known, non-Russian crime organizations.
-1-


impacted U.S. business. To test this hypothesis against
the general belief to the contrary, a number of research
sources will be compiled and analyzed. All of the work
done on this topic to date has relied on secondary
information, recycled media estimates, and those
estimates provided by various governmental departments,
both U.S. and Russian. All of these reports will be
analyzed as against specific information factually
detailing actual incidents of Russian Organized Crime
(ROC) activities involving U.S. companies or employees as
victims. One of the most difficult aspects of attempting
to analyze the phenomenon of ROC is the extreme secrecy
with which its members have traditionally operated.
While much scholarly work has been done on crime in
Russia during various periods, most of the archival
research on this type is yet to be accomplished. This
has led to merely several contemporary writers on the
subject being recently raised to expert status.
Throughout this paper a great many references are
made to writings and statements of a handful of authors.
These include: the late British journalist Claire
Sterling; American newspaper correspondent Stephen
-2-


Handelman; Russian journalist Arkady Vaksberg; and
scholar Dr. Louis I. Shelley. While there are others,
these individuals have published a large portion of the
recently available information on the mafiya; yet, all
too often they fall prey to sensationalistic temptations
of the media, of which most are members. This has led to
the unavoidable practice of referencing their work as
some basis of authority on the one hand, while critiquing
certain of their conclusions or warnings less grounded in
fact or rational basis, on the other. In this regard,
these authors provide a great deal of current
information, though, with the exception of Dr. Shelley,
it does not rise to the level of scholarly research, with
conclusions based on anecdotal experiences viewed through
the lens of the very people who have helped create an
undeserving hysteria.
In evaluating this phenomenon, it is important to
note that Russian organized crime activity is but one
component of all crime in Russia. To adequately
understand the impact of a crime in Russia, generally,
and ROC activity, specifically, this paper will analyze a
number of factors. Russian national crime statistics
-3-


will be evaluated relative to overall crime rates against
foreign nationals in Russia, including Americans in
Chapter 5. A survey of American business managers who
have actually worked and lived in Russia, or who are in
charge of Russian operations of U.S. firms will be
presented in Chapter 6. Information obtained from these
business will identify incidents of crime against U.S.
companies and their employees, severity of these
offenses, rates of crime, as well as managers' knowledge
of awareness of crimes having been committed against
other companies.
In order to adequately understand the phenomenon
known as Russian organized crime or the Mafiya, this
paper will first analyze, in Chapter 2, the historic
origins of organized crime in Tsarist Russia and its
evolution through the Soviet Union and into the Post-
Soviet eras. The current political, economic and legal
structures of the Russian Federation will be examined
vis-a-vis the potential for successful business
operations by American companies, and as environments
within which ROC is growing, in Chapter 4. Ultimately,
this study examines the questions whether Russian
-4-


organized crime specifically targets American businesses
and employees, and whether those companies and
individuals are the subject of criminal victimization
sufficient to dissuade American commercial enterprises
from beginning or continuing business in Russia.
-5-


2. Early History and Development of Organized Crime in
Russia
2.1 Beginnings of Crime in Russia. In order to
adequately comprehend the phenomenon now known as Russian
organized crime (ROC), some historical perspective on the
early history of crime, criminal gangs and their
evolution into the early form of ROC is necessary.
Contrary to recent accounts of modern organized
crime groups being without precedent in Russia, that
country has a history of organized gang existence. This
history has been somewhat cloaked in secrecy through the
Soviet period, and much is not yet known about Russia's
early organized crime existence. What is certain about
the history of pre-Soviet Russia is that organized crime,
and its associated activities, is not a phenomenon
peculiar to the Soviet Union.1 Numerous publications,
both literary and historical, substantiate the
pervasiveness of particular criminal schemes throughout
Russian history.2
The social institution of criminality in Russia well
pre-dates the dissolution of the Soviet Union on December
-6-


25, 1991; indeed, these roots begin well before the
October Revolution of 1917.3 According to journalist
Stephen Handelman, and as corroborated by Russian mafiya
expert Joseph Serio, for centuries, Russia's criminal
underworld has enjoyed a rich history of smugglers'
societies, thieves and highwaymen, all existing on the
fringes of Russian society.4 These loose associations of
criminals began to develop in the latter years of the
Mongol Era, prior to pre-national Russia's throwing off
the Mongol Yoke in the closing decades of the 15th
century. It is now believed by many that these
associations evolved into a more formal criminal society
over several centuries; they developed codes of rules and
conduct, as well as a particular relationship to
authority.5
During the ensuing centuries the society of the
criminal underworld remained a closed one. Its members
rejected the tautology of the times and involvement in
politics,6 as Russia's numerous and historically feuding
principalities were finally joined as a single federated
state under Tsar Ivan III, between 1462 and 1505.
-7-


This is not to say that early Russian authority was
powerless over these anti-social bandits; many were
imprisoned or forced into lengthy (if not permanent)
exile in labor camps and other remote outposts. These
societies came to be dominated by a small group of men
who spent the majority of their lives so incarcerated,
enduring an ascetic, monk-like existence.7 The men who
secured the upper-echelon positions and control of early
Russia's loosely confederated organized crime
associations were known as Vory V Zakonye, or the
"thieves-within-the-code".8 These first "godfathers" of
Russia's criminal culture established a more structured
code of conduct, including protocols in dealing with one
another, use and application of the proceeds of criminal
enterprises, and offenses which were permissible under
designated circumstances. Though this code was
applicable only to the Vory V Zakonye and those members
of the truly "organized" part of criminal society, its
dictates were pedantically enforced. It is now widely
believed that during this period the true Russian "thief-
within-the-code" or "thief-in-law" was honor bound to not
commit murder. Well defined "thieves rules" dictated
-8-


those times when it was acceptable, if not obligatory, to
kill in defense of one's honor or life, and the code
required one to steal and rob without bloodshed, where
possible.9 These aspects of the early Russian Vory V
Zakonye aided in the manufacture of a romantic, Robin
Hood-esque image in the mind of the Russian people.10
As years passed, the existence of Russia's embryonic
and loosely organized crime groups continued with the
contemporaneous evolution of their leaders' noble image
in the public conscience. A period of social unrest
began in Russia in the early and mid-19th century. Faced
with increasing national pressure for reform, Tsar
Alexander II finally decreed the freedom of virtually all
of Russia's approximately 22 million serfs or feudal
slaves in February 1861. Though the serfs' transition
into society was relatively smooth, it was followed by a
period of some social upheaval.
Also during this era Russia saw the steady growth of
numerous revolutionary groups, many of whom advocated the
violent overthrow of the tsar. The first Russian
revolution of 1905 was surrounded and followed by
increasing rates and severity of everyday crime, not only
-9-


in rural areas but unprecedentedly in cities such as St.
Petersburg. This rising crime rate came to be associated
with gangs of street toughs known as hooligans. These
gangs and a period of uncontrolled hooliganism from 1900
to 1914 were but the newest limb of the growing Russian
crime tree.11
In the waning years of Tsarist Russia, both the
organized crime groups and less organized hooligans came
to represent almost romantic symbols of society's growing
sentiment against land owners, the tsar and
authoritarianism. The secretive nature and carefully
enforced codes of these gangs prevented access or
understanding to outsiders. This fact alone has made
definitive research into this early period difficult. It
is now reported by such authors as Stephen Handelman and
Joseph Serio, however, that this organizational
structure, comprised of small sub-groups or cells, a high
level of secrecy, and frequent ignorance on the part of
cell members as to the identity of compatriots, became an
early organizational model for, first, the Populist-
Terrorists of the latter 19th century, and, second, V.I.
Lenin, Socialist Revolutionaries and the "early Bolshevik
-10-


clandestine organizations."12
2.2 Early Russia Through Early Soviet Period. Handelman
believes that, "the future founders of the Soviet state
not only admired the gangs' anti-establishment ethos,
they also secured employment for them in the revolution.
Gang members were recruited for so-called
expropriations bank heists and kidnappings carried
out in order to raise funds."13 After the successful
resolution of Russia's third revolution of October 1917,
and the subsequent period of internal strife caused by
the Civil War which raged from early 1918 until 1921, the
criminal groups took on the name which continues in use
today, and now defines the modern Russian mafiya. This
name was Vorovskoi Mir and is translated as "Thieves
Society" or "Thieves' World."u It is perhaps little
wonder that Joseph Stalin, on accession to the titular
height of General Party Secretary in 1922, and autocratic
ruler by 1930 after the death of Lenin in 1924,
incorporated many organized crime or gang leaders into
his administration.15 A substantial portion were
recruited into the Soviet secret police (the
-11-


Extraordinary Commission or Cheka) and later, after
securing Soviet power against continued insurrection in
the post-Civil War period after 1927 these same
criminals were used as enforcers and informers against
political prisoners in the gulag.16
2.3 Russian Organized Crime in the Soviet Union. The
harsh restrictivism of the newly empowered Bolsheviks had
a prophylactic effect on crime in general, including
organized crime activities. At the same time inherent
flaws of the Communist system created a society of people
who either exploited the system, made their living
attempting to beat it,17 or suffered at the hands of that
system. Ordinary economic activity became a crime during
the Civil War period of 1917 to 1921. This was followed
by a short six year period of relaxed restrictions, and
then all market-related economic practices again became
criminal from 1927 until approximately 1977. The command
economy created shortages, and a derivatively huge demand
for virtually every desirable consumable.18 These
shortages would be the seeds from which organized crime
would take root and continue to grow in the new state.19
-12-


