The Rule of the Mafiya: Are criminals replacing communists as Russia's new rulers? by Louise I. Shelley
Organized crime has penetrated most of the newly independent states of the former Soviet Union at every level of government and in practically every comer of society. With such pervasiveness, organized crime ceases to be a law enforcement problem and becomes a political phenomenon with very disturbing implications for the future course of development of the Soviet successor states. The recent assault on Chechnya, for example, owes much to the Russian government's concern that the separatist republic is a prime source of much of the country's criminal activity.
For these societies, the extent and pervasiveness of organized crime may preclude their transition to democracy. Specifically, organized crime and the efforts to curb it may mean severe constraints on human rights, legitimate foreign investment, and the vital functioning of free-market economies, since the entrepreneurial spirit of these new societies is intricately linked with criminal activity.
Organized crime has supplanted many of the functions of these newly independent states. A coalition of crime bosses and former Communist Party elites has provided many regions of Russia and other Soviet successor states with a new leadership class. Organized crime also provides many of the services that citizens expect from the state- protection of commercial businesses, employment, and dispute mediation. Private security, often run by organized crime, is assuming preeminence in the functions of law enforcement.
One should not view the collapse of communism in Russia and in other former Soviet republics as the first step on a straight path to democratization and a capitalist economy. Instead, the pervasiveness of organized crime may lead these states to an alternative form of development-political clientelism and controlled markets. Organized crime in these states will severely inhibit the growth of civil society and its most cherished attributes-free elections and freedom of the press. Labor markets, once controlled by state planning organs and submissive trade unions, will instead be subject to the intimidation of organized crime figures/ who are already major employers in the region. State ownership of the economy will be exchanged for control of the economy by the coalition of organized crime groups and former Communist Party elites, which already has a monopoly on existing capital.
In short, citizens in these transitional societies may be trading one form of control for another-domination by the Communist Party may be replaced by the controls of organized crime.
The Emergence of Organized Crime
Organized crime has acquired such an important role in the Soviet successor states because it has managed to fill the social void resulting from the collapse of both communist power and the institutions of the Soviet state. In the final decades of the Soviet period, close links existed between Party elites and " managers" of the underground economy. After the formal institutions of the state ceased to function, these informal personal relationships endured. They were transformed from a subterranean force to the visible organized crime activity of the present day. These individuals, originally linked in exchange relationships, have come to dominate the consumer sector of the post-Soviet state. Furthermore, there is increasing penetration of the country's military-industrial complex by these organized crime coalitions. Evidence of this is the prevalence of organized crime in Yekaterinburg, the seat of Yeltsin's former provincial power base and a center of heavy industry.
In the Soviet period, these relationships were backed by the power of the Soviet state. As the economy undergoes privatization, the coalition of former Party officials and organized crime groups derives its authority from the power of private security forces.
Post-Soviet organized crime is, therefore, the consequence of indigenous development. Just as the mafia grew out of the specific conditions of Sicilian society, the organized crime of the Soviet successor states is a response to the domestic environment. The Sicilian mafia developed as a political and economic force in the mid-19th century, following the collapse of the island's aristocracy and the dispersal of its land holdings.1 Likewise, in the former USSR organized crime has emerged as a potent force following the collapse of existing power structures and the emergence of private property. The need for protection in this critical period of nascent capitalism has been assumed by organized crime groups in the former USSR, just as the mafia did in Italy over a century ago.2
Organized crime activity is not a new form of Communist Party power. Many Party officials who possessed power and influence in the Soviet period have been able to acquire personal wealth and power in the current period, but members of the former political elite have not necessarily translated past power into current influence. The transfer of Communist Party assets into newly established banks and other commercial institutions has helped members of the former Party elite and security apparatus acquire new-found economic and political power. But they are forced to share this power with the new commercial elite, many of whom were underground businessmen in the Soviet era. The retention of power by former Communist Party officials is most visible in the provinces, where there has been less disruption of traditional power relationships.
