In Transdniester, One Company Is a Law Unto Itself

Twenty years after breaking away from Moldova, Transdniester remains unrecognized and largely forgotten. One local company has profited hugely from this largely self-imposed isolation.

by Michael Bobick 30 September 2010

TIRASPOL, Transdniester | Ludmila Pavlovna vividly remembers exactly when and why she participated in the strike campaigns that led to Transdniester's disengagement from Moldova. In the waning days of the Soviet Union, the idea was not to create their own republic but to preserve the Soviet Union. It was Moldova, not Transdniester, that wanted to secede from the Soviet Union: Transdniestrians voted in a referendum to preserve it.



Twenty years later, Pavlovna, a pensioner living in Tiraspol, remains convinced that life in Tiraspol, the capital of the unrecognized republic, is better than life in Moldova. Gasoline, natural gas, utilities, rents, and bread are all cheaper than in Moldova. More importantly, pensions are higher. For pensioners on a fixed income (approximately 140,000 of Transdniester's 400,000 to 500,000 residents are pensioners) every kopeck counts.



The 2nd of September marked 20 years since the region declared its independence. Originally the region’s political disengagement was a reaction to Moldovan nationalism, which threatened the cohesion of the region’s largely multiethnic population. In August 1989 Moldova passed a language law that made Moldovan the sole official language of the republic. These early assertions of cultural and linguistic rights were viewed from industrialized, Russian-speaking Transdniester as the first steps in an eventual unification with Romania. Gradually, through a series of referendums, Transdniestrians voted first to create a separate Soviet republic, and then in March 1991, they voted in favor of preserving the Soviet Union, according to then-Soviet officials, although the unionwide referendum was officially shunned by Chisinau.



Since the brief civil war in 1992, the Pridnestrovian Moldavian Republic has taken on many of the attributes of a state, having its own currency, military, police, state symbols, borders, and passports. Despite its de facto sovereignty, the republic lacks international recognition.



Allegations and rumors of smuggling and contraband have plagued the region since its armed conflict with Moldova ended in 1992. But while outside opinion of Transdniester is often condensed into fear of organized crime and Russian influence, its development, particularly the local contours of privatization and capital consolidation, remains largely unexplored.



Following the civil war, the informal economy initially proved to be a resource to many in the region. From the earliest shuttle traders who bought cheap goods, alcohol, and cigarettes in Odessa for resale, to the bustling trade in scrap metal, Transdniester’s economy has run principally on the basis of the goods that pass over the porous border with Ukraine and how authorities control subsequent economic activity. Imports include the raw materials needed for local enterprises, consumer goods to be resold locally and beyond, and high-value imports (devoid of customs stamps) like alcohol and cigarettes. The region's exports include finished goods, locally produced spirits, food products, and re-exported goods.



The isolationist policies of the Tiraspol authorities have allowed a few companies to monopolize what profitable economic outlets exist. Above all, the Sheriff holding company has forged an unchallenged monopoly. The links between business and politics in Sheriff are, paradoxically, clear yet opaque. Whenever the subject comes up in conversation, Transdniestrian residents take for granted that Sheriff has prospered from its close connections with politics. It is widely believed that Sheriff purchased assets in privatization auctions for a pittance and that the company pays little to no taxes on either profits or imports.



Sheriff store



Sheriff also provides charity, giving pensioners a 7 percent discount on the first thousand Transdniestrian rubles they spend in Sheriff stores per month (the maximum discount comes out to $7 per month, at the current exchange rate). It is not uncommon to see pensioners standing in line, discount cards in hand, waiting to purchase a single loaf of bread.



Sheriff was formed as a limited liability company in 1993 by Viktor Gushan and Ilya Kazmaly, two former special forces officers. It functions as a holding company, employing nearly 3,000 workers in its own companies and another 12,000 in its holding companies. It releases no public financial statements, and reliable information about the company is rare. Sheriff’s website portrays the group’s astronomical success as the result of hard work and innovation not its near monopoly on retail and wholesale trade.



Pavlovna shops at Sheriff because, she says, there is no other way. While more expensive than other stores, the local Sheriff store is more conveniently located for her. The pensioner discount keeps her returning each month. For $7 per month, Sheriff ensures that pensioners spend the majority of their pensions at their supermarkets. Discounts are not limited to pensioners. If customers use the Raduga (Rainbow) card – offered through Sheriff’s Agroprombank – they receive a 3 percent discount. Employees of Sheriff-owned companies can choose to receive their pay on their Raduga card. Sheriff is the modern day-equivalent of the truck system or company store of the 18th and 19th century that kept workers in debt, only it offers not debt but an array of choices and goods unavailable elsewhere.



