Organized Crime -- the Fall

Organized Crime -- the Fall of the Old Soviet Union

How much influence did organized crime have on the collapse of the old Soviet Union? Did organized crime flourish during the events that culminated in the end of communist rule -- or was much of the growth of organized crime due in fact to the collapse of the Soviet Union? What were the factors that were relevant to organized crime in that era of perestroika? These questions and other issues will be critiqued and reviewed in this paper.

Corruption & Lack of Ethics in the Soviet Union

According to a peer-reviewed article in the Journal of Business Ethics (Neimanis, 1997), there are old values associated with the former Soviet Union that linger on, and some of those ethics and values have led to lawlessness. Former Soviet citizens have been taught "the Marxist dogma that banking and retailing represent unproductive labor" and hence, those industries create little or no value (Neimanis, 361). This has been the educational theme for former Soviet citizens "…since elementary school days" -- and moreover, the way to make money, the way to profit, is to "speculate," Neimanis explains (361).

And the best way to "speculate" based on the teachings and values of the old Soviet empire, is to exploit "the people": a) through becoming part of the "Mafioso" b) by using skills embraced by the KGB officers; or c) by becoming an agent of foreigners, or by being a foreigner (Neimanis, 361). Adding to this somewhat bizarre attitude of those raised in the Soviet Union (and now are still alive) is the thought that "…money is somehow dirty where perquisites, the main form of material reward under the Soviet system are not"; in the former Soviet Union (FSU), Neimanis continues, many of the "necessary laws" to curtail corrupt activities "…are either missing or changing incessantly, or enforced haphazardly" (361).

Contributing to the problem of corruption at the time of the breakup of the Soviet Union was the vagueness and inconsistency of laws. "Numerous laws were written between 1990 and 1992," Neimanis explains, at the time "…the new republics hastened to distance themselves from the Soviet legal system… [but] owing to internal inconsistencies and contradictions among them, many of these laws had to be re-written" (361). And until more recent laws are enforced business in the former Soviet Union "will exemplify social Darwinism in action where at least some of the fittest will be the most unethical ones" (Neimanis, 361).

Meantime why did organized crime have such an open door as communism ended and Gorbachev's reforms kicked in? Neimanis explains that the Communist Part of the U.S.S.R. "stood above the law… no legal controls delimited the power of the higher Part officials" (360). Instead of laws governing potential criminal activity, the Communist Party Secretaries (at the local, district and national level) simply made decisions and rules that were "binding" and had little to do with criminal codes that might somehow have an affect on reducing corruption by organized crime.

In the last years of the Soviet Union, according to professor Neimanis, in the Department of Economics at Niagara University, many people "struggled desperately just to survive… [because] the Soviet system thoroughly corroded the work ethic of its people." In answer to the question posed for this assignment, the ethical, political and moral lapses in the Soviet Union prior to its collapse had more of an influence on allowing organized crime to flourish than the presence of organized crime had on politics in the era of the break up of the Soviet Union.

There was a reward system in the Soviet Union; if a person loudly proclaimed his "ostentatious acquiescence to the latest pronouncements of the [Communist] Party, no matter that he was involved in organized crime and was a devious, underhanded thief, he was rewarded (Neimanis, 360). Getting services or supplies depended on "connections" (in Russian "blat"); in fact the "official dogma of equality dictated equal remuneration independent of the quality and quantity of one's work" (Neimanis, 360).

Counterfeiting was (and is) among the profitable schemes of organized crime in the period of transition from communism to a market economy. In early 1993 Latvian authorities investigated "290 counterfeiting cases" and those represented "47% of all registered white-collar crimes," Neimanis explained. The suspicion is that former KGB officers have formed organized crime rings, or are part of existing criminal organizations, Neimanis explains (359).

It is not hard to see why organized crime was able to get a hold in the Soviet Union, because Neimanis writes (358) that there was an enormous amount of financial fraud visited upon the Soviet citizens around the time of the transition away from communism. In the early 1990s, about 10,000 people in Latvia lost their deposits because they got hooked into organized crime schemes that promised "several hundred percent per annum"; and in another Balkan State, Lithuania, fake financial firms (read that, organized crime) defrauded 30,000 investors of $50 million. It is no wonder these crimes could take place because "…No investment literature existed before 1991, and very little exists today" (Neimanis, 358).

The Literature -- Did new Political Realities Spawn More Organized Crime?

