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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 statestructure. 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 therewas a flourishing black market in luxury goods and foreign exchangerates 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 being 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 were allowed to 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 topreserve the Soviet political system whilst reforming its economicsystem, little realising that these reforms would fail and thuscontribute to the rise of corruption and organised crime as well as thedisintegration of the Soviet Union. He wanted to make the system workto its full capacity without moving to a capitalist economy or inducingeconomic suffering. The government attempted to increase productivityby reducing alcohol consumption and the sickness that was oftenconnected to it, but he did not run an anti - corruption campaignimmediately. Gorbachev would have banned vodka but feared the ban wouldbe circumvented by organised crime gangs, plus the tax revenues thatkept the Soviet government solvent. One man who had started ananti-corruption campaign was Boris Yeltsin who was the Moscow partyboss until his sudden dismissal by Gorbachev during November 1987.Gorbachev believed he had removed his greatest rival but had in factmade a very basic political blunder, as Yeltsin was no longercontrollable and determined to avenge his fall from power.

By 1989 it became clear that the Soviet economic system wasunsustainable or beyond reforming and Gorbachev introduced somecapitalist measures. Those measures included allowing small privatebusinesses to operate from August 1990 and a series of de-regulationsand privatisations between October 1990 and July 1991. Economic reformsbrought increased opportunities to organised criminals and buddingcapitalist entrepreneurs, a distinction in the former Soviet Union thatis not always clear. The sudden creations of small businesses increasedchances for investments and money laundering or even to takeoverprivatised companies. Decades of communist economic and politicalrule left a legacy that was difficult to shake off immediately in thepost-Soviet era. Yeltsin and his contemporaries found it difficult tosee the world from outside of a communist perspective. The communistlegacy of patronage, privileges, corruption and perks would contributeto the rise of corruption and organised crime in the post-Soviet era.As the system started to collapse across the Soviet Union law and orderbegan to decline with it thus allowing increased opportunities fororganised crime and corruption as well as increased nationalist andethnic tensions.

The political disintegration of the Soviet Union went hand in hand withits economic disintegration and declining levels of law and order inall the successor republics. The end of the Soviet Union was hastenedby the failure of the communist coup in August 1991. The Baltic Stateshad already broke away from the Soviet Union and was already on theirway to capitalist economies. Russian president Boris Yeltsin seemingto stand for the twin transition from communist state to liberaldemocracy and planned socialist economy to neo-liberal capitalismalthough this is not exactly what happened. Contrary to MikhailGorbachev, Boris Yeltsin had believed that the break up of the SovietUnion could be a positive rather than a disastrous event although manyof his Russian compatriots might not have agreed with him. For theother former republics it was a case of independence at last. Perhapsthose that took advantage of the break up through organised crime orcorruption would have agreed with him. The Yeltsin government at firstenthusiastically backed rapid and radical reforms, radical economicscarried out by a group of advisors dubbed the ‘the young reformers’.Russia and the other former republics of the Soviet Union had veryprimitive banking and financial systems that presented apparently idealopportunities for Russian and foreign investors. Those acting as gobetweens in business deals could make small fortunes by doing so. Thetransition to capitalism offered the prospect of making millions, italso led to the increase in organised crime and corruption as gangstersthreatened investors, businesses and often fought each other. TheRussian and other governments seemed incapable of monitoring,containing or preventing that rise.

The Yeltsin government was hampered in its efforts to control andadminister the regions let alone fight the rise in crime because theremaining regional governors were by and large communist nomenklaturaand apparatchiks and unwilling to do as Moscow commanded. Thesebureaucrats forged links with industrialists in their region providinga basis for ongoing and future corruption. The bitter power strugglesbetween President and Parliament during the 1992-1993 period distractedthem from trying to solve the country’s problems and allowed theregions greater autonomy and the increasing number of organised crimegangs free rein across much of Russia and the rest of the former SovietUnion. They also spent much time and effort trying to persuade thepublic the other side was more corrupt and had greater links toorganised crime than they did. One deputy governor indicated thescale of corruption in the remoter parts of Siberia that to start “acompany you probably have to bribe forty bureaucrats.”

Organised crime gangs used the decline in government control toorganise protection rackets to fleece investors and small businesses.There was an alarming increase in violent crimes and murders as gangscompeted for control of their victims and clients or punished thosethat would not pay for their dubious protection. The number of killingsrelated to gang warfare escalated dramatically. Moscow and the newlyrenamed St Petersburg have been the centres of most of that gangwarfare. Corruption was not merely confined to the Mafia gangs it alsoextended to the police, the armed forces and civil servants. In Russiatraffic police were involved in robbing motorists also teaming up withlocal gangs to force motorists to hand over their cars, or to pay themfines for non-existent offences or face their cars being confiscated.Corruption and the buying and selling of any thing and everything wasso widespread that young female university students would aim to becomehard currency call girls or the mistresses of oligarchs or wealthybusinessmen, whilst jobless youths would advertise their services forcontract killings.

