5.

Crime and the Cooperative Movement

For a variety of reasons, the cooperatives developed a series of connections with crime. These developments can be divided into two types. The first involves the criminal backgrounds of some of the cooperators themselves and the crimes they committed, and the second involves crimes committed against cooperatives. The task of this chapter is to examine this criminality and to assess the policies developed to deal with it.

There is substantial evidence that the cooperative movement had from its beginnings been a haven for criminals, especially those who had operated in the previously illegal second economy.¹ Many worked as so-called shabashnikior moonlighters. One provincial procurator said cynically, “Yesterday we punished them, but today you call them heroes.”² Their numbers were so large that it was charged that the majority of cooperators in Volgograd were actually racketeers and that their activities were in fact no more than a front for their real interests in extortion and blackmail.³

The fact is that cooperatives did commit a variety of crimes, as distinct from unethical acts, which involve a different set of issues. Criminal activity, by definition, includes all those acts which are expressly prohibited by law, but the term as used here is broader. It includes economic offenses, such as buying inputs illegally or stealing them, speculation, overcharging, concealing income and profits, and avoiding taxes, and administrative offenses such as bribery of officials, making phony loans, and failing to register as a cooperative. It also includes mafia-like activities such as laundering money, operating fictitious cooperatives, attacking competitors, and blackmail. Foreign trade sometimes brought together all types of crime and created tangled webs of intrigue.

ECONOMIC AND ADMINISTRATIVE OFFENSES

Many economic offenses were committed less out of any criminal intention than out of necessity as a result of the general economic environment within which cooperatives had to operate. All of the shortages, restrictions, and bottlenecks that were a result of central planning and the continuing domination of the economy by the state sector, led cooperatives into illegal or at least shady activities. Problems of supply and access to facilities weighed heavily on most cooperatives. The demand for office and factory space in Moscow was so great that by 1989 the price including bribes paid to officials was 500 rubles per square meter.⁴ According to V. Korchagin, president of the Rossiia cooperative association, the bribes alone could be anywhere from 100 to 150 rubles and even as much as 300 rubles per square meter of leased space.⁵

The flaws in the supply system led cooperatives to seek ways of solving the supply problem illegally. In 1988, the Interior Ministry recorded 1,500 crimes in the cooperative sector, 40 percent of which were thefts and embezzlements of state and social property.⁶ Two stories provide examples of this category of crime. In the first, the Leningrad city court in mid-1989 convicted a woman of stealing 13,000 rubles worth of photographic paper and selling it to a Moldavian cooperative photographer.⁷ In the second case, the deputy chief of a shop in Zhitomir stole 1,300 kilograms of elastic thread worth 3,000 rubles and sold the merchandise to the Dnepropetrovsk cooperative Iskra, for which both the administrator and the cooperator were convicted and the cooperative was closed.⁸ But such exemplary justice did not diminish infractions of the law. The number of crimes in the cooperative sector increased to 5,700 in just the first nine months of 1989,⁹ and for the entire year the number of cooperative-related crimes increased by more than 500 percent, with an estimated loss of 18.4 million rubles.¹⁰

In 1989, the USSR Interior Ministry conducted a small study of crime in state enterprises and the cooperatives. It found that stealing in state trade was three times higher than in the cooperatives, but that large-scale embezzlements (khishchenii) were four times higher in the cooperatives. The second major finding was that the amount of property loss per million rubles of earnings was much higher in cooperatives than in state enterprises, 450 rubles compared to 62 rubles.¹¹ It was estimated in May 1990 that about 40 percent of all crimes were committed by a cooperator acting in complicity with someone in a state enterprise.¹²

The cooperatives created a new type of crime, manipulating the Soviet banking system. One of the provisions of the Law on Cooperatives forbade the issuance by banks of cash to cooperatives except for wages and to buy agricultural products because it was feared that loose cash would be used for speculation. But in Tula and Kalinin cooperators found a way around this. They bought up certificates and bonds from the 1982 3 percent state-loan lottery. Using cashless transactions (beznalichnye raschety), which are written orders for goods by which the bank transfers money from one account to another, these cooperatives transferred large amounts to savings banks, used the money to buy the securities, and then in some other bank sold the securities for cash.¹³

The existence of cooperatives also provided dishonest bureaucrats with a golden opportunity to restrict the supply of certain products into state markets and then sell what they themselves held through legal cooperatives they had set up. Such was the situation with tobacco in Moscow. The management of the Yava cigarette factory, along with the top management of the Moscow Association for Wholesale Trade in Sugar, Confectionery, Tobacco, and Salt and managers in the state transportation system, all conspired to hold back tobacco from the Moscow market. They then set up cooperatives to replace the state organizations which were supposed to receive the tobacco and sold the merchandise for their own profit.¹⁴

