Title: The Threat of Russian Organized Crime
Series: Issues in International Crime
Author: James O. Finckenauer and Yuri A. Voronin
Published: National Institute of Justice, June 2001
Subject: International Issues: transnational/international organized crime
35 pages
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U.S. Department of Justice
Office of Justice Programs
National Institute of Justice

The Threat of Russian Organized Crime

James O. Finckenauer and Yuri A. Voronin

Issues in International Crime

------------------------------

U.S. Department of Justice
Office of Justice Programs
810 Seventh Street N.W.
Washington, DC 20531

John Ashcroft
Attorney General

Office of Justice Programs
World Wide Web Site
http://www.ojp.usdoj.gov

National Institute of Justice
World Wide Web Site
http://www.ojp.usdoj.gov/nij

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The Threat of Russian Organized Crime

James O. Finckenauer and Yuri A. Voronin

June 2001
NCJ 187085

Issues in International Crime

------------------------------

National Institute of Justice

James O. Finckenauer is director of the International Center of the
National Institute of Justice, which is the research arm of the U.S.
Department of Justice. He is on leave from the Rutgers University School
of Criminal Justice, where he is a professor of criminal justice. Professor
Finckenauer is the author or coauthor of six books as well as numerous
articles and reports. His latest books are Russian Mafia in America
(Northeastern University Press, 1998) and Scared Straight and the Panacea
Phenomenon Revisited (Waveland Press, 1999).

Yuri A. Voronin served as a visiting international fellow with the National
Institute of Justice from March 1, 1999, to March 1, 2000. At the time of
his fellowship, he was both a full professor at the Urals State Law
Academy and director of the Organized Crime Study Center at the Urals
State Law Academy.

Portions of this report were prepared for the National Institute of Justice,
U.S. Department of Justice, under grant number 1999-IJ-CX-0014 to Yuri
A. Voronin with funds transferred from the U.S. Department of State.
Points of view or opinions stated in this document are those of the authors
and do not necessarily represent the official position or policies of the U.S.
Department of Justice.

The National Institute of Justice is a component of the Office of Justice
Programs, which also includes the Bureau of Justice Assistance, the
Bureau of Justice Statistics, the Office of Juvenile Justice and Delinquency
Prevention, and the Office for Victims of Crime.

------------------------------

Contents

Introduction

Historical, Political, and Economic Aspects

Political and Economic Linkages

The Legal and Law Enforcement Context

The Development of Organized Crime in the Urals

Contemporary Issues Concerning Organized Crime in the Urals

The Future of Organized Crime in the Urals

Notes

------------------------------

Introduction

A long smear of blood on the road marks the place where two masked men
shot dead one of Russia's most prominent industrialists . . . outside his
house in the city of Yekaterinburg in the Ural Mountains. Oleg Belonenko,
51, managing director of Uralmash, the largest industrial company in
Russia, had just got in this grey Volga car to go to work when two men in
tracksuits opened fire with pistols, hitting him in the head and his driver in
the stomach. Both men died in hospital. Mr. Belonenko's murder . . . once
again shows the power and ruthlessness of criminal gangs who control
large sections of Russia's economy.[1]

In the decade since the collapse of the Soviet Union, the world has become
the target of a new global crime threat from criminal organizations and
criminal activities that have poured forth over the borders of Russia and
other former Soviet republics such as Ukraine. The nature and variety of
the crimes being committed seem unlimited--drugs, arms trafficking,
stolen automobiles, trafficking in women and children, and money
laundering are among the most prevalent. The spillover is particularly
troubling to Europe (and especially Eastern Europe) because of its
geographical proximity to Russia, and to Israel, because of its large
numbers of Russian immigrants. But no area of the world seems immune
to this menace, especially not the United States. America is the land of
opportunity for unloading criminal goods and laundering dirty money. For
that reason--and because, unfortunately, much of the examination of
Russian organized crime (the so-called "Russian Mafia") to date has been
rather hyperbolic and sketchy--we believe it is important to step back and
take an objective look at this growing phenomenon. Just what is this
Russian Mafia? What does it look like? Where does it come from? What
does it do? And how does it do it? We hope that through addressing these
questions we can provide a context for assessing how much of a threat
Russian crime might be to the United States--directly or indirectly--and
how concerned we should be.

Let us begin by providing some context for our discussion. First, the
reader should know that defining organized crime is a matter of some
dispute among scholars and law enforcement specialists. That
disagreement is heightened when the subject, as in this case, becomes
transnational organized crime. We will not, however, venture into this
controversy here. Instead, we will simply provide our own working
definition of organized crime:

Organized crime is crime committed by criminal organizations whose
existence has continuity over time and across crimes, and that use
systematic violence and corruption to facilitate their criminal activities.
These criminal organizations have varying capacities to inflict economic,
physical, psychological, and societal harm. The greater their capacity to
harm, the greater the danger they pose to society. 

As in the United States, there is no universally accepted definition of
organized crime in Russia, in major part because Russian law (like U.S.
law) provides no legal definition of organized crime. Analysis of
criminological sources, however, enables one to identify some of its basic
characteristics.[2] These include organizational features that make Russian
organized crime unique in the degree to which it is embedded in the
post-Soviet political system. At the same time, however, it has certain
features in common with such other well-known varieties of organized
crime as the Italian Mafia. The latter has a complicated history that
includes both cooperation and conflict with the Italian state. Much more
than was ever the case with the Italian Mafia, however, Russian organized
crime is uniquely a descendant of the Soviet state. 

Russian organized crime has come to plague many areas of the globe since
the demise of the Soviet Union just more than a decade ago. The
transnational character of Russian organized crime, when coupled with its
high degree of sophistication and ruthlessness, has attracted the world's
attention and concern to what has become known as a global Russian
Mafia. Along with this concern, however, has come a fair amount of
misunderstanding and stereotyping with respect to Russian organized
crime. It is this combination that has stimulated our work on this report. 

We want to try to clear up some of the misunderstanding and
misinformation and also to try to ensure that where there is concern, it is
well-founded. To do so, we will trace some of the contextual features--
historical, political and economic--of Russian organized crime. We will
look briefly at moves by the Russian government since 1991 to cope with
its crime problem. Then we will present a case study of organized crime in
the Urals region of Russia. It was there that the killings described in our
opening vignette occurred. As with any case study, our purpose in
focusing on the Urals is to capture and examine in microcosm what has
otherwise been explored mostly in macrocosm and purely descriptive
forms. We will conclude with a brief discussion of the real and potential
impacts of Russian organized crime on the United States.

Historical, Political, and Economic Aspects

Organized crime is a historical phenomenon that has existed for hundreds,
and in some cases, for thousands of years in many different societies. But
interestingly, unlike common crime, true organized crime as we define it is
not present everywhere. Certain characteristics seem to differentiate
countries burdened by organized crime from those that are not. Some of
these characteristics appear simply to be coexisting conditions, whereas
others are facilitators, and yet still others could actually qualify as causes
of organized crime. 

The general level of crime in a country is an apparent primary condition
for organized crime. High-crime countries are more likely than low-crime
countries to have organized crime. This is because organized crime and
common crime are influenced by many of the same factors. Crime is
related to the degree of urbanization and industrialization and to social
disorganization--factors that produce criminal opportunities and thus more
crime. Organized crime is especially likely to be more prevalent in cities
and countries with advanced levels of economic development, the history
of the Mafia in rural Sicily to the contrary notwithstanding. Economic
development, industrialization, and urbanization both stimulate and
facilitate demand for goods and services. These include goods and services
that are illegal (such as drugs), regulated (such as cigarettes or guns), or
simply in short supply. When there is a plentiful supply of a legal,
unregulated product, there is no incentive for organized crime to become a
supplier. When we have the opposite condition, however, then we
typically see organized crime rising to fulfill the unmet demand. This
demand may be for drugs, firearms, or sex workers, or it may be for a
service such as protection or resolving disputes when there is no
acceptable legal means of doing so.

The nature of the criminal opportunities available in a particular place also
influences the presence of organized crime. The extent to which particular
criminal opportunities can best be exploited or, perhaps, can only be
exploited by criminal organizations also helps explain the presence or
absence of organized crime. Some crimes can be committed quite easily
by criminals acting alone or in an unorganized manner, but others cannot.
The latter is especially true of crimes that are committed across national
borders.

With respect to organized crime, certain geographical or infrastructure
characteristics, such as the presence of seaports, international airports,
strategic border locations, rich natural resources, and so on, provide
special criminal opportunities that can best be exploited by criminals who
are organized. More so than common crime, organized crime is fed by the
presence of ethnic minorities who furnish a ready supply of both victims
and the offenders to victimize them. Organized crime also thrives in
environments characterized by a relatively high tolerance of deviance and
a romanticization of crime figures, especially where government and law
enforcement are weak or corrupt (the history of the Sicilian Mafia
illustrates this). 

