Russian Mafia Expands into New Areas, Using the US to Launder Dirty Money

THE Russian mafia is developing into a many-armed criminal enterprise that operates with surprising sophistication in world capitals tens of thousands of miles from the onion-domed spires of Moscow.

From the old outposts of the Soviet empire to the United States and Western Europe, Russian mafiosi are becoming more than a curious irritant to law-enforcement officials accustomed to more traditional forms of organized crime. Germany is a ``magnet'' for Russian gangs, according to authorities in Bonn; in the Czech Republic, mafiosi are alleged to dominate Prague's taxis.

Russians apparently control large sections of the prostitution business in Romania. Increasingly, Russian organized criminals are laundering their ill-gotten receipts through financial institutions and dummy corporations in the US, according to law-enforcement officials.

``A lot of money is coming in from overseas and being pushed through United States banks,'' says Raymond Kerr, head of special squad set up in New York City by the Federal Bureau of Investigation last year to investigate Russian organized crime. ``They run it through various banks and businesses here, and then send it back over there, and it comes back ... [looking like] legitimate money.''

The FBI has seen tens of millions of dollars in specific transfers sent to the US and then repatriated to Russia, Mr. Kerr says. Yet because the money launderers are so successful in evading detection, US law-enforcement officials acknowledge they have no realistic estimate of the total involved.

Criminals from all over the world have long used the US financial system to transform illegally earned proceeds into ``clean'' money. But experts say the former Soviet Union's white-collar criminals are far more sophisticated in their approaches to financial sleight-of-hand than, say, a typical South or Central American drug dealer.

Formally schooled in the way of Marx and Lenin, Russian mafiosi picked up their street smarts in the USSR's economy of scarcity, where breaking of rules was often necessary for survival. These ``criminals have had a long history and training in engaging in fraudulent activities,'' says Ronald Goldstock, director of New York State's Organized Crime Task Force, in White Plains.

According to an estimate made public last year by FBI Director Louis Freeh, at least 100,000 Russians are now members of Mafia-style organized criminal gangs. Some of them are thought to have ties to Colombian drug cartels and the Sicilian Mafia. Their reach is such that the FBI opened the agency's first office in Moscow last fall, in an effort to coordinate defensive strategy with Russian law-enforcement counterparts.

Russia is still the country that suffers the most from mafiosi activities. To hard-pressed Russian citizens it sometimes seems that gangs are threatening to take over the nation's economy even as it struggles to rebuild itself. Bombings, contract killings, and gangland-style daylight robberies are common occurrences in Moscow, where the average monthly salary is equal to what one gang member can spend at restaurants in a single day.

Yeltsin takes action

Last June, Russian President Boris Yeltsin granted his police - who are perceived as largely corrupt by the public - sweeping powers to deal with the massive problem. Thanks to the decree, Russian police can now detain organized crime suspects for 30 days without cause, search offices and homes without a warrant, and examine the finances of suspects and their relatives. Uncorroborated testimony is allowed in court, and witnesses who refuse to testify can be punished.

These expanded police powers have been widely criticized by human rights activists. Ironically, they appear to have done little to stem organized crime's growth. Estimates of the amount of capital siphoned abroad from Russia continue to be staggering, and the mafiosi's BMWs and Mercedes continue to choke the streets alongside clunky domestically produced Zhiguli and Niva cars.

President Yeltsin has increasingly placed the blame for the burgeoning mafia on people from the country's Caucasus region, particularly the breakaway territory of Chechnya. He has attempted to justify his disastrous attempt to pacify the region by saying that the Chechen people pose a ``security threat'' to Russia, via involvement in terrorism, hijackings, and counterfeiting.

Russian gangs are also well-represented in the environs of the former Soviet empire and neighbor nations. Organized criminal activity from Poland to Bulgaria can often be traced to mafiosi or their allies.

Controlling Russian gangs in Central Europe is next to impossible, given that law enforcement authorities can, in many cases, be bought. The economic hardship brought on by the transition from communism to market economics has made it easier for organized criminals to bribe their way out of just about any situation.

