What distinguishes my country are the extortion rings controlled by groups of ex-athletes, especially wrestlers. They also control narcotics traffic, smuggling, counterfeiting and prostitution. They call it the "Wrestlers mafia. " The wrestlers' weapons are always baseball bats, and they use "security organizations" (protection agencies) as their cover.
Although many people talk about connections between the Bulgarian and Italian mafia, there's no proof. Some experts estimate 4,000 people are involved in this kind of organized crime. These groups launder money and bribe public officials and police. The businessman who does not go along may be beaten severely or even murdered. Sometimes the wrestlers make mistakes. For example, last summer in Sofia they kidnapped a businessman's mother-in-law instead of his wife. Many of these wrestlers are former members of government security forces.
Some people estimate the wrestlers control 50% of the nightclubs, 70% of the gambling and 80% of the cigarette and alcohol trade in Bulgaria, and are partners or owners of six casinos. The Wrestlers mafia originated after the change of the political system, as big groups of shady operators began employing the ex-weightlifters, ex-wrestlers, ex-boxers. Also employed were former police officers and the security services. Many believe these profits from illegal activities are being invested in the privatization process and legitimate businesses will emerge from them.
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The first organized crime groups appeared in 1988 when the liberalization of the Estonian economy began. Those groups were composed of Russian citizens -- people from towns all around Russia. In the beginning they forced people to give them money. And they accumulated capital that way. Then they connected with colleagues in Estonia, and that's how they're growing. As in Bulgaria, many participants are former athletes as well as on e-time security people and KGB officers. Three have been arrested for kidnapping a Finnish businessman.
The main activity of those groups is the selling of metal. They take it from Russia and send it to other countries through Estonia. They also sell cars they steal in Western countries, sending them to Russia and Estonia. It's a well-organized system. Normally they steal new Mercedes and Volvos. They change license plates and drive the car straight to Russia using fake documents. The situation has gotten so bad many companies no longer insure new Mercedes.
These criminals also sell guns illegally. The biggest operation discovered recently involved 3,000 guns made in China and shipped through Germany. They brought them to Estonia to send to Central Asia. The group has been caught. Five people were arrested in Estonia and 20 elsewhere. Prostitution and drug-selling are among their other activities.
Last year there was a serious fight between two groups of criminals. It was quite bloody, with about 20 people killed. In another incident, a bomb was exploded in the square in the center of Tallinn. Three of the perpetrators were arrested by Estonian police but the rest escaped.
The illegal metal business is big in our country. There are places where they steal metals -- cemeteries, train tracks--especially copper. Lately it has become more complicated to do it. But different groups are making good money doing it. Now, with privatization, former directors of state enterprises are stealing from the places where they work. First they privatize part of their enterprise. They get their salary from the government and then set up a private business from the same enterprise. They accumulate enough money to start something else; this is all legal. Estonian laws are pretty weak. It's hard to find out what was done and it's hard to convict them. We had dozens of stories in our paper describing these activities, but there is little result in terms of court cases. Parliament is trying to pass a law to prevent this.
Organized crime is up dramatically in Hungary. Our newspaper has broken stories on illegal banking, illegal armament exports and the metals trade. To show the scope of the problem: Hungarians who have money can deposit it in a bank. However, within a year they'll have lost part of it because inflation is higher than the interest earned. But there are newspaper advertisements for so-called "investment firms" paying two, three, five and sometimes 10 times as much as you get in the bank.
One of the biggest entrepreneurs, and it was our newspaper that broke the case, had a very aggressive campaign. We counted months in which he paid one million forints (about $10,000) for newspaper ads on ly. When he went bankrupt last month he owed roughly 700 million forints ($7 million). Eighty percent of the people who lost money didn't go to the police. Why? They preferred to lose their money rather than to face the question, "Where did your money come from?" That shows how organized crime has grown in all our countries from the gray economy. The guy who stole this money is still free, and he has formed a political party. It's still small, but it shows how this money can go into politics.