We are not suggesting that any of these factors are causes of organized
crime but, rather, that they create a favorable climate for its growth. The
fundamental causes of organized crime are actually quite simple--greed
and demand. The greed for money and power on the part of some is often
(although not always) met by the demand of others for goods and services
that are illegal or unavailable. 

Russia is one of those unfortunate countries that has the receptive
environment in which organized crime thrives. Organized crime is deeply
rooted in the 400-year history of Russia's peculiar administrative
bureaucracy, but it was especially shaped into its current form during the
seven decades of Soviet hegemony that ended in 1991. This ancestry helps
to explain the pervasiveness of organized crime in today's Russia and its
close merger with the political system. Organized crime in Russia is an
institutionalized part of the political and economic environment. It cannot,
therefore, be fully understood without first understanding its place in the
context of the Russian political and economic system.

Unlike Colombian, Italian, Mexican, or other well-known forms of
organized crime, Soviet organized crime was not primarily based on ethnic
or family structures. To help understand the difference, we can look to the
history of organized crime in the United States for a contrasting portrait.
As a number of scholars have pointed out,[3] organized crime provided a
"crooked ladder of upward mobility" for some immigrants to the United
States. Certain immigrants--sharing a common ethnicity, culture, and
language, and, being on the bottom rung of the socioeconomic ladder,
either having legitimate opportunities for advancement closed to them or
rejecting the opportunities that were available--have turned to crime, and
specifically organized crime, to get ahead. This crooked ladder for ethnic
immigrants was not the driving force behind organized crime in the
U.S.S.R. Instead, the Soviet criminal world--except in the Caucasus (e.g.,
Armenia, Chechnya, Georgia) and Central Asia (e.g., Uzbekistan)--was
built around a vertical dependency of individuals whose coalescence into
criminal groups was driven solely by their mutual participation in criminal
activities. The connection among these professional criminals, in other
words, was economic, rather than ethnic or familial.

Because organized crime is made up of criminals who conspire to carry
out illegal acts, a degree of trust is necessary among those criminals.
Coconspirators must be able to trust that their collaborators will not talk to
the police or to anyone who might talk to the police, and that they will not
cheat them out of their money. A shared ethnicity, with its common
language, background, and culture, has historically been a foundation for
trust among organized crime figures. 

Yet ethnicity did not play the significant role in Soviet organized crime
that it played in the United States. Instead, the Soviet prison system, in
many ways, fulfilled functions that were satisfied by shared ethnicity in
the United States. In the Soviet Union, a professional criminal class
developed in Soviet prisons during the Stalinist period that began in
1924--the era of the gulag. These criminals adopted behaviors, rules,
values, and sanctions that bound them together in what was called the
thieves' world, led by the elite "vory v zakone," criminals who lived
according to the "thieves' law."[4] This thieves' world, and particularly the
vory, created and maintained the bonds and climate of trust necessary for
carrying out organized crime.

Organized crime in the Soviet era consisted of illegal enterprises with both
legal and black-market connections that were based on the misuse of state
property and funds. It is most important to recognize that the blurring of
the distinction between the licit and the illicit is also a trademark of
post-Soviet organized crime that shows its ancestry with the old Soviet
state and its command-economy system. This, in turn, has direct political
implications. The historical symbiosis with the state makes Russian
organized crime virtually an inalienable part of the state. As this has
continued into the present, some would say it has become an engine of the
state that works at all levels of the Russian government. 

Contemporary Russian organized crime grew out of the Soviet
"nomenklatura" system (the government's organizational structure and
high-level officials) in which some individual "apparatchiks" (government
bureaucrats) developed mutually beneficial personal relationships with the
thieves' world. The top of the pyramid of organized crime during the
Soviet period was made up of the Communist Party and state officials who
abused their positions of power and authority. Economic activities ranged
across a spectrum of markets--white, gray, black, and criminal. These
markets were roughly defined by whether the goods and services being
provided were legal, legal but regulated, or illegal, and by whether the
system for providing them was likewise legal, legal but regulated, or
illegal. The criminals operated on the illegal end of this spectrum. Tribute
gained from black markets and criminal activities was passed up a
three-tiered pyramid to the nomenklatura, and the nomenklatura itself
(some 1.5 million people) had a vast internal system of rewards and
punishments. The giant state apparatus thus not only allowed criminal
activity, but encouraged, facilitated, and protected it, because the
apparatus itself benefited from crime.

These sorts of relationships provided the original nexus between organized
crime and the government. From these beginnings, organized crime in
Russia evolved to its present ambiguous position of being both in direct
collaboration with the state and, at the same time, in conflict with it. 

Specialists in Russian organized crime date the appearance of the first
organized criminal groups in the former Soviet Union to the end of the
1960s.[5] It was then that the three-tiered edifice known collectively as the
Russian Mafia began to take shape. As indicated, the top level of this
structure was occupied by high-level government and party bureaucrats.
The second level consisted of underground or shadow economy
participants who exploited their jobs or connections with the enterprises of
the state-command economy for illicit gain. The shadow economy
produced goods and services "off the books," that is, outside the
state-mandated production quotas, and the payment for these goods and
services went into the pockets of these occupants of the second tier. On the
bottom level were the professional criminals who ran the various illegal
activities such as drugs, gambling, prostitution, extortion, and so on. 

Before the 1960s, the three levels of organized crime existed separately,
and their paths rarely crossed. This changed when the traditional criminal
world began to become intertwined with the economic or white-collar
criminals of the shadow economy and with the party bureaucracy.
According to Stephen Handelman's account of the rise of the "comrade
criminals" in Russia, "the black marketeers of the 1960s and 1970s crossed
the line dividing the underworld and the state. They operated in easy and
mutually profitable cooperation with Soviet bureaucrats."[6] This
intertwining reflected the pervasive nature of corruption during the "period 
of stagnation" under Soviet leader Leonid Brezhnev (1964-82).
Government and party officials left no stones unturned in seeking
opportunities to line their pockets. One such opportunity was extorting
money from the criminal world and the shadow economy in exchange for
protecting their illegal operations. This complicated chain of organized
crime worked its way from the bottom to the top of Soviet society. It
ultimately included state finances, industry, trade, and the system of public
services.[7]

During the presidency of Mikhail Gorbachev (1985-91), private enterprise,
in the form of cooperatives, was encouraged in the U.S.S.R. This was a
dramatic shift from what had been the prevailing Soviet socialist model of
the economy, in which most private enterprise was outlawed.
Unfortunately, the people best positioned to take advantage of this new
opportunity were the criminals, the underground producers, and the
bureaucrats who collaborated with them. These collaborators knew how to
make money and had all the necessary connections to conduct business
successfully, and the new policy enabled them to start to operate more
openly. Toward the end of the Gorbachev period, when there were
unmistakable signs that the Soviet Union was about to implode, the
insiders--high-level officials in the central and regional headquarters of the
Communist Party--began quietly to siphon off Party funds into banks,
trading companies, and export-import firms, to position themselves to take
advantage of what was expected to be a new economic era.[8] This was a
classic case of trading political advantage for economic advantage. By the
late 1980s, corruption had reached such high levels that it was, for
example, possible for any criminal to bribe his way out of any lawbreaking
problem. The result of this combination of the "theft of the state" and the
corruption was a massive increase in lawlessness and the rise of a new
type of organized crime that has since permeated nearly every level of
society in the former Soviet Union.

Political and Economic Linkages

The privatization of state property that began in Russia in 1992--when
public property began to be sold to private investors--both expanded and
solidified the complex relationship that had developed between the state
and organized crime. Because of its connections to officialdom and to the
shadow economy, organized crime took part in what has become the
enormously lucrative scheme of privatization. As a result, the assets
controlled by organized crime give it enormous economic power, and
hence political power as well. These assets enable criminal organizations
(in various guises) to deal directly with the state--on behalf of their own
economic interests--from a position of parity. Organized crime has also
attempted to assume certain governmental functions, such as dividing
territories among competing economic actors and regulating business
markets.[9] It seeks to control business-market entry, to impose taxes
(protection fees), to set up tariffs, and--as is characteristic of organized
crime in the United States--to enforce all this through direct violence or
other forms of coercion. It is the latter activities that have laid the
groundwork for direct conflict with the state, because only the state can
legitimately use violence. This series of developments is as much political
and economic as it is criminological, and it is unlike anything we have
ever seen in the United States. 

