Scott O'Neal, Russian Organized Crime:
A Criminal Hydra, FBI Law Enforcement Bulletin, May 2000, pp. 1 - 5.
The breakup of the former Soviet Union in 1991 led to the precipitous introduction of capitalism and personal freedoms to the people of Russia and the 14 other newly independent states.
Unfortunately, this sweeping change for a society that had lived under authoritarian rule for 70 years has had some significant negative side effects. In particular, organized crime has proliferated in Russia and now has expanded far beyond the confines of the former Soviet borders.
Local, state, and federal criminal investigators-whether assigned to drug squads or property-, white-collar-, organized-, or violent-crime units-increasingly are encountering subjects with roots in the former Soviet Union. Russian organized crime presents unique challenges for law enforcement in the United States. Developing investigative strategies to disrupt and dismantle these criminal enterprises requires a familiarity with group structures and an understanding of the backgrounds of the individuals who form the organizations.
Russian Organized Crime Defined
Law enforcement agencies almost universally refer to crime groups consisting of members from the former Soviet states as Russian organized crime (ROC). Numerous ethnic groups-Russians, Georgians, Chechens, Ukrainians, Armenians, etc.-make up ROC. Crime groups have formed in various ethnic combinations for a variety of criminal purposes. Some groups remain ethnically exclusive, such as the Armenian groups in Los Angeles; most, particularly the large international enterprises, have multiethnic compositions.
Yet, beyond its general characteristics, ROC resists definition. Unlike the American La Cosa Nostra (LCN), the Italian Mafia, Chinese Triads, and other ethnically-oriented organized-crime groups, ROC does not fit into orderly models. Investigators cannot effectively adopt, in ROC cases, the model pyramid charts they routinely use to outline the leadership and rank and file of such groups as LCN families. In traditional organized-crime cases, identifying the leadership and chain of command of the target group contributes substantially to successful investigations and prosecutions. However, whereas traditional groups have permanent hierarchical structures and usually operate within specific geographical areas, ROC comprises amorphous gangs that act autonomously or have loose ties to regional, national, or international networks. Therefore, contrary to the media-promoted depiction of the "Russian Mafia" as a monolithic institution, ROC groups cannot be classified as distinct, centralized entities. Moreover, ROC generally lacks the traditional membership rules and codes of honor and respect that add intrigue to Mafia stories.
A distinguishing attribute of ROC relates to the members' common experience of having lived in a police state. In 1990, Russian economist Nikolai Shmelev wrote, "Apathy, indifference, pilfering, and a lack of respect for honest work have become rampant..." in the Soviet Union.' The government controlled and restricted the lives of the people, and for many families, basic subsistence depended on their ability to circumvent the massive bureaucracy. This experience, combined with the fact that many former Soviet citizens are well-educated, produced a unique population. Although most former Soviet immigrants had no criminal inclinations, those individuals predisposed to criminal activity were able to "hit the ground running" as criminal entrepreneurs in the United States. More so than the members of any other ethnically oriented organized-crime group, these criminals possess skills and moral principles that pose an exceptional threat to society, both in the United States and abroad.
ROC in Russia
Although little debate exists among observers-even in Russia-that the problem of organized crime in Russia has become large and broad, the actual size and scope of ROC there remains uncertain. Reports of the number, size, and activities of organized-crime groups vary greatly. Much of the information, whether from news agencies or official sources, is often speculative, anecdotal, conflicting, or a combination thereof Official Russian reports have estimated that 3,000 to 5,000 criminal groups exist in that country.3 Applying a narrower definition of organized crime, the FBI estimates that approximately 80 major organized criminal groups operate in Russia.
Notwithstanding the lack of a reliable assessment of its constitution, ROC unquestionably causes extensive harm in Russia. This damage results partly from traditional crimes, such as extortion, drug trafficking, gambling, prostitution, and fraud schemes. More threatening, ROC, in concert with corrupt government officials and businessmen, has been plundering Russia's assets and moving billions of dollars out of the country. This concerns law enforcement because many financial institutions and businesses throughout the world have become money-laundering centers for this stolen capital and other illicit profits.