There are big differences with Western organized crime. We don't have drugs -- at least we don't have a population that is a target for drug dealers because the forint isn't convertible. But our country is growing in importance as a drug transit country, especially since the beginning of the Yugoslav war. People don't like to go through Yugoslavia, so they go through Hungary and Romania. Money laundering is another problem. The banking system in Hungary is pretty liberal and bank secrecy is well-kept. There are various estimates of how much "hot" money is in Hungarian banks. One former minister of finance said that if it were to leave, the banking system would collapse.
I can go into any Hungarian bank in Budapest and deposit $20,000 with no questions asked. Racketeering also is a problem, especially for restaurants. If they don't pay, their businesses are set on fire. It's very difficult to prove and police are not prepared for this type of crime, although everybody knows who is doing it.
Car theft also is a problem. There are thousands of stolen Western cars in Budapest. If your Mercedes is stolen in Zurich today, there's a very good chance that after tomorrow it will be in one of the three car markets in Budapest--and two days later that it will be in Poland or Ukraine.
And there are some special types of organized crime left over from the days of socialism. For example, heating oil was heavily subsidized by the state. Heating oil technically is the same as diesel oil -- what you use in your diesel Mercedes. But the price was one-third that of diesel fuel. To prevent cheating, the government put a red dye in the heating oil. Several small chemical factories started removing the dye and selling it to gas stations. They made fantastic profits. The Hungarian army was heavily involved -- they just sold the army's emergency supplies. A few people are now behind bars because of it.
How do you set up a pro-government newspaper in a country where the government simply cannot afford it? Here's how: Telephone calls go to different banks. The banks are "encouraged" to set up a special fund. They have to comply; all the banks are either wholly or partly government-owned. When the banks hold their annual assemblies, it is always the government representative who has the majority vote. The implication is that you pay into that fund -- or you lose your job as chief executive at that bank. I happened to know the details of the story. It happened in Hungary two and one-half years ago, and this newspaper is very much alive and kicking. No one reads it, but that's a different story.
Let's look at it from a different perspective. Say there's a certain property up for privatization. You must raise money. You have 20 million in cash, but you must raise 400 million. You visit your banker. He hears your story and bursts into laughter, because he knows you have no collateral. No problem. You visit another bank but you also visit a leading official at one of the governing parties. You tell him you need 400 million and the bank turned you away. The answer is perhaps this: "No problem on one condition -- that you forget about 100 million." The 100 million flows directly into a special fund created by the party. We're facing a whole series of maneuvers like this, and I think they're far more dangerous to the health of a society than racket eering and all the rest that has been mentioned here.
We still don't understand why they sought out Lingys, but we have learned a lot about how they planned the murder. Authorities found the gun they used to kill him. Five of the murderers have been found. They are young men, about 25 years old, members of the Vilnius Brigade. One was one of the group's leaders. He is not Lithuanian; he has no citizenship. The others are Russians and Poles. There are about 200 members of the Vilnius Brigade. They have radio communications just like the police. They have good links with Belgium, Scandinavian countries, Germany, Poland, Russia and other countries of the former Soviet Union.
Neither Polish police nor other law enforcement agencies admit the mafia exists in Poland. But the change from communism to democracy has created a great opportunity for everybody who wan ts to make money illegally. Lots of our former communists are involved in criminal activities. Police do admit that very well-organized groups of criminals are active in Poland. Two years ago they created a 30-person secret task force to combat organized crime. The task force was recently reorganized and now employs 300 specialists.
This is an indication that police are starting to rethink their approach to organized crime. My colleagues at Zycie Warszawy are young and not very experienced, but we started our careers covering this subject and now we have some of the best specialists. One of the things we have done is to begin publishing pictures of people suspected of leading criminal activities. We have enough printing quality so that you can see their faces. We concentrate mainly on white-collar crime such as bank fraud, especially lending practices.
In spite of the profound changes since 1989, almost no changes have taken place in the banking system. Banks still employ the same people as in pre-reform years. In our opinion the banking system has been penetrated by organized groups active on three levels: national, regional and local. The last one is the most harmless because usually it involves petty embezzlement by bank officials.
