2. Bill Tupman University of Exeter The Underground Economy in Russia

3. 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

4. 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

5. 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]

6. 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

7. Four centres of criminality Vory v zakone [historical criminals] former nomenklatura ethnic groups geographical and functional groups

8. 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

9. 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.

10. 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

11. 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”

12. 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

13. Sources http://www.ex.ac.uk/politics/pol_data/under grad/Websites.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

14. The Big 7 FIGs Alfa Inkombank LogoVAZ Menatep Most Oneximbank SBS-Agro Customs accounts Customs,China,Mosco Berezovsky Russian govt Moscow Finance min,Customs

15. Money-laundering Why do it, if you’re a bank? Avoid taxes defraud overseas aid donors distorted idea of nature of capitalism don’t believe the playing field is level

16. 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

17. But does it matter? Chicago group would say “it’s 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

18. Problems Inhibiting growth of civil society Impoverishing Russians in public sector can’t have a market economy without a cash economy Rule of law a bad joke Undermining chance of democracy Increasing likelihood of return to authoritarianism