The financial collapse of the Russian state in August 1998 glaringly revealed that the Russian state was not coping with organized crime or corruption. Until that moment, many believed that these problems were peripheral issues complicating the Russian transition. The Russian financial collapse not only revealed the weaknesses of Russian institutions but also contained important lessons for world markets, as rich hedge funds and banks suffered enormous losses. While the threat of penalties and incarceration might discourage future crimes from being committed, it does not prevent organized unlawful activities from becoming deeply rooted in Russia's transitional economic system. The absence of a unified framework to address the complicated problems of organized crime, corruption, and money laundering has left many holes in Russia's legal framework. In the absence of conflict-of-interest laws, many individuals simultaneously run the industries and the efforts to privatize them.