Groups active on the regional and national levels include former members of the military, the secret police, Communist Party functionaries and their associates. Often loans are made to friends and their companies without proper security. Government statistics show that 30% to 50% of bank loans are bad and will be defaulted on. The Polish banking system has so many loopholes that often these practices are not even illegal. We believe there are three main centers coordinating bank-crime activities in Poland. One is connected to the former and current Finance Ministry. The second is connected to the former Communist Party. The third has ties to the former secret police and intelligence agencies. It is not yet clear whether these centers collaborate or compete with each other and whether perhaps there are more centers in Poland.
Huge sums of money--and we're not talking about millions but billions and thousands of billions--are being drained from the official banking system. So, where is this money going and what happens to it? We think it's funneled into long-term economic ventures such as the mass media, including new TV stations, newspapers, the construction industry, transport and communication. Do these groups have political influence? That's the main question. We have difficulty gathering evidence. There are many gray areas in the economy and public life. For instance, there is no clear system of financing political parties. Scandals can be covered up. One case involved the president's closest adviser. He accepted a very small amount of money -- only $2,000. The prosecutor investigated but the outcome was not made public. There also is considerable circumstantial evidence that the current director of the Central Customs Department was involved in smuggling arms to the former Yugoslavia. Now that communists are back in the Polish government, friends of friends are back in power.
We gathered here to talk about mafia and crime in Russia and Eastern Europe. But I think it's necessary to concentrate on the size and structure of these things. What we're talking about is the criminalization of the entire Russian economy. The same things are going on elsewhere. The main difference is size.
Take the illegal export of capital. It's not hard to do in the absence of efficient currency and customs controls. There is a high level of corruption within the state structures. Part of the capital remains in the West; the other part is used to buy goods that are imported to Russia. Every dollar that is returned in the form of goods automatically gains three or four times in value. Then there is another gathering of capital and a new export. In Russia there is no bank, joint venture or company that wouldn't do this. It's naive to think the government didn't know about it. How many billions of dollars left Russia? No one knows. A leading world economist estimated it at $30 billion, which I doubt. Others put the figure at $60 billion. The International Monetary Fund said about $17 billion left the country in 1992 -- that's the official number. In June 1993 the prosecutor opened a case against the director of a firm accused of stealing 68 million rubles (about $57,000).
But according to reports -- which have not been denied -- this company had an order signed by the office of the Russian president, giving permission to export 10 tons of red mercury. At that time one kilogram of red mercury cost $400,000. This shows the size of the illegal operations in Russia.
Another example was in Sakhalin. Former government officials said that every year 5 million tons of fish worth $6 billion are taken from the sea there. How much money comes back to Russia? The ministry sells licenses illegally and without any records to Japanese, South Korean, Philippine and Polish fishermen. There is no information or statistical data. No more than 25% to 30% of this $6 billion returns to Russia. You can add to these examples oil, aluminum, rare metals, gold, diamonds, guns and narcotics. You'll see that we are watching the biggest swindle of the century.
It's easy to conclude that the keepers of these amazing sums can buy any state official, any minister of any government. It's also clear Russian financial crime is now linked with international crime. It's obvious, too, that privatization is taking place using this capital. The West so far has stupidly supported this transmission, having no idea about the result. And this criminalization of Russia will be international very soon. Then the West will realize it misread the process of reform.
I'd like to focus on the criminal element. Seven years ago the criminal world of Russia was pretty separate. This criminal world had its own rules and, as we say in Russia, used the code of thieves. The criminals began to organize, but they didn't have good links with government officials to enable them to get licenses to sell natural resources. The people who got power right after the breakup of the communist system had large amounts of Communist Party capital. They had official power to solve many problems. Those relations at the beginning were a kind of partnership. But then our big monopolies realized it's better to control the situation. One of the results of this decision was the number of murders of Russian godfathers. They just killed them. Last year eight of the most important thieves-in-law (godfathers) were killed. After that the situation of the criminal world changed sharply.
