Janine Wedel - Collision and Collusion - The Strange Case of Western Aid to Eastern Europe

Beginning in 1992, Jonathan Hay, the Harvard Institute’s general director and its public face in Moscow, served as a key link between the Chubais Clan and the aid community at large. Hay assumed large power over contractors, policies, and program specifics. He said he viewed his role as “getting policy focused right and turning that into a message for donors,” which included helping Chubais and others to prepare requests to the leadership of USAID that communicated what the Russian government wanted to do.28

Because of their special standing with high government officials, the Chubais-Harvard transactors were able to urge contractors to use certain institutions and people. Many consultants not connected to Harvard indicated that Hay had some control over their purse strings and that he spoke on behalf of the Russian government (that is, the Chubais Clan) to USAID and other Western organizations. Thus, it is not surprising that at a meeting that the author observed among Hay, representatives of the Clan, and senior aid-paid Western consultants, the consultants treated Hay with considerable deference.29

Hay had easy access to the powerful Chubais Clan and often served as its spokesman. Clan principals directed donor officials, contractors, and even GAO investigators wanting to talk to Russian officials responsible for aid to Hay. The Institute sometimes spoke on behalf of the Clan, sometimes on behalf of itself as an aid contractor, and sometimes also as a contractor managing the projects of competitor contractors. From an American perspective, the Harvard Institute appeared to have a conflict of interest.

All this meant that, in practice, and under cover of economic aid, the United States delegated to the Harvard Institute, a private entity, foreign policy in a crucial area that involved complicated choices. This arrangement eventually came under scrutiny. In 1996, Congress asked the GAO to investigate the Harvard Institute’s activities in Russia and Ukraine. The GAO found that “HIID served in an oversight role for a substantial portion of the Russian assistance program,”30 that the Harvard Institute had “substantial control of the U.S. assistance program,”31 and that USAID’s management and oversight over Harvard was “lax.”32

In 1997, as the result of yet another investigation, this time beginning with USAID’s inspector general (and later referred to the U.S. Department of Justice), USAID canceled nearly $14 million of its commitments to the Harvard Institute amid allegations that Andrei Shleifer and Jonathan Hay, the Russia project’s two principals, had “abused the trust of the United States Government by using personal relationships … for private gain.”33 In May 1997, citing evidence that the two men had used their positions and inside knowledge as advisers to profit from investments in the Russian securities markets and other private enterprises, the Harvard Institute fired them. In January 2000, a Harvard task force issued a report alluding to the financial scandal and recommending that the Harvard Institute be closed.34

In September 2000, in a suit brought against Harvard University, Shleifer, Hay, and their wives, the U.S. government alleged that the two men “were making prohibited investments in Russia in the areas in which they were providing advice.”35 Although acknowledging that they participated in and benefited from many of the alleged activities, Hay and Shleifer denied that their activities constituted a conflict of interest with their official positions. Tellingly, USAID Deputy Administrator Donald Pressley acknowledged: “We had even more than usual confidence in them [Harvard advisers], and that’s one reason we are so distressed that this has occurred.”36

A FEW GOOD MEN

Just what was this Chubais Clan? A core group of people who contacted one another for many purposes, the clan was a “clique,” as defined in chapter 3. The clique was a strategic alliance that responded to changing circumstances and helped its members promote common interests through concentration of power and resources.37 (As noted earlier, this use of “clique” should not be confused with the Russian klika, which has a decidedly pejorative connotation—that of an establishment gang.) Sociologist Olga Kryshtanovskaya explains the clique, or “clan” in the Russian context, as follows:

A clan is based on informal relations between its members, and has no registered structure. Its members can be dispersed, but have their men everywhere. They are united by a community of views and loyalty to an idea or a leader.… But the head of a clan cannot be pensioned off. He has his men everywhere, his influence is dispersed and not always noticeable. Today he can be in the spotlight, and tomorrow he can retreat into the shadow. He can become the country’s top leader, but prefer to remain his grey cardinal. Unlike the leaders of other elite groups, he does not give his undivided attention to any one organisation.38

Core members of the St. Petersburg Clan were originally brought together through university and club activities in the mid-1980s in what was then Leningrad. Most members of the Clan studied at the Leningrad Institute of Engineering Production, where Chubais was a student; the Institute of Finance and Economics; or Leningrad State University.39 Some also were associated with the Leningrad Shipbuilding Institute and the Leningrad Polytechnical Institute.40 Chubais was an active participant in ECO (Economics and Organization of Industrial Production), a club, and its namesake magazine, which was published by the Russian Academy of Sciences. According to Leonid Bazilevich, vice president of the club, who was Chubais’s professor and was acquainted with several members of the Clan, members were “very intensively connected” with one another at that time and “well-oriented to Western economic models.”41

Later, in the Gorbachev years of glasnost, some members of the Clan became involved in explicitly political activities and established an informal club that called itself Reforma. This club organized special meetings on economic issues that sometimes attracted hundreds of people. Reforma put together lists of candidates and platforms for local and national elections, as well as drafts of legislation and a business plan for a free-enterprise zone in Leningrad.42 Later, Chubais and other members of the Clan established a connection with the mayor of the city, Anatoly Sobchak, and became influential in its administration. In moving from academia to city government, “Chubais brought with him many of the brightest young scholars he had come to know working in Leningrad’s well-developed intellectual circles,” political scientist Robert Orttung has noted.43 Before going to Moscow, several members of the Clan served as first deputy mayor under Sobchak (Chubais, Alexey Kudrin,44 Sergei Belyaev, and Vladimir Putin—Russia’s new president). Some (Chubais, Belyaev, Eduard Boure, and Mikhail Manevich45) headed state privatization agencies there, and still others (Dmitry Vasiliev and Alfred Kokh46) worked as deputies in those offices.

Although later in Moscow, the St. Petersburg Clan took on some powerful members who were not from their hometown (notably Maxim Boycko from Moscow, whom Shleifer says he introduced to the Clan), all were tied and obligated to Chubais. Chubais and the Clan depended on, and appeared to work closely with, still others, such as Ruslan Orekhov, head of the president’s legal office. According to Shleifer, Orekhov’s association with the group began in 1993, when its members had to work with Orekhov because decrees went through his office.47

Although cliques do not necessarily have a center or leader,48 they have recognized authorities who often retain their standing and influence whether they shoulder responsibility or not. By skillfully manipulating others’ interests, a clique authority builds up a following of those who are under obligation to return past favors and support.49 According to Bazilevich, members of the Chubais Clan supported one another “in critical situations.”50