Not a word about the past

In the past ten years, a significant proportion of organized crime organizations have transformed themselves into respectable, legal business organizations

Vadim Bolkov (Instructor, European University, St. Petersburg)

In the mid 90s, the Center for Social and Economic Policy Analysis widely publicized figures on the amount of organized crime activity in Russia. According to these figures, criminal gangs either controlled or owned forty thousand firms, including two thousand in the state sector, though precise ownership and property relations were never clarified. In addition, three fourths of all companies paid protection money to criminal organizations (see Izvestia January 26, 1994). The Academy of Sciences' Center for Analysis published even more disturbing figures, according to which 55% of the nation's capital and 80% of all shares of stock were in the hands of organized crime (Nezavisimaya gazeta, September 21, 1995). The Center for Strategic and International Studies in Washington, D.C., using these data, declared that approximately two thirds of the Russian economy was controlled by crime syndicates, which presented a major security risk for the United States (W. Webster, Russian Organized Crime. Global Organized Crime Project. Washington: Center for Strategic and International Studies, 1997, p. 2).

True enough, it later became clear that the forty thousand firms of the government's statistics was four times more than the actual number of medium-sized and large firms privatized at the time, and two times more than the number of existing large companies. If the government's figures had any sort of basis in fact, then they concerned mostly small businesses. Nonetheless, they beyond a doubt reflected reality, as back in the mid 90s, the presence of organized criminal gangs (OCG) and the mafia subculture was felt everywhere in Russian everyday life. It was also clear that the war against organized crime was being conducted halfheartedly and that the authorities and police were more or less involved in the same activities and competing with the mafia, not fighting it on behalf of the state.

Today, the situation is completely different. The classic mafioso has disappeared, the well-known horrors committed by the mafia have retreated into the background, and its subculture only lives on in television dramas and cheap novels. So, where did organized crime go? Why did the mafioso disappear?

Violent Entrepreneurs

From a sociological point of view, it is more productive to examine any structure or organization using force or violence, be it a criminal gang, private security guards, police, or state investigators, as a kind of social order, regardless of its moral or legal status. What the organization actually does and what its function is in the economy of transition is more important than this status. The basic activity of this kind of organization could be called violent entrepreneurship, the combination of organizational decisions and means of action used consistently to transform the organization's power via violence or threats into money or other economic benefits. Thus, the basis of violent entrepreneurial activity is socially organized violence.

Initially, in the late 80s, this market niche was created by former felons and bands of athletes who got involved in protection rackets. By the beginning of the 90s, any private organization using force-organized crime, legal security firms, or even state policing agencies acting informally-could successfully engage in violent entrepreneurial activity by using the resources available to them and by constantly finding new commercial applications of these resources. All these organizations provided physical protection, guaranteed loan repayment, settled property disputes, provided information, and arranged barter deals. All of these services (security, arbitration, protection of personal property rights) were not provided at the time by the exceedingly weak government and created a window of opportunity for illegal, private violent entrepreneurs.

As competition in this sphere heated up in the mid 90s in the form of gang wars and anti-organized crime measures, the search for new clients led to the gradual transformation of private violent organizations, in particular organized criminal gangs, and their use of new forms of property. A gang's survival depended less and less on its potential strength and street reputation, and more and more on its ability to establish strong financial bases and political ties. Many gangs remained true to the mafia subculture and the original strategy of extorting the maximum amount of money and resources from economic entities for whom they provided security services and "protection." However, a variety of OCGs adapted to new conditions. The adaptation included the gradual re-evaluation of property rights to the advantage of businesses and companies, moving from protection money to income from investments made using profits from rackets, and establishing informal pacts with regional leaders and leaving criminal activities behind. As a result of these processes, by the end of the 90s, former criminal organizations' vertical hierarchy broke down as business groups formed. The unreformed criminal elements came under increasing pressure from the police and government.

Two influential provincial organized crime gangs, Tambov and Uralmash, illustrate these processes in more detail.

