Russian Transnational Organised Crime – what is it?
Russian Transnational Organised Crime (TNOC) has many similarities with the late twentieth century model of the US Sicilian mafia (Cosa Nostra) and the Italian mafias. The Russian mafia, like the Italian and to some extent the US groups, has combined street level visible crime such as human trafficking and drug smuggling with less visible white collar crimes such as counterfeiting of goods, particularly cigarettes, and tax evasion on an industrial scale. While the boundaries between these types of crime are fluid, the fact that both are operated by criminal groups presents enormous challenges for international law enforcement agencies. The Russian mafia put organised crime on a business footing in a few short years. It took the US Sicilians decades.
'The Russian mafia put organised crime on a business footing in a few short years. It took the US Sicilians decades.'
What is more important for an understanding of the problem is the difference between these national organised crime structures. Unlike the USA in recent decades, although with some similarity to Italy even now, Russian organised crime enjoys significant levels of state protection — the leaked US diplomatic cables were certainly right about that. In Russia and other countries of the Former Soviet Union (FSU), it is not just a question of organised crime being big business. Big business is organised crime. And, given that no big business in Russia can operate without government approval (just ask the numerous exiles who left Russia in 2003 after the arrest of Mikhail Khodorkovsky) it follows that the state and organised crime are inextricably linked.
Where does it operate, and what does it do?
Organised crime is active just about everywhere, not only in former Soviet republics but in the rest of Europe, North America, the Middle East and, less publicised, in Africa, the Indian Ocean and South America. It is also increasingly developing links with China. Its two areas of operation, street level crime and white collar crime, are not always seen together, but any effective countermeasure strategy needs to take into account the fact that the presence of one level often means the presence of the other. Look for one thing, and you may well find something else as well.
In the United Kingdom and Western Europe in general, for example, the different levels of activity occur simultaneously. Street level crimes such as human trafficking (prostitution) and cigarette smuggling take place alongside high level money laundering, through corporate bank accounts, of the proceeds of crimes committed elsewhere. In Germany, Russian involvement in prostitution goes together with car theft; the stolen vehicles are then transported to countries outside the EU, often in concert with groups from EU states such as Bulgaria. In Spain and Portugal, street level robbery and credit card theft is seen alongside high level money laundering through property purchases, the operation of bars and night clubs and cocaine trafficking. What these very different crimes and criminals have in common is that the people behind them will usually socialise together, even if they don’t actually work together.
This is also partly true of the links between street level and high level crime. In the UK, say, street level cigarette smuggling is known to be linked at a social level with human trafficking. It is also linked, in a way that cash crimes such as human trafficking are not, with larger scale cigarette smuggling, which often involves complex bank transactions and collusion with corrupt companies and the staff of major producers.
In other words, Russian organised crime operates just about everywhere, and at several levels. That’s what makes it different.
Too difficult to confront?
Russian TNOC has other features which are less familiar to western law enforcement agencies operating in countries where the rule of law is paramount.
It has connections. There are close, almost seamless, links with the ‘deep state’ kleptocracy of government, parliament, civil service, law enforcement and business at all levels, as well as the military and, above all, the security services. As a result, Russian law enforcement structures offer international agencies only very limited cooperation. Where they deal with matters themselves, they only look at blatantly obvious offences, so major criminals usually receive only token punishment. The obvious example of the involvement of state institutions in serious crime inside Russia is the tragic case of Sergei Magnitsky. The forthcoming inquest into the death of Alexander Litvinenko will doubtless produce more evidence of state protection for criminal agents of the state carrying out serious crimes outside Russia.
'There are close, almost seamless, links with the ‘deep state’ kleptocracy of government, parliament, civil service, law enforcement and business at all levels, as well as the military and, above all, the security services.'
When dealing with Russian organised crime, the old maxim ‘follow the money’ can be extended to ‘and follow the ex soldiers’. The importance of identifying connections between military camaraderie groups has been stressed by Misha Glenny, a British journalist who specialises in global organised crime.
The Russian mafia does not just operate multinationally. It is multinational, though perhaps that isn’t always obvious. It makes maximum use of the dual or multiple nationality status many people are entitled to as a result of the breakup of the Soviet Union, and exploits differences in transliteration practices so that names in passports are often spelt differently. There are also well over a million former Soviet citizens living in Israel with citizenship there, free to travel to the EU and North America without visas (Israelis have visa free access to Russia as well). The mafia also makes extensive use of ethnic Russians holding EU passports (especially from Germany and the Baltic States) and with ethnically Baltic criminals. Odessa and Riga are, from the criminals’ point of view, Russian cities- and it is no coincidence that they were, and Odessa still is, favoured retirement locations for former military personnel. All this complicates the responses of law enforcement agencies in western countries, which often confuse ethnicity and nationality.
