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In the early era of perestroika in the late 1980s and early 1990s, when many Western companies were just starting to poke their noses into Russia, they were often prey to the mafiya. In those early days the mafiya were gangs, often hardened criminals from the Republic of Georgia or from Chechnya, the region of Russia where dissidents who opposed rule from Moscow had triggered a bloody uprising. The gangs used strongarm tactics to get hard currency-U.S. dollars, primarily. They operated like 1920s Chicago mobsters. They would focus on people who did business with Westerners and had access to hard currency, either dollars or money that could easily be exchanged for dollars-English pounds, German marks, Italian lire, Japanese yen. The mafiya targets included restaurants and bars frequented by Westerners, and high-class prostitutes who serviced visiting Western businessmen. If a target would not cooperate with a mafiya gang, that person-or someone close to that person-was at great risk. There were literally thousands of execution-style murders by the mafiya. In one year alone, 1995, the Russian government reported the existence of an astounding 8,000 separate mafiya organizations. The same year, the government reported 560 contract killings-and there were probably many more that were not reported. Over one two-year period, twenty-seven Russian bankers were gunned down. Russia's relatively low murder rate rose to more than twice that of the United States, which always had been condemned by the Soviet leadership for its violent society. Remarkably, a country known for corruption became even more corrupt as mafiya payoffs to police and judicial officers led the public to believe that the gangs could do whatever they wanted. At one point in 1996, the police chief of Moscow estimated that 95 percent of his officers accepted bribes. Some gangs got their guns from the police. Prosecutors and judges were on the take, too. A survey by U.S. News & World Report found that Russians were more likely to say that the mafiya controlled the country rather than President Yeltsin. A Russian study found that one in four businesses was paying protection money.
The mafiya controlled more than 40,000 businesses, a Russian newspaper reported, along with more than 500 Russian banks and more than 500 joint ventures involving foreigners. Kroll and Associates, an international consultancy specializing in business intelligence and risk assessment, rated Moscow as one of the ten most dangerous cities in the world for business travelers, along with, in alphabetical order, Algiers, Bogota, Caracas, Johannesburg, Karachi, Lagos, Medell'n, Mexico City, and Rio de Janeiro.
Virtually all Russians whom an American would encounter-in business, while traveling, in school, anywhere-said they hated the mafiya. But many disaffected young men saw it as their only way to a better life. They saw the mafiya sweeping through town in big imported cars, taking over nightclubs, and spending more in an evening just on booze than most Russians could earn in a year of honest work. The gangsters wore sleek Italian suits, often with wide lapels, dark shirts, and wide ties. They wore lots of gold jewelry. It was as if they were dressing the part of Capone-era gangsters, as depicted in the old American movies that had occasionally been shown on Soviet television as evidence of the corruption of American society. For many young men, becoming mafiya was the way to get rich, the only way. The number of gangs and gangsters increased. As competition among the gangs increased-there was never any single mafiya superstructure, no meetings of families, no boss of bosses-the gangsters increasingly gunned each other down in turf wars. The competition also led them to demand protection money, not only from Russians doing business with Westerners, but from anyone-Russian or Western-making any kind of money, rubles or dollars, in Russia. The gangs promised to provide a "roof" that would protect the business from anything: from arson, from tax inspectors, from competitors, from other mafiya gangs.