Organized crime in Russia uses legal businesses as fronts for illegal
activities and for setting up illegal product lines.[10] It creates "political
clans" to exercise political power and seeks to create and regulate markets
to exercise economic power. The following are some specific
characteristics of Russian organized crime in the post-Soviet era:

 o Russian criminals make extensive use of the state governmental
apparatus to protect and promote their criminal activities. For example,
most businesses in Russia--legal, quasi-legal, and illegal--must operate
with the protection of a "krysha" (roof). The protection is often provided
by police or security officials employed outside their "official" capacities
for this purpose. In other cases, officials are "silent partners" in criminal
enterprises that they, in turn, protect. 

 o The criminalization of the privatization process has resulted in the
massive use of state funds and property for criminal gain. Valuable
properties are purchased through insider deals for much less than their true
value and then resold for lucrative profits.

 o Criminals have been able to directly influence the state's domestic and
foreign policy to promote the interests of organized crime, either by
attaining public office themselves or by buying public officials.

Beyond these particular features, organized crime in Russia shares other
characteristics that are common to some other forms of organized crime
elsewhere in the world:

 o Systematic use of violence, including both the threat and the use of
force.

 o Hierarchical structure.

 o Limited or exclusive membership.

 o Specialization in types of crime and a division of labor.

 o Military-style discipline, with strict rules and regulations for the
organization as a whole.

 o Possession of high-tech equipment, including military weapons.[11]

The flexibility and dynamism of the new organized crime give it a distinct
advantage in the competition for political and economic control with the
rigidly bureaucratic state institutions in Russia's cities and regions.
Through networks of financial-industrial groups or holding companies,
central and regional organized crime groups penetrate into each other's
territory, where they struggle for political and economic spheres of
influence. The expansion of organized crime in Moscow, for example, has
occurred through buying real estate, and through gaining controlling
shares of banks and other enterprises. These crime groups, in turn, are
buying up controlling shares in various regional banks and enterprises on a
broader regional level outside of Moscow.[12]

Russian organized crime operates successfully throughout the former
Soviet Union, engaging in such activities as money laundering, drug
trafficking, and the illegal sale of weapons. The bonds between the
criminal organizations of Russia and those of the other Newly Independent
States (NIS) can be easily traced back to their old Soviet nomenklatura
connections. Many of the players are the same; only the name of the game
is different. The new game is widely known as "nomenklatura
capitalism."[13] Unfortunately, this characterization does not capture the
true criminal nature of the post-Soviet economy. The combination of
political and economic resources, lack of accountability, and vast
territorial presence facilitates the continued expansion of Russian
organized crime and compels us to take its political and global
implications most seriously. 

The Legal and Law Enforcement Context

Since 1991, Russian law and the criminal justice system have gone
through significant changes. Among the changes relevant to organized
crime are increased sanctions for crimes committed by groups (and
especially for their leaders) and new provisions on extortion.[14] As with
other legal changes, however, there has been a continuing problem of
weak law enforcement and an overall weakness of governmental authority.
As a result, the law on the books is not the law in practice.

The laws on corruption and organized crime remain only drafts as of this
writing.[15] Neither draft holds much promise of making substantive
changes to the Russian Criminal Code. The draft law on corruption
follows a Presidential decree (by President Yeltsin) in laying out a
spectrum of responses to breaches of the rules. These responses range
from disciplining guilty employees to firing them and banning them from
further employment in government to criminal prosecution (on the basis of
charges already provided for in the existing Criminal Code). The main
thrust of the draft law on corruption lies not in the response to instances of
corruption that are exposed but in measures designed to increase the
detection of wrongdoing. The draft versions of the law include the
mandatory disclosure of the ownership of real estate, other property, and
financial assets in large amounts, including the numbers of bank accounts.
Critics of the law condemn these disclosure rules as violations of privacy
rights. 

The draft law on organized crime deals mainly with law enforcement and
has been strongly criticized for violating individual rights. Whether
Russian legislators will ultimately be satisfied with either of these drafts
remains to be seen. In the meantime, inconsistencies between the 1996
Criminal Code and a heavily amended criminal procedure code from the
Soviet era have impeded the effective prosecution of crimes.

What do these legal developments mean for organized crime and for the
efforts of authorities to confront it? For one thing, the current gaps in the
legal system have facilitated illegal activities pursued by criminal
organizations. In addition, inadequate law enforcement and a lack of
public faith in the law and legal institutions have encouraged illegal
activity and its connections to corrupt officials. To combat organized
crime and corruption, or at least to appear to combat it, the Russian
government has acted in ways that have actually worked against legal and
judicial reform, for example, carrying out dubious raids on media outlets
that have been critical of the government. Such raids have been a highly
visible and controversial tool of the Putin regime.

No serious effort has been made within the Russian government to define
"organized crime" in legal terms as the broad and complex phenomenon
that it is. The Russian government has yet to formulate a coherent overall
strategy for fighting crime in general. It has also failed to address
challenges presented to law enforcement efforts by organized crime in
particular. Official corruption remains rampant. There is no witness
protection program. While the legal apparatus and law enforcement
resources for fighting organized crime remain undeveloped and
inadequate, criminal organizations unfortunately flourish. Let us turn in
the next section to a specific case in point: the story of organized crime in
the Russian Urals.

The Development of Organized Crime in the Urals

Some 900 miles east of Moscow, in Russia's Ural Mountains, lies the city
of Yekaterinburg. Known in Soviet days as Sverdlovsk, Yekaterinburg is
the largest industrial center in Russia, with a population of 1.5 million
people. It has an extensive military-industrial complex, built to take
advantage of the region's mineral wealth and its status as a transportation
hub. The Ural Mountains mark the boundary that divides European and
Asian Russia. This is an area known for its historical significance, as well
as its vast repository of rich natural resources. Former Russian President
Boris Yeltsin was born there and ruled for many years as the governor of
the Sverdlovsk region, which includes Yekaterinburg. It was also here
that, in 1918, the last Russian czar, Nicholas II, and his family were shot
to death by the Bolsheviks in the name of the Great October Socialist
Revolution. 

Since the end of the Soviet Union in 1991, Yekaterinburg has been in the
forefront of those Russian cities and territories struggling to loosen
Moscow's grip on their affairs. Regrettably, it has acquired another less
laudatory distinction as well--that of being the "gangster capital of
Russia." Today, Yekaterinburg is one of Russia's most violent cities, with
shootouts and contract killings reminiscent of gangland Chicago in the
1920s. The Sverdlovsk region, for instance, experienced a 68 percent
increase in serious crimes from 1998 to 1999. How and why this explosion
of crime, and in particular organized crime, has occurred--and its global
implications--are the subject of this case study.[16]

The history and nature of crime in the Urals is very much linked to the
history of industrial development in the former Soviet Union. It was in this
region that major industrial sites were built in the beginning of the
U.S.S.R.'s economic boom of the 1930s. The early work force that manned
this boom was made up not only of ordinary workers but also of large
numbers of political prisoners and common criminals who were confined
in the prison camps--nerve endings in Stalin's vast gulag--that dotted the
area. There are families in Yekaterinburg today in which almost all the
family members going back for three or four generations have been
prisoners. Their communities often treat residents who have never been
imprisoned as outsiders because they are not "normal." As a result, crime
in Yekaterinburg is family based and intergenerational to an extent
unprecedented in any other region of the country. Generations of young
persons, especially those without formal education, have been practically
limited to joining criminal organizations as their means of livelihood. Yet
even for others, working in state-run enterprises during the Soviet era was
never particularly attractive to the youth of the region. Crime and its
practitioners, on the other hand, were seen as less hypocritical, and in
many ways more honest, than working with corrupt bureaucrats and
officials. On top of that, there was the additional (and universal) attraction
of the romantic aura surrounding crime. 

By the late 1980s, two of the forerunners of today's organized crime were
actively operating in the Urals region. The first we will call "white collar"
criminals. Its practitioners were made up of a group of shadowy operatives
known as "tsekhoviks," many of them clandestine millionaires, who had
long been plundering state-owned enterprises and property. Founders of an
underground economy known as the shadow economy, they were more
akin to businessmen (albeit shady businessmen) than to professional
crooks. As a consequence, they did not possess the traditions or employ
the methods of professional criminals, and in particular, they did not use
violence in their criminal pursuits. The criminal opportunities to be
exploited were so great that the tsekhoviks did not need to compete with
one another but simply focused their efforts on maximizing their gains
from underground and illegal production.

Cooperation between white-collar operatives in the shadow economy,
those who operated in the black market (dealing in goods that were either
illegal or in short supply), and ordinary criminals dates back to the 1960s,
as we indicated earlier. But it was in the 1980s, during the Brezhnev and
immediate post-Brezhnev era (Leonid Brezhnev was Soviet leader for
nearly two decades), that this cooperation flourished. For example, in the
mid-1980s, the Uralmash criminal group (Uralmash, located in
Yekaterinburg, is Russia's largest heavy mechanical engineering plant)
was active in the black market. At that time, the two brothers who were the
leaders of the Uralmash group supervised contraband operations that were
based upon receiving finished goods from the management of the
Uralmash plant.[17] In exchange, the brothers financed lavish receptions
for the factory managers. The latter was especially welcome because
Moscow had sharply reduced Uralmash's budget and the plant was facing
serious financial difficulties.

