By Lucy Komisar
Earth Times News Service, June 22, 1997

Will people one day talk about the looting of Russia the way they recently talked about the looting of Zaire?

Western leaders meet this weekend (June 20-22) in Denver at the G-8 Summit on economic policy. They have the chance to take the drastic action needed to combat the criminalization of the Russian economy which threatens not only Russia but their own countries as well.

The G-8, which includes the US, Canada, the UK, France, Germany, Italy, Japan and Russia, probably won’t do anything to deal with this problem, but it won’t be for lack of knowing about it.

A report in the latest World Bank newsletter, Transition, said that criminals have seized control of 40 percent of the Russian economy. The Moscow police chief recently said that every fourth businessman in Russia has ties to the underworld.

The West wanted a speedy privatization program. So, 70 percent of the Russian economy was duly been privatized, largely transferred to interests with big money or close ties to the former Communist Party elite, the military and the banks. The report, written by Louise Shelley, a law professor at American University in Washington, says that criminal interests dominate banking, financial markets and real estate. The Russian Interior Ministry says criminal gangs control more than half the country’s financial capital and a third of its turnover in goods and services.

The crooks run 40,000 businesses, including 1,500 state enterprises and 500 joint ventures. They illegally sell Russian natural resources such as oil, natural gas, and metals; they embezzle state property, including customs duties; they demand bribes. Criminals buy their own banks for a $5,000 license fee and now control 500 of them as well as 47 stock exchanges.

The Russian gangs make business unattractive for non-criminals. Like the Al Capones of America’s 1930s, they use gangland shootings and bombings to keep bankers and businessmen in line. The Interior Ministry said that 80 percent of private businesses and commercial banks are forced to pay extortionists or protection rackets.

And crooks use their money and power to get into other businesses–prostitution, arms sales, smuggling of alcohol, tobacco and drugs, fraud, motor vehicle theft.

Criminals don’t much care about building the economy; instead, they transfer abroad their companies’ assets, including money that should go to pay employees. Criminals also avoid paying taxes on their enterprises’ profits. Russia collects only 58 percent of taxes due. Tens of thousands of workers, including most teachers, are owed $9 billion in back wages and pensions. Some schools have had to close. Workers have held sit-ins, blocked roads, conducted hunger strikes, marched in the streets, and held officials hostage to back up their demands for pay. The government has just announced it will have to cut social welfare spending by 20 percent. The instability can only grow.

In true global style, the Russian criminals are making alliances with the Italian Mafia and the Colombian cartels to work out cooperation in drug trafficking, money laundering and other common interests.

And they invest in the West, in real estate, hotels and other operations often bought through offshore companies registered in countries that allow company owners to be kept secret. They also invest in Western crime. In the US, Russian crime groups are involved in health care, insurance and stock frauds, forgery, car theft, drug trafficking, extortion and murder.

There’s been about $6 billion in foreign investments in Russia since 1991–and some $2 billion a month capital flight, about 40 percent of that said to be by organized crime. Robert Strauss, US ambassador to Russia in 1991 and 92 and now chairman of the US-Russia Business Council, noting last year that Russian assets were being sold off by Russians, and the money moved out of Russia into offshore accounts for personal gain, not for Russian good, said that even an estimate of $200 billion in ill-gotten gains moved out of Russia to foreign banks was low–and that the illegal capital flight would continue.

Russian officials, who give every appearance of being either complicitous or egregiously incompetent in dealing with this theft, have the gall then to ask for foreign investment and aid from the West! The IMF granted Russia a $10 billion three-year loan while $20 billion left the country last year alone. That seems very similar to what happened in many developing countries where aid disappeared down a rat hole while crooked officials stashed their stolen cash in Western banks.

In fact, as in those cases, the West bears responsibility, too.

The Russian criminals launder their stolen money through banks and phony companies in the US and the West. They get help from the off-shore banking havens Strauss alluded to–institutions in Europe, the Caribbean and elsewhere that practice banking secrecy and launder illegal money, protected by bankers and governments who want the deposits, no matter what their origins. A Washington official told me the Russians particularly like Cyprus, the Caribbean, Vanuatu, the Cook Islands, Western Samoa, and Uruguay. They also favor the American state of Delaware, where, for a simple fee, companies can buy registrations without inquisitive controls. And then, there’s always Switzerland.

Now exporting crime instead of revolution, Russian criminals are now as much if not more of a security threat to the West than the Communists ever were. But just as banks in Switzerland (and probably elsewhere) were only too happy to receive Mobutu’s stolen wealth, so Western banks appear ready to help Russian criminals loot the new Russian state.