This criminal society which came to profit from the
defects of the Communist system and command economy would
continue until the demise of the Soviet Union. After the
Communist journalist's death corrupt politicians and
government officials, on the one hand, and organized
crime members, on the other, would converge in an
inseparable, synergistic form.20 Yet, it is important to
first understand how this evolution occurred.
As the Soviet Union moved into the Brezhnev era of
renewed restrictivism, the country, its economy and
military, were maintained by both thieves and government
officials who stole. The common thieves or criminals
stole the property of private citizens and the state.
Russian antagonist Claire Sterling presents the case that
the government officials or nomenklatura did the same
"through graft, expropriation, embezzlement, wholesale
extortion and 'ceiling statistics' (inflated production
figures dreamed up by staring at the ceiling)", calling
the Soviet Union a kleptocracy.21 The most profitable
form of cooperation between these two groups began to
emerge in the 1960's with the rise of black market
trading. ROC members served the function of middlemen or
-13-


brokers, distributing stolen state materials and goods
produced in underground or secret factories into both the
grey and black economies.22 Per Sterling, "this was
korruptsiya communist style, a shared monopoly of power
between politicians and crooks."23 The system of
corruption was extensive and far reaching, penetrating
the tiers of the government hierarchy. Moreover, it
relied upon the implicit, if not explicit, cooperation
and involvement of the country's leaders. This fact
alone marked the Brezhnev era as one of cronyism.
Indeed, Brezhnev insiders gradually took over the KGB.
This clique was so powerful, and governed so much in both
the official and unofficial sectors of the country, that
it came to be known as the Dnieprpetrovsk Mafiya, in
honor of Brezhnev's hometown.24
There appears little doubt that Brezhnev removed
many government officials and other functionaries from
their positions and replaced them with loyal members of
the new government code, what Russian author Arkady
Vaksberg calls "the celebrants in the all-round and
ongoing festival of plunder."25 This was the predecessor
to today's post-Soviet mafiya. The core of the
-14-


developing mafiya in the Soviet Union during this time
came from the Sochi region. When Brezhnev took over the
reins of the Soviet Union, his first appointment was of
Sergei Medunov as First Party Secretary for that region.
Medunov quickly disposed of all Khrushchev-era appointees
who occupied any potentially useful job. They were
replaced with people he could trust, those who were loyal
to him and, more importantly, to his style of
exploitation and profiteering^ Arkady Vaksberg has
written that these people "were shaped by a new
phenomenon which had then appeared in society. Nowadays
this new phenomenon is known by its proper name, the
black economy, but in those days it did not exist."26
During this period Communist party officials and
government functionaries "took second to no one in
criminal behavior."27 That this system developed through
the constructive ratification of Leonid Brezhnev himself
is without question. This is not to say that such
illicit behavior was without its risks. Even under
Brezhnev the Soviet Union continued to be a nation
obsessed with appearances. There were risks for those
who committed the unpardonable offense of not conducting
-15-


their illicit affairs with sufficient discretion. When
embarrassments came to light, whether by happenstance or
by the calculated maneuvering of a government opponent,
sanctions were severe. During the 1970s and 1980s a
number of scandals rocked the Soviet government. The
Cotton Affair, where Communist Party bosses and the
Socialist Republic of Uzbekistan were making enormous
amounts of money through the falsification of production
reports, "revealed a previously unsuspected talent for
larceny beneath the puritanical exterior of the Soviet
leadership."28 It was at this time that Russians first
incorporated the word "mafiya" as a way of describing the
networks of corruption within the government at all
levels.29 Corruption in the Soviet government was so
rampant that the First Secretary of Odessa's Party
Committee was sentenced to death in the 1970's for black
marketeering.
As time went by the situation changed dramatically.
The organized crime people developed closer associations
to those in power, and began to expect protection from
prosecution and punishment. Eventually, there was no
-16-


further need to hide their criminal activities or
proceeds.30 The Brezhnev era practice of supplanting the
Communist Party and government career professionals with
those loyal to the korruptsiya, marked a shift to the
appointment of mafiya members to top positions. Bribery,
a virtual institution throughout the history of the
Russian government, continued through this era and netted
the ROC groups vast amounts of money. Correspondingly,
the organized crime groups grdw in size and strength, fed
by the profits from the theft and resale of any state
resource they could access. There was no oversight
department or regulatory agency which could or would
enforce the rule of law of this nation. No institution
existed which had not been corrupted by its own
integration in the system. Even the Ministry of Internal
Affairs (MVD) was headed by one of Brezhnev's closest
friends and drinking companions. The MVD, charged with
law and order, the military, KGB and other important
functions, was not in a position to take on the
burgeoning mafiya as its own Minister Shcholokov was
involved in mafiya affairs.31 Even Brezhnev's son-in-law
Yuri Churbanov, Deputy Minister of the Interior, was
-17-


implicated in the exploitation of state resources
wherever and whenever they could be accessed.32 He was
known to be taking bribes from an Uzbekistan mafiya
group, and even Churbanov's wife was implicated with a
diamond smuggler.33
Journalist Robert I. Freidman reported that by the
close of the Brezhnev era in November 1982 the country's
underground economy accounted for upwards of 50% of the
individual income of Soviet citizens.34 If this was true
for the average Soviet citizen, the incomes derived from
such illicit activity for the apparatchiks, higher
government officials and racketeers would have been
substantially greater. Such profiteers lived in decadent
luxury, enjoying access to the two greatest assets of
that country: special stores with foreign consumer goods
and travel abroad.35 Corruption in the Soviet Union
during this period became so universal that it supplanted
governance as the business of the Soviet state; it was,
"...as if the entire Soviet Union were ruled by a
gigantic mob family known as the CPSU (Communist Party of
the Soviet Union)."36 The underground economy of the
nation was vast and integrated every aspect found in an
-18-


economic system. It is estimated that up to 40% of the
nation's foodstuffs were distributed through the black
market.37 The implicit cooperation between mob leaders
and government officials, particularly in the regions,
became so great that by the end of the Soviet era there
would be more than 600 vory existing at the upper-most
echelon of the organized crime hierarchy.38
During the early periods of the Soviet Union the
ethos of Leninism-Stalinism created a regime of political
tyranny. Khrushchev, sensitive to the dangers of this
path, implemented a system of reforms, liberalization and
increased freedoms which set the stage for a culture of
criminality and corruption. Brezhnev reintroduced
Stalinesque restrictions. Rather than correct the
criminal excesses from Khrushchev's period, this
completed the cycle; political criminality merged with
the organized criminality which had been operating
quietly, beneath the surface of the harsh Soviet regime.
Arkady Vaksberg describes it thus: "...power and
criminality mingled, the rulers of the country became not
figuratively but quite literally criminals, although they
were criminals who were also the leaders and rulers of a
-19-


country. "39
Though little scholarly or archival research has
been accomplished on this phenomenon, it is generally
believed that as with the Khrushchev-era reforms, the
introduction of perestroika by Mikhail Gorbachev after
his appointment as Prime Minister and First Party
Secretary in 1985, merely created an environment which
further fostered the growth of organized crime. Suddenly
the enormous wealth which had been accumulated by
racketeers and corrupt government officials had a
legitimate outlet.40 Private commerce was now allowed,
and fortunes accumulated from the black and grey
economies poured into new businesses, and joint ventures
with foreigners, and out of the Soviet Union.41 Party
and government insiders, the apparatchiks who had so long
exploited the vagaries of the Communist system, began to
position themselves through accumulated wealth,
continuing control of limited economic sectors, and a
network of contacts both domestic and foreign. Their
goal was to take advantage of this new era. In this way,
the corruption of the earlier period merely adapted to
new conditions and continued. New Russian businessmen
-20-


who tried to commence legitimate concerns, complained
that it was impossible to survive against both the
official and criminal competition.42 Russian organized
crime expert and journalist Stephen Handelman wrote that
by the close of the 1980's most individually created
businesses would be either owned, controlled or in debt
to organized crime groups.43
Though ROC groups had previously existed on local,
regional, and national levels, the dissolution of the
Soviet Union cast them for the first time into
international organized crime circles.44 When the Berlin
Wall fell in 1989, the Western mafia organizations which
had plagued Europe and America, the Colombian cartels,
the Sicilian mafia, the Chinese Triads and the Japanese
Yakuza all were steadily moving east to exploit
opportunities in the ex-Communist Eastern Bloc. Claire
Sterling comments, "There they met the Russian mafia
coming west."45
There is little argument that the political and
economic reforms of the late 1980's and early 1990's,
created institutional disorder within the country.
Virtual chaos within the government and economy merely
-21-


That is not
fed the growth of Russian organized crime.46
to say there was no effort on the part of government
officials, seeking to control these criminal excesses and
corruption. During the decade of the 1980s alone the
Soviet Prosecutor General's office, a department which
had been previously stripped of any legitimate law
enforcement capabilities, charged fully one-quarter of a
million officials with embezzlement. This included
eighteen men who were then employed with the federal
government's Department to Combat Embezzlement.47 By
1988 scandals involving corruption and criminal activity
had rocked the government at national, regional and city
levels. Revelations of organized crime connections and
publicity surrounding official corruption resulted in the
termination of more than 100,000 police officers.
Comprising fully 15% of the entire police forces of the
Soviet Union.48 By 1991, merely three years later,
approximately 20,000 police officers were being fired
annually for alleged involvement with organized crime,
and in 1992 more than 2,000 policeman were charged with
crimes49. It was at this time that the MVD's Sixth
Department to Combat Organized Crime estimated that 80%
-22-


of the Interior Ministry's militsia were under the
control of, or had been compromised by, the ROC groups.50
The same changes seen by the Soviet government in
the 1980s and early 1990s affected the development and
structure of organized crime as well. The old code, the
culture of honor among thieves which had existed for
centuries, was replaced by a new ethos of short-term
profiteering and maximum personal exploitation by any
means available. Previously, Vory V Zakonye had led
ascetic lives, while judiciously administering the proper
distribution of large funds of money. These funds, known
as 11Chyornaya kassa" or black fund, were maintained for
the bribery of necessary officials and other criminally
essential expenditures. This "new generation of crowned
thieves" still access the Chyornaya kassa, but for their
own personal use.51 Contrary to the age-old code, these
new Vory V Zakonye began to engage in economic
enterprises of their own, for their own profit. They
opened stores and kiosks, and began to work their way
into the control, if not management, of banks, investment
companies and other financial institutions.52 This new
generation of mafiya was thus far more expansive, enjoyed
-23-


a more extensive hierarchy, was wealthier, and greatly
sophisticated relative to its predecessors. It far out-
classed the one that had flourished under Brezhnev,53
though it can be argued that it was simply the
evolutionary extension of the former.
2.4 Russian Organized Crime in the Early Post-Soviet
Years. By the time the Soviet Union collapsed, organized
crime had evolved into an elaborate institution, firmly
entrenched in the soil of common crime, illegal economic
activity and the government structure. The successor
Russian Federation inherited ROC groups of a vastly more
extensive hierarchy and structure, wealth and
sophistication than previously existed. Through its
anchor in the nomenklatura of the Soviet government, and
of its Russian successor, the Russian mafiya would prove
to be a most formidable enterprise.54 Having survived a
government system that kept its people in line for three-
quarters of a century55, organized crime in Russia was
more than prepared for the huge growth which could be
effected under the new system. By the time of the Soviet
Union's collapse the majority of resources in both
-24-


capital and wealth came from the black market, and much
of this was owned or controlled by various echelons in
the Communist Party.56 The institutions which existed to
secure the sanctity and safety of the nation and to
ensure law and order such as the police and judiciary,
became "nebulous organizations, floating desperately
betwixt the state and the underworld, half-respectably
above the water line, half submerged in the mire."57
Since the Communist collapse; the same people, the very
nomenklatura who had corruptly managed the illicit
economy and other criminal activities in conjunction with
their mafiya counterparts continued to be seen operating
throughout the new Russian Federation in racketeering
activity.58
What had not been anticipated was the soon-to-be
marriage between ROC and Western mafias. Not only did
the various organized crime groups from the Newly
Independent States (NIS) unite for continued and
increased criminal activity and wealth, but the big crime
syndicates from Europe and America urgently sought a
profitable arrangement with the newly freed Russian
groups. Author Claire Sterling contends that, "As the
-25-


