Feature Articles

June 2004
Russian Mafia Extorts Gambling Websites

By Clarence Walker, Investigative Reporter (Houston, Texas)

• Russian Organized Crime Syndicates: Are They America�s Most Dangerous Threat
• Does Russia Breed the World�s Best Computer Criminals (Hackers)?
• A Perfect Trap: FBI Nabs Russian Hackers
• A Legal Showdown: American Law � vs � Russian Law
• No Expectation of Privacy
• Russia Vilifies Americans: FBI Agents Charged with Hacking
• Confessions of Russian Hackers
• Endnotes
• P.S. (Editor�s Note)
Commonwealth of Independent States
     The Russian Commonwealth of Independent States.

     For decades, extortion (for money) has been a powerful weapon for mafia criminals to shakedown lucrative businesses and underworld operations. Extortions by Italian Mafia is legendary � their tactics ingrained into the American psyche; threats of bloodshed were real. �Pay us money � we protect you � or else.� Nowadays, there�s a new style of extortion and its not done by Italian Mafiosos wearing dark suits and glasses, nor is it done in person. This new-style gangsterism involves extortion of gambling websites carried out in cyberspace by human forces � forces who speak foreign languages � communicating demands across the globe. With devious intent, these brazen acts, carried out by dangerous criminals � whose intent to destroy American�s civilized world as we know it: the cyberspace criminals are none other than Russian mafia organized crime syndicates.

     �Russian crime groups,� the FBI says, �extort gambling websites out of millions of dollars by �hacking� into websites and shutting down the operation.� Such tactics prevent wagers from gambling. Once the sites become inoperable, the extortionist contacts the website owners demanding money. Afraid customers will place bets elsewhere with rival gambling sites, the owners pay the ransom. As technology enters the 21st century, Internet gambling has also emerged as a popular multi-billion dollar industry. Instead of traveling to Atlantic City, Vegas or New Jersey to wage bets � a gambler can stay home, fire up a computer, and place bets online to offshore casinos located in the Caribbean, Antigua or Spain. What online gamblers may not know is that under U.S. law (the 1961 Federal Wire Act) prohibits interstate or foreign gambling via phone or telegraph � which means U.S. citizens are breaking the law by placing bets online to offshore casinos. Yet, the lure to win a fortune overrides a gambler�s loyalty to obey the �law-of-the-land�. Computer fraud � criminals using inexpensive software tools to hack into the websites of online gambling, corporate businesses and financial institutions, ripping off millions of dollars is a global epidemic, law enforcement and hi-tech experts admit. In some cases, hackers steal credit card numbers, bank account numbers and passwords to rack up millions of dollars in illegal profits. Cyber-extortions, are the online equivalent of musclemen walking into a business and threatening, �this place looks like it will burn easily,� says Neil Barrett, technical director at the security firm Information Risk Management.

     According to law enforcement agencies, there are numerous reports of organized crime operations from Russia and Eastern Europe carrying out denial-of-service (DOS) attacks, to blackmail online gambling sites and e-commerce websites. In late 2003 and early 2004, online casino news reported that the FBI and National Hi-Tech Crime units discovered that computer hackers employed by Russian mafia launched a DOS attack on Worldpay System affecting thousands of online casinos. Online casinos rely on Worldpay to process customer�s transactions and pay off gamblers., including six other online businesses, was targeted by mafia cyber-extortionists demanding $50,000 per hit. D.K. Matai of M126, which monitors unauthorized computer hacking says criminal syndicates hired by Russian mafia have targeted large online payment systems owned by gambling sites. Technically, DOS attacks involve flooding a website with malicious traffic, and exhausting the servers with false requests. A typical extortion to online gambling and payment companies goes like this: �You have to pay us $50,000 or we will start DOS attacks or if you don�t pay us what we want, then we�ll make sure you don�t have customers.� The FBI has conceded the extortions were, in fact, paid off. Gambling websites are targeted due to the time-specific nature of service. For example, if customers cannot buy a CD online, they�ll try another place but if gamblers cannot place bets immediately, they point their browser to another competing website. For years, computer hackers have broken into America�s most secretive computer files, those owned by the U.S. Pentagon, NATO, Microsoft, Paypal and well known banks. �Russian organized crime groups have penetrated computers in the U.S. and other Western countries to obtain illegal profits,� said John Collingwood, FBI Assistant Director of Public Affairs, during a recent press conference. �Russian hackers pose one of the biggest threats to U.S. e-commerce and the computer industry,� said Julie Fergerson, a fraud detective and co-founder of Clear Commerce, a security company for e-commerce in Austin Texas. �We are seeing more and more sophisticated attacks from Russia and Eastern Europe,� Fergerson announced during investigative conferences. Another expert, T.Y. Sagalow, chief operating officer of AIG, E-business Risk Solutions, adds, �We are seeing many clients victimized by cyber-extortion because it�s easy to launch a cyber attack.� The FBI has warned American companies and businesses about Russian mafia hackers and how they�ve penetrated U.S. e-commerce computers by exploiting vulnerable unpatched Microsoft Windows NT operating systems. Microsoft representatives have known about the holes since 1998 and posted the patches on their websites to fix them. Still, the FBI insists, some companies haven�t fixed the holes.

