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CIAO DATE: 2/99
Russia: Eliminating Crime
Rapporteur
Mikhail Delyagin
Translated by
Richard Weitz
Strengthening Democratic Institutions Project
John F. Kennedy School of Government
September 1998
Preface
This monograph represents part of series of publications of the "Whither Russia?" project of the Strengthening Democratic Institutions Project, based at the Belfer Center for Science and International Affairs (BCSIA) at Harvard University’s John F. Kennedy School of Government.
The group behind this monograph, the Council on Foreign and Defense Policy (CFDP), is a non–governmental public association of influential Russian politicians, public figures, government officials, scholars, businessmen, and members of the news media. It is chaired by Dr. Sergei Karaganov, who is also Deputy Director of the Institute of Europe of the Russian Academy of Sciences. The Council promotes research on foreign and defense issues of concern to the Russian Federation and its citizens. The other authors of this report are Dr. Mikhail G. Delyagin, Counselor to the Government of Russia; Dr. Igor E. Malashenko, Director General, NTV Holding; Dr. Andrei V. Federov, President of the Political Research Foundation, and Political Projects Director at the Council on Foreign and Defense Policy; Colonel General Anatoly E. Safonov, Chairman of the Committee on Security of the Union of Belarus; and Major General Vladimir P. Vorozhtsov, Assistant and Chief Counselor to the Minister of Internal Affairs of the Russian Federation. The report was commissioned as a result of an international conference convened by the CFDP, in conjunction with Harvard’s John F. Kennedy School of Government and the German Society for Foreign Affairs, in December 1997 on "Russia and the Outside World: A New Agenda for the 21st Century." At the conference, combating crime was identified as one of the principal items for this "new agenda." I am pleased to be able to present the ideas of Russia’s Council on Foreign and Defense Policy to a Western audience.
The essay begins by challenging the widespread view that Russia is a kind of "criminal state" where organized criminal groups dominate economic or even political decision–making. Most controversially, the authors believe that this exaggeration reflects a conscious effort by certain foreigners to exploit misrepresentations about Russia to advance their own political and economic interests. They deny that crime has become a dominating feature of Russian political and social life, and state that the level of crime in Russia has never reached the level of crime characteristic of an advanced industrial democracy such as Italy. They subsequently cite a number of indicators to substantiate their claim that the state of crime in Russia, even after taking into account the large share of crime that remains unrecorded, approximately corresponds to that in developed Western countries with stable democratic traditions.
According to the authors, no Russian "mafia" exists. What has happened is that certain criminal bands in Russia since the Gorbachev period have exploited Russia’s growing openness to the outside world, as well as the opportunities presented by economic reform, to link up with international criminal structures. A consequence of this development is that in the 1990s Russian criminals have become more visible to foreign observers. Unfortunately, aside from holding an exaggerated and distorted impression of the state of Russian crime in general, most foreigners have yet to take into account the improving ability of Russian law enforcement agencies to manage their crime problem.
The authors then discuss six elements of the Russian economy that have been heavily penetrated by criminal groups: denationalization and privatization; foreign economic activity; the financial sector; the security of intellectual property; the sale of potentially harmful consumer goods; and government procurement. The authors identify a reoccurring pattern through which criminals became entrenched in these areas: economic and political imperatives led to a rapid reduction in the regulatory role of the government in the economy, which in turn opened up lucrative opportunities for criminal groups that sought to exploit the embryonic status of Russia’s legal and economic system for their own improper enrichment.
In the third chapter of the report, the authors discuss what they see as the fundamental reasons for the surge in crime in Russia after the Soviet Union’s collapse. These consist of the deleterious effects of the totalitarian system on Russian society; the weakness and impoverishment of the post–totalitarian state; the increased integration of Russia into the world community, which included organized criminal structures that successfully sought to link up with Russian criminal groups; and the Russian government’s inordinately strict financial policy.
The last section details specific policies that the authors believe will most effectively combat crime in Russia. These include policy changes within Russia, within the Commonwealth of Independent States, and with respect to Russia’s approach to the larger international community. The authors identify the strengthening of the country’s court system as Russia’s most urgent task. They correctly note that an improvement in the overall health of the Russian economy would also promote a reduction in the country’s crime rate.
This text was translated under the guidance of the Council on Foreign and Defense Policy by Dr. Richard Weitz, a 1996–1998 Fellow in BCSIA’s International Security Program. In July 1998, Dr. Weitz became a Research Analyst for the Policy, Strategy, and Forces Division at the Center for Naval Analyses in Alexandria, Virginia. Funding for the "Whither Russia?" project has been provided by the Carnegie Corporation of New York.
In our efforts to present Western scholars and policy makers with the broadest range of views within Russia, we have solicited a range of opinions on highly controversial topics. The opinions expressed in the monographs are those of the authors and do not represent the views of Harvard University, the Belfer Center for Science and International Affairs, the Strengthening Democratic Institutions Project, the Carnegie Corporation of New York, or the translators and editors.
Graham Allison, Director
Strengthening Democratic Institutions Project
Introduction
"In rejecting the new demonization of Russia, which reflects an overemphasis on the role of criminal elements, I cannot but see the truth in the statement that it is one of the most negative characteristics of our country"
Anatoly Kulikov, Vice Premier and Minister of the Interior of Russia
"Crimes by Russians or Russian groups do not threaten the domestic or national security of the United States"
Louis Freeh, FBI Director
"It is unreasonable to speak of the Russian Mafia structures. There are no Russian Mafia structures; there are international mafia structures that include representatives of many ethnic groups. Therefore, I believe that it is wrong to point one’s finger at others, one...should study to what extent the criminal structures of one’s own country participate in this business"
Bernd Schmidbauer, State Secretary and Co–ordinator of law enforcement agencies for the Federal Chancellor’s Office, Deputy of the Bundestag
This report analyses the state of crime in Russia, how it is changing, and the measures necessary to eradicate it. The authors fully share the justified concern about Russian crime expressed by the representatives of law enforcement agencies and the political and public figures of Russia and many foreign countries.
Russia’s "decriminalization" may become the true basis for a national accord, a task that will bring to light and unite all the healthy forces of our country and the world community for its solution in a way similar to how the task of turning Russia towards the path of a market economy revealed and consolidated all the market–oriented forces.
