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Grigory Pasko: Interview with Yuri Schmidt

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Author’s intro:  President Dmitry Medvedev recently sent a package of amendments to the Criminal Code and the Code of Criminal Procedure to the State Duma. The amendments, as was announced, are aimed at the humanization of punishments for economic crimes.  For example, the amendments propose the exclusion of Article 173 of the Criminal Code regarding “false entrepreneurship,” as well as the removal of the violation of “license requirements and conditions,” and “unlawful banking activity.”   It was likewise announced that the presidential law will be adopted according to an accelerated procedure and has already now been sent out for distribution.

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If the law is adopted, then it is not difficult to imagine that the softening could also affect the former managers of the YUKOS oil company, the criminal trial in whose case has been going on for more than a year already in the Khamovnichesky Court of Moscow.

I had a discussion with the well known lawyer Yuri Markovich Schmidt about kinds of economic crimes these amendments deal with, how they were regarded by Russian courts in the USSR, and how one can assess the appearance of the new winds blowing in the legislation with respect to economic. What follows is the transcript of Yuri Schimidt’s comments to me.:


Yuri Schmidt:  «- I took part many times in so-called economic cases and can saythat criminal policy in the sphere of the struggle with economic crimeswas a continuation of the bolshevist policy of uprooting the brightest,most talented and energetic part of the population. This began with thered terror and continued in the course of the entire Stalinist periodof time. Inasmuch as I had already missed the Stalinist period, but hadbegun my work using the codes of the year 1926 – these were theStalinist codes, but besides them there were also directive documents ineffect – edicts: on the struggle with thefts of personal andsocialist property. Punishments under these edicts were as much as 25years of deprivation of liberty. I can say with complete certitude: ifnot for the private initiative that did manifest itself,unconditionally, given the presence of personal interestedness, life inour country would have been worse, while the losses that were borne bythe national economy would have been many times greater.
In the sixties I defended Valentin Tabunkov. His private brigade,«shabashniki» as they were then called, saved, probably, millions oftons of grain, which would have been burned had the brigade not workedday and night and not prepared the necessary quantity of alsphaltedgrain storage areas for the gathering of the harvest.

I remember the time of the establishment of the student detachments.When this movement began, the calculation was such that the state wouldget a «freebie» – free use of the labor of a huge quantity of people. Iwas still studying at the university when the Komsomol meeting wasadopting a decision on how everybody has got to travel to the studentdetachments. And whoever did not submit – and I did not submit, forwhich I had 5 different reprimands – that one was «not a patriot and notone of our people». This movement subsequently changed strongly. Theybegan to attract the students with the opportunity for earnings. Afterthis, people began to sign up for this completely voluntarily. Becausea paradox, of which there were not a few in Soviet legislation, becameapparent: local organizations could pay workers from the outside morethan their own workers. They had the right not to observe thoseprovisions of the labor code that restrict the opportunity to pay out alarger wage. And the volunteers came: even graduate students, simplyformer students. In the winter at the main job they would bear loads ina voluntary retinue, in order to earn free days for work in thestuddetachments. Then they would earn more in two months than engineersdid in a year. Personal interestedness was present.

There is a mass of such examples.
It is accepted to berate the shop workers, but they were doing a greatthing. I had a defendant in one such case… A most simple variant.Someone’s attentive gaze noticed that a mass of waste products are beingcreated at a lacemaking factory and not going into big production: allkinds of cuttings and trimmings…They were surrendered for a symbolicsum in the capacity of rags to a locomotive depot.
The person with the attentive gaze and an entrepreneurial streak came upwith the idea of making things that were beautiful and necessary topeople from this waste, as an example, lace shams for pillows. An artelwas created, raw material purchased – the waste from the factory -moreover at a price higher than the depot was giving. Several dozenseamstresses worked in the artel. Part of the output went into statesale. But this initiative never would have happened if there were not abenefit: therefore another part of the output was realized withoutdocuments, and the participants in the cycle, including the workers,divided up the money for this.

What harm came to whom from this? Only benefit.

And the famous butter case of Krayzman! A fantastic person. He wasan intermediary, supplied several large regions in the North withvegetables and fruits. From Vologda and Yaroslavl he shipped butter tothe southern regions of the country. And all this was achieved withbribes (the organization, the railroad cars and so forth). He earned alot of money, but he brought a real benefit: the cloddish state withits planned economy could not provide on the virgin lands – thepreservation of the wheat harvest, in the south – fruits and vegetables,the production of output such as pillow shams… At times the statecould not jump higher than the head: it was a planned economy. But theprivate entrepreneurs could fulfill these functions. If not for them,the harvest would rot, people would not get the necessary output.
Such initiative helped the national economy function more efficientlywith benefit both to the country and to people.

A distorted notion about the planned economy has always existed here -everything came out good on paper. The mathematical model looks ideal,in such a manner that everything is brilliantly planned out: prices,production… Karl Marx started with the premise that he calculated thefoundation of the productivity of labor based on the slave-owning model,when in reality the productivity of a large farming unit is calculatedmathematically as higher than that of a smallholder farm. On paper -good. In practice – different. Especially in our country.. But thehatred towards private initiative of the gray and dense managers,towards bright and non-standard personalities led to a situation whereliability for economic crimes was raised: remember the sadly famous«law on spikelets»…In the year 1947 they introduced an intensificationto replace the edict of the year 1932 – up to 25 years of deprivation ofliberty. Insanity!