Tambov

The story of the Tambov Gang began in 1988, when two Tambov natives met in Leningrad as students: Vladimir Kumarin, who attended but never graduated from the Leningrad Institute of Optical Mechanics and Valeri Ledovskikh, who graduated with a degree in boxing from the Leningrad Physical Education Institute. The gang, despite its name, developed more along athletic lines than geographic ones, attracting athletes from the rougher types of sports. The Tambov Gang became well-known thanks to a series of television reports by journalist Aleksandr Nevzorov. According to Kumarin, "Nevzorov began to put out story after story about the terrible `Tambov boys.' For us, it worked like an advertisement. Everybody came crawling to us on their own. Though it was the kind of thing where people got the wool pulled over their eyes, I won't deny it" (quoted in Andrei Konstantinov, Banditskiy Peterburg-98. St. Petersburg: Olma-press, 1999, p. 359).

In the early 90s the group began to grow rapidly, filling its ranks with former athletes and merging with other, smaller gangs. In addition to the above mentioned founders, the upper echelons of Tambov included figures such as former boxing coach and current Liberal Democratic Party Duma representative, Mikhail Gluschenko ("The Ukrainian"); leaders of the Velikoluksk Gang, the Gavrilenkov brothers; current director of the Scorpion private security firm Aleksandr Yefromov (prosecuted in 1999); Oleg Shuster, a business man who for a while owned St. Petersburg's Channel 11; as well as the infamous Vasya Bransky, Stepa Ulyanovsky, and Bob Kemerovsky. Each of them commanded several gangs. According to different sources, the number of members in the Tambov Gang in 1999 ranged from 300 to 500. At this stage, the Tambov boys were engaged in typical violent entrepreneurial activities, and were involved in security services and controlling the economic activities of companies and cooperatives both legally and illegally, from importing office technology and exporting lumber to gambling and prostitution.

In 1990, part of the Tambov Gang wound up behind bars, including Kumarin and Ledovskikh, but by the beginning of 1994, they were already free men. Now the main threat to the gang came not from the police and prosecutors, but from internal conflicts which began in 1993. They were typical for this type of organization. One faction of the organization, the Velikoluksk Gang, stole a large shipment of wine worth more than one million dollars and purchased right before the Good Will Games from a businessman protected by Kumarin,. Not wanting to return neither wine nor money, the gang decided to get rid of the leader of the other faction. In June 1994, an attempt was made to assassinate Kumarin, who miraculously survived. As a result of internal investigations and the consequent war, the bosses of the Velikoluksk Gang were themselves gradually knocked off.

As a result, Kumarin succeeded in consolidating his power over the group. In 1995, it began to actively redirect its activities toward investment in legal businesses. Usually at this stage, the structure of the organization begins to change. Usually, gangs would provide protection and broker deals for companies, getting 20-30% percent of the profits. The directors of these companies were merely viewed as cash cows. In many cases, gangs would simply steal businessmen's assets, as they were seen as "owned" by and subject to the gang. However, when the gang started to invest its protection profits, special "trusted" businessmen appeared in the organization who were fully authorized members and managed the gang's investments. They became co-owners of large holding companies and acted as directors. For example, many of Tambov's commercial projects were accomplished with the help of Vyacheslav and Sergei Shevchenko, representatives in the Duma and the Petersburg Legislature, respectively. Both owned chains of stores, night clubs, short wave radio stations, and publishing houses. Local political protection was also provided by Viktor Novoselov, the speaker of the Petersburg Legislature. The force-wielding aspects of the Tambov Gang were legalized by founding private security firms.

Tambov's strategic interests soon shifted to energy resources in Russia's northwest. In the early 90s the main fuel supplier for this region was the Siberian company, Surgutneftgaz. It owned the majority of petroleum storage facilities, gas stations, and other petroleum industry related property. City and provincial officials were dependent on the pricing policies and production volume of this Siberian monopoly. The fuel crisis of 1994 made the need to reorganize the market completely clear. In order to change the situation, it was necessary to bring in new players and create competition on the petroleum market. However, at the same time, the authorities made decisions which gave them a great amount of control over the market and allowed them to take advantage of the situation. The gist of this plan, which the Tambov Gang began putting into action, was to cut off the local petroleum infrastructure from the parent company, take over the local St. Petersburg branch of Surgutneftegaz, and connect it with other providers of oil and gas. By making both advantageous offers and offers that couldn't be refused and manipulating property rights, the Tambov OCG made this plan a reality in three years. At the same time, following the lead of Moscow's city government, the Petersburg government decided to create a company dedicated to protecting the interests of local consumers. In September 1994, the city administration together with a group of leading businessmen founded the Petersburg Fuel Company (PFC). By the beginning of 1998, all of Surgutneftgaz's former franchises, as well as new assets accumulated by the Tambov boys, officially became part of the PFC Holding Company. Taking his mother's name, Kumarin (now Barsukov) became the vice president of the company and Yuri Antonov, vice-governor of the region, became president.

