Re: [A-List] Unguided missile alert: Sachs loose again

["Annewilliamson" <Annewilliamson@xxxxxxx>]

Speaking of that poisonous moppet - Sachs - how he and Anders Aslund
escaped investigation for all their criminal conduct is one of the great
untold stories of Russian aid. (Hint:  Robert Rubin and Larry Summers,
who also partook of the spoils.)  Sachs should be kept in a steel mesh
cage - forever.  -A.

  Looting Russia's Free Market
Posted Aug. 12, 2002
By Kelly Patricia O'Meara

Media Credit: Darren McCollester/Newsmakers



Americans are becoming only too aware of the financial tricks and deceit in
which some of the nation's largest and most respected corporations engaged
during the Clinton administration to pump up stock prices with fraudulently
inflated profits. When the huge bubble no longer could be sustained the men
and women at the top would bail out of their stock and pocket millions,
leaving pensioners and other investors holding an empty bag. To market
insiders these are known as "pump and dumps."

While federal investigators are looking into the corporate malfeasance at
Enron, WorldCom, Qwest Communications, AOL Time Warner and Adelphia
Communications, to name just a few, little attention has been paid to
similar financial shenanigans perpetrated by alleged American and Russian
"reformers" in the former Soviet Union during the same period. To those who
have studied these "assistance" programs, which were led by Harvard
University's best and brightest, what happened was just short of the
financial rape of Russia.

Little more than a decade ago Americans sat transfixed in front of their TV
sets watching the Evil Empire implode and full of hope that Russians would,
like Americans, take up the mantel of freedom. Unfortunately, say
authorities on contemporary Russia, what happened more closely resembles the
contemporaneous looting of corporate America and has left the Russian people
disillusioned and angry at what they presume is the American way.

No sooner had the dust of communism settled than advisers recommended by the
U.S. government descended on what remained of the former Soviet Union. The
vision was as simple as it was promising: Communism was dead and something
had to take its place. Why not American-style capitalism?

>From 1992 to 1997 nearly $60 million was appropriated to the Harvard
(University) Institute for International Development (HIID), and was
distributed by the U.S. Agency for International Development (USAID), to
help "countries of the former Soviet Union carry out political and economic
reform in support of open markets, including establishment of transparency
in regulatory and other governmental decisionmaking."

This political and economic "reform" was paid for by American taxpayers and
placed in the hands of Russian-born emigre and Harvard professor Andrei
Shleifer, the project director and principal investigator for the program,
and Jonathan Hay, the general director in charge of the Moscow offices. With
the support of higher-ups in the Clinton administration, including Harvard
men and Treasury secretaries Robert Rubin and Lawrence Summers, Shleifer and
Hay and their hand-picked Russian agents - the "dream team" as they were
referred to - took free-market capitalism to a new low.

The federal government now is suing Shleifer, Hay and Harvard University for
"false claims submitted by Harvard University to the United States Agency
for International Development, USAID." The lawsuit alleges that Hay and
Shleifer violated the terms of their agreement with the USAID by
participating financially in the businesses they were sent to Russia to set
up and advise.

Specifically, the government alleges that the defendants "not only violated
the express requirements of the Cooperative Agreements with USAID, their
conduct sent exactly the wrong message about how open and transparent
markets should function, and undermined the objective that they were hired
to pursue in furtherance of the United States' strategic interests in
Russia."

How did Shleifer and Hay send the wrong message? The Department of Justice
action, filed in the U.S. District Court of Massachusetts, provides
examples:


"In July 1994," the government alleges, "Shleifer agreed to invest $200,000
in Russian equities through a company known as Renova Invest. Shleifer
arranged the initial details of the investment and was identified in the
documentation as the owner. The $200,000 came from his wife Nancy
Zimmerman's account, but the profits from these investments were returned to
Zimmerman and Shleifer's joint account."


"Beginning in the summer of 1994 Shleifer transferred at least $99,000 in
funds from his own account, and $165,000 in funds from his joint account
with his wife, directly or indirectly, to Channel Island accounts for the
purchase of Russian oil stocks. The stocks were purchased with those funds
but registered in the name of Shleifer's father-in-law, Howard Zimmerman.
Shleifer personally solicited Hay's participation in these investments and
asked for and received from Hay a check for $66,000 in 1994 for that
purpose."


"In late 1995 Hay invested $20,000 in the Flemings Russian Securities fund
managed by Elizabeth Hebert (now Hay's wife). That fund focused exclusively
on Russian equities, and its stock selections were managed by Hebert."


"In or about August 1996, Hay's father transferred $200,000 of Hay's funds
to his own account and then used these funds, together with another
$200,000, to provide startup financing for Julia Zagachin to purchase the
First Russian Specialized Depository, FRSD, from its then owners, Forum
Financial Group."

The 70-page filing concludes that "Harvard, Shleifer and Hay knowingly
caused false claims to be submitted to USAID and are therefore liable under
the False Claims Act, FCA. This is not a case where Defendants did not know
the rules - it is one where they did not care. Harvard and its employees, no
matter how brilliant, are still subject to the laws of the United States."

Like Enron and the other corporate failures, the Russian-aid program seems
to have been designed deliberately to confuse, say critics. While there is
no exact figure as to just how much assistance money was under the influence
or control of Shleifer and Hay, those who have studied the failed reform
programs think it is in the hundreds of millions - if not billions - of
dollars and resembles Wall Street schemes wherein a few on top reaped sums
stolen from the many.