One of the most ambiguous areas of economic activity was that of the so- called middleman activities, i.e., the buying and selling of goods without substantially altering them. This was a highly sensitive issue, given the general shortages in the economy and the underlying suspicion that most of these activities reflected rapacious and exploitative behavior. In a major study of 90,0 family budgets conducted in January-June 1989 by Goskomstat, two- thirds of the families said they experienced speculation when they dealt with the resale of goods. The total volume of non-food goods from private individuals at prices above those of official prices was estimated to be in excess of 3 billion rubles, with speculators earning some 1.3 billion rubles in unearned profits. In 1989, dealing with speculators was said to have cost the typical Soviet family an average of 60 rubles in overpayments,¹⁵ though this may well substantially underestimate the true figure. If the typical Soviet family had two adults, each earning the average monthly wage of 240 rubles, this would mean side payments were equal to only about 1 percent of non-food expenditures. Talk about speculation is, therefore, either much ado about nothing, or Goskomstat’s data seriously miscalculated the actual amount of speculation. The latter is most likely the case.

There are three separate issues involved, two legal and one ideological, in the debate on speculation. The legal problem is that before the current reforms, buying and selling goods for profit was condemned as speculation and was punishable under the Soviet criminal code. The laws on cooperatives opened up this activity to entrepreneurs without actually rescinding the parts of the criminal code directed against these activities. A second issue is that many of the goods sold by speculators were actually stolen by them or others from state enterprises.¹⁶ Third, there was a widespread feeling among the general population that it was not “fair” to profit from shortages.

The range of activities engaged in by these middlemen was very extensive. One newspaper described a “parasitic division of labor among cooperatives,” citing the case of a cooperative which purchased extremely scarce soap from a state enterprise for fifteen kopeks, added scent or color, and then resold the soap to a different cooperative in another part of the country for sixty-five kopeks, with the latter reselling the soap for one ruble.¹⁷ In another incident, one group of speculators impressed buyers by saying it was “catching” the coveted black caviar of Caspian sturgeon when all it really did was buy it in bulk from a state enterprise and then resell it at a fabulous price. The group itself repacked the caviar, affixed the labels, and then found buyers. During a search, the police confiscated 300 kilograms of black caviar, more than 3,000 glass jars, the devices to close the jars, and large amounts of rubles and foreign currency.¹⁸ In a similar case, the Moscow cooperative Prognoz bought jam in state stores and then resold it at substantially higher prices, merely erasing the state price and the producing factory’s trademark.¹⁹ A particularly cheeky cooperative in Tallinn not only bought 20,000 tape recorders and resold them at triple the price, but had the gall to resell them at the gate of the enterprise that manufactured them.²⁰ At the extreme, there were cooperatives that went beyond any reasonable definition of serving as a middleman. A Crimean cooperative received bank credit to buy a truck, among other things, but instead of using the truck to operate its business, the cooperative took advantage of the vehicle shortage and immediately resold it, making a huge profit in the process.²¹

The computer trade was especially lucrative for middleman activities. As a result of this, the price of computers to the final buyer was considerably higher than it would have been if the machines had not changed hands so many times. For example, a contract for 100 computers might have been made for an average price of $2,000 per computer. If we assume that $1 equaled 10 rubles, this made the cost of each computer 20,000 rubles, for a total contract price of 2 million rubles—in the absence of middlemen. But a Soviet analyst noted in 1990:

In actuality, everything goes differently. Instantly there is speculation. The organization that has bought the batch of computers immediately looks for a contracting agent—a contract buyer—and sells the whole batch for 50,000 apiece, thus obtaining a profit of 3 million rubles for the speculation. The cooperative, having bought, let us say 100 computers for 5 million rubles, sells these same computers to another cooperative for 60 thousand apiece, pocketing a million rubles. And so on. Until the customer/consumers, that is the people who actually need computers, have to lay out 70-80, or even 100 thousand rubles for a machine.²²

The line between what was “legal” and “illegal” and what was “moral” and “immoral” in cooperative behavior was very blurred. And it was impossible to know what observers meant when they used such terms. For example, one writer said that about 70 percent of all cooperatives were “honest” and about 30 percent were “true speculators,” without indicating what these highly charged terms meant.²³

One of the most notorious cases of a cooperative acting as a middleman was that of the Tekhnika cooperative. Tekhnika, which sold abroad scrap materials from industrial enterprises, and imported computer components, as-sembled the components and then sold computers and software to Soviet buyers at hefty prices. The cooperative had an income in the millions of rubles. In December 1988, the two key members of Tekhnika paid themselves 690,0 and 510,000 rubles, respectively, and that same month, after the government’s resolution at the end of the month restricting certain activities, the cooperative members distributed 8 million rubles among themselves with the two heads equally dividing the lion’s share of 6 million rubles. Gosbankand the Ministry of Finance both took action against Tekhnika, accusing the cooperative of illegal middleman activities. One of the charges against it was that it did not use this income for “productive” purposes, but rather to enhance the personal wealth of its members. Another charge was that Tekhnika traded raw materials that were needed at home. The Tekhnika case was one example of many cases in which the distinctions between legality, ideology, and criminality became blurred in a confused environment, and the principle of illegality and market efficiency were on a collision course.²⁴ After all, Tekhnika claimed that it was helping state factories get rid of materials that were no longer useful. In the wake of revelations about the huge sums Tekhnika’s members were making, the Soviet government froze the cooperative’s assets and voided a number of its contracts. Tekhnika sued in court and won. In addition to the return of its bank accounts, it was awarded 50 million rubles in punitive damages.²⁵

