Source: Johanna Granville, "Dermokratizatsiya and Prikhvatizatsiya: The

Russian Kleptocracy and Rise of Organized Crime," in Demokratizatsiya

(summer 2003), pp. 448-457.

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 1-55553508-9 (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.

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

organized crime gangs had "infiltrated some 300 Swiss companies" and were
2
"using Switzerland as a piggy bank." 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.

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).

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

5
Russian organized crime and the Russian State." (The Russian Ministry of
Internal Affairs calculated that at least 25 percent of Russia's gross national

6
income each year stems from organized criminal activities). 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

7
past crimes. 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 protg 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 journalsts 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
8
source of revenue, irrespective of what may happen to the Party." 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.

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 "Facesin-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 migrs. 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 migr 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 migr 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 migr Crime," the

authors provide intricate schema to show that the criminals work together (18889). 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 migr Organized Crime Project to identify the extent of
Russian migr crime within the tri-stateregion 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 exposs 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, Bogot, 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 Israel 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 PostSoviet 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.

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.