The authors are deeply grateful to the numerous scholars, members of the business community, law enforcement workers, and foreign researchers who provided us with the results of their many years of research and observation on these issues and who, as a very diverse group of Russians and foreigners, offered convincing proof of the correctness of our recognition of the importance of eradicating crime in Russia.
(1) The Level Of Russian Crime
In a way similar to how military catastrophes such as those of the Russian Civil War and World War II engendered a most violent wave of banditry, the social–economic explosion of the late 1980s and early 1990s caused a new crime wave. Overwhelmed researchers and businessmen, under the influence of their personal and the public’s misfortunes, and having lost some of their sense of historical perspective, contributed to the creation of an atmosphere of pessimism with respect to the future of Russia, portraying the country as a "criminal society" and even "a criminal state" with no prospects for future development.
These sentiments evoked widespread concern. The international media began to form an image of Russia as a country where crime had become the dominating feature. Russia’s affliction by crime even became a subject of US Congressional hearings, during which a number of the participants asserted that Russia had become a "kleptocracy" in the course of its reforms, which, they maintained, dooms Russian reforms to failure.
Few such assertions are not accompanied by appeals to help Russia find a solution to its problems. However, many of these appeals are dictated by a desire not so much to promote the eradication of crime as to use the inflated fear of Russia for achieving their own political goals, the most prominent of which include:
The last motive was particularly in evidence recently when the stabilization of the Russian economy started to gradually restore the country’s health. Thus, the main conclusion of the report on organised crime in Russia of the Washington–based Center for Strategic and International Studies, which was under preparation for two years with the unprecedented participation of a number of former leaders of the U.S. intelligence and crime prevention services, and which received widespread publicity, was a warning against investing in Russia.
Allegations about the formation in Russia of a "bandit state" and the ties of the First Vice–Premier of the Russian Government, Anatoly Chubais with organised crime, as voiced by George Soros, whose own activities were linked with the greatest scandal in the whole history of the new Russia, are also indicative. These are the accusations of a "super–speculator against rank–and–file speculators," which evoked not a little amusement among many Russians.
However, the most dangerous use of this thesis is the claim that crime has become a system–defining element at the basis of Russian political and social life. Our analysis has shown that in Russia crime has not yet reached the level which is characteristic, for example, of Italy—a country where crime has definitely become a system–defining factor, yet which does not prevent it from having a highly developed democracy or from being a full member of NATO, the Schengen Union, the G–7, etc..
Notions about how Russia is a "new criminal state," and about how Russian businesses are thoroughly criminalized, are often spread by methods that undermine the international co–operation among law enforcement agencies that is necessary in an era of interdependence. The notion of the Russian mafia as a factor presenting a direct threat to the national security of the developed countries and to the personal well–being of their citizens, which obviously does not correspond to reality, is taking root objectively or sometimes even subjectively in the public consciousness of the developed countries.
Meanwhile, according to the unanimous opinion of the participants of the 62nd Interpol Assembly, no "Russian mafia" exists. On the contrary, Russian crime became famous due to its active integration into the international criminal community, as a result of which it was no longer isolated within one nation or country. The understanding of this was developed and consolidated at the December 1997 Russian–American–German meeting, held under the auspices of the Council on Foreign and Defence Policy, on "Russia and the Outside World: A New Agenda for the 21st Century," in which leaders of the defense, interior, and law enforcement agencies of the three countries took part.
Criminal groups originating from the territory of Russia and the Newly Independent States do not routinely create their own structures, but instead integrate into existing international criminal associations. In this sense, the major criminal alliances are being supplemented by certain specific elements of the "Russian mafia." As a matter of fact, the expansion of their sphere of activities to Russia and the newly independent states involves not only the "export" of crime, but also its "import."
The integration of criminal associations from the post–Soviet and post–socialist territories into the most prominent international criminal alliances is just a small part of the general process of the globalization and internationalization of crime. A number of foreign statesmen only consider one small element of this process: the role in their country of relatively uninfluential criminal groups from the territory of the former USSR. This, however, does not mean that globalization has not affected the criminal associations based in the developed countries.
There are also a great number of misunderstandings and distortions in connection with the alleged criminalization of Russian businesses. The belief that crime in Russia controls 40 percent of the economy, and that this presents a real threat to democracy, has become widespread. In a number of publications it is pointed out that most American businessmen in Russia give away approximately 30 percent of their monthly profits to the mafia as protection money. Former CIA Director John Deutch declared in May 1996 in the US Congress that approximately 80 percent of 40,000 Russian private enterprises give monthly bribes to bureaucrats. The State Secretary of the Ministry of the Interior of Germany, Kurt Schelter, writing in his capacity as a public official in the first 1997 issue of the authoritative journal Internationale Politik, repeated the irresponsible claims of Russian journalists that "West European firms engaged in business in Russia are forced to incorporate into their budget calculations the fact they will need to pay from 10 to 20 percent of their turnover to racketeers."
Such figures, which are in principle impossible to check, are extremely dubious. The claim that most American and West European businessmen give up 30 percent of their profits to criminal structures or over 10 percent of their turnover looks like an exaggeration, since even the share of the Russian business controlled by criminals, according to the available information, pays a "tribute" amounting as a rule to a maximum of 10 percent of their turnover. Thus, such claims indirectly mean that foreign business in Russia is criminalized to a greater degree than even the obviously criminalized part of Russian business! For any person acquainted with the realities of foreign business operations in Russia, such an assertion seems more bold than common sense permits.
One could contest at least half the facts in the article by the State Secretary of the Interior of Germany. Suffice it to say that, having overstated the actual figure by at least several dozen times, he writes that 20 percent of the dollar banknotes circulating in Moscow are forged.
He quite groundlessly claims that up to 80 percent of Russian banks are controlled by the "mafia." It is unclear how such serious figures could be cited without any reference and justification. But even if one accepts these figures as true, it is unclear whether this 80 percent includes the other most prominent banks of Russia, such as Vneshtorgbank, the International Financial and Investment Corporation, the International Moscow Bank, Mosbiznesbank, National Reserve Bank, Promstroibank, Sberbank of Russia, and "SBS–Agro," all of which control the majority of banking assets of the country. Most of the remaining banks conduct operations only on a minor scale.
