Comrades in Crime

The Roots of America's Russian Mob run deep beneath Zagrebsky Boulevard in St. Petersburg, where Andrei Kuznetsov grew up. Built in the Soviet era, Zagrebsky is a place of brick factories and crumbling eight-story tenements, of weedy vacant lots and rattling trams. If there were truth-in-labeling laws in Russia, this part of the city would still be called Leningrad.

Andrei never bought the ideologically prescribed view of life on Zagrebsky Boulevard as a privilege, a reward to his father for 12 years of faithful service to the Soviet air force in Siberia. He saw it for what it was: a three-room apartment where somebody had to sleep on a fold-out couch and the piano had to go in the hallway. A daily trudge to the market to pick over the dirty potatoes and turnips. The old man, Innokenty Kuznetsov, a stalwart Communist, thought this was enough to make a man content in his middle age. His son knew better.

With ferocious determination, Andrei schemed to get out of Leningrad. His launching point, in the mid-Eighties, was the network of tourist hotels in the center of the city. These places--the Astoria, the Yevropeiskaya, the Pribaltiskaya--admitted only foreigners who had hard currency to spend. Typically, visitors stayed in the city for a few days, taking in the Rembrandts and Da Vincis at the Hermitage, traipsing through the imperial palaces and absorbing occasional lectures on the merits of socialism. Normally, the state tourist organization diligently shepherded them, but they sometimes broke away to explore the city for themselves. That was where Andrei found his opportunities.

If he could befriend tourists, for instance, he could persuade them to trade dollars for rubles with him instead of with the state. They got a better exchange rate, he got the means to buy jeans and Walkmans.

Andrei had a talent for befriending people. He was a good-looking boy, tall and slender, with wavy brown hair and blue eyes. He studied various languages, English first among them. He was particularly good at charming women. He wrote poems for them. He flattered them. He sensed when they wanted sex and when they wanted proof that he had something other than sex on his mind.

Sometimes, as part of a seduction, Andrei would take people home for a meal cooked by his mother, just to show them his sweet, boyish side. Women tourists loved him. In the mid-Eighties, while he was still technically a student at Leningrad State University, he began to prosper in St. Petersburg's black market.

That, unfortunately, brought him to the attention of the KGB, which had always monitored contacts between Soviet citizens and foreigners, however innocent. With the beginning of perestroika, the KGB also developed an interest in nonpolitical crime. KGB eavesdroppers listened in on all the phones in the tourist hotels. KGB operatives infiltrated the hotel and university staffs. In 1986, this net swept up Andrei Kuznetsov and sent him to jail for three years. The charge was currency speculation.

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The KGB, like most things in Russia, has changed a great deal in the past seven years. It now calls itself the Ministry of Security of the Russian Federation. It has learned that in a democracy a police agency wanting to remain well-funded has to pay attention to public relations. It must crack down, or appear to be cracking down, on problems that concern voters. So nowadays, if a reporter wants to know about organized crime in Russia, he has only to call the Ministry of Security and ask for a briefing.

The reporter will be directed to walk past the glowering Lubyanka, symbolic headquarters of the KGB, to an old, pastel-blue merchant's mansion down the street. The waiting room has grimy brown linoleum flooring and matching chairs. A bust of Iron Feliks Dzerzhinsky, the KGB's founder, still occupies a place of honor. A few nervous Russians sit waiting for appointments. In a moment, Sergei Bogdanov appears.

Bogdanov is dressed in mufti, which means sneakers and a windbreaker with a label that reads Danny. He sees reporters in the sort of barren, empty office where police in all countries talk to people who aren't suspects but who aren't exactly trusted, either. He is the number two man in the ministry's public relations office, where his duties include producing a weekly crime-busters show for Moscow television. He has read, he informs his interviewer, some of the standard American texts on the art of public relations. He has also read The Godfather in a translation that circulated within the KGB in the early Eighties.

Russian organized crime, he says, lacks the hierarchy of the American Mafia. There is no Russian Godfather. Instead, there are some 3000 gangs, ranging in size from five members to dozens. They first formed in the Sixties, as the fear of Stalinism gave way to a pervasive cynicism and a thriving black market.

