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

Thus, the Chubais-Harvard partnership appeared to be virtually “seamless,” as one observer put it. It was like a game of musical chairs, with key transactors directing when the music would be turned on and off. This game, in which roles were constantly being switched depending on the situation, facilitated deniability. As the manager of other aid contractors, the Harvard Institute could represent its own interests as an aid contractor, while as a representative of the Russian government, the Institute’s Hay could represent the interests of Harvard as a contractor and/or those of the Chubais Clan. With regard to individual transactors, as pointed out earlier, if the Harvard Institute’s manager in Moscow was asked by U.S. authorities to account for privatization decisions and monies, he could say he made those decisions as a Russian. If donors found themselves under fire for funding controversial privatization practices of the Russian state, they could disassociate themselves from the state because they were funding “private” organizations, even if these organizations were controlled or strongly influenced by key officials of the state.

The same was true of the Chubais Clan. Each side could publicly blame the other if they came under close scrutiny. If the Chubais Clan came under fire from countrymen for public policies or misuse of funds, the Clan could disassociate itself from the Americans. It could claim that cynical and selfish American contractors were at fault. The author’s analysis of U.S. aid to the Chubais Clan177 prompted Clan member Maxim Boycko to respond by attacking American consultants. In an article in a major Russian newspaper, Boycko wrote that “The most important thing for a [Western] firm is to secure a big government contract and report back to its own government of [having] complet[ed] it.… Evidently, when the American side was to account for the work done to those who gave them contracts, it was dreamed up—in order to increase their own weight and importance—that American specialists had a powerful influence on Chuba[i]s.”178

Finally, as the manager of other aid contractors, the Harvard Institute could represent its own interests as an aid contractor, while as a representative of the Russian government, the Harvard Institute’s Hay could represent the interests of Harvard and/or those of the Chubais Clan. The play of identities that transactorship affords enables maximum maneuverability and deniability and also the opportunity to reduce accountability to bodies, procedures, and structures on both sides. A system that facilitates deniability by definition lacks outside accountability and precludes significant oversight on the part of authorities who are not aligned with the chosen group. As one U.S. contractor concluded, this setup “not only enabled deniability, it institutionalized it.”

HARVARD BUSINESS REVIEW

The Chubais-Harvard transactors extended themselves into many important spheres and institutions, not only Russian economic reform and foreign aid. Their aid-facilitated entree, legitimacy, and resources supported their activities in other areas, including allegedly the Russian securities market, both in Russia and internationally, and may have helped some transactors enrich themselves.

Members of the Chubais Clan—the very group that Treasury Secretary Summers had called a “dream team”—were consistently under investigation in Russia. Many substantiated reports of the Chubais transactors using public monies for personal enrichment have been published. Today some of these same persons and their associates are among those under investigation for alleged involvement in laundering billions of dollars through the Bank of New York and other banks.179

Just how much did Anatoly Chubais profit from his aid-bolstered ventures? As an example, in February 1996, Chubais’s Foundation for the Protection of Private Property received a five-year, $2.9 million unsecured, interest-free loan. According to the pro-Yeltsin, pro-reform Izvestia, the Stolichny Bank, a commercial bank that enjoyed lines of credit from the EBRD and World Bank, made the loan in return for a small percentage of the Sibneft oil company when it was sold at auction and for later control of one of the state’s largest banks. Chubais defended himself by saying such practices were common in the West, but he failed to provide any reasonable explanation for some $300,000 in 1996 income not accounted for by his government salary.180

During Yeltsin’s 1996 presidential campaign, security officials apprehended two close associates of Chubais as they were walking out of the Russian White House with a box containing more than $500,000 in cash for Yeltsin’s campaign. According to tapes of a later meeting recorded by a member of one of Russia’s security services, Chubais and his cronies strategized about burying evidence of any illegal transaction, while publicly claiming that any allegations of chicanery were the work of political enemies. Chubais was also able to engineer, through Yeltsin, the dismissal of several political competitors, including Alexander Korzhakov, head of the Kremlin security service and a longtime Yeltsin bodyguard and family friend.181 A protracted, lackadaisical investigation began, but was eventually dropped amid the Duma’s political jockeying with Yeltsin’s administration.

Journalist Anne Williamson examines privatization and the development of finance capitalism in Russia in her forthcoming book, Contagion: The Betrayal of Liberty—Russia and the United States in the 1990s. She notes that Chubais’s intimate relations with both Russian bankers and his Harvard friends provided many opportunities for ostensibly disinterested aid-funded advisers to become interested parties. A look at the “loans-for-shares” scheme that began under Chubais’s direction in 1995 illustrates the coziness. The ostensible goals of loans-for-shares were to raise urgently needed revenue for the state budget and to provide large state firms with effective management. In theory, the government would auction off its shares in large corporations, banks would bid freely to hold the shares in trust with a right-to-purchase option, and winners would pay the treasury with loans.

But the opposite occurred. In the name of privatization, loans-for-shares transferred control of the nation’s prime assets for token sums to seven preselected private banks. Rather than creating competition, this “privatization” transformed lucrative state monopolies into lucrative private monopolies. As Jonas Bernstein, an American journalist in Russia, wrote in the Moscow Times: “The loans-for-shares process looks more and more like the functional equivalent of show trials: a series of staged events designed to give predetermined outcomes the appearance of spontaneity.”182 Well-placed Russian officials admitted that these transfers were insider deals. Boris Fyodorov, former Russian finance minister, characterized loans-for-shares as “a disgusting exercise of a crony capitalism, where normal investors were not invited, where even among Russian so-called investors, only those who were friends of certain people in the government were invited. And there’s a big suspicion that no real cash came to the government.… These loans-for-shares unleashed a wave of corruption like never before, and the West, especially the IMF, kept quiet.”183

Williamson details the ways in which the Harvard Management Company (HMC), the university’s endowment fund, and American billionaire and currency trader George Soros benefited from some of the most valuable deals under loans-for-shares. The key link here is another Chubais associate, Vladimir Potanin, chairman of United Export Import Bank (Unexim) since 1993 and in 1996 first deputy prime minister in charge of finance. Potanin, the originator of the loans-for-shares scheme, paid rock-bottom prices for shares in the nation’s crown jewels: Norilsk Nickel, the world’s largest producer of nickel and producer of a glittering basket of other metals in volumes capable of setting world prices; Sidanko, Russia’s fourth-largest oil company (with more oil reserves than America’s Mobil Oil); and Novolipetsk Metal Factory, Russia’s second-largest steel mill.184