The influence of ROC in Russia, for political and security reasons, significantly impacts the international community. However, the spread of ROC outside the borders of the former Soviet Union represents the main concern of law enforcement in many countries, including the United States.
ROC in the United States
Individuals who belong to ROC groups in the United States arrived among two recent waves of immigration. The first influx began in the 1970s near the end of the Cold War as a gesture of detente on the part of the Soviet Union. The second wave began in the early I 990s after the fall of the Iron Curtain, the collapse of the Soviet Union, and the opening of its borders.
During the 1970s and 1980s, the Soviet government allowed more than 100,000 refugees to migrate to America. Similar to other immigrant groups, the refugees settled first in New York City and other major metropolitan cities. A small number of criminals emerged from this first wave of 6migr6s. Dubbed "fraudsters" by law enforcement, these individuals operated independently or formed loose-knit criminal networks. Their predominant crimes included a variety of confidence and other whitecollar schemes, which originally targeted mostly their own immigrant communities. From this group emerged leaders who devised and coordinated complex, sophisticated white-collar fraud schemes.
In the first 6 years of the second wave (1991-1996), approximately 340,000 6migr6s from the former Soviet Union arrived in America.' In addition, tens of thousands of individuals entering with temporary visas remained illegally. Many "professional" criminals came to the United States in this second wave.
Career criminals more prone to violence and less sophisticated than fraudsters, the professionals often band into gangs. These gangs vary in their criminal activity and in the degree of their affiliation with other domestic and foreign-based organized groups. Their criminal acts include providing illicit services (prostitution, gambling, extortionate credit, etc.) and committing an assortment of violent and property crimes. Some of these groups operate on their own. Others have muscled in on the schemes of fraudsters. Some coordinate with foreign-based groups to launder illicit funds from overseas operations. Still others-larger, more established organizations-are involved in all of the above.
ROC Fraud Schemes
Some experts predict that white-collar crime will serve as the benchmark for ROC in the United States.' Though the larger, wellconnected and well-financed foreign-based ROC groups may represent the greatest potential threat for law enforcement, to date, domestic ROC groups have caused the most economic damage in the United States. White -collar fraud has caused most of that damage. The more sophisticated ROC fraud schemes include fuel scams, health care fraud, bank fraud, and stock market manipulation. In these and other schemes, ROC members have demonstrated an aptitude for circumventing or exploiting the bureaucracy, rules, and procedures of government agencies, financial institutions, insurance companies, and other businesses.
For example, fuel frauds have caused the loss of hundreds of millions of dollars in tax revenues in several states. By creating labyrinthine chains of "bum corporations"' and falsifying tax forms, ROC groups have deprived state and federal governments of substantial tax revenues. Other fuel frauds include blending fuel, rigging fuel pumps, and selling low-grade fuel as premium. The large profits derived from these schemes caught the attention of four of the five LCN families in New York City; to continue their operations, ROC groups paid a "mob tax" on every gallon of fuel sold in LCN-controlled areas.
Health care fraud represents the most costly crime in America, and ROC is taking its cut. ROC groups continue to innovate and perpetuate complex health care fraud schemes that defraud Medicare, Medicaid, and private insurance companies through false and inflated medical claims. ROC schemes, such as staged auto accidents and "rolling medical labs" (mobile labs that conduct unnecessary tests), often include in the conspiracies doctors, pharmacists, medical supply companies, and attorneys.
ROC also commits a variety of bank fraud schemes. In addition to standard schemes-such as check kiting, credit card fraud, and bankruptcy fraud-ROC has innovated new methods of bank fraud. For example, an Armenian ring in Los Angeles devised an automated teller machine (ATM) card fraud scheme that employed electronic surveillance equipment and computers. The subjects, who included bank and service station insiders and a computer expert formerly employed by a national research laboratory, used computer-operated decoding devices and hidden video cameras to steal the magnetic codes and personal identification numbers of thousands of cards.
In addition, ROC advanced the "pump and dump" stock fraud schemes for which LCN figures have received much of the attention. Russian fraudsters developed sophisticated schemes in which they disseminate false information to entice investors into buying a stock and to artificially inflate the value (the pump). Then, the fraudsters sell for a profit the shares they had purchased prior to the fraudulent promotion (the dump). LCN figures, sensing money as they did in the fuel tax scams, informed the Russians they would be working as "partners" in the schemes.
