NORTH CAUCASUS INSURGENCY FUNDED BY MAGADAN GOLD

In November 2012, Russian authorities discovered a criminal scheme designed to transfer considerable amounts of gold from the Magadan region in Russia to the North Caucasus where it is used to finance the insurgency. These and similar criminal activities indicate important changes in the financial arrangements of the North Caucasian resistance. While foreign funding played a considerable role in the early years of the resistance, such sources have clearly declined, inducing Russian Islamists to rely increasingly on the domestic sources, and engage in a constant process of innovation. Increasing connections between jihadists and common criminals and in some respects a criminalization of the movement which is absorbing many features of the criminal underworld facilitate this process.

BACKGROUND: The jihadists’ increasing reliance on domestic sources of funding is intimately connected with the evolution of connections between jihadists and the criminal underworld. This influence seemingly goes both ways, and the know-how existing in the criminal world on means for extracting money within the Russian system is proving increasingly useful to North Caucasian insurgents. One of the most important manifestations of the criminalization of jihad is an increasing frequency of protection rackets.
Such schemes, termed krysha in Russian, emerged in the beginning of the post-Soviet transformation when emerging businesses could not rely on the inefficient and corrupt law enforcement agencies. Criminals instead emerged as a sort of replacement, demanding “tribute” from particular businesses or individuals and in exchange promising “protection” against other criminals and implying that a business could only have one krysh. North Caucasian Islamists transformed this criminal tactic, providing it with a peculiar Islamic slant as a manifestation of zakat, the taxes prescribed by Islam to support the destitute members of a community. In the context of this new, criminalized version of “zakat,” it became a tribute which local Muslims shall pay to members of the resistance. While this represents a criminalization of the procedure, it also has clear specifics which make it different from the arrangements of ordinary criminals. Criminals providing krysha usually promised the client business protection from other criminal groups. The North Caucasian resistance promised no protection but simply noted that after payment, the business would be left alone. Blackmail was frequently conducted through disseminated video files, where members of the resistance proposed the receiving businessman to pay a certain amount of money or face the consequences, usually implying his death. As Rais Suleimanov has noted, most of the targeted businessmen agreed to pay. Such schemes have apparently become widespread and were carried out in locations far from the North Caucasus. However, the jihadists have seemingly become increasingly innovative in their fundraising efforts, seemingly experimenting with a variety of avenues and expanding their links to the criminal world. The recently discovered scheme for smuggling gold from the Magadan gold mines is illustrative of this tendency.

IMPLICATIONS: Some observers have claimed that criminals smuggled tons of golden ore from Magadan in the 1990s, which was used to finance the Chechen resistance. However, it is questionable whether large quantities of ore would be useful to the resistance at this time, due to the logistical problems involved in transporting it and using it as a means of payment. In addition, it is unlikely that Dudaev’s Chechnya possessed the facilities to refine the ore on a large scale, especially during the war with Moscow. While limited amounts of gold possibly reached the North Caucasus, the channels for transporting it were effectively blocked by Magadan governor Valentin Tsvetkov. Yet, Tsvetkov was killed in 2002 and this apparently provided a new opportunity for the North Caucasian resistance to extract gold from the province. As funding from abroad declined by the early 2000s, the North Caucasian resistance increasingly cooperated with criminals in establishing linkages to the local bureaucracy and law enforcement. It is likely that criminals provided connections between bureaucrats and the resistance. Russian officials have acknowledged that the “evil doers started to use more and more sophisticated methods to conceal stealing and dealing with precious metals.” The criminals “tried to engage the representatives of law enforcement” in their criminal activities. Engaging directly with law enforcement, the local bureaucracy, and the criminal underworld led to real results. Instead of golden ore, members of the North Caucasian resistance and groups affiliated with it could now obtain real gold. The gold was stolen from Magadan factories and the criminals, directly or indirectly connected with the members of the North Caucasian resistance, transferred it to jihadists. Criminals with ties to jihadists seem to have been engaged in the enterprise on a large scale. In 2011 and 2012, the authorities arrested members of seven criminal groups and more arrests are seemingly due, implying that the number of criminals with ties to the resistance has increased in recent years. The authorities confiscated 55 kilograms of gold, but this is presumably a fraction of the quantities already transferred to the North Caucasus, escaping detection. Gold seems to have become increasingly popular with members of the resistance, and reports have recently abounded of robberies of jewelry stores by criminals affiliated with the jihadists. Contrary to currency, gold cannot be traced easily and can also be stored for long periods of time. While gold holds obvious advantages to golden ore, transporting it to the North Caucasus from Magadan still presents a formidable logistical challenge. The distribution process has likely involved several stages, including extracting it from the factory or the mines, dividing it into transferable amounts and finally delivering it jihadists or their affiliates. It seems that highly trusted individuals received considerable amounts of gold in order to store it and administrate further transport. This was the case with a man in Kazan who was arrested in November 2012, in possession of 17 kilograms of gold presumably destined for North Caucasus. The very fact that the man resided in Kazan is indicative of the increasing influence of the North Caucasian jihadists in the Volga region, where they apparently have trusted contacts who can store the gold. These trusted individuals can then plausibly divide the gold into smaller pieces, which can then be delivered to the North Caucasus by other individuals. While the exact scheme for obtaining the gold and delivering it to the North Caucasus is unknown, it seems to be a well-organized enterprise featuring involvement of both the North Caucasian resistance and the criminal underworld.  Obtaining gold from Magadan is certainly not the only means by which the North Caucasian resistance has resorted to funds its activities when facing a shortage of foreign contributions. Law enforcement agencies in Moscow recently arrested a group of Islamists who were preparing a grand counterfeiting operation to produce several million Euros and US dollars.

CONCLUSIONS: Funding is essential to any enterprise, including terrorist activities. In its early years, the North Caucasian resistance mostly relied on foreign donors. At that time, the resistance was mostly inspired by nationalistic animus and did not feature significant cooperation with the criminal underworld, although contacts certainly existed. Yet, with the transformation of the resistance from a nationalistic movement to one embracing global jihadism, foreign donations decreased while not disappearing completely. Such funding mostly originated in Saudi Arabia and Gulf States, and was regarded as unproblematic by Washington as long as the resistance took a nationalistic stance within Russia. The jihadization of the movement and especially the events of 9/11, 2001, changed the attitude of the West. Moscow also increased the pressure on the Saudi and Gulf states governments, making the collection of funds much harder than before. The North Caucasian resistance has since increasingly developed its ability to extract funding from sources internal to Russia. Their increasing cooperation and interaction with the criminal underworld has also helped them to develop similar strategies. Extortion and robberies are the most popular, although the jihadists experiment with many different avenues for obtaining funds. One such scheme was to extract gold from Magadan through active cooperation not only with criminals but also with the corrupt local bureaucracy. This stress on internal funding has made the resistance more resilient and autonomous, and less dependent on foreign donors.

AUTHOR’S BIO: Dmitry Shlapentokh is Associate Professor of History, Indiana University at South Bend.