Russian criminals may have even managed to profit from the chaos brought on by the Balkans war. For one thing, they are thought to be a prime source of the women who work as prostitutes in the former Yugoslavia. ``The brothels in Zagreb and Belgrade are filled with women from the former Soviet Union,'' says a UN official familiar with Russia. ``There are lots of Moldavians and Ukrainians.''

Germany, however, may be the Russian mafia's true home-away-from-home. Straddling the divide between the struggling East and prosperous West, Germany has become a magnet for Russian gangs, authorities say. Eastern Germany, especially Berlin, has become a major Russian mafiosi base of operations.

Several factors made Germany attractive for the Russian mafia. First, the former Soviet Union, followed by Russia, maintained a military garrison in eastern Germany from the end of World War II until August 1994. The military's presence presented Russian gangs with unique opportunities to engage in arms smuggling and other activities. And even though the Russian army has now departed, the mafia has had enough time to establish a nearly unassailable beachhead in Berlin.

Second, some German officials believe lenient prison-sentencing practices have encouraged Russian organized criminals to set up shop in Germany. They know that if they are caught in Germany, they will not spend long behind bars.

However, Matthias Weckerling, an official at the German Justice Ministry, says that handing out stiffer sentences wouldn't solve the Russian mafia scourge. ``The question of draconian sentences preventing organized crime is something that we really don't believe,'' Mr. Weckerling says. ``The debate should not be on sentences, but on surveillance.''

German law currently prohibits law-enforcement officers from using wiretaps and other methods of covert surveillance. That makes it harder for German officials to detect and arrest Russian gang members.

Without quick action, the Russian mafia may quickly expand their operations in the West. Eckart Werthebach, chief of the office for the Protection of the Federal (German) Constitution, warns that Russian intelligence agents are teaming with Russian organized criminals to engage in industrial espionage and other economically detrimental action.

``The number of legal-resident people we have identified [as spies] must be massively reduced,'' Mr. Werthebach said in an interview with Focus, a German weekly.

Money-laundering scams

For the United States, the major Russian mafia problem centers not so much on their physical presence as on their money. A typical case goes like this: First, a Russian mafioso illegally sells some precious commodity, such as gold or irreplaceable icons, in Europe. Then, instead of directly pocketing ill-gotten German marks or US dollars, the criminal funnels the funds through a US bank or dummy corporation.

Another common scam is for a Russian official to purchase, say, half a million dollars in goods from abroad, but have a friendly company invoice him for a million. With this paperwork, he can now pass off the goods as worth more than they are, and pump a half- million dollars in ill-gotten money through his firm, laundering it into legitimate-appearing proceeds. Bribes often lubricate the system.

Just who are the criminals? In the US, those who collaborate in the money laundering are both Russian nationals and Soviet emigres with American citizenship. Typically, they work together for particular projects and then disband, rather than obeying one boss for a lifetime, as in the Italian Mafia, according to Mr. Goldstock of New York's Crime Task Force.

Together, these groups have assembled what the FBI calls a ``surprising number'' of sham companies. In one recent case, Russian organized criminals cheated the US government of $14.6 million between October 1991 and December 1992 by setting up a series of dummy companies to sell gasoline without paying taxes. Invoices purportedly made out by one of the sham companies showed taxes had been paid, when they had not. The address of the ``company'' was that of a Russian emigre living in a boarding house.

Complicating the difficulty of law enforcement is that, in many instances, businesses in Russia are send money abroad legally under loopholes that lessen taxes, say financial experts. ``It can actually be true that you have to pay more than 100 percent taxes on profit'' in Russia, said Gerhard Pohl, manager of the World Bank's Russian and Eastern European finance department in Washington.

One popular legal haven is Cyprus, which has a dual- taxation treaty with Russia but a considerably lower tax rate. Some of this legal money is often transferred to the US, partly because of solid investment opportunities.

But the resulting mix of legal and illegal Russian funds makes it all the more difficult for US law enforcement agencies to weed out the dirty money.

``We are doing every measure right now in order to establish controls of this money out of our country,'' says Sergei Dimitriyev, an official at the Russian Embassy's trade representation office in Washington. But he adds that Russia must also improve the overall investment atmosphere to give Russian businesses an incentive to keep their money at home.