Authors David Kotz and Fred Weir suggest in their book that organized crime was a "serious but peripheral phenomenon" in the old Soviet Union but it "…emerged as a major force in Russia" (Kotz, et al., 2007, p. 178). This is somewhat contrary to the notion that organized crime actually had an influence on Russian politics at the time of the break-up of the Soviet Union. In fact, a report prepared for Russian President Boris Yeltsin in 1994, three years after the transition away from communism, indicate that "70 to 80% of private banks and businesses in major cities were forced to make payments of 10 to 20% of their revenues to organized crime" (Kotz, 178). In fact the head of the Russian Interior Ministry's organized crime unit estimated that about twenty percent of bank loans from Russian financial institutions were actually payments to "mafia organizations" (Kotz, 178).

Moreover, organized crime actually grew in influence in the early 1990s (following the demise of the Soviet Union) to the point where "…organized crime-style slayings" (using automatic weapons, and bombs) were commonplace to the point that in 1993, organized crime killings took the lives of "120 bank employees, including 15 directors" (Kotz, 178). There were 780 "suspected arsons and explosions" at banks in 1993, and there was little doubt to whom the credit could be awarded for those crimes (Kotz, 178).

How visible were members of the mafia in the early 1990s? Kotz (178) reports that "any observant shopper at a Moscow street market" in those years could easily see the thugs that worked for the mafia. They were "suited, tough-looking 'mafia' enforcers who patrolled the market, discouraging price-cutting and collecting payments from merchants" (Kotz, 178). In Kotz' narrative, there is no information that reports heavy mafia activities having an influence on the transition from communism to a market economy. Two members of the Russian Parliament were murdered in the 1994-1995 period, and "…organized crime" was believed to have been responsible for the murders (Kotz, 178).

Literature -- the Dynamics of Organized Crime in the Soviet Union, 1960s to 1990s

This essay in the journal Sociological Research comes the closest of the materials found thus far to relating organized crime and criminals with the changeover into a market economy from communism. Professor Gennadii Khokhriakov explains that the corrupt values in the Soviet Union really began well before the end of communism with a kind of "underground business" that eventually led to organized crime. Underground "entrepreneurs" counted on the support of ordinary workers, who "kept quiet… in return for higher pay" when petty theft occurred in full view of their workstations (Khokhriakov, 2002, p. 8). This, Khokhriakov continues, was one of the graphic indicators of how people lost faith in the ability of the state to provide needed human and social resources. The losses from petty theft "were huge," Khokhriakov explains, and this "gradually warped public thinking" (8). The philosophy of corruption was created by the Soviet bureaucrat, who had "long since lost all faith in the universal proletarian paradise"; the bureaucrat's desk chair became what Khokhriakov calls "the alter on which he sacrificed the ideals of socialism" (8).

Out of this consciousness came a "shadow economy" and a "shadow market" that became the profits for organized crime, Khokhriakov explains (12). Organized crime became the link between the "shadow market" and "criminality in general" (12). Museums and churches became "targets" for criminals, who stole art objects and icons to be sold into the private collections of "underground millionaires" (Khokhriakov, 12). The Soviet regime arrested and imprisoned these "shadow entrepreneurs" Society in many instances defended the shadow entrepreneurs (members of organized crime syndicates), Khokhriakov continues (13), because they just might turn out to be the new capitalists, "heroes, harbingers of a new world." This, Khokhriakov continues, was the "…baggage with which the U.S.S.R. headed toward perestroika" (13).

When Gorbachev launched perestroika (Gorbachev's policy of social, economic and political restructuring), the above mentioned "shadow" sector of society actually got amnesty and hence were offered a kind of "legitimacy," Khokhriakov writes on page 13. During the first part of perestroika, the Soviets developed cooperatives, which "only strengthened the destructive model of the 'shadow' market economy, Khokhriakov explains on page 14. But the Soviets' transition was short of capital so because they needed loans, they turned to the West (in particular, the U.S., which was thrilled of course to witness the demise of communism). Instead of cash, the West provided the Soviets with goods, and right away Soviet merchants knew how to "dispose" of the goods; many new cooperatives sprang up and sold goods "at market prices" and that "shadow" sector became quite "lively" (Khokhriakov, 14).

The "new hero" came from "the underground," Khokhriakov reports; the biggest portion of the Russian intelligentsia tended to see the shadow as "…a forerunner and failed to take not of the techniques he had brought out of hiding." Banks sprang up like weeds, and "credits obtained through fraud exceeded by one thousand times or more the economic potential of banks," Khokhriakov continued (20). This of course was an open door for crime, and organized crime (the ubiquitous "shadow" market people) jumped right in; in fact the amount of stolen credit and money in 1992-94 "totaled about three trillion rubles" and the prosecutor-general at the time reported "thirteen thousand crimes in the banking community" in 1995-96 (Khokhriakov, 20).