State agencies frequently colluded with cooperatives in their middleman activities since the state organization could usually extract higher prices from cooperatives than it would get by selling to the regular system of state stores.²⁶ A striking, if complicated, example of this phenomenon involved a transaction between the Kemerovo city trade administration and the Leningrad cooperative Kvarts. Kvarts bought canned pork from Moldavia and the Ukraine, and sold to the Kemerovo board of trade approximately 100 freight cars of this pork at 3.50 rubles per half-kilogram jar. But in Kemerovo nobody bought this meat because of its high price and low quality. The Kemerovo oblast executive committee then decided to use the canned pork in factory dining rooms, but since these canteens were not allowed to buy products at cooperative prices, it was decided to sell beef in local retail stores at a price much higher than the state-regulated price in order to recoup the loss from the pork deal. However, this shady operation was stopped by the worker controllers and the issue was brought before the district trade union council. In this case, two kinds of fraud had been perpetrated. First, the so- called pork was in fact of very poor quality and therefore workers essentially ate canned lard in their canteens instead of beef, and second, they bought beef at the cooperative price in the state stores. The total amount of the overcharge was 317,000 rubles.²⁷

It was clear that cooperatives were unable to carry out their business without substantial bribes being paid to public officials, often under the guise of consulting fees.²⁸ The chairman of the Moscow Union of Cooperatives, A. Fedorov, said that the member cooperatives of his association alone paid 31 million rubles in bribes to state officials in 1989. While Moscow police officials questioned the accuracy of this figure, it was, nevertheless, clear that bribery was rampant and a major part of a cooperative’s costs of doing business.²⁹ It was estimated that for the country as a whole, bribes must have exceeded 500 million rubles!³⁰ A survey done by the All-Union Institute of the Soviet Ministry of the Interior found that 24 percent of cooperators used bribes every time they wanted to buy equipment, 61 percent used bribes very often, and 15 percent used bribes sometimes. Thirty percent of the respondents in this survey said that members of the police were also involved in this criminal activity.³¹

Another sample survey found that 80 percent of the heads of cooperatives used bribes to solve the problems of getting production space, equipment, and raw materials, obtaining permission to open a cooperative, and gaining the right to sell goods in a retail outlet. Some officials in the Moscow regional executive soviets received 10,000 rubles just to help forward an application to register a cooperative with a special commission. If a cooperative applied for permission to engage in foreign trade, the bribe could go as high as 70,000-120,000 rubles. Bribes were also necessary to get bank credit. In order to secure 1.5 million rubles in bank credit, the head of a cooperative paid a 60,000 ruble bribe to a department head in the Dnepropetrovsk Prom- stroibank,³² In 1989, 250 criminal suits were brought by state prosecutors against senior officials for extorting bribes in exchange for providing cooperatives with premises, materials in short supply, financial capital, and other resources.³³ In view of the earlier evidence of the number of cooperatives that had to pay bribes, the state was obviously uncovering only a little of the extortion that actually took place. This limited awareness is reflected in the official figures, which claim that the number of cases of bribery per 100,000 cooperators was allegedly only 3.9, and in the case of state trade, 2.1.³⁴

Among other things, cooperators used bribes to reduce their tax burden on cooperatives. It was said that in return for 2,000-3,000 rubles, taxes could be reduced by 10 percent.³⁵ An interesting example of how such operations worked was recounted by a former Soviet cooperator now living in the U.S. He described the “administrative costs” of operating a dumpling cooperative in Moscow. First, in order to use the free space of the state food store which was to supply the cooperative with its flour, he had to pay 1,000 rubles a month to the director of the state shop. Second, even though he had to pay 4,500 rubles for a machine which produced dumplings, more than twice the official state price of 2,100 rubles, he had to pay large bribes just to get the right to buy the machinery.³⁶ The amount of a bribe varied with the quantity and quality of the goods in question. In one case, in order to get lumber from the state woodworking plant it was necessary to pay the factory director a bribe of 300 rubles a month. But depending on the type of wood, bribes were anywhere from 10 to 20 rubles per cubic meter.³⁷

Many groups in the state bureaucracy preyed upon cooperatives, what one article termed “bureaucratic racketeering.”³⁸ For example, sanitary inspectors often targeted cooperatives for inspection because they could expect to extract bribes from them in exchange for not reporting violations. Likewise, fire inspectors, energy inspectors, financial inspectors, and the district militia all got their piece of the action.³⁹ In 1989, the Department to Fight Embezzlement and Misappropriation of Socialist Property registered more than 250 incidents of bribery, six and a half times the number recorded in 1988.⁴⁰But this was surely only a small fraction of what actually occurred. In other words, bribery was absolutely endemic to the cooperative movement.

