Copyright: Johanna Granville, "Dermokratizatsiya and Prikhvatizatsiya: The

Russian Kleptocracy and Rise of Organized Crime," in Demokratizatsiya

(summer 2003), pp. 448-457. Review article of 5 books.

Dermokratizatsiya and Prikhvatizatsiya: The Russian

Kleptocracy and Rise of Organized Crime

Robert I. Friedman, Red Mafia: How the Russian Mob Has Invaded America. Boston: Little,
Brown, and Co., 2000; 296 pp.; ISBN 0-316-29474-8 (cloth);
$25.95.

Paul Klebnikov, Godfather of the Kremlin: Boris Berezovsky and the Looting of Russia. New
York: Harcourt, 2000; 400 pp.; ISBN 0-15-100621-0 (cloth); $28.00.

James O. Finckenauer and Elin J. Waring, Russian Mafia in America: Immigration, Culture,
and Crime. Boston: Northeastern University Press, 1998; 320 pp.; ISBN 1-55553-508-9
(paper); $18.95.

Chrystia Freeland, Sale of the Century: Russia's Wild Ride from Communism to Capitalism.
New York: Crown Publishers, 2000; 389 pp.; ISBN 0-8129-3215-3 (cloth); $27.50.

Jeffrey Robinson, The Merger: The Conglomeration of International Organized Crime.

Woodstock, N.Y.: Overlook Press, 2000; 383 pp.; ISBN 1-58567-030-8 (cloth); $27.95.

- p. 449 -

As the erstwhile British prime minister Benjamin Disraeli once sourly

remarked, "What we anticipate seldom occurs, and what we least expect

generally happens." Russia watchers in the West expected the Russian

economy to prosper, as did the Chinese economy, once Boris Yeltsin, the first

freely elected Russian president, cast off the communist mantle in 1991.
Instead, he fostered the growth of crony capitalism, deliberately enriching a

handful of men in return for their political support. Since Yeltsin's

resignation in 1999, journalists and scholars have begun to analyze his

regime more frankly. Although Gorbachev established in Russia the

principles of free speech and democratic accountability, Yeltsin failed to

expand the aims of glasnost and per-

- p. 450 -

estroika. The "democrats," led by Yegor Gaidar and Anatoly

Chubais, freed prices in 1992 and unleashed hyperinflation before

they privatized Russia's assets. Most Russian citizens lost their

savings in only a few weeks. While the few billionaire "oligarchs"

liken themselves to the American "robber barons" of the nineteenth

century, no real comparison can be drawn. Those well-connected

young men made fortunes not by creating new enterprises that

increased their country's wealth, as did Carnegie (steel), Rockefeller

(oil), Ford (automobiles), and Morgan (finance). Instead, they played

the role of old state trading monopolies, arbitraging the huge

difference between old domestic prices for Russian commodities and

the prices prevailing on the world market. Instead of investing in the

Russian economy, they stashed billions of dollars in Swiss bank

accounts. Experts estimate that as much as $15 billion leaves Russia

each year as either "capital flight" or laundered money from illegal

transactions. 1

According to Swiss attorney general Carla del Ponte, by 1999 Russian

organized crime gangs had "infiltrated some 300 Swiss companies" and were

"using Switzerland as a piggy bank." 2 Failing to create a broad class of

shareholders, Chubais' voucher privatization in 1993-1994 merely ceded

Russia's industrial assets to corrupt enterprise managers or to the new

Moscow banks. Chubais and his allies subsidized the new banks by granting

them Central Bank loans at negative real interest rates, giving them the

accounts of government institutions, and manipulating the government

securities market in their favor. In the rigged loans-for-shares auctions of

1995-1997, Chubais sold off the remaining gems of Russian industry to a few

insiders. By 1999 the Russian economy was half the size that it was a decade

before; the top 10 percent of the population owned half of the nation's wealth. 3