The Tambov Gang used the PFC as a kind of Trojan Horse. The more the gang got involved in acquiring and running various businesses and firms, the more it had to stick to laws and rules which differed from those of the criminal world. Many writers have examined the influence of the criminal underworld on business culture in Russia, yet few have looked at how business culture has influenced criminals. The Tambov Gang began to rely more and more on professional managers, financial advisors, and accountants. The gang's economic interests, which forced it to follow the market and imitate the business elite (even if only in function), gradually transformed its criminal reputation into a liability. Now the PFC tried to obey the law and as a result, found itself in more and more need to state structures to ensure its property rights and security. "The PFC has a clear structure and clean record as a city taxpayer," Antonov stated in late 1999 (quoted in Lichnosti Peterburga, 2000, No. 1, p. 8).

However, things got worse in late 1999 and the business group began to lose some of its key members. In October, representative Viktor Novoselov was killed when his government car exploded, and in the beginning of 2000, former representative Sergei Shevchenko was arrested and a warrant put out for his brother's arrest. Soon afterwards, a former wrestling coach and close advisor of Barsukov's, Georgi Pozdnyakov, was murdered (Smena, April 27 2000, p. 3). The campaign slogan "Petersburg is the mafia capitol of Russia" was used by the current governor's opponents, and this only added to the business group's problems. The Tambov boys responded to this challenge in an unusual way, which demonstrates that new rules for the game were being written. In Smena, Barsukov published an article entitled "Tambov or Petersburg: They're Just Russian Cities." The title expresses the group's desire to clean up the Tambov image and redefine itself as a group of citizens working for the common good. In the same article, Barsukov protested the term "mafia capitol" and wrote about the good that the PFC was doing for the city. Barsukov stated that 90% of public transport was fueled by the PFC, that the city held 14.5% of the holding's shares, and that the company employed 2,500 people. Despite all his efforts, he was forced to leave his position as the PFC's vice-president. This move, however, did not lead to a loss of control over the company. It was merely a manifestation of the principle of separation of ownership and management. And according to the gang's founder, "we aren't just involved in gas, but also in real estate and food retail. I really think that we've only just begun" (Konstantinov, Banditskiy Peterburg-98, p. 388).

The Boys of Uralmash

The Uralmash Gang was named after the place it was born, a region of Ekaterinburg belonging to the Ural Machine Factory. Its founders were local athletes (S. Vorobyev, A. Khabarov, S. Terentyev, S. Kurdyumov, etc.), as well as the Tsyganovy brothers, who had already gained experience with the black market in the Soviet era. Like many other gangs in Russia, Uralmash got control of the local market and co-ops, and also set up underground alcohol production and distribution. In late 1991, when the Uralmash Factory ran out of cash and could not make payroll, the Uralmash boys offered to bail them out in return for the use of several spaces, including the local cultural club, which became the group's headquarters. Like hundreds of other gangs, Uralmash made 20-30% of profits from local businesses, which they provided with security and contract services. However, in contrast to all the others, the Uralmash boys began to actively invest money in the companies they were protecting.

In 1992-1993, Ekaterinburg saw an intense mafia war, in which the boys of Uralmash faced a traditional criminal gang ("The Blues") and then the Central Gang ("The Centers") made up of athletes and urban youth who hung around the city's Central Market. Basically, the Blues lost and stayed in criminal forms of business. The showdown between Uralmash and the Central Gang resulted in the death of Konstantin Tsyganov and the leader of the Centers, Oleg Vagin, as well as several dozen authorities and businessmen on both sides. Yet all in all, the war turned out to the Uralmash Gang's advantage. As a result, the Centers stayed in the hotel and gambling business and trade, while Uralmash began to get actively involved in copper processing, utilities, and telecommunications. At the same time, the gang conducted a charity campaign, subsidizing public transportation and sports programs.

