The excitement over reform in Russia – the passage of a budget, tax changes, a growing economy and political stability – is increasing among the international business community. In fact, it seems that Russia will soon become the darling of foreign investors, with political risk now practically nil and state coffers overflowing with petrodollars.

But within this favorable situation, some critical factors remain largely ignored.

The real environment in which Russian business operates, at least those firms that are profitable, lies within the shadow of criminal organizations with strong links to both the government and bureaucracy.

Admittedly, the days of criminal gangs roaming the streets of Moscow – of Chechen bandits walking onto corporate premises with automatic weapons and demanding "partnerships" – might be over. The prisons might now be overflowing with the small-time bandits that were once the foot soldiers of the early '90s Russian gangs – the "Solntsovo," "Tambov," "Orekho-Brosisovo" and so on – but that hardly changes the reality of the economy.

Although some criminal gangs have been liquidated in turf wars, and others sidelined or eliminated by the police, most have simply adapted themselves to the new economy of the 21st century – undertaking the necessary corporate "restructuring."

The dark shadow of organized crime still looms large over the Russia economy, and time and again we are reminded of this when we read of professional hits carried out on senior executives.

It would be safe to say that in many cases local governments and officials act more as an arm of this criminal system than of the government. And even though violence is now only used in selected cases, with none of the Chicago-style gangland shootouts or bombings, the hand of organized crime is omnipresent in many industries.

The marriage between power and crime has traditionally been strong in Russia. Criminals once assisted the Bolsheviks for the spoils of power, while their late 20th-century successors, the profiteers and robber barons, were in it for the money. Today, it is difficult to work out who runs who.

Most likely, both have taken on each other's attributes. The transition from street criminal to corporate boss that took the Italian Cosa Nostra almost five decades to achieve in the United States, has been achieved by Russian gangsters in only five years.

Since Russian crime syndicates do not have the documented origins and family structure of the Cosa Nostra – and are often loosely tied through backroom dealings – statistics on how many Russian businesses are actually under the control of the "Mafia" are virtually impossible to come up with. But the fact that almost all of the thousand-odd contract killings of businesspeople here over the past seven years remain unsolved speaks for itself.

Organized crime, until recently known as the "krysha" or business roof, has now evolved into a pillar of the Russian economy. The gangsters who operated before the privatization years have converted themselves and their outfits into respectable businesses. They control, directly or indirectly, large enterprises and their trading and export operations – thus keeping money laundering and capital flight operations largely in their own hands.

Gone are the days of businesses throwing pennies to hoodlums to keep them off their premises –these commissions did not satisfy the criminals. Russian crime syndicates have penetrated so deeply into many corporations that it is almost impossible to differentiate them from entrepreneurs.

In recent months, we have seen the murders of executives of some well-run corporations, businesses at the forefront of the Russian economy in relation to direct foreign investment – Baltika Breweries and Urlamashzavodi to name just two. The calm after these killings raises the possibility that the criminals have achieved their aims, and we might not see further murders.

But the state and its organs have shown neither the ability nor the will to tackle this critical problem. And it seems logical that even if the political will existed at the top, the ridiculously low salaries and appalling living conditions of security ministry officials makes it highly unlikely that they could effectively tackle the issue.

In fact, many government organs are the muscle that settle the turf wars – bringing handsome rewards to bureaucrats and functionaries.

But what is alarming is how naive the foreign business community is in its willingness to deal with such criminal elements. It has become fashionable these days to add "former KGB" to business introductions and for people use the term "Mafia" as if it related to star status.

True, there is often little information on the background of many Russian businesses and entrepreneurs – the furthest most go back is four or five years, the time when privatization took place. Moreover, presented with such a fait accompli, most foreign businesses are left with little choice but to deal with these shady outfits.

Still, there is a tendency in the investment community to brush over such nasty details with comments like "lack of transparency." Foreign banks and investors are often lured into less than legal business situations through naivete, or investment managers who cover what would normally be considered outright criminal behavior for enterprises in most countries.

While it is not our intention to overdo it, it is important to recognize that while gangsters and criminals might have acquired new attitudes and style, the deeper issue of a criminal-government nexus remains largely unaddressed in Russia.

For their part, foreign businesses should remain true to their own domestic business standards – and ethics – and refuse to operate on the fringe of Russian law, no matter how tempting the profits might be out there.