The Russian Mafia has historically played a significant role in the Russian economy. Today’s mafiosi are descendants of highwaymen and Cossack robbers from the seventeenth century who would often kill families beforehand to avoid capture during raids. The Russian mob consciously kept their distance from the government, and were even rejected upon returning home from their service in the Great Patriotic War. These gangs gradually gained control over various markets, including car sales, spare parts, cigarettes, food distribution, and others that the Communist Party failed to regulate during the Bolshevik era (Remnick196).
Since the fall of Communism and the rise of Capitalism, the Russian people have faced numerous challenges. There are over 3,000 gangs commonly referred to as the Russian Mafia, which have hindered the reform process significantly (Goldman 58). This new Russian Mafia has engaged in various criminal activities such as drug trafficking, money laundering, and protectionism, which has permeated all aspects of society. During the Soviet Union era, regulations were strict and implemented externally. However, with the disappearance of external regulators, the Russian Mafia has gained immense power and influence, especially due to the rapid privatization without legal safeguards. The impact of the Russian Mafia on the Russian economy can be seen through different lenses: academia, the United States Press, and the Russian Press.
Protectionism, a favored activity of the Russian Mafia, involves ensuring a share of profits when a new private business opens. The mafia offers protection to the new operation and resorts to violence or property damage if protection is refused (Gustatson 105). Most entrepreneurs opt for purchasing this protection, resulting in unofficial taxes being paid to crime groups by the new company. Consequently, almost all new businesses become affiliated with the mafia. Gustatson estimates that these payments amount to approximately twenty percent of the profit (105). This additional taxation, coupled with government-imposed taxes, forces many companies to resort to tax evasion or concealing their true value, ultimately forfeiting any minimal protection offered by the authorities.
The mafia offers a percentage of the income but in return provides effective security, protecting against unaffiliated criminals and rival gangs. Their presence ensures the safety of property. If entrepreneurs encounter another organization, they only need to call upon their own mafia group. The dispute will be resolved between the two gangs (Gustatson 105). This security is a valuable asset that the State appears to be incapable of providing. The Russian Mafia possesses more manpower and weapons compared to the Russian law enforcement. The police force is plagued with corruption, just like much of the Russian government. Both army officers and law enforcers are desperate for money and willing to sell weapons such as guns, grenades, and rocket launchers (Remnick 109). The Russian Mafia easily acquires weapons to carry out their protective duties, while the authorities lack the necessary resources and personnel.
A few days before the dissolution of the Soviet Union, the biggest Russian Mafia leaders gathered at a dacha near Moscow. They met with the three main Italian crime organizations from Sicily, Naples, and Calabria. Despite recognizing the upcoming turmoil, the Vori v Zakonye or thieves in the law found potential in this disintegration. The leaders came together to discuss activities such as selling nuclear materials and laundering drug money (108). They intended to leverage their influence to gain bureaucratic power, and in preparation for the collapse, they transformed into private businessmen, working as consultants and rainmakers (197). Through their new roles as Consultants and Rainmakers, they sought to establish their authority by offering protection.
Academia suggests that protectionism is greatly impacting the Russian economy, leading to severe inflation in an already weak economy. The excessive 20% of gross earnings extracted as protection fees from businesses causes a substantial increase in prices for goods and services consumed by Russians each month. Ultimately, it is the Russian consumers who bear the burden of these protection costs (Goldman 58). In 1996, around 80% of private businesses regularly made payments to mafia organizations for protection, with a significant portion of this money ending up abroad (Gustatsun 104). Consequently, the underground economy is draining a considerable amount of wealth out of Russia. Given the vast sums controlled by the Russian Mafia, it is not surprising that they were able to bribe numerous government officials.
Scholars tend to approach things objectively. However, the Russian Mafia requires a portion of the profits, yet offers a service that the authorities are unable to provide. As a result, this is significantly impacting the overall economy, leading to extensive inflation and further weakening the already struggling economy. Consequently, this has resulted in a surge of nationalism and separatism within Russia.
The press in the United States acknowledges that the Russian mafia once held a specific position in society, growing through the trade of smuggled or stolen goods. It provided Soviet consumers with products that the State could not offer, including both legal and illegal items. This role persisted for many years during Soviet rule, with the mafia expanding and enhancing its business during market reforms. Its close connection to consumer demand allowed it to thrive (Tanner C2). The activities of mafiosi have had severe consequences for Russia, with gangs posing a significant threat to the nation’s economy. Bombings, contract killings, and robberies are frequent occurrences. Russia differs greatly from the early developing economy of the United States, where robber barons were known for their ruthless tactics in amassing wealth and preventing others from doing the same. In contrast, Russian wealth is obtained and maintained through violence, theft, and manipulation. Many Russians have come to view this distorted form of mafia control as the norm for a free-enterprise system. This belief is further reinforced when they witness Western businesspeople and investors remaining silent and complying with paying protection money (Washington Post C2).
According to the Puget Sound Business Journal, the Russian mafia offers a negotiating experience in Russia that is similar to Western standards, unlike the slow and divided government. Unlike the Russian government, the mafia is organized and provides assistance (18). They have a systematic approach to collect “taxes” from businesses they protect, using force as a means of control. The Atlanta Journal and Constitution shared an incident about protectionism involving a small grocery store in Moscow called Vso Dlyah Vas or everything for you. This store was one of many new establishments emerging in Russia. Although the store’s front windows were broken, nothing was stolen. Shortly after, the store closed and the owners left town (1B). Their failure to pay the appropriate individuals led to mobsters vandalizing private businesses as a consequence of noncompliance with their protectionism demands.