One ruthless organised crime gang even went as far as murdering carowners and disposing of their bodies to steal their cars. Organisedcrime and the number of crime gangs increased dramatically as thepolitical elites spent more time arguing amongst each other rather thanfighting crime and corruption. Nobody in the public or the mediabelieved that Boris Yeltsin would succeed in rooting out organisedcrime and corruption, after all every single Soviet leader had promisedto do the same since 1917. After all his only previous crack down oncorruption and organised crime in Moscow had been stopped it its tracksby Gorbachev when he was sacked as the Moscow party boss. The officialcrime figures for 1992 give a strong indication of the deterioratinglaw 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 crimesremained unreported went up to 2.76 million. In fact the contendingelites accused each other of corruption to score points off each otherwhilst the public were not interested in their squabbles and the 3,000or so crime gangs carried on regardless. Of the newly private runbusiness in Russia and the Commonwealth of Independent States those3,000 gangs were able to pocket perhaps as much as 40 % of the turnoveras early as 1993.

Corruption was never to far from the surface in the former SovietUnion. It should have not been a surprise therefore that corruption andorganised crime would rise in the post-Soviet as they already hadstrong foundations and connections to outside crime gangs. During theSoviet era if an individual knew or bribed the right officials theycould get the best luxury items, property deals or their children intothe finest schools or universities. So nobody could doubt that therewould be greater levels of corruption when the restraints of the Sovietsystem were removed. In fact corruption dated back into the ImperialRussian past, were the civil service had been unsalaried but able toaccept gifts or payments in kind. The CPSU may have claimed to beresponsible for the leading role in society and the economy, some ofits members took a leading role in the black market or for a smallbribe get people things that would not normally be available.

In Belarus the movement towards independence was given a new impetus bythe desire to be rid of greedy and corrupt communist party leaders.The unraveling of the Soviet hegemony over Eastern Europe gave anopportunity for the more entrepreneurial members of the withdrawingSoviet army to make their fortunes. The pickings could be rich for theSoviet army had large areas of land and housing to sell. When Gorbachevmade a deal with the West German government to sell Soviet militarybases in the former East Germany back to them most of the best pickingshad already gone. The Soviet defence minister Dmitrii Yazov happilyjoined in the schemes that led to the disappearance of the Soviet armyassets without a trace. Yazov may have enjoyed making money forhimself but he was wholeheartedly against political and economicreform. He would be one of the main leaders of the August 1991 coup.After all under the Soviet system the higher an individual’s positionwithin the party, the KGB or the armed forces they could expect agreater 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 finalfailed coup of August 1991. Those party members that did not get intotrouble following the coup could find themselves in a good position tomake money in the brave new post -Soviet world. That was because theyalready knew how to operate in corrupt systems and some already hadlinks with organised crime. For many of the small traders that operatedlargely illegally during the Soviet era the only real differencebetween the past and the post-Soviet present was whom they paid for theprivilege of staying in business. Now they had to pay organised crimegangs to stay in business and to stay alive rather than bribe communistparty officials or members of the KGB, or if they were unlucky theywould have to pay them all. Corruption and organised crime increased inthe post-Soviet era but it had great potential during the Soviet eraand the right conditions would fuel a massive expansion.

For much of the former Soviet Union these conditions were present inthe early 1990s. Petty crime was rumored to be rife amongst civilservants and state employees, for instance in 1993 the Russian InteriorMinistry recorded 13,000 such crimes, that was thought to be the tip ofthe iceberg. It was estimated that virtually all shops paid protectionand perhaps four fifths of businesses and financial institutes did thesame. The organised crime gangs had a virtual free reign on theirprospective victims, as the number of untainted police was inadequateeven if they could find any brave or foolish enough to testify. Themore successful entrepreneurs could hire bodyguards but that was not anoption for the smaller traders who had to pay up or face theconsequences.

In Russia neither the transition to democracy and the switch to acapitalist economy has developed as the Russians and those in the restof the world that were interested hoped or expected. These transitionsunintentionally 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 cheapprices, government failings and last but no means least corruption.Russia was in a worse economic position than the Soviet Union had been,as were the majority of the former Soviet republics. Inward foreigninvestment during the 1990s did not make up for the vast sums that leftRussia of between $100 billion and $150 billion made by the oligarchsthat asset stripped Russia’s industries and infra-structure and doesnot include any of the profits made the organised crime gangs.

Foreign investors, the more sensible ones at least were put off thepossibility of investing in Russia and other parts of the former SovietUnion by the high risk of their investment been ruined by having to paybribes to officials and protection to crime gangs. It seems that theonly people prospering in post-Soviet Russia are those that becamenouveau riche by their investments or those that made their money lesshonestly through extortion or corruption. Poverty and unemployment thatdid not officially exist during the Soviet era increased alarminglyduring the 1990s. Even if the poverty line is measured below a monthlyincome of less than $30 a month up to 40 million Russians appear tolive in poverty. That is alarming for a country that has the largestpart of the Soviet Union that had been a military superpower until1991. Economically Russia’s decline was remarkable for it’s severity,producing less than Belgium and barely a quarter more than Poland.