old geopolitical frontiers fell away, the big crime
syndicates drew together... and declared a pax mafiosa.
The world had never seen a planet-wide criminal
consortium like the one that came into being with the end
of the communist era."59
Whether the extent of international criminal
involvement reached the proportions of planet-wide
criminal conspiracy contended by Sterling remains to be
seen. What is certain is that organized crime existed
and had roots in most sectors of Soviet society and
economy at the time of the collapse of the Soviet state
on December 25, 1991. Government efforts at controlling
or eradicating the ROC groups had been unsuccessful up to
that point. By the beginning of 1992 such Soviet
institutions as the Sixth Department under the Soviet
Ministry of the Interior, created by Gorbachev in 1989 to
fight organized crime, had been dismantled. In 1992 no
authority existed for the purpose of controlling ROC
activity, investigating governmental corruption or
coordinating police intelligence. The only organization
which remained fully operational was the Russian
mafiya.60 It was perhaps the only Soviet institution to
-26-


actually benefit from the collapse of that government.61
After the U.S.S.R.'s collapse in December 1991 its
fifteen former republics emerged as new and separate
nations. These new countries were fertile ground for
well-organized crime enterprises experienced in working
the entire Eurasian continent. In this new environment
smuggling quickly became a watershed industry as products
stolen from Russia were not considered illegal by a host
country, once moved across Russia's borders.62
The early period after the collapse of the Soviet
Union thus saw the dismantling of most of the legitimate
institutions and effective aspects of that nation's
government and economic systems. The one institution
which enjoyed immediate success and growth both
domestically and internationally was Russian organized
crime. Indeed, the total collapse of the Russian economy
in 1992 and 1993, coupled with the decline of
governmental power or control, resulted in a substantial
increase in organized crime activities. It has been
contended that this increase was accompanied by a
dramatic rise in corruption within the new government as
well.63 It does appear that the heavy influence of
-27-


organized crime activities carried over from the Soviet
era has had a significant impact on its successor states.
This can be seen particularly in the areas of financial
fraud.64 Claire Sterling has argued that the extreme
corruption of the old nomenklatura in the Soviet Union
has given way "to the terrible cancerous growth consuming
the country now."65 What remains to be seen, however, is
whether organized crime, in its current form, is a
"terrible cancerous growth", as so many contend, and
especially whether it is a cancer which is specifically
afflicting American business in the new Russian
Federation. Have the sources of revenue of Russian
organized crime been multiplying geometrically since the
Soviet empire ended, as so many believe?66 If so, has
this multiplication of revenue come from the
victimization and abuse of American citizens and
businesses attempting to function legitimately and
profitably in Russia?
Until recent years the persona of the thief-within-
the-code was romanticized, on the order of Robin Hood.67
This image has since been tarnished.68 The new Vory
continue to be crowned through the recommendations of the
-28-


others, with each new member displaying a special tattoo
on his chest: a heart with a dagger through the middle.69
As noted, the early Vory were ascetic, a condition which
helped to define them and increase their power. This new
generation of criminals, however, buys enormous,
luxurious apartments and homes and is driven about in
costly foreign limousines or high-profile cars. The
previous code restrictions against the use of violence
and murder have been left behind70. The new Vory deal
with people with whom they were previously bound by honor
and code to have no contact at all. Today it is becoming
commonplace for hired assassins to provide the final
mediation of any dispute.71 These are indeed the new
"commercial criminals".72 The new organized crime groups
are reported to hire Afghanistan war veterans or former
members of Soviet spetsialnogo naznacheniya or spetsnatz
units the Soviet special forces. As discussed, the
association between the organized crime groups and
Russian military is substantial and long pre-date the
demise of the Soviet Union.73
What is not certain, and the question on which
little real research or objective fact gathering has been
-29-


done, is whether these acknowledged increases in ROC
activity have had a direct or significant impact on U.S.
businesses. In succeeding sections available information
on the actual structure and hierarchy, and the types of
activities of ROC groups will be provided. Information
commonly disseminated and published in the West, and upon
which U.S. businesses rely in making investment and
operation decisions, will be contrasted against that
which is factually known about ROC operations and actual
reports of crime in Russia.
-30-


3. Defining Russian Organized Crime
3.1 The Need to Define ROC. One of the greatest
difficulties facing those individuals and organizations
which must deal with the impact of Russian Organized
Crime (ROC) is answering the question, exactly what is
Russian organized crime? This difficulty derives in part
from the extreme secrecy with which ROC members function;
and has been exacerbated by both news media and law
enforcement agencies, whose own particular ends are
better served by sensationalized and exaggerated accounts
of ROC membership, rising numbers of groups, types and
frequency of various crimes.
What remains missing is a clear understanding of
what exactly Russian organized crime and ROC groups are.
Certainly, the news media in reporting incidents of
street crime and overall rising crime rates in Russia
utilize a liberal construction of this term, it being in
vogue to blame much on the mafiya. In reality, it will
be seen that there are actually many layers of crime in
Russia, a number of which are not mafiya controlled.1
-31-


Since the collapse of the Soviet Union in late 1991,
newsmedia accounts of an increasing crime rate have
paralleled rising estimates of the number of actual ROC
groups and members. Rarely a month has gone by in the
past three years that some newspaper, magazine or
television show has not proffered a statistic on the
number of ROC groups operating across Russia that was not
substantially greater than those previously reported. A
review of such publications leads to the conclusion that
the U.S. media in particular has been engaged in a game
of journalistic one-upmanship, each trying to outdo the
other with histrionic accounts of the spread of the
Russian mafiya.
The lowest, if not the most realistic, estimate of
total active gang membership in Russia is reported by
journalist and ROC expert Stephen Handelman at fewer than
100,000 people.2 Paradoxically, Mr. Handelman has
otherwise been known to add to the media hysteria by
reporting far greater numbers, both in his writings and
testimony before Congress.
Despite this reasonable estimate, U.S. news media
accounts of this problem now report that Russian
-32-


organized crime is comprised of 5,700 different gangs, an
estimate which is up from merely 785 in 1991.3 As well,
these many thousands of organized crime groups are
reported to employ no fewer than 3 million part-time
racketeers; this estimate is reportedly from the Russian
Ministry of Internal Affairs,4 further evidence that even
they ascribe organized Crime involvement to anyone
possessing a substantial amount of money.5
In order to adequately and accurately understand the
organism of Russian organized crime, some commonly
accepted standards and parameters must be established.
There is a monumental disparity between problems inherent
to common street crime from those surrounding true
organized crime or mafiya activities and control of
various sectors of the economy and political structure.
To understand Russian organized crime then, it must first
be adequately defined. This occurs through an
examination of its component parts: the people who
comprise it; its organizational structure; individual
groups; and activities inherent to ROC.
-33-


3.2 Russian Organized Crime. The Financial Crimes
Enforcement Network (FinCEN), a government-funded
international organization based in Vienna, Virginia
which tracks the activities of criminal enterprises, has
reported that the term Russian Organized Crime (ROC) is
often misused and over-applied by both law enforcement
and the media, as it is often employed to describe every
type of crime committed by former Soviet citizens.6
Indeed, Russian organized crime is a phenomenon far
smaller and more identifiable than that which this
definition represents. However, it is an entity which is
not as easily identifiable as the original Italian mafia
groups. The mafiya of Russia is seen as a hydra-headed,7
hybrid monster,8 which has come to feed on the emerging
market economies of Russia.9 It is not a monolith as is
often believed, but "a congeries of hundreds of gangs,"10
according to the U.S. Department of Treasury, Office of
Counterintelligence and FBI. Though most often seen as
loosely associated or banded criminal groups, Russian
mafiya entities have been recognized to exist in
organizations identical to that of traditional organized
crime entities.11 For the most part, its various
-34-


entities or components are not so permanent as is often
inferred from the term "organized crime". ROC "brigades"
may come and go, group leaders are often transitory and
numerous groups are transient, moving from one area of
the former Soviet Union to another.12 The various groups
and organized gangs are often mistaken for real or
traditional mafia, with everything from Asiatic bandits
to Russia's version of motorcycle gangs being included in
media and law enforcement accounts of ROC activity.13
Various groups, all broadly considered to be "Russian"
organized crime, are known by nationality. Chechen,
Armenian, Azerbaijani, Georgian, Russian, Ukrainian,
Uzbek and Ingushi are all commonly identified types of
ROC's, many being so categorized more due to their former
status as Soviet republics than any real identifiable
entity with structure and permanence. ROC groups are
simultaneously, and seemingly paradoxically, described by
occupation as well. Various "mafias" commonly depicted
in western publications include the drug mafia, the
gambling mafia, the taxi mafia, the gold mafia, the
currency mafia, the stolen car mafia, etc.14
At times, some enterprising publication will attempt
-35-


to better define this amorphous concept by cross-
categorizing these groups. Most often this cannot be
done with any acceptable degree of accuracy, and
virtually never in a fashion which yields permanent
organizational understanding of ROC. This problem is
exacerbated by the fact that "lines are indistinct
between mafiosi and ordinary swindlers or black
marketeers. Often there is no discernable line at all
between mafiosi and their political confederates."15 It
is for all these reasons that the traditional
understanding and definition of organized crime, as a
"continuing and self-perpetuating criminal conspiracy fed
by fear and corruption and motivated by greed", is often
inapplicable.16
This is not to say that there is no authentic
criminal organization known, or which can be accurately
depicted, as the Russian mafiya.17 An analysis of the
actual Russian mafiya or Russian organized crime must be
careful to not include the myriad "unorganized" gangs and
temporary associations and affiliations of criminals
throughout the former Soviet Union, engaging in all types
of common and sometimes extraordinary criminal activity.
-36-


