Vodka lords flee war of Dead City

Russia's booze rackets are so violent that gangsters daren't live in their own palacesin bold in it please

One glance at their grandiose turrets and you know that they are the kind of properties that would exhaust the vocabulary of the most silky-tongued estate agents. Parking space for five Mercedes. Twenty rooms. All yours, my friend, for a steal. How about $100,000? Even $80,000 might do.

And yet no one wants to live here, not even their owners. So frightened are those who have paid for the new houses rising up around the city of Saransk in Russia that many have registered their properties in the names of grandmothers and cousins living in nearby farming villages. And so few are the residents of these mini-palaces that the area has acquired a local nickname: Dead City.

Clumps of large red-brick private houses, almost all of them breathtakingly ugly, have been sprouting like mushrooms after a summer rain on the edges of the biggest Russian cities - Moscow, St Petersburg, Volgograd, anywhere where there are pockets of newly-rich Russians who prefer to lock away their money in bricks and mortar rather than in dodgy or inquisitive banks, or under the mattress.

But Saransk, capital of Mordovia, one of the poorest republics in the Russian Federation, is one place where you would not expect to find them. Nothing else about this gloomy city of 300,000 indicates that free-market reforms have displaced Communism. A statue of Lenin still stands guard in the central square, the epicentre of a monochrome city where the Technicolor world of advertising has yet to dawn.

Sports bars, foreign restaurants, night-clubs, discos, superstores, bank cash dispensers, skyscrapers, drive-in fast-food joints - all are as foreign a concept to the average Mordovian as a snow-free winter. For the majority who live on paltry state subsidies among monolithic Soviet-era municipal buildings and austere state-controlled stores, consumerism has yet to arrive.

With one exception. Some 70 per cent of the owners of Dead City are businessmen who are believed to have made their money illegally, according to Alexander Pudin, spokesman for the head of the republic. Of these, a sizeable proportion owe their wealth to the cut-throat world of vodka running.

Not least among the reasons that they will not live in their homes, or admit to owning them, is their fear of finding an enemy living next door. "There have been constant battles over turf, shootings, explosions," said Mr Pudin, "Some people are afraid because there is no guarantee that if they live there their house won't be blown up."

There is also a hefty property tax, a factor the booze runners - used to getting their way with bribes and threats - appear to have ignored when they built their homes. Until recently, they were part of a phenomenon that was sweeping much of Russia. They were responsible for a flood of imported and illegal vodka that was undercutting the local brands, severely denting government income from tax. Every night lorries would rattle in bearing moonshine from the north Caucasus that could be bought for as little as $1 a litre. Earlier this year, the head of the administration, Nikolai Merkushkin, decided that enough was enough. He began a crackdown, imposing a minimum price of just under $2 a bottle, demanding quality certificates and launching an investigation into corrupt officials who, palms well greased, had turned a blind eye to the practice. In the month after the clampdown, revenues from vodka taxes rose eighteenfold.

In doing so, Mordovia blazed a trail that the Russian federal government now seeks to tread. Being the world's biggest drinkers, Russians spend more than $10bn (pounds 6bn) a year on vodka, yielding big returns for the government, especially in Soviet times, when the industry was under tight government control. Since then imports from the Netherlands, Germany, the United States, Ukraine and elsewhere, plus a flood of outright fakes, have exacted a heavy toll.

Last year, Russian vodka manufacturers saw their production plunge by a third. "Our Russian folk are getting poisoned with bad vodka from abroad or from the local moonshine industry," complained Vladimir Yarmosh, from Rosalko, the Russian vodka producers' association. According to some estimates, 40 per cent of the vodka sold in Russia these days is illegally produced.

Frustrated by the loss of an estimated pounds 220m a month in taxes, the federal government has decided to act. Last week Boris Yeltsin promised to restore a state monopoly of the alcohol industry. He is planning a crackdown on the production, importation, labelling and distribution of alcohol, and will strengthen the central government's powers over regional authorities. The move follows protective legislation introduced last year, including import quotas for foreign vodka and making all importers pay all their duties up front.

It is unclear, though, how the monopoly will be imposed: the government says that there are no plans to renationalise Russia's private distilleries and liquor shops. And Mr Yeltsin's position is not helped by the fact that until recently the Kremlin had close links with the heads of a tax- free vodka import racket through the National Sports Foundation, a murky slush fund involving some of the president's former associates.

The Kremlin's dream, of course, is that the residents of Dead City will soon be unable to afford to live in their lavish homes, even if they wanted to. But corruption and violence run deep in Russia, especially when there are fat profits at stake. And the moonshine industry is almost impossible to stamp out - as Mikhail Gorbachev found when he tried to wean his countrymen off their beloved vodka bottle.