Russia looks to gulags in bid to solve its economic woes

Vladimir Putin has devised a plan for turning things around: offer amnesty to imprisoned business people

A business owner in Russia has a better chance of ending up in the penal colony system once known as the gulag than a common burglar does. More than 110,000 people are serving time for what Russia calls "economic crimes", out of a population of about three million self-employed people and owners of small and medium-sized businesses.

An additional 2,500 are in jails awaiting trial for this class of crimes that includes fraud, but can also include embezzlement, counterfeiting and tax evasion.

But with the economy languishing, Russian president Vladimir Putin has devised a plan for turning things around: offer amnesty to some of the imprisoned businesspeople.

"This can be understood in the Russian context," Boris Titov, Putin's ombudsman for entrepreneurs' rights, says of what is, even by the standards of the global recession, a highly unusual stimulus effort.


The amnesty is needed, he says, because the government had “overreacted” to the threat of organised crime and the inequities of privatisation, and over-prosecuted entrepreneurs during Putin’s first 12 years in power as president and prime minister.

Russia’s economy needs help. In the first quarter, growth fell to a rate of 1.6 per cent because oil prices are level. In that economic climate, few Russians seem willing to risk opening a new business that might create jobs and tax revenue for the government.

Putin told an audience of chief executives at an economic forum that releasing some businessmen would help revive the economy with “the values of economic freedom and the work and success of entrepreneurs”.

In 2010, the police investigated 276,435 “economic crimes”, according to the Russian prosecutor general’s office, whose statistics show burglary and robbery are prosecuted less than economic crimes.

So many Russian business owners are doing time that support groups have sprung up in Moscow for their families known as the 159 Society. It takes its name from the article on fraud in the criminal code. Rus Sidyashchaya, or Russia Behind Bars, organises weekly dinners for the wives of imprisoned businessmen.

Penal colonies
Russia's infamous penal colonies, rural camps swirled in barbed wire, appear today much as they did when Aleksandr Solzhenitsyn wrote the Gulag Archipelago in the 1960s. But at least one of every 10 prisoners today is a white-collar convict.

In the “zone”, as the prison camps are known in colloquial Russian, the business owners live in squat wood or brick barracks. It is a grim, violent, disease-ridden world, they say.

These newcomers are for the most part non-violent, though many are recidivists. Several indicated in interviews that they did well in prison, having the skills that matter: the ability to boss around other inmates, avoid abuse and bargain with the guards for little extras like cigarette butts or pillows.

Titov, an amiable former oil products trader who speaks bluntly about corruption in spite of his government job, spends his time combing through the list of economic criminals with a team of lawyers, trying to free as many as possible. “We fight for every one,” he says.

One of those Titov championed was Ruslan Tyelkov, whose short arc from businessman to inmate illustrates both the entrepreneurial spirit that still simmers in Russia and the risks. Tyelkov (32), from Moscow, invested almost his last ruble to open a wholesale upholstery business that could hardly have gone wrong in Russia: selling leopard-print fabrics.

In 2010, Tyelkov spent the equivalent of $31,000 (€23,000) for 25,000 yards of Chinese-made leopard-print fabric suitable for chairs and sofas. “It’s very popular here, not only for furniture but cloths, wallpaper, sheets, shoes, bags, everything.”

With no warning, the police arrived at his warehouses and removed every roll, handing them over to a competitor, ostensibly for storage, though they were later sold. They arrested Tyelkov, who spent a year in pretrial detention. The crime? The police said they suspected copyright infringement of the leopard design. “It was funny at first,” recalls Tyelkov. “I asked, ‘Who owns the copyright, a leopard?’”

Titov’s later investigation confirmed the police had colluded with a competitor to seize the merchandise under the pretext of a criminal case, so it could be sold for a profit.

While his business was ruined, Tyelkov says he did manage to apply his skills to the challenges of life in jail. He rose to become the informal leader of the cell he shared with a killer, a militant and drug addicts.

One business owner, the founder of a chain of computer stores, ran his legal operation for nine years from prison, Titov says, much as some drug kingpins do.

Incarceration has not gone so smoothly for everyone. In his first year in a penal colony in Siberia, former oil tycoon Mikhail Khodorkovsky was stabbed in the face with a shank, or homemade knife. The warden said another inmate was fending off an unwanted sexual advance, something Khodorkovsky's press aides denied.

While Khodorkovsky was in prison his company, Yukos, once the largest private company in Russia, went bankrupt, though investors had valued it as worth more than $40 billion before the arrest.

Most of the imprisoned are not there for any political reason. Their incarceration has to do with the nature of Russian corruption, says Elena Panfilova, director of the Russian branch of Transparency International, a non-profit group that studies corruption.

In Russia, the police benefit from arrests. They profit by soliciting a bribe from a rival to remove competition, by taking money from the family for release, or by selling seized goods. Promotion depends on an informal quota of arrests. Police officers who seize businesses became common enough to have earned the nickname “werewolves in epaulettes”.

In the first month of the amnesty programme, now six months old, the courts released 13 prisoners. – (Copyright the New York Times Limited 2013)