Without much exaggeration, one may call the legacy of Boris Yeltsin one of

almost unmitigated failure - the biggest disaster (economically, socially, and

demographically) since the Nazi invasion of 1941. For ordinary Russians, a

"democrat" is construed to be a crook, and "democracy" a curse word. On

the streets of Moscow they call the latter "shitocracy" (dermokratizatsiya) and

privatization "grab-it-ization" (prikhvatizatsiya). 4

The Russian state has metamorphosed into a full-fledged "kleptocracy"-

dedicated to enriching those in power and their associates, usually organized

criminal groups. As U.S. congressman Benjamin Gilman observed as early as

April 1996: "It is truly impossible, in many instances to differentiate between

Russian organized crime and the Russian State." 5 (The Russian Ministry of

Internal Affairs calculated that at least 25 percent of Russia's gross national

income each year stems from organized criminal activities). 6 However, a clear

history of criminal activity during the Yeltsin era is difficult to establish.

Almost none of the most famous murders (Kholodov, Listyev, and others) has

been solved. Even past convictions have been difficult to identify, since well-

connected ex-convicts can often remove their files, thus erasing any trace of

past crimes. 7 Moreover, given the corrupt system of law enforcement, when

one is in debt, it is often cheaper to pay a hit man to kill the creditor and bribe

police officers to look the other way than it is to pay off one's debts to the

creditor.

Although organized crime prevailed in the communist nomenklatura when

the

- p. 451 -

USSR still existed, U.S. authorities are focusing more heavily on it now, since

Russian white-collar crime has branched out all over the world. The scope of

power and control of organized criminals in Russia far exceeds the criminal

control exercised by drug cartels in countries such as Colombia. Arms

trafficking, alien smuggling, money laundering, trafficking in vital materials

such as oil and timber, and (potentially) nuclear trafficking are among the

Russian criminal enterprises on the international scene.

 Readers will find the five books reviewed here about the Russian

kleptocracy and organized crime sad and shocking. Chrystia Freeland's Sale

of the Century: Russia's Wild Ride from Communism to Capitalism analyzes the

economic breakdown and rise of the "oligarchs." In Godfather of the Kremlin,

Paul Klebnikov - who was himself fatally shot for exposing the richest

Russians - examines the business and political career of arguably the most

powerful oligarch, Boris Berezovsky. Two other books discuss Russian

organized crime as it has taken root outside Russian borders: Red Mafia: How

the Russian Mob Has Invaded America, by Robert I. Friedman, and Russian

Mafia in America, by James O. Finckenauer and Elin J. Waring. Finally, in

The Merger, Jeffrey Robinson alerts us to the limitless possibilities for

international criminal syndicates in the global markets of transparent borders

and urges greater cooperation among law enforcement agencies worldwide.

Freeland, Moscow bureau chief for the Financial Times, chronicles Russia's

roller-coaster ride from communism to crony capitalism. A protégé of

Timothy Colton at Harvard University's Russian Research Center, Rhodes

scholar, and recipient of a Master's degree in Slavonic studies from Oxford,

she writes poetically, with creative metaphors, colorful word pictures, and a

keen insight into Russian history. The copious adverbs, adjectives, and details-

sometimes superfluous-may, how-ever, irritate those reading her book for the

"bottom line." The book also omits analysis of organized crime in general. On

the other hand, a key strength of Sale of the Century is Freeland's ability to
bring to life the key players in Russian politics: Yeltsin, Gaidar, Chubais, and

the handful of wealthy oligarchs. As a journalist, she was able to meet most of

them often. The book enables the reader to develop a more refined and

differentiated understanding of the oligarchs. Among them are Mikhail

Friedman ("the outsider") who heads the Alfa Group, an oil, industrial,

trading, and financial conglomerate; Mikhail Khordokovsky ("the

apparatchik") who leads Menatep, the bank and financial-industrial

conglomerate; Vladimir Potanin ("the blueblood") who founded Oneximbank,

which handles the "juiciest" government accounts, such as the State Customs

Agency and the state arms-trading company "Rosvooruzheniye"; Vladimir

Gusinsky ("the impresario") who established inter alia the consortium of

banks known as the Most group, the newspaper Segodnya, and the first

independent television channel (NTV); and finally, Boris Berezovsky ("the

nomad") who took over a number of enterprises and directly influenced the

presidential elections of 1996 and 2000.