Nevertheless, a sceptical attitude toward the mounting hysterics about the criminalization of Russia should not obscure the alarm evoked by the high criminal rate in the country.
The level of crime is causing alarm in Russia too. The issue of being protected against criminal encroachments consistently occupies second place in the system of personal priorities of Russian citizens, after their social and economic problems (living standards, the timeliness of wage payments, unemployment, etc.). However, the state of crime in Russia with respect to the basic indicators, even after taking into account the large share of crime that remains unrecorded, approximately corresponds to the state of crime in developed Western countries with stable democratic traditions.
Thus, the crime rate in the world during the past 40 years has increased by 3 to 4 times, including in the United States (by 7 to 8 times), in the territory of the former USSR (by 6 to 8 times), in Great Britain and Sweden (by 6 to 7 times), in France (by 5 to 6 times), in Germany (by 3 to 4 times), and in Japan (by 1.5 to 2 times).
Between 1961 and 1977, crime in the Russian Federation grew by approximately 2.2 percent a year. From 1978 to 1985, society’s growing troubles accelerated the average growth rate to as much as 7.7 percent. In 1986 to 1987, the number of crimes decreased (by 5.5 percent and 11.4 percent respectively) mainly because of a decrease in the consumption of alcohol in the course of the anti–alcohol campaign conducted by Mikhail Gorbachev. In this regard, one ought to note that, despite the reduction in the total volume of crime, the campaign qualitatively worsened its composition, giving a strong impetus (like "Prohibition" in the United States) to the growth of organised crime and drug addiction.
According to UN data, in the 1990s the growth of crime in the world averaged 5 percent a year. However, its sharp increase in Russia in the late 1980s and early 1990s was by no means exceptional, and fully accords with fundamental, world–wide political, economic and legal trends. Moreover, the increase in crime over the course of the reforms far from corresponds to the unprecedented scale and intensity of Russia’s transformations, as well as the total character of its privatization campaign, which testifies both to the relative moral–psychological stability of Russian citizens and the generally satisfactory work of the law enforcement agencies.
The development of the crime situation in the new Russia has gone through three stages. During the first stage, from 1988 to 1992, the volume of criminal acts grew. Their growth reached a peak in 1989 and 1992 (32.7 percent and 27 percent, respectively). The worsening of the criminal situation in that period to a significant degree reflected the changes in the public life of the country as a whole.
During the second stage, from 1993 to 1995, the crime rate stabilised: in 1993 it grew by only 1.4 percent, in 1994 it declined by 6 percent, and in 1995 it grew by 4.7 percent owing to a growth in the least dangerous offences which were up 22 percent. However, there was a reduction in the number of the most dangerous crimes: premeditated murders (by 1.8 percent), serious bodily injuries (by 8.8 percent), violent robberies (by 0.7 percent), non–violent robberies (by 5.4 percent), and crimes with the use of firearms (by 27.5 percent), all this despite the spread of weapons throughout the country as a result of the war in Chechnya!
During the third stage, which started in 1996, the number of crimes has been decreasing despite a growth in the rate at which they are being solved. In 1996, the crime rate declined by 4.7 percent, including serious crimes (by 10.2 percent). The number of premeditated murders has decreased by 7 percent, serious bodily injuries by 13 percent, thefts by 12 percent, and robberies with and without violence by 8 percent and 14 percent, respectively. The number of crimes involving the use of firearms decreased by 22 percent (during the 1995–96 period they decreased by almost two–fold), and street crime by 19 percent. In 1997 this trend continued, with the number of crimes declining by 9 percent, murders by 2 percent, serious bodily injuries by 15 percent, non–violent robberies by 7 percent, robberies with violence by 3 percent, and thefts by over 10 percent.
Even taking into account unreported crimes, not more than 7 million crimes were committed in Russia in 1997, which is two times below the average level for the United States (14 million) and approximately corresponds to the level of crime in Germany (over 6 million crimes a year) and in England (5 to 6 million crimes), whose populations are much smaller than that of Russia.
On the whole, the positive trend regarding criminal activity in Russia is connected with a gradual normalization of the activities of the law enforcement agencies, the stabilization of the social and economic situation, and the weakening of social tensions in the country. Even in the periods of the maximum level of crime in Russia, when the law enforcement agencies were in their worst condition, the results of their work more or less corresponded to the results of work of the law enforcement agencies of the developed countries.
When comparing the levels of crime and the corresponding results of the work of law enforcement agencies, it is important to remember that differences in the system of recording crimes in a number of developed countries limits the basis for comparison to the most serious crimes, the recording of which is the most precise and complete.
Russia falls between Germany and the United States with respect to the level at which crime cases are solved. Homicide cases in 1994 in Russia were solved at a rate of 74.7 percent, as compared to 87.2 percent in Germany and 65.6 percent in the United States (using 1993 figures). The solution of cases involving serious bodily injuries was 69.7 percent, as compared to 81.3 percent and 55.5 percent, respectively. The solution of cases involving violent and non–violent robberies in Russia are solved at a higher rate in Russia at 45.1 percent as compared with 43.9 percent and 23.5 percent in Germany and the United States, respectively. These figures are all despite the fact that the number of law enforcement employees relative to size of population is lower in Russia. While in Germany there is one police officer per 333 persons, and in the United States one per 357, in Russia there is only one per 556 persons.
In a comparison of homicide rates, Russia does appear worse off than many of the developed countries. In these countries 26–27,000 murders are committed per year. In the United States the number of murders has grown from 9,900 in 1965, to 21,500 in 1989, to 23,400 in 1990, and to 21,400 in 1995. In England the number of homicides does not reach 1,000 a year (730 in 1994); in Germany the figure is 5,100 in 1993.
The reason for the many homicides, particularly hired murders, is the weakness of courts and the undeveloped state of the criminal justice system which do not have civilised methods for implementing their decisions. Activities aimed to overcome the crisis in the funding of the courts, the development of the court system as a top priority for the budget, and the beginning of judicial reform has made the court system a great deal more efficient. These efforts have led to a reduction in the number of homicides in Russia, where the current level is much lower than in 1994, when 32,000 people were killed.