Anne Williamson is a Soviet and Russian specialist and author of the
forthcoming book, Contagion: The Betrayal of Liberty, Russia and the United
States in the 1990s. She tells Insight that "it's great that the Justice
Department has brought this suit against Hay, Shleifer and Harvard, but the
problem is they're not looking at the rape of Russia. All the government is
looking at is Hay and Shleifer's personal investments and abuses of the
program the government gave them to control. The suit is just addressing a
very narrow part of a much bigger problem."

Williamson explains, "The larger issue is the amount of U.S. taxpayer money
these men had direct and indirect control over. They could funnel large
amounts of money to people who were nothing less than quislings -Russians
who were willing to sell out for money. What we did beyond the economic
abuse was we built up a very small group of people and labeled them as
reformers and great democrats. The perverse result of this was that every
other Russian reformer was pushed aside. It was the opposite of open debate
and democracy. Our money - taxpayer money - actually smothered other actors
who weren't all communists, but rather were decent people who were trying to
have input into the process in the creation of a new country, a new
government and a new way of life."

"They got pushed aside," continues Williamson, "because they couldn't
compete with the hundreds of millions of dollars the United States was
pouring into people Harvard had identified as people who would work with
them on their reform program, which really was just to loot Russia.
Harvard's mission was not to deliver all the legacy of the Russian people
into the hands of a dozen people - this is not what was sold to the American
taxpayer. I was there in Russia while it occurred. I was an eyewitness to
what happened, and every Russian knows what happened, every Russian resents
what happened and every Russian resents us for it."

Williamson concludes: "Hay and Shleifer took advantage of the opportunities
provided to them. Harvard University privatized our aid program, then they
socialized the benefits amongst themselves and their supporters in the
private investment world, then socialized the risk by dumping it on the U.S.
taxpayer when their policies failed and Russia defaulted on its loans in
1998. We now have to deal with a large territory and significant piece of
geography that is controlled by a handful of corrupt people we support. The
issue isn't political or cultural, it's an issue of corruption. It addresses
the fact that our government, and representatives chosen by the government,
are corrupt. There are large groups feeding from the public treasury under
the camouflage of foreign aid, humanitarian work, building a better world,
exporting democracy - all phrases under which the theft is organized. The
answer is to end all foreign aid - absolutely, tomorrow, shut it down."

Janine Wedel, professor of public policy at George Mason University and
author of Collision and Collusion: The Strange Case of Western Aid to
Eastern Europe, tells Insight that "the U.S. supported the creation and the
thriving of the oligarchs by supporting privatization. The entire policy
apparently was to underwrite Anatoly Chubais et al., and the Harvard clique.
Much of the economic aid went to them, including USAID money and also
hundreds of millions of dollars from the World Bank and IMF [International
Monetary Fund] loans. The Harvard people were intimately involved in the
'reforms,' and especially privatization, which were thoroughly corrupt in
the way that they were implemented. It was devastating to many Russians."

But, Wedel says, "The damage is done. Privatization in Russia is largely
over and those who got the spoils got the spoils. These things had a
beginning and an end, but the end continues in a big way. It's very hard to
underestimate the effect of privatization on economics, politics and society
in Russia. Think of a country in which practically everything is state-owned
and all of a sudden there are all of these enterprises and natural resources
to divvy up. Just think of the politicized corrupt processes that might go
on. It's hard for us to imagine, but essentially in Russia a few at the top
got almost all of it. With this privatization the people who got it got it
forever, and realistically there's no going back."

Wedel concludes: "What happened in Russia is really egregious, and the
answer to the problem is that you can't have a monopoly on policy and
information and a clique on both sides dictating policy and information.
That's just a program for disaster. The monopoly on Russian reform was
almost 100 percent given to the Harvard/Chubais group with little
independent information being considered, and it was enabled at the highest
levels of the U.S. government. A lot of Russians believe the U.S.
deliberately set out to destroy their economy. What happened in Russia
certainly goes against the grain of any sort of reform in the traditional
sense of the word - meaning progress."

Joe Wrinn, a spokesman for Harvard, denies that the university was guilty of
any of the charges, explaining that "no one has ever criticized the actual
work that was done in Russia by HIID." Did Harvard profit from investments
in Russia? According to Wrinn, "Harvard doesn't talk about any of the
trades. We give out something called the "John Harvard Letter" and that goes
through different types of investments as opposed to a particular company or
particular stock. I don't think the Justice Department has raised issues
about Harvard Management, the university's investment arm."

True, the Justice Department hasn't raised this issue, but Harvard was one
of only two foreign entities allowed to bid in the "Loan for Shares" program
directed by Shleifer and Hay in Russia. What Harvard Management made on
those investments is anyone's guess, but Harvard's endowment went from
approximately $4 billion in 1992, the first year of HIID's contract, to $19
billion in 1998.

Those dates cover a Clinton administration that included Rubin, a former
Harvard Management board member; Summers, a former Harvard professor and
current president of the university; and Harvard graduate Albert Gore, who
personally oversaw Clinton policy toward Russia. Despite Harvard's denials
of wrongdoing, the HIID has been renamed and put under the authority of the
Kennedy School of Government, where the university's most reliable political
clout is heavily concentrated.

While Williamson and Wedel believe Harvard is guilty of the charges against
it, both scholars say it is a sideshow to the bigger picture of the
financial raping of Russia. "Our privatization," Williamson says, "brought
forth an absolutely perverse result in that we transformed the majority of
ownership of all Russian enterprise from the Russian people as a whole to
the Russian government. Not even Stalin attempted that, but we delivered."

Kelly Patricia O'Meara is an investigative reporter for Insight magazine.