Looting Russia's free market; as communism collapsed in the former Soviet Union, U.S. economic `reformers,' led by a Harvard University clique, took free-market capitalism to a new low

Insight on the News, Sept 2, 2002 by Kelly Patricia O'Meara

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 fund's 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."