In the immediate post-Soviet period the situation was more chaoticbecause all the former republics were still maintaining the old Sovietcurrency and printing money as if it was going out of fashion, addingto the inflationary consequences of ending price controls. The chaoticsituation increased the ease in which organised crime gangs couldoperate in the former Soviet Union. Whilst the resulting hyperinflation(added to by the removal of price controls) meant that many moreordinary people had to find alternative methods of supplementing theirincomes. Russia was not the slowest country to reform it’s economy orpolitical institutions Uzbekistan, Turkmenistan and Belarus accordingto European Bank of Reconstruction and Development were amongst theleast reformed and most poverty struck. In contrast the Baltic Statesof Latvia, Lithuania and Estonia progressed well enough to be admittedin the European Union by 2004.

The adoption of free market capitalism brought an end to queuing inempty shops and replaced it with full shops where most people could notafford to actually buy anything. Hence people were searching for legalor illegal means of boosting their incomes and thus more likely tobecome involved in corruption and bribery. Uneconomic factories wereshut making millions unemployed. Under the Soviet system people hadless money but there was better state provisions and prices were fixedso inflation was virtually non-existent. The Soviet system had givenprivileges to countless petty state workers and junior party members.They were known as apparatchiks, whilst high ranking officials andsenior party members with better perks were known as nomenklatura. Withthe end of the Soviet system some of these apparatchiks andnomenklatura exchanged their privileges for money, those still in stateemployment that had remained honest now exchanged favours for bribes.Corruption increased during the post-Soviet era simply out of economicnecessity right across all of the former Soviet Union as ordinarycitizens and government officials found that they did not enough tolive on. Throughout the former Soviet Union the pace of economicliberalisation varied.

By the middle of 1994 the Baltic States and Russia in terms of thetotal percentage of gross domestic product generated by the privatesector of the economy were well ahead of the Asian republics, Belarusand Moldova. In Estonia and Latvia it was 55%, in Russia and Lithuania50 % with Belarus, Tajikistan and Turkmenistan lagged far behind ononly 15%. In post-Soviet Russia nomenklatura were better placed thanmost to survive the harsher economic climate particularly those thatlived in regions such as Siberia found it harder to survive especiallywhen state subsidies ended leaving food and fuel far more expensivethan in the major cities. The collapse of communism cut off many of theremote industrial and mining areas from the central government leadingto social and economic decay. Such neglect has allowed for the growthof organised crime and corruption as desperate people turn to drugs andalcohol. Drug and alcohol abuse leads to health problems or addiction.To counter some of the incursions into those remote areas by crimegangs the Putin government once more restricted travel in to thoseareas.

A factor that contributed to the rise of organised crime in thepost-Soviet was the wide availability of weapons for organised crimegangs and individual gangsters or thugs to use. Weapons were oftenobtained from members of the armed forces. Military and naval personnelwere increasingly eager to sell weapons to supplement their wages,assuming they had been paid on time. The Russian commanders are said tohave done worse during the first Chechen war of 1994 -1996. They soldGrozny back to the rebels in August 1996 leading to the deaths ofdefenceless conscripts. Corruption within the Russian military seemsto be endemic, which given its role in maintaining central governmentauthority and internal security in some of the remoter regions of theRussian Federation certainly permitted and even encouraged organisedcrime to rise, for instance in Chechnya. During the second Chechen warthat began in 1999 the local police observed the illicit trade betweenRussian soldiers and local black marketers.

These soldiers would exchange boxes of ammunition for locally distilledvodka or locally grown cannabis with the tacit approval of theirsuperior officers. Indeed officers often accompanied their men whenthese exchanges took place. The black marketers then sell theammunition to the Chechen fighters. Local police could intervene andarrest everybody but they have either been told not to or bribed notto. The army was supposed to keep all the roads into Chechnya secureto 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 shesuccessfully bribed the soldiers to get past the checkpoint. The greedand corruption of the army must have been counterproductive. They soldammunition that was used by the Chechens and they allowed access torestricted areas to anybody who could have smuggled weapons in andpeople out. The corruption of the Russian armed forces in the area inand around Chechnya lowered the security and containment of Chechenfighters and contributed to the apparent ease in which rebels were ableto take hostages in the Moscow theatre during October 2002. Morehorrifically the siege of a Beslan high school in September 2004 showedthat the Russian military were incompetent as well as riddled withcorruption.

Gangsters did not always buy weapons; they could often steal weaponsfrom poorly guarded or neglected military bases. Due to the SovietUnion having national service most of the organised crime gang memberscould already use weapons. Troops leaving the army could also consideremployment as either bodyguards for the newly rich and the justifiablyconcerned business owners or joining the organised crime gangsthemselves as thugs and assassins. Violent crime is probably not asprevalent as people in the West might believe, however crime gangswould have no qualms about settling accounts with intimidation, assaultand murder. Some murders have shown that the crime gangs and contractkillers are able to gain hold of sophisticated weapons such as rocketlaunchers to kill bodyguards as well as their bosses in St Petersburg.Gangs have to be well connected as well as rich to acquire suchweapons.

