Bill Tupman University of Exeter

1
Bill TupmanUniversity of Exeter

• The Underground Economy in Russia

2
The Inheritance

• Barter economy
• private use of public property
• distrust of private enterprise
• Non-convertible currency
• znakomiy system
• Soviet system ran on tolkach and blat
• Top-down corruption presents customary

3
Figures for Russian organised crime

• 8,000 groups. 200 global conglomerates
• relationships with groups in 50 other countries
  FBI director
• Transparency Int. puts Russia at 4th most corrupt
  country
• MVD estimates 40 private business. 60 state
  owned enterprises, 50-80 of banks controlled by
  organised crime

4
More chilling statistics

• Privatisation 55 of capital and 80 of voting
  shares transferred to domestic and foreign
  criminal capital
• 200-300 billion has suffered capital flight
• contract murders running at 500 per annum
• Life expectancy down from 69 to 57.7
• GDP falling by 6 per annum 43 since 91

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Illegal Transnational Businesses

• Drugs
• extortion
• auto theft
• prostitution
• alien smuggling
• traffic in people
• contract murder

• Bank fraud
• tax fraud
• stock fraud and manipulation
• metals/minerals smuggling
• illegal arms dealing

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Four centres of criminality

• Vory v zakone historical criminals
• former nomenklatura
• ethnic groups
• geographical and functional groups

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Vory v Zakone

• Labour camp origin - Tsarist beginnings
• Effectively ran the camps and financed criminal
  enterprise outside
• Tight code of behaviour no job no cooperation
  with authorities no court testimony no family
  no military service
• changing and losing respect now

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Nomenklatura

• Tyenova/ shadow economy without which Soviet
  system could not have functioned
• bribes, payoffs, corruption
• underground barter economy
• very difficult to change this system, because all
  senior political and administrative figures
  graduated from it.

9
Ethnic groups

• Chechens
• Armenians, Azerbaijanis, Dagestanis, Georgians,
  Ingush
• Internationally active
• violent
• but importance exaggerated 70 out of 3,000 crime
  groups have a purely ethnic base

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Territorial and functional groups

• May run an area of a town
• May specialise in cars, lorries etc.
• May have a shared background eg Afghan war
  veterans
• May work for a particular individual
• More familiar face of organised crime fit US
  definition of gang

11
Krysha system

• Means roof system of patronage and structured
  corruption protection
• Requires connection with bank
• Deep penetration of government structures
• deploys armed force, either illegal, private
  security or a local or national government unit
  of militsiya 30 of personnel involved or army

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Sources

• http//www.ex.ac.uk/politics/pol_data/undergrad/We
  bsites.html
• Global Organised Crime project, Russian Organised
  Crime Report
• Radio Free Europe Special Report on Russian banks
• Aricles in Citizens for a Safer Society site

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The Big 7 FIGs

• Alfa
• Inkombank
• LogoVAZ
• Menatep
• Most
• Oneximbank
• SBS-Agro

• Customs accounts
• Customs,China,Mosco
• Berezovsky
• Russian govt
• Moscow
• Finance min,Customs

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Money-laundering

• Why do it, if youre a bank?
• Avoid taxes
• defraud overseas aid donors
• distorted idea of nature of capitalism
• dont believe the playing field is level

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Areas requiring study

• KGB methods of funding agents and operations
  shell companies?
• Non hard currency trade with developing
  countries Asian bankers as middlemen hawala and
  chitty style?
• Exchange of prostitutes for goods. Standard
  measure of exchange?
• Drugs as currency

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But does it matter?

• Chicago group would say its just the market
  finding ways around excessive taxation and
  draconian anti-business legislation
• West worried about potential instability and
  possible military conflict
• West benefiting from capital flight

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Problems

• Inhibiting growth of civil society
• Impoverishing Russians in public sector
• cant have a market economy without a cash
  economy
• Rule of law a bad joke
• Undermining chance of democracy
• Increasing likelihood of return to
  authoritarianism