In the spring of 1993, the police arrested Grigory Tsyganov, accusing him of extortion. At a press conference, local authorities announced that they had nailed an organized crime boss. Uralmash was officially declared an organized criminal association (OCA). In response to this, Andrei Panpurin, one of the city's leading businessmen, president of the Eurasian Company and director of the Urals Brokerage House, also called a press conference and presented a different point of view, namely that "Uralmash is a company, not a crime organization" and that the gang had reoriented itself toward "socially useful activities." Panpurin without a trace of irony went on to explain the secret of Uralmash's economic success:

"Uralmash's way of working compared to other organizations' is extremely civilized and democratic. They never strangled businesses, many problems were taken care of, and everyone lost their fear of signing contracts. Konstantin Tsyganov is a stabilizing factor for the companies he works with. He has maintained the balance of power, which could be destroyed by his arrest" (quoted in Vecherniy Ekaterinburg, May 29, 1993, p. 1). Soon, Tsyganov was out of jail.

The economic aspects of Uralmash's activities on their own suggest that the Uralmash boys were the first to find a productive way to use violence and force to protect investments and guarantee property rights of businessmen who were participating in joint investment projects. According to police data, the members of Uralmash were behind around 200 companies and 12 banks, and partially controlled 90 additional companies. The basic investment groups were concentrated in the Europa Holding, which processed copper, the Uralnefteprodukt petroleum processing complex, and the Uralvestkom and Continental-Link cellular networks, as well as in car dealerships and breweries.

By the mid 90s, the Uralmash Gang changed into a regional business group with the semi-official name of Uralmash, and the mafiosi turned into capitalists. However, their semi-legal status no longer suited the size of their operations. Uralmash's bosses began to establish relations with those in power, who could no longer ignore this new power gaining strength in the region. The first sign that a pact was being made was Uralmash's active support of anti-Moscow politician Eduard Rossel's gubernatorial campaign in 1995. Later Rossel stated in an interview that, according to what he had seen, Uralmash was no longer on the wrong side of the law. Of far more importance, in his opinion, was what organizations were actually investing and contributing in the region's economy: "I gave them orders to invest in the construction industry" (quoted in Nezavisimaya gazeta, June 11, 1999, p. 4). The Uralmash bosses became part of the Ural Revival Movement which was actively involved in winning public support for the governor. In 1996, on the eve of the presidential elections, Alexander Khabarov of Uralmash founded the Workers for Yeltsin Movement, for which he received a personal letter of thanks from the re-elected president and an engraved watch from the governor.

In the summer of 1999, the Ural Revival Movement again supported Rossel in the gubernatorial elections. Not long before that, on May 6th of that year, the regional division of the Ministry of Justice registered the Uralmash Socio-Political Union. It consisted of what was left alive of the gang and a dozen white-collar advisors whose only weapons were calculators. Registering Uralmash officially allowed its members to participate legally in politics and in essence legalized the political machine working to represent the interests of a particular group.

Vertical Disintegration

These two gangs are not exceptional. In many ways, organized crime has become a victim of its own success. As it strove to grab control of certain segments of the legal market and reinvest its profits, gangs and their bosses themselves came under the powerful sway of market forces. When entrepreneurs of violence become businessmen with capital, they become more and more beholden to economic laws. Muscles and attitude cease to be as valuable as the professional advice of managers. Gangs gradually transform into regional business groups. With the new focus on legal business activities came the recruitment of cadres from the police and military and special security guard services, as well as lawyers to take care of legal matter and settle disputes. As the gang bosses developed close ties to those in power and became increasingly integrated into legal business, the middle and lower rungs of the organization became increasingly obsolete. Many are now simply a part of unorganized crime. This process could be called vertical disintegration. In the mid 90s, when young men with a penchant for violence and risk taking arrived in big cities, they had the opportunity to become members in an OCG providing strict discipline and consistent income. However, by 2000, this kind of opportunity had practically dried up. As a result, Russians are having to face a danger of a different sort with increasing frequency: the increase in violent crime (mugging, street violence) on the part of small bands of criminals. While the victims of organized crime were for the most part other gang members, the victims of unorganized crime are regular citizens. It is this kind of unorganized crime, as well as unreformed gangs, which should be the focus of police efforts.