The dramatic rise in the murder rate witnessed not only the deaths ofpoliticians (three members of the Duma were shot dead in cold blood)but also businessmen and journalists. Business executives and morelowly bank employees could be and were at risk of being killed due tothe rise in corruption and organised crime. Not many gang members wereafraid of being caught and convicted, for they were confident that evenif the police did catch them that either the police or the courts couldbe persuaded to let them get away with it. In the period between 1992and 1995, the number of killed bank workers ranging from clerks tosenior executives was 46. The most publicized killing was that of IvanKivelidi who had been the president of Rosbiznesbank. Kivelidi waspoisoned in August 1995 for not complying with the demands of organisedcriminals. There are still a high number of deaths as a result offighting between rival gangs still demonstrating that there are enoughguns and money up for grabs to make the high risks of being killed seemworthwhile. Over 2,000 gang members are gunned down every year in gangwars in the Moscow region alone. Until the Putin presidency thesituation in St Petersburg had been worse although Putin seems to wantto clean up his home city.

The difficulty and the danger of uncovering the true level of crimesbeing committed aided the rise in organised crime and corruption. Withso many bureaucrats, police and politicians involved or thought to beinvolved in corruption much of the uncovering of crimes and evidence ofcorruption came from the press and journalists or even rarelyindependently minded politicians. For journalists it was dangerous touncover and attempt to publish evidence and articles concerningorganised crime gangs and the high levels of corruption. Consideringthe increasing control of the media by the state or by oligarchs whoseown positions could be undermined by revelations of corruption ororganised crime it has not always been easy for reporters to go publicwith evidence they have gathered. To illustrate the dangerous positionjournalists found themselves in, 36 were killed between January 1994and May 1995 throughout the former Soviet Union whilst doing their jobsand reporting on not only corruption and organised crime but also theconflict in Chechnya.

The uncovering of evidence of the corruption and fraud within theSoviet army during its time in East Germany and before its departureappeared to be a major scope for the Moskovskii komsomolets and itsinvestigative journalist Dmitrii Kholodov. For Kholodov it proved onestory too far as a bomb blew up him and his office during October1994. Even television reporters and journalists were not immune fromdanger. Following his research into the corrupt or dishonest sellingof television advertising Vladimir Listev was gunned down in March 1995before he could broadcast all his findings. At other timespoliticians, bureaucrats and business executives would inform or leakinformation about their rivals real or presumed links with organisedcrime and corruption for their own gain rather than in the publicinterest or to fight corruption itself. Whilst these bouts ofaccusations and counter accusations occupied the politicians and pressattentions they occasionally removed the expendable politicians andbureaucrats whilst leaving the level of overall corruption untouched.

As noted below the Books affair would be used to force the resignationsof some of the young reformers in 1999. Accusations of corruptionwould also be leaked to the press after an individual had lost theapproval of either President Yeltsin or President Putin. The primeexample of this were the accusations leveled against Boris Berezovskyafter he fell out with Putin, or more aptly when Putin regarded him asno longer useful to the Kremlin. Berezovsky is claimed to have stolenmillions from his companies and state run companies such as Aeroflot.All these events were from the early 1990s so the Russian governmenthad plenty of time to prove them or clear him. Berezovsky who went toexile in London has retaliated by campaigning against the Putingovernment’s increasing control of power. In Russia it appears thatthose involved in corruption or organised crime are relatively immunefrom arrest as long as they do not upset the Kremlin or theirpunishment becomes politically expedient for the government. PresidentPutin is arguably “searching for levers that will work … to have inplace a national authority that functions as normal governments do”.

Corruption was a fact of life in the Soviet era and now seems even moreendemic in the post-Soviet period; ordinary Soviet citizens werecynical about the financial honesty of their political masters and thehigher-ranking communist party officials, a cynicism that continueswith post-Soviet politicians and officials. Evidence of corruption andbribery would often be collected by the KGB and used if the individualsconcerned fall out of favour senior party members, its successor stillcollects such information only now some its officers are more likely tosell sensitive information to the highest bidders. President Yeltsinonly renamed the KGB the FSB instead of abolishing it. He also retainedcontrol of the KGB records and evidence of the corruption theycontained Timely uncovering of bribe taking and corruption have oftenbeen used to discredit rivals and justify the dismissal of ministersand officials. Therefore presumably there is usually enough evidenceto act against many of those involved in corruption or organised crimebut not always the political will or judicial authority to do so. ManyRussians believe that most if not all government ministers andofficials are corrupt and susceptible to bribes. Officials are willingto risk public safety and even national security as well as theirreputations for the sake of bribes. Allegations and counterallegations of corruption were used in the 1990s during the powerstruggle between President Yeltsin and hard-liners such as Rutskoy andKhasbulatov.

Corruption both in the Soviet era and afterwards existed and increasedbecause the majority of those accepting bribes or using their positionfor gain position or cash believed that they would not get caught. Evenif they did get caught the rate of convictions were not that high.Soviet era clampdowns on corruption under Andropov and Gorbachev onlycaught small fry and the same could apply during the post-Soviet era.The only notable high ranking communist to be convicted for corruptionwas Yuri Churbanov in 1988. Churbanov’s father in law was the lateLeonid Brezhnev, the one time Soviet leader and General Secretary thattolerated corruption more than any other Soviet era leader. Churbanovgot caught taking $1 million in bribes. Perhaps the dishonest officialswere working on their version of Marxism, such as all bureaucrats arecorrupt but some are more corrupt than others are. The chairman of theKGB, Chebrikov was widely seen to be increasingly corrupt the more theSoviet Union imploded. Yeltsin seemed unable if not unwilling toprevent corruption and organised crime increasing added to belief ofmany that they could get away with it.