"They started out in petty gangs, dealing in things like robbery and speculation," Bogdanov says. Speculation, in this context, means selling something for more than you paid. A gang might buy some meat, illegally, from the director of a state store. Then the gang members would sell it, at retail prices, while the store director reported a theft.

With the advent of perestroika, organized crime exploded. Gang members could form legal private businesses and avoid the messy Soviet necessity of working for the state. These businesses served as a place for gang members to invest their initial capital as well as a cover for their operations. Bogdanov recalls one case, in 1989, in which a gang stole titanium from a defense factory, made shovels with it and exported the shovels to confederates in Japan, declaring a tax valuation of three rubles per shovel. Titanium in Japan was going for about $19 per pound, perhaps 100 times more than the tax value of the shovel.

As the legitimacy of the Communist Party eroded in the late Eighties, the gangs found no shortage of bureaucrats for sale. Policemen, prosecutors and tax collectors were bribed. "Our estimates are that two thirds of the gangs bought an 'umbrella' in the law enforcement agencies," Bogdanov says. "Of the ones who have international ties, maybe 90 percent have bought protection."

And increasingly, Bogdanov says, Russian gangs look for opportunities abroad. As Willie Sutton once noted, that's where the money is. Ties with the U.S. began with the era of mass emigration from the Soviet Union, which began in the early Seventies and peaked in Gorbachev's last years in power. So far, more than 200,000 former Soviet citizens have come to the U.S. since 1975. "It's easy, when someone has a brother in New York or Los Angeles, to arrange some kind of joint venture," he says.

There is, in Bogdanov's voice, more than a hint of schadenfreude. The KGB, after all, spent the last years of the Cold War listening to American sermons about the need to liberalize emigration, the economy and the criminal justice system. If Americans now come to Moscow with concerns that these liberalizations have led to a new crime problem, one suspects that more than one KGB man is muttering "I told you so" into his vodka.

Bogdanov recounts the case of a Moscow gangster called Delyets, or "the Dealer." He began his career as a thief. Then he formed a gang that specialized in stealing icons and paintings. The Dealer branched out. He created two private businesses that smuggled automotive spare parts out of Russia, bribing customs officials to do so. He controlled prostitution around the Kiev subway station and the adjacent Slavyanskaya Hotel. He had a protection racket going with the truckers who needed a place to park outside the station. Delyets was arrested in February 1992, but after two months in jail, he paid an 800,000 ruble bribe to a prosecutor in return for the opportunity to make bail. Once he was back on the streets, the witnesses against him soon decided to forget whatever they had known about the Dealer's various enterprises.

During those two months, though, other gangs had muscled in on the Dealer's territory, typifying the anarchic nature of the Russian Mob. There is no "family," no structure to protect the business of a man who takes a fall. The Dealer, Bogdanov has heard, decided not to attempt the difficult and potentially bloody task of recapturing his turf. Nor was he interested in buying it back. Instead, rumor has it, he was pulling together the capital and the false documents he needed to go abroad. And Bogdanov has an idea where the Dealer wanted to go. "When he was arrested back in 1992," he says, (continued on page 130)Comrades in Crime(continued from page 72) "the Dealer had a ticket and a visa for the United States."

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A ticket and a visa--those were the two things Andrei Kuznetsov most wanted when he got out of jail. He began the process of reinventing himself by putting his charm to work in the Leningrad art community. In the late Eighties, Western artists and art dealers began showing up in force in Russia. One of them was Serge Sorokko, a Soviet emigrant who was a co-owner of a chain of art galleries in New York, Beverly Hills and San Francisco. One of Sorokko's artists was another emigrant, Mikhail Shemyakin. In 1989 Sorokko staged an exhibition of Shemyakin's work in Russia. He needed a local factotum, and an ingratiating Andrei volunteered. Andrei then capitalized on the contacts he made through the Shemyakin exhibition. One dealer agreed to invite him to visit the U.S., a necessary requirement in the visa process. At the end of 1989 he left Russia for good.

Once Andrei was in the U.S., Sorokko set him up with a job selling art at his gallery on Rodeo Drive. It is a place where, in addition to Shemyakin's works, Hockneys and Warhols are sold to people who have blank walls and $10,000 or $20,000 to drop on a print. There is even a room of etchings done by Pablo Picasso, though these are from the artist's dirty-old-man period, mainly pictures of women diddling themselves.