The American understanding of organized crime being
defined as a "pattern of racketeering activity" through
otherwise "legitimate business enterprises" is found in
the federal Racketeer Influenced and Corrupt
Organizations Act (RICO)18, and was based on the
structure and activities of La Cosa Nostra.19 True ROC
is an organization, with structure and hierarchy,
perpetuated with financial objectives.20 ROC, or the
mafiya, is generally wealthier by far than the law
enforcement agencies working against it and far better
equipped in high-technology weapons, transportation and
communication systems.21 Violence, contrary to popular
media reports and the histrionics of Russian and U.S.
governmental agencies, is rarely indiscriminant. It is
used merely to promote the economic objectives of the
organized criminal group, i.e., market share and
profit.22 Dr. Louise I. Shelley, professor of Public
Policy at American University and accepted expert on
Russian organized crime, has created certain parameters
within which true mafiya activities can be defined.
Most organized crime groups make the most
significant share of their profits from the
exploitation of the market for illicit goods
and services (i.e., prostitution, gambling,
-37-


drugs, contract killing, supply of cheap
illegal labor, stolen automobiles). These
activities, combined with the extortion of
legitimate businesses, provide the primary
income sources of organized crime groups in
most societies.23
Thus, to understand the true nature of the actual
organization or entity deserving of the appellation
"Russian mafiya" or "ROC", one must consider all of these
elements: (1) it is a perpetuating, "organized" and
hierarchical entity, (2) existing for the purpose of
attaining financial objectives, (3) most important of
which is the yield of revenue and profit from various
illicit activities in the market place, and, (4) most
often associated with organized crime activities such as
bribery, extortion, prostitution, drugs and murder
often through otherwise legitimate business
enterprises.24 Within these general parameters it is
crucial to analyze ROC's component parts to yield an
accurate understanding of the true size and activity
level of this phenomenon, and the magnitude of the threat
it represents to American businesses. This cannot be
accomplished without first identifying who and what
comprise the Russian mafiya, what organizational and
-38-


hierarchical structures have been established by them,
what the individual mafiya groups really are and how they
are organized, what actual number of racketeers work in
and for these groups, and, finally, what activities in
which the mafiya groups are engaged.
3.3 The People Within Russian Organized Crime. As with
any "organized" enterprise, the Russian mafiya is
comprised of a discernable, if not formalized, hierarchy.
At the top are the Vory, having survived the
transformation from their previous role as communist
antagonists to command the upper echelon of Russia's new
free market racketeers.25 But these Vory are new, and
v
indeed different, unlike any kind of criminal seen in
Russia before. These mob chieftains have "one foot in
the old black market world, the old criminal world, and
another foot in the official world, the world of politics
and the old structure of the party."26 Membership in the
upper levels of the Russian mafiya can only be attained
through an established and respected member-sponsor, and
only then after establishing loyalty and commitment to
this lifestyle by killing someone expedient to the
-39-


organization, usually a friend or relative, in a manner
similar to the initiation rites of their Sicilian
counterparts, which they appear to study assiduously.27
In fact, the new Russian mafiya not only admires but has
attempted to copy, if not recreate, the Sicilian mafia
which it believes to represent the highest standard of
organized crime achievement.28
The Russian Interior Ministry (MVD) has reported
that throughout the Commonwealth of Independent States,
there are approximately 500 of these high-level crime
bosses. More than half are estimated to be Georgian,
Russian or Ukrainian.29 It continues to be generally
believed that all of these high-level mafiosi have served
time in prison,30 though this may no longer be an
accurate depiction. At all levels they have largely
eschewed the code of honor of the old thieves' world,
contrary to the romanticization of the media and many
experts' beliefs.31 Still, they continue to live by an
amended code more practical to the new organization and
its aims, including even a code of silence which the
threat of arrest and imprisonment cannot break.32
Members risk this code's death penalties, communicate in
-40-


secret vernacular and identify each other through the
display of tattoos "marking their eternal membership": a
spider web for drug traffickers, an eight point star for
robbers; a broken heart for district bosses.33 On their
knuckles are displayed tatoos of cyrillic letters marking
them as "made men" in the organizatsiya.31
As with their Sicilian counterparts, their public
appearance is that of ultimate respectability.
Expensively and tastefully attired at all times, the new
racketeers regard themselves as the inheritors of a
romantically traditional view of Russia.35 Born and bred
under the harshness of the communist regime,36 by 1991
most found themselves supporters of the fledgling Russian
democracy.37 In fact, during the attempted putsch in
August 1991, and the seizure of the Russian White House -
- within which Boris Yeltsin rose as an icon of freedom
and democracy it was reported that a number of these
same racketeers were identified delivering coffee and
manning guns, defenders of Russia's new democracy.38
Perhaps the political commitment to democracy of
these new criminal-businessmen is not the only indication
that they are a different breed from the stereotypical
-41-


racketeer. Many of the new Russian organized crime
members are highly intelligent, educated and experienced
in various academic and scientific disciplines. A great
number have advanced degrees in science, engineering and
mathematics,39 and many were high-level scientists and
professionals in the Soviet system. Today's Russian
gangsters play chess40 and many are multi-lingual.41
Usually in public the upper-tier bosses are surrounded by
five or six large, muscular men, "with thick necks and
vestiges of broken noses."42 As is traditional with the
Sicilian organized crime members, Russian mobsters
utilize upscale restaurants as meeting places, public
visibility and apparent control. Usually found arranged
at the rear tables in such establishments are a large
number of enforcers or bodyguards, identifiable by their
short, clean-cut professional hair styles, sport jackets
and black turtleneck shirts, portable cell phones,
Italian loafers, and stacks of money.43 The extreme size
of these individuals attests to the fact that some
Russian mob groups hire former members of the Soviet
Olympic weightlifting team,44 in addition to former
heavyweight boxers and wrestlers of national if not
-42-


Olympic caliber.45 These former athletes are quite
obviously used because of their strength and appearance,
being referred to as "pitbulls" and "torpedoes.1,46
But the conscription of lower-level employees does
not stop at former athletes. There is mounting evidence
that certain of the organized crime groups are employing
out-of-work KGB agents to run their individual
racketeering enterprises,47 and further evidence that
former Soviet intelligence officers of various agencies
now run their own criminal enterprises.48 These former
intelligence operatives have access to and knowledge of
high-technology and can exploit former networks of
individuals and groups involved in international trade
and black marketeering.49 Still other groups have been
accused of importing former Israeli commandos. In the
rising competition among the various ROC groups, there is
a corresponding demand for highly trained professionals
with combat experience and a willingness to follow any
orders given.50 It is for this reason as well that
Afghanistan War veterans and Soviet Spetsnaz troops are
recruited.
Police officers, and some leading police officials,
-43-


are believed to have been conscripted. Allegations of
commanding officers within the Russian police departments
acting as directors or consultants for mob-owned front
companies and commercial enterprises have been made.51
It has also been reported that others moonlight for the
gangs as enforcers or consultants, and that one police
captain in Vladivostok even came to head his own gang.52
3.4 ROC Statistics. While the numbers of individuals
occupying various positions within ROC structures may be
discernable, it appears no one has a realistic
approximation of the magnitude of Russian mafiya members
in the Russian Federation. It is in this statistic
alone, perhaps more than any other, that the newsmedia
has painted a picture of a mafiya problem gone out of
control. While the F.B.I. has estimated that the number
of persons in organized crime groups in Russia actually
exceed the number of La Cosa Nostra members and
associates in the United States, this belief does nothing
to provide an empirically verifiable profile of the
actual numbers of ROC members. The estimated numbers of
organizatsia groups across the Russian Federation have
-44-


ranged from fewer than 800 to almost 6,000. Though these
estimates have increased consistently since the latter
part of 1991, the increase can be attributed as much to
recycled news accounts with incrementally increasing
sensationalization as to actual increases in numbers of
real organized crime entities.
A November 4, 1993 hearing before the U.S. House of
Representatives' Subcommittee on International Security,
International Organizations arid Human Rights, of the
Committee on Foreign Affairs, addressed the issue of the
threat of international organized crime. At that hearing
it was estimated that between 2,500 and 3,000 criminal
formations then operated in Russia, engaging in the
activities typically associated with traditional mafia
groups: drug dealing, extortion, kidnapping, bank fraud,
counterfeiting, contraband exports, contract murder,
trafficking and weapons.53 Earlier, Russian Ministry of
Interior investigators were reported to have counted
almost 3,000 gangs across the Russian Federation.54 By
early 1994 estimates available in U.S. publications had
increased to between 3,000 and 4,000 gangs operating in
Russia. This was reported to include several hundred
-45-


whose activities spanned the breadth of all the C.I.S.
territories, including other parts of eastern, central
and western Europe.55
That the 4,000 gang figure was being reported in the
west is of little surprise. Russian Federation President
Boris Yeltsin was reported to have asserted as early as
February 1993 that there were more than 4,000 organized
criminal gangs known to be operating in Russia back in
1992. Supposedly, President Yeltsin contended that more
than 1,000 of these were then operating
internationally.56 Not to be left behind, the U.S.
Department of Energy's (DOE) Office of Threat Assessment
did President Yeltsin one better, contending that there
existed "cited evidence" establishing 4,000 organized
crime groups operating in Russia as early as 1991, prior
to the dissolution of the Soviet Union.57 DOE, relying
on statistics published in commonly available journals
and newspapers, estimated that 40% of private businesses
and 60% of state-owned companies had been corrupted by
organized crime. Through this agency it is thus the U.S.
government's position and official estimation that the
Russian mafiya now owns half of the commercial banks and
-46-


50% to 80% of shops, hotels, warehouses, depots and
service industries in Moscow alone.58
With no concern toward verifying an accurate number,
other Western publications calling the Russian mafiya
the world's largest, busiest and meanest collection of
hoods increased the guess to 5,000 groups and 3
million people working for or with them.59 By September
1994 experts on the effects of Russian organized crime on
the Republic of Germany, at the Financial Crimes
Enforcement Network's Conference on Russian Organized
Crime in Vienna, Virginia, cited Russian law enforcement
authorities agreeing with their president, that
approximately 4,000 criminal organizations were operating
in Russia.60 Yet Yeltsin claimed there were 4,000 in
1992 and that this problem had been increasing. Of the
4,000 identified in late 1994, it was the experts'
assessment that about 180 had international relations and
conducted their criminal activities on an international
scale,61 contradicting President Yeltsin's estimate that
fully 1,000 of these groups are engaged in illicit
international activity.62
-47-


