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. Last Updated: 07/27/2016

Kaliningrad: a Den Of Amber Thieves

Ancient Chinese burned it to honor guests. Mohammed made prayer beads out of it. Martin Luther used it to protect against kidney stones. Now, in Kaliningrad, home to the world's largest deposits of amber, Russians are stealing it at an alarming rate. Vladimir Kovalyev reports.

KALININGRAD, Western Russia — Each morning after a storm 28-year-old Yury Zamotin grabs his diving suit and heads for the Svetlogorsk beach to see if the Baltic Sea has coughed up any amber.

Not far off shore and dozens of meters down runs a massive vein of the "northern gold" that has been feeding Zamotkin and his family for years.

"It is really tough work, but I like it and have been doing it for as long as I can remember," Zamotkin says of his amber hunting along the strip 30 kilometers west of Kaliningrad.

"You've got to go to the shore in all kinds of weather if you want to find something. And it doesn't matter if there are gale-force winds or sub-zero temperatures. I just put on my diving suit and mask and head for the water," he said, grinning at the fortune nature has provided.

Russia's isolated Baltic enclave between Poland and Lithuania is well known for being home to the world's largest underground amber deposits.

An enigmatic object of beauty, amber is considered both a mineral and a semiprecious stone. It started forming in this region about 50 million years ago when sap from trees growing in the then-warm climate flowed into the rivers that eventually emptied into the Baltic. Now there is a solid stretch of amber several kilometers long and 50 meters underground.

Zamotkin is just one of about 2,000 local residents who search for amber along the region's coast.

Depending on the frequency of storms that churn up the underground river of fossilized tree resin, he says he earns about $5,000 a year, making his "hobby" his primary source of income.

But Zamotkin's main competitor, the state-owned Kaliningrad Amber Factory, a production monopoly that sits atop 90 percent of the world's amber, is currently in crisis.

'Everybody Steals'

The global amber market is estimated to be as much as a quarter of a billion dollars a year. Yet the Kaliningrad Amber Factory posted only a couple of million dollars in profit last year. Why?

The cause of the crisis, say government officials and local businessmen, is the massive number of thefts at the factory — thefts they claim are organized by the local mafia, which has had a stranglehold on the factory for years.

"Almost every day there are jeeps leaving the factory full of amber stones," said one local businessman who asked not to be identified. "The security company guarding the quarry is run by several notorious criminals who have already been in jail for a few years," he said. "The police guard only the front entrance and can't do anything to stop them.

"Everybody steals at the factory, workers and regional administration officials alike. But I don't want to talk about it. I have a family — and children. And two of my cars have already been burned. I don't want to be shot through the window," he said.

'If the factory closed, there would be nothing left of the equipment … people would steal it.'

Just last month some 730 kilograms of select amber stones was found in one of the factory's mines, apparently hidden there in order to be smuggled out later, according to local reports.

An analysis by the federal government completed last month estimates that roughly $70 million worth of amber was looted from the factory last year, or 60 percent of its total annual output. At the same time, the factory estimates it made 100 million rubles (about $3.5 million) in profits last year.

The factory's deputy director, Nikolai Petukhov, admits that pilfering is widespread, but claims that the losses are significantly overestimated.

"Everyone steals, including workers and especially guards. Amber has been stolen at all stages of the output process — during output itself, then during grading and during reshaping. But $70 million, that sounds like nonsense," Petukhov said in an interview this month.

"We don't even put out that much amber," he said.

Petukhov said people are looking to steal mostly big stones, which weigh 300 grams or more and sell for about 7,500 rubles (about $260) per kilogram, including the most expensive stones, which weigh over 1 kilogram and cost $1 per gram.

Only about 40 tons "of the most expensive stones" were mined last year, comprising only 14 percent of the total output, he said. According to management, most of these were for the renovation of the amber room at Tsarskoye Selo, Catherine the Great's summer palace near St. Petersburg.

Businessmen and local officials, however, say the factory's management lost control over production years ago.

"Under the official name of the state-owned Kaliningrad Amber Factory … large-scale theft of raw material is thriving, with most of the material then being smuggled into Poland and Lithuania," said Sergei Kozlov, the deputy speaker of the Kaliningrad Duma.

Shut It Down

In March, German Gref's Economic Development and Trade Ministry announced that the factory may need to be temporarily shut down to figure out what happened to to all that amber and money.

"The quarry and the factory itself should be divided to make control over the amber mining more effective. It is possible to envision the temporary closing of the quarry [for a period of time ranging from two to three years] to improve the current level of amber prices … and to prepare more effective measures for amber output control," the ministry said.

"There's a real mess in the factory. Until now we have only been talking about police measures to at least stop the contraband," Natalya Popova, deputy head of the ministry's regional department, told Vedomosti last month.

But Vladimir Gromtsev, the general director of the plant, said the federal government's plans to close the plant don't make sense.

"That means that the quarry would be filled with water and then it would be necessary to dig a new quarry. In other words, a completely new factory would need to be organized instead, which is a huge amount of money," he said.

"If the factory closed, there would be nothing left of the equipment … people would steal it," he said.

Workers, too, are not happy about the possibility of losing their jobs. The factory, in Yantarny, is 50 kilometers from the city of Kaliningrad and employs about 1,000 of the town's 7,000 residents.