For strategic reasons, even greater collaboration between tsekhoviks and
"real" criminals began to occur in the late 1980s. One strategy was to find
ways to invest and launder illegally earned money. To do so, the
underground moneymakers began to reach certain arrangements with the
leaders of criminal gangs in the region. Two of the most influential
tsekhoviks in the area--the father and son Tarlanov--became more directly
involved in crime through such arrangements. As a result, they became
kingpins not only in the shadow economy but also in the greater world of
crime in the Sverdlovsk region. These dual connections gave them brains
and muscle and facilitated their success in the nonferrous metals market,
and in energy transport in particular. The relationship of another
tsekhovik--the economist Viktor Ternyak--with leaders of the same
Uralmash criminal group likewise led to the establishment and prospering
of a conglomerate of investment firms and companies. These include the
European-Asian Company, which had great success in the rare metals
(e.g., silver) market.

Along with these developments, the vory v zakone began to expand their
reach and power in the Sverdlovsk region in the 1980s. Throughout the
former Soviet Union, the vory had long been regarded as the elite of the
criminal world. They were hardcore professional criminals spawned by the
gulag prison camps. To contrast them with the white-collar shadow
businessmen, these professional criminals became known in criminal slang
as the "blues," a name that some believe derived from the blue color of the
tattoos that were associated with the vory v zakone. The vory were
adherents of the traditional criminal mores developed in the camps and
followed a strict thieves' code.

In addition to their common criminal activities that included such staples
as assault, robbery, and theft, the blues began to organize and impose their
criminal ideologies (the traditions of the vory v zakone) on other
criminals, including those who were not prisoners or ex-prisoners. They
began to build larger and more powerful criminal networks (loose
collections of criminals and criminal groups organized around certain
leaders, criminal specialties or markets, and territories). These networks
took on the role of arbiters in the criminal community.[18]

Ultimately, conflict between the white-collar and blue branches of this
evolving underworld in Sverdlovsk was inevitable. The criminal
orthodoxy of the blues was unreceptive to the new thinking represented by
the distinctively economic criminals. As active penetration of the legal
economy by aspiring criminal entrepreneurs began in earnest in the latter
1980s, the blues found themselves on the outside. The white-collar
entrepreneurs, who were made up of persons who had left the shadow
economy and in some cases gained respectable public images, began to
employ some of the methods of the criminal world, including the use of
violence to eliminate competitors and business associates. Yet the vory, as
well as some other criminal leaders who did not necessarily share their
prison camp traditions and ideology, remained a definite presence on the
criminal scene. As the decade of the 1990s began, this latter
conglomeration constituted the core of a powerful, influential, and
extensive criminal network of blues in Yekaterinburg and throughout the
Sverdlovsk region.

The new Russian organized crime

The initial opposition between these two branches of crime changed in a
major way in the mid-1990s. This period was marked by the privatization
of the state-command economy and the breakdown of the rigid economic
and political structures of the old Soviet totalitarian regime. In addition,
the loss of moral and legal underpinnings that has sorely plagued
post-Soviet Russia was a significant contextual factor in the growth of
crime. Strategic raw materials such as nonferrous and rare metals, jewels,
timber, and various products of the military-industrial complex flowed out
in great quantities from the Urals region to the West--most of it smuggled.
This illegal export fueled the growth of white-collar crime and, in turn,
generated a wave of general crime as well. The new criminal entrepreneurs
who were fomenting and exploiting this massive export soon became the
targets of the blues' interest. The latter, quite naturally, were not about to
ignore the prosperity of their brethren in the shadow economy and began
putting direct pressure on them. To protect their businesses and themselves
from violence, the new economic criminals were forced to begin sharing
their profits with the old criminal leaders of the blue branch.

The result of this forced marriage was a merging of general or more
traditional organized crime and the new forms of economic organized
crime. New types of criminal groups emerged and then joined into larger
criminal networks. Organized crime in the region acquired fresh features
that continue to the present. Among these new features is the fact that the
leaders of different criminal groups started splitting Yekaterinburg into
large territorial sectors defined by spheres of influence.

By 1990-91, the Uralmash criminal group had become a network
occupying the preeminent position in the shadowy world of business and
crime in the Sverdlovsk region. Their criminal activities were broad
ranging, including everything from rackets to trading in rare metals.
Particularly lucrative was their export trade in nonferrous metals and
titanium. They continued to help the Uralmash industrial plant--which
suffered severely from the loss of the state-guaranteed market for its
products--by buying up its finished products for marketing. The
diversified interests of the Uralmash group included the local soccer team,
restaurants, automobile dealerships, hotels, and other commercial
enterprises, including their own brokerage firm.

Today, the Uralmash criminal network personifies the new type of
criminal organization that now dominates organized crime in Russia. They
generally ignore the old thieves' code of the vory v zakone, but do employ
strict discipline and subordination to their leadership. Instead of looking to
the vory or other professional criminals for their membership, they recruit
former athletes and police officers. Not surprisingly, open warfare has
broken out between the old and new forms of organized crime, resulting in
assassinations, kidnapings, torture, explosions, and street shootings in
Yekaterinburg and other cities of the Urals. Similar violence has ensued
from competition over control of the various strategic commercial
enterprises of the Sverdlovsk region. The continuing crime war has
resulted in the killings of many leaders, as well as of mid-level and
rank-and-file members. 

In addition to the original shadow-economy artists who were major
participants in the Uralmash criminal network, a group based in the central
district of Yekaterinburg emerged.[19] Preferring to avoid clashes with
law enforcement authorities that might ensue from direct involvement in
overt criminal activities, this central group has pursued global investment
projects, the export of strategic raw materials, and illicit real-estate market
operations, e.g., buying up real estate for money-laundering purposes. In
addition, they control many commercial enterprises in the central districts
of Yekaterinburg, including insurance companies, casinos, fashionable
restaurants, and the street trade of the central marketplace. They control
gambling through their "Globus" business club.[20] The central group is
also associated with representatives of legal businesses, is co-owner of the
Urals commodity and raw materials exchange, and contributes to a variety
of charities. 

The Uralmash network, despite being portrayed in the media as a
respectable financial and industrial group, dominates the criminal world of
the Sverdlovsk region. Among other activities, they settle disputes
between subsidiary criminal groups. In addition to ignoring the thieves'
code of the vory v zakone, they have even removed old vory from
leadership positions in the criminal community. Unlike Moscow-based
criminal organizations, Uralmash and, in particular, the central group, do
not make payments to the blues' traditional central fund (the "obshchak"),
a collection of money that is used as a kind of welfare fund for vory and
their associates who are imprisoned, as well as for their families. The
Uralmash network relies increasingly on muscle and less upon arbitration
for settling disputes. In this, they are more like criminal organizations and
networks in St. Petersburg than like those in Moscow. As a result, the
thieves' code and ideology has diminished in importance in Yekaterinburg
and St. Petersburg, where it has been pushed aside by young aggressive
leaders who are focused on laundering their illegal income by investing in
legal businesses. 

Violence reaches new levels

Conflict and violence have marked the competition among various
criminal groups and between the white collars and the blues, and this
violence has been taken to new heights. In the fall of 1992, for example,
the Uralmash criminal network, which was by far the strongest in the
region, created a special team to handle the "physical elimination" of
leaders of rival organized criminal groups. It recruited former
special-forces training instructors and trainees from the military who were
expert in elimination methods.[21]

This action was met in kind by the central network, which created its own
"hit" team. Thus, two opposing assassination teams were formed within
the same region and sphere of criminal activity.[22] This testifies to the
extreme means to which the new Russian organized crime will resort in
settling disputes. It also says something about the new sophistication in the
use of violence. These were both highly professional operations that
carried out assassination on order, with the protection of corrupted
officials.[23]

The blues strike back

One reaction to the struggle between Uralmash and the central group was a
coming together of the blues--the original criminal community including
the vory v zakone. This coming together served three purposes:
maintaining the authority of the vory in the prison system, strengthening
the blues' resistance to control of the new forms of economic organized
crime by the Uralmash and central groups, and adapting their own criminal
endeavors to the evolving market and political conditions. 

Leadership of the blues went to a group of vory who were regarded as
smart enough and tough enough to take up the challenge to the old
guard.[24] To meet this challenge successfully, they required the support
of the underworld of blues elsewhere in the country, continued strength in
the prisons to feed the ranks with new recruits, and connections with
important officials. By the mid-1990s, previously isolated groups of
professional criminals had been merged into a greater criminal network in
Yekaterinburg. The key figures in this network were all vory.