This new political and economic coalition is not unique to the former Soviet Union. The new commercial elite of Poland bears much similarity to the post-Soviet power structures. In that society, and to varying degrees in other East European societies, a coalition of former Party elites, members of the security forces and former " managers" of the underground economy control the financial sector and have a strong influence over the country's political institutions.
The amorphous structures and the highly personal relations of these new elite groupings mean that they cannot bestow emerging social institutions in these countries with any degree of legitimacy. Rather, it is the still-inchoate nature of social and political legitimacy among these institutional structures that allows organized crime coalitions to expand their power. To a great degree, power in the Soviet successor states is still personalistic; its authority derives from the terror criminal bosses can wield rather than the rule of law that supports public officials.
Organized crime has undermined the electoral process, the emergence of a viable multiparty system, and the establishment of laws needed to move towards a legally regulated market economy. Organized crime has financed the election of candidates to and members of the newly elected Russian parliament, as well as those of other legislatures in the Commonwealth of Independent States (CIS).
The penetration of organized crime into post-Soviet governmental institutions undermines citizens' perceptions of democracy, as reflected in opinion polls indicating declining confidence in the former Soviet republics' transition to democracy. The strong popular vote for Vladimir Zhirinovsky and his Liberal Democratic Party represents, in part, a citizen backlash against the political status quo and its ineffectiveness in the face of rising organized crime and declining social order-issues Zhirinovsky made the hallmark of his campaign. The success of such an electoral appeal portends an ominous future for the nascent democracies in the region: the election of authoritarian governments whose platforms focus solely on anticrime programs.
Alternatively, citizens may clamor for politicians who run solely on the appeal of anticrime and anticorruption platforms and shun other pressing issues facing their country during its transition. Aleksandr Lukashenko, a candidate who was virtually silent about his vision for the country's economic future, scored a landslide victory in his presidential race in Belarus on the basis of his anticorruption promises.
Some current members of the Russian parliament have close ties to organized crime groups. The influence of corrupt government officials and legislators with organized crime ties has slowed the adoption of legislation outlawing corruption in the bureaucracy and has also resulted in the adoption of an anticorruption law so weak that it makes its contribution to combating the problem negligible.3 Furthermore, the persistent conflicts in the Russian legislature have effectively prevented the passage of many laws needed to control organized crime, including banking laws, regulation of securities markets, and insurance laws. Only in November 1994 were specific measures, such as legislation aimed at racketeering and money laundering, adopted on the first reading. Yet their enactment into law is still uncertain. Many of these legal measures have already been adopted in several East European countries.
A symbiotic relationship exists between organized crime and national, local, and municipal governments.4 As the Italian and American experience has shown, once organized crime infiltrates government, the relationship cannot quickly or easily be reversed. Organized crime is facilitating the rise of regional powers in Russia. This is not the decentralization and federalism sought by American promoters of democracy. Instead, it represents the rise of local fiefdoms, protected by armed bands loyal to local leaders who seek political and economic control over their domains. These provincial leaders may enjoy more power than their Soviet-era predecessors because they. own rather than simply control property in their territory, and they-not the state- employ the " law enforcers." In the absence of a legal framework, citizens outside major cities in the CIS may face serious troubles in the post-Soviet period in protecting their property rights and defending their labor rights.
Organized Crime and International Commerce
Organized crime is undermining foreign investment and trade throughout the region by increasing the risks of foreign investment. Foreign firms opening up branches of their operations in Moscow and other large-and not so large- urban centers across the CIS have been routinely subject to extortion and their managers and other employees threatened with physical violence or murder. Crime's adverse effect on the nascent commercial sector in the CIS does not always take such blatant forms. The absence of a commercial code, insurance and banking laws, reliable and honest parties with whom businesses can negotiate, legitimate and trustworthy law enforcement, and impartial courts to arbitrate financial and property-rights disputes severely inhibits foreign trade and investment throughout the region.
The alliance of corrupt officials and organized crime groups discourages the establishment of long-term foreign trade agreements because such agreements run counter to its financial interests.5 The new mafiosi of the CIS prefer to sell state resources on their own terms rather than open up trade to multinational firms, whose trade agreements seek to limit excessive risk-thereby limiting the mafiosis' short-term profits. Many global businesses, therefore, choose not to trade with the former USSR because they cannot compete with the illegal practices of organized crime.
