•THIS IS A REPOST• originally published on December 10, 2016
I venture that few outside the Russian Federation will even know the name of Anatoly Chubais, today the CEO of a Russian high-tech company called Rusnano. Following the high-profile November 15 arrest of Prime Minister Dmitry Medvedev’s Minister of Economics, Alexei Ulyukaev, on charges of accepting at least $2 million in bribes in a state privatization involving Rosneft and Bashneft energy companies, the spotlight has turned to the company of Anatoly Chubais, Boris Yeltsin’s 1990s privatization czar, today CEO of state-owned Rusnano,. If charges are formally brought against Chubais–undeniably one of the most hated of the Yeltsin-era kleptocrat “reformers” who worked with the CIA during the 1990’s to plunder Russian state assets worth hundreds of billions for just pennies–it will signal that Putin feels in a strong enough position to purge the pro-free market liberal mafia that still holds a lock grip on the development of the Russian economy.
On 16 November, the day after the dramatic arrest of Ulyukaev, state prosecutors and police raided the offices of Chubias’ Rusnano.  Notable about the reports of the prosecutors’ questioning Chubais and other top officers at Rusnano, is the fact that several have fled Russia in recent months to avoid prosecution. To the present, Chubais remains, and vehemently claims innocence.
In my view, there is vastly more at stake here than the innocence or guilt of Chubais. This move, if combined with the arrest of Ulyukaev, signals a major cleanup of corrupt elements who, beginning even before 1991, organized to sell Russia to the CIA and Western speculators like George Soros. Some history that has generally been blacked out in the West about the true role of Anatoly Chubais and the Yeltsin Presidency are instructive to also understand the irrational rage of Washington and US banks and oligarchs directed at Putin and at everything he does to re-establish Russian sovereignty and stability.
CIA’s Yeltsin ‘Democracy’ Coup
The rape of Russia–the Russian nation, the Russian state, the Russian people–beginning the end of the 1980’s, was a coup d’état engineered by the US Central Intelligence Agency along with rogue and not so rogue networks directed by former CIA Director, then President, George Herbert Walker Bush and continued by Bush’s successor, Bill Clinton. Western accounts of what took place inside the Russian Federation during the Yeltsin years of the 1990’s speak of “Russian mafia,” or “Russian Organized Crime.” Never do they mention or even hint that those Russians who plundered their own country were organized and paid, made rich by the West, to be more precise, by the Old Boy CIA networks loyal to former CIA Director and then US President, George Herbert Walker Bush.
What took place in the 1990’s under the Russian Presidency of Boris Yeltsin was described by one knowledgeable US insider, Mortimer Zuckerman, a member of the New York Council on Foreign Relations and owner of US News & World Report as, “the largest giveaway of a nation’s wealth in history.” The giveaway or more precisely said, theft, was done through outright theft, currency war and a fraudulent loans-for-company stock shares program that Anatoly Chubais directed. 
The Harvard establishment and other US Ivy League universities, the top Western banks, the Clintons and their filthy cliques…all implicated up to their eyeballs in the rape of Russia…during Yeltsin’s abominable regime (reelected thanks to demonstrable Yanquee meddling.)
The Bush Sr. Administration’s attack on post-communist Russia, dubbed “Operation Hammer,” had four distinct covert elements. The CIA would secretly finance the August 1991 Generals’ coup against Soviet leader Mikhail Gorbachev. They would use their secret financial war-chest to destabilize the Ruble. They used corrupted Russian Gosbank national bank officials to organize the theft of the country’s official gold reserves, most all of it. Then they began a systematic takeover of strategic energy, raw materials and military state industries in the Soviet Union via IMF-dictated privatization operations that were run by Yeltsin’s Finance Minister, Yegor Gaidar and his close associate responsible for state privatization, Anatoly Chubais. Gaidar and Chubais worked in league with Harvard’s Jeffrey Sachs and other friends of billionaire hedge fund speculator, George Soros in the literal rape of Russia as one insider described it.
As the rogue ex-KGB generals and their hand-picked protégés looted the gold reserves of the now defunct Soviet Union, as well as the significant financial assets of the now-banned Communist Party, all with the blessing and complicity of Boris Yeltsin and his inner circle, the Bush CIA Old Boys were ready to launch the next phase, systematic takeover of strategic energy, raw materials and military state industries in the Soviet Union via IMF-dictated privatization operations that were run by Yeltsin’s Finance Minister, Yegor Gaidar, and his accomplice, Anatoly Chubais.
