Gore's Embrace

0 Comments | Insight on the News, Sept 27, 1999 | by J. Michael Waller

The commission, observers say, also fostered an atmosphere of cronyism and corruption among U.S.-based recipients. "If you look at the composition of the working groups of the Gore-Chernomyrdin commission, it has a very unhealthy overlap between people either implicated or directly the subjects of a criminal investigation of maldistribution of aid," says Peter J. Stavrakis, a professor at the University of Vermont who five years ago authored one of the first academic studies of cronyism within Washington's Russian aid program. "The internal infrastructure of Gore-Chernomyrdin contains people who became major players in the [Russian] stock market, buyers and sellers of assets of the former Communist Party. The conclusion is inescapable: Some Gore-Chernomyrdin people were deeply involved in activities that were Suspect and possibly criminal."

They include Harvard University economist Andrei Schleifer, special coordinator of the commission's Capital Markets Forum Working Group. The U.S. Agency for International Development, or USAID, fired Schleifer in 1997 for "having abused the trust of the United States government by using personal relationships, on occasion, for private gain," according to an agency statement. Schleifer was Moscow project director of the Harvard Institute for International Development's, or HIID's, $57 million USAID contract to promote economic reform in Russia. After House International Relations Committee Chairman Benjamin Gilman, a New York Republican, initiated a General Accounting Office probe of HIID's activities in Moscow, the USAID inspector general conducted its own investigation. USAID also alleged that Schleifer's HIID colleague, Jonathan Hay, misused federal resources to help private financial work of Schleifer's wife, Nancy Zimmerman. A USAID termination letter to Hay alleged that his taxpayer-funded staff was improperly involved in "buying and selling Russian bonds, tracking deposits and withdrawals from the investments' Russian bank accounts, consulting about tax aspects of the investments and possible additional investment opportunities." Hay's girlfriend, Beth Hebert, who headed the Pallada Mutual Fund in Moscow, also may have benefited from inside information while she was a member of the Gore-Chernomyrdin commission's working group headed by Schleifer. A lawyer for Hay and Schleifer rejects the allegations.

Despite his office's daily work with Russian officials and its vigorous promotion of Russia as a bonanza for U.S. companies, Gore never sought to protect U.S. investments there. "U.S. investors still don't have an investment treaty with Russia," says Richard Palmer, a former CIA officer with experience in the former Soviet Union who is now with a firm helping recover assets and performing due diligence on Russian companies. That failure, in his view, has only encouraged corrupt Russian officials and "biznismen" to defraud U.S. companies. "The European Union has such a treaty. What does that mean? The EU has an immensely easier time trying to recover assets when they've been ripped off or fraudulently deprived of funds. Because of the way the treaty is written, Europeans can try their cases in Europe, not Russia. By taking it so easy on the Russians, Gore was endangering U.S. investors whom he was encouraging to invest there."