The rise of corruption and organised crime in the post-Soviet era canbe accounted for partly as a result of the previous illegality ofprivate enterprise. The sudden adoption of ‘shock therapy’ in 1992occurred before any new corporate or financial regulations could beintroduced to ensure that competition between businesses would be freeand fair or those financial transactions could be above board and leavean audit trail. The government had not forewarned the Russian peopleabout the likely consequences of economic reforms. Hyper inflation andunemployment meant many of them got power, after all pensions, pay orbenefit payments could not keep pace with 245% inflation (that wasJanuary 1992 monthly total and equated to an annual rate well over2,000%). Soviet era political and economic elites away from the mainurban areas would often team up with local organised crime gangs. Theydid that to make up as much money as possible from the conversion tocapitalism. The switch to capitalism gave former party members andofficials chances to grab their share of the crumbling Sovietinfrastructures. Whilst people such as Boris Berezovsky and RomanAbramovich were on their way to making billions the Russian governmentwas running out of money. So short of money in fact that it had toreceive a $10.2 billion loan from the International Monetary Fund in1996.

The problem for Yeltsin and the other leaders of the post-Soviet stateswas that “the spine of the Soviet State had been the communist party”.The power and influence of the Russian central government graduallywithered away during Yeltsin’s two terms as President. Poorly equippedand 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 tothe Kremlin. Civil servants, teachers and health visitors moonlightedfor private businesses, as their wages were too low. Having publicsector employers on the payroll has proved highly invaluable fororganised crime and businesses. When bidding for local and centralgovernment contracts or highly sensitive information, senior officialand ministers have been known to provide organised crime gangs andbusiness executives with security permits that prevent their arrests.Another common fraud was for companies to set up fake non-existentrivals when they bid for central, regional and local governmentcontracts, ensuring they won the contracts. It was an alternative tobribing officials, which could prove expensive and did not always gainthe contracts anyway. The collapse in central government authorityextended to the law courts, if the defendant knew the right people orpaid the highest bribes they could get away with murder, fraud ortheft. According to Freeland “Russia developed a kind of Hobbesiancapitalism, red in tooth and claw in which businesses preyed on smallerones and apparatchiks and racketeers preyed on everyone.”
Economic growth in Russia and peoples real monetary worth is hard tomeasure due to corruption, dishonesty, and the lack of a coherentbanking system and the lack of savings in bank accounts.

Even if the central government took action against officials they couldoften be found jobs in local and regional government. Local mayors andgovernors especially those of Moscow and St Petersburg had lucrativecontracts to award for reconstruction and building projects. TheMoscow city council in particular gained a reputation for high spendingand legally dubious contract awards. The mayor of Moscow, Yuri Luzhkovwould often give contracts to companies that had connections with hiswife. Luzhkov had presidential ambitions at one stage and was noadmirer of Boris Yeltsin but has better relations with Vladimir Putin.Not only was Boris Yeltsin unable to halt the rise of organised crimeand corruption in post-Soviet Russia he actually contributed to theproblem. Yeltsin contributed to the problem in various ways someaccidental others less so. He was unable to halt the decline in thepower of the central government, having spent most of his first term asPresident competing for control with the Russian Supreme Soviet andthen the Duma. His second term was beset by his worsening health thatpartly explained his decision to retire early. Another contribution tothe failure to combat organised crime and corruption was the almostconstant changing of government ministers. Instability and uncertainlycontinued to plague central government meaning it was unable to controlthe country properly thus hampering any efforts to fight crime. WhenYeltsin did find capable Prime Minister’s he would fire them if hethought they were getting too powerful and ambitious e.g. YevgenyPrimakov and Viktor Chernomyrdin. Of all his Prime Ministers the onlyone he trusted was the one man who would succeed him as President,Vladimir Putin. Finally there was the links with the so-calledoligarchs 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 corruptionwas needed to ensure Russia's economic stability and well being.However with Boris Yeltsin's re-election in 1996 they regainedinfluence particularly through Anatoly Chubais and Kokh, even the PrimeMinister Chernomyrdin believed they undermined his position. Forwhatever reason the Russian public believed that these young reformersshould be impeccably honest without any doubts about being corrupt. Onthe other hand ordinary Russians were expecting the older politiciansto be more likely to be corrupt.

That public belief about the integrity of the young reformers stemmedfrom their claims to be clearing Russia of the unhealthy and unethicalrelationship between big businesses and the highest reaches of theKremlin and central government. They also hoped to clean out thebribery and corruption out of the Russian civil service and governmentdepartments. The young reformers intended actions seemed to threatenthe position of oligarchs such as Vladimir Gusinsky and BorisBerezovsky. 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 reformsand privatisations in Russia. Kokh seemed to have helped (it wassuggested) his friend, the oligarch Vladimir Potanin to acquire stateenterprises namely Sviazinvest and Norilsk Nickel. Seeing thedirection events were moving in Kokh had the good sense to leave thegovernment and find elsewhere (but not as a writer). The youngreformers seemed to have resisted the oligarchs’ attempts to removethem from government and even persuaded Boris Yeltsin to sack BorisBerezovsky from his government post. That was until advances foranother book about economic policy were revealed on the radio and inthe press.