Critical to the survival of the vory v zakone and other blues in
Yekaterinburg was their ability to further their own economic interests, to
invest the concentrated capital they controlled that was otherwise just
sitting in the obshchak, and, in general, to increase their influence in the
region. As witness to their success in accomplishing these ends, the blues
today control a number of areas of economic activity (e.g., gas stations,
some aspects of the oil business, timber, and nonferrous and precious
metals). Despite their cooperative success, however, the battle over
spheres of influence has not ended. Since 1995, a number of the leaders
have either died or been killed. This random, personal-vendetta type of
violence reflects a degree of instability in the larger criminal community
and is evidence that no one criminal organization has been able to exert
monopoly control over the various areas of criminal activity.

Contemporary Issues Concerning Organized Crime in the Urals 

Statistical data on organized crime groups and their members in Russia are
subject to a number of reservations. These include questions about how
the terms "organized crime" and "organized crime group" are defined and
the bases for counting membership in such groups. Nevertheless, such data
provide a snapshot of the law enforcement perspective on the magnitude
of the problem. According to the Organized Crime Section of the Russian
Ministry of Internal Affairs, 124 organized criminal groups with 1,318
members operated in the Sverdlovsk region in 1998. By early 1999, the
numbers had grown to 142 groups with 1,424 members. These numbers
are considerably larger than those of just 5 years before. It is further
estimated that 362 commercial businesses are under the control of
organized crime.

The Urals, and the Sverdlovsk region in particular, have been hit harder by
organized crime than any other area of the country. Its industrial potential,
rich natural resources, and geographic location make for especially
lucrative plundering. The merging of traditional crime and the new
economic crime, money laundering, and the extensive use of firearms and
explosives are especially characteristic of this region. The redistribution of
property from the state to private hands under Russia's privatization
initiative has been controlled in Sverdlovsk by criminal networks, at
tremendous cost to the region's economic development. Similarly, the
attempt to develop foreign markets for the region's industrial products has
attracted criminal interests. As if matters were not bad enough,
Moscow-based criminal organizations and other outside groups are
competing for control with the home grown criminal networks. The
methods used in this competition are the same as in the early 1990s:
corruption, blackmail, threats, and hired assassins. 

As the most criminal region of the country, the Urals has certain other
distinctive features. For example, it has become known as a "bespredel"
(without rules) zone, an area where the thieves' code has no power. The
vory v zakone have less influence in the Urals than in any other region of
Russia. This means the local criminal organizations, such as the Uralmash
and central groups, do not bow to any nationwide criminal networks. At
the same time, it means they do not gain the latter's support. This
independence is contrary to the trend in other parts of the former Soviet
Union, where there has been a consolidation of the strength of the vory.
Independence results in greater conflict with criminal organizations from
elsewhere in Russia or the former Soviet Union, but at the same time, it
brings relative stability in the zones and spheres of influence among the
Urals criminal groups themselves. The latter does not mean, as indicated
earlier, that there are not continuing efforts to gain competitive advantage.

The underworld in Yekaterinburg is much better organized than it is in
Moscow. The enormous sums of money going into the hands of criminal
leaders have facilitated their purchase of state-of-the-art weapons, the
recruitment of new members, and the bribery of officials, as well as the
organization of detachments of trained killers drawn from the special
forces of the Russian army. Internal organization has created sections
devoted to counteracting the efforts of law enforcement, vertical
hierarchies of authority, and severe punishments for any who violate the
rules. Because there is general agreement on the division of the spheres of
influence, disputes can usually be settled without violence.

The availability of alternatives for dispute resolution does not mean, by
any stretch of the imagination, that violence has disappeared. Physical
elimination--assassination or killing--is still an important tool for doing
business, but it is a tool that is only used when other means are deemed
inappropriate or have been exhausted. This is unlike the situation in
Moscow, for example, where physical elimination is often the only means
for resolving conflicts between criminal organizations.

The criminal leaders of Yekaterinburg and the Sverdlovsk region are well
connected with the city and regional governing authorities, and use their
financial power both for bribery and to influence the outcomes of
elections. The same is true in the commercial and banking sectors.
Bribery, threats, blackmail, and violence are used to penetrate business
management and assume control of commercial enterprises, or in some
instances, to found their own enterprises with money from their criminal
activities.

The three power centers of organized crime 

The three most powerful criminal networks in Yekaterinburg today
continue to be the Uralmash group, the central group, and the blues. The
Uralmash group is the most dangerous of the three. They are
well-organized both vertically (having a hierarchical command structure)
and horizontally (across various criminal enterprises), with a clear
delineation of functions. They are also especially well connected to the
political authorities and to law enforcement. They control a number of
government officials who use their positions on behalf of Uralmash. Their
control of a law firm in the city, for instance, enables them to exert their
influence directly on the police and the City Department of Internal
Affairs. 

It is estimated that the Uralmash group controls some 140 commercial
enterprises, including a network of banking and lending institutions. They
are heavily engaged in exporting raw materials, rare and precious metals,
weapons, medicines, and, from time to time, radioactive materials. Their
international connections extend to China, Cyprus, Germany, Poland, and
the United States, among other countries.

The "central" criminal group has lost much of its leadership in recent years
through arrest or assassination. At the same time, some new criminal
alliances have been formed with veterans of the Soviet Union's disastrous
military adventure in Afghanistan. The latter are disgruntled soldiers who
returned home from that lost war with few prospects, but trained and
hardened by their experience in using weapons and in killing. They have
been willing and able recruits for many criminal organizations across
Russia. 

The efforts of new figures to fill the central group's leadership vacuum
have resulted in internal conflict and in increased potential for internecine
violence and warfare. The group continues, however, to keep the focus of
its criminal activity upon certain economic targets (e.g., international
trading in nonferrous metals and other strategic resources, insurance,
guaranteeing interbank loans, and the stock market). White-collar crimes
and corruption remain their stock-in-trade. The central group is still well
connected, both politically and with the new industrial and economic
enterprises that dominate the region. 

Although not as economically powerful and influential as its rivals, the
blues' criminal network is the most numerous. This union of professional
criminals continues the tradition of the obshchak--the monetary or welfare
fund for prisoners and their families. Their financial base comes from
payments by criminals and criminal groups into the obshchak--as a sort of
"mob tax"--and from the extortion of money from businesses and
commercial establishments. The blues have maintained regular contact
with vory v zakone across Russia--in Moscow, Perm, Chelyabinsk, and
Krasnodar. Sources report that six vory are active in the Sverdlovsk region
today, with dominance being exerted by several former prison leaders
from the Caucasus region. Relations among these leaders, however,
remain ambiguous and complicated. 

In Nizhni Tagil, another large industrial center in Sverdlovsk, the blues are
the dominant criminal organization. There they are divided into brigades
by geographical territory and criminal activity. They are well armed and
well connected with criminal organizations in Central Asia, the
Transcaucasus, and Turkey.

In sum, the criminal network known as the blues continues to have an
influential presence in this region, but less so than in some other areas of
the former Soviet Union. In keeping with the traditions of the vory v
zakone, they render support to criminals who are imprisoned. They are
independent in their criminal activity, but maintain "business relations"
with criminal groups in Moscow, St. Petersburg, and certain cities in
Siberia. They cultivate their immunity from law enforcement by
maintaining corrupt relations with the police. They have not, however,
penetrated the region's large industrial enterprises, as the Uralmash and
central networks have. 

Together, these three powerful criminal networks embrace the larger cities
of the Sverdlovsk region like an octopus. In addition to controlling such
traditional activities as rackets, prostitution, gambling, drugs, and arms
trafficking, they have heavily infiltrated numerous business and
commercial enterprises, and they are involved in both legal and illegal
businesses abroad. To protect and facilitate all this activity, these criminal
networks actively support political candidates and programs that are
viewed to be working in their best interests. In some cases, they have
formed their own political movements and parties. (See "Summary of the
Criminal Activities of the Three Major Criminal Organizations in the
Urals" on the next page.) 

Organized crime in the economy

As the old Soviet state-command economy slowly evolves on its tortuous
road to a "free market" system, organized crime has been quick to take
advantage of this evolution. Throughout Russia, criminal organizations
have moved into key industries, into the nascent money and banking
sectors, and into the still-emerging stock market. Nowhere is this more
apparent than in the Sverdlovsk region of the Urals. Through various
forms of financial and securities fraud, illegal exports (including the
export of capital), and other, more directly strong-arm tactics, the criminal
networks of the Urals have effectively driven out, frightened off, or taken
control of legitimate businesses and businessmen in the Sverdlovsk region.
As a consequence, they now control, for example, the Lobvinsky
Hydrolysis Plant--a highly profitable business that produces a variety of
wood-based liquid products such as wood alcohol, but that is also used for
the illegal but highly lucrative production of vodka. Likewise, the
mob-controlled Kirovograd Copper Smelter had 777 kg of gold stolen by
its management. Similar control is exercised over the Malyshev Mining
Company that deals in precious stones, and over the Aluminum
Production Plant. 

