McMafia – Oligarchs and Russia Mafia Part I

Of all the organized crime networks described in Misha Glenny’s McMafia, Russia is the most interesting. The Western press seems uninterested in cataloguing the simultaneous rise to power of the oligarchs and of organized crime since 1989.

“But far from being harbingers of anarchy, these groups of men [the gruppoirovki]– Afghan veterans, street toughs, martial arts experts, former KGB officers, and every one of them terrifying — were the indispensable midwives of capitalism,” Glenny writes.  Since the state police lacked the resources “to adapt to the emergence of capitalism,” these gruppoirovki emerged as “private law enforcement agencies” to demand “protection services” from the new business class.

Businessman had to find a “reliable krysha under the leadership of an effective vor.”  Krysha literally means “roof” but is used to refer to protection agency; vor comes from vor-v-zakonye or “thief in law” which seems to mean criminal boss.  Some of these vory were leaders; some were figureheads.

Anatoly Chubais, economist

Anatoly Chubais, economist

At the start of 1992, Boris Yeltsin and his team of economists, Yegor Gaidar and Anatoly Chubais, freed nearly all prices that had been set by the central government for the previous 70 years.  Those prices that were not liberalized included oil, gas, diamonds, and metals. “A new class of traders could still buy these commodities at the old Soviet-subsidized price, often as much as 40 times cheaper than the world market value.  This was a license to print money.”  Many of these traders became the oligarchs that we now know of today.

Vladimir Gusinsky, oligarch

Vladimir Gusinsky, oligarch

“As the IMF shoveled billions into Russia to stabilize the economy and prop up the ruble, the oligarchs sent even larger sums to obscure banks in every corner of the world, from Switzerland to the Pacific island of Nairu, to be swallowed almost immediately in bafflingly complex money-laundering schemes.”

According to Glenny, from 1991 to 1996, Russia lacked the ability to police the state and enforce the rule of law.  The Communist bureaucrats who had administered the country could not understand nor install mechanisms to police the new capitalists.  “… there were no hard and fast definitions of organized crime, money laundering, or extortion, and by implication, all commercial transactions were illegal and legal at the same time. This applied as much to drugs and women as it did to cars, cigarettes, and oil.”

Mikhail Khodorkovsky, former oligarch

Mikhail Khodorkovsky, former oligarch

During the 1990s, oligarchs, bureaucrats, and organized crime conspired together to privatize state-owned enterprises into the hands of the private sector.  Oligarchs would bribe bureaucrats to approve or sell state property for low prices and hire krysha to provide protection from rival oligarchs.  “The richer the oligarch, the bigger and wealthier his protectors.”  While some disputes were resolved through meetings between krysha, many disputes were decided by assassinations, kidnappings, extortion — mob wars.

“By 1995, thousands of murders were being committed throughout Russia every year, especially in Moscow, St. Petersburg, Ekaterinburg… The cost of taking out a rival in 1997 was ‘$7,000 for a client without bodyguards and up to $15,000 for one with bodyguards.'”

According to Glenny, the Russian krysha differed from the classic mob families in Sicily, New York, and Chicago in three ways:

  1. The Russian mafia was integral to the country’s transition from socialism to capitalism because they provided order in absence of rule of law.
  2. Members of the krysha were not strictly bound by family loyalties.  The title of vor eventually went up for sale and a krysha could burnish its reputation by hiring especially ruthless members, namely the Chechen mafia.  “So the Russian mafia as it developed was not guided by family loyalties but solely by transactions.  How much? Who for? What’s in it for me? This meant that they were unpredictable, fluid, and dangerous.”
  3. “…in contrast to the five families of America’s Cosa Nostra, there were thousands of these organizations in Russia.”  Glenny explains, “by 1999, there were more than 11,500 registered ‘private security firms’ employing more than 800,000 people.  Of these almost 200,000 had licenses to carry arms.”

Glenny cites the Solnstevo Brotherhood, the Chechen mafia, Ismailovskaya, and Lyubertsy as major gangs.

The Solnstevo Brotherhood expanded its reach from protection first by entering the lucrative trade of importing (stolen) cars, then bars, hotel, and supermarkets.  Since it controlled vast swaths of land around Moscow, the Solnstevo Brotherhood also held sway over three railroad stations and ports.  In 1992, the organization set up its own bank to make “easy money handling government transactions, borrowing state funds at low interest rates then buying high-yield, short-term government bonds [sometimes in excess of 200 percent], making super profits.”

As organized crime expanded their influence into business, the overlap between organized crime and the business of the oligarchs increased.

My fascination with the Russian mafia stems from a desire to understand how that part of the world works.  In the US, corporations and the mafia seem distinctly separate.  The influence of Fortune 500 companies extends well beyond US shores; the capital markets and large corporations’ ties to Washington ensures that they do not need any help from the American mafia in dominating the world.

Until I read McMafia, I did not understand how closely related organized crime and “legitimate” business could be.  More importantly, I think this books informs us that there is a whole group of people who rose to power during a period of lawlessness. Their methods of communications and resolving disputes must be very foreign to American methods.

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