The familiar nexus between an economic downturn, social and economic upheaval, and an increase in crime has acquired an intriguing twist in Russia. A close look at it may even offer some insight on the country’s current politics.
Russia in 2009 was one of the countries worst hit by the global financial crisis. The economy shrank by around 8%. The contemporaneous trends for crime, according to official statistics, show a mixed picture: overall crime actually decreased by 6.7% year-on-year, though economic crime increased almost eight-fold. A report from the interior-ministry’s investigative committee found that 429,000 economic crimes had been uncovered, 172,800 of which were deemed especially serious; exposed instances of bribery rose by 13%; and the cost of economic crime was accounted at an astounding $33 billion.
Indeed, an independent study by the auditing company PriceWaterhouseCoopers concludes that Russia is the world leader in economic crime (a category that includes misappropriation, fraudulent accounting, corruption, money-laundering, tax-fraud, price-fixing and cartelisation). As many as 71% of Russian companies have experienced some form of economic crime at their firm, an increase of 12% on the previous (2007) survey - compared to the average of 30% of firms globally which reportedly experienced economic crime (see Economic crime in a downturn: the 5th Global economic crime survey, PwC, 2009).
The criminal markeplace
Where does organised crime fit into this picture? When the economic crisis hit, the Russian media voiced fears of a return to the “mob wars” of the bloody 1990s. This has not happened: of the total of 2.47 million crimes committed in Russia in 2009, only 31,600 (according to the interior ministry) were connected to organised-crime groups.
True, some high-profile incidents have taken place. In late July 2009, one of Russia’s most notorious mobsters - Vychaslav Ivan’kov, known as Yaponchik - was shot in Moscow, and later died in hospital of his injuries. Yaponchik had reportedly been arbitrating between two Georgian gangs headed by Tariel Oniani and Aslan Usoyan, and in the process alienated Oniani - who had allegedly sought payback.
A further assassination attempt in September 2010 that left Usoyan hospitalised (while Oniani, his rival, was in jail) suggests that this conflict at least may be simmering. Yet in a parlous economic environment, where moreover the government department devoted to the fight against organised crime was disbanded in September 2008, it is striking that the notorious mafiya have not become more visibly active.
There is a paradox here, which can be expressed in market terms. In principle, an economic downturn increases the “demand” for organised criminal groups able to “sell” protection and arbitration. At a time of economic pressure, businesses have an incentive to seek alternative credit-flows, to default on debt, engage in the bribery of officials, and price-fix with competitors. These actions create openings for violent protection-rackets, the infamous krysha (roof) whereby groups provide loans, collect debts, pressure officials, and enforce agreements made amongst cartel members. In addition, criminals with legitimate business interests get squeezed during tough economic times, and this incentivises them to return to more traditional racketeering activities.
There is also in Russia a ready supply of experienced and skilled people with the capacity to meet a demand for these services - all the more since 2005, when their numbers were swelled by the arrival of many vory-v-zakone (thieves-in-law) from Georgia - that is, criminal “authorities” fleeing draconian laws against organised crime introduced by Mikheil Saakashvili’s government after the “rose revolution” (see "Georgia's mafia: the politics of survival", 20 August 2010).
The fact that this crisis has not been followed by a rise in organised crime indicates that the “wild” Russia of the 1990s, apparent at the time of the rouble crash in 1998, has been overtaken. Today, such organised-crime groups that exist are are now either awed or co-opted by the power of the state. Any incentive to move back into racketeering and conduct turf-wars is offset by an aversion to upsetting the authorities. This provides a key to the question of who is meeting the demand for protection in a difficult economic environment.
The security archipelago
The place to look for an answer is Russia’s burgeoning security sector. The Russian legal expert Vladimir Pastukhov estimates that if all those working in the militsia (police), the federal security service (FSB) and intelligence services, the military, border-and-customs control, and private security are included, the numbers working in this sector may amount to 10 million. These forces have, over the last decade, regained the state’s monopoly on violence from the organised-crime gangs of the 1990s. The law professor Yakov Glinsky paraphrased a police respondent who told him: “Who is protecting stalls and businesses? The police….Today, all small retail businesses - small and mid-size businesses - are controlled by the police” (see "On the State of Organized Crime in Russia", RFE/RL, 14 October 2010).
Perhaps this helps explain why 2009 was a year more of police scandals and outrages than of renewed mob wars. A shocking case involved the death of Sergei Magnitsky in police custody in November 2009; he was a lawyer with Hermitage Capital, an investment fund that accuses Russian law-enforcement officials and the courts of complicity in a massive tax fraud initially conducted via a hostile takeover of Hermitage companies by convicted criminals. The police also engaged in extortion and raiderstvo (corporate raiding), whereby legitimate business owners are forced to transfer ownership of their businesses on the basis of falsified documents and legal and physical threats.
At the same time, efforts are underway more closely to scrutinise the militsia, and presidential decrees have been issued to reform its structures, reduce its numbers, and raise salaries. In 2010, top police commissioners have lost their jobs, and substantial changes to the 1991 law on the police are passing through parliament. The department for economic crime will be streamlined, and take on the work of the department for tax crime (which will be eliminated). The interior minister (currently Rashid Nurgaliyev) is to be deprived of the right to appoint the head of internal investigations into the ministry. Moreover, both Vladimir Putin (the prime minister) and Dmitry Medvedev (the president) have been vocal on the need for new laws to prevent raiderstvo.
The political satellite
These changes can be explained in economic terms: namely, that they were born in panicky times of economic turmoil, and fast-tracked in order to curb an overgrown police force that had ousted the traditional mafiyas and were engaging in and facilitating massive economic crime at a cost the country could no longer afford.
But if the economic crisis was a catalyst for the reforms, there may also be a political dimension - even if it is unclear what they signal in terms of Russia’s power politics. They could be an attempt by Dmitry Medvedev to bring the power-structures under control before the next presidential election in 2012, or just more superficial adjustments vetted by the siloviki and those close to Vladimir Putin to assuage popular feelings of mistrust towards the police.
The police reforms are a step in the right direction, though conflicting interests and ideologies amongst Russia’s political elite mean they will be limited and compromised. This is likely to ensure that the next time an economic crisis hits Russia, the likely result will be a new wave of economic crime and related increases in corruption and predation by law-enforcement officials.