Analysing Corruption and Organised Crime in Russia
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Corruption as will be examined, was nothing new in the post-Soviet economy for its perceived rise and that of organised crime had their origins in the Soviet era. In the Soviet Union private enterprise on an individual or business basis had officially not been allowed from when the New Economic Policy was abandoned in the 1920s and with the forced collectivization of agriculture during the 1930s.
Under the Stalinist State the economy was planned and commanded by the Communist Party via the Soviet Union’s state structure. In theory the Soviet State controlled every aspect of the Soviet economy. It set prices; it controlled industrial outputs, banking services and foreign exchange rates. However, in practice there was a flourishing black market in luxury goods and foreign exchange rates before the political and economic reforms started by Mikhail Gorbachev in the 1980s. His twin policies of Glasnost and Perestroika, political openness and economic restructuring were intended to prolong the Soviet Union. Instead the Soviet Union would collapse leaving its successor states working towards democracy and capitalism whilst facing up to the problem of increasing corruption and organised crime.
The level of corruption if not organised crime during the Soviet era might not be too easy to establish exactly. The Soviet authorities after all kept the true state of the economy hidden from the West even if its citizens experienced hardships and shortages. The leading members of the politburo had been the only ones with a realistic view of the economy. The liberalisation of the economy in all parts of the former Soviet Union since 1991 have generally led to an increase of corruption and organised crime. Clampdowns on organised crime and corruption have often been half hearted when they have been carried out both during and after the Soviet era. Explanations for this rise in corruption and organised crime will now be described and examined. Some of these causes pre-date the collapse of the Soviet Union whilst others emerged later.
Black markets existed prior to the collapse of the Soviet Union often bringing consumers goods that were unavailable in the state-run shops, goods that were sometimes exchanged instead of sold to avoid breaking the law. Hand in hand with the black markets went corruption and bribery. Black marketers frequently resorted to bribing communist party officials, the police and the KGB or they in turn extorted money off the black marketers. The KGB sometimes recruited some of the black marketers to inform on their rivals and their customers. The more the Soviet economy faltered the faster the black-market grew, providing people with goods not available in the shops. Those marketers that did not bribe officials often found their homes or businesses raided or got put in jail, those that paid up could go about their business undisturbed. The Soviet leadership started to have concerns about economic stagnation, organised crime and to a lesser extent corruption in the early 1980s but none of them seemed to understand the extent of the economic malaise. The long years of stagnation continued until despite the rapid deaths of three general secretaries of the Communist Party of the Soviet Union (CPSU) between 1982-1985.
Leonid Brezhnev during his time in charge had done nothing to halt economic decline and in fact worsened it by accelerating the arms race with the United States and invading Afghanistan. It has been estimated that as much as 50% of the Soviet Union’s annual budges was spent on defence or related products and projects. However, that was money that the Soviet Union no longer had to spare. His immediate successor Yuri Andropov started a campaign against bribery and corruption that petered out with his death in 1984. When Gorbachev replaced Konstantin Chernenko a year later he pledged to reform the Soviet Union. Instead his policies would promote its collapse and lead to increased corruption and organised crime in the sixteen successor states. The problem with Stalinist economic planning was that it “created and perpetuated a shortage economy motivated only by harsh orders from the centre.” It kept most of the people equally poor except for those that found ways around the system.
By the 1980s the idea of abandoning the communist command economy in favour of capitalism and liberal democracy gained ground not only in the Soviet Union but also in Central and Eastern Europe. For the reformers could look at the neo-liberal experience of the Thatcher and Reagan administrations, perhaps the devastating social and economic effects in parts of Latin America would have been more relevant. There was of course the example of the New Economic Policy that had allowed the Soviet economy to recover from the ravages of civil war, an attractive example to communists that wanted to reform the system but also for the non-communists that wished to replace it. There was one group of pro-capitalist economists that hoped to bring in a market system to Russia, they were the ‘young reformers’. Yeger Gaider whose family was amongst the elites of the Soviet nomenklatura ironically enough headed the young reformers. They were just looking for somebody to carry out their plans and not power for themselves and would eventually team up with Boris Yeltsin a highly effective (when healthy) populist politician with only a limited understanding of economics. Alongside Yeltsin, they had the dream of dismantling communism. However, the way in which communism was dismantled across the former Soviet Union would contribute greatly to the rise of organised crime alongside the already high levels of corruption.
In the first years of Gorbachev’s rule his government attempted to preserve the Soviet political system whilst reforming its economic system, little realising that these reforms would fail and thus contribute to the rise of corruption and organised crime as well as the disintegration of the Soviet Union. He wanted to make the system worktop its full capacity without moving to a capitalist economy or inducing economic suffering. The government attempted to increase productivity by reducing alcohol consumption and the sickness that was often connected to it, but he did not run an anti - corruption campaign immediately. Gorbachev would have banned vodka but feared the ban would be circumvented by organised crime gangs, plus the tax revenues that kept the Soviet government solvent. One man who had started Ananta-corruption campaign was Boris Yeltsin who was the Moscow party boss until his sudden dismissal by Gorbachev during November 1987.Gorbachev believed he had removed his greatest rival but had in fact made a very basic political blunder, as Yeltsin was no longer controllable and determined to avenge his fall from power.
By 1989 it became clear that the Soviet economic system was unsustainable or beyond reforming and Gorbachev introduced some capitalist measures. Those measures included allowing small private businesses to operate from August 1990 and a series of de-regulations and privatisations between October 1990 and July 1991. Economic reforms brought increased opportunities to organised criminals and budding capitalist entrepreneurs, a distinction in the former Soviet Union that is not always clear. The sudden creations of small businesses increased chances for investments and money laundering or even to takeover privatised companies. Decades of communist economic and political rule left a legacy that was difficult to shake off immediately in the post-Soviet era. Yeltsin and his contemporaries found it difficult to see the world from outside of a communist perspective. The communist legacy of patronage, privileges, corruption and perks would contribute to the rise of corruption and organised crime in the post-Soviet era. As the system started to collapse across the Soviet Union law and order began to decline with it thus allowing increased opportunities for organised crime and corruption as well as increased nationalist and ethnic tensions.