It is also important to understand also that most homicides are of an every–day nature and are related to the difficult living conditions and individual psychological disorders rather than the development of criminal structures. In the United States, the main reason for the increase in the number of murders is acknowledged to be the development of the narcotics business, and the most rapidly growing types of homicide are linked with youth organised crime (from 1980 to 1992, the number of such homicides grew by 4.7 times.)
The level of serious bodily injuries in Russia is an order of magnitude lower than in the United States and Germany: 45.8 cases per 100,000 people, compared to 440.1 and 108.2 cases, respectively. As for violent and non–violent robberies, even in one of its most unfavourable periods in its history Russia occupied a intermediate position between the United States and Germany: their level was 126.0 cases per 100,000 people, while the respective figures were 255.8 in the United States and 71.0 in Germany.
The UN has singled out five basic trends in the development of world crime: a growth in crime several times faster than the growth in population; a growth of serious crimes; a decrease in the age of criminals; the proliferation of new forms of crime, including organised crime; and a lowering in the rate of solving crime (for instance, even in the relatively well–off Germany the level of solving such crimes fell from 55.5 percent in 1963 to 47.1 percent in 1993; in the United States the rate of solving homicides fell from 91 percent in 1965 to 65 percent in 1992).
Russia has succeeded in avoiding two of these five tendencies: the number of serious crimes, as indicated above, has been declining, not growing, and the rate at which crimes are solved is gradually increasing (for instance, the rate at which homicides were solved grew from 74.7 percent in 1994 to 76.4 percent during the January–October 1997 period).
However, the decrease in the number of crimes being committed and the rough correlation of the level of crime in Russia to the figures in the developed countries should not engender self–complacency. The psychological and political situation in Russia is much more complicated than that in the developed countries, and therefore even a lower crime rate can pose a great threat to the country. This situation is particularly important as the decrease in the quantitative indicators of crime is related, among other things, to its qualitative transformation: its institutionalization, its integration into Russia’s power structures, and its reorientation to highly–visible economic crimes.
It is worth noting that the law enforcement agencies of Russia have, on the whole, reacted adequately to these changes, focusing their major efforts on the struggle with the most dangerous branches of organised crime. For instance, in 1997 criminal proceedings were initiated against over 12,000 members of organised crime groups, including cases against over 2,000 leaders of these groups. Twenty–two thousand crimes linked to organised crime groups were exposed, including 118 hired murders, which is three times higher than the level of the proceeding year. One of the most prominent automobile corporations of the country, "Avtovaz," was freed from criminal control. In the course of this operation 7 criminal groups, with a total of 800 members and net annual revenue of about 100 million US dollars, were eliminated, and the murders of 65 members of these groups and two Avtovaz managers were exposed.
Today it has become obvious that the crime situation in Russia has again come under state control. A Federal Program to Fight Crime for the 1998–2000 period was developed in 1996 and 1997, and adopted in late 1997. Under this program, the possibility of Russia turning into a criminal society is quite remote.
(2) The Economy: A Most Importantector Of Criminal Activity
The reform of the economy without the creation of an adequate law enforcement mechanism—an almost unavoidable phenomenon when one considers the pace of reforms in Russia—created the prerequisites for the growth of economic crime. Attempts to create the anti–criminal mechanism mentioned above in the course of the reform process evoked the fierce resistance of radical liberal reformers, who considered these efforts direct action against the reforms.
As a result, with the transition to a free market, economic crime in Russia, as in most other countries, has become better organised and skilled. The damage from crime and administrative offences in the economic sphere in 1996 came to almost 8 trillion roubles, about 0.3 percent of the GDP, or 7.7 percent of the profits of enterprises in the real sector. Given the low visibility of illegal economic activity (around 70 percent), the actual damage caused was approximately 3.3 times higher.
The huge underground "shadow" sector of the economy was above all the soil upon which economic crime grew. According to the estimation of experts of the Security Council of Russia, in 1996 the share of the "shadow" sector comprised 63 percent in trade, 48 percent in agriculture, 25 percent in terms of the income of the population, 11 percent in industry, 9 percent in transport and communications. Goskomstat estimated the share of the "shadow" economy in the GDP at 23 percent in 1996 and 25 percent in 1997.
During the 1993–96 period, the average annual growth of economic crime was 12.5 percent. In the period from January to September 1997, we succeeded for the first time during the whole period of reform in stopping the growth of crime. The total amount of detected crime fell by 0.3 percent compared to the same period in 1996. The law enforcement agencies were actively completing the cases of the previous periods. The number of crimes for which the investigation was completed and criminal cases were transferred to the courts grew in the first half of the year by 1.5 times (from 36,200 to 53,300). The number of criminal cases concerning serious crimes that had been transferred to a court grew by more than two–fold, from 13,100 to 30,200. The number of persons against whom criminal proceedings were initiated remained at the level of the prior year.
The areas in which economic crime has a prominent presence are considered below:
Denationalization and Privatization
The denationalization and privatization of the economy were accompanied by persistent instances of criminal violations and the weakening of legislation in this sphere. This was related first of all to the fact that Russia’s leaders chose the path of rapid privatization, personified by the figure of Anatoly Chubais, which had a political goal above all; the destruction of the economic basis for a revival of communism in Russia. With this political goal in mind, the goal was not privatization proper, but more precisely a denationalization of the economy. Crimes associated with privatization have been growing faster than all other economic crimes. In 1996 such crimes grew by 1.6 times when the total growth of economic crimes was 13 percent, including fraud (50 percent) and the misappropriation of entrusted property (7.9 percent). In the first half of 1997, while the total number of economic crimes was stable, the growth of "privatization crime" came to 21 percent, including those involving large and the very largest amounts (37.4 percent).
Since the beginning of denationalization over 30,000 crimes have been uncovered despite the difficulty of detecting economic offences. The significance of privatization for the development of corruption is exemplified to by the fact that in nearly half of the Russian regions, criminal proceedings have been initiated against the heads of the local administrations, territorial committees for the management of property, and property funds.
However, one should not deny that rapid denationalization and privatization was not only a natural choice but also proved to be the most effective. It secured a relatively peaceful resolution of a problem unprecedented in the history of humanity, the redistribution of the bulk of state property in an extremely short time period and with a real increase in the effectiveness of its use (the fact that the increase was less than expected should not overshadow the general trend).