ROC Alliances
LCN members may contend that they made significant contributions in the fuel tax and stock schemes by providing protection and settling disputes. More accurately, they muscled in on ongoing, profitable schemes. Whatever the arrangement, LCN and ROC continue to cooperate in similar schemes, as well as in other crimes, such as trafficking in drugs and stolen cars.
ROC groups also have formed alliances with Colombian drug traffickers to import cocaine into Russia, possibly transshipping through the United States. The two groups have traded Colombian drugs for Russian weapons. Further, Colombian drug traffickers have acquired Soviet-designed military aircraft for their drug-running operations.
ROC Investigations
In the 1970s and 1980s, the crimes new Soviet emigres committed first appeared to be random acts. Investigators handled each crime reactively, case by case. As Russian crime groups organized, law enforcement investigations accordingly required more planning and resources. However, because the structures, affiliations, and methods of operation of ROC groups vary widely and, to some degree remain unknown, the resultant intelligence gaps inhibit the development of uniform investigative methods.
To disrupt ROC activity, law enforcement agencies must coordinate with one another, sharing information and conducting joint investigations. Many successful ROC investigations - such as those involving fuel tax, ATM, and other complex schemes-have included multiple agencies. Increased participation of local, state, federal, and foreign police agencies in the development of ROC profiles, joint investigations, and task forces remains fundamental. The 1996 conviction of Vyacheslav Ivankov, one of the most powerful Russian crime leaders to migrate to the United States, illustrates the effectiveness of international law enforcement cooperation. Along with five of his associates, Ivankov was charged with conspiracy for his attempt to extort $3.5 million from Wall Street brokers. The successful resolution of the investigation depended largely on information contributed by Russian law enforcement and the Royal Canadian Mounted Police.
In addition, investigators and prosecutors must use money laundering and asset forfeiture laws to attack ROC at its economic source. Focusing on the ROC's lifeblood, money laundering, can disrupt the expansion of these criminal enterprises.
Conclusion
The United States is a nation of immigrants, many arriving to seek their fortunes. While most took legitimate avenues, others followed less virtuous routes to economic success. Criminal entrepreneurs from the former Soviet Union, in particular, quickly established a reputation for the sophistication and range of their illicit operations.
Indeed, Russian organized crime groups have a level of knowledge and experience in working the system that sets them in a criminal class by themselves. As they become more acculturated, learning more about business and govemment systems in this country, the challenge they present to law enforcement will grow. Moreover, the lack of a distinct structure and the continuous change many groups undergo often make it impractical to employ traditional proactive investigative strategies to disrupt and dismantle these criminal enterprises. By combining efforts through communication, cooperation, and coordination-local, state, federal, and international law enforcement agencies can counter the threat posed by Russian organized crime.
Endnotes
1The FBI officially refers to these groups as Eurasian Criminal Enterprises.
2 Quoted in Hedrick Smith, "The Russian Character," The New York Times Magazine, October 28, 1990, 3 1.
3 William H. Webster, Russian Organized Ci,,, Center for Strategic and International studies, Global Organized Crime Project (Washington, DC, 1997), 24-26.
4 The FBI defines an organized-crime enterprise as a self-perpetuating, structured, and disciplined association of individuals or groups combined together for the purpose of obtaining monetary or commercial gains or profits wholly or in part by illegal means, while protecting their activities through a pattern of violence and corruption.
5 U.S. Bureau of the Census, Statistical Abstract of the United Statev: 1981, 102d ed. (Washington, DC, 1981), 87; and U.S, Bureau of the Census, Statistical Abstracts of the United States: 1998, 118th ed. (Washington, DC, 1998), 11.
6 Ibid., vol. 1998.
7 James 0. Finckenauer and Elm J. Waring, The Russian Mqfia in America: Immigration, Culture, and Crime (Boston, Northeastern University Press, 1998), 69.
8 Burn corporations are shell corporations created using fictitious names and addresses for the purpose of disrupting a paper (or electronic) trail that would identify the beneficiary of an illicit financial transaction.