In early 1993 the Russian MVD reported that there
were exactly 4,352 organized crime groups operating in
Russia, comprised of an estimated 100,000 members and a
leadership of 18,000. The Internal Affairs Ministry
further reported 275 intra-regional groups, 168
international, and identified 150 enterprises, consisting
of two or more groups in close cooperation, which they
termed "criminal communities."63 The German Republic's
Bundeskriminalamt felt that through 1994 there were then
approximately 700 of the upper-echelon thieves-in-law or
Vory, of which 180 operated outside Russia, and the total
organized crime groups had merely several tens of
thousands of members.64 Perhaps the Russian MVD's First
Deputy, General Mikhail Yegorov, provided the most
accurate estimate of the groups alleged to be operating
internationally, when he asserted that his organization
could identify 174 Russia organized crime entities which
were then operating in all 15 republics of the former
Soviet Union and in 29 countries, including the United
States.65 Indeed, countless reports from both the media
and U.S. government have documented the virtual takeover
of such areas as New York's Brighton Beach by Russian
-48-


mafiyas, and the exportation of their activities to other
U.S. cities. This includes the June 8, 1995 arrest in
New York City of Vyacheslav K. Ivankov. Ivankov, known
as the godfather of all ROC activities in the U.S. was
found to have a Denver address, the same as that of the
owners of Denver's St. Petersburg restaurant.66
Other Western publications and sources have produced
data which appears to be more realistic in terms of
numbers. One estimate has Moscow suffering from slightly
more than 12 major organized crime groups, all of which
are Russian, with a number of smaller Chechen, Georgian
and Tatar organized crime enterprises.67 It is highly
questionable, and indeed stretches credulity, to believe
that early Russian government approximations of fewer
than 800 smaller organized crime groups at the end of
1991, grew almost exponentially to nearly 6,000
identifiable organized groups, manned by more than
100,000 members. And what of such estimates as that
espoused by Claire Sterling in April 1994 in The New
Republic of 3 million people employed by them?68
In scrutinizing these varying estimates of the
magnitude of the Russian organized crime problem,
-49-


including those of the Russian Interior Ministry, it is
important to note that no one has yet provided supporting
documentation nor the identity of 2,500 to 5,700
individual enterprises. It is rather far reaching to
believe, without evidentiary support, that literally
millions of previously law abiding citizens have, in the
span of one to three years organized themselves into well
structured and brutally successful criminals. Indeed, in
private settings neither law enforcement nor mafiya
members themselves support such numbers. The most
realistic estimates provided even today place the number
of actual organized groups at fewer than 800, with no
more than 180 operating internationally, out of which
there exist 8 major ones.69 These groups appear to be
governed by approximately 500 Vory V Zakonye and manned
by several tens of thousands of total members. Even
these figures could be exaggerations.
The other 5,000 "gangs" and upwards of 3 million
supposed racketeers throughout Russia are most likely
bands of highly "unorganized" street gangs and thugs, the
vast majority of whom engage in low-level illicit
economic crime, and fall outside the parameters of true
-50-


organized crime enterprises. This is supported by recent
research with Russian law enforcement authorities
specializing in countering organized crime activity
across the federation, and will be presented in detail in
Chapters 4 and 5.
3.5 Structure and Hierarchy of ROC. It has been all too
easy for law enforcement officials to attribute most of
the murder and violence occurring in Russia in the past
several years to the organizatsia. They claim that in
Moscow alone "the action" is divvied up among the 8 main
organized crime groups operating there.70 While law
enforcement has noted similarities between the current
criminal structure in Russia and the five Italian
families that originally divided New York City, the
division of crime in Moscow is not so clear, and anything
but neat.71 The F.B.I. has been attempting for some time
to assess the structure of the organized crime groups
there; in mid-October 1993, the FBI concluded that there
were four general bases of Russian and Eurasian organized
crime activity. At that time the U.S. Department of
Justice believed these four foundational structures of
-51-


crime fell into "the old Soviet-style criminal enterprise
categories."72 That is, they were identified by the
various Vory, many of whom were still in prison or at
large, running these structures at the highest level as a
type of mafiya politburo. Claire Sterling, whose book is
specifically referenced in U.S. federal intelligence
reports as an excellent source of information on ROC,
writes that "each sphere of influence was under their
control," they met periodically, settled disputes and
created illicit operations to undertake.73
The U.S. Department of Justice has since come to
recognize that the organizatsia is not nearly so formally
structured as the traditional organized crime groups such
as La Cosa Nostra and the Japanese Yakuza.74 Author Lev
Timofeyev, a Russian expert on the subject, has described
ROC as a "secret government" whose role is as yet
underestimated.75 His theory is that the Russian mafiya
is an undefinable sub-government, often acting as a
puppeteer for high-level politicians.76 What makes ROC
so difficult to comprehend structurally is that actual
organization is more a function of expediency than
design. Criminal territories may be divided by tribe,
-52-


region, neighborhood, or as a function of the power and
success of the local crime bosses.77 Recent U.S.
intelligence reports indicate a realization that much of
what is called Russian organized crime is nothing more
than a loosely structured network of criminal groups
operating on both a domestic and international level.
According to the U.S. Department of Justice, the "typical
group included in ROC by media and law enforcement
estimates does not have the traditional pyramid structure
of other organized criminal groups."78 Unlike the mafia
of La Cosa Nostra, it has no home seed or central
command.79 Due to the shifting organizational
structures, some Russian groups are merely collections of
individuals affiliated with a particular leader, while
others are composed of criminals based on a distinctive
ethnic or family background. Some are temporarily formed
only to carry out a particular crime,80 much akin to a
"joint venture" in legitimate business activities. This
example reveals a common pattern of Russian criminal
organization, formed by individuals associating just to
commit a particular offense. This is more along the
lines of a criminal conspiracy than true racketeering
-53-


activity, and the inclusion of these people and their
transitory enterprises is partially responsible for
inflated mafiya figures.
In November 1993 the National Drug Intelligence
Center and U.S. Department of Justice/FBI issued a joint
report which referenced the ROC organizational structure
then believed to exist. This report has not been
updated. In this joint NDIC/USDOJ analysis, "Russian
Organized Crime A Baseline Perspective", the FBI was
reported to have articulated the configurations of ROC
through four general enterprise bases:
1. Old Soviet Style Criminal Enterprise A
circle of corrupt Communist Party
officials, production and distribution
bosses, corrupt regional government
officials, and involving local and
regional criminal bosses and criminal
gangs.
2. Ethnic Based Criminal Enterprises -
Chechen, Azerbaijan, Georgian, Dagestan,
Tatar, etc.
3. Thieves-in-Law (Vorv V Zakonye) The
"Thief-in-Law" or Pakhan is considered to
be the top echelon of the criminal
hierarchy in the Commonwealth of
Independent States. These elite criminals
earned their title through an election by
the heads of various convict gangs while
serving a prison term. Once elected they
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must take an oath and are crowned in an
induction ceremony. These criminal
"kings" are termed "hermits" by the MVD
because they keep a very low profile.
...MVD has reported...180 ethnic Russian
and 500 "other" thieves-in-law in the CIS
and at least one who now lives in the
U.S.81
4. Other Criminal Enterprises These are
groups which either operate in a
particular region, are led by a powerful
leader, or its members are involved in
similar occupations or criminal
activities.
What the U.S. Department of Justice and other law
enforcement officials miss is the magnitude of the
structure of ROC groups. While the groupings are
accurate, they lack precision. No clear understanding is
demonstrated as to the various subdivisions and inter-
relations of the Russian organized crime hierarchy. An
additional factor is that since this analysis in November
1993, the organizatsia has continued to develop and
evolve, gaining in both sophistication of criminal
enterprise and organizational structure. Moreover, much
of the initial "looseness" or lack of organization noted
by so many experts and law enforcement agencies is more
attributable to their ignorance of the real structure of
the Russian mafiya than it is to any real evidence of
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such comprising a new type of mob.
A sub-component of the Department of the Treasury,
the Financial Crimes Enforcement Network or FinCEN,
gathers intelligence on much of the Russian mafiya's
activities. What the intelligence from even FinCEN
misses, for instance, is an entire tier which is in the
hierarchy one level above ROC controlled street gangs or
street criminals. This is known as a "supply" or
"security" group. This group serves the liaison
function, ensuring that orders from above are carried
out. It is ordinarily comprised of respectable citizens,
from journalists and bankers to artists, athletes and
politicians, who provide intelligence, legal aid, social
prestige and political cover.83 This umbrella of
respectability of the old and new nomenklatura84 makes
them perhaps the most difficult of the involved
racketeers to dislodge or establish evidence against.
Most recently, experts and law enforcement have come to
recognize that the organizatsia groups have developed
gigantic hierarchical commands,85 and are now recognized
to have several major groups organized in various forms.
Still at the top are the godfathers or Vory86 who, while
-56-