A good salesman could earn $5000, even $15,000, in commissions a month. Andrei was a good salesman, particularly with the Shemyakins. "He was a likable guy," his former boss recalls. "Great with people, could smell money and was very persistent."

In the space of a few weeks, Andrei had gone almost as far from Zagrebsky Boulevard as a man could go. The sights and smells of wealth assaulted his brain: leather from Bernini and Bally, perfume from Giorgio, diamonds from Carrier. He could cruise down streets lined with soaring royal palms and mansions so big the gardeners needed assistants. He bought a used BMW and then traded it in on a champagne-colored Mercedes. He rented a little house in West Hollywood, not far from Sunset Boulevard. It wasn't quite Beverly Hills, but it had a fireplace, a deck and a hot tub, and if he craned his neck he could see the tops of the palm trees in Beverly Hills. Andrei had reinvented himself.

Los Angeles was full of glamourous women--both Americans and Soviet émigrés--unlike any Andrei might have met on Zagrebsky Boulevard. Whether Russian or American, the women were equally responsive to a smile and a little poetry, and Andrei pursued them relentlessly. He generally had two or three lithe young women with him at exhibition openings. Frequently, they visited him during the day, hanging out at the gallery.

In the summer of 1991, he married a California girl whom we'll call Michelle. She was a 20-year-old blonde with long, tanned legs and cornflower-blue eyes. She was a saleswoman at Neiman-Marcus when he walked in one day, introduced himself and asked her out. She declined. He got a Russian-American girl who worked at the store to act as a go-between, and Michelle finally consented. On their first date, he took her to his home in West Hollywood, where his mother, Galina Ivanovna Kuznetsov, visiting from St. Petersburg, cooked an enormous Russian supper. When he proposed, Michelle understood that Andrei wanted to marry her because he needed a green card. He was seeing, and would continue to see, other women. She loved him anyway, and she agreed. On their wedding night, he left her alone, going out with other people.

The money Andrei was making at the art gallery soon wasn't enough to attain the lifestyle to which he aspired, and he began to probe for ways to get more. One day the gallery's director got a call from a customer in Texas who had bought a picture with his credit card. The man said he had used the card only once in Los Angeles. But his latest bill had florists' charges on it, all for flowers delivered to women in the Beverly Hills area, including one bouquet to a woman who sold perfume at Giorgio. Andrei denied using the customer's card number, then said that a friend who had visited him in the gallery might have done it.

The gallery started to watch Andrei closely. One evening the phone rang, and a manager picked it up.

"Andrei?" a man asked.

"Yes," the gallery manager said, stringing the man along.

"You were supposed to send me two girls. Where are they?"

That phone call cast a new light on the pretty women who kept visiting Andrei at the gallery. He was fired, with the understanding that the gallery would not prosecute him if he never set foot in it again.

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Andrei was hardly the first Soviet emigrant to the U.S. to dabble in fraud. The Soviet Union had a long tradition of producing grifters. In fact, the Russian language has several synonyms for the term, and the most beloved comic novel of the Soviet era, The 12 Chairs, is about a con artist named Ostap Bender. Finding a way to swindle the state was a survival mechanism during the declining years of communism, and no one thought it wrong. It's no surprise that while most Soviet immigrants were looking for an honest path to a better life, some of them--arriving in a country where the police need a court order to tap a telephone and where there are vulnerable institutions such as checking accounts, credit cards, corporations and insurance companies--perceived their new home as a candy store without a proprietor. Fraud became the mainstay of the new class of Soviet-American racketeers.

Much of the fraud is directed against fellow immigrants. Some members of the Russian-speaking community devised new variations on the Ponzi scheme. At the time Andrei arrived in Los Angeles, an immigrant was getting rich by buying a small fleet of used passenger vans from hotels and car rental agencies, repainting them and putting them visibly to work in the streets. He then put out the word that anyone who invested $15,000 would own a van and receive a guaranteed $600 monthly profit. After selling each van a dozen or more times and using the new money to make a couple of $600 payments to his first customers, he sold the van fleet to Mexicans on the other side of Los Angeles and left town. When the victims located the new van owners and demanded their money back, they got only a shrug of shoulders.