Tax evasion also seems to have been rampant in the new cooperative sector. A sample survey of 1,723 cooperatives showed that during the first eight months of 1989, 993 of them (54 percent) violated tax laws. In the same year, Gosbank in the Krasnogvardeisky raion of Moscow examined the income declarations of thirty cooperatives and found more than 100 incidents of understated income taxes. At least one cooperative used the loophole that transportation costs were not taxed and systematically overstated them a number of times.⁴¹ In an investigation in the Cheliabinsk oblast, it was found that 106 cooperatives concealed 206,000 rubles of income, and in the Kuibyshev oblast, thirty cooperatives were found to have concealed their income all the time.⁴² Such tax evasion took place despite the fact that if a cooperative was twice caught evading taxes, it had to pay an amount equal to twice the level of hidden income.⁴³ In addition to the evasion of taxes, 20 percent of the registered cooperatives that were sampled were not making the required insurance payments to the state.⁴⁴

Special opportunities for economic crime arose when someone who held an official position in a state enterprise was also involved in his own cooperative. An interesting example of what happened is provided by the case of the head of a dressmaking and tailoring establishment who was also the head of an association of clothing cooperatives. He funneled virtually an entire ship-ment of fur from the state to his cooperative, which made fur goods that were sold at much higher prices than the state charged for the same goods.⁴⁵In another case, the man who was elected as head of the cooperative Informa- tika was simultaneously assistant to the chairman of the State Committee for Computing Technology and Information. He was accused of a conflict of interest.⁴⁶ Recognition that such behavior, or the appearance of such behavior, was widespread led the Supreme Soviet in October 1989 explicitly to forbid joint participation where there was a clear conflict of interest for managerial personnel.⁴⁷ Ironically, one of the unintended consequences of this ethics legislation was that, having been effectively eliminated from participation in cooperatives, officials used their power in the state economy to extract bribes.⁴⁸

The formal exclusion of enterprise officials from participation in cooperatives did not prevent others with public responsibilities from involvement in cooperatives, sometimes in suspect ways. The newspaper Sovetskaia Rossiia,which carried on its own vendetta against the cooperative movement, argued, for example, that public officials advancing their private interests were responsible for helping a Riga cooperative sell seven ships and six submarines to a Polish firm as scrap.⁴⁹

It seems clear that state organizations that did business with cooperatives cared little about adhering strictly to the laws under which the cooperatives were supposed to operate. The USSR Procuracy in 1989 “lodged protests” against union ministries and departments in 1,400 cases because there were violations of the laws governing cooperatives and nothing was being done at higher levels to deal with the infractions.⁵⁰

MAFIA-LIKE ACTIVITIES

Given the backgrounds of many people in the cooperative movement, plus the everyday problems faced by all entrepreneurs, it was not surprising that organized criminals preyed upon cooperatives. As a Pravda article put it: “Yesterday’s convicts see a cooperative primarily as a convenient place where without hindrance or formality they can launder ill-gotten gains or even steal the largest possible sum from their associates and comrades and take to their heels.”⁵¹ The Soviet press routinely referred to these criminals as the “Soviet mafia,” and the extent of their corrupting influence was well understood. Organized crime penetrated the cooperatives and lived off them in a wide variety of ways. These included the protection rackets, extortion, creation of fictitious cooperatives, blackmail, and illegal elimination of competitors.

Many cooperatives were a front for criminal activities, It was possible in Moscow to buy under the table a cooperative which already had its own bank account, seal, office, and charter. The price of this “turnkey cooperative” was 100,000 rubles, an amount easily recouped through money laundering or other criminal activities.⁵² Although some in the Soviet legal profession treated the problem of money laundering casually, it was no trivial matter. Law enforcement authorities said that they were increasingly witnessing money laundering operations through criminal activity, withholding money from the state budget, and tax evasion, and that it had become a source of serious concern.⁵³ The USSR Ministry of Internal Affairs (MVD) Main Investigation Administration estimated in late 1989 that several million rubles had been earned by fake cooperatives.⁵⁴