not absolute rulers, dominate spheres of influence under
their control. They continue to meet periodically,
settle territorial disputes, make policy and decide on
operations.87 Their edicts are instantly transmitted,
and virtually always obeyed,88 as reported by Ivan
Pavlovich, Deputy Chief of the Russian Interior
Ministry's Sixth Department. Below these Vory are what
the Italian mafia would call "capos" or middlemen, with
lieutenants and under-lords below them.89 The lowest
level of the mafiya tiers are found in the common street
extortionists, enforcers and collectors.90 All strategy
and planning is done only at the topmost level.91
FinCEN has provided information to the U.S.
Department of Justice and NDIC which expands to some
extent the understanding of this hierarchy. FinCEN
reports that each crime boss or Vory generally controls
four criminal cells through an intermediary known as a
"brigadier."92 The Vor employs two spies who oversee the
actions of the brigadier, ensuring both loyalty and that
no brigadier becomes too powerful.93 This structure is
exactly like that utilized by the early Bolsheviks prior
to the third Russian Revolution of October 1917, and the
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earlier Socialist Revolutionaries of the latter 19th
century.94 In the ROC structure a cell is considered to
be the smallest unit of the organization. Identified
criminal cells consist of "drugs", "prostitution",
"political contacts" and "fighters". Each cell has a
crime specialty or function within the organization.95
It has been claimed more recently that Moscow itself is
controlled by twenty of these criminal "brigades". The
structure of these twenty groups differs, with some being
tribally oriented, others regionally and some organized
by specialty or trade.
3.6 The Identified ROC Groups. The "Russian mafiya" was
originally a media label ascribed to all criminal groups
whose members came from the republics of the former
Soviet Union. Many of these ROC groups were not Russian
at all, but originated from the Caucasus regions of
Georgia, Azerbaijan and Chechnya, as well as the central
Asian regions of Uzbekistan, Kazakhstan and others, and
what was then the Ukraine.96 In addition to these
traditionally identified groups, new ones have emerged in
the burgeoning free-market economy in the aftermath of
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Soviet rule. In September, 1994, the Office of Counter-
Intelligence for the U.S. Department of Treasury, and the
Federal Bureau of Investigation, identified the newest
group; it was formed by members of the former Communist
Party nomenklatura, many of whom continue to occupy
important posts within the new Russian Federation
government bureaucracy.97
Other labels used by U.S. and Russian law
enforcement to describe ROC groups are as follows: the
Molina, the Soviet-Jewish Mafiya, the Odessa Mafiya.98
In addition, many non-Russian ethnic groups were
operating in the Russian Federation. Of these, the four
worst in terms of criminal success and violence
originated in the Central Asian and Caucasus regions.
Again, they are the Azerbaijan, Chechen, Dagestan and
Georgian groups.99 Other U.S. intelligence reports
include the Uzbek and Ukrainian/Jewish ethnic mafiyas
among the more notorious.100
Of the worst of these ethnic mafia groups, the
Chechen are the most notorious.101 They are hated and
feared in Moscow102 and elsewhere, because they
specialize in contract killings.103 As with other
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ethnic groups, there are many Chechen gangs, not
necessarily friendly to one another104, but with varying
degrees of mutual connection.105 They have been found
in Berlin, Warsaw, Prague106 and the United States.
Considered to be one of the most powerful crime groups,
its members descend from the tribe of the Caucasus
mountains with a centuries-old reputation as fierce,
brutal, plains horsemen whose culture dictates the
settlement of any dispute through violence.107 In
Moscow, in addition to a reputation for contract murder,
they are known to specialize in bank fraud and
extortion.108 The Chechen are reported to have a virtual
army of 600 in Moscow alone and are considered to be one
of the most versatile of Russia's mafiosi, willing to do
virtually anything imaginable that is illegal and yields
a profit.109
Others hailing from the Caucasus mountain region
include the Azerbaijan mafiya, which controls the
farmers' markets and money changing businesses in St.
Petersburg.110 They are prevalent in Moscow as well,
maintaining a corner on the drug trade in both
cities.111 Other ethnic mafiya groups, include the
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Ingushi which specialize in the export-smuggling of
contraband leather and exotic skins to Italy.112 The
Lyubertsi113 control many prostitution rings; the
Solntsevo control slot machines and other gambling.114
Yet one of the most dangerous is considered to be the
Tambov gang.115 This mafiya group is headed by a
gangster from Tambov, in Central Russia, and controls
much of the restaurant racketeering.116
Another categorization of criminal gangs is the
commodity mafiyas. Not ethnically based, these often
originate from the ethnic organizations. These groups
are found to specialize in such areas as black market
gasoline, construction materials, housing, cars, currency
exchange and cigarette smuggling.117 One of the major
criminal organizations, whose size and activities span
all of these efforts at classification, is the
Dolgoprudenskaya. Commonly identified by their Volvos
with heated seats, they are considered to have the best
protection rackets,118 specialize in property
offenses,119 and are known to be supported by racketeer-
enforcers who come from the former Soviet boxing and
wrestling teams.120
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3.7 ROC Criminal Activities. There is no real dispute
that since the collapse of the Soviet Union an expansion
of criminal activity has occurred. This has been the
case with regard to new fields of criminal behavior, new
domestic and international markets, as well as an
increase in the number of crime groups.121 At its most
extreme if not exaggerated descriptive terms, this
recognized increase in crime is seen in epidemic
parasitic terms. It is described as "invading every
sphere of life, usurping political power, taking over
state enterprises, fleecing the nation of its natural
resources...."122 Emphasis is placed on ROC groups
engaged in extortion, theft, forgery, armed assault,
contract killing, swindling, drug running, arms
smuggling, prostitution, gambling, loan sharking,
embezzling, money laundering and black marketing "on a
monumental and increasingly international scale."123
Upon reading such assessments it would not be
unreasonable to conclude that the crime problem, at the
hands of ROC, is a virtual tidal wave of illicit
behavior, corrupting or victimizing every person,
business and government agency in its path. The F.B.I.
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has condensed this shopping list of all known criminal
offenses to the categories of drug trafficking, crimes of
violence, money laundering, banking and business fraud,
terrorism, and the corruption of government
officials.124
In an effort to prioritize law enforcement efforts,
General-Lieutenant Mikhail Konstantinovich Yegorov, head
of the MVD's main Directorate for Organized Crime,
identified in August 1993 those criminal activities in
Russia which were the most lucrative to the ROC groups:
the most common were banking fraud, contract murders and
auto theft.125 This is not to say that the Russian
mafiya has not created a profitable business through
illicit behavior in other areas. Recent research
indicates that of the many criminal activities in which
ROC's are most notably affecting the Russian economy and
political system, business environment and personal
safety to those living in Russia fall into the categories
of economic/white collar crime, political corruption,
drug trafficking, and acts of violence.
Many consider that of all the Russian mafiya's
criminal activities, the biggest and most profitable
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surround the "plundering of the economy through various
multi-farious, unbelievably lucrative fraud."126 These
groups so engaged are commonly reported to be the biggest
multi-national in the world, with enormous wealth and
syndicates which penetrate giant corporations,
manipulating world money markets at their whim, with the
ability to de-stabilize currencies and buy entire
countries.127 Whether this is true is as yet
undetermined, though it appears highly unlikely that this
neophyte syndicate could accomplish alone what all other
traditional organized crime groups of many nations,
centuries old and in aggregate, have been unable to do.
The Russians are seen by popular publications as
"unrivaled in the art of turning a dishonest dollar"
after surviving three-quarters of a century under the
strict totalitarian rule of the Soviet Union.128 They
are accused of everything from the sale of mismatched
shoes to 100 billion rubles profit through fake credit
card scams.129
Russian crime groups have launched supposedly
lucrative computer attacks on U.S. banks, securities
firms and corporations. Accused of pilfering U.S.
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companies through computer hacking or "cyber-crime,"130
they are believed to have recruited former Soviet
computer scientists, once privileged members of the
military-industrial complex, now hardpressed to survive
on nothing more than $50 to $100 dollars a month.131
The first steps in this criminal direction were noted in
1992 and 1993 during what was known as the "false advises
operations."132 These were bank frauds estimated to
have caused the loss of 1.5 trillion rubles from the
Russian Federation's budget.133
As with so many estimates of this magnitude, the
actual revenue received by the ROC's, or losses to the
government, are impossible to accurately assess or
confirm. Still, it is recognized that the organized
crime groups have gone after some very high-yield
schemes. In 1994 the Russian government, under a
directive of President Boris Yeltsin, sold state
enterprises (i.e., former commercial type enterprises
carved out from the government for operation in the
private sector) which yielded $92 billion dollars in
revenues. Tatjana Korjagina, a leading social economist
of the Russian Interior Ministry and head of the First
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Parliamentary Anti-Mafiya Commission, estimated that
organized crime purchased more than half of these
enterprises, and in so doing infused the banking system
with 50 billion rubles in 1994 alone.134 Whether the
Russian mafiya actually purchased more than half of the
enterprises or merely controlling interest in most or all
of them, and whether these figures are accurate, is not
relevant for purposes of this analysis. However, what is
relevant and ignored by experts, government and law
enforcement officials alike, is the fact that these are
all Russian national enterprises entering the private
sector. Even substantially lower estimates would still
bespeak enormous economic power on the part of these
groups, though only in enterprises historically
controlled by the Russian government, and never before
forced to survive in a competitive free market. It
remains to be seen whether actual ROC purchases of newly
established free market enterprises of this type were
accomplished for real property and hard assets, or merely
political or economic influence. Whether they were wise
investments will remain a guestion for some time, and may
never be known.
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What is truly uncertain, and unlikely, is that the
purchase of these subdivided governmental entities poses
any real threat, physical or economic, to American
businesses operating there. What is perhaps of greater
competitive disadvantage to U.S. companies is the alleged
mafiya involvement in the process for privatizing real
property in 1994. When privatization was first announced
before the demise of the Soviet Union, it was reported
that the highest tiers of the organized crime groups
needed time to prepare. It is claimed that they used
their considerable political influence to stall the
entire program until sufficient money and networks were
in place to accomplish their goals. They were successful
in stalling this program for an entire year.135 The
privatization of apartments, particularly in high demand
market areas as urban Moscow, provided substantial
opportunity for ROC groups to increase their power base
through the accumulation of high value real estate.136
It is alleged that the major groups within Moscow divvied
up the city in order to pursue, through a process of
mutual cooperation, some 6,000 properties which were
coming up for auction.137 Through various strong-arm
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tactics they are alleged to have prevented others from
engaging in the bidding process, obtaining for a mere 200
million rubles property which the city had valued at an
aggregate 1.6 billion.138 Those apartments in highly
desirable areas which did not come up for sale, whether
already privately owned or not part of the official
program, were reported in the Western press to have
resulted in the tenants and owners being murdered.139
Without resorting to individual acts or threats of
violence to obtain every desired property or apartment,
the mafiya is attributed with the development of a system
far less messy, and more broadly applicable and
profitable. The Yeltsin government had established a
voucher system which would provide each Russian citizen
with an equal opportunity to acquire limited assets of
the Soviet state at auction. This was based on the model
employed by the Czech Republic where all citizens
received non-transferable vouchers. This was to prevent
their acquisition by organized crime members and other
wealthy citizens, and to further prevent an illicit
market of free-trading vouchers. The Russian mafiya is
said to have subverted this process entirely. Russian
-68-


organized crime expert Dr. Louise I. Shelley reports that
first, more vouchers were printed than were authorized.
Second, the mafiya acquired the right to purchase
additional vouchers from those Russian citizens who
lacked the financial wherewithall to actually purchase
state enterprises or property, and were desperate for
money. Lastly, vouchers are believed to have been reused
by the mafiya groups. Dr. Shelly contends that having
controlled such a large block of state issued vouchers,
the ROC group acquired a disproportionate share of
businesses, and large shares of greater private
enterprises.140
By the time the Russian government realized the
result of its privatization efforts, experts claim the
mafiya had expanded its roots, well entrenching itself in
the new infrastructure. The income from its illicit
trade in Soviet resources was reinvested in real estate,
more privatization vouchers and financial
institutions.141 This has made it difficult to separate
organized crime entities from legitimate business and
government enterprise. This is not to say, however, that
organized crime has continued to feel that movement
-69-