A Criminal Hydra, FBI Law Enforcement Bulletin, May 2000, pp. 1 - 5.
The breakup of the former Soviet Union in 1991 led to the precipitous introduction of capitalism and personal freedoms to the people of Russia and the 14 other newly independent states.
The FBI Law Enforcement Bulletin staff invites you to communicate with us via e-mail. Our Internet address is leb@fbiacademy.edu.
Local, state, and federal criminal investigators-whether assigned to drug squads or property-, white-collar-, organized-, or violent-crime units-increasingly are encountering subjects with roots in the former Soviet Union. Russian organized crime presents unique challenges for law enforcement in the United States. Developing investigative strategies to disrupt and dismantle these criminal enterprises requires a familiarity with group structures and an understanding of the backgrounds of the individuals who form the organizations.
Russian Organized Crime Defined
Law enforcement agencies almost universally refer to crime groups consisting of members from the former Soviet states as Russian organized crime (ROC). Numerous ethnic groups-Russians, Georgians, Chechens, Ukrainians, Armenians, etc.-make up ROC. Crime groups have formed in various ethnic combinations for a variety of criminal purposes. Some groups remain ethnically exclusive, such as the Armenian groups in Los Angeles; most, particularly the large international enterprises, have multiethnic compositions.
Yet, beyond its general characteristics, ROC resists definition. Unlike the American La Cosa Nostra (LCN), the Italian Mafia, Chinese Triads, and other ethnically-oriented organized-crime groups, ROC does not fit into orderly models. Investigators cannot effectively adopt, in ROC cases, the model pyramid charts they routinely use to outline the leadership and rank and file of such groups as LCN families. In traditional organized-crime cases, identifying the leadership and chain of command of the target group contributes substantially to successful investigations and prosecutions. However, whereas traditional groups have permanent hierarchical structures and usually operate within specific geographical areas, ROC comprises amorphous gangs that act autonomously or have loose ties to regional, national, or international networks. Therefore, contrary to the media-promoted depiction of the "Russian Mafia" as a monolithic institution, ROC groups cannot be classified as distinct, centralized entities. Moreover, ROC generally lacks the traditional membership rules and codes of honor and respect that add intrigue to Mafia stories.
A distinguishing attribute of ROC relates to the members' common experience of having lived in a police state. In 1990, Russian economist Nikolai Shmelev wrote, "Apathy, indifference, pilfering, and a lack of respect for honest work have become rampant..." in the Soviet Union.' The government controlled and restricted the lives of the people, and for many families, basic subsistence depended on their ability to circumvent the massive bureaucracy. This experience, combined with the fact that many former Soviet citizens are well-educated, produced a unique population. Although most former Soviet immigrants had no criminal inclinations, those individuals predisposed to criminal activity were able to "hit the ground running" as criminal entrepreneurs in the United States. More so than the members of any other ethnically oriented organized-crime group, these criminals possess skills and moral principles that pose an exceptional threat to society, both in the United States and abroad.
ROC in Russia
Although little debate exists among observers-even in Russia-that the problem of organized crime in Russia has become large and broad, the actual size and scope of ROC there remains uncertain. Reports of the number, size, and activities of organized-crime groups vary greatly. Much of the information, whether from news agencies or official sources, is often speculative, anecdotal, conflicting, or a combination thereof Official Russian reports have estimated that 3,000 to 5,000 criminal groups exist in that country.3 Applying a narrower definition of organized crime, the FBI estimates that approximately 80 major organized criminal groups operate in Russia.
Notwithstanding the lack of a reliable assessment of its constitution, ROC unquestionably causes extensive harm in Russia. This damage results partly from traditional crimes, such as extortion, drug trafficking, gambling, prostitution, and fraud schemes. More threatening, ROC, in concert with corrupt government officials and businessmen, has been plundering Russia's assets and moving billions of dollars out of the country. This concerns law enforcement because many financial institutions and businesses throughout the world have become money-laundering centers for this stolen capital and other illicit profits.
The influence of ROC in Russia, for political and security reasons, significantly impacts the international community. However, the spread of ROC outside the borders of the former Soviet Union represents the main concern of law enforcement in many countries, including the United States.