Racketeering was an especially lucrative activity for the new mafia created by the revival of private enterprise in the country. Estimates suggested that 75 percent of Moscow’s cooperatives and 90 percent of Leningrad’s cooperatives made payments to racketeers.⁵⁵ Racketeers often could set the size of their demands on the basis of exact figures about the cooperatives’ incomes, information they obtained from the local soviets for a fee.⁵⁶ In 1988, there were more than 6,000 reported cases of racketeering; of these, in almost half the cases (2,800), the demand was for 500 rubles, in 535 cases it was for about 1,000 rubles, and in 928 instances, criminals tried to extort more than 1,000 rubles. Sometimes racketeers expected their extortion money to be a fixed percentage of the cooperative’s income, which was one reason many cooperatives attempted to keep their earnings a secret and may explain why some cooperatives asked state bodies not to divulge their incomes.⁵⁷ One group of criminals operating in Moscow for two years was finally arrested by the police and the KGB in April 1990. This group had extorted 250,000 rubles from cooperatives and state stores since 1988.⁵⁸

Occasional violence marked the uneasy relationship between cooperators and racketeers. One day in the spring of 1990 in the city of Khimki near Moscow, the wife of the deputy chairman of a local cooperative opened the door of her apartment to three strange men inquiring after her husband who, after being awakened from his nap, was taken to the apartment of the chairman of the cooperative. The two men said the cooperative would have to pay the racketeers 30,000 rubles as a “fine” for having failed to deliver a promised batch of 10,000 computers worth 670 million rubles. When the deputy chairman refused to pay, one of the racketeers responded with the threat: “You screwed up a big deal. A whole chain of people was involved. You will have to pay for 30 machines, otherwise we will be forced to resort to the traditional measures. Do you understand?” When even this failed to bring the desired results, the extortionist responded by saying, “Only a fool is afraid of nothing. . . . But you have a wife and child. Think about it.”⁵⁹ An enterprising Moscow cooperative, whose primary purpose was electric sanitary engineering, developed a sideline in bulletproof vests, available for sale to either racketeers or cooperators.⁶⁰ In another case, the criminals that were arrested were members of a number of trade and purchasing cooperatives with ambitions to get rid of their competitors, employing guns and explosives.⁶¹

Soviet newspapers gave considerable publicity to stories about the violent links between cooperatives and the criminal underworld, and “mafia” became a household term. An example of the kind of thing that readers were treated to is the account by a department head of the Moscow criminal investigation service, who wrote:

Recently, we arrested three racketeers who had pressed the chief of the sokolcooperative to fork over 50,000 rubles. The bandits took their victim “for a ride” out of town, tortured and abused him in every way. It was by some miracle that the man, more dead than alive, managed to make his getaway. Notably, two out of the three attackers were cooperative operators, too. Shots were fired on more than one occasion in Moscow of late. A recent gunfight near the Alstcooperative cafe, for instance, looked like part of a mob war.⁶²

CRIME, COOPERATIVES, AND FOREIGN TRADE

Illegal activity was also associated with cooperatives engaged in foreign trade and frequently involved both economic and mafia-like crimes. Often strategic materials were involved and as a result illegal or forged documents were used. In early 1990, twenty tons of copper destined for export were seized by the authorities in the sea port of Murmansk. In the documents, the freight was registered as scrap, although it clearly did not fall into that category. Shortly thereafter, the authorities found fifty tons of magnesium ingots in Nakhodka. The Soviet press also reported that at Riga, customs officials stopped the shipment of fourteen containers of titanium alloy, a strategic material used by several key industries, including defense—which, again, the documents listed as scrap—shipped from Moscow enterprises through Moscow and Riga cooperatives. Also in Riga, customs authorities prevented the shipment of 520 tons of aluminum that a Novosibirsk cooperative tried to sell through Riga organizations.⁶³

THE ANT SCANDAL

The most dramatic offender in illegal foreign trade operations was ANT(Automation, Science, Technology). It was at the center of a number of scandals, the most notorious of which was the attempted export of twelve T-82 Soviet tanks at the end of 1989. The event shocked the nation and was even referred to by one Soviet wag as “Antgate.”⁶⁴ But this was only one of a number of incidents in which ANT was implicated in illegal behavior. The newspaper Sovetskaia Rossiia, which opposed the cooperative movement, presented a long exposé of ANT’s crimes as part of its campaign against cooperatives.⁶⁵ In one incident, the Chernyshev Engine Production Amalgamation in Moscow concluded a contract with ANT to sell it five new and two rebuilt airplane engines at the price of 460,000 rubles for a new engine and 368,000 rubles for a used one. The contract included a clause saying that if ANTfound a foreign buyer, it would inform the producer about the hard currency price decided on and to which country the engines were to be sold. But ANT violated these provisions and itself shipped the engines through Hungary. The buyer was O. Mansur, the president of a British firm who was subsequently told by A. Ivanov and R. Mshvenieradze of ANT that he had to pay an additional $140,000 as a bonus for their efforts in selling him the seven engines. Mansur was upset that he had to pay an additional $20,000 an engine, but when he found out the engines he was buying were all new ones, he recognized that he was not just paying a bribe, but was in fact buying engines designed for the new Soviet MIG-29, and that these were more expensive. Mansur informed the Moscow City Interior Security agency which sent an operative-investigative group to Budapest, and ANT’s Mshvenieradze was arrested in a Budapest hotel as he received the additional $140,000 from Mansur.