Organized crime encourages the development of trade in illicit rather than legitimate markets. At present, this illicit trade predominates in goods that can be illegally exported for a quick profit, mostly in raw materials (particularly diverted shipments of oil) and military equipment. The trade in arms and other military hardware provides a ready supply of lethal stocks to separatist groups within the former Soviet Union as well as to insurgents in other conflicts worldwide.6 Illicit trade also occurs in areas that are universally recognized as criminal, including nuclear material, drugs, prostitution, and the smuggling of refugees. These commodities now dominate the Soviet successor states' trade in international markets.
There are strong indications that organized crime is also heavily involved in currency speculation. Influential members of Russia's banking sector, which is dominated by crime syndicates, are currently under investigation for their role in the October 1994 collapse of the ruble.
The dependence of post-Soviet economies on illicit commerce is one of the major economic risks to their future development. Such transactions not only impede the development of a commercial infrastructure for sustainable international trade, but an economy's concentration in such a limited range of goods and services, either legitimate or illegitimate, jeopardizes its long-term economic development. A sudden decline in demand for or production of these goods may have a catastrophic effect on the economy. While the post-Soviet economies are trading in a greater variety of illicit goods than, say, southern Italy or Colombia, their emphasis on illegal commerce is hindering the development of a wide range of legitimate commercial activity with an equally wide range of trading partners. Furthermore, the profits from this illegal trade are being laundered abroad and are providing no benefits for the home economies.
Foreign businesses interested in Russia's international trade in oil and raw materials cannot avoid the extensive corruption in this sector. Newly established firms must often bribe officials who have the power to grant export licenses for oil and other valuable natural resources. In what has largely become a customary practice, corrupt officials request a certain percentage of the contract, which is then laundered through foreign bank accounts. The numerous recently established export firms in Russia and other CIS members are dominated by organized crime groups.
Therefore, American firms are frequently forced to violate U.S. statutes if they seek to enter the Russian market. Some major firms choose not to enter after evaluating the risks. East European Investment Magazine reported estimates in fall 1993 that 80 percent of all American businesses in Russia have violated the Foreign Corrupt Practices Act at least once.7 Some of these violations are simply " facilitating payments," while others involve more serious breaches of law. For example, investors have little choice but to pay bribes to acquire lists of commercial rental property, to violate legal requirements on transfers of funds, and to submit to extortion threats.
The smuggling of nuclear material has increased dramatically in recent years-in both its quantity and its risk to international security. The profits from this trade far exceed those from drugs and other illicit commodities. Germany has been the hub of much of this trade. German authorities reported more than 200 cases in 1993, although they seldom involved weapons-grade material. In the first seven months of 1994, there were 123 recorded cases. The market for this particular commodity is an obvious international threat not only because of its possible use by terrorist groups and pariah states but also because of the health and environmental threat posed by its transport, often under improper and unsafe conditions.
In 1994, German authorities discovered for the first time nuclear material they believed was smuggled out of Russia that could be used to produce nuclear weapons. While the amount was insufficient to build a nuclear weapon, the quality of the material was a sharp departure from non-weapons-grade material smuggled previously. These cases indicate that there may be significant quantities of fissile material available on the international market.8
The threats posed to daily life are among the most serious consequences of organized crime because they affect so many people at all social levels and in almost all regions of the former USSR. The impact of organized crime on daily life adds a troubling dimension to citizens' perceptions of the adversity in the social, political, and economic transition of their society. Organized crime intimately touches the lives of citizens in the Soviet successor states through increased violence and street crime, deviance, theft of personal property, higher prices, and turbulent labor conditions. On a much broader scale, the ultimate victims of rising crime are the transition to a free-market economy and the establishment of civil society throughout the region.