ROC in the United States
Individuals who belong to ROC groups in the United States arrived among two recent waves of immigration. The first influx began in the 1970s near the end of the Cold War as a gesture of detente on the part of the Soviet Union. The second wave began in the early I 990s after the fall of the Iron Curtain, the collapse of the Soviet Union, and the opening of its borders.
During the 1970s and 1980s, the Soviet government allowed more than 100,000 refugees to migrate to America. Similar to other immigrant groups, the refugees settled first in New York City and other major metropolitan cities. A small number of criminals emerged from this first wave of 6migr6s. Dubbed "fraudsters" by law enforcement, these individuals operated independently or formed loose-knit criminal networks. Their predominant crimes included a variety of confidence and other whitecollar schemes, which originally targeted mostly their own immigrant communities. From this group emerged leaders who devised and coordinated complex, sophisticated white-collar fraud schemes.
In the first 6 years of the second wave (1991-1996), approximately 340,000 6migr6s from the former Soviet Union arrived in America.' In addition, tens of thousands of individuals entering with temporary visas remained illegally. Many "professional" criminals came to the United States in this second wave.
Career criminals more prone to violence and less sophisticated than fraudsters, the professionals often band into gangs. These gangs vary in their criminal activity and in the degree of their affiliation with other domestic and foreign-based organized groups. Their criminal acts include providing illicit services (prostitution, gambling, extortionate credit, etc.) and committing an assortment of violent and property crimes. Some of these groups operate on their own. Others have muscled in on the schemes of fraudsters. Some coordinate with foreign-based groups to launder illicit funds from overseas operations. Still others-larger, more established organizations-are involved in all of the above.
ROC Fraud Schemes
Some experts predict that white-collar crime will serve as the benchmark for ROC in the United States.' Though the larger, wellconnected and well-financed foreign-based ROC groups may represent the greatest potential threat for law enforcement, to date, domestic ROC groups have caused the most economic damage in the United States. White -collar fraud has caused most of that damage. The more sophisticated ROC fraud schemes include fuel scams, health care fraud, bank fraud, and stock market manipulation. In these and other schemes, ROC members have demonstrated an aptitude for circumventing or exploiting the bureaucracy, rules, and procedures of government agencies, financial institutions, insurance companies, and other businesses.
For example, fuel frauds have caused the loss of hundreds of millions of dollars in tax revenues in several states. By creating labyrinthine chains of "bum corporations"' and falsifying tax forms, ROC groups have deprived state and federal governments of substantial tax revenues. Other fuel frauds include blending fuel, rigging fuel pumps, and selling low-grade fuel as premium. The large profits derived from these schemes caught the attention of four of the five LCN families in New York City; to continue their operations, ROC groups paid a "mob tax" on every gallon of fuel sold in LCN-controlled areas.
Health care fraud represents the most costly crime in America, and ROC is taking its cut. ROC groups continue to innovate and perpetuate complex health care fraud schemes that defraud Medicare, Medicaid, and private insurance companies through false and inflated medical claims. ROC schemes, such as staged auto accidents and "rolling medical labs" (mobile labs that conduct unnecessary tests), often include in the conspiracies doctors, pharmacists, medical supply companies, and attorneys.
ROC also commits a variety of bank fraud schemes. In addition to standard schemes-such as check kiting, credit card fraud, and bankruptcy fraud-ROC has innovated new methods of bank fraud. For example, an Armenian ring in Los Angeles devised an automated teller machine (ATM) card fraud scheme that employed electronic surveillance equipment and computers. The subjects, who included bank and service station insiders and a computer expert formerly employed by a national research laboratory, used computer-operated decoding devices and hidden video cameras to steal the magnetic codes and personal identification numbers of thousands of cards.
In addition, ROC advanced the "pump and dump" stock fraud schemes for which LCN figures have received much of the attention. Russian fraudsters developed sophisticated schemes in which they disseminate false information to entice investors into buying a stock and to artificially inflate the value (the pump). Then, the fraudsters sell for a profit the shares they had purchased prior to the fraudulent promotion (the dump). LCN figures, sensing money as they did in the fuel tax scams, informed the Russians they would be working as "partners" in the schemes.