Sheriff’s pristine supermarkets and shelves are full of imported Western-style products, some of questionable provenance. On more than one occasion in Sheriff I noticed Marlboro cigarettes marked duty-free North Africa as well as other “duty-free” cigarettes from the Philippines, Dubai, the UAE, and beyond. Sheriff’s expanded consumer offerings are appreciated by many Transdniestrians. Sergei Vasilievich, another pensioner, said he felt like a civilized person shopping in Sheriff, not having to ask the salesperson for each item he wanted to inspect as in the old Soviet-era shops. Of course, there are drawbacks. Prices often are higher and products sometimes inferior. Pavlovna insists that the sugar sold in Sheriff is simply not as sweet as Ukrainian, Moldovan, or Russian sugar.



Despite Vladimir Putin allegedly calling Transdniester "the Republic of Sheriff," and the company's deep roots with local leaders, Sheriff should be seen more as a symptom of Transdniester's unresolved status than as a cause. Any discussion of economics and politics in the region will eventually lead to the subject of Sheriff. In the 1990s, the company began taking over the booming cigarette business, long a favorite of smugglers in Europe. Gradually Sheriff took over any other informal business that generated significant income (liquor, frozen chicken legs, gasoline, etc.), often using the violent “gangster capitalism” tactics prevalent throughout the post-Soviet region in the 1990s to do so, allegedly racking up dozens of economically motivated killings along the way.



Formed by police officers, the company was essentially untouchable. Who actually stands behind Sheriff remains a mystery; Gushan and Kazmaly are well-known figures, but it is unclear whether they exercise control or are straw men.



The number of businesses controlled by Sheriff is large and covers a wide variety of industries. Sheriff has a network of supermarkets, automobile service stations, construction firms, and Moldova’s most successful football club. Sheriff Tiraspol plays its games in a massive training complex with two full-sized stadiums, five training fields, an indoor arena, a football academy, and housing for FC Sheriff players. It is the only FIFA certified stadium in Moldova, which ironically forces the Moldovan national team to play its games in the Transdniestrian capital. Further, in addition, it owns the only telephone, mobile phone, and Internet service provider. Other businesses that Sheriff has interests in (directly or indirectly) include textiles, broadcast and cable television, auto sales, publishing, distilling (Tiraspol’s famous KVINT cognac), food producers, second-hand clothing, and advertising. The odds are that any given factory or building site you pass here is owned by Sheriff.



It should be noted that the region's most valuable assets, including the MMZ steel factory, two power plants, and the electricity grid, remain in Russian hands.



Things are changing in Transdniester, as Russia no longer unconditionally supports the regime. Until a few months ago, pensioners received additional Russian “humanitarian aid” each month in the form of pension supplements to the tune of $15 a month. Each month, the pension coupon clearly specified how much of the payment came from the Transdniestrian budget and how much from Russia. Moldova views these pension supplements as tacit support for separatism, a charge denied by politicians in Transdniester. More recently, Russia has suspended its aid payments until their distribution methods could be refined and an independent audit conducted. Meanwhile, President Igor Smirnov has been forced to pay the supplements with natural gas utility fees – these utility receipts have traditionally been used by the authorities for discretionary spending (the money is deposited in a bank connected to the president’s younger son, Oleg), notwithstanding the fact that the region’s debt to Gazprom for unpaid bills and penalties is well over $2 billion.



Living in Transdniester has other benefits. Consumers pay cheaper rates for electricity, gas, and communal services utilities in Transdniester. Such discrepancies further differentiate the local, majority Russian-speaking population from Moldova. The economic differentiation is a very real complement to the linguistic differentiation that contributed to the dispute. Cheap natural gas indirectly subsidizes industries like bread making, while the porous border and large informal economy keep Sheriff supermarkets stocked with cheap foodstuffs.



On Sheriff's website, the company boasts that it eliminates the middleman, like Wal-Mart, and works directly with producers, thus offering lower prices. While this may be true, the fact that Moldovan goods are taxed at 100 percent in Transdniester helps the company further stifle competition with Moldovan products, while its monopoly on wholesale in the republic eliminates competition from would-be small businesses. Sheriff's distribution system affords a unique view of how the economy of an unrecognized country works. The Transdniestrian customs committee is run by the president's elder son, Vladimir, and the railroad is alleged to be controlled from within the executive branch. From the time goods cross the border until they arrive at Sheriff stores, the company’s business is facilitated by close relations with the executive branch.



Sheriff has created a diffuse economic structure that blurs the line between business and politics. On paper, it is a holding company. Yet in reality, Sheriff is a company that has profited from close relations with state officials. Its low tax burden, its provision of social goods through widely publicized charity programs for pensioners, and its ubiquitous corporate logo (an old-West sheriff's badge) lend it an aura of invincibility and quasi-governmental status. More than once I was told that the irony of a company positioning itself as the "sheriff" of an unrecognized country was not lost on its founders. After all, they said, citing the numerous Italian and American westerns shown on local television, "Who is the sheriff if not the chief authority in town?"

Michael Bobick is a doctoral candidate in cultural anthropology at Cornell University and is writing a dissertation based on field research conducted in Transdniester.