Law enforcement agencies have repeatedly undertaken steps aimed at preventing the sale of highly profitable and vitally important enterprises for excessively low prices. Their arguments were usually ignored by opponents who cite the need to speed up privatization in order to receive foreign loans and urgently replenish the budget, notwithstanding the damage to the long–term interests of society.
It is significant that while the mechanisms for committing crimes in the course of privatization were well known, the officials of the departments and agencies associated with privatization never raised the issue of countermeasures against the abuses linked with privatization. This was probably partly caused by the fear of overshadowing privatization as such and giving additional arguments to its political opponents. The extremely rapid pace of Russian privatization left no time for the creation of the necessary mechanisms of control over the numerous weak–willed bureaucrats who happened to have the right to manage enormous amounts of state property, further contributing to the criminal control of the process.
The intensification of privatization in 1998, which seemed unavoidable under the conditions of a deepening budget crisis and the clear inability of the state to manage the blocks of shares belonging to it, might again stimulate privatization crimes. Preventing these would require strong pre–emptive actions by the administration, parliament, mass media and law enforcement agencies. Favourable expectations in this sphere are caused by the fact that the increase of the scale of privatization at the end of 1997 contributed to the realisation of the dangers associated with past practices, and led not only to the purging of directors with tarnished reputations but also to a fundamental improvement of the privatization procedures and a real reduction of the level of criminalization of this sphere. Filling the "regulatory vacuum" through the rules and procedures that are being developed in a more thorough and reasonable manner is also reducing the opportunity for abuse. As a result, even zealous opponents of privatization could not find grounds for criticising the privatization auctions of November–December 1997, although these were carried out under severe time pressure.
The Foreign Economic Sphere
More than 20,000 crimes were uncovered in the sphere of foreign economic activity between 1993 and 1996. As a result of the increased effectiveness of the struggle with crime, a stable trend has taken shape. A growing number of smuggling and customs violations are being detected and halted by law enforcement agencies. In 1993, 101 such cases were stopped; while in 1996 the figure stood at 2,800 and the annual growth of large–scale offences rose 150 percent.
In 1997, the situation changed. Despite the huge scandals connected with Russia’s enormous moral and material losses, the growth rate of smuggling fell by only about 7.4 percent. It is worth mentioning the attempt to prevent the smuggling of alcohol into Russian territory that not only ended in a failure, but also contributed to the dismissal of the director of the Federal Border Guards Service, Andrei Nikolayev.
The problem of the high–level of corruption in Russia’s customs agencies persists. The main cause of the problem is the nature of the existing Customs Code. This Code has little direct effect on current operations, and in fact leaves the solution of a significant number of the most important issues to the personal discretion of the customs inspector. The completion of the work on the Customs Code, with the aim of transforming it into a working document, will enable us to quickly and fundamentally raise the effectiveness of the customs policy and Russia’s foreign economic policy as well. This will sharply weaken the financial support of criminal groups and liberate one of the key agencies of state management from corrupt elements.
The Financial System
The very profitable financial sector attracts the most attention of organised crime in Russia. Russia’s law enforcement agencies forecast the growth of crime in this sector back in 1992. However, most of the measures they then planned were disrupted because of the pseudo–liberal ideas and concepts that were dominant in society at the time, and particularly by the desire to avoid limiting human rights at any price given Russia’s recent totalitarian past.
In the financial sphere, crime has undergone several stages of development.
The first stage, from 1992 to 1993, was dominated by the embezzlement and misappropriation of monetary funds from banks through the use of fake payment documents (advice of payment and acceptance, "Russia" cheques, etc.), and the privileged distribution of centralised financial resources for enormous bribes. The intensification of the struggle with these crimes and the sharp reduction in the state’s direct financial support to the economy reduced the financial base of the criminal structure, heightened the effectiveness of the financial resources of society, and contributed to the growth of the real income of the population in 1994.
In the absence of attractive and reliable investment sectors, this growth created the ground for the second wave of financial crime. The main methods of criminal activity became the sale of stocks and ersatz securities (including such exotic financial instruments as "sale contracts," MMM certificates and voluntary contributions to this company) without any kind of guarantee.
The voucher privatization program provided a direct impetus for such crimes. In the course of this program, the patently exaggerated promises of public figures created an atmosphere of excessively high expectations among the population, which sincerely trusted "its own" "democratic" state. Under these conditions, the directors of the voucher investment funds, in attempts to remain competitive, deliberately made unrealistic promises. The swindlers who had created trust companies simply enlarged the scope of the unfounded expectations of society which had been created by the promises of public officials and the voucher investment funds, by switching their activity from vouchers to their own financial instruments.
The damage from the fraud totalled 1.9 trillion roubles, and over 735,000 citizens suffered. In all, 170 firms engaged in fraud along with their 334 subsidiaries. Large–scale fraud in the private investment market became especially widespread by 1994 when the number of officially registered defrauded investors came to 430,000. Such an outburst of largely unpunished crime was a consequence of the absence of the minimally necessary control over private business. This was a result of the unwillingness of a number of radically and liberally inclined politicians to increase the role of the state in economy.
The advertising campaign of the fraudulent companies had a significant negative influence on this process. The media campaign turned any opponent of "financial pyramids" into "an enemy of the people," and interpreted even modest attempts to introduce order as the organisation of a new robbery of the population, a limitation of democracy, and a massive violation of human rights. This all occurred after price controls had ended, deposits in Sberbank had been devaluated, and the hopes created by the voucher privatization program had vanished. Today the state is ashamed to recall that, before it lost the information war with Chechnya, it had lost the information war with the MMM company in the same way.
After the massive closing of the fraudulent trust companies in 1994 and 1995 the criminalization of the financial sphere started to decline, having by that point taken more concealed and institutionalised forms.
The improvement of the work of the banks and the recovery of the banking system, starting in mid–1995 (since that time the number of the Russian banks has been reduced by almost by a third, from 2,500 to 1,700) reduced the scale of the illegal receipt and misappropriation of their credit resources. Today, most overdue debts are caused not by crime, but by the worsening of the business climate, and in particular, by the growth of the non–payment crisis. The unsettled liabilities create the preconditions for the criminalization of the financial sphere. However, its scale is an order of magnitude lower than in the "wild market" period of 1992–94.