The story involving ANTs efforts to sell tanks abroad in exchange for other goods is the stuff of fiction—a real-life melodrama, Soviet style. The scandal riveted the attention of the nation on the machinations of an ambitious cooperative, gave the enemies of the cooperative movement a chance for some self-righteous chortling, and forced the movement’s advocates into a defensive posture. The scandal ultimately resulted in the closing of the cooperative which employed more than 500 people and damaged the careers of several high-level people in the state economic and political bureaucracy.⁶⁶

The cooperative ANT was originally established in May 1987 in Noginsk under the umbrella of the local regional consumer cooperative organization. The following February and March it opened branches in Moscow as a production and technology cooperative and at the same time changed its sponsor to the Noginsk oil equipment factory, reregistering as a state cooperative amalgamation. During 1988 it did contract work for chemical, machine building, and aviation enterprises, totaling more than 20 million rubles. The cooperative even had its own sewing shop and sold clothing to GUM, the giant department store in Moscow. It had by this time also established some contacts abroad, particularly with France, when three members of the cooperative leadership went to Paris in February 1989. Its accomplishments soon began to attract attention in high places, and at the beginning of 1989 the minister of the aviation industry gave the cooperative the right to carry out import-export operations on behalf of the ministry, effectively replacing Aviaeksport, the ministry’s foreign trade association which previously had carried out this work. In May 1989, the ministry and ANT established a state and cooperative relationship under the same name of ANT for the stated purpose of increasing the supply of consumer goods in the Soviet Union.⁶⁷

According to the account of Vladimir Ryashentsev, a former director of ANT, the company was approached by CDC, a French financial group, in December 1988. CDC offered to sell a considerable amount of computer equipment to the Soviet Union through ANT and was even willing to accept rubles as payment at the astonishingly profitable exchange rate of sixty-two kopeks to the dollar. Recognizing the opportunities latent in such an arrangement, ANT also determined that the French were willing to sell other things such as medical equipment and clothing to the Soviets. Ryashentsev informed the Council of Ministers about this possibility to replenish empty Soviet shelves, no doubt also seeing the potential for enriching the cooperative’s own coffers. As a result, in June 1989, the aviation industry and ANTsigned an agreement which allowed the cooperative to import and export the following goods for either rubles or hard currency: instrumentation, scrap metal, rolled metals, technological equipment, railroad equipment, aviation technology, arms, consumer goods, and agricultural products.

The advantaged status of ANT was enhanced when Iu. Pekshev, the deputy chairman of the State Commission for Foreign Economic Relations under the USSR Council of Ministers, gave the cooperative a number of privileges which made it easier to buy and sell products. On May 30, 1989, Prime Minister Nikolai Ryzhkov authorized ANT to carry out barter operations with foreigners. This authority allowed ANT to buy above-plan output from various enterprises under the Ministry of Defense that would not be used by the Soviet military. On October 6, 1989, V. Gusev, the deputy chairman of the Council of Ministers, also sent a letter to the customs offices in which he instructed them that the goods belonging to the cooperative should pass customs on the basis of a customs declaration alone, rather than on the usual basis of a license. In other words, while every other Soviet cooperative doing business abroad had to have a license to carry out a transaction, ANT was given a special dispensation from this requirement. The reason was clear. The Soviet bureaucracy had created a nightmarish process that required going through layers of people for every good that was traded abroad. ANTwas involved in trading thousands of different goods, and holding it to the license requirement would have needlessly delayed its operations and jeopardized the good deeds it was going to perform for the country. ANT had now become the fair-haired boy of the cooperative movement.

The Ryzhkov authorization for barter in foreign goods also imposed on ANT the obligation to “saturate” the country with consumer goods, and it was in essence given carte blanche to trade as much as it could of the mountain of raw materials and other unsold goods that were sitting around the country. The stakes were very high. Ryashentsev claimed that in a period of six months 30 billion rubles worth of goods were going to be on the Soviet market. The minister of aviation, A. S. Systsov, said that as a result of the import-export operations ANT was going to carry out, there would be hard currency to buy 35 billion rubles worth of consumer goods or about one- fifth of the estimated 150 billion ruble shortfall in consumer goods that existed in 1989. Thus, the Soviet government was pinning high hopes on a single cooperative to wipe out a substantial portion of the unsatisfied consumer demand that had been increasing yearly in the country. But the cornucopia of goods that seemed so imminent faded away in the wake of the scandal that broke at the end of 1989.

