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Spreading Tentacles

An influx of illegal Chinese immigrants into the Russian Far East is helping Chinese organized-crime gangs to gain a lucrative new foothold in this lawless territory.


Not much is known about gangster boss Lao Da--"Elder Brother." What is known is that he goes by at least two other names, Li Dechuan and Liang Chuannan, and that he comes from northeast China. He has three gangs--The Wolves, The Snakes and The Mad Dogs--that smuggle everything from fish to illegal migrants. He has invested in local gambling and tourism operations, including some legitimate businesses, and he regularly extorts protection money from business people. Those who resist risk losing their ears or fingers--or their lives.

Lao Da keeps a low profile, yet he is well connected with local administrators and law-enforcement officials. But late last year, he and about a dozen of his cronies were arrested. None of them, however, ever went to court. When it comes to Lao Da, the police will say nothing. The Russian police, that is.

Lao Da may be Chinese, but in just a few years he's turned himself into one of Russia's crime lords, centring his activities around the port city of Vladivostok. He's not alone. "Over the past few years, we have seen a dramatic increase in Chinese organized crime here. They are investing heavily in local enterprises," says Vitaly Nomokonov, director of its Centre for the Study of Organized Crime at Vladivostok's Far Eastern State University.

The rise of Chinese criminals in Russia's Far East has come in parallel with an influx of illegal Chinese migrants. Vladivostok was once a largely Chinese city, but thanks to the purges of Soviet dictator Josef Stalin it was until recently the only major port city in the Pacific Rim without a Chinese community. Since the collapse of the Soviet Union, Chinese from the heavily populated northeast have been tempted to cross the border into the Russian Far East, where land is plentiful and business opportunities abound, especially in the booming underground economy. Most live in the suburbs, or in other Far Eastern towns such as Ussuriysk and Blagoveshchensk, and in the smaller township of Pogranichnyy, where they outnumber the European population.

By its very nature, the migration is largely undocumented, so it's all but impossible to come up with hard figures on its scale. Local media like to cite a figure of 200,000 Chinese migrants, equivalent to less than 3% of the local population. But for the 7 million residents of the Russian Far Eastern Federal District--an area two-thirds the size of the United States and which is next door to a part of China that's home to 100 million people--perceptions count for as much as realities.

"The Chinese are everywhere now," says one 31-year-old local businesswoman in Vladivostok. "They control most of the casinos, all the Chinese restaurants and even some Russian hotels and eateries. Actually, Russian businessmen, both legit and shady, have only two areas left for them: the import of second-hand cars from Japan and fishing."

Facing racial prejudice and the threat of deportation, many migrants choose--or are forced--to work for ethnic-Chinese gangs, which are linked to mainland Chinese triads. Those who don't work directly for the gangs, such as stall owners in the city's Chinese market, often have to pay protection money instead. In return, the gangs arrange for bribes to be paid to local officials to make sure the vendors are not sent home. Some have business visas, many have no papers at all.

Flying Money

The Chinese underground banking system has many names. One is fei chien, or "flying money"--a bit of a misnomer as the money never leaves the place where it is paid. But it can still be collected almost anywhere in the world with an ethnic-Chinese community. So efficient is the system that police in Southeast Asia believe it transfers more money in and out of China than the official banking system. Now, for the first time, this network has reached the Russian Far East.

The system works like this: If a businessman--or smuggler--in, say, the northeastern Chinese city of Harbin wants to pay for goods brought in from Russia, Thailand or anywhere else, he may be reluctant to use his local bank. The Chinese renminbi is, at least officially, not convertible (nor is the Russian rouble), and foreign-currency transactions are restricted. Chinese banks are also often slow and can levy hefty charges.

Instead, he can go to, say, a nondescript travel agency in Harbin and pay in his renminbi. At the other end, his business partner can go along to, say, a money changer and pick up the equivalent local currency or U.S. dollars. The system is also useful if our businessman wants to visit his partners overseas. He just hands in his cash at the Harbin end and collects it at his destination, so avoiding currency-control restrictions. "The system is swift, safe, secret--and free, and there is no paper trail," says a Western investigator.

