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Bill Tupman University of Exeter The Underground Economy in Russia 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 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 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] 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 Four centres of criminality • • • • Vory v zakone [historical criminals] former nomenklatura ethnic groups geographical and functional groups 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 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. 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 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” 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 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 The Big 7 FIGs • • • • • • • Alfa Inkombank LogoVAZ Menatep Most Oneximbank SBS-Agro • • • • • • Customs accounts Customs,China,Mosco Berezovsky Russian govt Moscow Finance min,Customs 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 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 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 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