The political disintegration of the Soviet Union went hand in hand with its economic disintegration and declining levels of law and order in all the successor republics. The end of the Soviet Union was hastened by the failure of the communist coup in August 1991. The Baltic States had already broke away from the Soviet Union and was already on their way to capitalist economies. Russian president Boris Yeltsin seeming to stand for the twin transition from communist state to liberal democracy and planned socialist economy to neo-liberal capitalism although this is not exactly what happened. Contrary to Mikhail Gorbachev, Boris Yeltsin had believed that the breakup of the Soviet Union could be a positive rather than a disastrous event although many of his Russian compatriots might not have agreed with him. For the other former republics, it was a case of independence at last. Perhaps those that took advantage of the break up through organised crime or corruption would have agreed with him. The Yeltsin government at first enthusiastically backed rapid and radical reforms, radical economics carried out by a group of advisors dubbed the ‘the young reformers’. Russia and the other former republics of the Soviet Union had very primitive banking and financial systems that presented apparently ideal opportunities for Russian and foreign investors. Those acting as go-betweens in business deals could make small fortunes by doing so. The transition to capitalism offered the prospect of making millions, it also led to the increase in organised crime and corruption as gangsters threatened investors, businesses and often fought each other. The Russian and other governments seemed incapable of monitoring, containing or preventing that rise.
The Yeltsin government was hampered in its efforts to control and administer the regions let alone fight the rise in crime because the remaining regional governors were by and large communist nomenklatura and apparatchiks and unwilling to do as Moscow commanded. These bureaucrats forged links with industrialists in their region providing basis for ongoing and future corruption. The bitter power struggles between President and Parliament during the 1992-1993 period distracted them from trying to solve the country’s problems and allowed the regions greater autonomy and the increasing number of organised crime gangs free rein across much of Russia and the rest of the former Soviet Union. They also spent much time and effort trying to persuade the public the other side was more corrupt and had greater links to organised crime than they did. One deputy governor indicated the scale of corruption in the remoter parts of Siberia that to start “accompany you probably have to bribe forty bureaucrats.”
Organised crime gangs used the decline in government control to organise protection rackets to fleece investors and small businesses. There was an alarming increase in violent crimes and murders as gangs competed for control of their victims and clients or punished those that would not pay for their dubious protection. The number of killings related to gang warfare escalated dramatically. Moscow and the newly renamed St Petersburg have been the centres of most of that gang warfare. Corruption was not merely confined to the Mafia gangs it also extended to the police, the armed forces and civil servants. In Russia traffic police were involved in robbing motorists also teaming up with local gangs to force motorists to hand over their cars, or to pay them fines for non-existent offences or face their cars being confiscated. Corruption and the buying and selling of anything and everything was so widespread that young female university students would aim to become hard currency call girls or the mistresses of oligarchs or wealthy businessmen, whilst jobless youths would advertise their services for contract killings.
One ruthless organised crime gang even went as far as murdering car owners and disposing of their bodies to steal their cars. Organised crime and the number of crime gangs increased dramatically as the political elites spent more time arguing amongst each other rather than fighting crime and corruption. Nobody in the public or the media believed that Boris Yeltsin would succeed in rooting out organised crime and corruption, after all every single Soviet leader had promised to do the same since 1917. After all his only previous crack down on corruption and organised crime in Moscow had been stopped it its tracks by Gorbachev when he was sacked as the Moscow party boss. The official crime figures for 1992 give a strong indication of the deteriorating law and order situation. The number of murders had increased by 40%whilst there was an even larger increase in robbery up by 60%. The overall number of registered crimes, bearing in mind that many crimes remained unreported went up to 2.76 million. In fact, the contending elites accused each other of corruption to score points off each other whilst the public were not interested in their squabbles and the 3,000or so crime gangs carried on regardless. Of the newly private run business in Russia and the Commonwealth of Independent States those3,000 gangs were able to pocket perhaps as much as 40 % of the turnovers early as 1993.
Corruption was never too far from the surface in the former Soviet Union. It should have not been a surprise therefore that corruption and organised crime would rise in the post-Soviet as they already headstrong foundations and connections to outside crime gangs. During the Soviet era if an individual knew or bribed the right officials they could get the best luxury items, property deals or their children into the finest schools or universities. So, nobody could doubt that there would be greater levels of corruption when the restraints of the Soviet system were removed. In fact, corruption dated back into the Imperial Russian past, were the civil service had been unsalaried but able to accept gifts or payments in kind. The CPSU may have claimed to be responsible for the leading role in society and the economy, some of its members took a leading role in the black market or for a small bribe get people things that would not normally be available.
In Belarus the movement towards independence was given a new impetus byte desire to be rid of greedy and corrupt communist party leaders. The unravelling of the Soviet hegemony over Eastern Europe gave an opportunity for the more entrepreneurial members of the withdrawing Soviet army to make their fortunes. The pickings could be rich for the Soviet army had large areas of land and housing to sell. When Gorbachev made a deal with the West German government to sell Soviet military bases in the former East Germany back to them most of the best pickings had already gone. The Soviet defence minister Dmitrii Yazov happily joined in the schemes that led to the disappearance of the Soviet army assets without a trace. Yazov may have enjoyed making money for himself but he was wholeheartedly against political and economic reform. He would be one of the main leaders of the August 1991 coup. After all, under the Soviet system the higher an individual’s position within the party, the KGB or the armed forces they could expect greater share of the perks and the spoils.