     Though many gambling operations have suffered DOS attacks, they�re afraid to report the extortion, as stated earlier, due to fear of losing customers, but something must be done to eradicate the scams. Online sports books, BETWWTS, reportedly paid Mafia extortionists thousands of dollars. Several casinos and poker rooms, including Harrods Casinos and Cryptologic Intercasino, went down recently from a DOS attack. When the 2004 Superbowl was scheduled to play in Houston Texas, hundreds of �shakedowns� hit the gambling sites. �We were first targeted in September 2003,� said Alistair Assheton, Managing Director of VIP Management Services in Curacao, �and have been under periodic attacks ever since.� Assheton told Reuters News Service that the extortionist demanded $30,000 wired by Western Union to a bank account or risk taking a hit. �They essentially said, �Pay up or go down for the Superbowl�.� Another e-mail demanded a $15,000 payment for six months protection. �In many cases, the DOS attacks destroyed well-configured firewalls,� said Ian Morris, founder of Equip, who restores affected sites. �Most people believe since they�ve got firewalls, they are protected. These attacks have shown that this is not the case.� National Hi-Tech Crime units have warned businesses not to comply with extortionists and contact the police immediately if demands are made. �Making a payment is no guarantee the attacks will stop,� a unit spokesman stated.

     In February 2003, Russian organized crime scored another target by taking control of Grafix Softech, the largest Internet gaming enterprise that operates 120 gambling websites. The shutdown was devastating. According to Juan Bonilla, executive vice president of Grafix Softech, located in San Juan, Costa Rica, �The payoff to restore service was insignificant compared to loss of data containing names of customers and other operational records destroyed once the DOS attacks were unleashed.� In a miraculous feat, Bill Margeson, president of CBL Data Recovery Technologies, and staff technicians recovered the valuable data. They discovered the Russian criminals had bypassed firewalls and other security systems and inserted a virus into the five servers that Grafix used for online operations. �It was akin to hacking into the Pentagon,� Margeson told investigators.

Russian Organized Crime Syndicates: Are They America�s Most Dangerous Threat?

     The FBI�s most wanted criminals of the 21st century are not only al-Qaida terrorists but the Russian Mafia and their organized crime groups of hard-core criminals, technology scamsters and professional killers. Russian organized crime (ROC) refers to criminal groups, the so-called Russian mafia, who are notorious villains from the fifteen republics which includes the former Soviet Union. ROC activities have existed for over twenty years in the U.S. but during the last ten years, exposure of the ROC (M.O.) has surfaced coast to coast.

     FBI Director Louis Freeh, testifying before the Senate said, �Russian organized crime presents the biggest long-term threat to U.S. security.� CIA Director, James Woolsey once said, �Russian organized crime was so rampant it creates a formidable threat to international peace and stability.�

     Former Soviet Union criminals have forged networks in major U.S. cities, including smaller cities. According to reliable sources, the FBI and Foreign Intelligence:
There are approximately 30 Russian organized crime syndicates in the U.S.
Over 12,000 groups in Russia � a triple increase from 1992
ROC has powerful ties with organized crime in Russia and Ukraine. Russia is the home base for ROC global enterprise.

     In the U.S., the ROC syndicates are prominent in cities like Los Angeles, San Francisco, and Seattle and states like New York, Florida, and New Jersey and recently, Houston, Texas. ROC crimes are murder, money laundering, extortion, loan sharking, auto theft, weapons and sex-slave trafficking, counterfeit currency and complex fraud schemes. The ROC is a pervasive, dominating force on American soil.

