The three thugs and their pint-size boss barged into the back office of a St. Petersburg beer hall just before closing time. One yanked the phone wire out of the wall; a leather-jacketed goon blocked the door, "Who's going to pay for the funeral?" the boss demanded. The bar manager didn't know anything about a funeral. But the boss wasn't taking no for an answer. The shovels, the urn, even the dirt was going to cost, he said. "Who's going to pay?" he demanded. This was the notorious Tambov gang, and, the boss said, they'd be back tomorrow. "We'll get money from everyone here," growled one of the bullnecked goons, "or else we'll dig you all into your graves." And when the bar manager complained to police, one officer told him there was nothing to investigate, he later testified in court. "Aren't you afraid?" the cop said, in case the witness missed the point. "Aren't you afraid of us?"

The mob rules in St. Petersburg. Here-- and in every other big city in Russia-gangsters are moving in on business, government and the daily lives of the long-suffering population. On the street, people talk about "the mafia," but the problem doesn't spring from Sicily. It's homegrown and nationwide: Ministry of Interior investigators count almost 3,000 gangs across the country. With the help of well-armed "bulls," they extort millions of dollars and operate rackets from prostitution and drugs to the illegal export of billions of dollars' worth of Russian raw materials.

Interior Ministry investigators say that employees in nearly every government ministry are bought off, victimized, intimidated and controlled by Russia's mobsters. In St. Petersburg, one top investigator estimates that 70 percent of the police are corrupt. Many former Communist Party bosses, most of whom are still in government, are also in these racketeers' pockets. Says Nikolai Aulov, an undercover special-forces officer in St. Petersburg: "The maria is not afraid of us."

In today's Russia, perestroika and prestupnost (crime) have gotten mixed up in the same package. Although corruption thrived under communism, Boris Yeltsin's drive to build a market economy has allowed mobsters to expand their operations and even move into semilegitimate businesses. When Western visitors see bustling commerce, they tend to see entrepreneurs. Russians see the mob. All too often, the new markets are dominated by gangsters and people with the right connections. "Competition here means that you grasp the throat of your competitor and beat money out of him," says Sergei Sidorenko, the Interior Ministry's top organized-crime specialist in St. Petersburg. Foreign businesses face so many payoff demands that many give up without investing a penny.

The gangsters are brazen. "Leaders," "brigadiers" and "fighters" from the top "families" prowl the streets in slick foreign cars equipped with stereos and telephones-but no license plates. At smoky nightclubs like the Snowflake and Sputnik, thugs with nicknames like Mishka the Fool--one of the Tambov bulls-- swill Stolichnaya vodka and cut deals. The more powerful bosses favor Sadko's, the city's most prestigious restaurant. Decked out in flashy suits, they dine on beef stroganoff while bodyguards dressed in black sit around the edges of the room flashing cellular telephones. The restaurant has begun charging in dollars in an effort to drive them off.

The mobsters' tactics seem modeled on American gangster movies. When a Russian businessman complained recently to his high-level gangster friends that someone had stolen a million rubles from his safe, his friends went hunting. Within three days, according to a source close to the gangsters, the million was returned to the safe with 1 million rubles interest-and two fingers. Shoot-outs are common, and hired murderers charge $200 to $500 a hit. Last month two cops were "soaked"-murdered. Word around town has it they were asking for bribes from the wrong people. One day last month, St. Petersburg police found seven corpses: six of the victims had been stabbed in drug-related killings, and the seventh was tortured, burned, tied up with wire and left in a cemetery, the mob's favorite dumping ground.

Some of the gangs in the Russian mafia are local, others span the entire former Soviet Union and more and more are establishing links abroad. In St. Petersburg, the Azerbaijani mafia controls the farmer's markets and money-changing business; the Tambov mafia (headed by a gangster from Tambov in central Russia) controls the restaurant rackets; the Chechen mafia is involved in every business, and local Russian "families" are moving into white-collar crime. "They exploit the chaos in the economy and the financial sphere," says St. Petersburg's Sidorenko. The city recently accused a deputy mayor of extorting money with the help of his own team of "fighters."

The narcotics trade that dominates organized crime in other countries is just catching on in Russia. Compared with world prices, Russian drugs are cheap and the market's growth potential is high. Marijuana from Uzbekistan has been shipped by St. Petersburg dealers to Finland via Estonia. Police recently charged a chemist with producing a million rubles' worth of amphetamines in his flat. Says Anatoly Goncharenko, who heads St. Petersburg's six-month-old drug division: "We don't even know the scope of this problem yet."

A small group of young, idealistic officers is battling the gangs. One investigator was decorated recently when he turned down a bribe equivalent to $700,000, or roughly 1,200 times the average detective's annual salary. "We work on our enthusiasm," says Aulov, the special unit's chief. His tiny headquarters in St. Petersburg's former KGB headquarters is a jumble of wooden desks with a punching bag hanging in the doorway. Computers are nowhere to be seen; phones are scarce. There is no witness-protection program; in their free time the officers volunteer as bodyguards for government informants. "You've got to fight for something," says Viktor Nesterov. Last year his best friend was blown away by the mob.

Sometimes the good guys win. The special forces arrested the man they say headed the Tambov mafia, 36-year-old Vladimir Kumarin, on charges of trying to shake down the beer-hall manager for a "funeral." The manager had come to them and was given protection. The gang allegedly had 500 members and millions of dollars of income; 57 suspected members of the gang were convicted with Kumarin.

Last month I visited Kumarin in Obukhovo Prison. He is a surprisingly refined, coldly suspicious character: a soft-spoken graduate in mathematics and physics with a boyish squint and slight build; a family man and a former dues-paying Communist Youth League member who doesn't smoke or drink. "Who sent you?" Kumarin asked, staring intently. He denied shaking anyone down. "Extortion is not my business," he said, almost whispering. In one case for which he was charged, he was just collecting back rent, he says, his piercing green eyes shifting between me and his wardens. "If I can manage to do business when I get out, I will." Then, again, he asked, "Who sent you?"

The Tambov gang may be ready for a comeback. Several of those convicted with Kumarin have been released. One is cruising St. Petersburg in a Jaguar. And Kumarin is staying busy. "He is behaving himself here," says Vasily Vaseikin, deputy head of the prison, "but he is prospecting." Kumarin, for better or worse, has a certain charisma. He knows how to make offers few Russians can refuse, and he makes points that, however veiled, no one could miss. "I will be reading everything you write," he says quietly. His cold stare tells the rest of the story.