Here in its broadest outlines is what happened. According to ANT, when a number of Soviet enterprises found out that ANT had computers for sale, they approached the cooperative as potential buyers. One of these interested parties was Major General V. K. Dovgan, the general director of the USSR’s Radio Industry Ministry’s Science and Production Association, called Vzlot(Take-off). Dovgan wanted to buy computers for rubles, but ANT told him that he had to have some worthwhile commodity to exchange for the computers. That commodity turned out to be twelve T-72 Soviet tanks.

Discussions between ANT and Dovgan began in October 1989. The latter said he would deliver the tanks to ANT, although they would have to be modified to make them suitable for export. The changes would cost 30,000 rubles a tank, a figure which later increased to 121,000 rubles per tank. To all this, ANT agreed. General Dovgan went to the defense factory Uralvagonzavod in Nizhnii Tagil where he negotiated the sale of the tanks. On November 30, as per instructions, ANT transferred 4,494,000 rubles to Uralvagonzavod through Vneshekonombank, the foreign trade bank. On December 15, a railroad train loaded with the twelve tanks left Nizhnii Tagil on its way to the port city of Novorossiisk. A week later, when it arrived at its destination, it was greeted by the Transportation Department of the KGB, which had apparently been tipped off about the tank shipment. It detained the train and sent for a representative of the military procurator’s office. Thus started the investigation that exploded on the front pages of Soviet newspapers and reached into some of the most august halls of Soviet power.

A number of high-level officials in the aviation, defense, and radio industries and in the government were punished for their role in the affair. The basic charge against them was that they had violated Soviet foreign trade regulations and that they had established unique conditions for ANT to acquire restricted materials and then allowed it to sell these materials abroad without having to obtain a license. The May 30, 1989, government order had limited ANT to selling secondary raw materials and industrial waste abroad in exchange for consumer goods. Its access to other Soviet products therefore violated the law.

A number of people in the state economic apparatus were either fired or disciplined for their role in the affair and on January 16, 1990, ANT was liquidated. Out of the event there also emerged a Council of Ministers resolution, “On Measures for State Regulation of Foreign Economic Activity,” which prohibited cooperatives (and state enterprises as well) from exporting military equipment and from trading in materials which had been earmarked for other purposes.

Some feared that the tank affair would be used by the bureaucracy to liquidate other cooperatives, a fear supported by the weight of evidence recounted above in chapter 4. No less a personage than Leonid Abalkin, the deputy chairman of the USSR Council of Ministers and the chairman of the Commission for Economic Reform, thought that the tank affair could have a chilling effect on the development of the alternative economy. He suggested that the severe punishment of the high-ranking officials would discourage others in such positions from taking risks in the future. In answering questions before the Supreme Soviet, the government’s spokesman on the matter placed the blame squarely on the shoulders of Uralvagonzavod, the plant which manufactured the tanks, arguing that the documents signed by Gusev bore no relation to the specific illegal event of the tank sales.⁶⁸

In the wake of the ANT affair there are a number of unanswered questions. Independent of the question of illegality, of which there seems little doubt, there is the question of whether there was a conspiracy to punish ANT because of its apparent successes. Did ANT really deserve the death penalty? In serving itself, was it not also serving those who had consistently encouraged it and had conveyed such high expectations of its ability to lessen the domestic goods crisis? These are questions that are not yet answerable, and may never be. The most lamentable aspect of the entire event is that ANT’s most egregious acts provided fodder for the enemies of perestroika. Indeed, on March 28, 1990, at a session of the Supreme Soviet during which the ANT affair was discussed, the government was forced to defend the position that cooperatives should be allowed to take part in foreign economic activity and appealed to the Supreme Soviet not to allow the ANT affair to become an excuse to reject the entire concept of cooperatives. The real cost of the ANT operation was the loss of credibility that has been so hard for the cooperative movement to earn and sustain.

SPECULATION

An activity that tainted the cooperatives in the eyes of the public was dealing in scarce goods and resources, pejoratively termed “speculation.” It had long been a crime in the USSR, and official attempts to curb its growth were constant and largely unsuccessful. It was estimated that from 1970 to 1988, the number of cases of speculation increased two to three times, and the number of repeated violations and large-scale transactions increased six times. During the period 1988-1989 there was an increase from 23,000 to 34,0 of those punished for speculation in the courts through administrative procedures.⁶⁹ Not surprisingly, both the state and the cooperatives thought something had to be done. The state attempted to stem the tide of speculation with new laws. A decree amended the RSFSR administrative code in mid-1989 in an attempt to deal with the rapidly increasing incidents of speculation; in February 1990 the Supreme Soviet issued a similar decree, and in March the Ukraine issued a decree embodying the same fines and jail terms as the RSFSR decree.⁷⁰