There are particularly close links between Russian and Israeli organised crime groups, and any evaluation of Russian and FSU countries’ TNOC must take into account the Israeli connections, especially at high levels. For geopolitical and national security reasons, Israel provides a safe haven for organised criminals from former Soviet republics. An obvious recent example is Michael Cherney, who gave evidence from Israel via video link in his English court case against fellow oligarch Oleg Deripaska regarding shareholdings in the aluminium producer Rusal.
'It makes maximum use of the dual or multiple nationality status many people are entitled to as a result of the breakup of the Soviet Union, and exploits differences in transliteration practices so that names in passports are often spelt differently.'
Michael Cherney is the subject of a European arrest warrant issued by Spain in relation to money laundering allegations, a scenario which highlights the common settings of alleged corporate criminality and street level crime: many of those arrested in the Vienna ‘Ostmafia’ case of March 2010, which was partly to do with burglaries and credit card theft, were based in Spain. Many of those involved in that case had military experience from Soviet times, and as such have given a major boost to Israeli military manpower, as well as providing links between arms producers and suppliers in both countries and in associated states - links that give a high level of protection from the attention of law enforcers both in their own countries and further afield. The connections persist despite the political window dressing of wanted persons fleeing to Israel, where they are free from the possibility of extradition to Russia.
Masters of all trades
The Russian mafia has many and varied skills to offer, more so than many organised crime groups, so they do not have to buy in much expertise and therefore their security is tighter. This range of know-how reflects the availability of physical force operatives from the ranks of former police and military groups, cyber criminals and counterfeiters through links with academia, and financial expertise from the business community, including banks themselves. Counter detection skills are also accessible, thanks to links with law enforcers and the security services. Plenty of other groups have some of these links, but few have so many. Any meaningful deterrence, detection and investigation strategies need to take account of these multiple capabilities, and ensure that anyone who needs to know about them is told.
Russian TNOC is able to deal in a lot of products simultaneously. It can play a key role in traditional street level crime such as drug trafficking and prostitution, thanks to its links with heroin trafficking from Afghanistan (veterans of the 1980s Afghan War play a prominent role here) and through arranging the supply of sex industry workers to western and southern Europe. Its almost indivisible links with the military / industrial/ security service complex mean that at street level it has access to arms, and at boardroom level it has the ability to supply them, making Russian TNOC a national security as well as public safety threat.
'The Russian mafia has many and varied skills to offer, more so than many organised crime groups, so they do not have to buy in much expertise and therefore their security is tighter.'
This also gives it enormous bargaining power through barter, for example when it supplies arms and ammunition to the FARC guerrillas and drugs traffickers in Colombia in return for shares in cocaine trafficking to Europe, with precious metals and diamonds used as barter mediums outside the banking system. These operations have been taking place with the full knowledge of law enforcement agencies in former Soviet states. Mexican authorities at the highest level are now increasingly concerned about recent Russian presences in Mexico, the other centre of the cocaine trafficking route. Where the weapons and military equipment flow, the technicians follow, and that provides legitimate cover for illegitimate traffic.
This access to both military equipment and to precious metals on a wide scale makes Russian transnational organised crime very distinctive. The UK is a key player in identifying its roles in such networks, as it is a very well informed centre of operations for private military companies. These companies will be aware of operations by Russian and other FSU personnel in their areas of work, and of the much lower corporate governance standards which apply. The UK is also a major base of international mining operations, and this provides opportunities for obtaining information about abuses in this sector, such as illegal or untaxed extraction from mines and the payment of bribes to politicians in source countries.
Russian TNOC is able to operate at several levels and through a range of supply chains. These capabilities increase its bargaining power with potential partners or rivals and provide greater protection from law enforcement measures, as thanks to their extensive ‘in-house’ capabilities they do not need to rely on outsiders. At street level they have a large supply of multinational enforcers.
'It supplies arms and ammunition to the FARC guerrillas and drugs traffickers in Colombia in return for shares in cocaine trafficking to Europe, with precious metals and diamonds used as barter mediums outside the banking system.'
At mid-level they have bank staff, accountants and lawyers who are in effect on their payroll, and at the highest levels they are able to deal as equals with business chiefs, civil servants and politicians. It is this high level capability in the international business field that differentiates the Russian mafia from other groups such as the Mexican drugs cartels, although newly established and growing links with the Mexicans suggest that the latter will soon expand their operations into the field of big business.
What should be done about it?
The measures which need to be taken to combat Russian transnational organised crime are essentially the same as those required for other transnational criminal groups, but they have to operate on a much larger scale.