In our country there is no law on organized crime. They've been talking about passing one for the last seven years. And every month the militia announces it has captured one of the largest criminal groups. If two people steal from a shop, they call it organized crime. But the real organized crime is not a primitive racket. It's not controlling prostitution, it's not stolen-car selling. It's serious economic operations. Playing games on the exchange rate. Half-legal operations selling oil.
Today, if we're talking ab out organized crime, we're not just talking about Russian territory. It's international with Russian organized crime participants. Take the case of Gregori Miroshnik. Imprisoned four times, he was a most dangerous criminal. But in 1991 he was the economic adviser to the vice president. When the vice president was asked where he found his advisers, he said he was too busy and couldn't check the biography of each. Recently there was a financial scandal concerning fake promissory notes. The official information was that more than 3 trillion rubles were stolen. This couldn't happen without the support of the Central Bank of Russia. The commercial banks have not found anyone they could charge. That's more than $1 billion. Probably you've heard that some of Russia's biggest bankers have been murdered.
Violent crime in Slovakia is not so widespread as in the other countries. We are confronted with crimes committed by high- and low-ranking white-collar workers, especially in the process of privatization. This is a case study in corruption at all levels, and it has a tremendous effect on the entire population. In communism, everybody is used to owning everything and nothing. In the Western world, under a market economy, minimum property is state-owned and private enterprises compete with each other. Each works in its own way, although the efficiencies of the two systems are quite different. But when they are mixed, the whole economy is thrown into chaos.
Seemingly, these two systems oppose each other, but that's not really the case. In fact, there's a symbiosis between them. Private enterprise competes by providing conditions that are advantageous to the customer. But if the customer is a state enterprise, its leadership has no interest in gaining favorable terms for the state. What happens is that the state pays an exaggerated sum. Meantime, the manager of the private company is forced to present part of his profit to the administrator of the state firm. This may involve high- ranking clerks, even investigators, prosecutors and judges. They ruin the country's long-term chances for gains. This is very hard to fight against.
In our press, individual cases have been revealed, but I don't think it has led to any changes. This problem is so widespread that it's of no use to single out cases. Our weekly decided to fight for speeding up privatization. We published a petition that was signed by more than 5,000 people. We sent it to Parliament, where it was discussed, but no steps have been taken.
In the 1960s the first gambling house was built on the Adriatic near the Italian border. It was established by the communist security service. Why? Because the casino is an excellent place for espionage, but also because a casino is an excellent place to make money. We know that a secret service usually needs a black fund, so the Slovenian secret service decided to make money in casinos. They established a credit service, and gamblers were invited to borrow from it. Most of the gamblers came from Italy.
Collecting the money was a difficult job, and the Cosa Nostra is perhaps the only organization that can do this. They demanded a share, about 18% of all money received by the casinos. The secret service gave the job to the mafia, but in return, they demanded half the proceeds from the credit service. That was the situation until 1990. But then something happened as a result of the reform movement. The director of the biggest gambling house decided to pay only the mafia credit service. He also decided to privatize the gambling houses. In one year we got about 10 mostly private gambling houses. A casino is a money factory that makes huge profits. All of a sudden the people from these casinos had enormous political power because they could contribute to election campaigns. They also are very aggressive lobbyists, demanding their version of a privatization law for the gambling houses. Journalists keeping a database checked the name of the director of the biggest gambling house and realized that he established about five privately owned companies.
Let me tell you about the UDBA mafia. UDBA is a synonym for the former secret police, like the KGB. We had a very soft political change because the Communist Party offered the opposition the opportunity to compete in free elections. At the time discussions were under way on how to change the system, some powerful people moved from making policy into business, where they became bankers, directors and managers. They were stealing for two or three years while we were talking about privatization. The money they stole was sent to Cyprus, to Switzerland and so on. And then it came back as private capital.
That is how those who made policy in the old system have gained economic power. They will rule society again. It's a simplified theory, but we are proving it has basis. It's very difficult to distinguish between legal and illegal business in this area . Our newspapers covered stories about the UDBA mafia. Parliament investigated and found that there were more than 150 enterprises that had transactions under which management could steal money.