The magnitude of this type of criminal activity in the region's economy is
revealed in part by the increases in the number of "economic crimes
committed by organized criminal groups" that have been investigated by
law enforcement authorities. There were 203 such cases in 1996 and 480
in 1997; there were 284 in the first half of 1998 alone. The latter cases
accounted for some 58 million rubles ($2 million) in lost sales and stolen
raw materials and money.

One of the prominent characteristics of this economic organized crime is
the amount of violence associated with it. Killings of businessmen,
assaults, and other violent acts are so common that retaining some kind of
security is a must for the survival of any business. According to
investigative and trial data, nearly all the killings for hire in the region are
connected to organized crime. A case in point is in the fuel and energy
sector, where a number of small entrepreneurs have lost money and been
forced to turn to such energy monopolists as Sverdlovenrego and
Uraltransgazprom to bail them out. When these debts are not repaid, both
creditors and debtors turn to mobsters--the former to enforce debt
collection, and the latter to receive protection from their creditors. In a
period of a week and a half in March and April 1998, three men in the oil
business were shot in different cities in the Sverdlovsk region.

When otherwise legitimate businesses turn to organized crime to enforce
debt collection, one often unexpected drawback is that they suffer from
having "gotten into bed with the devil." Businessmen commonly employ
for debt collection criminal groups that operate under the guise of security
firms and are legally registered as such. The court system for arbitrating
financial disputes is so inefficient and outmoded that procedures can last
for months or even years. Thus it is easier, more efficient, and most
important, faster, for businesses to turn to security firms controlled by
organized crime than to rely upon the courts. In this way, Russian
organized crime has taken on certain governmental functions, much as the 
Mafia did in Sicily. 

Criminal organizations forcibly expand their partnerships with businesses
that may have initially invited them in, to use them for money laundering.
This money laundering is often carried out through directing or controlling
the foreign economic activities of commercial enterprises. The criminal
organizations use licenses, contracts, and overseas sales agreements to
maintain accounts in foreign banks and thus evade taxation. It should be
pointed out that high rates of taxation and tax evasion and blackmail,
threats, violence, and corruption involving tax inspectors and the tax
police are commonplace throughout Russia.

Western businessmen who control the global markets in jewels and
precious metals have aided Russian organized crime in their ruthless
exploitation of the riches of the Urals. In the oil and gas sector, crime
groups have "gained considerable clout . . . by supplying short-term
business loans to oil companies and providing access to corrupted
government officials who can lobby for favorable legislation, or influence
business deals."[25] Their mutually beneficial commerce has facilitated
large-scale international fraud and has enabled Urals-based criminal
groups to gain footholds in Hungary, Belgium, the Netherlands, Cyprus,
and the United Arab Emirates. 

Not surprisingly, one of the major activities of economic organized crime
in the Urals is legalizing incomes and profits that are earned criminally,
(i.e., money laundering). This is done through a variety of mechanisms:
buying foreign currency, shipping money abroad to offshore tax havens,
creating fictitious companies, buying shares of privatized enterprises,
purchasing real estate, and creating charitable foundations. Transnational
operations--those that cross national borders--require avoiding or
corrupting customs controls. This extra step becomes unnecessary when
the laundering is done through investment in the local and regional
economies. The latter has the added advantage of facilitating control of
some of the most profitable business enterprises in the region. Instead of a
simple currency exchange, lucrative growth investments can be made. 

Among the important factors that have permitted or encouraged the
infiltration of organized crime into the Urals economy are gaps and
deficiencies in the law, which is still a mix of old (Soviet) and new
provisions, and the lack of effective cooperation among the various law
enforcement and regulatory bodies charged with policing the economy.
Some of these bodies are newly created and have unclear missions, and
almost all such bodies are badly underfunded. In addition, international
cooperation is also very hit or miss. Some of the offshore tax havens, for
example, refuse to cooperate at all with Russian law enforcement. The
relatively facile manner in which Russian organized crime groups have
taken advantage of technological advances for criminal purposes, versus
the relatively slow and inadequate response of law enforcement to this
exploitation, suggests that the criminals are going to stay ahead of law
enforcement for at least the foreseeable future.

Organized crime and corruption: Infiltration of the legal and political
systems

Experts such as Yakov Glinsky, Senior Researcher at the Institute of
Sociology of the Russian Academy of Sciences in St. Petersburg, estimate
that between 30 and 60 percent of the income of Russian organized crime
is spent on bribery and various forms of political lobbying. To uphold and
protect their interests with governmental agencies in both the executive
and legislative branches, criminal groups carry out this lobbying in the
form of receptions, dinners, trips, and outright cash for reelection. We
assume that roughly the same proportionate use of illegal largesse is
practiced by the criminal organizations in the Urals. Corruption is a
necessary practice for the continued activities of any organized criminal
group. What is unique in this situation is the degree to which criminal
groups have infiltrated the political process. The Uralmash and central
groups in particular have succeeded in electing political candidates
favorably disposed towards them, in opposing other candidates, and even
in electing their own members to office. This trend towards merging
individual political parties and movements with criminal organizations 
is driven both by the desire of organized crime to influence the political
and economic processes and by the needs of these political entities for
financial support in amounts that only organized crime can supply.

Investigations and court cases in the Urals region have revealed that
corruption, official abuses of power, and representation of the interests of
criminal organizations are systemic. These abuses are not idiosyncratic to
particular persons who happen to be in power at a particular time; they are
endemic to the system of power. They are present at all levels of
government, but especially at the regional level. Those agencies
responsible for regulating foreign economic matters and for licensing are
most vulnerable to corruption. 

Because of the latent nature of this corruption, it is difficult to estimate its
magnitude or to say much about trends. In 1997, the Sverdlovsk Regional
Internal Affairs Department investigated 308 crimes involving corruption.
Through the first 6 months of 1998, this number had increased to 199. The
main targets for bribes were the police, customs officials, and tax
inspectors. For example, the regional prosecutor investigated the case of
the director of police in Kamensk-Uralsk, who was regularly receiving
payoffs from the head of a criminal organization. In return for his money,
the police director covered up or expunged crimes committed by the
members of that organization and alerted them to possible investigations.
This scenario has been repeated in many police jurisdictions. 

The merging of economic organized crime and corruption has had a
number of deleterious effects: a warped redistribution of property and
capital, a merging of the top leadership of the three most powerful
criminal organizations in the region with governmental authorities, and the
resultant formation of a powerful criminal lobby that influences important
economic and political decisions. 

The institutions of government have lost the confidence of the people of
the Urals, just as they have lost the confidence of people in the rest of the
country. Unfulfilled expectations of what "democracy" would bring, failed
reforms, high unemployment, unpaid wages, and the loss of social benefits
have all contributed to this loss of confidence and to a growing cynicism.
The vacuum of power and government service has been filled in many
areas by criminal organizations that have moved to take on some of these
governmental functions, providing funds for the repair of schools and
hospitals, sponsoring sports events and activities, and setting up charities.
As a result, they gain the support and assistance of the people in
neutralizing the efforts of law enforcement. 

In the Urals industrial center of Nizhni Tagil, the former soccer player
"Konstantin" exemplifies this trend. Law enforcement authorities estimate
that his criminal organization controls about 60 percent of the criminal
market in the area and that it has affiliates in Moscow as well. Despite
this, Konstantin is regarded in the Yekaterinburg area as a "Russian Robin
Hood." It is not hard to see why. In the overcrowded detention facility in
Yekaterinburg, where two remands had died because of the intolerable
conditions, Konstantin's criminal group responded by delivering lifesaving
medicines, supplies, and foodstuffs. It is estimated that the organization
takes about 30 percent of the income of local businesses in extortion
payments, but in return provides protection against other criminals and
racketeers, guarantees the collection of debts, assists in dealings with the
bureaucracy, and lends money at rates much more favorable than those of
the banks. As evidence of his community support, when Konstantin was
arrested on a racketeering charge, a large group of disabled persons,
retirees, and members of the local soccer team sent a letter of protest to the
authorities, emphasizing his good works and demanding his release. 

Because of the corruption and ineptitude of government, those segments of
the society that one would normally expect to oppose organized crime
--public organizations, political movements, and the population at large--
instead support it. Ironically, organized crime provides stability and fuels
the economic engine. This stability and economic stimulation, however,
come at a very dear price in the long run.