While the decrees were not aimed solely at cooperatives, both the timing and the type of crimes mentioned in the law strongly suggest that coopera-tives were a prime target. Regarding speculation, the new laws set punishments for the following violations: (1) the selling of goods from warehouses, wholesale facilities, the auxiliary space of retail stores, restaurants, and canteens, and also hiding goods and putting them aside; (2) speculation, mean-ing that selling goods above the established retail price if the individuals did not produce them, could lead to a fine and confiscation of the goods. The law made a distinction between “petty speculation” and “speculation.” In both instances, the basic act was the same, namely the buying up and then reselling of consumer goods or other items for the purpose of profit, with “petty speculation” defined as involving profits no greater than 100 rubles. The fine could range from 100 to 300 rubles. For the second conviction within a year the fine jumped from 300 to 1,000 rubles or corrective labor for one to two months as well as the loss of 20 percent of wages. The penalty for “speculation” (involving profits over 100 rubles) became quite severe. It was punishable by three years imprisonment or two years of corrective labor or by a fine of 1,000 to 3,000 rubles. Repeat offenders could receive a prison term of three to seven years or a 2,000 to 10,000 ruble fine. Large-scale speculation (defined as involving 1,000 rubles or more) was punishable by five to ten years in prison.⁷¹

While the new legislation offers severe penalties for speculators, it seems to be the case that only those who are unable to protect themselves get caught in the police’s net. Major offenders have both the position and the money to buy their way out of trouble, should their deeds come to the attention of the authorities. The profile of those who are convicted of speculation shows them to be petty violators and people without status or power. According to one study, 32 percent of those convicted were housewives, pensioners, and stu-dents, 56 percent of whom had an income of 120 rubles a month or less. The family incomes of those convicted also showed that they were from the poorer parts of the population. Forty-eight of the families had a per capita income of 70 rubles or less, that is, below the official poverty line.⁷²

COOPERATIVE SELF-PROTECTION

But the state’s actions against crime did not address the problems cooperatives faced, and they took action themselves by creating private security agencies. Cooperatives were forced to protect themselves against racketeers, in part because the state police failed to perform its responsibilities.⁷³ The first private detective and security agency was formed in mid-1989 and had branches in Moscow and Leningrad. The agency hired twenty full-time and fifty part-time operatives in Moscow alone. All the employees had formerly worked for either the KGB or the MVD (the Interior Ministry).⁷⁴ About the same time, the Interior Ministry issued an order allowing local Soviet policemen to enter into contracts with the cooperatives to provide security services for commercial establishments. In that year alone, contracts totaling 600,000 rubles for such services were signed by the Moscow militia.⁷⁵ Also in 1989 a new section devoted to fighting crime in the cooperative and foreign sectors was formed within the existing Department to Fight Embezzlement and Mis-appropriation of Socialist Property located in the Interior Ministry.⁷⁶ The head of the MVD even suggested that policemen might form cooperatives which would be supervised by their own department.⁷⁷

Finally, one way cooperatives protected themselves against racketeers was by working under the aegis of a state enterprise. This provided a great deal of protection since it was more difficult for criminals to demand protection money from a state organization that did not deal with large amounts of cash on hand.

Criminality insinuated itself into the cooperative movement in a variety of ways. There were crimes committed by cooperators themselves, crimes perpetrated against the cooperatives, and wholesale extortion committed from top to bottom in the state bureaucracy.

It seems inconceivable that in one year, from 1988 to 1989, the crime rate in cooperatives would have increased by 500 percent. Certainly some of the increase in reported crime is due to the increase in the number of cooperatives. But this would account for only a portion of the crimes. What is likelier is that the state focused more attention on the cooperative movement which had by 1989 become a large enough presence to be considered a threat to state organizations. In part, this was because the scramble for scarce resources was intensifying. But it also suggests that local bureaucrats, following their own hostile instincts and those of the public, pushed hard to make life difficult for cooperatives.

The issue of crime in the cooperative movement is important for several reasons. First, if crime becomes endemic to the movement, it will corrupt the entire process of building a civil society in the economic sphere; civil society implies a market culture in which there is the implied entitlement to honesty in exchange. That does not now exist. A second reason why criminality is significant is that the state’s response reflects its attitude toward private property. In market economies, the state uses its power to protect the institution of private property both as an abstract concept and in its concrete forms. If Soviet society values entrepreneurs, it will have to protect them with the same vigor as capitalist countries. Entrepreneurs should not be forced to find ways to defend themselves because the police refuse to do so.⁷⁸Thus, how the state treats the crime issue gives us insight into broader perceptions and intentions of the Soviet government. Indeed, in a survey conducted among cooperators by Goskomiidat in 1989, the whole system of extortion was identified as the main impediment hindering future growth of cooperatives.⁷⁹ It is important to remember the results of that survey—when cooperators were asked whom they feared the most and who brought the most difficulty for them, the majority named the executive soviets, followed by racketeers.⁸⁰