Just how much money the corrupt communist party members made may not beknown exactly, much of the evidence was destroyed just before the final failed coup of August 1991. Those party members that did not get into trouble following the coup could find themselves in a good position to make money in the brave new post -Soviet world. That was because they already knew how to operate in corrupt systems and some already had links with organised crime. For many of the small traders that operated largely illegally during the Soviet era the only real difference between the past and the post-Soviet present was whom they paid for the privilege of staying in business. Now they had to pay organised crime gangs to stay in business and to stay alive rather than bribe communist party officials or members of the KGB, or if they were unlucky they would have to pay them all. Corruption and organised crime increased in the post-Soviet era, but it had great potential during the Soviet era and the right conditions would fuel a massive expansion.
For much of the former Soviet Union these conditions were present in the early 1990s. Petty crime was rumoured to be rife amongst civil servants and state employees, for instance in 1993 the Russian Interior Ministry recorded 13,000 such crimes, that was thought to be the tip of the iceberg. It was estimated that virtually all shops paid protection and perhaps four fifths of businesses and financial institutes did the same. The organised crime gangs had a virtual free reign on their prospective victims, as the number of untainted police was inadequate even if they could find any brave or foolish enough to testify. The more successful entrepreneurs could hire bodyguards but that was not an option for the smaller traders who had to pay up or face the consequences.
In Russia neither the transition to democracy and the switch to capitalist economy has developed as the Russians and those in the rest of the world that were interested hoped or expected. These transitions unintentionally led to increased corruption and organised crime. Through a combination of the collapse of the archaic economic system, assets stripping by the Russians that brought utilities at cheap prices, government failings and last but no means least corruption. Russia was in a worse economic position than the Soviet Union had been, as were most of the former Soviet republics. Inward foreign investment during the 1990s did not make up for the vast sums that left Russia of between $100 billion and $150 billion made by the oligarchs that asset stripped Russia’s industries and infra-structure and does not include any of the profits made the organised crime gangs.
Foreign investors, the more sensible ones at least were put off the possibility of investing in Russia and other parts of the former Soviet Union by the high risk of their investment been ruined by having to pay bribes to officials and protection to crime gangs. It seems that the only people prospering in post-Soviet Russia are those that became nouveau riche by their investments or those that made their money less honestly through extortion or corruption. Poverty and unemployment that did not officially exist during the Soviet era increased alarmingly during the 1990s. Even if the poverty line is measured below a monthly income of less than $30 a month up to 40 million Russians appear to live in poverty. That is alarming for a country that has the largest part of the Soviet Union that had been a military superpower until1991. Economically Russia’s decline was remarkable for its severity, producing less than Belgium and barely a quarter more than Poland.
In the immediate post-Soviet period the situation was more chaotic because all the former republics were still maintaining the old Soviet currency and printing money as if it was going out of fashion, adding to the inflationary consequences of ending price controls. The chaotic situation increased the ease in which organised crime gangs could operate in the former Soviet Union. Whilst the resulting hyperinflation (added to by the removal of price controls) meant that many more ordinary people had to find alternative methods of supplementing their incomes. Russia was not the slowest country to reform its economy or political institutions Uzbekistan, Turkmenistan and Belarus according to European Bank of Reconstruction and Development were amongst the least reformed and most poverty struck. In contrast the Baltic States of Latvia, Lithuania and Estonia progressed well enough to be admitted in the European Union by 2004.
The adoption of free market capitalism brought an end to queuing in empty shops and replaced it with full shops where most people could not afford to buy anything. Hence people were searching for legal or illegal means of boosting their incomes and thus more likely to become involved in corruption and bribery. Uneconomic factories were shut making millions unemployed. Under the Soviet system people had less money but there was better state provisions and prices were fixed so inflation was virtually non-existent. The Soviet system had given privileges to countless petty state workers and junior party members. They were known as apparatchiks, whilst high ranking officials and senior party members with better perks were known as nomenklatura. With the end of the Soviet system some of these apparatchiks and nomenklatura exchanged their privileges for money, those still in state employment that had remained honest now exchanged favours for bribes. Corruption increased during the post-Soviet era simply out of economic necessity right across all the former Soviet Union as ordinary citizens and government officials found that they did not enough to live on. Throughout the former Soviet Union, the pace of economic liberalisation varied.
By the middle of 1994 the Baltic States and Russia in terms of the total percentage of gross domestic product generated by the private sector of the economy were well ahead of the Asian republics, Belarus and Moldova. In Estonia and Latvia, it was 55%, in Russia and Lithuania50 % with Belarus, Tajikistan and Turkmenistan lagged far behind on only 15%. In post-Soviet Russia nomenklatura were better placed than most to survive the harsher economic climate particularly those that lived in regions such as Siberia found it harder to survive especially when state subsidies ended leaving food and fuel far more expensive than in the major cities. The collapse of communism cut off many of the remote industrial and mining areas from the central government leading to social and economic decay. Such neglect has allowed for the growth of organised crime and corruption as desperate people turn to drugs and alcohol. Drug and alcohol abuse leads to health problems or addiction. To counter some of the incursions into those remote areas by crime gangs the Putin government once more restricted travel in to those areas.
A factor that contributed to the rise of organised crime in the post-Soviet was the wide availability of weapons for organised crime gangs and individual gangsters or thugs to use. Weapons were often obtained from members of the armed forces. Military and naval personnel were increasingly eager to sell weapons to supplement their wages, assuming they had been paid on time. The Russian commanders are said to have done worse during the first Chechen war of 1994 -1996. They sold Grozny back to the rebels in August 1996 leading to the deaths of defenceless conscripts. Corruption within the Russian military seems to be endemic, which given its role in maintaining central government authority and internal security in some of the remoter regions of the Russian Federation certainly permitted and even encouraged organised crime to rise, for instance in Chechnya. During the second Chechen war that began in 1999 the local police observed the illicit trade between Russian soldiers and local black marketers.
