Russian Mafia Essay, Research Paper

“The Russian mafia dominates economic life in Russia, . . . exerting control over key economic sectors.” This is the situation that Russia is currently facing, according to a 1998 study on crime done by the Federal Bureau of Investigation. It is no secret that Russia is in an economic crisis, but the source is not widely known. Many experts have pinpointed the source of the depression to organized crime groups. Emilio Viano, professor of Criminology at American University has said that “These groups are taking advantage of the political uncertainty in Russia, and are using it to their advantage. They see the transition from communism to capitalism as a chance to make some money, and this is having a negative effect on their economy.” There is no doubt that the main source of the depression is coming from the Russian mafia, and they are having a crippling effect on the economy. The crime groups do many things to restrain the economy, but the main items are laundering funds to avoid paying taxes, demanding protection money from small start-up privately owned businesses, and using bribery and coercion to obtain favorable government contracts and tax exemptions.

A main source of income for the government is through taxation. In Canada alone, almost 65 percent of the operating income comes from tax revenue. In turn, this money is then placed back into the economy through social spending programs such as healthcare, welfare, and education. In Russia, a great deal of this valuable capital is lost through illegal money laundering.

These organized crime groups in use the banks to launder money and avoid paying taxes desperately needed by the government. An estimated 550 Russian banks – about half of the nation’s credit and financial organizations – are now controlled by organized crime groups. The Russian mafia uses the control over these institutions, and then extends it to offshore banks in Cyprus and Antigua to launder the money. In 1998, five Russian-owned banks opened branches on the Caribbean island of Aruba. From these locations they electronically launder large amounts of cash around the world. It has been noted by the FBI that this form of transitional banking has been accompanied by a high level of violence directed against senior banking officials in Russia.

The purpose of the laundering is to avoid paying taxes, taxes which are needed to help the country overcome a depression. Without revenue from taxation, the government is struggling to pay the salaries of government workers, or pay of the high debts that they owe to other countries. The loss in tax revenue also means that the government is unable to provide for the people of Russia. They cannot spend money on healthcare, welfare, or education for the citizens of Russia. As a direct result in the loss of social spending, almost half the population is either living in poverty, disease, or other unacceptable conditions. All of these conditions stem from the money laundering done by the mafia, which is a reason why the economy in Russia is suffering.

The Russian mafia is notorious for its use of bribery and coercion to obtain favorable government contracts and tax exemptions. This is where the concept of corruption comes into play. Charges of corrupt behavior on the part of governmental officials have been routine, even for officials at the highest levels, and evidence suggests that police corruption is pandemic. It should also be noted that in many instances, corruption and organized crime are intimately related, often in a complementary fashion. Corrupt officials can ensure that the state does not interfere with mafia organizations (or that the state does interfere with a rival to a favored mafia group, or a reluctant client of that group), and they can channel state procurement towards mafia clients. The mafia uses a portion of its revenue to donate to the election campaigns of corrupt officials, or to illegally undermine the integrity of balloting. This is known as bribery and coercion.

By establishing a long-term, repeated relationship with the government, organized criminal groups can combine with corrupt officials to find the best ways to manipulate the system to their mutual benefit. In some respects, however, the state and the mafia are substitutes, and even competitors. Known connections with high-ranking government officials can provide a business with disproportional access to public protection, such as access to police services and the court systems.

This illicit use of money to bribe government officials at all levels is causing a damaging effect on the Russian economy. If a member of a parliament is persuaded to introduce legislation that is only favorable to the organized crime groups, then the entire nation will suffer. The best interests of the people are not being looked after. Instead of making laws that will help the economy become more stable, they will do the reverse, and cause severe instability. Therefore, the entire function of the parliament and their representatives becomes obsolete. If bribery and coercion caused by organized crime can be eliminated, then the Russian economy will be improved.

Organized criminal groups make the majority of their money through racketeering and demanding protection money from small start-up privately owned businesses. The mafia uses their physical presence to demand payments from business. They provide services that increase their clients’ profits, such as contract enforcement, debt collection, and dispute resolution, but for the most part, the protection is mainly from the mafia itself. If a protection payment is not received, then the mafia will likely just walk in and take over the business, or even in some cases, destroy it. The protection concept almost never reaches the extreme, because businesses are just too scared not to submit. For many, if not most Russian businesses, security represents a normal business expense. Organized crime has become an accepted way of life in the business community.

The protection money not only has an effect on domestic businesses, it also reaches companies with foreign investments. Foreign companies that are looking to build inside Russia are not willing to pay the required protection fee, because they are not accustomed to it. Many foreign ventures inside Russia have failed because the mafia has put them out of business when they refuse to pay the protection fees. The businesses have to weigh both sides of the argument, wether to make the payments and break even with the profits, or keep all the profits and risk losing all of it. Although investors have everything to gain, they also have everything to lose. The main worry for investing companies is the lack of legal structure to protect their investments. If a company decides not to invest, then the economy will lose a likely valuable business, and therefore end up suffering as a result.

Considering all the factors, it is no surprise that the Russian economy is in such a mess. The cause of the current depression in Russia is certainly caused by the presence of organized criminal groups. Through their use of laundering funds to avoid paying taxes, demanding protection money from small start-up privately owned businesses, and using bribery and coercion to obtain favorable government contracts and tax exemptions they are crippling the entire economy, and preventing its growth.