Janine Wedel - Shadow Elite - How the World's New Power Brokers Undermine Democracy, Government, and the Free Market

With respect to loans from the international financial institutions to the Russian Privatization Center, the World Bank figure was provided by Ira Lieberman, senior manager in the Private Sector Development Department (author’s interview of July 23, 1996), while the EBRD figure was supplied by Renae Ng (author’s conversation of September 24, 1996). The World Bank official quoted here is Ira Lieberman, who helped design the Center (author’s conversation of August 27, 1996).

With regard to the nongovernmental Center, repayment was to be made by the Ministry of Finance, the official borrower of the Russian government, while the Center served as the implementing agency (author’s conversations with Ira Lieberman).

43. With regard to Clan members appointing one another: For example, while the supervisory board nominated Maxim Boycko, a member of the Chubais Clan, to run the Center, Boycko chose its directors, of which Vasiliev is one (based on information provided to author by Ralf-Dieter Montag-Girmes of the Russian Privatization Center, July 26, 1995). Boycko served as managing director until July 1, 1996; Eduard Boure, another Chubais Clan member, as managing director after July 1, 1996; and Vasilev, who also served as a vice chair of the State Property Committee, deputy chairman of the board. Chubais, for his part, continued to serve on the Center’s board even after Yeltsin dismissed him as first deputy prime minister in January 1996. (Later that year, however, Yeltsin made Chubais head of his successful reelection campaign and then named him chief of staff.) In addition, soon after his dismissal, Chubais was placed on the Harvard Institute payroll, a demonstration of solidarity for which senior U.S. officials openly declared their support (author’s interviews with William B. Taylor, then deputy coordinator—later coordinator—of NIS assistance August 9, 1996; and Thomas A. Dine, August 16, 1996). When I asked Dine why this favor was extended to Chubais, he replied that “the Harvard people said they could use him as a consultant to them” (author’s interview with Thomas A. Dine, August 16, 1996).

44. Hay, together with Dart Management, Inc., was the subject of a civil suit (under U.S. racketeering laws) filed in the U.S. District Court of New Jersey brought by Avisma Titano-Magnesium Kombinat over an alleged fraud and money laundering scheme. Avisma sought $150 million in damages. (In the United States District Court for the District of New Jersey, Civil Action no. 99-CV-3979 [JWB], filed on December 13, 1999.) The suit alleged that a group of American investors who took over the company from the Russian bank Menatep skimmed at least $50 million from profits over a period of two years. The suit also alleged that Hay arranged the purchase from Menatep through the Institute for Law-Based Economy. According to documents presented by Avisma, Hay “assisted in structuring the transfer of the illegal scheme from Menatep to the investors.” “Avisma Court Case Filing Targets More Banks,” Metals Week 71, no. 1 (January 3, 2000), p. 2.

The suit also alleged that Natasha Garfinkel Kagalovsky, wife of Menatep executive Konstantin Kagalovsky and Bank of New York employee, arranged accounts at the bank to help channel funds that Menatep had diverted. According to Metals Week , “the deal . . . included back-door payoffs to the investors through the same network of bank accounts and offshore entities as Menatep had used.” (For further details, see “Avisma Court Case Filing Targets More Banks,” p. 2; John Helmer, “Deliberate Blindness to Fraud,” The Moscow Tribune , December 17, 1999, p. 3; and Padraic Cassidy, “From Russia with Suit: Russian Factory Files RICO Suit Against U.S. Investor and Company,” New Jersey Law Journal , August 30, 1999.) Little information about the resolution of the suit is publicly available, except that it resulted in a “favorable” outcome for the plaintiff (Avisma). See the SEC database (at sec.edgar-online.com/2000/01/14/10/0000006383–00–000004/Section8.asp) and a statement by the plaintiff’s law firm concerning the settlement (http://www.marks-sokolov.com/about_the_firm.htm).

45. Information about the political agendas of the Chubais associates in local offices was offered by a representative of Price Waterhouse (author’s interview of July 18, 1996), Dennis Mitchem of Arthur Andersen (author’s interview of August 18 and 19, 1996), and Robert Otto of Carana (author’s interview of August 27, 1996). Cecilia Ciepiela, the USAID official in Moscow handling the local offices, told me that Maxim Boycko chose the local directors (author’s interview of August 5, 1996). The quote is from Dennis Mitchem of Arthur Andersen (author’s interview of August 19, 1996).

46. On the government’s and parliament’s lack of decision-making authority or control over the Center’s spending, see report by Russia’s Chamber of Accounts: “Report on the Results of the Audit of the Russian Privatization Center on its Legality and Efficiency of Using Loans Granted by International Financial Organizations for Assistance in Performing Privatization and Support of Enterprises,” Accounting Chamber Bulletin , no. 2, 2000, http://www.ach.gov.ru/bulletins/2000/arch2/3.doc, accessed January 16, 2009.

47. Information on the influence of the Center was provided by Chamber of Accounts auditor Veniamin Sokolov (author’s interview with and documents supplied by Sokolov, May 31, 1998).

48. Author’s interview with consultant Bill McCulloch, May 30, 2001.

49. The GAO’s investigation into the Harvard Institute’s activities in Russia found that “None of the USAID or Department of State documents authorizing the program discuss accomplishing legal reform through the issuance of decrees, only the passage of legislation.” U.S. General Accounting Office, Foreign Assistance: Harvard Institute for International Developments Work in Russia and Ukraine , Washington, DC: GAO, SMD-97–27, 1996, p. 50. With regard to the Office of Democracy Assistance specifically, see the same GAO report, p. 50.

50. See the work of economic sociologist Leonid Kosals for a discussion of the different types of clans, as well as descriptions of specific clans. Leonid Kosals, “Interim Outcome of the Russian Transition: Clan Capitalism,” Discussion Paper No. 610 (Kyoto, Japan: Kyoto Institute of Economic Research, January 2006); and “Essay on Clan Capitalism in Russia,” Acta Oeconomica 57, no. 1 (2007), pp. 67–85.

My notion of the “clan-state” also builds on political scientist Thomas Graham’s observation of clans in the 1990s. See Thomas E. Graham, “The New Russian Regime,” Nezavisimaya Gazeta , November 23, 1995; and “Russia’s New Non-Democrats,” Harper’s Magazine 292, no. 1751 (1996), pp. 26–28. See Janine R. Wedel, “Flex Organizing and the Clan-State: Perspectives on Crime and Corruption in the New Russia,” Ruling Russia: Crime, Law, and Justice in a Changing Society , William Pridemore, ed. (New York: Rowman and Littlefield Publishers, Inc., 2005), pp. 101–116; “Dirty Togetherness: Institutional Nomads, Networks, and the State-Private Interface in Central and Eastern Europe and the Former Soviet Union,” Polish Sociological Review 2, no. 142 (2003), pp. 139–159; and “Clans, Cliques and Captured States: Rethinking ‘Transition’ in Central and Eastern Europe and the Former Soviet Union,” Journal of International Development 15 (2003), pp. 425–440.

51. For mainstream media coverage that attracted considerable attention, see Carla Anne Robbins and Steve Liesman, “How an Aid Program Vital to New Economy of Russia Collapsed,” The Wall Street Journal , August 13, 1997.

52. For information about Zimmerman working for Goldman Sachs and Robert Rubin, see, for instance: “Steyer Power,” Institutional Investor Magazine , February 23, 2005, http://www.emii.com/article.aspx?ArticleID=1024622; and David Warsh, “The Tick-Tock,” Economic Principals , January 22, 2006, http://www.economicprincipals.com/issues/06.01.22.html.