These soldiers would exchange boxes of ammunition for locally distilled vodka or locally grown cannabis with the tacit approval of their superior officers. Indeed, officers often accompanied their men when these exchanges took place. The black marketers then sell the ammunition to the Chechen fighters. Local police could intervene and arrest everybody, but they have either been told not to or bribed motto. The army was supposed to keep all the roads into Chechnya secure to prevent the rebels escaping or gaining supplies and money. However, the reporter Anna Politkovskaya was told “one person on foot must pay100 roubles; a light vehicle costs about 500-600 roubles”. Politkovskaya did not readily accept those claims until she successfully bribed the soldiers to get past the checkpoint. The greed and corruption of the army must have been counterproductive. They sold ammunition that was used by the Chechens and they allowed access to restricted areas to anybody who could have smuggled weapons in and people out. The corruption of the Russian armed forces in the area in and around Chechnya lowered the security and containment of Chechen fighters and contributed to the apparent ease in which rebels were able to take hostages in the Moscow theatre during October 2002. More horrifically the siege of a Beslan high school in September 2004 showed that the Russian military were incompetent as well as riddled with corruption.
Gangsters did not always buy weapons; they could often steal weapons from poorly guarded or neglected military bases. Due to the Soviet Union having national service most of the organised crime gang members could already use weapons. Troops leaving the army could also consider employment as either bodyguard for the newly rich and the justifiably concerned business owners or joining the organised crime gangs themselves as thugs and assassins. Violent crime is probably not as prevalent as people in the West might believe, however crime gangs would have no qualms about settling accounts with intimidation, assault and murder. Some murders have shown that the crime gangs and contract killers are able to gain hold of sophisticated weapons such as rocket launchers to kill bodyguards as well as their bosses in St Petersburg. Gangs must be well connected as well as rich to acquire such weapons.
The dramatic rise in the murder rate witnessed not only the deaths of politicians (three members of the Duma were shot dead in cold blood) but also businessmen and journalists. Business executives and more lowly bank employees could be and were at risk of being killed due tithe rise in corruption and organised crime. Not many gang members were afraid of being caught and convicted, for they were confident that even if the police did catch them that either the police or the courts could be persuaded to let them get away with it. In the period between 1992and 1995, the number of killed bank workers ranging from clerks to senior executives was 46. The most publicized killing was that of Pivanilide who the president of Rosbiznesbank had been. Kivelidi was poisoned in August 1995 for not complying with the demands of organised criminals. There are still a high number of deaths because of fighting between rival gangs still demonstrating that there are enough guns and money up for grabs to make the high risks of being killed seem worthwhile. Over 2,000 gang members are gunned down every year in gang wars in the Moscow region alone. Until the Putin presidency the situation in St Petersburg had been worse although Putin seems to want to clean up his home city.
The difficulty and the danger of uncovering the true level of crimes being committed aided the rise in organised crime and corruption. With so many bureaucrats, police and politicians involved or thought to be involved in corruption much of the uncovering of crimes and evidence of corruption came from the press and journalists or even rarely independently minded politicians. For journalists it was dangerous to uncover and attempt to publish evidence and articles concerning organised crime gangs and the high levels of corruption. Considering the increasing control of the media by the state or by oligarchs whose own positions could be undermined by revelations of corruption or organised crime it has not always been easy for reporters to go public with evidence they have gathered. To illustrate the dangerous position journalists found themselves in, 36 were killed between January 1994and May 1995 throughout the former Soviet Union whilst doing their jobs and reporting on not only corruption and organised crime but also the conflict in Chechnya.
The uncovering of evidence of the corruption and fraud within the Soviet army during its time in East Germany and before its departure appeared to be a major scope for the Murkowski Komsomolsk and its investigative journalist Dmitrii Kholod. For Kholod it proved one-story too far as a bomb blew up him and his office during October1994. Even television reporters and journalists were not immune from danger. Following his research into the corrupt or dishonest selling of television advertising Vladimir Listed was gunned down in March 1995before he could broadcast all his findings. At other times politicians, bureaucrats and business executives would inform or leak information about their rivals real or presumed links with organised crime and corruption for their own gain rather than in the public interest or to fight corruption itself. Whilst these bouts of accusations and counter accusations occupied the politicians and press attentions they occasionally removed the expendable politicians and bureaucrats whilst leaving the level of overall corruption untouched.
As noted below the Books affair would be used to force the resignations of some of the young reformers in 1999. Accusations of corruption would also be leaked to the press after an individual had lost the approval of either President Yeltsin or President Putin. The prime example of this were the accusations levelled against Boris Berezovskyafter he fell out with Putin, or more aptly when Putin regarded him as no longer useful to the Kremlin. Berezovsky is claimed to have stolen millions from his companies and state-run companies such as Aeroflot. All these events were from the early 1990s, so the Russian government had plenty of time to prove them or clear him. Berezovsky who went to exile in London has retaliated by campaigning against the Putin government’s increasing control of power. In Russia it appears that those involved in corruption or organised crime are relatively immune from arrest if they do not upset the Kremlin, or their punishment becomes politically expedient for the government. President Putin is arguably “searching for levers that will work … to have in place a national authority that functions as normal governments do”.