In November 1991, Chubais became a minister in the Yeltsin Cabinet where he managed the portfolio of Rosimushchestvo–the Committee for the Management of State Property, which Yeltsin decreed to be the agency responsible for devising Russia’s privatization of the state companies. Gaidar and Chubais worked in league with George Soros, the Wall Street speculator and funder of the CIA front, National Endowment for Democracy. Soros in turn brought Harvard’s Jeffrey Sachs, architect of the Polish “economic shock therapy,” and other American “friends,” to the Yeltsin circles.
George Soros and his Open Society Foundations had been linked to the CIA by Chinese intelligence and others. His Open Society institutions “coincidentally” appeared in every situation where the CIA’s National Endowment for Democracy front and the US State Department sought regime change to a pro-Washington government. Already back in 1987, while Gorbachev still headed the Soviet Union, Soros took advantage of the regime’s efforts to reform and open cautiously to the West by founding his Open Society Institute in Moscow. There he could give money to key researchers and others to support “market economy” research. 
All actions of Yeltsin were guided by his CIA and rogue KGB handlers, notably KGB Generals Filipp Bobkov, Alexei Kondaurov and Yeltsin’s personal bodyguard, General Alexander Korzhakov–the cabal who, in coordination with George Bush Sr. and his CIA Old Boys described, staged the phony KGB “coup” attempt against Gorbachev that propelled Yeltsin, with support of mainstream Western media, as the “champion of democracy.” In December 1991, four months after, Yeltsin, then President of the Russian Soviet Federative Socialist Republic, the largest federated “republic” within the Soviet Union, met with the presidents of Ukraine and Belarus and signed what was called the Belavezha Accords declaring the dissolution of the USSR that had formally existed since 1922. It was the key note in the US-backed coup to open up the rape of Russia. By then Gorbachev had been utterly discredited and resigned.
Russia’s Shock Therapy, Harvard and CIA
As part of the dissolution agreement, Russia took title to all state assets of the former USSR, now non-existent, as well as assuming all foreign debts of the USSR. Yeltsin was told to make a 32-year-old friend of George Soros named Yegor Gaidar his Economics Czar. Gaidar, who formally was made Finance Minister of the new Russian Federation in February 1992, made another young economist, Anatoly Chubais, his privatization head.
Gaidar was taken to Poland to study the Polish “Shock Therapy” model, the process that had been introduced by George Soros’ young Harvard economist protégé, Jeffrey Sachs. Back in Moscow, Yegor Gaidar, using the Polish example of Sachs, convinced Yeltsin to “let prices rise to increase supply and to scrap trade barriers so that foreign commodities could begin to fill store shelves.”
It was a lie. The Soviet economy was self-sufficient in everything except perhaps bananas and coffee. The shops were full until Yeltsin announced in November 1991 the exact date when price controls were to be lifted, December 31 of that year. Shop-owners hid their goods waiting for the announced profit bonanza of price decontrol. Shops were suddenly empty. Within a week of the Yeltsin speech, rationing was imposed on Muscovites. 
Gaidar was instructed by the US Treasury from the new Clinton Administration that took office in January 1993. The key person at Treasury for the ensuing Gaidar-Chubais looting of Yeltsin’s Russia was a former Harvard economist named Lawrence Summers. Summers used the powerful influence of the US Treasury Department to get International Monetary Fund dollars to the cash-hungry Yeltsin government, telling Yeltsin and Gaidar that Russia must open itself to unrestricted imports if they wanted to receive IMF and other Western loans.
Gaidar soon delivered a policy that served the demands of Washington and of the KGB’s new banking oligarchs around Mikhail Khodorkovsky’s Menatep Bank and others. Under the Gaidar decrees, Russian manufacturing was to go bankrupt in the face of unrestricted foreign competition, but domestic banking, such as Menatep, controlled by the rogue KGB generals and the CIA-tied Western banks, was to be protected from competition. 
After the November 1992 US election victory of Bill Clinton, Larry Summers, the new US Treasury Deputy Secretary responsible for Russia “reforms,” also a former Harvard economics professor, brought a group of his former Harvard colleagues including George Soros’s Polish Shock Therapy adviser, Jeffrey Sachs, and economics professor, Andrei Shleifer, to Moscow under the auspices of their Harvard Institute for International Development (HIID). The Sachs-Schleifer-Summers triangle essentially orchestrated all key aspects in the implementation of Gaidar-Chubais “shock therapy” in the early 1990’s Yeltsin years. 