"Closing the factory would mean poverty and disaster for us. This is the only place we can work here," said Yelena Birychinskaya, head of the factory's external affairs department.

"I have a family and it would be hard for me to support them if they close us down," said Andrei Cheremysh, another worker.

No to Privatization

Gromtsev said the factory started suffering difficulties in 1996 — three years after ownership was turned over to management and staff during privatization — when it was returned to state hands after the Supreme Court ruled the privatization illegal because the federal property committee never signed off on it.

As a result, the factory lost its reserve fund of more than 250 million rubles (about $70 million at the time), which was used to purchase privatization vouchers from the state in order to exchange them into shares in the factory, said Petukhov, the factory's deputy director.

"We spent the money that was supposed to go to purchase gold [to make amber jewelry]," he said.

During the Soviet period and up until 1993, jewelry production was the factory's main source of profit.

Petukhov said the previous management team borrowed from banks to pay salaries, but when it couldn't pay back the loans it started selling off equipment used to make gold and amber jewelry.

"They even repaid one of the local banks with a unique armored Iveka car that was used to deliver gold to the factory," Petukhov said.

But Gromtsev, the director, says the situation has improved. He says the factory's total debt dropped from 30 million rubles in 1996 to 10 million rubles in 2001.

"This year, we can pay back all the debt and start working with loans to develop the factory," Gromtsev said.

"We need about $7 million to cancel our debt and to purchase new equipment. If we succeeded in doing so, in two or three years we could be making a profit of 1 billion rubles annually," he said.

Kozlov, the deputy speaker of the Kaliningrad Duma, disagrees.

He says thefts at the factory are out of hand and military units from the Interior Ministry need to be called in to guard the quarry. He said each year 90 percent of the amber stones suitable for producing high-quality jewelry disappears from the factory, a loss of at least $30 million annually.

Kozlov suspects that factory management is involved in large-scale smuggling.

According to the factory's own statistics, amber output has dropped from 800 tons in 1995 to 441 tons in 2000. At the same time, amber exports to Poland actually increased from 51 tons in 1990 to 154 tons in 1998.

"Up to 70 percent of this is contraband," Kozlov said.

Based on these figures, Kozlov believes the Polish and Lithuanian amber industries are gaining from Russia's loss.

The Polish Connection

In 1997 the total turnover of the amber business in Poland was estimated at $100 million, according to a publication by the International Amber Market in Gdansk, Poland. Over the last 10 years, the export of amber jewelry from Poland increased 50 times, with a retail value of all items estimated at $300 million.

"I've got just one telling example for you," said Michael Simukov, head of Jewelry Crown, a Kaliningrad-based amber company.

"When I go to Gdansk, I see amber stones there that obviously were taken from Kaliningrad. They cost $60 a kilogram. Here, the same kind of stones cost $65, without all these taxes and customs fees, which should have been paid if it was exported legally through the border. Why is there such a difference?"

Regional customs officials in Kaliningrad interviewed for this article denied the existence of an amber mafia. Last year, only about 150 cases of smuggling were recorded by Kaliningrad customs — mostly vodka and cigarettes. Only about 100 kilograms of amber was confiscated.

"I wouldn't say there is organized [illegal exports] of amber taking place. There are only occasional cases, and we put an end to them immediately," said Oleg Sipyukov, head of the Kaliningrad Border Customs.

"Because of the criminal influence in the Kaliningrad Amber Factory, the region turned out to be a raw-material appendix to the Polish and Lithuanian amber industry," Kozlov said.

But businessmen polled in Gdansk do not agree. They say there is a completely different reason the amber business in Kaliningrad is stagnant. They say there is plenty of amber in Poland, and the quality is much higher than in Kaliningrad.

"The reason is that the amber field in Kaliningrad is different from the one we have here [in Poland]. Kaliningrad amber is deeper in the ground and that's why it is not wet enough to make forms out of it. Such stones start to break into pieces as soon as I start polishing them," said the head of a Gdansk amber company who asked not to be identified.

"The last figure I made from a Kaliningrad stone was six years ago, and I don't work with them any more," he said.

There are hundreds of workshops and retailers in the central part of Gdansk dealing in expensive, high-quality amber jewelry, compared with just one amber shop located on the central square of Kaliningrad. It's a clear sign of how successfully the amber industry has developed in Poland, compared with the area boasting the biggest deposits in the world.

Polish businessmen say it is mostly experience rather then external conditions that makes their amber more competitive.

"Russians don't make a good product very often, and that is not because they can't work. It's because there was no tradition of amber manufacturing there. My father and my grandfather were amber manufacturers, too, and taught me how to do this. You can't make things look perfect with only 30 or 50 years of experience," said another amber dealer who asked not to be named.

Jewelry Crown's Simukov said that Polish amber dealers have the advantage of more business-friendly legislation.

"It would take me a few months to get permission to export the jewelry I produce. I would have to go to Moscow several times to sign papers, while it is enough for a Polish businessman to put the jewelry in an open box, show it to customs officials and then send it by Federal Express," said Simukov.

"I get the impression that Russian authorities are getting a salary from Polish businesses to stop the competition," he said.