Action needs to be coordinated. Subject to the need for operational security, there should be maximum cooperation and simultaneous exchange of information between law enforcement agencies on both a national and international basis.
Banks and other financial institutions need to increase and improve ongoing liaison with their regulators and with government, particularly the UK’s Revenue and Customs agency, in order to improve reporting and, crucially, financial transaction analysis, which should identify and analyse trends and their potential implications, rather than simply reporting individual transactions.
'UK financial institutions are disadvantaged by the sheer scale and geographic spread of transactions conducted, to, from or through London, and by the protection that such volume offers to unscrupulous intermediaries.'
Profiling systems need to be developed for identification of specific risks connected with individual banks, countries or industries. This point is especially important; the transactions themselves will often not register as especially suspicious as they will tend not to involve large sums of cash and will be part of a long chain of transactions. Russian TNOC is especially adept at disguising movements in this way, and UK financial institutions are disadvantaged by the sheer scale and geographic spread of transactions conducted, to, from or through London, and by the protection that such volume offers to unscrupulous intermediaries.
There needs to be a significant increase in awareness within financial institutions and law enforcement agencies of the complexities of nationality within Russian TNOC structures, and how this is exploited to maximise the use of EU residency status. Russian citizens living in Estonia can, for example, gain residency rights and visa free travel in the EU by purchasing an Estonian business. The intimate links of the Russian mafia with their surrogates in the Baltic States, Bulgaria, Greece and Cyprus and in Turkey, as well as in the FSU as a whole and in less western-influenced tax havens such as the UAE, Seychelles, Mauritius, Singapore and Hong Kong, need to be highlighted. Foreign and security affairs think tanks and good governance lobbyists have a key role to play in spreading such knowledge.
How can it be done?
Tackling Russian organised crime will require an enormous amount of cooperative effort over a considerable time. The key challenges are to improve the currently patchy awareness of the major risk indicators of the presence of Russian TNOC, how it operates and its international impact. Long experience with other criminal groups and types of crime suggests that once improvements begin, they can progress quickly. But greater efforts are needed in the Russian case because of the correspondingly greater skills, resources and protection they enjoy.
All European and North American countries are subjected, in varying degrees, to all levels of Russian TNOC, from street prostitution and cloning of credit cards at the ‘lower end’ to financial fraud at the ‘higher end’. They therefore have a common interest in tackling these challenges and have broadly similar capabilities to do so, provided the political will and subject awareness are properly used.
'Tackling Russian organised crime will require an enormous amount of cooperative effort over a considerable time.'
The incidence of particular crimes and other risks to society do, however, differ between countries, and the natural tendency of nation states’ law enforcement and regulatory agencies to concentrate on “their” challenges is a real deterrent to more effective cooperation. Academia, NGOs and the media all have a key role to play in encouraging law enforcers to share intelligence across borders, by raising the political profile of such cooperation.
The following real-world cases provide some examples of the links between various types and levels of crimes involving Russian TNOC, and highlight the direct and indirect role of the UK:
— The arrest of a pupil from an ex-Soviet country at a prominent girls’ private school for alleged money laundering offences. FSU elites have a noticeable presence throughout the UK education system
- — The widespread use of ‘UK based’ shell companies (existing only on paper) for the purposes of large scale tax evasion, typically in relation to industrial-scale smuggling of agricultural products from South America or electronic goods from the Far East into the former Soviet Union. The UK role in this crime is usually undetected or ignored as the UK is ‘only’ used to provide respectability (as it is seen, misleadingly, as a ‘clean’ country).
- — The use in a similar manner of UK shell companies to legitimise corporate structures engaged in arms trafficking taking place outside the UK. Since actual hands- on activity in the UK minimal, this attracts little attention from UK regulatory, tax and law enforcement bodies (graphically highlighted in a BBC Radio 4 File on Four programme of July 2010)
- — The use of UK corporate organisation agencies in setting up companies in tax havens, with the UK middlemen again being used to provide a cover of respectability to disguise the true beneficiary. In a recent case in Mauritius, Russians were identified as the true controllers. Mauritius has been identified by African revenue authorities as a preferred location of companies receiving large financial transfers from Politically Exposed Persons (PEPs) – senior officials of foreign governments positioned to benefit from public procurement contracts associated with natural resource exploitation
- The common features of these examples is that they illustrate the range of factors which must be understood unilaterally, bilaterally and multilaterally in order to begin to seriously tackle the challenges posed by Russian transnational organised crime.
Who should take the lead in tackling Russian TNOC? Just about everybody – law enforcement agencies, including regulators, banks and other financial institutions, and NGOs, all working seamlessly with academia and the media.
If “they” are all in it together, as they certainly are, then their adversaries must be too.
Nobody said it would be easy.