So how do the members of the underground banking system, often operating behind fronts like travel agencies and money changers, run the system? Relying on mutual trust--and fear of the consequences if they try to cheat each other--they shoulder any disparities in what they pay out and take in; about once a year, they communicate with each other and settle up their balances. And, while they don't levy fees for their services, the extra cash flow allows them to buy things like cheap consumer goods and sell them for a quick profit.

The problems of cross-border crime--and illegal migration--were deemed important enough to be highlighted in a joint declaration signed by Russia's President Vladimir Putin and his Chinese counterpart, Hu Jintao, on May 27 this year. Russia and China agreed to create a joint working group to curb the uncontrolled movement of people across the common border.

Gangsterism is not a new phenomenon in the Russian Far East. In a speech in April, Russian Internal Affairs Minister Boris Gryzlov stated that the Far Eastern region has Russia's worst per-capita crime rate. Paradoxically, crime these days is less visible than it was when the local Russian godfathers ran smuggling rackets, gambling dens and prostitution rings, and carried out kidnappings, drive-by shootings and Italian Mafia-style car bombings. Flamboyant and badly organized, the first wave of Russian crime bosses wasted much of their energy on pointless turf wars. Their triad successors are much more discreet.

Somewhat ironically, says crime expert Nomokonov, it was one of the last of the old, fabled Russian crime bosses, Evgeny Petrovich Vasin--nicknamed Dzhem or "Jam"--who first brought the triads to Vladivostok. He wanted to counter competitors from European Russia and Central Asia, who had flocked to the area after the collapse of the Soviet Union in 1991. In the mid-1990s, he paid several visits to Shenyang in China's northeastern Liaoning province to contact the triads. Shortly afterwards, Lao Da arrived in Vladivostok and a partnership was established. Dzhem died in October 2001 and, not surprisingly, the elusive Lao Da showed up at the funeral to which he donated $100,000, according to Nomokonov. Since then, Lao Da has been running the show essentially alone but with the backing of some Russian partners.

About the only criminal activity that Lao Da and his gangs haven't monopolized is the local trade in hard drugs, which is still in the hands of Tajik, Kazakh, Chechen and other Central Asian mobsters, who bring in heroin from Afghanistan. On two occasions--in 1994 and 1999--North Korean intelligence agents and government officials were caught trying to smuggle Southeast Asian heroin and opium into the Vladivostok area. According to the local police, only ephedrine and smaller quantities of Southeast Asian heroin are smuggled in from China.

The rise in Chinese organized crime and illegal migration has fuelled racist attitudes towards all Chinese, even ordinary businessmen who are actually victimized by the triads through their protection rackets. "We Russians are now working for the Chinese, and most people hate it," says a young businesswoman in Khabarovsk, some 700 kilometres north of Vladivostok.

In reality, though, Russia's Far East may be just too poor to attract huge numbers of migrant workers, who are better off at home in China. Yet, though it's more of trickle than a flood, Nomokonov calls the movement of people across the border "unstoppable" and says that the authorities must make sure is doesn't "damage Russia's national interests."

Especially worrying is the spread of a parallel economy that the authorities just can't control. Last year alone, an estimated $200 million was transferred from China to the Russian Far East, mostly through the Chinese underground banking system, which Nomokonov says is becoming well-established in the region. Most of the money goes to finance illegal logging and fishing deals with Russian interests, while vast amounts have also been invested in hotels, casinos and related enterprises.

Most of the timber and the fish is smuggled to China, Japan and South Korea, and, says Internal Affairs Minister Gryzlov, the government is losing millions of roubles' worth of revenue every year. Enforcing the law in this corner of Russia has never been easy, and Gryzlov noted in his speech that of 151 bribery cases filed in 2001 and 2002, only 20 made it to court and only one of the suspects received a prison term. Keeping the region under central control may prove even harder now that godfathers like Lao Da are putting down ever-deeper roots.

This article first appeared in the Far Eastern Economic Review, October 02, 2003

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