Other Russian racketeers were involved in loan-sharking. An émigré might borrow money at 30 percent annual interest but be unable to make his payments. The loan sharks would arrange for the unfortunate businessman to borrow more money from other members of the Russian-speaking community, this time at 60 percent. The sharks would take a commission on the (continued on page 160)Comrades in Crime(continued from page 130) new loan, get their original money back and act as collection agents for the new loans. Typically, the borrower wound up hopelessly in debt to a wide range of people. When they had wrung all the money they could from the borrower, the loan sharks would settle the debt by taking over his business.

But the Ponzi schemes and loan-sharking are nothing compared with the fraud engineered in southern California by the Smushkevich brothers, David and Michael. Using pliant physicians and mobile clinics, the Smushkeviches offered free physical examinations. To keep the clinics full, they used telemarketing to find patients or, in some cases, went out on the streets to round up volunteers among the homeless. Once they got a patient into their clinic, they hooked him up to a few electrodes and diagnosed him with ailments ranging from heart disease to diabetes, even if the patient were healthy.

They billed insurance companies, Medicaid and the California medical system an average of $8000 per patient for treatments the patients neither needed nor, in many cases, received. When the Smushkeviches pleaded guilty in spring 1993 to charges of mail fraud and money laundering, among other crimes, their prosecutors estimated that the brothers had bilked American government agencies and insurance companies of at least $80 million.

In the New York area, the other U.S. center of Soviet immigration, the federal government has allegedly become the dupe in schemes involving gasoline taxes. Under the law, distribution companies known as producers can buy and sell gasoline among themselves without paying the federal excise tax. When the gasoline finally goes to a retailer, the tax must be paid. According to an indictment handed down in New Jersey last May, racketeers from the former Soviet Union set up dummy corporations, including one known as the burn company. They shuffled the gasoline among dummy corporations, leaving the tax liability on the burn company. When the government came to collect the unpaid taxes, the burn company disappeared, along with the entire chain of dummy corporations that led to it.

According to the U.S. attorney for New Jersey, various permutations of this scheme have cost the federal government as much as $2 billion annually. The New Jersey indictment involved about $60 million in unpaid taxes. It named Victor Zilber, who emigrated from the Soviet Union in 1979, as the man operating many of the dummy companies. And it revealed a link between the Russian racketeers and the Mafia. According to the indictment, the Russians had been in partnership with the Gambino family in the tax-fraud business.

Comrades, they must have been asking themselves, is this a great country or what?

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By the time Andrei Kuznetsov left the art gallery, he was ready to set up his own racket. A co-worker recalled that Andrei had long been fascinated by checking accounts. The idea that he could sign his name to a piece of paper and actually buy things with it intrigued him. How did the banks handle the paper? How long did it take them? What happened if there was no money to cover the check? He made it his business to learn and exploit the answers to those questions.

He soon found several weaknesses in the checking system. A merchant might call a bank to make sure that a customer presenting a check had the funds to cover it. But after the merchant accepted the check, it might take a day or so for it to arrive at the bank. If the bank delayed the processing for a day or two more, there would be time for a determined swindler to use the same money to write checks in dozens of stores. The banks and the police would eventually come after him. But what could they do if the swindler had gone back to Russia?

Of course, Andrei did not want to leave Los Angeles. But back in St. Petersburg there was an almost unlimited supply of people who would like nothing more than to come to California, shop for a week or so, take a small cut of the proceeds and return to Russia. They could be his foot soldiers.

Now he needed allies in the major banks, so he worked hard to meet women in the check-clearing departments. Soon, he was boasting to associates that his checks would linger in the bank for days before being presented for payment.

He needed customers. That was easy. He put out the word that he could get virtually anything for his friends at half price. "He was quite open and arrogant about it," recalls one Los Angeles woman to whom Andrei offered a $9000 Cartier watch for $4500. "He said that if I ever saw something in a store that I wanted, I shouldn't buy it. I should tell him and he'd get it for me."

