THE RED MAFIA: A LEGACY OF COMMUNISM
Annelise Anderson
In Lazear, Edward P., ed. Economic Transition in Eastern Europe and Russia: Realities of Reform. Stanford, Calif: The Hoover Institution Press, 1995.
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The Russian Mafia In the 1960s and 1970s - and on into the 1980s - the Soviet economy was characterized by extensive illegal market activity involving systematic bribery of people in positions of power, which was primarily in the hands of the Communist Party. The close association between illegal market enterprises and the authorities marked this system as mafia,3 although it differed in one important respect from the classic mafias of Italy and the United States: violence appears in almost all cases to have been exercised not by the underworld but by those in positions of power, through the purge in Hillman and Schnytzer's interpretation or, from Boettke and Anderson's viewpoint, the government structures enforcing state mercantilism. As far as can be judged from available accounts, it was individuals or groups in the official sector who competed for the monopoly rents, not underground operators.

During the late 1980s, however, violence or threats of violence began to come from gangs, who had a vulnerable target (the new cooperatives) and, increasingly the means - firearms and other weapons. By the time of the Soviet breakup in 1991, Soviet officials had identified more than seven hundred gangs or clans operating in the Soviet Union. Organized along ethnic or family lines, each gang was headed by a boss called the thief-in-law (Handelman 1993, 40). By the late 1980s identifiable gangs based on ethnic ties were operating in Moscow. For example, the Chechens controlled black market car sales; the Azerbaijanis had the fruit and flower concessions (Newsweek 1993, 38).

Since the breakup of the Soviet Union and the demise of the Communist Party, many more gangs have formed that compete with one another for control of illegal markets and the territories for protection rackets. They began using violence extensively in that competition and against uncooperative legitimate entrepreneurs in early 1992. In Moscow and other major cities murders have increased substantially (many of them associated with gangland-style shoot-outs), as have crimes such as burglary, mugging, car theft, and robbery (Bohlen 1993, Al; Newsweek 1993, 38). Russian authorities have provided various estimates of the number of crime groups now operating in Russia, ranging from 2,600, of which 300 are "large syndicates" (Handelman 1993, 15), up to 3,000, of which 150 have become "well-organized fraternities" (Bohlen 1993). Nine or ten large gangs from other regions of Russia operate in Moscow (Bohlen 1993, Al).

Banking and finance are especially targeted by the mafia in postcommunist Russia. Between December 1992 and August 1993, there were eleven violent attacks against bankers, some of which were fatal (Bohlen 1993, Al). One reason for blackmailing and threatening bankers is to gain access to their books to determine which enterprises to target and how much to extort (Bohlen 1994, 6).

In Yekaterinburg an investment broker whose business and influence had police think, grown to the point where it was threatening the local mafia was gunned down in September 1992, the fourth such murder in six months. Five gangs, at least one headed by a respected person in the community, are believed to be involved in export-import operations, banking and finance, and construction, as well as the Uralmash machine-producing complex. A Yekaterinburg Internal Affairs spokesman is quoted as saying, "No honest businessman can do anything in this city unless he pays unofficial taxes to crime groups, who in turn control many of our officials through bribes" He believes that "corruption has already penetrated some of the highest levels of the Government and security forces" (Handelman 1993, 32).

The Uralmash mafia, named after the state enterprise where it originated, is especially interesting it was active in black markets in the days of the Soviet Union, selling goods and materials from Uralmash plants in return for needed supplies. With the state enterprise in financial difficulty in 1991, Handelman reports that, according to the police, the group "virtually moved inside the factory door." It "set up subsidiaries to purchase directly from the factory's assembly line, took over the factory's former Soviet-style youth club and established [its] own soccer team, restaurant, sportswear outlet and, reputedly, brokerage house" (Handelman 1993, 40). Handelman presents no information on what, if anything, this group is now doing that is illegal; this story thus illustrates the problem of sorting out the legitimate from the criminal. The brothers who ran the Soviet-era underground operation have, it would seem, brought their business aboveground and made it legitimate; if they must still proffer bribes to local officials, are they mafia or are the police overeager to so identify them?