Today, during the third stage of the criminalization of the financial sphere which started in 1996, the danger lies mainly in the use of fraudulent means of payment as a substitute for the shortage of the cash resulting from the crisis of non–payments. To prevent fraudulent operations involving the use of bills and promissory notes, the Ministry of the Interior, together with the Savings Bank of Russia (Sberbank Rossii), has prepared and circulated to its local subdivisions a special directive. Furthermore, the diversity of the money substitutes that are being used and their prevailing insecurity severely limits the possibility of decriminalising this sphere, and makes overcoming the crisis of non–payments the only realistic way of introducing order into this sector.
Another urgent problem is that of returning funds which were unlawfully transferred abroad between 1989 and 1996. According to the estimates of the experts of the Ministry of Finance, this amount has reached $100 billion. Another $165 billion has been taken out of the country without any formal violations of the law. Unlike the active "export of capital," which contributes to an expansion of the influence of the national economy, and consequently to its development, passive "capital flight" provides funds for the development of foreign economies without any positive consequences for Russia.
Notable success has been achieved in returning proceeds earned on hard currency exports. In 1992, half of the currency proceeds from exports were illegally left abroad; in 1993 this share fell to a third, in 1994 did not exceed a fourth, and in 1995–96, when a system of control was fully developed, it did not exceed 10 percent.
The proliferation of computer crimes is a serious problem for banks. As a result of concerted actions by the Ministry of the Interior of Russia and the police of the United Kingdom, Germany, Israel, the Netherlands, the activity of the international criminal group that had illegally penetrated the banks’ computer networks was halted in 1996.
The fact that electronic crime for banks is an external problem provides grounds for hope. The banks are objectively no longer the sources but rather the victims of criminal activities, and therefore are not the potential opponents but rather the logical comrades–in–arms of the law enforcement agencies. This relationship strengthens the alliance of the banks and law enforcement agencies that has taken shape.
The creation and accelerated development of the system of prudential supervision contributed to the fundamental recovery of the entire Russian banking system. The Central Bank of Russia (CBR) accorded these programs very high priority, and succeeded in localising criminal activities in a limited number of shady and dying banks, which were subsequently placed under special control.
Since the start of 1993, the number of crimes within the Central Bank has decreased in half. In 1992–93, the CBR distributed a large volume of special state assistance and therefore was highly corrupt. Since then, it has been decriminalised and has become the most professional and effective organ of state management in Russia. This success is indeed an inspiring example for the entire state, and the application of the techniques used to free the CBR from corruption to other Russian state agencies should be a main component of reform.
The greatest success, however, has been achieved in the struggle with counterfeiting. The level of crimes related to the production and circulation of false banknotes fell steadily between 1995 and 1997. For instance, in the first half of 1997, 3,200 such crimes were registered—33.7 percent less than in the similar period of the prior year (4,900).
The Security of Intellectual Property
The level of "pirated" products in certain spheres reaches 90 percent. In the most developed sphere of video production, its share approaches 85 percent of the market for all of Russia, and in Moscow it is 65 percent. According to the data of the legal service for property rights owners, the losses incurred by Russian and international industry through the violation of only copyright and related rights amounted to $1 billion in 1996.
At the same time, the spread of these intellectual property crimes, such as computer software piracy, is also attributable to the policies of a number of international corporations, which exploited their monopoly position on the world market to raise prices repeatedly, systematically, and excessively. To limit piracy, which poses a threat to the state like any other kind of illegal activity, it seems reasonable to develop and implement international measures to restrict abuses by those having a monopoly position on the world market, and to disseminate appropriate software through networks of free information exchange.
However, the abuse of their position by transnational monopolists is only a small part of the problem of the security of intellectual rights. Conscientious producers are also suffering considerable losses from the illegal use of trademarks and trade signs. The damage inflicted on Russia by the illegal use abroad of Russian patents and inventions is incalculable.
The efforts that were undertaken by the state from 1995 to 1997, with the growing support of the public and the business community, have enabled us to constrain crime in such key areas of intellectual property as the use of trademarks, publishing, software, television and video–production, and many other areas. An example of the success of these efforts is the market share of pirated video products in Moscow, where these problems traditionally receive the greatest attention, at 1.3 times less than throughout Russia as a whole. Another major achievement has been the institution of real protection of the intellectual rights of producers in certain kinds of creative work, including writers and poets.
Low Quality Consumer Goods
The sale of domestic and imported products that do not meet the requirements regarding either their medical and biological standards or the quality and safety of their raw materials presents a great danger.
According to the UN Food Commission, certain Western firms are expanding the production and export to Russia of products, and Russian firms are importing these goods, that are not only ecologically dangerous, but also whose use is prohibited in the developed countries. Up to 80 percent of the food products, cigarettes, and beverages imported into Russia belong to this category. In 1995, for instance, out of the total amount of imported goods which underwent inspection, the following were rejected as defective: 58 percent of the sausage and meat products, 57 percent of the canned foods, 36 percent of the butter, and 55 percent of alcoholic and non–alcoholic beverages. These rates are almost two times higher than in 1994.
According to data from the Ministry of the Interior, over 43,000 people died in Russia due to the use of poor quality products in 1995 alone. This trend persisted, and in 1996 the rejection of defective goods that did not meet the requirements of safety exceeded almost twice the level of 1995.
Government Corruption
The most dangerous sources of corruption in Russia today are the following:
By 1998, urgent measures such as putting the budget in order, reforming of enterprises, and public control over privatization, had become inevitable as a result of not the promises of public officials, but due to objective economic requirements. Successful implementation of these measures will fundamentally weaken the basis for corruption and will improve the entire criminal situation with respect to state government agencies.
Combating corruption has become a priority area for the activities of the interior agencies. In 1996 (when this priority was established) the growth in the number of crimes that were uncovered was 11.5 percent (including large–scale embezzlement the figure is 21.7 percent), in the first half of 1997 it decreased to 4.4 percent. In this regard, the 1.5 fold growth in the number of criminal cases against those who took bribes that were taken to court testifies to the improvement in the quality of the work of the investigation agencies.