In Klebnikov's Godfather of the Kremlin readers get extensive background

on Berezovsky, secret KGB plots, the nefarious "mob wars," and key events of

the

- p. 452 -

1990s, such as the murders of journalísts Dmitri Kholodov (October 1994) and

popular talk show host Vlad Listyev (1 March 1995), and acts of terrorism in

Budyonnovsk (June 1995) and Moscow (September 1999). Like Freeland,

Klebnikov had an extensive background in Russian history. He earned a Ph.D.

in Russian history from the London School of Economics before joining

Forbes Magazine as senior editor. Klebnikov's subtitle is perhaps more apt

than Freeland's ("the looting of Russia" as opposed to "the sale of the

century"). On several occasions he interviewed Oleg Kalugin, head of the

KGB's foreign counterintelligence division, who revealed the KGB's double

game in the landmark elections of 1990. We now know that the KGB actually

helped to create the first noncommunist party, promoting ultranationalist

groups such as Vladimir Zhirinovsky's Liberal Democratic Party and

"Pamyat" (Memory). According to Klebnikov, the KGB in 1990 also created a

network of banks and trading companies both in Russia and overseas to

collect billions of dollars of government funds during the "period of

emergency" and hold them for the Communist nomenklatura as "a stable

source of revenue, irrespective of what may happen to the Party." 8 Several

days after the failed putsch in August 1991, Nikolai Kruchina, the man who

controlled Communist Party funds and knew the most about the secret capital

flight, "jumped" out of his office window. 9

Klebnikov portrays Berezovsky (dubbed the "apotheosis of sleaziness" by

the popular general Alexander Lebed) as a particularly ruthless and cunning

tycoon who perhaps profited more than anyone else from Russia's slide into

the abyss. He stood closer than the other oligarchs to all three realms: crime,

commerce, and government. His success in both making money and claiming
to be a valuable statesman in the government's service was due in part to his

relationships with some of Russia's strongest gangsters, particularly the

Chechen mafia. 10 In contrast to entrepreneurs such as Vladimir Gusinsky,

Berezovsky did not enrich any of the enterprises with which he became

involved or took over (for example, the car dealership Avtovaz, Sibneft, public

television station ORT, Omsk Oil Refinery, National Sports Fund, and

aluminum smelters Bratsk, Krasnoyarsk, and Novokuznetsk), but instead

drained them of cash.

Klebnikov also provides insight into the cause of the first Russian war with

Chechnya (1994-96). Apart from Yeltsin's desire to appear strong for electoral

reasons, preserve the Russian Federation, divert attention from military

scandals, and maintain access to oil in the region, there is some reason to

believe that Russian leaders wanted to punish Chechen mafia groups who had

stopped sharing their profits from protection fees (krishi or "rooftops") with

them. During his extensive interviews with Chechen and Russian mafia

leaders, Klebnikov learned that Chechens owned many restaurants and

casinos in Moscow. Berezovsky's own interactions with the Chechens began

when he hired them, rather than the Moscow-based Solntsevo mafia, to

protect his car dealership Logovaz. 11

Klebnikov acquired tapes of intercepted telephone conversations between

Berezovsky and Movladi Udugov (a Chechen deputy minister in the

Maskhadov administration) that suggest that the Chechens' series of

kidnappings of Russian and foreign visitors to the tiny Caucasian republic

were contrived. Ostensibly as a crass publicity stunt, Berezovsky apparently

arranged the kidnappings and later

- p. 453 -

paid ransom to the Chechens to free the captives. Whereas other Russians

traveling to Chechnya did so only under heavy security, Berezovsky frequently

flew back and forth without even one bodyguard.