ROC Alliances
LCN members may contend that they made significant contributions in the fuel tax and stock schemes by providing protection and settling disputes. More accurately, they muscled in on ongoing, profitable schemes. Whatever the arrangement, LCN and ROC continue to cooperate in similar schemes, as well as in other crimes, such as trafficking in drugs and stolen cars.
ROC groups also have formed alliances with Colombian drug traffickers to import cocaine into Russia, possibly transshipping through the United States. The two groups have traded Colombian drugs for Russian weapons. Further, Colombian drug traffickers have acquired Soviet-designed military aircraft for their drug-running operations.
ROC Investigations
In the 1970s and 1980s, the crimes new Soviet emigres committed first appeared to be random acts. Investigators handled each crime reactively, case by case. As Russian crime groups organized, law enforcement investigations accordingly required more planning and resources. However, because the structures, affiliations, and methods of operation of ROC groups vary widely and, to some degree remain unknown, the resultant intelligence gaps inhibit the development of uniform investigative methods.
To disrupt ROC activity, law enforcement agencies must coordinate with one another, sharing information and conducting joint investigations. Many successful ROC investigations - such as those involving fuel tax, ATM, and other complex schemes-have included multiple agencies. Increased participation of local, state, federal, and foreign police agencies in the development of ROC profiles, joint investigations, and task forces remains fundamental. The 1996 conviction of Vyacheslav Ivankov, one of the most powerful Russian crime leaders to migrate to the United States, illustrates the effectiveness of international law enforcement cooperation. Along with five of his associates, Ivankov was charged with conspiracy for his attempt to extort $3.5 million from Wall Street brokers. The successful resolution of the investigation depended largely on information contributed by Russian law enforcement and the Royal Canadian Mounted Police.
In addition, investigators and prosecutors must use money laundering and asset forfeiture laws to attack ROC at its economic source. Focusing on the ROC's lifeblood, money laundering, can disrupt the expansion of these criminal enterprises.
Conclusion
The United States is a nation of immigrants, many arriving to seek their fortunes. While most took legitimate avenues, others followed less virtuous routes to economic success. Criminal entrepreneurs from the former Soviet Union, in particular, quickly established a reputation for the sophistication and range of their illicit operations.
Indeed, Russian organized crime groups have a level of knowledge and experience in working the system that sets them in a criminal class by themselves. As they become more acculturated, learning more about business and govemment systems in this country, the challenge they present to law enforcement will grow. Moreover, the lack of a distinct structure and the continuous change many groups undergo often make it impractical to employ traditional proactive investigative strategies to disrupt and dismantle these criminal enterprises. By combining efforts through communication, cooperation, and coordination-local, state, federal, and international law enforcement agencies can counter the threat posed by Russian organized crime.
Endnotes
1The FBI officially refers to these groups as Eurasian Criminal Enterprises.
2 Quoted in Hedrick Smith, "The Russian Character," The New York Times Magazine, October 28, 1990, 3 1.
3 William H. Webster, Russian Organized Ci,,, Center for Strategic and International studies, Global Organized Crime Project (Washington, DC, 1997), 24-26.
4 The FBI defines an organized-crime enterprise as a self-perpetuating, structured, and disciplined association of individuals or groups combined together for the purpose of obtaining monetary or commercial gains or profits wholly or in part by illegal means, while protecting their activities through a pattern of violence and corruption.
5 U.S. Bureau of the Census, Statistical Abstract of the United Statev: 1981, 102d ed. (Washington, DC, 1981), 87; and U.S, Bureau of the Census, Statistical Abstracts of the United States: 1998, 118th ed. (Washington, DC, 1998), 11.
6 Ibid., vol. 1998.
7 James 0. Finckenauer and Elm J. Waring, The Russian Mqfia in America: Immigration, Culture, and Crime (Boston, Northeastern University Press, 1998), 69.
8 Burn corporations are shell corporations created using fictitious names and addresses for the purpose of disrupting a paper (or electronic) trail that would identify the beneficiary of an illicit financial transaction.