     Dr. James Finckenauer, a mafia expert and professor at Rutgers University in New York, is an expert on Russian organized crime. Finckenauer explains there�s a difference between some ROC groups and the legit Russian mafia. Russian crime gangs operating in western countries, according to Finckenauer, are incorrectly labeled as the Russian mafia. The crime gangs are organized criminal enterprises whose members are from the former Soviet Union and Eastern Bloc countries, though they�re not Russian mafia. Finckenauer says, �The term Russian mafia has become a popular characterization for all forms of organized crime involving people with Russian or Eastern European backgrounds. Organized gangs, made up of Russian and former Eastern Bloc immigrants, typically commit scams involving financial transactions, bank and credit card fraud, postal theft and forgery.� Although evidence proves Russian mafia recruits organize gang members to commit specific crimes for the mafia organization, the gangs are not inducted members of the Russian mafia. The gangs have none of the traditions historically associated with the mafia, the hierarchical structure, codes of behavior and community respect. Still though, experts agree, Russian mafia and Russian organized crime groups blend together to accomplish exact goals: to make tons of illegal profits. Russian criminal groups in the U.S. have made millions of dollars committing the following crimes:
Health care fraud
Credit card scams
Computer fraud
Bank fraud
Check kiting
Visa and immigration fraud
Securities fraud and contract fraud

     In 1991, Russian brothers, David and Michael Smushkevich, committed the largest Medicaid heist in U.S. history, stealing more than $1 billion in a false medical billing scam. Ringleader Michael Smushkevich was sentenced to 21 years in prison for numerous fraud convictions. His brother, David, testified for prosecutors and received probation.

     Another example of the Russians criminal enterprises involves the largest money laundering operation in the U.S. Billions of dollars were laundered into the Bank of New York. Following a federal investigation, the bank suspended two Russian female employees, Natasha Gurfinkel Kagalovsky and Lucy Edwards, whose names surfaced during the investigation. Both employees were senior officers in the European division of the bank. Both were married to Russian businessmen. One of these men controlled the accounts. As one government official stated, �It is the most frightening evidence of how far Russian organized crime has manipulated and infiltrated financial markets.� Cyber-extortion, experts agree, �derives its scheme from old-fashioned extortion with a modern twist.� In most cases, the extortion of website casinos is carefully planned to demand less money than what it may actually cost owners to repair a site broken into. Many firms are satisfied to pay �blood� money rather than risk having a DOS attack and risk losing all customers and profits in one massive attack. Steve Donoughue, managing director of Gambling Consultancy in London says, �Despite the hush-hush attitude of casino and gambling website operators, extortion attacks happen often.�

     USA Today once reported an odd stroke-of-luck article exposing how computer hackers rigged casino games for losers to win �big� money. The article said Cryptologic, a Canadian software firm that develops online casino games, became a target when a hacker rigged the craps and video slots so players would never lose. Within hours, the casinos lost over $2 million. Security investigation showed the hacker altered the winning percentage to 100 percent, with each roll of the dice producing doubles. Every spin of the slots produced straight matches. �It�s likely the intruder was somebody with inside information of our system,� said Cryptologic spokeswoman, Nancy Chan-Palmateer. Over the past few years, the U.S. Justice Department, FBI, Secret Service and other national and international government agencies increased efforts to neutralize cyber-crime. Attorney General John D. Ashcroft announced that one joint operation resulted in the arrest of more than 130 people suspected of using the internet to defraud 89,000 consumers and businesses of $176 million. Businesses are expected to spend billions of dollars within five years to stave off online thieves, hackers and other tech-scams, according to market researcher IDC Corp. IDC also indicated that 65 percent of online attacks originate overseas. �The Internet makes moving money across continents faster, with less hassles, and easier to hide,� said Louise Shelley, director of Transnational Crime and Corruption Center at American University. Internet fraud also presents an enormous legal dilemma. International law, experts admit, is often ill-suited to deal with the problem. Among those are: conflicting views on what constitutes cyber-crime, how � or if � perpetrators should be punished and how national borders should apply to crimes without borders. A computer hacker once boasted, �They (the FBI) can�t get us in Russia.� Russian law mandates a 10-year prison sentence for computer hacking. Complicating apprehensions is the fact the high-tech unit officers in Russia are either understaffed, inadequately trained and service pay is small. Some officers are in cahoots with organized crime, which creates an influx of computer criminals to work undetected for years.