Klebnikov describes other shady incidents in which Berezovsky was

apparently involved, including the attempt to murder Gusinsky (the "Faces-

in-the-Snow" incident in December 1994), the murder of Listyev (who sought

to break Berezovsky's advertising monopoly with the television station ORT),

the abrupt firing of Alexander Lebed as secretary of the Security Council in

October 1996 for his attempts to curb corruption, the abrupt dismissal of

Yevgeniy Primakov in May 1999 as prime minister, the bombings of Moscow

apartment buildings in September 1999, and the promotion of KGB

functionary Vladimir Putin to replace Yeltsin in March 2000 as Russian

president.

As a scholar, Klebnikov carefully assessed his sources, citing only

information that he has been able to corroborate. Because politics and

business in Russia are often conducted orally, with a handshake, Klebnikov

taped all of his interviews. He stated:

 In telling this story, 1 have tried to be conservative in asserting
what I believe to be true. Throughout, my sources are noted to
allow the reader to judge for himself their solidity or lack
thereof. 1 have left a trail of my research, so that the reader may
be in a position to decide for himself what to believe and what
not to believe. 12

Like Godfather of the Kremlin, Russian Mafia in America is also a careful

investigation. The authors are James O. Finckenauer and Elin J. Waring.

Finckenauer, a professor of criminal justice at Rutgers University, received a

grant from the National Institute of Justice to study typical crimes committed

in the United States by Soviet and Russian émigrés. He traveled to Moscow in

1990 to discuss organized crime with Russian scholars at the Academy of

Sciences. Waring is an associate professor of sociology at the Herbert Lehman

College, City University of New York.

Finckenauer and Waring's key argument about Russian organized crime in

America is perhaps not as provocative as it initially sounds. They write that

the "Russian Mafia" is "first, not Russian; second, not a mafia; and third, not

even organized crime." 13 When they state that the Russian mafia is not

"Russian," they simply mean that many émigré criminals hail from many of

the other former Soviet republics, such as Ukraine, Moldova, Azerbaijan,

Armenia, and Georgia. Nevertheless, they are still Russian speakers, many of

whom grew up in the Soviet system.

By stating that the Russian mafia is not a mafia, the authors beg the

question: What is a mafia? The generic definition is "a secret organization

composed chiefly of criminal elements and usually held to control

racketeering, peddling of narcotics, gambling, and other illicit activities

throughout the world." That definition does seem to fit Russian organized

crime.

The claim that the Russian mafia is not "organized" will also strike readers

as rather specious. They simply mean that Russian émigré criminals are not

organized in a strictly hierarchical fashion according to families. Rather, they

are orga-

- p. 454 -

nized arbitrarily or by geographical region. They operate in a "mix of

opportunistic groupings of individuals, with a small number of networks." 14

For Finckenauer and Waring a "network" refers to "connections between

individuals, organizations, or other entities" that "engage in joint, reciprocal,

preferential, and mutually supportive actions," which can be "complex or

relatively simple." 15 In chapter 8, "The Structure of Soviet Émigré Crime,"

the authors provide intricate schema to show that the criminals work together

(188-89). Moreover, in their study of crimes based on level of organization, the

authors found that 43 percent involved offenses carried out by "two or more

affiliated persons," and 31 percent (or twenty-one crimes) were executed by

criminal organizations. The authors appear to split hairs in stating that

"although the criminals involved might not have been engaged in organized

crime, they had created an organizational entity whose sole purpose was to
carry out crimes. Such an entity is, indeed, a criminal organization." 16 In

short, it appears that Russian organized crime is organized, since the criminals

do operate systematically, in a structured fashion.