In 1991, Summers had been chief economist at the World Bank, where Summers named his former Harvard student, Schleifer, a Russian-American, as World Bank “adviser” to the Yeltsin government. Soon after Summers became Deputy Treasury Secretary in the Clinton Administration in 1993, Schleifer would join Jeffrey Sachs’ Harvard Institute for International Development (HIID) as the head of their Moscow operations.
HIID was cleverly chosen by Summers as the key advisory agency to work with Gaidar and Chubais to organize the colossal looting known as Russian privatization. Summers, from his Washington Treasury office, named all key actors in the Chubais privatization rape of Russia in the early 1990’s. They were what could be called a Harvard mafia. Summers hired David Lipton from Harvard, a former consulting partner of Jeffrey D. Sachs & Associates, to be his Deputy Assistant Treasury Secretary for Eastern Europe and the Former Soviet Union. Sachs was named Director of HIID in 1995. His HIID received USAID grants for the institute’s “work” in Russia. 
The USAID was known as a CIA front agency, keeping the CIA role of regime change and such hidden behind the veil of a charitable US Government agency spending for economic development. It was a key money link for the directing of every step of the Chubais privatization operations through the Summers-Sachs Harvard Boys. 
Harvard was a clever choice to be the CIA hands-on operator for the Chubais privatization. CIA monies via a Harvard University front gave an aura of impartial academic respectability and of plausible deniability that the CIA was responsible. Shleifer, a Russian-born émigré, and protégé of Summers, was already a tenured professor of economics at Harvard in his early 30s. He became Sachs’ head of HIID’s Russia project, based in Moscow. Then Summers brought in yet another Harvard Boy, another former World Bank consultant for Summers named Jonathan Hay. In 1991, while at Harvard Law School, Hay had also become a senior legal adviser to the Chubais GKI state privatization agency. In the following year 1992, Hay was made HIID’s general director in Moscow. Hay assumed vast powers over contractors, policies and program specifics. He not only controlled access to the Chubais circle but was its spokesperson. 
Both Jonathan Hay and Andrei Schleifer were identified later as CIA agents.
Vladimir Putin in an April 2013 annual dialogue with Russian citizens, though he discreetly did not name the names, referenced Hay and Schleifer as identified CIA agents working with Chubais and Gaidar in the criminal Russian privatization. Putin said: “We learned today that officers of the United States’ CIA operated as consultants to Anatoly Chubais. But it is even funnier that upon returning to the US, they were prosecuted for violating their country’s laws and illegally enriching themselves in the course of privatization in the Russian Federation. ” 
In 2006 US District Court in Boston had fined Hay and Schleifer them personally $2 million and Harvard University $26.5 million for fraud and embezzlement of government funds for private enrichment. That same year 2006 Summers–who by then had become Harvard President was forced to resign on revelation of his role in the Moscow HIID scandals. Berofr he had managed to get Schleifer an endowed Harvard Professor chair. Hay later resurfaced as founder of the Ukraine branch of the Polish “free market” Centre for Social and Economic Research (CASE) during the CIA coup d’etat in Kiev in 2014. 
The criminal Russian privatization of invaluable state assets that Hay and Schielfer created together with Anatoly Chubais and Yegor Gaidar after 1992 was done to the last detail by Chubais in cooperation with his new American advisers. When the announcement of the proposed “vouchers-for-shares” privatization received cold response from Russians, already reeling from the economic shock of price liberalization, Hay and Schleifer arranged for slick US Public Relations experts from Burston-Marsteller and the Sawyer Miller Group to devise an ad campaign to be aired on the TV channels of the newly-created Russian oligarchs to convince Russians to accept the program.
Chubais as head of the state GKI state property agency issued 150 million “vouchers” to each and every citizen. In turn, they could invest their voucher in a small share in a Russian privatized state company or shop, or sell it at an established market price pegged to the US dollar, of course. As most Russians were then concerned when if ever the next pension payment would be paid, or where jobs could be found in the collapsing industrial economy that was a predictable result of the Sachs-Harvard-Chubais Shock Therapy, millions simply sold their vouchers for some cash. It was an insane idea if Chubais and Gaidar cared about the economic future of the Russian Federation. It was brilliant if they wanted to create billionaire dollar oligarchs, which is just what they did.