Proceedings were instituted mostly against graft by lower level and less frequently, medium–level employees. High–ranking officials most often remain out of reach. The first sign of a change in this situation was the dismissal of a number of managers and officials linked to Anatoly Chubais as part of the so–called "writers scandal," in the course of which it was revealed that certain high–level officials received extremely high honoraria ($100,000 each) for their chapters in a book on the history of privatization in Russia. The CFDP will devote a separate report to the problem of corruption and the struggle with it.
(3) THE CAUSES OF RUSSIAN CRIME
The Totalitarian Regime as a Pandora’s Box
Totalitarian society is like a compressed spring that uncoils in the direction of crime whenever state oppression is weakened. The long–term suppression of natural rights and individual freedoms fosters a neglect among people not only of other people’s property, but also of their own lives. A large part of the population received criminal experience thanks to the repressive nature of the penitentiary system. These people are a ready resource for organised crime, and whenever there is the slightest decline in the degree of risk, they join its ranks.
The fact that the power structures of a totalitarian regime become redundant under democracy during the period of transition to a market economy means that a huge number of professionals are pushed out into the streets where their services are in demand among other sectors of society, including the criminal sector.
The unconditional hostility of a totalitarian state to the majority of its population contributes to the predominance of a mentality according to which cheating the state is a "matter of honour, valour, and heroism." Under the transition to a market economy, which is usually accompanied by a qualitative weakening of the state, such a mentality also leads to the development of crime.
On the other hand, the officials of the totalitarian state, particularly during the stage of its disintegration, are corrupted by the enormous opportunities they have for misappropriating the resources at their disposal. The weakening of state control creates the conditions for the massive transfer of these resources to the commercial structures that are being created by the officials mentioned above, and which are operating, at least at their initial stage of development, beyond the law.
The Weakness of the State
The numerous failures of the state are caused not by the various mistakes of individual officials, but by a more fundamental cause, the low effectiveness of the state apparatus, which multiples the effect of all the negative factors discussed earlier. So far a "negative selection" process has been operating, in which most of the specialists leaving public service are being replaced by less qualified individuals, and the quality of their work is on the whole deteriorating.
Apart from the real complication of the tasks confronting society, the destruction of the state apparatus is actually caused by the predominance of the concept of a "cheap state," which has led to the mass departure of honest and skilled personnel from the state and an irrecoverable loss of their valuable experience and the culture of management. As the Prime Minister of Singapore put it, "if salaries are paid in nuts, monkeys will be ministers." The poverty of the employees in the state apparatus and the chaos from its permanent reorganisation are a direct cause of the fact that the state as before is "transparent" not only for commercial structures, but for their competitors and even opponents.
The Expansion of International Crime
Globalization offers organized crime new opportunities. Practically the whole world is turning into a common territory for criminal activities. Under these conditions, the successful struggle with international crime and the suppression of organised crime are objectively becoming common tasks that are not possible to resolve by the isolated efforts of a single country or even a group of countries.
Russia became convinced of this based on its own experience between 1990 and 1996. In its weakened condition, the Russian state could not limit the penetration of international crime into the country. As a result, the criminal situation in the country worsened significantly. This infiltration was distinguished by its extreme diversity of its forms, from the integration of isolated Russian criminal groups into international criminal structures to the extremely aggressive policy of the international narcotics mafia to turn Russia into one of their most promising potential markets, to the transfer of the operations of international terrorist groups to its territory.
The integration of Russian criminal groups into international criminal structures traditionally has been considered by most foreign observers from the point of view of the enduring myth about a "Russian mafia" or "Russian organised crime," which has already been solemnly refuted by virtually all the most prominent experts of the world. Nevertheless, the widespread dissemination of this myth continues.
The exploitation of the bugbear of "the Russian criminal threat," frequently with the goal of forming an "enemy image," also evokes bewilderment, as Russia itself suffers enormous moral and material losses due to the growing expansion of international criminal communities. For instance, illegal export of capital from the country, and its legal export with loopholes in existing legislation, is largely carried out under the control of international organised crime.
Real aggression against Russia in being conducted by the international narcotics mafia, which supports a number of hotbeds of political and military tension in the CIS, and has already turned more than 1 million Russian residents into drug addicts. (In comparison, in Germany the number of people who are dependent on drugs is estimated at 100,000 to 120,000 people). About 2 million more people use drugs irregularly, and in a few years the number might increase to 10 million people. The number of women consuming drugs grew 6.5 times from 1992 to 1996. The number of crimes linked with illegal drug trafficking grew 1.8 times between January and October 199 compared to the same period in 1996.
In expanding the sales of drugs in Russia, the narcotics mafia primarily targets children and adolescents. In Moscow’s schools drugs, which mostly are being imported from Poland, the Netherlands, and Germany, are widely sold at very low ("dumping") prices.
If the intrusion of the narcotics mafia remains at the same scale, the pandemic of drug addiction that has begun in Russia is capable, without taking into account other negative factors, of seriously destabilising the country, stopping its development, and turning it into a source of global instability.
Terrorism is another very important source of international crime pressure against Russia. During 10 months in 1997, 24 cases of terrorism and 108 cases of hostage taking were recorded on Russian territory. The rate of solving these crimes comprised 66 percent and 80.2 percent, respectively. Most terrorists are not associated with international criminal structures, but this does not give us grounds to shut our eyes to the existence of a real threat, graphic examples of which include:
The fundamental lack of understanding by representatives of a number of developed countries of the anti–terrorist aspect of these problems, above all with respect to the war in Chechnya, has resulted in an appreciable breach in the unified front of the anti–terrorist struggle of the law enforcement agencies of many countries. This has created for a number of international terrorists the aura of "fighters for peace," which legitimises their criminal activities. It is enough to point to the example of Jordan Hattab, who is one of the most notorious Chechen field commanders and who organized, among other actions, a deep penetration raid of fighters into the territory of Dagestan on December 21–22, 1997.
It is important to understand that there are no domestic terrorist organisations in Russia, with the exception of those based on the territory of Chechnya. At the same time, the change in the nature of international terrorism, and in particular the substitution of religious terrorism for political terrorism and the transition from subversive activity against the organisations and organs of state power to terrorising the population, multiplies its danger for Russia.
The Inordinately Strict Financial Policy
The inordinately strict financial policy that is being doggedly carried out by the state, in many cases under the influence of outside pressure, strengthens the effect of all these causes on the criminalization of Russian society.