Gradually through the 1990s, as the Russian economy improved, the mafiya influence waned. No doubt part of the reason was that political leaders responded to the wishes of the vast majority of the Russian people who wanted to live safely and securely and pursue a livelihood without the threat of it being taken from them by crooks with guns. But another part of the reason was that the corruption became institutionalized. Police officials realized that there was no reason they should be getting payoffs that represented a small portion of the extortion that the gangs were collecting-not when the police themselves could be collecting the extortion. Across Russia, mafiya gangsters were killed off or thrown into jail, and "security" firms took their place. These firms were relatively legitimate. They were often started by former policemen, or policemen who were moonlighting, and they promised the full support of the police. Some were local, as most of the mafiya gangs had been. Some, however, grew in scope and formed alliances with other police departments and other government agencies. By the late 1990s, most American businesspeople in Russia who had a roof knew that the roof's authority probably extended far beyond the police. "The government has become the roof, and the roof has become the government," one American businessman said. "It's hard to know where one stops and the other begins." As organizations, roofs became much more sophisticated. In the early 1990s, a few mafiya gangs went so far as to produce crude little brochures that might include a picture of a machine gun on the front. By the mid-to-late-1990s, the security firms offering themselves as roofs had nice offices, slick four-color brochures, multimedia sales presentations by their marketing people, and an array of services that included business consulting. Some went so far as to offer financing, either loans or investment capital.
Only one American was known as a mafiya murder victim. Paul Tatum, an Oklahoma lawyer and professional fundraiser for the Republican Party, came to Moscow in 1989 and set up a Westernized business center in one of the first Westernized hotels, the Radisson Slavjanskaya. The center offered good clean direct-dial lines for international phone or fax connections, temporary office or conference space for an hour or a day or a week, and all the standard clerical and administrative services, such as photocopying, transcribing, translating, interpreting, and temporary staffing. The business center was a huge success.
For many Westerners coming to Moscow, it was the first stop, the base from which they found their own business space, hired their own staff, and made their own business contacts. For several years Tatum was one of the most visible Americans in town, a champagne-swilling symbol to the West that Moscow was open for business. Part of his legend was that during the standoff at the besieged Russian Parliament building, he had climbed over the barricades to offer Boris Yeltsin the use of his cell phone. But then there were problems. The Slav, as local experts called the hotel, was at first a joint venture between the Radisson chain and Intourist, the old Soviet tourism agency. After the collapse of the Soviet Union, President Yeltsin gave control over all private property in Moscow to the city of Moscow-in effect, to Mayor Yuri Luzhkov. This is what Forbes magazine reported in 1995: "The freehold on most Moscow property is owned by the Moscow city government, which in turn is run as a personal proprietorship by the mayor of Moscow, Yuri Luzhkov. The mayor is a big player in the property market: he makes land and buildings available at artificially low prices to favored developers. Are there kickbacks involved? How could there not be? We do know that developers kick back money to the Moscow city government, which Luzhkov controls like a personal bank account."
Conficts arose between Tatum and the managers appointed by the city to oversee its portion of the joint venture. Some observers saw the conflict as part of a familiar pattern: Westerners came into joint ventures with their money and expertise, and then when the venture was up and running successfully, either the mafiya or the government or both forced them out. By the mid-1990s, the office space that Tatum claimed to control at the hotel-indeed, all prime office space in central Moscow-was among the most expensive commercial space in the world, with average rents of $70 to $80 per square foot. Some of the most sought-after space topped $100 per square foot, provided renters would pay up to six years' rent in advance. The issues surrounding Tatum's dispute with the city of Moscow were murky-who said what, who did what, who owed what to whom. No American who was in Moscow then would pretend to know all the details of what happened. But every American would say that Tatum acted foolishly and brazenly. For example, he publicly accused the city officials involved in the joint venture of being connected to the mafiya, and he all but accused Mayor Luzhkov of being a crook. Tatum refused to pay the rent for the business center and sued the city for $35 million. At one point he barricaded himself in his office inside the hotel so he would not be evicted. While other American businesspeople in Moscow were keeping low profiles and moving around the city with chauffeurs and bodyguards, Tatum walked the streets and even took the Moscow subway alone. He told friends that by keeping such a high profile, he was safe. He was wrong. In November 1996, he was gunned down at the entrance to the subway just outside the hotel. He was hit by twelve bullets fired from a Kalashnikov assault rifle at short range. Five of them hit Tatum in the neck, above the bulletproof vest he was wearing. "No one was surprised," one American recalled. "We were only surprised that it hadn't happened sooner."