Vouchers could be bought or sold on every street corner in Russia at the start in June 1992. They were traded at the new unregulated Moscow commodity exchanges set up by Harvard’s Jonathan Hay with the USAID monies channeled via HIID. Unregulated (deliberately a decision of Gaidar, Chubais and their Harvard CIA advisers) voucher investment funds sprung up everywhere to gather citizens’ vouchers in the millions. The ruble was domestically made convertible to the US dollar on the advice of the Sachs HIID team. In the twenty months the voucher-for-shares program lasted, the price swung from a high of $20 to a low of $4 a voucher. As they were made freely tradeable, it was ripe for the billionaire oligarchs around Yeltsin who already had huge cash hoardes to buy them up, just what they did. 
Nearly six hundred voucher funds obtained 45 million vouchers. The largest, calling itself First Voucher, collected 4 million vouchers. 
At the stated price for the vouchers, Chubais and his Harvard Boys had valued the entire Russian economy–which included the world’s largest nickel company, some of the world’s largest oil and gas companies including Sibneft and Gazprom, RUSAL, the world’s largest aluminum company–at a total that was less than the market value of the US General Electric company. The face value of each voucher was 10,000 rubles which Chubais promoted by lying to the public, stating one voucher would be sufficient to buy two or even three Volga cars.
Because they had been allowed by the Bush CIA networks that controlled the financial side of the Yeltsin mafia to be the first Russians with big money, the select Yeltsin oligarchs were able to buy up hundreds of thousands of vouchers and redeem them for entire industries, which would later be stripped and sold. Although they were supposedly acting on behalf of the state, the bank auctioneers of oligarch-owned banks rigged the process. This was how Bank Menatep’s Mikhail Khodorkovsky got a 78 percent share of ownership in Yukos, worth about $5 billion, for a mere $310 million. It was how Boris Berezovsky got Sibneft, another oil giant, worth $3 billion, for about $100 million. 
Using his connections, Khodorkovsky was able to purchase several factories in investment tenders, and large blocks of shares in timber, titanium, pipe, and copper smelting. In total, he gained control of more than one hundred companies before getting Yukos. In the auctions, based on the number of total vouchers that were circulated, the entire Russian industrial system, mines, oil companies, factories, had a total value of under $12 billion. 
Under pressure from Parliament, Chubais agreed to prohibit voucher sale of state companies to foreign investors. There were, however, two notable exceptions Chubais made. In 1995, in the wake of the Yeltsin Referendum victory financed by Soros, the Harvard Management Company (HMC), which invests the university’s large endowment, and George Soros, who brought Harvard’s Sachs to Chubais, were the only foreign entities allowed to participate. Both HMC and Soros became major shareholders in Novolipetsk, Russia’s second-largest steel mill, and Sidanko Oil, with reserves exceeding those of Mobil. HMC and Soros also invested in Russia’s high-yielding, IMF-subsidized domestic GKO bond market. And in 1997 he bought 24% of Sviazinvest, the telecommunications giant, together with Uneximbank’s Vladimir Potanin, the nominal spokesman of the new Russian oligarchs. At one point Soros stated he had invested $2.5 billion in such Russian assets for the dirt-cheap prices Chubais had deliberately set. 
Soros to the Yeltsin Rescue
This left many Russian citizens feeling cheated, royally screwed, furious as their dreams of a promised share in “capitalist private property” vanished, along with their savings, during the Central Bank hyperinflation money printing, another part of George H W Bush’s Operation Hammer. By 1993 the pressures from all sides including the Duma were dramatically rising. The population was demanding action. The Supreme Soviet, the upper house, was drafting a bill that would freeze the entire privatization process. The opposition was becoming so great that Chubais ultimately had to rely largely on Yeltsin’s presidential decrees, not parliamentary approval, for implementation. The Harvard HIID’s Moscow man, the CIA’s Jonathan Hay and his HIID associates, drafted many of the decrees. USAID’s Walter Coles, whose office funded the Chubais privatizations via HIID admitted, “If we needed a decree, Chubais didn’t have to go through the bureaucracy.”  Russia’s nascent efforts to establish some form of parliamentary democracy or even checks on dictatorial Presidential power were of little interest to Washington officials or to Chubais and his cabal around Yeltsin.
