Organized Crime and the Financial Crisis Recent Trends in the Baltic Sea Region

Organized Crime and the Financial Crisis Recent Trends in the Baltic Sea Region Editors Walter Kegö Erik Leijonmarck Alexandru Molcean Organized Crime and the Financial Crisis Recent Trends in the Baltic Sea Region Edited by Walter Kegö, Erik Leijonmarck and Alexandru Molcean Institute for Security and Development Policy Västra Finnbodavägen 2, 131 30 Stockholm-Nacka, Sweden www.isdp.eu Organized Crime and the Financial Crisis: Recent Trends in the Baltic Sea Region is published by the Institute for Security and Development Policy. The Institute is based in Stockholm, Sweden, and cooperates closely with research centers worldwide. Through its Silk Road Studies Program, the Institute runs a joint Transatlantic Research and Policy Center with the Central Asia-Caucasus Institute of Johns Hopkins University’s School of Advanced International Studies. The Institute is firmly established as a leading research and policy center, serving a large and diverse community of analysts, scholars, policy- watchers, business leaders, and journalists. It is at the forefront of research on issues of conflict, security, and development. Through its applied research, publications, research cooperation, public lectures, and seminars, it functions as a focal point for academic, policy, and public discussion. The opinions and conclusions expressed are those of the authors and do not necessarily reflect the views of the Institute for Security and Development Policy or its sponsors. © Institute for Security and Development Policy, 2011 ISBN: 978-91-86635-11-4 Printed in Singapore Distributed in Europe by: Institute for Security and Development Policy Västra Finnbodavägen 2, 131 30 Stockholm-Nacka, Sweden Tel. +46-841056953; Fax. +46-86403370 Email: [email protected] Distributed in North America by: The Central Asia-Caucasus Institute Paul H. Nitze School of Advanced International Studies 1619 Massachusetts Ave. NW, Washington, D.C. 20036 Tel. +1-202-663-7723; Fax. +1-202-663-7785 E-mail: [email protected] Editorial correspondence should be addressed to Dr. Bert Edström at: [email protected] This publication is sponsored by The Swedish International Development Cooperation Agency Baltic Sea Unit The Swedish Carnegie Institute Contents Foreword ��7 Introduction ��9 Walter Kegö, Erik Leijonmarck and Alexandru Molcean Estonia ��21 Mari-Liis Sööt and Liis Lill Latvia ��43 Andrejs Vilks Lithuania ��59 Aurelijus Gutauskas Poland ��85 Konrad Raczkowski and Grzegorz Gołębiowski Russia ��111 Yakov Gilinskiy Sweden ��127 Dan Magnusson, Nils Bagelius and Lars Vigerland About the Authors ��151 Foreword Organized crime has become increasingly transnational. Apart from being active in traditional forms of criminal activity such as drug trafficking, criminal groups are now involved in the legal and semi-legal economy running companies, laundering money and evading taxes. Over the last few years, the world has witnessed a financial crisis with implications that have been compared to those of the Great Depression of the 1930s. Much has been written on the impact of the crisis on economies and on how some countries have been more successful than others in miti- gating its negative effects. However, there is a topic that has not been as widely covered – the impact of the financial crisis on organized crime. The financial crisis has provided both challenges and opportunities for organized crime. Organized crime groups have invested in legal sectors, such as the real estate sector, and have seen those investments decrease in value. On the other hand, as risk capital became a scarce commodity, prof- its emanating from criminal activities had the potential to cover deficits. This may have opened up new possibilities for organized crime groups to expand into new markets and launder money. It is still too early to tell whether this has, in fact, happened, but what is clear is that the financial crisis has influenced the way in which organized crime conducts business. The Institute for Security and Development Policy has established an ongoing project that aims to monitor the evolution of organized crime in the Baltic Sea Region. As part of this project, researchers from Russia, Estonia, Latvia, Lithuania, Poland and Sweden have been invited to work out analy- ses of the current situation regarding organized crime in their respective countries. Our hope is that this book will be beneficial for those interested in the evolution of contemporary organized crime. We want to thank the SIDA Baltic Sea Unit for funding this project, the Swedish Carnegie Institute for supporting the Swedish chapter, Dr. Konrad Raczkowski, who gave us the idea for this book, and, last but not least, the authors. Walter Kegö, Erik Leijonmarck and Alexandru Molcean Introduction Walter Kegö, Erik Leijonmarck and Alexandru Molcean From 2008, the countries in the Baltic Sea Region were affected by the global economic crisis. The aim of this book is to present an overall picture of the evolution of organized crime in this region against the background of the economic crisis. The contributions are written by experts in the fields of criminology and economics. They contain information relevant for the understanding of where organized crime in the Baltic Sea region is today and where it is heading. The authors are solely responsible for the content and conclusions drawn in their chapters. The Concept of Organized Crime The concept of organized crime differs among academics, as well as among law enforcement officials, the general public and the media. Some place an emphasis on highly technical and narrow definitions, while others tend to include a broad spectrum of activities in the term. In this book, the various definitions have not been explored; instead, the reader is recommended to think about organized crime as the accumulation of wealth through criminal actions committed in cooperation between several individuals. The authors have used more specific definitions in their respective contributions, emphasizing different forms of crimes. They have thus achieved different types of results. In the Polish chapter, for instance, Konrad Racz- kowski and Gregorz Gołębiowski focus primarily on economic and financial crimes, while in his chapter on Russia Yakov Gilinskiy aims to describe the evolution in overall crime levels. Any comparisons between the different cases should take this into account. Measurements of Crime Levels In the Latvian chapter, the author discusses whether the decrease in reported crimes committed is a result of law enforcement agencies operating with 10 Introduction fewer resources. If law enforcement receives less funding, the public might turn away from reporting crime and an actual increase, rather than decrease, in crime levels will be recorded. Assuming that crime levels are to some extent influenced by the effectiveness of law enforcement, the financial crisis may have affected the levels of crime indirectly by decreasing the likeli- hood of criminals being arrested. Some authors argue that even if the general level of crime has dimin- ished, the activities of organized crime groups have increased in recent years. The differing approaches and definitions of central terms used by the contributors make comparisons between the case studies difficult. The upside is that each chapter gives a closer description of the development of organized crime than what would have been possible with a more coher- ently applied methodology and definition. Organized Crime and the Financial Crisis The three Baltic states have enjoyed remarkable growth rates in recent years, but have been hit hard by the crisis. In Latvia, GDP dropped by 18 percent and unemployment figures rose from 7 to 22 percent. The devastating effects of the economic crisis led to a decline in the public trust of politicians. Lithu- ania was also severely affected by the crisis, although it did slightly better than Latvia. Facing a tough situation, Estonia seems to have now overcome the worst effects of the crisis. Estonia has currently been granted access to the euro zone. In Russia, the economy proved to be extremely vulnerable to fluctuations in the world markets. Decreases in commodity prices, chaos on global financial markets as well as Russia’s war in the Caucasus had severe implications for Russia’s financial markets. Other countries, such as Swe- den and Poland, were also affected by the recession, but have managed to limit its effects. It is clear that the economic crisis has severely affected

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