toward democracy and free-market reforms are in its best
interest. Several years of political and economic chaos
have caused the upper-level crime bosses to question
whether Westernization will be as good for their
"business" as once believed. This has resulted in
organized crime becoming more of a force in Russian
politics, by supporting and attempting to control
individual candidates.142 A number of these are
believed to have become "allied with extremist political
groups inside Russia."143 This new "Coalition of Red-
Browns" is a strange association of "neo-imperialists,
neo-communists, neo-Stalinists, neo-nationalists, neo-
ultranationalists, altogether under one slogan which is,
'Lets bring order back to Russian society'."144
The development of Russian organized crime has
followed a discernable cycle. Bred under a harsh
totalitarian regime, it was able to exploit the raising
of restrictions during the perestroika era of Gorbachev
and to gain wealth and strength in the free-market
reforms of the successor Russian Federation. It has
since come to recognize that even it cannot survive in
any permanent and profitable fashion in a nation which is
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embroiled politically and economically in utter chaos.
Organized crime is parasitic in nature; and as with all
parasites requires a viable and healthy host to prosper.
But just how much structure and control it can, or is
willing to, tolerate remains to be seen. Certainly, a
number of its more lucrative activities could not survive
stringent enforcement of much-needed laws. One of the
most profitable of these is believed to be an exploding
drug market within the former Soviet republics.
According to the Internal Affairs Administration of the
City of Moscow, in 1993 drug trafficking in the
metropolitan area grew by more than 200% in 6 months.145
The seizure of more than 2,000 pounds of cocaine that
year near the Russian-Finnish border is indicative of a
developing relationship between Russian mafiya and
Colombian cocaine cartels.146 It was also evidence of
the increase in numbers of drug users in the former
Soviet union, estimated to have risen from 1 million to 8
million between 1991 and the end of 1993.147
3.8 Threat to U.S. Business. Those dealing with this
situation believe the Russian crime groups have been
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rapidly gaining experience, and improving networks in
drug trafficking across the borders of the newly
independent states. U.S. law enforcement agencies
studying this problem contend that a mounting demand
exists for heroine, cocaine, opium, marijuana,
amphetamines and poppy straw, from such areas of the
world as Central and South America, Southeast and
Southwest Asia. The increase in drug users alone makes
the Commonwealth of Independent States a potentially huge
market in the world drug trade.148
Drug trafficking and drug use, however, are not
problems of direct concern to U.S. business operations
and profitability. Derivatively, Russian mafiya groups
may attempt and have been accused of such in the
past to corrupt legitimate U.S. businesses through the
laundering of drug money, exchanging rubles for dollars,
and sometimes back to rubles again. Still, it remains
far-fetched to seriously consider the Russian mafiya
using small to medium size business enterprises as a
conduit for the washing of millions, if not billions, of
dollars in illicit drug money. Moreover, recent research
indicates that despite the media hysteria over non-
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complying businesses, the larger U.S. corporations have
too much financial power for the mob groups to even
attempt to subjugate them.149 What is of immediate
concern to individuals and companies operating in
Russia or even considering the decision to open an
office in or do business with Russia is violence.
There is no doubt that the Russians, as with all
organized crime entities, use violence. Violence is a
tactic employed specifically to solve particular
problems, and generally for its overall impact on the
populace.150 The more valid analyses of this problem
recognize that the violence is ordinarily employed for
rational reasons.151 In this regard, the mafiya has
made a practice of "inspiring everyday people with fear
of its business."152 But the best analysis indicates
that the cultivation of such fear is largely directed
toward Russian nationals, and the level of that violence,
and its frequency, are actually unknown.153 As with
traditional organized crime groups, the Russian mafiya
does not have to kill people on a large scale to meet its
ends.154 The impact of violence alone in a culture
which until recent years and after the demise of the
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U.S.S.R., experienced extremely low rates of
interpersonal violence, much of it having been committed
within residences rather than in the public155 is
usually sufficient to meet their ends. The overwhelming
majority of murders occur within the crime community; for
others they use the threat of extreme violence, coupled
with the more typical use of "ritual public
humiliation."156 Threats of violence and murder are not
unusual, with even restaurant hostesses being promised a
quick demise for failing to seat racketeers before others
in restaurants.157 Mostly, however, they will engage in
such cruel though not terminal tactics as humiliating
someone's wife in a restaurant, then dragging the hapless
offender outside for a brutal physical reminder of the
expected course of conduct. It takes few incidents of
this type to make for "good public relations".158
Instances of physical brutality against American
businessmen are surprisingly few. Given the social chaos
of Russia, actual murders of Americans in Russia are
unusual, and rarer still relative to such occurrences in
other countries, including the United States. Research
has demonstrated that racketeers primarily victimize
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Russian nationals and are generally reluctant to target
American business managers and officers. Chapter 5 will
present and analyze data on levels and frequency of
actual criminal offenses in both Russia and the United
States, establishing the baseless nature of the hysteria
over the physical dangers of doing business in the
Russian Federation.
A final type of illicit activity which has helped
forge the horrific image of the power wielded by the
organizatsia, and one which is perhaps most unsettling of
all, is the marketing of stolen Soviet military weapons
and armaments.159 This is exacerbated by mounting
(though limited) evidence of the theft of nuclear weapons
and materials.160 The collapse of the control systems
which were an inherent part of the Soviet regime,
together with the steadily deteriorating conditions for
Soviet and then Russian soldiers and officers resulted in
the growth of markets for weapons and munitions.161
This winding down of the Russian military presence
galvanized the relations between gangsters162 and
Russia's military establishments163 determined to
exploit the Army's resources.164
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Acquired arms are believed to be utilized by the ROC
groups themselves for both offensive and defensive
purposes. Most of these appear to have been resold to
other former Soviet republics. More recent, though
unsubstantiated, information hints that some are finding
their way to the Middle East nations. To date, there is
no real evidence of any significant quantities of nuclear
grade material such as plutonium and enriched uranium
finding its way into the hands of the mafiyas,165 and no
cases of nuclear weapons being illicitly obtained.
Anecdotal evidence of extremely minimal amounts small
enough to be carried in a pocket of nuclear material
being smuggled out of installations is of minor military
significance.166 Real concerns, however, exist with
regard to the potential of theft. U.S. estimates are
that 30,000 nuclear warheads currently exist in post-
Soviet defense establishments in the former republics of
the Soviet Union. As well, stockpiles of other types of
lethal weapons are considered vulnerable. Though there
is no evidence of any nuclear weapons being stolen,167
this has not stopped the western press from publishing
numerous accounts of supposedly completed transactions,
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including the theft and exportation of large guantities
of nuclear material.168 Even experts on Russian
organized crime at noted research centers have presented
such occurrences as not only true events, but ongoing.
Mr. Arnaud de Borchgrave, Senior Advisor to the Center
for Strategic and International Studies, and one to whom
the U.S. Congress has turned for information, reports
that: "Tens of billions of dollars have been syphoned
out...in illicit sales of everything from precious stones
and platinum, to enriched uranium and
even. .plutonium. .."169 Nuclear material sales are
estimated to have yielded $13 billion dollars in 1992 and
as much as $700 million per month through 1993.170
These supposed actual sales of nuclear weapons grade
material, including strontium and cesium, are reported as
highlighting organized crime's infiltration of military
and industrial institutions.171 And in 1993 alone
German police supposedly confiscated 18 separate
shipments of nuclear bomb materials from the former
U.S.S.R.172 The perception within the U.S. business
community is of a nation whose internal controls have
totally disintegrated. It is not unexpected for
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Americans to reason that if the Russian government cannot
control such items crucial to the security from
destruction of its country and the world, how poor must
be the state of controls over crime efforts to victimize
foreign businesses within its borders. This attitude,
largely a direct product of newsmedia mis-reporting, is
none-the-less having a prophylactic effect on U.S.
businesses choosing to operate in the Russian Federation.
In sum, the types of activities in which ROC groups
are engaged are no different from those of traditional
organized crime entities historically. The vast majority
of these have no direct impact, and most have little
indirect effect, upon U.S. businesses operating there.
Of those activities which do impact U.S. commercial
operations in Russia, and U.S. businesspeople living
there, the real question becomes frequency and likelihood
of attempted involvement by the Russian mafiya. Whether
U.S. businesses and American nationals abroad are
actually targeted for these illicit purposes is the
crucial issue. The statistical frequency of ROC contact
with U.S. businesses, and any demand for involvement in
unlawful activity or threats of harm to person or
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property, including actual criminal attacks upon or
victimization by these groups, are presented in detail in
Chapters 5 and 6. Comparatively, actual crime statistics
within Russia, including a breakdown of gross crimes
committed against Americans and other foreign nationals,
with an analysis of which were organized crime oriented,
is presented in Chapter 6.
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4. Business Climate of Russia
4.1 U.S. Business Concerns. In consideration of the
current organizational structure of the Russian crime
groups, their activities and perceived pervasiveness in
Russian society, an examination of the climate for
American businesses is necessary. This "climate" is a
function of more than traditional business factors such
as strength of the economy, availability of natural
resources, market size and demand for goods. Given the
recent history of the Russian landmass, its political and
social evolution, such traditional business factors take
second chair to far more compelling issues. Before any
legitimate business enterprise can analyze short and
long-term the profit potential, the survivability of that
company and its employees must first be assured. This
survivability is a function of numerous factors. For
American businesses seeking to operate successfully in
the Russian Federation, each of these must be understood.
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This section will evaluate those segments of Russian
society crucial to adequately understanding the context
for doing business today. These segments are the social
structure, national politics, the legal structure, law
enforcement, relevant crime statistics, and the economy,
including ROC's involvement in and control of businesses;
that is, the overall business environment. These factors
constitute the building blocks of Russian society and the
environment in which U.S. businesses hope to succeed.
The notion that history oft-times repeats itself is
an overriding theme in analyzing Russian society today.
One hundred fifty years ago Alex de Tocqueville wrote
that "Russia has a unique capacity for attracting the
world's attention,1,1 a statement which is as relevant
today as ever before. Today many countries are concerned
over the reportedly more than 5,000 gangs and 3 million
racketeers of varying levels, controlling not only the
Russian Federation but all of the area occupied by the 15
former Soviet republics, spanning 11 time zones and fully
one-sixth of the earth's land mass.2 Today the world is
"witnessing a tectonic shift, a global change in the
world's political landscape" due to the "state of flux"
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of what has, at varying times, been known as the Russian
Empire or the Soviet Union.3
American businesses feel that they face a difficult,
if not hostile, commercial environment in Russia.
Traditional problems of Russian pedantry and the
excessive, inefficient and most often non-sensical
bureaucracies must still be navigated. These have
resulted in hurdles such as unpredictable taxes and
tariffs, among other typical problems. American
businesses today see all too clearly the corruption of
the bureaucracies, aggressive Russian racketeers, a stock
market out of control and no dispute resolution system
which is either reliable or enforceable.4
Experts feel that the growth of organized crime
"represents perhaps the most serious threat to economic
reform and, potentially, to democratic government" in the
Russian Federation. The Russian mafiya has quickly
become an all too familiar feature of modern Russia.5
The key question, however, when evaluating the
survivability and profitability of the current Russian