The Soros Yeltsin Referendum
At that point, as opposition threatened to get out of hand, Yeltsin felt forced to agree to a national referendum on the entire privatization process. The date was to be April 25, 1993.
The referendum contained four yes/no questions: (1) do you support Yeltsin, (2) do you support Yeltsin’s economic policy, (3) do you want early elections for President, and (4) do you want early elections for parliament? 
Facing sure defeat, Chubais, likely on advice from his Harvard mentors, arranged to secretly meet with US billionaire George Soros. Soros agreed to finance on behalf of Yeltsin the Referendum campaign. Soros funneled $1 million, a huge sum on Russia at the time, to offshore accounts set up for Chubais to use to buy media exposure. Yeltsin survived by a slim 52% and privatization of major Russian industrial companies went forward.  Yeltsin was giving the Crown Jewels and much more to a cabal of CIA-backed Russian oligarchs as well later to Soros himself.
From Washington, Summers at Treasury architected the Chubais-Gaidar privatization with Jeffrey Sachs and Andrei Schleifer serving to directly convey the plans to their Yeltsin economic advisers. The Chubais-Washington privatization of Russian assets was a theft on a scale unprecedented in any nation, even in wartime. From 1992 to 1994, ownership of 15,000 firms was transferred from state control largely to the new billionaire oligarchs such as Khodorkovsky and Berezhovsky via the Chubais-Washington voucher program.
Oligarchs Buy Yeltsin Re-election
By 1996, with the Russian economy deep into hyperinflation, Yeltsin faced certain defeat in scheduled elections. The head of the Communist Party, Gennadi Zyuganov, promising a return to stability, was far ahead in the polls. Some of Yeltsin’s close advisers ever suggested canceling the elections and declaring a de facto dictatorship. By then Yeltsin’s daughter, Tatyana Borisovna Yumasheva, had become her father’s closest adviser, together with Berezhovsky, Guzinsky and the other USAID and CIA-made oligarchs. Russian media labeled the clique controlling Russia, especially after Yeltsin’s heart attack that year, “The Family,” as in mafia family, not blood family, though with daughter Tatyana the de facto Capo di tutti capi of the family owing to her influence over the President. 
Following the Russian Communist Party success in the December 1995 parliamentary or Duma elections, the International Monetary Fund made an extraordinary $10.2 billion loan to the Yeltsin government in which $1 billion was secretly intended by Washington for the campaign to keep Yeltsin President in the 1996 elections. Tape recordings of conversations between Clinton and Yeltsin later made public, showed that in return, among other favors, Yeltsin would exempt longtime Clinton supporter and campaign donor, Arkansas-based Tyson Chicken’s exports to Russia–then a $700 million annual business–from a threatened 20% tariff increase. 
Berezhovsky and Guzinsky, the Washington-backed new Russian oligarchs, fearing loss of their stolen billions to the opposition communists, formed what they called the “Group of Seven,” which included Berezovsky, Gusinsky, Khodorkovsky, Potanin, Vinogradov, Smolensky, and Friedman. With aid of US Madison Avenue spin doctors, the Group of Seven–which owned the two major TV stations with the third still state owned, and as well major press– ran a US-style media campaign assault, at the same time blocking Zyuganov from buying media time. Yeltsin posters carried the slogan, “Choose with Your Heart.” Another ad featured Yeltsin family photos, while Yeltsin in TV spots recalled events in his childhood: as an athlete, a rebel, a father, and a grandfather. All the while, sentimental music… 
The oligarchs hired Anatoly Chubais, the man responsible for creating their fortunes, as Yeltsin’s campaign manager. He created a private fund called the Center for the Protection of Private Property and received $5 million from the Group of Seven for the campaign. Fake newspapers were created and printed stories claiming discovery of secret minutes of a Communist Party leadership meeting where Zyuganov was alleged to have said, “We will not be able to give the people anything that we promised.” Gaidar’s re-election fund also funneled hundreds of thousands of dollars, a fortune in the time of hyperinflation of the ruble, to major journalists to write fraudulent articles in praise of Yeltsin and discrediting Zyuganov. 
The fact that the oligarchs had a near monopoly on Russian TV and print media made it possible to tilt the vote to Yeltsin 54%. The Russian Corporate Politburo was now firmly in the saddle, with Yeltsin and Chubais their horses. 