The violence and insecurity of making the transition to free-market economies bring with them a daily threat to the financial security and personal safety of citizens across the CIS. The privatization process itself has resulted in a new and disturbing variety of criminal acts against citizens. Residents of choice urban locations have been threatened or even killed for their apartments by members of organized crime groups.9 Crime figures routinely target employees and retirees eligible to acquire shares of newly privatized state firms. Organized crime groups regularly employed violence to keep citizens away from auctions where they had the right to use the vouchers distributed to all Russian citizens as part of the privatization process.10 Citizens have lost practically all of their privatization assets as the managers of unregulated voucher funds have disappeared with all the vouchers in their possession. The recent collapse of Moscow's III brokerage firm-in reality, a nationwide " pyramid scheme" -suggests that in the absence of a legislative or regulatory framework, citizens' savings are extremely vulnerable in the region's financial markets." Citizens' savings and trade union funds deposited in the hundreds of unregulated banks dominated by organized crime are also at severe risk.
Needless to say, an increase in organized crime also results in increased violence, street crime, property crime, and more visible and pervasive deviance. Rivalries among organized crime groups have led to armed battles in such major cities as Moscow but also in secondary cities like Yaroslavl. A significant increase in armed robberies, apartment burglaries, and car thefts are also the result of increasingly organized and professional crime throughout the region. The vast majority of Russian citizens have been forced to change their daily routines as a result of the increasing threat posed by criminals.
Organized crime has also contributed to significant increases in drug trafficking and abuse, prostitution, and gambling. Rates of substance abuse in Moscow, St. Petersburg, and other urban-and rural-areas have registered alarming growth as a result of proliferating trafficking networks and greater access to drugs, the commercialization of markets by organized crime, and the greater demand for drugs by a demoralized population.12 Prostitution has spread both within the CIS states and throughout the former Soviet-bloc countries as the economic disadvantages of the Soviet system's collapse have affected women disproportionately, resulting in a " feminization" of poverty throughout the region. Women are recruited or coerced into prostitution by organized crime members often after violent threats against them or their family members. Gambling casinos are sponsored by organized crime in hotels and tourist resorts.
Monopolies are the result of organized crime's penetration of the consumer sector. Analysts estimate that these monopolies are costing consumers in the Soviet successor states an extra 20-30 percent in increased prices.13 With such a significant percentage of the post-Soviet population living at or near the poverty level, this increase in consumer prices means that many cannot afford to feed their families adequately or provide warm clothing during the winter. The frustration the masses feel about inflation is exacerbated by the knowledge that organized crime controls the consumer markets and distribution systems.
The work force, once controlled by the Communist Party and state-sponsored trade unions, is increasingly coming under the control of organized crime. Russia's Ministry of Internal Affairs estimated that organized crime controlled 40,000 enterprises in 1993.14 As privatization proceeds, one can expect this figure to increase markedly as ever more enterprises fall under the domination of the region's organized crime syndicates.
As organized crime becomes a growing political and social force in the region, it will also victimize the establishment of civil society in these countries. Crime syndicates control elements of the media, and their intimidation of courageous journalists is leading to a " controlled" press. The establishment of institutions independent of the state is a fundamental prerequisite to the creation of civil society. Unfortunately, this process has not escaped the grip of criminal syndicates in the former Soviet Union. Organized crime's penetration into hundreds of charitable organizations is just one example of the obstacles it poses to the establishment of civil society in Russia and other Soviet successor states.
The active participation of the region's numerous ethnic nationalities in organized crime has also led to increased ethnic conflict and hostility within Russia as well as in the rest of the CIS. After the storming of the parliament in October 1993, a substantial number of non-Russians were expelled from Moscow because of their alleged involvement in organized crime.15
Chechen predominance in the country's criminal syndicates has provided the Russian government with a ready justification for its war against Chechnya. Chechens have been vilified for their embezzlement schemes against Russian banks, their violent control of consumer markets, and their armed bands involved in stolen automobile rackets. Despite the public's hostility for this " criminal nation," the majority of Russians have not supported the violent offensive against Chechnya. Opinion surveys indicate that citizens believe there are alternative ways to deal with Russia's crime problem. Furthermore, many better-informed observers understand that Chechen criminal activity would not be possible without the acquiescence and complicity of high-ranking Russian officials. As one observer close to the Russian leadership commented in early January: " This war is like killing the witnesses to a crime to eliminate the evidence."