On the one hand, having caused an acute shortage of money, the policy increases the influence of those businesses that use cash and therefore are most likely criminal. On the other hand, the use of non–monetary forms of payment (due to the lack of reliable monetary instruments) limits opportunities for the payment of taxes and, consequently, of applying to the courts for the resolution of disputes. Increasingly, these activities are transferred to the criminal justice system. Furthermore, the budget crisis caused by the shortage of money provokes the state to take excessively strict measures that push economic actors into the shadow economy.
The accelerated development of the shadow economy, caused by the inability of the state to provide for tax collection, gives advantages to the enterprises that operate in the shadows of the economy as compared with law–abiding enterprises. The "taxes" that are being paid by the shadow economy to criminal structures go toward funding anti–state and anti–social activity.
The most important means of influence of the excessively strict financial policy on the criminal situation is the fall in living standards and the growing social differentiation that have occurred in the course of reform, which is driving the "middle class" of totalitarian society into persistent poverty. The formation of a new middle class is proceeding very slowly. The absence of an effective system of social security also plays an essential role. According to the data of the Ministry of the Interior, more than half of all criminals do not have steady work or sources of income.
(4) Policy Recommendations
To step up the struggle with crime it is essential to accelerate the consideration and adoption of necessary laws. Drafts of these laws have for a long time already been under consideration in the Federal Assembly. Among these are: "On the Struggle with Organised Crime," "On the Struggle with Corruption," "On State Protection of Victims, Witnesses, and Other Persons Assisting Criminal Judicial Proceedings," "On Preventing the Legalisation (Laundering) of Income Received as the Result of Criminal Activities," "On the Responsibility for Illegal Transfer Operations," "On the Incorporation of Amendments and Supplements to the Federal Law `On State Protection of Judges and Officials of Law Enforcement and Controlling Agencies’," "On Narcotics and Psychothropic Substances," the "Criminal Procedural Code of the Russia Federation," "On the Protection of the Rights of Minors," "On the Status of Investigators," and "On Judicial Expert Analysis."
To improve the legal basis for the struggle with crime, it seems necessary, in addition to the adoption of the bills indicated above, to develop and adopt legislation which:
The development of international co–operation in the struggle with crime is becoming more and more important under the conditions of globalization. In this respect, the efforts of the law enforcement agencies of the developed countries, primarily Germany and the United States, to constantly put forward very worthy initiatives are of great value. Just as state borders have less and less importance for organised crime, responses to international challenges should also acquire an international dimension.
Attention should be allotted to issues relating to combating the illegal manufacture and trade of narcotics and psychoactive substances, the illegal transfer of nuclear materials, the illegal commerce in arms or people, the illegal penetration of other countries’ territories, forgery, the theft and illegal export of cars, and money laundering.
For this purpose, one should also further develop, taking into account national law and the already existing initiatives, bilateral and international co–operation with the structures of Europol and Interpol. The co–operation should not be limited to criminal prosecutions, but include closer co–operation in the area of any infringements of the law. Specifically, the recommend the following initiates:
Within Russia and the CIS:
Within the framework of co–operation with foreign states not belonging to the CIS:
To improve the struggle with organised crime and corruption, it is necessary to:
In addition to the measures mentioned above, it is necessary to create a single federal information system for the recording of firearms that would register the classes, types, and models of the weapons that are held by militarised state organisations, enterprises and suppliers, and legal entities and individuals in order to secure control over the movement of firearms from the moment of their production or import into Russian territory until they are written off as obsolete in accordance with established procedure and either destroyed or exported out of Russia. It is necessary to develop and introduce among those enterprises producing arms a system of economic and technical analysis and control over their production that would provide for the advanced notification and detection of theft in the manufacturing process.
A future goal is to create a computerised system for the integrated accounting and operative analysis of the flows of funds and goods. Unification of the already existing accounting systems of the various departments and information systems will facilitate the integrated tracking and swift comparison and analysis of financial and commodity flows. The application of modern technologies on the scale of the entire Russian economy will reduce crime to a level that no longer threatens society. Enormous financial flows will be returned to the legal sector and will begin to flow into the state budget rather than those of anti–state formations.
The most urgent task today in Russia is to overcome the weakness of the courts (including the court of arbitration), which has made the direct violation of bad laws easier and safer by limiting the effectiveness of enforcement. This is an important cause of the criminalization of society. Therefore, it is vital to develop and implement court reform while paying special attention to creating mechanisms for enforcing court decisions, and securing timely and effective work and the safety of judges and witnesses. Since decisions on reforming the economy are largely developed and implemented with financing from international financial organisations, the attention of the latter should be drawn to the exceptional importance of the task of rapidly improving and modernising the court and arbitration systems of Russia.
(5)Conclusion
Real positive changes with respect to the criminalization of the economy will not happen by 2000 if the current social–economic situation remains unchanged. Therefore, one must raise the professionalism of all elements of the law enforcement system and create the material and technical conditions for improving the means and methods of preventative actions against economic crime, which is the material basis for both organised and general crime.
The main efforts, however, should be concentrated on restoring fundamental health to the social and economic situation, which would deprive crime of its social and economic bases and create the necessary preconditions for the decriminalization of Russian society. This will allow us to:
The goal of the "Whither Russia?" project is to illuminate for the international community the ongoing debate in Russia about the country’s identity, security, and interests. Our central question is: what will emerge as the dominant conception of Russian identity, Russian security, and Russian greatness? More specifically, we hope this project can help clarify: competing images of Russia across the political spectrum; how these competing images are reflected in policy; the shape of the debate in specific arenas; the views of the political elite and the public about the debate; differences between views in the regions and those at the center; common threads in the competing images of Russia; and, based on the conclusions drawn, Russia’s fundamental geopolitical and national interests.
As part of the project, we are publishing important works by leading Russian policymakers and academics addressing a set of three broad questions:
In our efforts to present Western scholars and policy makers with the broadest range of views within Russia, we have solicited a range of opinions on highly controversial topics. The opinions expressed in the monographs are those of the authors and do not represent the views of Harvard University, the Belfer Center for Science and International Affairs, the Strengthening Democratic Institutions Project, the Carnegie Corporation of New York, or the translators and editors.
Graham Allison, Director
Strengthening Democratic Institutions Project
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