Democracy in Russia has created a disorderly environment where profiteering is widespread, causing extensive poverty and despair. The term “Krisha” in Russian signifies protection money, emphasizing the prevalence of corruption. Approximately 75% of businesses in Moscow are believed to allocate part of their earnings to organized crime syndicates. Surprisingly, these groups have a greater success rate in collecting these payments compared to the Russian government itself (Washington Post C2).
This infiltration of the economy has resulted in severe consequences with an indeterminate amount of money being involved. However, it is estimated that between 50 to 100 billion of state and communist currency and gold have been privately appropriated and transferred out of the country (C2). This is in addition to the significant inflation caused partially by protectionism. In 1992, prices increased by twenty-six percent, while in 1995, the monthly inflation rate reached eighteen percent. Consequently, salary adjustments lagged far behind the continuous spike in prices.
Changes are occurring in Russia as companies are starting to establish their own security forces. They are seeking protection from the mob and their extortion schemes by employing armed guards, a relatively affordable measure in Russia. Additionally, numerous companies are implementing closed-circuit television and closely monitoring visitors, even going as far as photocopying identification documents for future use (Economist 60). Consequently, this is progressively making it difficult for the most basic type of Russian criminal to target reputable businesses. Ultimately, protectionism may be gradually subsiding.
According to the Russian media, 52% of the population believes that the country is being run by the mafia. Additionally, the majority of people think that the wealthy in Russia accumulated their wealth through corrupt practices like stealing, plundering, or bribery (Fifty-two Percent Believe 11). However, Sergei Stepashin, the Russian Internal Affairs minister, dismissed the idea of a Russian Mafia during a speech at a European Union meeting. He argued that fear of the Russian Mafia is based on a lack of understanding about current processes in the country (Sukhova 20). Stepashin also dispelled the myth surrounding the existence of a Russian mafia and denied that protectionism is actually taking place.
The Russian mafia exerts control over virtually all sectors of the Russian market. They dictate the ability to establish, operate, or cease operations of businesses. Often, these decisions are influenced by who is compensating them for security services. According to reports, the majority of Russians feel directly or indirectly intimidated or extorted by at least one of the factions within the Russian mafia. These syndicates seem to fill a void in organizing business affairs that is currently absent from government or professional circles. Whenever a business encounters issues related to labor or conflicts with another business, the owner simply contacts their mafia connection for a swift and discreet resolution. (Crime in Russia14). The Russian mafia permeates every aspect of Russian society and provides a set of rules for conducting business that is not yet established by the government or professional elite.
The mafia’s negative impact on the Russian economy includes causing inflation and discouraging foreign companies from investing. Particularly vulnerable to the mafia’s tactics are retail-level foreign investors, who may be forced to make payments for protection. As a result, various businesses have seen foreign owners expelled, such as a Canadian-owned wholesale electronic goods franchise, an Italian leather goods merchant, and an Estee Lauder shop (Washington Post C2).
Russia has taken measures to combat organized crime and protectionism. President Yeltsin has granted the police additional powers to address these issues. These powers allow for detaining organized crime suspects without cause for thirty days, conducting searches without warrants, and inspecting suspects’ finances. Furthermore, uncorroborated testimony is now admissible in court and witnesses who refuse to testify can face penalties (Fifty-two Percent 11). However, these measures have had limited success in curbing the growth of organized crime.
Despite the expansion of Russian organized crime beyond Russia’s borders, its growth has been facilitated by the new economic system. A significant portion of private business activity operates in a gray area between legality and illegality due to the incomplete adaptation of the legal system to privatization. The portrayal of the Russian economy by academia and press in both the United States and Russia is pessimistic. However, there is optimism for change as efforts are being made by the government and larger businesses to combat the mafia and impede its development. Many smaller companies are unable to make drastic changes but enterprises are establishing their own security measures and refusing protection payments. Although progress will not be immediate, Russia is gradually moving towards normalization.
The article titled “Biz in Russia” was published in the Puget Sound Business Journal on March 7, 1995, on page 18.
“Comrade Godfather; In Russia, the Mafia Takes Control of the Economy’s Dominant Positions.” The Washington Post, 12 Feb. 1995, C2.
“Crime in Russia.” Current Digest of the Post-Soviet Press on February 15, 1995, page 14.
According to the Current Digest of the Post-Soviet Press article from 8 Oct. 1997, over half of the population (52%) believes that the country is being controlled by organized crime, commonly referred to as the mafia. This information can be found on pages 58-60 of Minton Goldman’s book “Russia, The Eurasian Republics, and Central/Eastern Europe” published in 1999.
The book “Russia 2010: And What It Means For the World” was written by Gustatfson, Thane, and Daniel Yergin. Random House published it in New York in 1993, and it can be found on pages 105-106 of the book.
Holmes, Charles. “In Russia, Repression Gives Way to Corruption.” The Atlanta Journal and Constitution 7 Sept. 1997: B1.
Lloyd, John. “The Russian Devolution.” New York Times 15 Aug 1999: A8.
Remnick, David. Resurrection. New York: Random House, 1998. 108-110, 196-199.
The sources include Holmes’ article titled “In Russia, Repression Gives Way to Corruption” from The Atlanta Journal and Constitution on September 7th, 1997 (B1), Lloyd’s article called “The Russian Devolution” from the New York Times on August 15th, 1999 (A8), and Remnick’s book Resurrection published by Random House in New York in the year of 1998 (pages cited include:108-110 and196-199).
Sukhova, Suctlana. “Head of Russian Internal Affairs Ministry Believes The Russian Mafia is a Myth.” Current Digest of the Post-Soviet Press 9 Dec. 1998: 20.
Tanner, Adam. “Russia’s Notorious Mafia Spreads Tentacles of Crime Around the World.” Christian Science Monitor 11 Jan. 1995: C2.
“The Russian Mafia is a serious force in the business world.” (Economist, 4 July 1998, p. 60)