Does Russia Breed the World�s Best Computer Criminals (Hackers)?

A worldwide poll conducted on a hacker-oriented website showed that 82 percent of respondents said Russia had the world�s best computer hackers. Only five percent said Americans were better.
�Russia and Eastern Europe�s computer criminals are the most skillful in the world,� says Joe Rosetti, senior vice president of IPSA International, a New York Security company.
�The Russian hack scene is incredibly sophisticated,� senior analyst at Security Focus, Ken Dunham, told U.S. and foreign investigators. �They are excellent programmers and understand networks � how to get in and out without a trace.�
�Russian hackers do amazing things with limited computer power. They are smart and cover their tracks well,� said Frank Voden, a consultant with U.K. firm Techsolutions.
�We call Russia the �hackzone� because there�re so many of us here. We are so good at what we do,� a self-described hacker from Moscow, identified as Igor Kovalyez confessed to reporters. �Hacking is one of the few good jobs left here.�

     As mentioned throughout this story, computer hacking is so notorious and profitable there is also a website in Russia called vsyaki kryaki � which means �various cracks.� This site provides 150 ways to break into websites and technology systems.

     Hackers, on this cool site, have their own rules and jokes. Visitors can talk or ask questions and even inquire how to break into networks. Readers beware, �This site is monitored. Do not use this information to commit a crime.�

     Some Russian experts seek publicity. Pavel Semjanov is a lawyer who will arrange contact with Russian hackers only if an interview is used for research or educational studies. Semjanov�s website is

     �Cyber-crimes are bloodless. Some people delude themselves it�s not a serious crime but these guys are a menace to society,� said Col. Anatoly Platonov, the deputy head of Russia�s Interior Ministry high-tech crime unit. Security experts confirm the fact that the Russian mafia hack rings are, in fact, operated by former KGB agents (Russian organized crime syndicates), who recruit young, college-educated, computer wizards to execute the �dirty� work. In Russia, there are specialized training schools for crooks to learn hacking skills. On a daily basis, the crew works from Internet Cafz near the Russian capital, answering Internet advertisements for programmers, ads that are intentionally planted by Russian mafia groups in Moscow, St. Petersburg and Murmansk. Around northeastern Moscow, authorities discovered an underground place called Club Shaitan � a place where young men and teenagers frequent. �The only problem,� Platonov says, �is the computer games they play come from pirated CDs and the e-mail they send goes through a rigged-system allowing the sender to avoid paying for online access.� Most hackers will visit Moscow�s Gorbushka Market to purchase pirated software and CDs containing updated information about hacking instructions and tools selection. Hackers prefer these most wanted information products and CDs: (1) Hacker�s Toolkit, (2) All You Need to Start Hacking, (3) Hack the World, (4) Superhacker �99 � a popular program that sells for $3. This program assists hackers to create their own viruses or generate credit card numbers. �Places like Club Shaitan, Internet Cafz and Gorbushka Market, is where tomorrows hackers start out,� Platnov concludes. To reminisce history, Russian organized crime hackers first captured world�s attention during 1990s when a young mathematician, Vladimir Levin, hacked into Citibank computers transferring $12 million to different accounts worldwide. Though Levin was arrested, his clever scheme inspired other hackers. Example, Ilya Hoffman, a talented viola student at the Moscow conservatory was detained in 1998 on charges of stealing $97,000.00 over the Internet. Another Russian group stole more than $630,000 hacking into Internet retailers and stole credit card numbers. The world�s largest Internet companies, Compuserve and AOL, were forced to abandon Russia in 1997 due to Russian criminals ripping off the company�s computer passwords. Utilizing unlimited resources from Russia, Russian criminal networks collaborate with their worldwide associates to control America�s profitable businesses, penetrating the most sensitive areas of major U.S. companies and corporations, stealing trade secrets to sell foreign competitors and using stolen data to enhance illegal activities.

     Russian organized crime groups, foreign intelligence and U.S. authorities say, are responsible for hacking into America�s most highly-sensitive computer systems:
Theft of secret Microsoft source codes
U.S. Pentagon
NATO Military websites

A Perfect Trap: FBI Nabs Russian Hackers

     It was a sting, according to the FBI, worthy of an Oscar award. In November, 2000, FBI agents in Seattle, Washington arrested two professional Russian hackers after luring the men, Alexey Ivanov and Vasiliy Gorshkov, from Russia into the United States on pretext of hiring them to work as programmers for an FBI fictitious company called Invita Technology. Both were arrested within three weeks after the FBI documented illegal activities using a computer spy program.