Once Andrei's operation was up and running, it worked simply. He usually had a couple of shoppers working for him in Los Angeles and two more in training. He would rise early in the morning and go over his books and his orders. Then, promptly at 10 A.M., he, the shoppers and a driver would hit the streets in the Mercedes. Andrei would stay in the car and tell the shoppers precisely where to go and what to buy. They shopped steadily, all over Los Angeles, from the time the stores opened until they closed. As time went on, he found computer equipment to be a particularly lucrative specialty, but he also bought and sold rugs, antiques, cameras and jewelry.

His shoppers' checking accounts had fake addresses and names, but they had money in them while the checks were being written. And Andrei never let them spend more in a single store visit than the account held. So, if a store manager telephoned the bank to verify that the funds were on deposit, he would be told that they were. But by the time the checks were presented for payment, perhaps after being stopped or delayed for a couple of days by one of Andrei's helpful friends, he had withdrawn the money. And by the time the police started looking for the shoppers, they were back in Russia, their usefulness over after no more than two weeks.

In the meantime, Andrei had been training new shoppers in the proper ways to speak, dress and sign their names in an American store. He told associates he was netting as much as $50,000 per month from this racket. He was talking, according to police sources, of branching out by expanding his occasional pimping into a full-fledged escort service using Soviet émigrés.

He spent his money as fast as he made it, living what a Leningrad boy might imagine to be the exotic and glamourous life of a Hollywood man-about-town. He cruised at Bar One and Roxbury on Sunset Boulevard. He entertained lavishly. The champagne at Andrei's was chilled and abundant. He sent Michelle to New York, saying he didn't want her to be involved with the business he was doing in the house. He began dating another California girl, whom we will call Amanda. She became pregnant and told him she wanted to have his baby.

By then, Andrei was touching the fringes of Hollywood celebrity. He dated skier Suzy Chaffee. On the night of January 26, 1992, he was planning to attend a party at Bar One for Brigitte Nielsen, then midway between Sly Stallone and oblivion, but a movie star nonetheless. He was going to the party with Randy Webster, a Hollywood guy with a gold chain around his neck, a chiropractor who had left that profession in favor of more interesting enterprises: a modeling agency, a private investigation service and the inevitable film production company. Webster had found that going to bars with Andrei was a sure way to meet women.

But Andrei had miscalculated the temper of his new assistants, Sergei Ivanov and Aleksandr Nikolayev. Like Andrei, Ivanov and Nikolayev came from the Leningrad black market, where they had worked as a waiter and a bartender in tourist hotels and speculated in currency on the side. Each had emigrated to New York and knocked around in menial jobs for a year or so until they heard via the Russian grapevine that Andrei Kuznetsov was willing to pay good money for short stints of work in California.

They arrived in California late in 1991 and lived in Andrei's house for two months. Nikolayev made himself useful by cooking and cleaning house. Ivanov served as Andrei's chauffeur. They trained for their shopping spree, working on their English and their penmanship. But they chafed at being treated like servants while Andrei entertained his American friends and his women.

The precise motivation for what happened in Andrei's house on the afternoon of January 26, 1992, is a matter of dispute. Ivanov maintains that he and Nikolayev decided they did not want to shop for Andrei but were told they had no choice, because, among other things, he had their passports. Detective Dirk Edmundson of the Los Angeles County Sheriff's Department believes that they simply wanted to take over Andrei's business. Within Los Angeles' Russian émigré community, rumors swirled that Andrei had run into trouble for not passing on a percentage of his profits to the right people.

Whatever the motive, late that afternoon, Andrei returned from an expedition to an antique show. Ivanov and Nikolayev were ready. They had left the house earlier that day and bought surgical gloves at a Rexall store on Santa Monica Boulevard in preparation for Andrei's elimination. Ivanov waited until Andrei was heading for his bedroom, then pulled out a new Beretta .380 pistol, purchased a couple of weeks before at a store called Gun Heaven. He shot Andrei once in the back. Andrei turned, stumbled and fell to the floor. Then, as Andrei lay dying, Ivanov finished the job by putting a bullet into his chest and another through his handsome head.

Ivanov and Nikolayev cracked a bottle of champagne to celebrate. Then they donned the surgical gloves and, using a kitchen knife, cut off Andrei's fingertips and stuffed them into an empty beer bottle. They thought that the body, if found, would be harder to identify and trace without its fingerprints.