Anatoly Chubais and four of his colleagues lost their jobs as a resultof the $450,000 fees they received from a book company directlycontrolled by one of Vladimir Potanin’s corporations. With thedeparture of the young reformers went the chance of any serious actionagainst corruption and organised crime until the emergence of the Putinpresidency, although he continued their economic reforms and policieswhilst he was Prime Minister. It was another example of corruption orfinancial irregularity being highlighted for political rather thaneconomic or legal reasons. The figures used to condemn Chubais and theothers would appear paltry compared to the sums that Berezovsky andother leading oligarchs were accused of taking after they fell out offavour with Putin. However for those Russians with good memories theallegations against Chubais were nothing new. He had been accused in1992 of selling state property to organised crime gangs and wealthyforeigners at amazingly reduced prices. Putin to the surprise of someof 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 toorganised crime and corruption became more apparent during August 1999.Two scandals showed that Boris Yeltsin either knew about or did notstop the rising level of corruption linked to the Kremlin. The firstone could have proved very problematic; Boris Yeltsin was so concernedhe almost ended his fishing holiday early. The Mabetex affair hadactually started to emerge at the start of 1999. There had been moneylaundering and corruption on such a vast scale that even the cynicalRussians were surprised. The first person to fall victim to thefollowing investigation was the chief of the Kremlin PropertyDevelopment, Pavel Borodin. Borodin was close to Boris Yeltsin but evencloser to both Boris Yeltsin’s daughters and son in laws. Borodin wasbelieved to have awarded billion dollar contracts on the basis that thehighest bribers, such as Behgjet Pacolli won them.
The other scandal actually brought to public attention in the UnitedStates. Articles in the New York Times claimed that Russian organisedcrime gangs in conjunction with Russian government officials were usingAmerican banks to launder vast sums of their illegal earnings. Furtherinvestigations uncovered only a fraction of the $10billion claimed tohave gone through the Bank of New York. The Mabetex affair was far moreserious as Borodin had control of $600 billion. A Swiss court found himguilty of taking $30 million of bribes from Swiss companies in 2001.

Since gaining the Presidency in 2000 Vladimir Putin has tried toreverse the rise in organised crime and corruption Putin regarded theweakness of the central government as being responsible for that rise.Not only did he wish to restore the state’s power to fight crime andcorruption he also wished to restore Russia’s economic andinternational position. His efforts to do this have met with domesticopposition and complaints from abroad due to the authoritarian methodsadopted to do so. Putin may have owed his swift rise to power to thepatronage of Boris Yeltsin and his powerful associates but Putin’soutlook owes a great deal to his career in the KGB and its successorthe FSB. Putin was unswervingly loyal towards Yeltsin who in turn didhis best to ensure Putin gained the presidential succession. Putin didnot believe he owed any such loyalty to the oligarchs that surroundedPresident Yeltsin and the Yeltsin family. Once in power Putin decidedto launch campaigns against organised crime and corruption, influencedperhaps by the similar anti-corruption campaign of one of his formerheroes Yuri Andropov. Unlike either Yeltsin or Andropov, Putin appearedto have age and health on his side. Putin is also a man capable ofmanipulating Russia’s incomplete and flawed democracy for his ownends. Before becoming Prime Minister, Putin had returned to head theFSB to ensure its loyalty to Boris Yeltsin and later himself. He spendhis second spell at the FSB prudently gaining information on hispotential rivals and opponents but it must also surely given him aninsight into the extent of corruption and organised crime in Russia.

Putin’s image as been a tough leader in terms of trying to restore theKremlin’s authority, crushing the Chechen separatists and restoring lawand order contributed to his presidential election victories in 2000and 2004. In 2000 the victory was narrower with speculation if noproof that the election was not entirely free with some press claimsthat Putin’s popularity extended beyond the grave to more than amillion deceased voters. His margin of victory in 2004 was greater andapparently with only the votes of the living, when he got over 70% ofthe vote.

Corruption and organised crime increased after the end of the Sovietera because it could be highly lucrative with little chance of beingcaught breaking the law. The oligarchs such as Boris Berezovsky (whomade his fortune from selling cars, aluminum and a media empire) orRoman Abramovich (who made his fortune in oil and aluminum) may or maynot have made their fortunes legally but they provided Boris Yeltsinwith support and favours for his family. In return Boris Yeltsin soldthem state oil and mining enterprises on the cheap. They would haveargued 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 financialposition by loaning it money in return for free or heavily subsidizedshares in soon to be privatised state enterprises. Yeltsin would havepreferred to take loans off the oligarchs rather than the InternationalMonetary Fund because they would not insist on social and economicreforms or restrict payments due to fears over human rights abuses inChechnya. The basic concept behind the loans for shares scheme wasthat the oligarchs got shares in public companies in return for lendingthe 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 andChubais returned to office. Although the oligarchs were not corrupttheir power was not particularly healthy for democracy (or economic andmoral integrity). Such close links between government and big businesswould have raised major concerns in more established democracies. Thegreater economic stability of the Putin’s first presidential term meanthe longer needed their loans as much as Yeltsin had.