     What led the FBI to nail the Russians?

     A selfish need called greed.

     Alexey Ivanov contacted John Morgenstern, president of E-Money, Inc., a Washington-based tech company that provides electronic payments for online businesses. Morgenstern told the FBI he�d received a call from a young man identifying himself as Alex from Russia. He proudly claimed membership into an organization called �Expert Group Protection Against Hackers.� This particular group was already responsible for hacking into websites of banks and financial businesses and stole funds and credit card information. Their game plan never deviated. First, they�d break into a system and offer to fix the breach from other intruders only if the companies paid a fee or hired them as security consultants. Such tactics netted the criminals large sums of money. Anyone rebuffed the groups �hire or pay� services, the company�s computer system would shut down due to virus attacks until money was paid to restore operation. Those who paid were great customers.

     Ironically, CTS Network Services in Seattle hired Ivanov as a consultant even after they discovered he�d broken into the network tech system. Speaking clearly, Ivanov told Morgenstern, the E-Money president, �Someone broke into your database. We have access to credit card information. Next came the extortion: �If you pay $500,000, I�ll make sure no more intrusions occur! When Morgenstern rejected Ivanov�s ransom the company�s network was bombed with viruses. Morgenstern called the FBI. Surprisingly, the FBI was already investigating organized computer hackers in Russia. Information referring to Expert Protection Group kept coming up, the same group who targeted Morgenstern.

     �The number of victims, financial losses and property destruction made us take notice,� Charlie Mandingo, an FBI agent assigned to supervise the investigation recalled. Under FBI instructions, Morgenstern recontacted Ivanov to revive communication, make him think he�d eventually hire or pay the ransom. FBI had solid evidence to prove that Ivanov in cahoots with Expert Protection Group had broken into Paypal, stole thousands of credit card numbers and even hacked the system of Central National Bank in Waco, Texas.

     Evidence notwithstanding, the crooks were elusive, miles across the globe, hid behind the Iron Curtain. Alexey Ivanov was so bold, he�d sent a resume and his photo to companies he extorted to hire him as a consultant. The FBI was desperate. U.S. Justice Department sent letters to Russian authorities to have Ivanova detained but no response. Since Russia had no extradition treaty with the U.S., authorities were prohibited to travel to Russia to arrest him, �so they connived a way to get him over here,� U.S. Attorney Steve Schroeder remembers. The FBI hatched a scheme more seductive and fascinating than a Sherlock Holmes plot. It went down this way: owners of Invita Technologies (bogus company) posted a message to Ivanov seeking partnership with a security firm owner to provide consulting services to U.S. companies. The carefully phrased message further stated the candidate must relocate to Seattle for an interview. During online communications with agents offering the job, Ivanov boasted in halting English, �when (we) hackers come across a vulnerable network, we can fix it or break it.� Example, Ivanova convinced agents by hacking into the Invita computer system.

     Agents hired the computer whiz and sent him a plane ticket. For Ivanov, the offer was godsend: someone finally recognized his superior talents, agreeing to pay a grand salary and bring him to America! Crime partner, Vasiliy Gorshkov tagged along. Arriving in the U.S. at Seattle�s Airport agents greeted the pair and drove them back to Invita Company for more computer testing. As snippets of pop music played in the background and video cameras recording the action, Ivanov tapped into an IBM Thinkpad provided by the FBI.

     FBI video captured the Russians clever techniques to break into web sites through a well known vulnerability that Microsoft NT Server used. To execute the break in, they typed in the default user name and default password created by the manufacturer � and instantly the Russians were inside the networks. An expert said later, the technique was the same as, �storming a bank with a machine gun.�

     Unknown was the fact as the men used the computers to send stolen data and financial information taken from U.S. businesses and transmitted to their own computers in Chelyabinsk, Russia, agents were running a �sniffer� program that recorded every keystroke they made. The sniffer stole the passwords and codes to Ivanova and Gorshkov�s Internet server and computers in Russia. An exchange of incriminating information from Gorshkov to an agent took place�

Gorshkov: �We are experienced hackers.�

Agent: �So how often you�d hacked into computer systems? Did you take credit card numbers?�

Gorshkov: �These things are better talked about in Russia.�

     When Gorshkov recalled how they (Ivanova) extorted money from a U.S. Internet service provider, he said, �The FBI can�t get us in Russia � your guys don�t work in Russia.�

     Responding curtly, the agent said, �That�s right.�

     Like most gullible criminals, the Russians felled for the bait, hook, line and sinker. The FBI arrested the duo after driving them back to an apartment where they stayed. News of Ivanov and Gorshkov�s arrest sent shockwaves across the nation that the FBI nailed two foreigners, described as computer crime kingpins, had used tech systems to commit theft crimes against some of America�s most prominent financial businesses. Agents Mike Schuler and Marty Prewett earned the FBI�s excellence (Investigation) Award for successfully executing the covert operation to nab the Russians. While Americans applauded the capture, the Russian government and citizens were outraged that the FBI, in their view, also broke the law by illegally obtaining information without a warrant, information stored on the men�s computer in Russia. Charged in Federal Court with numerous computer-related fraud, theft and extortion, the men were held without bail. What sophisticated technique did the FBI use to record encrypted passwords and codes? Knowledgeable informants said the FBI used a $100 software invented by tech-expert Richard Eaton of Washington.

     Known as the �win-what-where program� this unique key-logging system has revolutionized computer spying software. Its operation works superbly: attached to a computer the software secretly records everything a user types, coded or not, and sends a report to a third party who is spying on the user. �The Russians just sat down and entered their passwords. Nothing was better than that,� said Eaton. �What they (the FBI) did was phenomenal, exceptionally effective,� says Kevin Mandia, who taught computer hacking courses at FBI academy.

A Legal Showdown: American Law � vs � Russian Law

     Gorshkov was represented by attorneys John Lundin and Ken Kanev. During pre-trial motions Kanev challenged the evidence against Gorshkov. He said the FBI�s use of passwords recorded by the key-logging system to access Gorshkov�s personal files in Russia was like, �picking up a key to a locked container.� Kanev further argued that the FBI should have had a search warrant before downloading Gorshkov and Ivanova files.

     Legal scholars said the FBI violated the men�s privacy rights against unreasonable search-seizure by first accessing information from their computers and then later obtained a search warrant to justify their actions. �What the FBI did should make Americans afraid,� Lundin told reporters. �They consciously bypassed legal requirements and used an intercepted password to unlock a safe to access private documents,� Lundin explained, comparing the defendants Internet server in Russia to a locked safe.

     Prosecutors and the FBI defended the tactics against the Russians indicating they needed to secure the incriminating information before possible conspirators destroyed the data.

No Expectation of Privacy

     U.S. District Judge John C. Coughenour of Seattle issued a scathing ruling in favor of prosecutors and FBI agents. Coughenour ruled the Russians waived expectation of privacy by using public computers. �When (the) defendants sat down at the computer, they knew the system administrator would possibly monitor activities,� Coughenour wrote. �Indeed, undercover agents told Gorshkov and Ivanova they wanted to watch to see what they were capable of doing. He also ruled the fourth Amendment did not apply to computers, �because they are the property of a non-resident and located outside the United States.� The data taken from the computer in Russia, apparently was not protected under fourth Amendment until transmitted into the United States. Prior to viewing the retrieved data, court records showed, agents secured a search warrant. Rejecting defense arguments the warrant should�ve been obtained before the data was retrieved, Coughenour said, �The agents had good reasons to fear if they did not copy the data, (the) defendant�s co-conspirators would destroy the evidence.� Coughenour further rejected defense arguments that the FBI�s actions were �unreasonable and illegal because they failed to comply with Russian law.� The judge concluded sternly, �Russian law does not apply to the agents actions.�

Russia Vilifies Americans: FBI Agents Charged with Hacking

     The Russian government was furious over the American judge�s decision that FBI agents broke no laws (national or international) by coaxing their fellow countrymen into the U.S. to arrest them. Far more insulting to Russians was Coughenon�s harsh statement, �Russian law did not apply to the FBI.� Even the Russian Federal Security Service (FSB) filed unauthorized use and retrieval of computer information against FBI agents, Mike Schuler and Marty Prewett. FSB investigator, Igor Ikach, forwarded the criminal charges to the U.S. Justice Department. U.S. officials declined comment. Interfax News Service reported FSB investigators filed charges against the FBI to restore traditional law enforcement borders. Sources further stated, �If the Russians are sent to prison on information obtained illegally by the Americans, this will surely allow U.S. enforcement to use illegal methods to collect information in Russia and other countries.� A Moscow news service distributed a litany of comments by the enraged Russians:
�Obviously, the American government worried so much about computer hacking, they classified the crime as a terrorist offence (a penalty of life in prison) but the U.S. doesn�t blink when they break into someone else�s computer.�
�If the American government isn�t bombing or invading another country, they steal computer documents. So if you hack U.S. computers, it�s terrorism but if they hack someone else�s computer they�re allowed to do so under protection of U.S. law.
�The court�s interpretation of U.S. law actually means that Russians must accept the Americans has the �right� to steal passwords � or information from Internet service providers we use, or any communication, again, under protection of U.S. law.�

     Convicted of twenty counts of conspiracy, fraud, computer intrusions and numerous thefts obtained by unauthorized access to financial databases owned by companies, Vasily Gorshkov, was sentenced to 4 years in federal prison on October 4, 2002. In a Washington Post interview, Gorshkov said upon release he will return to Russia but does not know how he will make money to support his family. �I don�t know � if I still have employment waiting on me � but I will be all right.� Gorshkov was released earlier from prison on July 15, 2003.

     On July 24, 2003, Alexei Ivanov, alleged mastermind, was sentenced to four years in federal prison with three years of supervised release. Ivanov pled guilty to similar charges that convicted Gorshkov. Crimes they committed, authorities estimated, totaled $25 million in theft of money and destruction of computer networks. Anonymous sources connected with the investigation said Ivanov was also released early from prison after cooperating with federal authorities, providing information and names of other Russian criminals involved in computer crimes. Proof that Ivanov cooperated with the FBI � an agent contacted a hacker named Michael asking what he knew about Ivanov and Gorshkov�s criminal activities. In an angry e-mail response, filled with profanities, Michael decried: �By tricking the Russians to Seattle to arrest them, the FBI had started a war. We�ll keep stealing just like we did in the past. Better leave us alone.� In a display of humility, an imprisoned Ivanov wrote apology letters to victims. A letter to Mike Apgar, chief executive of Speakeasy, Inc., a company he stole from the letter read, �I promise that upon my release I will work hard to compensate for damages caused by my criminal behavior.�

     AmericanMafia readers, this is not the end of this feature story, but since we�re half way, here�s a chance to voice your comments, opinion or just want to sound off about law and order:
Since the U.S. does not have an extradition treaty with Russia, was it unethical or wrong for the FBI agents to �trick� the Russian hackers into America to arrest them for crimes committed against American businesses, and later retrieve evidence without a warrant from their computers? Or was it fair play to nab the Russians by �any means necessary�?
Knowing that the FBI now uses a variety of spy tools (claiming justification under terrorism law) to monitor what Americans view on computers, should this be allowed without a warrant? Should privacy protection laws be updated?
Should U.S. government provide financial aid to countries, like Russia, who do not have an extradition treaty with the U.S.? And should it be illegal under international law for countries receiving U.S. aid not to extradite dangerous criminals that committed crimes against America?

(the story continues)

Confessions of Russian Hackers

     �Confession is good for the soul.�

     Vasyl Kondrashov, Alexei Badken, and Ilya Vasilyez are the real deal. They�re the most, highly-skilled, notorious hackers in the Soviet Union, perhaps the best. They earn a living by teaching fellow Russians how to operate computers, or better yet, they teach aspiring students to become professional hackers that are wrecking havoc on the planet, breaking into secretive and lucrative computer databases for huge profits, profits that enrich themselves and support organize crime.

     Let�s start with Ilya Vasilyez. As the handsome Vasilyez chats with a foreign reporter a burgeoning crowd of young, astute-looking men and teenage boys applaud Moscow�s first superstar hacker. Basking in the limelight, Vasilyez wears a purple t-shirt, words emblazoned across the front that say, �All information should be free,� also an advertisement of Vasilyez�s civil school for Russian hackers. If someone interested for Vasilyez to teach them about computing hacking or as a good Samaritan, donate money to his school, can email Vasilyez at The website address is �People thought it was impossible to teach hackers, that a true hacker is one by birth. But I disagree,� Ilya told reporters. �I can show you how to develop hacking skills.� Many of Moscow�s potential hackers visit Ilya�s apartment to learn a technique called �advanced technology skills�. When questioned about teaching others a skill that�s utilized to commit crimes, Vasilyez insists that despite himself being a computer hacker who pirated software, he does not encourage anyone to apply their skills toward computer crimes.