The human cost of the US-imposed Russian Shock Therapy brought by Anatoly Chubais, Yegor Gaidar together with George Soros, Jeffrey Sachs and a stable of CIA-linked financial and legal operators such as Jonathan Hay and Andrei Schleifer, was beyond belief. Between 1991 and 1997, Russian GDP – the value of all goods and services that Russia produces – collapsed by 83%. Farm production declined 63% as state support for agriculture ended and cheap US imports such as Tyson chickens replaced their domestic production. Industrial and other investment decreased 92%. More than 70,000 factories were closed down. That led to Russia producing 88% fewer tractors, 76% fewer washing machines, 77% less cotton fabric, 78% fewer TV-sets and on and on. In a country without unemployment under the Soviet era, 13 million people lost their jobs. Those who still had work had their wages cut in half. The average life span for men had been shortened by six years, down to the same level as in India, Egypt or Bolivia. Alcoholism became epidemic as depression and unemployment spread among the population. It was a shock indeed, the kind of shock a country experiences only in a major war. The average life span had decreased, in just a few years, to the same level as in India, Egypt and Bolivia. 
The fact that Anatoly Chubais is now under enormous pressure and likely to be prosecuted is about far more than corruption of a corporate director. It goes to the heart of the corrupt circles that have tried since the ascent of Vladimir Putin in December 1999 to resume the Wall Street rape of Russia, so far without success. For them Putin is the symbol of that defeat. For the vast majority of Russians who lived through the rape of their country in the 1990’s, Anatoly Chubais is the symbol of that devastation and destruction.
The Moscow Times, Fearing Criminal Prosecution, Chubais Allies Flee Russia, The Moscow Times, 29 November, 2016, www.themoscowtimes.com ↑
Dan Josefsson, Shock Therapy: The Art of Ruining a Country, 1 April, 1999, http://josefsson.net/artikelarkiv/51-shock-therapy-the-art-of-ruining-a-country.html ↑
Addendum There was a time—shockingly not too long ago—when some mainstream media organs still performed their function tolerably well. Observe the quality of this article on the Los Angeles Times, unthinkable these days. The piece, however, is not authored by the staff but by an outside contributor, and academic at the University of Pittsburgh.
September 12, 1999| Janine R. Wedel | Janine R. Wedel, associate professor at the Graduate School of Public and International Affairs at the University of Pittsburgh, is the author of “Collision and Collusion: The Strange Case of Western Aid to Eastern Europe.”
WASHINGTON — As more becomes known about Western participation in the laundering of Russian money, the Washington establishment will likely try to hide behind stories of faraway organized crime and distance itself from any culpability.
But U.S. policy toward Russia has contributed to that country’s sorry conditions. Russian “reformers,” including many under investigation for allegedly laundering billions of dollars through the Bank of New York, have long been embraced by the Clinton administration and international financial institutions. Among them are current and former members of Russian President Boris N. Yeltsin’s government, to which the West pinned its hopes for a new relationship with Moscow and entrusted hundreds of millions of dollars in aid. For years, despite accounts of massive capital flight, money laundering and Russians buying up the French Riviera, the money kept flowing. Yet, no Russian dollar can be deposited in a Western bank account without the knowledge and participation of a Western institution. As former Russian Prime Minister Viktor S. Chernomyrdin, who is accused of corruption, recently asked: “What has suddenly made them [the Americans] wake up?”
Among those under investigation in the West for money laundering is longtime Yeltsin aide Anatoly B. Chubais, the chief architect of Russia’s economic reforms. While under investigation in Russia for matters ranging from suspect banking deals to bribery, Chubais and his clique of political and financial power brokers, known as the “Chubais clan,” were the darlings of the U.S. Treasury and international financial institutions. With Treasury Secretary Lawrence H. Summers the key architect of U.S. economic policy toward Russia since 1993, the administration gave the Chubais clan much control over hundreds of million of dollars in aid.
The clan worked closely with the Harvard Institute for International Development, whose Russia project was headed by economist Andrei Shleifer, Summers’ coauthor and protege. Citing “foreign policy considerations,” Clinton administration policymakers largely bypassed the usual public bidding for foreign-aid contracts. Harvard principals with ties to the Chubais clan were given “substantial control of the U.S. assistance program,” according to a 1996 report by the U.S. General Accounting Office. Since 1997, Shleifer and another Harvard principal have been under investigation by the U.S. Justice Department for misuse of funds.