There were however others whose fortunes were made by more definitecriminal methods. Russian investors have been the victims of scams andmass fraud on numerous occasions. One such scam was organised bySergei 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 investorsof up to $15 million, only it was a Russian variant in that Mavrodi didnot get all the money. Although Mavrodi had masterminded the scheme helost 90% of his ill-gotten proceeds to private businesses taking theircut and paying off dishonest government officials. These unknown anduncaught officials would have threatened Mavrodi with jail if he didnot pay them, just like in the Soviet era but with much money atstake. That was how easy it could be to become a millionaire in BorisYeltsin’s Russia, providing you could afford to bribe enough people tostay in business.

The only problem for Mavrodi was that the fraud had been on such alarge scale that his crimes could not remain undetected. He waseventually caught after five years on the run and went to jail. Russiais also a favorite destination for cars stolen from the rest of Europe,a form of organised crime aided by corruption that was on the rise inthe post-Soviet era. In Soviet days there was a long waiting list forcars but since then car ownership has spread. Russia is the idealdestination for exporting these stolen cars to, as it is such a vastcountry, has plenty of potential customers who do not ask questions,plus a high level of corruption amongst officials. The complicity andcorruption of high-ranking civil servants and police mean that theorganised crime gangs involved make a tidy profit without any fear ofbeing caught. Corrupt government officials even buy and use the carsthemselves both for private and official use.

Vladimir Putin did not want as a first priority to reverse the rise oforganised crime and corruption seen during the post-Soviet period. Hedid however wish to regain as much of the central governments economicand political power plus it’s freedom of action. By driving Berezovskyinto self imposed exile and jailing Mikhail Khodorkovsky. Putin managedto subdue the other oligarchs into doing nothing to upset him or flaunttheir political leverage. Putin could not realistically over turn theeconomic changes of the Yeltsin era. The oligarchs may have achievedtheir vast fortunes due to the weakness of the Russian State andperhaps dubious ways of making money but Putin can hardly takeeverything back off them. The sheer number of privatisations had aidedthe astute, the dishonest as well as the corrupt to gain their unfairshare of the loot. The redistribution of state enterprises andbusinesses into private ownership was great, amounting to 88% of theSoviet era state sector in Russia alone. Putin admired the men thattried to make the Russian State strong like Peter the Great, Lenin andAndropov. For Putin rebuilding the infrastructure of the Russian Stateis a priority, as the collapse of Soviet authority was largelyresponsible 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 thanindividuals. Putin claims to be a democrat but his concept ofdemocracy is one were order and the state take precedence over people.On the other hand it means that restoration of state power should fillthe power vacuum that allowed the extraordinary growth of organisedcrime and corruption during the 1990s

Another aspect to the rise in organised crime and corruption in thepost-Soviet economy was the increase in the hard drugs trade, which hadnot officially been recognised as existing in the Soviet Union.Illegal drugs and the trafficking of them were supposed to only happenin the capitalist decadence of Western Europe and North America. Sincethe collapse of communism the Russia and other former Soviet stateshave had as much trouble in countering the rise in the drugs trade.Ironically the production of opium and heroin originating fromAfghanistan and Pakistan increased greatly after the Soviet Union’sinvasion of Afghanistan in 1979. Proceeds from the drugs trade inWestern Europe and North America proved very lucrative to organisedcrime gangs that started to enter the Soviet Union. Money the opiumgrowers made from the trade was used to fund the Afghan resistance tothe Soviet occupation forces. When that was added to by unlimitedAmerican military and financial aid it was no wonder that the Afghanwar played a large role in the collapse of the Soviet Union. Thechaotic and sudden collapse of the Soviet Union made it easier tosmuggle, supply and sell drugs and then launder the proceeds in theformer Soviet republics.

St Petersburg was the main city to be affected by drug addiction, witharound 70,000 users by the end of the 1980s. Drug addiction hadalready been increasing before the end of the Soviet era but wideravailability of drug supplies and gangs supplying them worsened thesituation. Organised crime gangs were sure of making profits with somany addicts needing to feed their habits, plus they could control theprostitution and robberies that desperate addicts resorted to pay fordrugs. The harsh economic factors and the dullness of life after theend of the Soviet era led to an increase in alcohol and hard drug abuseas people tried to forget how awful their lives were. The high profitsand low risks of getting caught attracted rival gangs to the formerSoviet Union. Aside from corruption and organised crime the hard drugsexplosion has left Russia with another increasing problem the spread ofHIV and AIDS. The Russian government has failed to promote needleexchanges or safe sex, and if the estimates of 5 million people beinginfected by 2007 prove accurate it could pose a greater threat toRussia’s future than corruption, organised crime or Chechen terrorists.

In the post-Soviet era organised crime and corruption affected andcarried out by ordinary citizens. Open-air markets sprang up in citiessuch as Moscow and St Petersburg particularly at the weekends, aspeople exercised their newfound rights to buy and sell in public. Itwas an ideal way for people to make tax-free cash in hand quickly. Themarkets were also a good opportunity for organised crime gangs as theycould recruit people to sell their fake and pirated goods at the sametime as laundering their money. The unregulated nature of the marketsof course presented the organised crime gangs the opportunity forextorting cash out of traders selling their own goods. These marketswere the ideal place to sell and obtain forgeries and fake goods at thefraction of the cost of original brands or to dispose of stolen goods.The trend bares a remarkable similarity to the markets and car bootsales across Europe.