One mafia source in Moscow provided writer Andrew Solomon with a description suggesting that Russia's gangs are developing the characteristics of classic mafia families - recruiting members and helping them with law enforcement problems. The source claimed that more and more young people are interested in joining the mafia. "When I get in trouble he said, "the family helps; I was in prison in Finland, and they got me out" (Solomon 1993, 38-39).

Another kind of story about the Russian mafias is the direction of violence by the state agencies themselves. According to Handelman, "assumptions are widespread that the crime groups are not only protected, but also in some cases instructed by Government officials and the police" (1993, 32). A government report prepared for President Boris Yeltsin noted that police officers tip off gangs about vehicles carrying valuable cargo in the city of Tver. The same report noted that 70 to 80 percent of private businesses and commercial banks in major cities make payoffs of 10 to 20 percent of their turnover to organized crime (Bohlen 1994, 1).

Today major illegal activity involves selling or trading raw materials (including oil) at below-market prices. The raw materials are then sold in the West at market prices, and the difference is pocketed by the individuals, sometimes by deposit in a foreign bank account. The security ministry (formerly the KGB) is evidently involved in some export businesses, and other companies involved have been "set up by the Communist Party to get funds out of the country" (Erlanger 1993, As). A commodity trading firm based in Switzerland, headed by Marc Rich, was trading grain, sugar, alumina, and machinery to Russia in exchange for oil and refined aluminum ingot, making profits by "skinning" the Russians. "Has Rich bribed influential pals and bureaucrats in the former Soviet Union?" Forbes asked. "Probably" (Klebnikov 1992, 41-42).

The accounts of the mafia in Russia are not nearly as detailed as the information that has been gathered over the years about the American and Sicilian mafias by journalists, through court records and the publication of wiretaps, and through testimony before legislative committees. Nevertheless, a fairly clear picture of the current situation is beginning to emerge.

With the failed coup of August 1991 and the demise of the Communist Party, neither local officials nor those in central government agencies now seem to be constrained in their corrupt activities by any high-level authority. Viktor Shchekochikhin, the president of the Union of Russian Entrepreneurs, puts it this way: "Before, officials took money in a more or less orderly way, because they knew that people could continue to come back to them. They behaved properly, if one can say that. With the arrival of the democrats came temporaries, who know that in the next elections they will be thrown out. They have to assure their future now" (Bohlen 1992, 4).

Government officials have thus become free to compete within their own spheres of authority using their economic powers and their connections with criminal groups. Their economic influence is buttressed by the continued existence of monopoly production in many sectors of the economy, as well as state control of most output in the major industries (power, communications, transportation). This continuing legacy of the old Soviet economy ensures that connections will continue to be important in obtaining supplies and services.

Criminal organizations are now willing to use violence. Some of these gangs are new; others existed before the breakup of the Soviet Union. Private protection agencies, often formed by or employing former KGB and army people, may do battle with criminal gangs or front for them. Some larger criminal organizations are absorbing smaller ones and taking their businesses. A small-time hood noted that his gang now supplies muscle for a larger group that controls his gang's old markets. It is widely believed that criminal gangs using violence may at times be operating under the direction and protection of government officials at central or local levels.

The government's efforts to combat corruption, violence, and business fraud are severely hampered for several reasons. The law itself is unclear, incomplete, and sometimes internally as are property rights. More fundamental is the lack of consensus on what is legitimate, moral, and acceptable versus what is not and thus ought to be illegal and subject to criminal prosecution. The Soviet press vilified participants in the private underground economy and was used to attack cooperatives. Like the purges of the Soviet era, anticorruption efforts may be as much attacks on political opponents as genuine efforts to reform the system. The extent of corruption, and its acceptance and institutionalization as a reward to those loyal to, the communist regime in the Soviet era, makes it difficult to attack. The political forces who support an anticorruption campaign place their supporters as well as their opponents in jeopardy. Even legitimate law enforcement efforts against gang violence and protection rackets may affect the corrupt interests of government of finials.

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