International threats

The organized crime threat to Russia's national security is metastasizing
into a global threat.[26] The criminal organizations that dominate
organized crime in the Urals have begun to make their presence known in
many other countries as well, operating both on their own and in
cooperation with foreign groups. The latter cooperation often comes in the
form of joint money-laundering ventures. According to information
compiled by regional law enforcement authorities, criminals from the
Urals region have been responsible for a number of violent crimes (mainly
killings for hire) in Central and Western Europe, Israel, Canada, and the
United States. But the economic impact of their criminal activity is what
is, perhaps, more distinctive about them. 

The Uralmash and blues criminal networks in particular are suspected of
involvement in illicit trafficking in such dangerous products as weapons
and nuclear materials. Various kinds of hazardous materials have been
moved across the porous borders of the Caucasus and Central Asia with
the active assistance of criminal groups from those areas. It is a matter of
considerable concern to Russian leaders that the smuggling of otherwise
legal raw materials deprives Russia of export income and undercuts the
world market value of these materials. 

The regional department for combating organized crime in the Urals
estimates that the theft and export of strategic and precious metals,
especially aluminum and copper, is a major source of income for the
region's criminal organizations. This highly profitable illicit business is
aided and abetted by a tangled web of intermediaries, including foreign
firms. Those officials charged with managing the metals aid the thefts, and
foreign delivery is made possible by the payment of bribes for the
necessary export licenses. The stolen raw materials are sold abroad
through well-organized networks, and the moneys received in payment are
deposited into accounts held in foreign banks by "shell" companies that
exist only on paper. 

The arsenals, military units, and defense facilities based in the region are
the sources of weapons dealt in arms trafficking. Criminal organizations
exploit the weakened military discipline, poor morale, and corruption of
military command staff to obtain weapons through both theft and
purchase. These arms are then sold abroad via the thriving black market in
arms and defense equipment. The regional authorities report that the items
purchased range from ammunition and small arms to short- and
medium-range missiles and that the countries of the Middle East are a
particularly lucrative market for these sales. 

Money laundering in Russia is facilitated by weak frontier, customs, and
financial controls and the pervasive corruptibility of officials. Profits from
arms and drug trafficking and from prostitution, for example, are
transferred abroad through banks and other financial institutions. This is
usually done by means of fraudulent commercial contracts. In these
money-laundering schemes, the Urals criminal organizations are second to
none--and that includes the Moscow-based criminal groups. Examples of
their handiwork are found in various countries. In Belgium, they have
founded a large company for trading in rare and nonferrous metals. They
run trading companies in Germany, act as intermediaries between Ural
Airlines and Western businessmen, and control individual traders
operating in the United Arab Emirates and Greece. They also import
criminal capital to be laundered through investment and the banking sector
in Yekaterinburg. According to law enforcement sources, one
Yekaterinburg-based bank is jointly owned by a local criminal group and
members of the Italian-American and Sicilian Mafia organizations.

The Future of Organized Crime in the Urals 

What is generally true throughout Russia is especially so in the Urals. As
businesses arose or spun off from the old command economy in
topsy-turvy fashion, they quickly exceeded the state's ability to regulate
and protect them. Since many of those who became engaged in the new
businesses already had criminal roots, and the businesses themselves were
enmeshed in old black-market and shadow-economy practices, it was not a
great leap to the resulting general criminal contamination of its economy
that Russia currently suffers. As a consequence of this criminalization, it is
impossible to envision today any new commercial activities appearing that
will not be under the control of organized crime. 

The shape of organized crime in the Urals seems to have formed around
two factions into which the elite of the traditional criminal world (the
blues) has split. Some of those who up to now have made their careers in
crime appear to be moving away from criminal activity and instead are
trying to emulate their white-collar brethren. Professional criminals from
the old-style criminal underworld who have proven themselves
particularly adept at running gambling businesses or at trading drugs or
weapons undergo "retraining" or "retooling" to shift over to the more
high-powered white-collar crime world. They invest and launder their
illegally gotten gains and attempt to assimilate into business and
government, apparently viewing such a move as both less risky and more
lucrative. Their objective appears to be to maximize their profits, but to do
so in ways that are safer than continuing their criminal activity. Thus they
are active in real estate, banking, and foreign trade.

Others from the world of career criminals, however, continue to do what
they have always done--running rackets, controlling prostitution, dealing
in stolen automobiles, and so on. Unlike their colleagues who are making
the transition, the latter criminals must continue to worry about their
competition in the criminal world, as well as about law enforcement. The
gangs and organized criminal groups specializing in violence will
undoubtedly continue their criminal exploits, but it is unlikely that they
will rival the power and influence of such economic criminal networks as
Uralmash.

The nature of organized crime in the Urals has also changed. Economic
influence is becoming more important than physical influence. The leaders
of the economic organized crime networks do not wield absolute power
like "godfathers." Resolution of disagreements and conflicts occur less and
less through resort to violence. Instead, mutual economic self-interest
seems to dictate these resolutions.

The greatest threat to the West, and to the United States in particular,
arises from the expansion of Urals-based criminal activities abroad. The
most enterprising of the criminal networks in the Urals are rapidly
transforming themselves into transnational criminal organizations. They
take their substantial capital and look for opportunities to launder their
money and pursue various kinds of business and criminal activity on the
global scene.

As the transnational groups accumulate money, power, and influence,
government agencies charged with combating them are actually declining
in capacity and effectiveness. Neither the federal nor the regional
governments possess the resources to counter the burgeoning problem of
organized crime. What is more, at all levels of government the political
will necessary to tackle the problem seems to be distinctly lacking. As a
result, we anticipate that organized crime networks will only become
stronger and more powerful in the near future. And because of the deep
penetration of the legitimate sectors of the economy, dislodging and
suppressing these networks will only be accomplished by means of a
costly and lengthy effort, in which the United States can anticipate having
to play a major role.

Notes 

1. Cockburn, Patrick, "Gang Shoots Dead Businessman Who Confronted
Mafia," Independent Newspapers (U.K.), July 11, 2000.

2. Gurov, A.I., Red Mafia, Moscow: Samotsvet Publishing House, 1995;
"A Study of Organized Crime: Russian-American Dialog, The Collection
of Articles," Conference report, Moscow State University, Moscow, 1997;
Voronin, Y.A., Criminology, St. Petersburg: Academy of the Ministry of
Internal Affairs, 1998.

3. For example, O'Kane, J.M., The Crooked Ladder, New Brunswick, NJ:
Transaction Publishers, 1992. 

4. According to this law, vory were forbidden from working at legitimate
jobs, paying taxes, fighting in the military, and cooperating with law
enforcement. Vory had to give up their families to devote themselves to a
life of crime. In addition to fighting to uphold the rigid code of rejection of
and resistance to the law-abiding world, vory had to contribute to a
communal criminal fund called an "obshchak."

5. Gurov, A.I., Professional Criminality: Past and Present, Moscow:
Judicial Literature, 1990: 207; Luneev, V.V., The Essence of Organized
Crime: The Russian-American Dialog, Moscow: Moscow State
University, 1997: 34.

6. Handelman, Stephen, Comrade Criminal, New Haven, CT: Yale
University Press, 1995: 56.

7. See Simis, K.M., USSR: The Corrupt Society, trans., Jacqueline
Edwards and Mitchell Schneider, New York: Simon and Schuster, 1982;
and Vaksberg, A., The Soviet Mafia, New York: St. Martin's Press, 1991.

8. See Voronin, Y.A., Criminology (see note 2).

9. Ibid.

10. Ibid.

11. Ibid.

12. Ibid.

13. Ibid.

14. See The Commentary of the Criminal Code of Russia, Moscow: The
Institute of State and Law of the Russian Academy of Sciences, 1996.

15. See Organized Crime, no. 3 (1996).

16. The research methods employed in this case study reflect the complex
and unique difficulties in conducting empirical studies of organized crime.
Organized crime is by nature a hidden phenomenon. Penetrating it not
only is very difficult, but can be dangerous as well. Law enforcement
penetrates organized crime for investigative purposes by using
surveillance, wiretapping, eavesdropping, informants, and undercover
investigators. These primary methods for collecting information are not,
however, tools generally available to the researcher. As a result,
researchers must depend to a considerable extent on secondary methods
and materials; namely, studying law enforcement reports and interviewing
agents and investigators. Both were done in this case study.

In addition, researchers can take advantage of the investigative work done
by journalists. Although journalism is not governed by the same rules for
testing the reliability and validity of information as is scientific research,
much valuable information can be gleaned from the media. Local
newspaper coverage was also used heavily in this case study of organized
crime in the Urals. In this case study, because of the pervasiveness of
corruption, and because of the desire of powerful individuals to keep much
of this material from being publicized, both law enforcement and media
sources had to be handled with extreme caution.

17. A number of persons are named here as being involved in criminal
activity. Some names are proper names, others are only nicknames, and
some are only first or last names. These have been taken from police
reports that were made available or from media (mostly newspaper)
accounts and are thus as they were recorded in those sources. The leaders
involved here were the brothers Grigory and Konstantin Tsyganov.