Ivanov and Nikolayev were caught, by pure chance, five hours later. While they waited for late night, when it would be easier to dispose of the body without being seen, they left a car in the driveway with the engine running. A neighbor called the sheriff's office, which sent two deputies to check on the car. When they knocked, Ivanov answered the door. The deputies noticed blood on his hands and asked him about it, and shortly thereafter, Ivanov pulled out his gun. After a short struggle, he and Nikolayev surrendered. The police found Andrei Kuznetsov's mutilated body, half covered with plastic garbage bags, awaiting interment.

The police carted away the remnants of Andrei's American career: five computers, four printers, four photocopiers, assorted rugs, watches, jewelry, telephones and cameras, a case of Moët & Chandon and 22 checkbooks. They found six messages from different women on the answering machine. Michelle, now a widow, came back to California for the funeral but decided to return to New York. Andrei's mother flew in from St. Petersburg and took her son's ashes home. She buried them next to his grandmother in a village called Ropshe, not far from Zagrebsky Boulevard. She reports that a young woman named Irina, whom Andrei knew, has collected some of the poems he wrote before he emigrated and hopes to publish them. Galina Ivanovna returned to Los Angeles in 1993 to visit Amanda, who went ahead and had the baby she was carrying when Andrei was killed. It was a boy, and she named him for his father.

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Andrei Kuznetsov's murder, and the subsequent statements by Ivanov and Nikolayev, helped the police in Los Angeles fill in their picture of what is often misleadingly referred to as the Russian Mafia. Firsthand testimony about Russian rackets is hard to come by. Like all immigrant communities, Russian-Americans protect their own. Only because they were facing the death penalty did Ivanov and Nikolayev speak freely about their erstwhile boss' business. The picture that emerges suggests several major differences between the Russian gangs and their predecessors.

Unlike La Cosa Nostra, the Russians have yet to develop a disciplined hierarchy of families, captains and bosses. The Russian Mob is, for the moment, truly a mob--leaderless. No links have been found between Andrei Kuznetsov and the Smushkevich brothers, or to any of the other Russian gangs known to police in southern California. After they were caught, Ivanov and Nikolayev were entirely on their own, represented by court-appointed attorneys. And Andrei's lifestyle suggests a criminal subculture in which every man is responsible for his own discipline, or lack of it.

Still, some law enforcement experts think it is only a matter of time before the ex-Soviets catch up to the Italian-American Mafia in discipline and organization. "They're now like the Mafia was back in the Twenties and Thirties. But I think that they'll far surpass it," says Detective Terry Minton of the organized crime intelligence division of the LAPD. "They're more ruthless and they'll learn from the mistakes that La Cosa Nostra made." Minton is particularly fearful that the Russian gangs will make a connection to the desperate Russian armaments industry, and that he will soon be seeing AK-47s and heavier weapons on the streets in Los Angeles.

But the ex-Soviets have to overcome some major disadvantages before they rival La Cosa Nostra. Prohibition and the profits from bootleg liquor turned Italian gangs from neighborhood thugs to entrenched and powerful American organizations. Drugs are the analogous source of money and power for organized crime in the Nineties. Russian gangs have entered the drug business in a small way by becoming middlemen in shipment schemes designed to fool customs agents not trained to think of eastern Europe as a point of origin for dope. But Russia does not have the climate to be a major drug producer and lacks the hard currency to become a major market. And Russian gangs will have to displace entrenched black and Hispanic gangs if they want a big share of the business.

The Italian gangs established themselves on these shores on the crest of an enormous wave of virtually free, legal immigration around the turn of the century. That wave provided a pool of recruits and a substantial base of businesses in which to launder money. Immigrants from the former Soviet republics have to compete for places in the immigration queue and their numbers will remain comparatively small. Of those who do come, there will be many who are educated and want only a chance to compete for a legitimate role in the American economy.

But there will inevitably be more people like Andrei Kuznetsov. They will be graduates of the tough school of rackets in Russia. They will see America as a soft touch, a land of golden, illicit opportunity. And their careers will reflect all the chaos and cruelty, the romance and greed of the culture that produced them.

"Los Angeles was full of glamourous women unlike any Andrei might have met on Zagrebsky Boulevard."