environment is as pointed out by Stephen Handelman,
"Whether crime in Russia is a cause of the current chaos
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that we see in the streets of Moscow and St.
Petersburg..., or an effect. [If] it were merely an
effect we might be able to breathe easier."6 More
immediate to American businesses than determining whether
the organized crime situation is the cause or effect of
the overall social disruption and unpredictability in
Russia today, is determining to what degree this
situation impacts U.S. businesses.
4.2 Social Environment. Crime is a problem which is
faced by every society. Usually it is a problem which
can be handled and kept at acceptable, if not manageable,
levels. Throughout history, however, there have been
instances where an otherwise acceptable level of crime
rises dramatically in frequency and severity, causing
disruption if not chaos within society itself. When this
occurs crime has a crippling effect in both the physical
and social sense. William J. Olson, Senior Fellow at the
National Strategy Information Center, states that, "It
robs people of their lives and their livelihoods, their
piece of mind, the security of their homes and their
neighborhoods."7
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It is indeed true that many people have grown
increasingly concerned by the rising crime rate in Russia
over the past few years. By some accounts, this concern
has reached levels of terror so profound that large
demographic segments of Russian society are beginning to
consider the Russian mafiya as an institution which, if
provided political legitimacy, could well bring order to
society.8
Experts cite a recurrent formula of success for the
economy contributed to the emergence of a gangster state
in Russia, peopled by "gangster statesmen" who thrive in
Russia's environment of "civil decay".9 Still there
remains a question as to whether the concerns regarding
the dangers of organized crime groups and the threat they
pose to civil order in Russia is illusory,10 and the
product of the media.
Ironically, the Yeltsin administration has worked
tirelessly to convince the world that the magnitude of
this problem is great and that the mafiya has brought
Russian society to the brink of disaster. In April 1994
the Russian Anti-Crime Counsel went so far as to state
that "the scale of crime and its tendency to increase are
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dangerously deforming the course of reform and are posing
a threat to the basic foundations of Russian statehood,
constitutional legality, and citizens' security."11 What
is overlooked by many is the use to which Yeltsin has put
this mafiya scare. Since his rise to power Boris Yeltsin
has wavered between actual implementation of reforms and
strict, authoritarian restraints on civil freedom,
reminiscent of the Soviet regime of which he is a
product. Few have noticed the manner in which the
organized crime situation has provided the perfect
rationalization for totalitarian-type behavior whenever
expedient. Only very recently have experts begun to
express concern over Yeltsin's behavior and cautiously
predict efforts on his part to move Russia back in the
direction of conservative, authoritarian rule. Still, a
few people have connected these developments with his use
of a declared organized crime problem as the excuse.
Certainly, Russian behavior in Chechnya is one such
example.
Between President Yeltsin's exploitation of this
phenomenon for political expediency and the newsmedia's
penchant for sensationalism, it is now commonly believed
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that to be wealthy in Russia you are, by definition,
either a target or a member of organized crime.12
But what are the real statistics and facts with
regard to American or foreign businessmen being targeted
for murder by organized crime? Despite the seemingly
"free-wheeling and jungle-like"13 atmosphere of Russia's
"new frontier capitalism,1,14 much of this continues to be
a problem peculiar to Russians themselves.
4.3 Political Scheme and Future. While the attitudes of
Russian society form the overall mentality of the market
within which American enterprises must function, the
political scheme may ultimately determine the ability of
businesses to survive Russia at all. No one thing is
considered a greater threat to political Russia than what
is believed to be the growing symbiotic relationship
between politics and crime. According to the Borchgrave,
the newest postulate in Russia is that political
corruption and ROC are "moving hand-in-hand" as Russia's
efforts to reform continue.15 Indeed, it is feared that
control of the country's entire political system by the
Communist Party may now be replaced by the major
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organized crime groups.16 But greed has overwhelmed too
many of those committed to reform as well. Handelman
argued, "former Prime Minister Nikolai Ryzhkov said his
colleagues had been nursery school kids compared to the
current crop of bureaucrats.1,17
Experts such as Professor Shelley are concerned that
the pervasiveness of organized crime will not lead to a
competitive capitalist economy, but to "political
clientism and controlled markets."18 Only now the feared
control will be held by the former Communist apparatchiks
together with the new crime groups.19
The greatest concern currently is that ROC's
influence on the political spectrum in Russia exists at
the municipal, regional and national levels, and is
growing;20 though its influence is believed strongest at
the municipal and regional levels.21 Some contend, as
Dr. Shelley, that the ROC groups are actually
manipulating the rise of regional political powers in
Russia.22 Concerns abound that this falls grievously
short of the decentralization and democracy promoted by
the U.S. government and necessary to the successful
operation of American businesses. Already President
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Yeltsin has delivered the clear message that the Russian
mafiya is an overall serious threat to the political
stability of his country.23 This is ironic in light of
growing concerns that Boris Yeltsin himself has attained
the same position previously enjoyed by Leonid Brezhnev;
that is, the head of the Russian organized crime
network.24 There does appear growing concern, if not
evidence, for this greatest of all corruptions. Recent
scandals within the Russian government are indicia of the
fact that ROC has successfully corrupted even the highest
levels of the Russian government and military
establishment.25 According to Handelman, throughout 1993
a series of scandals "paralyzed the Yeltsin
government."26 Leaving no single institution of the
Russian bureaucracy was left untouched:
Senior commanders of the Red Army were caught
in smuggling rings; cabinet ministers and
police officials were discovered working for
shady commercial firms. In the most celebrated
case, members of the ill-fated Supreme Soviet
led by then Vice President Aleksandr Rutskoi,
forced several reform ministers out of office
over charges of corruption. Government
officials, in retaliation, released documents
attempting to prove that Rutskoi and his
political allies were guilty of money
laundering and weapon smuggling.27
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Additionally, many of the most powerful men
surrounding President Yeltsin were under formal
investigation as early as the summer of 1993. Such top-
level government officials as Premier Vladimir Shumeiko,
Vice-Premier Alexander Shokhin, former Foreign Trade
Minister Piotr Aven, and the Supreme Chief of Information
Mikhail Poltoranin were all accused of unlawful economic
dealings with American and other Western companies for
individual personal gain.28
Members of Mr. Yeltsin's personal security service
were charged with robbing a branch of MOST Bank, one of
Moscow's biggest in 1994.29 It is even claimed that such
predictions on Mr. Yeltsin's part are an important source
of his power, as his backers and associates know they
could be subject to criminal culpability were anyone else
to assume the mantle of president.30 It is little wonder
that the Russian people see democracy merely as a system
which permits them to do whatever they choose, whatever
is expedient and profitable.31 Clearly, greed has
infected the entire governmental bureaucracy of Russia,
leaving little hope for the people of Russia that
democratic reform will be the solution to their social
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ills, including the rampant organized crime problem.32
How is it possible for the ROC network to influence,
much less control, a newly elected government of
democratic reformers? Does not the very nature and
structure of the democratic political process, serving
the interests of the majority of the people, prevent such
a subversion? It is believed that the practical reality
of Russia's new democratic electoral process is that the
employees in virtually every government ministry have
been bought off, corrupted by personal gain or
intimidation by racketeers.33
This has not been limited to those apparatchiks who
have remained in place within the bureaucracy and
survived the transition from the Soviet Union. Organized
crime may have undermined the electoral process as well.
ROC groups are reported to have financed the election
campaigns of various candidates resulting in many newer
members of parliament either controlled by, or obligated
to, them.34 This has been effected through the
exploitation of various election laws which seem to
invite corruption of this type. Current Russian campaign
financing rules permit large donations by corporate
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entities.35 These laws allow political parties to
receive up to $150,000 from each company36, while at the
same time setting extremely low caps on party
contributions by individuals. The formula on which these
numbers are based is 30 monthly salaries per person,
contrasted against 20,000 months' actual employee
salaries for corporations.37 In real terms this means
that while the political party can receive an
extraordinary amount of money, each candidate can get an
additional $1,500 from each company. Individual persons,
however, can contribute merely $225 to each party and
$150 to each candidate.38 Even with these rather liberal
campaign financing rules, particularly with regard to
corporate entities, enforcement is virtually nonexistent,
and reports abound that different mafiyas have purchased
outright the loyalty of candidates across the Russian
Federation.39
Without a doubt, Parliament representatives who owe
their allegiance to the Russian mafiya are in a position
to both block undesirable legislation from other groups
or the executive branch, or to insure that actions by the
president favorable to the sponsor-criminal networks are
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successfully carried out. Most notorious was the
expulsion of the chorni the dark skinned traders and
merchants from the Caucasus region after the
Oktyabrski Myatezh (October Revolt) of 19 9 3.40 On
numerous occasions, and with a surprising frequency,
Boris Yeltsin has declared war on the Russian mafiya.41
Such a war on crime was again declared after the October
uprising at the Russian Whitehouse, which Yeltsin then
used as a way to expel the many Caucasians who had come
to dominate the street markets of the capital.42 The
chorni, (literally "the blacks"), comprised thousands
of people from the Caucasus mountain region and other
areas to the south such as Armenia and Azerbaijan
including Chechens.43 Though these merchants were
largely responsible for bringing positive aspects of
Russia's new free-market society to ordinary Russians,44
including the distribution of fresh vegetables and
fruits45 not seen in Moscow for many years, they were
driven out of the capital as "unregistered aliens" on
Yeltsin's order.46
Yeltsin's rationale for this extreme act was that it
was necessary to gain some control over the powerful
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crime syndicates, and he targeted as the biggest problem
the gangsters from the Caucasus who were known for drug
trafficking.47 A confidential government document
disclosed that the militsia (police) were given express
instructions to round up dark-skinned people,48 which
predictably resulted in not only the expulsion but the
beating of thousands of otherwise innocent merchants.49
Under the guise of Yeltsin's war on organized crime, some
3,000 people were arrested and an additional 10,000 fled
Moscow; police beatings of anyone with dark skin were
documented by Amnesty International.50
The tragic irony of Yeltsin's actions in this regard
is not that the police were able to curb organized crime
activity in Moscow though not surprisingly crime rates
did drop dramatically shortly after this arrest order and
a government ordered curfew were imposed.51 The irony
lies in the fact that the people who truly benefitted
from the expulsion of the Caucasian traders were the
local, ethnically Russian crime gangs. During this
enormous roundup of supposed criminals, with squads of
soldiers and police patrolling the streets,52 the real
mafiya godfathers of the ethnic Russian groups went
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untouched. Handelman expressed concern that through
actual control or coincidence, these steps were seen by
the Russian gangs as the best way for getting rid of
their organized crime rivals, and indeed these results
were achieved.53
Overall, the political system of newly democratic
Russia is in a state of turmoil. The people of Russia
are politically divided, uncertain whether the path which
will most quickly return their nation to world political
and economic strength lies with continued democratic
reforms or a return to authoritarian rule. Increased
political influence on the part of major crime networks
may yet see a return to totalitarian rule.
4.4 Russian Law and Legal Reforms. In analyzing the
legal environment of Russia relative to the existence of
organized crime, it is necessary to critically evaluate
the existing legal structure. Is corruption within law
enforcement as pervasive as reported, or does the absence
of necessary criminal laws tie the hands of the police?
Is law enforcement stymied by the power of the ROC
groups, or have they simply not been provided the
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