Finckenauer and Waring go on to stress the magnitude of Russian

organized crime, which further undercuts their argument. The majority of the

crimes perpetrated in the United States had "sizeable financial impacts"; 60

percent of them "involved losses via fraud or theft of $ 100,000 or more, and

16 percent involved losses of $2.5 million or more." 17 Like Klebnikov,

Finckenauer and Waring attest to the tight, symbiotic relationship among

business, crime, and politics in Russia. "Organized crime is much more

sophisticated and powerful in Russia than it is almost anywhere else in the

world," they write. 18

Also, as Klebnikov's murder and Finckenauer and Wang remind readers,

organized crime is difficult and dangerous (indeed, life-threatening) to study,

unlike juvenile delinquency or other types of crime. The typical tools of the

criminologist - observation, surveys, interviews, samples, and questionnaires -

are nearly impossible to use. Therefore the authors joined the Tri-state Joint

Soviet Émigré Organized Crime Project to identify the extent of Russian

émigré crime within the tri-state region of New York, New Jersey, and

Pennsylvania. In this way, they had unique access to surveillance, informants,

undercover investigation, intelligence reports, telephone records, and public

information such as indictments and newspaper reports.

 Finckenauer, Waring, and the late Klebnikov are to be applauded for their

courage in exposing Russian organized crime. In the course of his

investigations of Berezovsky's shenanigans, Klebnikov ignored warnings that

he was jeopardizing his personal safety, given the oligarch's ties with mafia hit

men.

Another investigative reporter, Robert Friedman, actually received death

threats from at least two Mafia bosses for his exposés of their activities in the

United States: Budapest-based Semion Mogilevich and Vyacheslav Ivankov

from his prison cell. In his book Red Mafia, Friedman claims that the Russian

mafia differs from the Italian Cosa Nostra. Whereas the Italians usually

refrain from harming journalists, prosecutors, judges, and innocent family

members, the Russians will-in the words of a retired New York City policeman

- shoot anyone "just to see if their gun works." 19 Friedman is the author of

Zealots for Zion: Inside Israel 's West Bank Settlement and has written

numerous articles on Russ-

- p. 455 -

ian mobsters in Details, Vanity Fair, and New York. He impresses upon readers

the degree to which the Russian mafia is already deeply entrenched in the

United States (especially Brighton Beach, Miami, San Francisco, Los Angeles,

Las Vegas, and Denver) and overseas (in far-flung cities such as Moscow,

Hong Kong, Bangkok, Bogotá, and Toronto). It is apparently involved in a

wide variety of activities such as car theft, prostitution, gasoline bootlegging,

arms smuggling, cocaine and heroin trafficking, extortion (even of players in

the National Hockey League), and an array of sophisticated white-collar

computer crimes such as counterfeiting, credit card schemes, and insurance

frauds.

Friedman provides colorful portraits of key Russian mafia leaders such as

Marat Balagula, Vyacheslav Ivankov, Monya Elson, and Semion Mogilevich,

many of whom he interviewed in prisons and gaudy strip bars in Brighton

Beach and Miami.

Friedman also helps readers to understand the sizeable obstacles that the

FBI faces. Given the global scale of Russian organized crime, the FBI simply

cannot combat it effectively without international cooperation. Each sovereign

country has its own laws that must be followed. Friedman uses Israel as an

example. He cites a senior State Department official, Jonathan Winer: "There

is not a major Russian organized crime figure who we are tracking who does

not also carry an Israelí passport. 20 Ten percent of Israel's five million Jews

are now Russian, according to the New York City police. 21 Since Israel will not

extradite their citizens (of Russian nationality), U.S. law enforcement

authorities cannot prosecute the Russian criminals active in the United States,

thereby weakening their ability to deter mafia members from committing

future crimes. Other citizens from Eastern Europe and Eurasia with unsavory

backgrounds continue to emigrate to the United States, because U.S.

immigration officials cannot screen them, lacking legal access to their criminal
records.

Red Mafia complements Finckenauer's and Waring's more scholarly and

dispassionate study. Friedman writes colorfully and wittily, plying readers

with rich anecdotal information.