Corruption was a fact of life in the Soviet era and now seems even more endemic in the post-Soviet period; ordinary Soviet citizens were cynical about the financial honesty of their political masters and the higher-ranking communist party officials, a cynicism that continues with post-Soviet politicians and officials. Evidence of corruption and bribery would often be collected by the KGB and used if the individuals concerned fall out of favour senior party members, its successor still collects such information only now some its officers are more likely to sell sensitive information to the highest bidders. President Yeltsinonly renamed the KGB the FSB instead of abolishing it. He also retained control of the KGB records and evidence of the corruption they contained Timely uncovering of bribe taking and corruption have often been used to discredit rivals and justify the dismissal of ministers and officials. Therefore, presumably there is usually enough evidence to act against many of those involved in corruption or organised crime but not always the political will or judicial authority to do so. Many Russians believe that most if not all government ministers and officials are corrupt and susceptible to bribes. Officials are willing to risk public safety and even national security as well as their reputations for the sake of bribes. Allegations and counter allegations of corruption were used in the 1990s during the power struggle between President Yeltsin and hard-liners such as Rosko and Khasbulatov.
Corruption both in the Soviet era and afterwards existed and increased because the majority of those accepting bribes or using their position for gain position or cash believed that they would not get caught. Even if they did get caught the rate of convictions were not that high. Soviet era clampdowns on corruption under Andropov and Gorbachev only caught small fry and the same could apply during the post-Soviet era. The only notable high ranking communist to be convicted for corruption was Yuri Churbanov in 1988. Churbanov’s father in law was the late Leonid Brezhnev, the one-time Soviet leader and General Secretary that tolerated corruption more than any other Soviet era leader. Churbanov got caught taking $1 million in bribes. Perhaps the dishonest officials were working on their version of Marxism, such as all bureaucrats are corrupt, but some are more corrupt than others are. The chairman of the KGB, Chebrikov was widely seen to be increasingly corrupt the more the Soviet Union imploded. Yeltsin seemed unable if not unwilling to prevent corruption and organised crime increasing added to belief of many that they could get away with it.
The rise of corruption and organised crime in the post-Soviet era can be accounted for partly because of the previous illegality of private enterprise. The sudden adoption of ‘shock therapy’ in 1992occurred before any new corporate or financial regulations could be introduced to ensure that competition between businesses would be free and fair or those financial transactions could be above board and leaven audit trail. The government had not forewarned the Russian people about the likely consequences of economic reforms. Hyperinflation and unemployment meant many of them got power, after all pensions, pay or benefit payments could not keep pace with 245% inflation (that was January 1992 monthly total and equated to an annual rate well over2,000%). Soviet era political and economic elites away from the main urban areas would often team up with local organised crime gangs. They did that to make up as much money as possible from the conversion to capitalism. The switch to capitalism gave former party members and officials chances to grab their share of the crumbling Soviet infrastructures. Whilst people such as Boris Berezovsky and Roman Abramovich were on their way to making billions the Russian government was running out of money. So short of money in fact that it had to receive a $10.2 billion loan from the International Monetary Fund in1996.
The problem for Yeltsin and the other leaders of the post-Soviet states was that “the spine of the Soviet State had been the communist party”. The power and influence of the Russian central government gradually withered away during Yeltsin’s two terms as President. Poorly equipped and lowly paid Russian conscripts sold their weapons to Chechen rebels, in the city of Tver armed gangs extracted tolls from motorists; regional governors and companies, kept taxes that should have gone to the Kremlin. Civil servants, teachers and health visitors moonlighted for private businesses, as their wages were too low. Having public-sector employers on the payroll has proved highly invaluable for organised crime and businesses. When bidding for local and central government contracts or highly sensitive information, senior official and ministers have been known to provide organised crime gangs and business executives with security permits that prevent their arrests. Another common fraud was for companies to set up fake non-existent rivals when they bid for central, regional and local government contracts, ensuring they won the contracts. It was an alternative to bribing officials, which could prove expensive and did not always gain the contracts anyway. The collapse in central government authority extended to the law courts, if the defendant knew the right people or paid the highest bribes they could get away with murder, fraud or theft. According to Freeland “Russia developed a kind of Hobbesian capitalism, red in tooth and claw in which businesses preyed on smaller ones and apparatchiks and racketeers preyed on everyone.”
Economic growth in Russia and people’s real monetary worth is hard to measure due to corruption, dishonesty, and the lack of a coherent banking system and the lack of savings in bank accounts.
Even if the central government acted against officials they could often be found jobs in local and regional government. Local mayors and governors especially those of Moscow and St Petersburg had lucrative contracts to award for reconstruction and building projects. The Moscow city council gained a reputation for high spending and legally dubious contract awards. The mayor of Moscow, Yuri Luzhkov would often give contracts to companies that had connections with his wife. Luzhkov had presidential ambitions at one stage and was no admirer of Boris Yeltsin but has better relations with Vladimir Putin. Not only was Boris Yeltsin unable to halt the rise of organised crime and corruption in post-Soviet Russia he contributed to the problem. Yeltsin contributed to the problem in various ways some accidental others less so. He was unable to halt the decline in the power of the central government, having spent most of his first term as President competing for control with the Russian Supreme Soviet and then the Duma. His second term was beset by his worsening health that partly explained his decision to retire early. Another contribution tithe failure to combat organised crime and corruption was the almost constant changing of government ministers. Instability and uncertainly continued to plague central government meaning it was unable to control the country properly thus hampering any efforts to fight crime. When Yeltsin did find capable Prime Minister’s he would fire them if he thought they were getting too powerful and ambitious e.g. Yevgeny Primakov and Viktor Chernomyrdin. Of all his Prime Ministers the only one he trusted was the one man who would succeed him as President, Vladimir Putin. Finally, there was the links with the so-called oligarchs that Boris Yeltsin and his family had.