There are other ways in which ordinary Russians could make money tomaintain or improve their standard of living in light of harshereconomic conditions. For instance motorists were more than happy touse their cars as ad hoc and unauthorized taxis in Moscow whilstpensioners or the ill would sell their medical prescriptions to drugaddicts. In Russia there has been a rising trend of tax evasionamongst the rich, the poor, the powerful and the powerless. The richunder declare their income, or send their money to off shore tax havenswhilst the poor either two or three jobs or a main job were the bulk oftheir pay is given cash in hand. Pavel Borodin when he was not busytaking bribes claimed that at least 300 members of the Duma officiallyonly owned the Russian built Volga cars but were in fact the owners ofluxury European or American built cars that would have cost far morethan their official income. Falling government revenues canfinancially weaken the state and lessen the funds to combat corruptionand organised crime.

Therefore various factors contributed, aided and permitted the rise oforganised crime and corruption within the economic sector of the formerSoviet Union republics in the post-Soviet era. Whilst privateenterprise had been outlawed for virtually the entire Soviet era exceptduring the New Economic Policy and the last years of the Soviet Unioncorruption was already well established. Organised crime had also beenpresent although on a lesser scale during the Soviet era, as witnessedby the existence of the black market and the availability of harddrugs. Clampdowns on illegal traders were random and targeted at thosethat had not paid bribes to the relevant police or officials. The yearsof stagnation and corruption in the Soviet Union were sure to influenceeconomic and political shape of the former Soviet republics. Gorbachevfailed to keep the Soviet Union existing with the policies of glasnostand perestroika but the subsequent collapse of the Soviet system was acurse for the leaders of the successor states. However, it was an idealopportunity for the astute emerging business classes, organised crimegangs and those bureaucrats that were surprisingly easy to bribe tomake their fortune. Sometimes the distinction and links between thesegroups were difficult to detect or distinguish.

When the Soviet Union finished it’s legacy financial and bankingsystems were backward and open to vast amounts of fraud and moneylaundering. Organised crime gangs were well positioned to takeadvantage of what remained of the old system before new systems wereput into operation, where they encountered people who got in their waythey found violence, threats and bribery effective means to get whatthey wanted. Through extortion, investment and takeovers theycontrolled much of the income from the new private enterprises.
Economic decline and the threat to people’s livelihoods made acontribution to the rise of organised crime and corruption in thepost-Soviet economics of the former Soviet Union. When faced withhyperinflation, under employment and unemployment ordinary peopleresorted to second and third jobs, mass tax evasion or settingthemselves up as market traders. Those that worked as minor officialsor in the police could always make other people pay fees or fines andincrease the level of corruption yet further. Crime gangs andindividual fraudsters took advantage of corrupt officials, police andjudges to profit from their extortions and scams. Russia and the otherformer Soviet republics to a lesser extent seemed to be convulsed by anextreme form of economic Darwinism. In that economic Darwinism only themost ruthless, the meanest and the most immoral survived, the restwould go under. In the new Russia rich and poor seemed to forget all oftheir morals in the search for money.

The primary reason for the rise in organised crime and corruption onthe post-Soviet economy was the economic and political vacuum thatdeveloped with the end of communism. New leaders such as Boris Yeltsinand Leonid Kravchuk in the Ukraine headed governments that introducedeconomic reforms that provided ideal opportunities for organised crimeand increased whilst reducing the power of their respective states.Gangs were able to exploit the lack of law and order to run protectionrackets, car stealing rings and intimidate or murder any journalist,politician or business people that got in their way. Many people tookthe physically safer option of doing as they were told and those thattook bribes counted their money stayed quiet. The relative weakness ofthe central governments especially in Russia meant local and regionalgovernors would often become linked with organised crime gangs andgladly reaped the rewards of their corruption. The hasty privatisationled to the emergence of billionaire business tycoons such as BorisBerezovsky, Mikhail Khodorkovsky and Roman Abramovich who boosteddwindling government funding by lending it money and buying stateenterprises at greatly discounted prices. The oligarchs had massed agreat deal of economic power and political influence especially underthe Yeltsin presidency. Corruption was rife in the Kremlin as well asin the cities and the regions most notably when Pavel Borodin wascaught in a multimillion scandal awarding contracts to the highestbribers. Conversely Vladimir Putin has restored the Kremlin’s power andattempted to counter the rise of organised crime and corruption.

Putin has to some extent succeeded in controlling the oligarchs eventhough his crackdown has been selective, only targeting those that areno longer of use to his government. It would still seem that everybodyin Russia has a price, bribery and corruption are widespread, itappears to be deeply ingrained in Russian society whilst organisedcrime seems certain to continue as long there are vast sums of money tobe made. The profits from extortion, money laundering, the drugs trade,gun running and prostitution mean that rival gangs will continue withtheir violent turf wars. It is a sad indictment on the Russiangovernment that the crime gangs are in more danger from each other thanthey 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 successfulswitch to liberal democracy and capitalism, namely Estonia, Latvia andLithuania organised crime still exists as it does throughout theWestern world. Governments can not prevent the basic economic factthat crime does pay for those that do not get caught.


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