The Harvard Institute, together with the Chubais “dream team,” as Summers called it, presided over Russia’s economic “reforms,” many of them U.S.-funded, including privatization. But the reforms were more about wealth confiscation than wealth creation. The first stage of privatization, which had substantial input from U.S.-paid Harvard advisors, fostered the concentration of property in a few Russian hands and opened the door to widespread corruption.
Then Chubais approved the “loans-for-shares” program, which was masterminded by his associate, Vladimir O. Potanin, a onetime deputy prime minister for economic affairs who also is named in the current money-laundering investigations. It was under this scheme that insider deals and coziness between government and Russia’s oligarchs became crystallized for all to see. But the Clinton administration continued its support for its favored “reformers.”
In the name of privatization, loans for shares transferred control of many of Russia’s prime assets for token sums to seven preselected bank chiefs. Potanin, chairman of one of them, the powerful Unexim bank, since 1993, paid rock-bottom prices for shares in some of the nation’s crown jewels. He also enabled the Harvard Management Company, the university’s endowment fund, to participate in loans-for-shares auctions and get in on two of Unexim’s best deals, despite the fact that foreign investors were supposed to be excluded under auction rules.
Another “reformer” was Konstantin Kagalovsky, an old friend of the Chubais clan and husband of Natasha Kagalovsky, who was suspended by the Bank of New York in the money-laundering scandal. In charge of incoming foreign aid in 1991, Kagalovsky was sent to Washington to be Russia’s first liaison to the International Monetary Fund. After serving in the post from 1992 to 1995, he returned to Russia in time to participate in the loans-for-shares scam. As deputy head of Menatep bank, Kagalovsky presided over the “auction” of Yukos, a large oil company. As it turned out, Menatep acquired the company in the auction, a deal that the Chubais group clearly had approved.
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Besides failing to achieve viable economic reform, the Chubais-Harvard partnership undermined democratic and state institutions. With U.S. support, it operated through executive decree, circumventing the Duma, the democratically elected parliament. The partnership also ran a network of aid-funded “private” organizations, some of which usurped state functions. For example, the Russian Privatization Center negotiated loans with the IMF on behalf of the Russian state, bypassed the Duma and contributed to the Chubais clan’s political and financial base. It attracted some $4 billion in Western aid, according to its CEO, which the Chamber of Accounts, Russia’s rough equivalent of the GAO, said “was not spent as designated.”
In 1996, the GAO also had objections. It found that U.S. oversight over Harvard was “lax,” and, following allegations in 1997 that Shleifer and another Harvard manager used their positions and inside knowledge as advisors to profit from investments in Russia, the U.S. government canceled the last $14-million award earmarked for Harvard.
Did the Russians do all this alone? Clearly, the administration consistently backed a small group of self-interested insiders by giving them the “dream team” seal of approval and a blank check in the form of billions of dollars in Western aid and loans, while neglecting to encourage the development of a legal and regulatory backbone for Russia’s nascent market economy. In 1996, Chubais was placed on Harvard’s (U.S.-assistance-funded) payroll. Even his admission, after the Russian economic crash last August, that he had “conned” from the IMF its most recent $4.8-billion installment, the details of the deal having been worked out with Summers, brought administration officials to Chubais’ defense. As we now know, the IMF money disappeared in short order.
Still, Chubais has remained an administration favorite son. In Washington last May, Chubais, now chairman of Russia’s electricity monopoly, was received by U.S officials, including Summers, then-Treasury Secretary Robert E. Rubin, Secretary of State Madeleine K. Albright, Undersecretary of State Strobe Talbott and National Security Advisor Samuel R. Berger, as well as by top officials of the IMF and World Bank. Were these officials and politicians oblivious to the “clan-state” developing in Russia, in which property was concentrating in a very small circle and owners were chosen by government officials? Were they totally unaware that billions of dollars were being looted from Russia and channeled through Western banks?
As information trickles out about capital flight and money laundering, it will be easy to point fingers at “corrupt” Russians, to replace the image of the “evil empire” with that of Russian gangsters. It will be crucial to scrutinize with equal fervor the officials and institutions on the Western side that enabled, indeed may have even encouraged, the misdeeds.*