Organized crime has replaced the Communist Party as a pervasive, controlling influence in Russian society. The end of communist controls has permitted organized crime to fill the power vacuum resulting from the collapse of Soviet institutions. An important link exists, however, between former Communist Party elites and organized crime syndicates. Former members of the nomenklatura and the security apparatus are key participants in organized crime.
The Russian mafiya is an active participant in the post-Soviet economy, acquiring businesses and real estate, establishing banks, and managing securities funds. Yet, at the same time, its protection rackets sap the entrepreneurial spirit of nascent Russian capitalism-at a time when these new businesses are needed to replace the vestiges of a centrally planned economy.
Some observers suggest that Russian organized crime bears many similarities to the era of robber barons and nascent capitalist accumulation in 19th-century America. Yet there are several important differences. First, robber baron industrialists were building America's infrastructure through the construction of railroads and heavy industry. Second, their profits were reinvested in the domestic economy. In contrast, many involved in Russia's current wave of organized crime are draining off the country's raw materials and downgrading its infrastructure by appropriating its industrial resources. Moreover, the proceeds of their activities are only partially reinvested in Russia, most often in nonproductive sectors such as real estate.
Unfortunately, the extent and power of organized crime will have a more decisive role in the future development of post-Soviet political, economic, and social life in the CIS. Its repercussions are not just domestic; its transnational dimensions threaten the international community as well.
Raimondo Catanzaro, Men of Respect: A Social History of the Sicilian Mafia (New York: Free Press, 1992); Diego Gambetta. The Sicilian Mafia: The Business of Private Protection (Cambridge: Harvard University Press, 1993).
Michael Specter. " Guns for Hire: Policing Goes Private in Russia," New York Times. 9 August 1994, p. A4.
Interview by the author with members of the Security Committee of the Duma, July 1994. In Moscow. See also Aleksandr Danllkin, " Mafiia-nash rulevoi," Trud, 10 December 1994.
A. Uglanov. " Prestupnost i vlast',' Argumenty I Fakty, No. 27 (July 1994), pp. 1-2.
'The Rise of the Gangster Industrial Complex," East European Investment Magazine (Fall 1993). p. 106.
V.S. Ovchinskll. Strategiia bor'by s mafiei (Moscow: SIMS, 1993), pp. 96-100.
" The Rise of the Gangster Industrial Complex,' p. 111.
Michael R. Gordon and Matthew L. Wald, " Russian Controls on Bomb Material are Leaky," New York Times, 18 August 1994, p. A1.
Anya Vakhrusheva, " Flat-Swapping in Moscow: A Risky Business.' The Moscow Times, 4 June 1994, p, 1; 'Yerin Calls for 'United Front' Against Crime," FBIS Daily Report. 16 May 1994, p. 22.
Jonas Bernstein, " Organized Crime Said to be Stifling Russia's Economy,' Washington Times, 28 January 1994, P.A16.
" III Shareholders Declare Hunger Strike.' RFE/RL Daily Report, 8 August 1994. p. 1.
" Russia Seen Vulnerable to Widespread Drug Abuse,' FBIS Daily Report, 6 June 1992, pp. 1-2.
" Crime, Corruption Pose Political. Economic Threat," Current Digest of the Soviet Press 46. No.4 (23 February 1994). p. 14.
Brian Duffy, Jeff Trimble and Yuri Shchekochlkhln. " The Wise Guys of Russia." U.S. News and World Report, 7 March 1994. p. 45.
" Moscow City Official on Visitor Registration," FBIS Dally Report. 9 December 1993. pp. 47-48.
Louise I. Shelley is a professor In the Department of Justice. Law and Society at American University's School of International Service In Washington. D.C. She has written extensively on Soviet and post-Soviet organized crime. Including her latest work. Policing Soviet Society (Routledge, forthcoming). She Is also editor of the forthcoming Social Changes, Crime and Police. Dr. Shelley Is editor of Demokratizatsiya, a journal of post-Soviet democratizatlon, published jointly by American University and Moscow State University.