But factually it turns out like this: that same situation with thesepillow shams: in the first variant the state was getting rags, andthere were not enough of them. In the second – finished output, real,that they realized at a retail price. And they were making somethingthat was not being sold, there was a shortage of such things.
But they calculated the damages thus: they estimated how manyunaccounted shams were produced, they counted, multiplied by the retailprice and said: this then is the damages. But they did not work out inadvance that all this was already waste, that the state had alreadygotten some kind of money for this waste, and that without privateinitiative nobody would have begun to engage in this at all.

By the way, about initiative and about how nobody would have begun toengage. There was such a case during the times of the USSR inSyktyvkar. I was defending the commander of a student detachment. Hisdetachment was fulfilling a whole series of jobs by contract in thelocal administration. In particular, the laying of sewage trunk lines.Along a street of the city of Ukhta, I believe. Time – limited: theconditions of the region north of the Arctic Circle. They were waitingfor the students like manna from heaven there. The studdetachers wereexperienced. They drew up an estimate for manual excavation. Whymanual: because there was a horrible shortage of equipment, especiallyexcavators. Second, the laying went alongside the fences of thepersonal houses of citizens, and there was no place for an excavator toturn around without damaging the fences.
The work orders were written out for manual excavation. The experiencedstudents negotiated with uncle Vasya the excavator operator for him towork on his own time , at night. They paid him for reworking. Theyalso negotiated with the citizens: they temporarily took down theirfences, so they wouldn’t get in the way, and promised to restore themafter the digging of the sewer line. Someone they paid for damages.Vasya dug out the trench, the students restored the fences, the workorder was closed. As for hand excavation they got big money. Less, itgoes without saying, the work of the excavator, the labor of uncleVasya, the fuel, the damage to the fences and so forth. But still theygot good money.

The case against them was initiated based on the fact of «theft ofthe difference between the cost of machine and manual excavation».Like, why didn’t they record machine excavation. They explain to them:it was impossible to do this: there is an estimate, confirmed by themain administration [glavk]; there is no equipment whatsoever and for along time; on the contrary, there is a problem – to urgently dig out thesewer line. And this way everything was done: the mainline exists,the money per the estimate has been paid out.

And such examples – a multitude. With respect to cooperatives I canremember, this is the end of the eighties… Two came and say to me thatthe tax inspectorate is coming after them This is today that thesituation with taxes is more normalized, more complex, morecorrupt…There was enough corruption back then too…. The claims againstthese two were not grounded on anything even under that miserablelegislation. And I showed them, do it like this. They look and say: «Yuri Markovich, we’ve been working in public catering for twenty years.We ourselves will suggest two dozen ways to get around …But we want towork honestly!»

Now this appeared then – the desire to work honestly. But normaland honest work did not work out for people. The further developmentwent in the conditions of a relatively free market, the more obstaclesthe bureaucrats and the state raised for entrepreneurs, the more theappetites of the bureaucrats grew, and, correspondingly, the morecomplex it became for people who wanted to work by the law, and not feeda horde of bureaucrats pressing down from above.

…I think that when the Lord God was distributing talents, he put thetalent of a musician, a writer, an actor into some, and in some – thetalent of an entrepreneur, a manager and a financier. In the Soviettime such a talent was not needed. But I met specifically talentedones. There were other cases when what was being spoken of was directthefts, but I am talking about entrepreneurship, from which there wasbenefit to people. Both to people and to the state as a whole.

Medvedev’s recent draft law – this is hardly the first draft lawcalled upon to really help businessmen-entrepreneurs. This is arevolutionary undertaking – before initiating a case, you have to grantthe opportunity to pay the taxes. And this will be like a preventivemeasure, which will deprive of grounds for the initiation of a criminalcase. What is advantageous for the state? When there are taxes andwhen the enterprise has not been destroyed. There is no difference here- whether the taxes were not paid intentionally or not. Direct benefitfor all. After all, in our country legislation was always madetougher, making the law into a bugaboo.
In our country they have broken up firewood in a large quantity underPutin. Besides YUKOS. They were winning kopecks, but losing billions.

The new draft law – a breakthrough. What happened and for whatreason did it appear? I think that there are people up on top who arecapable of assessing the situation better than we can. They have – onewants to believe! – not buffed and polished statistical data and reallydo realize what the practice of raiderism based on the premise that youcan lock up a competitor in jail, having captured his business, hasled to.

It is possible that the business-elite has managed to bring its pointof view to the leadership and to show that this is not to the state’sadvantage. «Business should not be given nightmares» – Medvedev’swords. So the draft law – is a real instrument, called upon toreinforce the president’s words with deeds.

I have one worry: our law-enforcement system has a huge reserve ofinertia. It, in the big picture, has changed very little from Soviettimes. Inertia – a frightening thing. In their mass the bureaucratsare working the way they’ve become accustomed to. They have become evengreedier, even more unceremonious, more avaricious they have become.Our practice of the application of the law is capable of killing anygood undertaking. Especially if the political leadership won’t have thewill for this.

In the big picture, you won’t achieve anything with the introductionof pinpoint changes. How does a democratic system function? First andforemost, control on the part of an articulate and capable opposition,which is goin to watch attentively for how the promises of the rulingparty and the laws are being executed. There has to be a free press,political competition… This – is the sole guarantee that the laws willwork at all, and will not remain an empty sound».