The young reformers who had been out of power and influence since 1993still argued that further privatisations and action against corruption was needed to ensure Russia's economic stability and wellbeing. However, with Boris Yeltsin's re-election in 1996 they regained influence particularly through Anatoly Chubais and Kokh, even the Prime Minister Chernomyrdin believed they undermined his position. For whatever reason the Russian public believed that these young reformers should be impeccably honest without any doubts about being corrupt. On the other hand, ordinary Russians were expecting the older politicians to be more likely to be corrupt.
That public belief about the integrity of the young reformers stemmed from their claims to be clearing Russia of the unhealthy and unethical relationship between big businesses and the highest reaches of the Kremlin and central government. They also hoped to clean out the bribery and corruption out of the Russian civil service and government departments. The young reformers intended actions seemed to threaten the position of oligarchs such as Vladimir Gusinsky and Boris Berezovsky. However the oligarchs were able to break the youngreformers with a pre-emptive strike, ironically links between one ofthe young reformers and an oligarch gave Boris Berezovsky hisopportunity. Using their connections with the press the oligarchs wereable to discredit and then destroy the image of the young reformers asbeing incorruptible. Alfred Kokh was discovered to have received amodest $100,000 advance payment to write a payment on market reforms and privatisations in Russia. Kokh seemed to have helped (it was suggested) his friend, the oligarch Vladimir Putin to acquire state enterprises namely Sviazinvest and Norilsk Nickel. Seeing the direction events were moving in Kokh had the good sense to leave the government and find elsewhere (but not as a writer). The young reformers seemed to have resisted the oligarchs’ attempts to remove them from government and even persuaded Boris Yeltsin to sack Boris Berezovsky from his government post. That was until advances for another book about economic policy were revealed on the radio and in the press.
Anatoly Chubais and four of his colleagues lost their jobs as a result of the $450,000 fees they received from a book company directly controlled by one of Vladimir Potanin’s corporations. With the departure of the young reformers went the chance of any serious action against corruption and organised crime until the emergence of the Putin presidency, although he continued their economic reforms and policies whilst he was Prime Minister. It was another example of corruption or financial irregularity being highlighted for political rather than economic or legal reasons. The figures used to condemn Chubais and the others would appear paltry compared to the sums that Berezovsky and other leading oligarchs were accused of taking after they fell out of favour with Putin. However, for those Russians with good memories the allegations against Chubais were nothing new. He had been accused in1992 of selling state property to organised crime gangs and wealthy foreigners at amazingly reduced prices. Putin to the surprise of some of the richest and most powerful in Russia turned out not to be the man “to keep the cash flowing into the right pockets.”
Just how much Boris Yeltsin’s family and friends were closely liked to organised crime and corruption became more apparent during August 1999.Two scandals showed that Boris Yeltsin either knew about or did not stop the rising level of corruption linked to the Kremlin. The firestone could have proved very problematic; Boris Yeltsin was so concerned he almost ended his fishing holiday early. The Mabetex affair had actually started to emerge at the start of 1999. There had been money laundering and corruption on such a vast scale that even the cynical Russians were surprised. The first person to fall victim to the following investigation was the chief of the Kremlin Property Development, Pavel Borodin. Borodin was close to Boris Yeltsin but even closer to both Boris Yeltsin’s daughters and son in laws. Borodin was believed to have awarded billion-dollar contracts on the basis that the highest bribers, such as Behgjet Pacolli won them.
The other scandal brought to public attention in the United States. Articles in the New York Times claimed that Russian organised crime gangs in conjunction with Russian government officials were using American banks to launder vast sums of their illegal earnings. Further investigations uncovered only a fraction of the $10billion claimed to have gone through the Bank of New York. The Mabetex affair was far more serious as Borodin had control of $600 billion. A Swiss court found him guilty of taking $30 million of bribes from Swiss companies in 2001.
Since gaining the Presidency in 2000 Vladimir Putin has tried to reverse the rise in organised crime and corruption Putin regarded the weakness of the central government as being responsible for that rise. Not only did he wish to restore the state’s power to fight crime and corruption he also wished to restore Russia’s economic and international position. His efforts to do this have met with domestic opposition and complaints from abroad due to the authoritarian methods adopted to do so. Putin may have owed his swift rise to power to the patronage of Boris Yeltsin and his powerful associates, but Putin’s outlook owes a great deal to his career in the KGB and its successor the FSB. Putin was unswervingly loyal towards Yeltsin who in turn did his best to ensure Putin gained the presidential succession. Putin did not believe he owed any such loyalty to the oligarchs that surrounded President Yeltsin and the Yeltsin family. Once in power Putin decided to launch campaigns against organised crime and corruption, influenced perhaps by the similar anti-corruption campaign of one of his former heroes Yuri Andropov. Unlike either Yeltsin or Andropov, Putin appeared to have age and health on his side. Putin is also a man capable of manipulating Russia’s incomplete and flawed democracy for his own ends. Before becoming Prime Minister, Putin had returned to head the FSB to ensure its loyalty to Boris Yeltsin and later himself. He spends his second spell at the FSB prudently gaining information on his potential rivals and opponents, but it must also surely have given him an insight into the extent of corruption and organised crime in Russia.
Putin’s image as been a tough leader in terms of trying to restore the Kremlin’s authority, crushing the Chechen separatists and restoring law and order contributed to his presidential election victories in 2000and 2004. In 2000 the victory was narrower with speculation if no proof that the election was not entirely free with some press claims that Putin’s popularity extended beyond the grave to more than a million deceased voters. His margin of victory in 2004 was greater and apparently with only the votes of the living, when he got over 70% of the vote.