     �During my childhood,� Vasilyez explains, �we cracked programs and distributed them free.� He adds, �It was like our donation to society. If we took programs from a capitalist society, programs protected by computer defenses, we thought it�s good to crack this program, to bring the program to people.� He further insists that he�s doing society a favor by training young, potential hackers. Cyber-crime in Russia, many will say, will continue to go practically unpunished and will, in fact, flourish.

     Alexei Badken of Moscow describes himself as a �secret security guy� told reporters during interviews that computer hacking is an important part of the underground culture in Russia. Badken confessed that American websites are favorite targets not only for profits but also political purposes when the U.S. Government staked interest into the disputes between Serbia and Kosovo. �Many of us (Russians) felt what the U.S. done towards the Serbs was wrong, so we retaliated by attacking government websites and large companies. We know the White House was attacked many times and so were the defense computers. Did anyone read what we did to the U.S. Pentagon?�

     Like Vasilyez and Badken, Vasyl Kondrashov is also FBI�s most wanted computer criminal, a menace to society. Kondrashov, of Moscow, makes a wealthy living teaching fellow Russians how to �hack� into computers. During online interviews with international wire reporters, Kondrashov, says computer hacking is not a crime. �Hacking isn�t necessarily a crime, just like a knife isn�t necessarily dangerous. It depends on the person behind it,� said Kondrashov, who operates a civilian hacker�s school in Odessa, Ukraine. �I see myself giving knowledge for good,� he told Cox News Service reporters. After graduating from Odessa State University, Kondrashov learned computer skills while employed as a network administrator for a Ukrainian University and later worked as a network security expert for the Ukrainian Armed Forces. Poverty in Russia, Kondrashov admits, motivates him and others to hustle questionable money. He berates the money earned working a legit job and complaining further, his wife earns only $250 per year, while his parents, both retired receive $10 per month government pensions. Certainly, the hacking skills Kondrashov offers in Ukraine�s shattered economy is valuable for poverty-stricken Russians. As his reputation grew, the master hacker began receiving e-mails from more advanced students seeking specialized knowledge. During these sessions, Kondrashov taught students how to open and close files of private companies. Voicing opposition toward Russia, he spoke straightforwardly, �Nothing works in my country. The government is corrupt. Morally, I do not support my government, I support my family. How am I supposed to support them, if not with my skills?� Kondrashov asked incredulously. When asked by reporters about Russian mafia and affiliated organized crime involvement with computer hacking, Kondrashov said, �To live with wolves is to howl like a wolf.�


     Journalist and documentary story producer, Clarence Walker is from Houston, Texas. As a member of Investigative Reporter�s Committee and member of the Society of Professional Journalists, he works closely with U.S. and international media, non-government and government agencies including F.B.I press officials and Department of Justice News Media division to provide public awareness about today�s organized crime in America. For three years, this dedicated journalist has researched and documented highly important (classified and unclassified) information from numerous sources involving the crimes of the Russian mafia and Russian organized crime syndicates.

Government Resources

     To learn more or report information about computer fraud, hacking, and other internet crimes, contact: or or the Center for Internet Security.

P.S. (Editor�s Note)

     Some material used in this story is copyrighted by national and international news media organizations. Important warning: In accordance with Federal Law, Title 17 U.S.C., Section 107, reprint or distribution of the material herein without consent from author or publishers of and it�s partnership with news media organizations are prohibited. hopes this published documentary on Russian organized crime will increase awareness of a growing threat to U.S. Public safety. To inform and educate readership, will report updates and utilize law enforcement and anonymous sources to expose investigations of organized crime in America, as well across the glob. This year, will publish the following stories involving Russian mafia and Russian organized crime:
Their connections to al-Qaida and Osama bin Laden
Sales of mass destructive weapons to terrorist groups
Global drug and sex-slave trafficking
Rip-off of diamond mines in Leone Sierra
Their secret casino partnership with John Gott, Jr.
Spy ring operations
How Russian criminals spy on Americans
Multi-billion dollar fraud operations
Contract murders of prominent American and foreign businessmen including a special investigative report exposing how Russian mafia sold mass weapons to America�s #1 enemy, Saddam Hussein.

Journalist Clarence Walker can be reached at: or

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