ESSAY: Tax Police Reveal Shady Side of Power, Money




The tax organs can be considered the first to have uncovered the shadowy side of Russian life. If you have any doubts about this, you need only look to their special reports. I had a glance at some of them, and here is what I discovered.


In the Moscow region, the tax inspectorate audited the Soyuz trading company and found that it had not paidany taxes. There was nothing illegal about this in itself; the company had been given a tax exemption by special decree of the regional property committee. But there was one disturbing detail. The last name of the head of the firm and that of the official who signed the document were the same. Only their middle initials differed. After a rather simple investigation, the tax inspectorate revealed that the young businessman who headed the company was the son of the head of the committee.


This meant that for the sake of his son, the father had approved the exemptions so that the money that was supposed to flow into the state coffers lined the family's pockets. These pockets were deep, to say the least. In short, money that the state lacks to pay its workers -- pensioners, teachers, doctors and many others -- disappeared under a "paternal krysha."


In the Tula region, about 150 kilometers south of Moscow, the tax police was interested in investigating a combine factory-turned-stock company. They found that the factory gave rise to an entire network of commercial enterprises, including a trading company, construction firm, bank and so on. The tax police's investigation into the practices of the Tula factory exposed a tendency that was repeated elsewhere. Such large companies were unprofitable and paralyzed by debt. The subsidiaries, however, which managed to hide their revenues, were prospering. They were able to do so through the protection of a powerful "official krysha."


How? Through tax exemptions, credits and state investments. The heads of companies often turn out to be front men of very high-level officials, who use the money they receive to build luxurious cottages in picturesque suburban places.


In the Udmurt republic in Central Russia, a trading company bought cattle, transported the meat to other regions and sold it for a profit. This is how market mechanisms should work. But on closer inspection, it was revealed that the firm had monopolized this trade. How? Through blackmail and threats. The company had employed armed thugs in leather jackets who visited the competitors and proposed that they close shop. The competitors had little choice but to comply. Can one speak of a market economy in such a situation?


The cattle firm was not headed by just any ordinary citizen, but by a former convicted criminal. This person had decided that it was time to go from fighting economic battles to engaging in political ones, and ran for a deputy seat in the republic's parliament. The candidate may have shared the same fate as Gennady Konyakhin, a convicted car thief who is now in jail but is still officially mayor of the Siberian city of Leninsk-Kuznetsk, but he was prevented from running for office.


The company had been audited in time. The audit uncovered its hidden revenues, a handful of fictitious firms through which money was laundered and documents for the transfer of city property, which formerly belonged to the kolkhoz.


Former Interior Minister Anatoly Kulikov said in an interview that from 40 to 50 percent of the revenues of organized criminals go toward paying off state officials. Alexander Dementyev, head of the main directorate in the fight against economic crime, added that it is the criminal nature of all branches of power that allows for so much untaxed money to be diverted from the state coffers.


Dementyev categorically told me: "You won't find a single honest millionaire in the country, because the economy itself has been criminalized and does not permit people to raise capital through honest means."


Perhaps he was overstating the case, and the corruption in government is only a temporary by-product of the transition from the Soviet economy. I spoke with Azalia Dolgova, president of the Association of Criminologists who is heading a working group of scholars preparing two bills for the State Duma, the lower house -- the so-called laws on the fight with organized crime and on the fight with corruption.


Dolgova believes that, from the start, the very conception of reform of the centralized economy was not worked out to take the potential for crime into account. She pointed to former Prime Minister Yegor Gaidar's book, "State and Evolution," which clearly said that the authorities had no choice but to pay off the former Soviet party and economic nomenklatura.


Dolgova concludes that organized crime, which has penetrated all layers of society, is in no way a mere consequence of reform, but the inevitable result of the corrupt way in which the transition was carried out. Yes, the authorities bought off the old nomenklatura, but at the cost of criminalizing the state. In order to strengthen their position, the new owners in their turn are buying off new authorities.


It is now clear that steps must be taken to rectify the reform policies. One such step is Dolgova's work on the bills on battling organized crime and corruption. The legislation on corruption has been passed three times by the Duma and the Federation Council, the upper house, in 1993, 1995 and 1997, and the president has sent it back on each occasion.


The bill says that any person running for government office is obliged to declare not only his taxable income and property, but his spouse's as well. Moreover, he must make his bank account, both in Russia and abroad, available for inspection and be able to account for the source of his income. He must also declare his participation as a stockholder or founder of any company, and inform the tax inspectorate of any gifts, services or power of attorney over the property of others. According to this law, the income declarations of category "A" officials, which include the highest members of the government, must be open to the public. Such officials must also declare their income three years after stepping down from public office.


"The legislative norms that we have worked out," Dolgova said, "are in keeping with international legal practice. In developed countries, this would in no way be considered a violation of human rights."


But here in Russia, I thought to myself, the president's close circle, for the sake of its own financial gain, will obstruct the adoption of this law until corruption in the country becomes a natural calamity.


Could this be the reason President Boris Yeltsin suddenly decided to make such a sharp change in those around him by dismissing the government?


Igor Gamayunov is a staff writer for Literaturnaya Gazeta. He contributed this comment to The Moscow Times.