Corruption and organised crime increased after the end of the Soviet era because it could be highly lucrative with little chance of being caught breaking the law. The oligarchs such as Boris Berezovsky (who made his fortune from selling cars, aluminium and a media empire) or Roman Abramovich (who made his fortune in oil and aluminium) may or may not have made their fortunes legally but they provided Boris Yeltsin with support and favours for his family. In return Boris Yeltsin sold them state oil and mining enterprises on the cheap. They would have argued that was their reward for working and supporting the government. They would have preferred to call it influence rather than corruption. They had also helped the central government out of its worst financial position by loaning it money in return for free or heavily subsidized shares in soon to be privatised state enterprises. Yeltsin would have preferred to take loans off the oligarchs rather than the International Monetary Fund because they would not insist on social and economic reforms or restrict payments due to fears over human rights abuses in Chechnya. The basic concept behind the loans for shares scheme was that the oligarchs got shares in public companies in return for lending the government money and bank rolling Yeltsin’s re-election campaign in1996. Yeltsin kept his promises and they got the rest of their shares. Their influence seemed complete when Potanin joined the government and Chubais returned to office. Although the oligarchs were not corrupt their power was not particularly healthy for democracy (or economic and moral integrity). Such close links between government and big business would have raised major concerns in more established democracies. The greater economic stability of the Putin’s first presidential term means the longer needed their loans as much as Yeltsin had.
There were however others whose fortunes were made by more definite criminal methods. Russian investors have been the victims of scams and mass fraud on numerous occasions. One such scam was organised by Sergei Mavrodi. He set up a bogus investment company known as MMMinvestments that defrauded many millions of Russians of their savings. The scam was a pyramid scheme that defrauded its millions of investors of up to $15 million, only it was a Russian variant in that Mavrodi did not get all the money. Although Mavrodi had masterminded the scheme he lost 90% of his ill-gotten proceeds to private businesses taking their cut and paying off dishonest government officials. These unknown and uncaught officials would have threatened Mavrodi with jail if he did not pay them, just like in the Soviet era but with much money at stake. That was how easy it could be to become a millionaire in Boris Yeltsin’s Russia, providing you could afford to bribe enough people to stay in business.
The only problem for Mavrodi was that the fraud had been on such large scale that his crimes could not remain undetected. He was eventually caught after five years on the run and went to jail. Russia is also a favourite destination for cars stolen from the rest of Europe, a form of organised crime aided by corruption that was on the rise in the post-Soviet era. In Soviet days there was a long waiting list for cars but since then car ownership has spread. Russia is the ideal destination for exporting these stolen cars to, as it is such a vast country, has plenty of potential customers who do not ask questions, plus a high level of corruption amongst officials. The complicity and corruption of high-ranking civil servants and police mean that the organised crime gangs involved make a tidy profit without any fear of being caught. Corrupt government officials even buy and use the cars themselves both for private and official use.
Vladimir Putin did not want as a priority to reverse the rise of organised crime and corruption seen during the post-Soviet period. He did however wish to regain as much of the central government’s economic and political power plus it’s freedom of action. By driving Berezovsky into self imposed exile and jailing Mikhail Khodorkovsky. Putin managed to subdue the other oligarchs into doing nothing to upset him or flaunt their political leverage. Putin could not realistically over turn the economic changes of the Yeltsin era. The oligarchs may have achieved their vast fortunes due to the weakness of the Russian State and perhaps dubious ways of making money, but Putin can hardly take everything back off them. The sheer number of privatisations had aided the astute, the dishonest as well as the corrupt to gain their unfair share of the loot. The redistribution of state enterprises and businesses into private ownership was great, amounting to 88% of the Soviet era state sector in Russia alone. Putin admired the men that tried to make the Russian State strong like Peter the Great, Lenin and Andropov. For Putin rebuilding the infrastructure of the Russian States a priority, as the collapse of Soviet authority was largely responsible for the rise of organised crime and corruption in the post-Soviet era. In some ways Putin is a throwback to a Stalinistapparatchick in that in his view the State is more important than individuals. Putin claims to be a democrat, but his concept of democracy is one were order and the state take precedence over people. On the other hand, it means that restoration of state power should fill the power vacuum that allowed the extraordinary growth of organised crime and corruption during the 1990s
Another aspect to the rise in organised crime and corruption in the post-Soviet economy was the increase in the hard drugs trade, which had not officially been recognised as existing in the Soviet Union. Illegal drugs and the trafficking of them were supposed to only happening the capitalist decadence of Western Europe and North America. Since the collapse of communism, the Russia and other former Soviet states have had as much trouble in countering the rise in the drugs trade. Ironically the production of opium and heroin originating from Afghanistan and Pakistan increased greatly after the Soviet Union’s invasion of Afghanistan in 1979. Proceeds from the drugs trade in Western Europe and North America proved very lucrative to organised crime gangs that started to enter the Soviet Union. Money the opium growers made from the trade was used to fund the Afghan resistance to the Soviet occupation forces. When that was added to by unlimited American military and financial aid it was no wonder that the Afghan war played a large role in the collapse of the Soviet Union. The chaotic and sudden collapse of the Soviet Union made it easier to smuggle, supply and sell drugs and then launder the proceeds in the former Soviet republics.
St Petersburg was the main city to be affected by drug addiction, with around 70,000 users by the end of the 1980s. Drug addiction had already been increasing before the end of the Soviet era but wider availability of drug supplies and gangs supplying them worsened the situation. Organised crime gangs were sure of making profits with so many addicts needing to feed their habits, plus they could control the prostitution and robberies that desperate addicts resorted to pay for drugs. The harsh economic factors and the dullness of life after the end of the Soviet era led to an increase in alcohol and hard drug abuse as people tried to forget how awful their lives were. The high profits and low risks of getting caught attracted rival gangs to the former Soviet Union. Aside from corruption and organised crime the hard drugs explosion has left Russia with another increasing problem the spread of HIV and AIDS. The Russian government has failed to promote needle exchanges or safe sex, and if the estimates of 5 million people being infected by 2007 prove accurate it could pose a greater threat to Russia’s future than corruption, organised crime or Chechen terrorists.