18. The brightest representatives of the criminal leadership in the region in
the late 1980s were such thieves-in-law as Khorkov, Chinar, and
Cherepanov, and such gang leaders as Trifon and Ovchina. One
particularly distinctive figure among this group was Avarenok, the
so-called "ideologist of the blues," and a traditionalist in the criminal
world. 

19. The key figures in this central group were Oleg Vagin, Mikhail
Kuchin, Ivan Kazarian, Sergey Malofeev, and Sergey Dolgushin.

20. Oleg Vagin, a leader of the central group of Uralmash, actively
cooperated with various leaders of criminal organizations based in
Moscow. The latter included Leonid Bilunov, who was head of the
Lyuberetskaya criminal group, and Vladimir Tolmachev, who was a major
Moscow banker.

21. This team was under the leadership of Sergey Kurdyumov. The first
victim of the Kurdyumov team was Oleg Vagin, the leader of the central
group that was affiliated with the Uralmash network. Vagin was killed by
machine gun fire in downtown Yekaterinburg on October 26, 1992.
Nikolai Shirokov, who headed another affiliated criminal group that
specialized in bootlegging, gas stations, and a taxi business in
Yekaterinburg, was murdered in Budapest in 1993, along with three of his
bodyguards. In November 1996, one of the assassins (Sergey Terentiev)
involved in these crimes was arrested at Sheremetyevo airport in Moscow,
and by 1997, 16 others had also been arrested and charged.

22. To counter the Kurdyumov assassination team, the central criminal
group set up its own team for "elimination," headed by Georgy Arkhipov.
The Arkhipov team blew up an I1-76 plane on an airfield in Budapest,
assassinated Konstantin Doronin (vice president of the Urals trade house),
and made an attempt on the life of Konstantin Tsyganov of Uralmash.
When police arrested Arkhipov in Tallinn, Latvia, in 1995 and liquidated
the team, they found a huge cache of weapons, including antitank rockets,
grenades, explosives, and ammunition. They also found that in addition to
Yekaterinburg, Arkhipov had apartments in Anapa, a small city in the
south of Russia, and in Hungary and Latvia as well. 

23. In the period 1992-98, the following persons were murdered by
professional killers: A. Tarlanov (a leader of white-collar organized
crime); V. Ternyak (leader of a criminal group and president of the
European-Asian Company); S. Malofeev (leader of the central group and
president of the Pyramid holding center); S. Dolgushin (criminal leader
and president of the business club); V. Kasintsev (director of the Union of
Afghanistan Veterans); G. Tsyganov (founder of the Uralmash criminal
group); and V. Benyaminov (a leader of the Syrian community in
Yekaterinburg and co-owner of the Elisaveta shop that was allegedly used
for money laundering). 

24. Chinar, Avarenok, Khorkov, and others.

25. U.S. Government Interagency Working Group, "International Crime
Threat Assessment," December 2000: 68.

26. Williams, P., ed., Russian Organized Crime: The New Threat, special
issue, 2 (2/3) (1996).

------------------------------

Summary of the Criminal Activities of the Three Major Criminal
Organizations in the Urals

The Uralmash Criminal Community

Occupies the preeminent position in the shadowy world of business and
crime in the Sverdlovsk region. Typical activities include:

 o Rackets, kidnapings, and assassinations.

 o Corruption.

 o Illegal export trade in nonferrous metals and titanium.

 o Running the local soccer team, restaurants, automobile dealerships,
hotels, and other commercial enterprises, including its own brokerage
firm.

 o Money laundering.

 o Contributing to a charity.

 o Settling disputes between subsidiary criminal groups.

The Central Criminal Group

A group based in the central district of Yekaterinburg. It pursues:

 o Global investment projects.

 o The export of strategic raw materials.

 o Illicit real-estate market operations.

 o Commercial enterprises, including insurance companies, casinos,
fashionable restaurants, and the street trade of the central marketplace.

 o Corruption.

 o Money laundering.

 o Extortion and gambling.

In addition, it is co-owner of the Urals commodity and raw materials
exchange and contributes to a wide variety of charities.

The Blues Criminal Community

Includes the vory v zakone. This coming together served three purposes:

 o Maintaining the authority of the vory in the prison system.

 o Strengthening the blues' resistance to control of the new forms of
economic organized crime by the Uralmash and central groups.

 o Adapting their own criminal endeavors.

The blues today control:

 o A number of areas of economic activity (e.g., gas stations, some aspects
of the oil business, timber, and nonferrous and precious metals).

 o Corruption, blackmail, and hired assassins.

 o Extortion.

 o Drug and arms trafficking.

------------------------------

The Threat of Russian Organized Crime to the United States

Russian organized crime, or what has been generically referred to
(inappropriately in our view) as the Russian Mafia[a] in the United States,
is an umbrella characterization that captures a variety of crime groups and
criminal activities. In some instances, the crimes and forms of Russian
criminal organizations in the United States differ from those of Russian
organized crime elsewhere in the world, including in Russia itself. This is
explainable in part by differing external environments and criminal
opportunities. In the United States, the label "Russian" actually refers to a
variety of Eurasian crime groups. These include Armenians, Ukrainians,
Lithuanians, and persons from the Caucasus region of the former Soviet
Union (e.g., Chechens, Dagestanis, Georgians). It is estimated that some
12 to 15 loosely categorized criminal groups that have international ties to
Russia or other former Soviet republics are currently operating in the
United States. These groups, which we will also conveniently label
Russian organized crime, together have some 500 to 600 members.

The threat and use of violence is a defining characteristic of Russian
organized crime in the United States. Violence is used to gain and
maintain control of criminal markets, and retributive violence is used
within and between criminal groups. The common use of violence is not
surprising, since extortion and protection rackets are such a staple of
Russian criminal activity. Contract murders, kidnapings, and business
arson have all been employed by Russian organized crime. Arson is used
against businesses that refuse to pay extortion money. An example of this
violence is reflected in the 1999 convictions of six members of what is
referred to as the Gufield-Kutsenko Brigade in New York on Federal
racketeering charges involving terrorizing business owners to extort
money.

The most defining characteristic of Russian organized crime in the United
States is the nature of its criminal activity. With the principal exceptions of
extortion and money laundering, Russians have had little or no
involvement in some of the more traditional types of organized crime,
such as drug trafficking, gambling, and loan sharking. Instead, these varied
criminal groups are extensively engaged in a broad array of frauds and
scams, including health care fraud, insurance scams, stock frauds,
antiquities swindles, forgery and fuel tax evasion schemes. Recently, for
example, Russians have become the main purveyors of credit-card fraud in
the United States.

Russian organized crime is adept at changing criminal activities and
diversifying into new criminal markets. Financial markets and banks, for
example, have become new targets of criminal opportunity. In a recent
case in point (United States v. Alexander Lushtak), it was alleged that the
defendant carried out a multimillion-dollar investment fraud scheme and
the subsequent laundering of nearly $2 million of the proceeds of that
scheme by depositing the moneys in an account at the Bank of New York.
In United States v. Dominick Dionisio, et al., two persons alleged to be
associated with La Cosa Nostra and an alleged member of the "Bor"
Russian organized crime group were charged with operating a
multimillion-dollar investment fraud and laundering the proceeds of the
scheme.

Legitimate businesses such as the movie business and textile industry have
become targets of criminals from the former Soviet Union, and they are
often used for money laundering. A major 1999 money laundering case is
illustrative of this recent Russian organized crime activity. That case also
involved the Bank of New York (BONY).

In 1999, four individuals and two companies were indicted by the United
States in connection with the laundering of more than $7 billion (some
estimates range up to $10 billion). Two of those indicted subsequently
pled guilty. This case exemplifies a number of the most threatening
characteristics of Russian organized crime. First, the moneys laundered
apparently represented a mix of criminal proceeds and money being
hidden to avoid regulation by the Russian government. This means that
Russian organized crime is using institutions such as BONY to launder
criminal money, but also to assist Russian businesses and individuals in
moving their assets out of Russia so as to evade Russian law enforcement
and tax officials. Further, the BONY case illustrates diversification and,
even more importantly, a blend of legal and illegal activities that increases
the difficulty for U.S. law enforcement in combating money laundering by
Russian organized crime. Finally, Russian organized crime clearly has the
capacity to tap professional know-how in its financial schemes. As this
case and the stock fraud cases demonstrate, some of those associated with
Russian organized crime work primarily in the legitimate sectors of the
economy. This blend is suggestive of the Urals situation, with the
long-term implication that the deeper Russian organized crime penetrates
the legitimate economy, the more difficult it will be to dislodge it.

a. See Finckenauer, James O., and Elin J. Waring, Russian Mafia in
America, Boston, MA: Northeastern University Press, 1998.