What happened with some of the goods produced in Russia was not fair to peasants. They went to big city markets and tried to sell "their own products" but they were forced to give them to "the resellers, who dictated pricing" (Khokhriakov, 21). Those shuttle traders that took the products away from the peasants then "fell under the influence of the 'shadow' sector and its brand of 'justice'"…and the racket became a common situation while in the meantime organized crime established "monopoly prices" (Khokhriakov, 21).

Trade that was controlled by organized crime fueled inflation and inflation forced the banks to raise interest rates on their loans. In this way, the shadow market folks became those involved in organized crime and indeed, "the world of organized crime was expanding steadily" and society was "rapidly becoming corrupted" (Khokhriakov, 22). Granted, this article is ten years old, but the author asserts that the "whole economy" of the Russian Federation has "gone into the shadows" and a great deal of income is "concealed from taxation"; to wit, an estimated $1-2 billion is taken out of Russia "every month" (Khokhriakov, 27).

The bottom line in terms of organized crime is that "a huge number of citizens who are involved in trade and services are acting as witting or unwitting handmaidens of organized crime" (Khokhriakov, 27).

All of this information about how the shadowy individuals profited enormously when perestroika became part of official policy does not necessarily explain the influence of organized crime in terms the political transition from communism to a market economy. Certainly the influence of organized crime did penetrate the political structure, but it would seem that organized crime had enormous influence over the economic structure of Russia. Organized crime took advantage of every slipshod new policy that was introduced while the country was in the midst of the flux from one embedded system into a new, more capitalistic structure.

Meanwhile professor Steven Barkan (University of Maine) goes a little deeper into Soviet history to explain the emergence of organized crime. The Russian Revolution of 1917 offered glowing promises of "a workers' paradise" but in fact what the people got was a "dictatorship" founded by elitists in the Communist Party (Barkan, 2011, p. 110). During the revolution, Barkan explains, everyday services were very hard to come by. And again in 1941, when the Nazis invaded the Soviet Union, there was a terrible shortage of food and services. And after the brutal bloody second world war, the Soviets engaged in a massive expenditure of resources to "gain military superiority over the United States and its allies" (Barkan, 110).

Because of the amount of spending that went into the production of military hardware, the Soviet Union "…drastically cut back on the production of everything from food and clothing to automobiles and apartments" (Barkan, 110). Hence, a black market emerged, Barkan writes, that profited from stolen and illegally imported or smuggled goods; some of the stolen goods were ripped off from the government, Barkan continues. It is part of economic history and logic that when a government cuts back on products or services that the citizens truly need, criminals step in to fill that gap. That's what happened in the Soviet Union prior to perestroika, according to Barkan (110).

Given that the Cold War was the stimulus for the huge outlay of federal funds for weapons, it made the situation "ripe for wide-scale corruption as well as organized crime activity," Barkan continues (110). It would appear according to this book that the period prior to the fall of communism and the breakup of the old Soviet Union "…became the training and breeding ground for the development of syndicated crime in contemporary Russia" (Barkan, 110).

In 1990, for example, there were an estimated 775 groups of organized criminals, but by the end of 1994, Barkan asserts, there were as many as 5,700 organized crime groups (110). Then president Boris Yeltsin acknowledged in 1994 that his country "…was the biggest mafia in the world…the superpower of crime that is devouring the state from top to bottom" (Barkan, 110).

By the mid-1990s, Barkan continues, organized crime groups in Russia controlled "as much as 40%" of the economy of the nation; the way in which they were able to have such enormous influence is by forcing businesses to pay up to "…60% of their pretax revenue to criminal gangs for protection" (110). Incredibly, by 2000, Barkan asserts, up to 50% of the entire Russian economy was linked to organized crime groups. How did organized crime come to have such enormous power in Russia?

There are three reasons offered by Barkan (which he got from Cameron Hall, 1997): a) the sudden collapse of the communist control over the legislative, executive and judicial components of the country meant that those forces that had in previous years managed to keep organized crime groups somewhat in check were not there anymore; in other words, there was a "power vacuum" and organized crime was quick to fill that vacuum; b) the very fact that the economy quickly transitioned from a socialist to a capitalist system "opened a wide range of previously nonexistent criminal opportunities"; and c) there was no real set of laws dealing with property or the changing economy and this allowed corruption to flourish (Barkan, 110).