In the post-Soviet era organised crime and corruption affected and carried out by ordinary citizens. Open-air markets sprang up in cities such as Moscow and St Petersburg particularly at the weekends, as people exercised their newfound rights to buy and sell in public. It was an ideal way for people to make tax-free cash in hand quickly. The markets were also a good opportunity for organised crime gangs as they could recruit people to sell their fake and pirated goods at the same time as laundering their money. The unregulated nature of the markets of course presented the organised crime gangs the opportunity for extorting cash out of traders selling their own goods. These markets were the ideal place to sell and obtain forgeries and fake goods at the fraction of the cost of original brands or to dispose of stolen goods. The trend bares a remarkable similarity to the markets and car boot sales across Europe.
There are other ways in which ordinary Russians could make money to maintain or improve their standard of living in light of harsher economic conditions. For instance, motorists were more than happy to use their cars as ad hoc and unauthorized taxis in Moscow whilst pensioners or the ill would sell their medical prescriptions to drug addicts. In Russia there has been a rising trend of tax evasion amongst the rich, the poor, the powerful and the powerless. The rich under declare their income or send their money to off shore tax havens whilst the poor either two or three jobs or a main job were the bulk of their pay is given cash in hand. Pavel Borodin when he was not busy taking bribes claimed that at least 300 members of the Duma officially only owned the Russian built Volga cars but were in fact the owners of luxury European or American built cars that would have cost far more than their official income. Falling government revenues can financially weaken the state and lessen the funds to combat corruption and organised crime.
Therefore, various factors contributed, aided and permitted the rise of organised crime and corruption within the economic sector of the former Soviet Union republics in the post-Soviet era. Whilst private enterprise had been outlawed for virtually the entire Soviet era except during the New Economic Policy and the last years of the Soviet Union corruption was already well established. Organised crime had also been present although on a lesser scale during the Soviet era, as witnessed by the existence of the black market and the availability of hard drugs. Clampdowns on illegal traders were random and targeted at those that had not paid bribes to the relevant police or officials. The years of stagnation and corruption in the Soviet Union were sure to influence economic and political shape of the former Soviet republics. Gorbachev failed to keep the Soviet Union existing with the policies of glasnost and perestroika but the subsequent collapse of the Soviet system was acurse for the leaders of the successor states. However, it was an ideal opportunity for the astute emerging business classes, organised crime gangs and those bureaucrats that were surprisingly easy to bribe to make their fortune. Sometimes the distinction and links between these groups were difficult to detect or distinguish.
When the Soviet Union finished its legacy financial and banking systems were backward and open to vast amounts of fraud and money laundering. Organised crime gangs were well positioned to take advantage of what remained of the old system before new systems were put into operation, where they encountered people who got in their way they found violence, threats and bribery effective means to get what they wanted. Through extortion, investment and takeovers they controlled much of the income from the new private enterprises.
Economic decline and the threat to people’s livelihoods made contribution to the rise of organised crime and corruption in the post-Soviet economics of the former Soviet Union. When faced with hyperinflation, under employment and unemployment ordinary people resorted to second and third jobs, mass tax evasion or setting themselves up as market traders. Those that worked as minor officials or in the police could always make other people pay fees or fines and increase the level of corruption yet further. Crime gangs and individual fraudsters took advantage of corrupt officials, police and judges to profit from their extortions and scams. Russia and the other former Soviet republics to a lesser extent seemed to be convulsed by an extreme form of economic Darwinism. In that economic Darwinism only the most ruthless, the meanest and the most immoral survived, the rest would go under. In the new Russia rich and poor seemed to forget all their morals in the search for money.
The primary reason for the rise in organised crime and corruption on the post-Soviet economy was the economic and political vacuum that developed with the end of communism. New leaders such as Boris Yeltsinand Leonid Kravchuk in the Ukraine headed governments that introduced economic reforms that provided ideal opportunities for organised crime and increased whilst reducing the power of their respective states. Gangs were able to exploit the lack of law and order to run protection rackets, car stealing rings and intimidate or murder any journalist, politician or business people that got in their way. Many people took the physically safer option of doing as they were told and those that took bribes counted their money stayed quiet. The relative weakness of the central governments especially in Russia meant local and regional governors would often become linked with organised crime gangs and gladly reaped the rewards of their corruption. The hasty privatisation led to the emergence of billionaire business tycoons such as Boris Berezovsky, Mikhail Khodorkovsky and Roman Abramovich who boosted dwindling government funding by lending it money and buying state enterprises at greatly discounted prices. The oligarchs had massed great deal of economic power and political influence especially under the Yeltsin presidency. Corruption was rife in the Kremlin as well as in the cities and the region’s most notably when Pavel Borodin was caught in a multimillion scandal awarding contracts to the highest bribers. Conversely Vladimir Putin has restored the Kremlin’s power and attempted to counter the rise of organised crime and corruption.
Putin has to some extent succeeded in controlling the oligarchs even though his crackdown has been selective, only targeting those that are no longer of use to his government. It would still seem that everybody in Russia has a price, bribery and corruption are widespread, it appears to be deeply ingrained in Russian society whilst organised crime seems certain to continue as long there are vast sums of money tube made. The profits from extortion, money laundering, the drugs trade, gun running, and prostitution mean that rival gangs will continue with their violent turf wars. It is a sad indictment on the Russian government that the crime gangs are in more danger from each other than they are from the forces of law and order. Civil servants, the police, government and the FSB all seemed willing to make money on the side. Even in the former Soviet republics that have made the most successful switch to liberal democracy and capitalism, namely Estonia, Latvia and Lithuania organised crime still exist as it does throughout the Western world. Governments cannot prevent the basic economic fact that crime does pay for those that do not get caught.
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