In The Merger, Jeffrey Robinson goes further than the abovementioned four

authors in emphasizing the increasing cooperation among disparate criminal

organizations in several countries, including the Sicilian Mafiosi, the Chinese

Triads, the Russian, Hungarian, and Czech "mafiyas," and organized crime

groups from Colombia, Mexico, Nigeria, Thailand, and Vietnam, to name a

few. Robinson is the international best-selling author of eighteen books,

including the authoritative work The Laundrymen. He has served as keynote

speaker on money laundering for the United Nations, Interpol, U.S. Customs,

the FBI, and other organizations.

As he points out, while these groups' core activities remain the same - car

theft, drug trafficking, fraud in all its guises, alien smuggling, weapons

trafficking, counterfeit production and distribution, murder, kidnapping,

extortion, money laundering, and the smuggling and sale of nuclear materials

- organized criminals flourish in the global markets of transparent borders

and meaningless trade restrictions. Unlike their predecessors, they do not limit

themselves to single forms of illegal activity, but deal in anything and

everything that can make

- p. 456 -
money for them. Unless jurisdictional barriers can be eliminated to allow law

enforcement authorities in those countries to pool information, the situation

will only worsen, Robinson warns.

Disraeli may dissuade us from high expectations, but Henry David

Thoreau's words also warrant attention: "It is remarkable that men do not

sail the sea with more expectation. Nothing was ever accomplished in a prosaic

mood." 22 If we want to curb international organized crime, we must expect

that we can. All five books reviewed here take us a step closer to solutions by

raising our awareness of Russian organized crime, challenging some widely

held assumptions, and suggesting more stringent methods of law enforcement.

All would be suitable for courses in Russian politics, sociology, and

international relations. Undergraduate students might favor the sprightly

writing styles of Freeland, Klebnikov, and Friedman. Freeland's book would

be especially useful, given its detailed chronology and list of key individuals.

For further coverage, readers may also want to consult Russian and Post-

Soviet Organized Crime (The International Library of Criminology, Criminal

Justice and Penology), edited by Mark Galeotti; The Russian Mafia: Private

Protection in a New Market Economy by Federico Varese; Bandits, Gangsters

and the Mafia: Russia, the Baltic States and the CIS Since 1991 by Martin

McCauley; The Oligarchs: Wealth and Power in the New Russia, by David E.

Hoffman; Casino Moscow: A Tale of Greed and Adventure on Capitalism's

Wildest Frontier, by Matthew Brzezinski; and for more general background,

Transnational Criminal Organizations, Cyber Crime, and Money Laundering: A

Handbook for Law Enforcement Officers, Auditors, and Financial Investigators,

by James R. Richards.

1
Peter Lilley, Dirty Dealing: the Untold Truth about Global Money
Laundering (Lon-don, 2000), 39.
2
Lilley, 42.
3
Paul Klebnikov, Godfather of the Kremlin: Boris Berezovsky and the
Looting of Russia (New York, 2000), 5.
4
Ibid., 320.
5
Ibid., 319.
6
Lilley, Dirty Dealing, 27.
7
Klebnikov, 3.
8
Ibid., 59.
9
Ibid., 76.
10
Ibid., 319.
11
Ibid., 12.
12
Ibid., xi.
13
James O. Finckenauer and Elin J. Waring, Russian Mafia in
America: Immigration, Culture, and Crime (Boston: Northeastern
University Press, 1998), xiv.
14
Ibid., 198-99.
15
Ibid., 6.
16
Ibid., 263.
17
Ibid.
18
Ibid., 121.
19
Robert I. Friedman, Red Mafia: How the Russian Mob Has Invaded
America (Boston: Little, Brown, and Co., 2000), xvii.
20
Ibid., 277.
21
Ibid.
22
The Writings of Henry David Thoreau (New York: Houghton
Mifflin, 1906), vol. 4, 120-21.