The Exile, Issue #159
Recently there have been two well-publicized instances of expulsion of Americans from Russia: first, the Peace Corps, and now Irene Stevenson, a noted labor activist. These expulsions are very regrettable and are to be strongly condemned. Our sympathy goes to those who selflessly offered a helping hand and were rebuffed. But we would do a great disservice to Russian-American relations if we fail to examine the possible causes of this Russian action.
Unfortunately, there have been several outrageous instances of theft and misuse of American aid to Russia. Could it be that Russia is getting tired of being a pretext and the locale that American marauders use to enrich themselves at the expense of the US taxpayers?
Let’s start with the biggest case of all: the Hay and Shleifer matter. In 1992-93, I was working at the same GKI (State Property Committee) building as Jonathan Hay. Since I was hired by the Russian Deputy Minister of Economics and not by the Harvard Institute for International Development (HIID), my salary was a slightly unusual for an American: $26 per month - but hey, we were saving Russia. Mr. Hay’s HIID salary was somewhat higher than mine, and yet a lawsuit filed by the US government alleges that Mr. Hay may have used his position to supplement his income. This landmark suit alleges that Mr. Hay may have helped his wife, Ms. Elizabeth Hebert, to trade on the Russian stock market (that Mr. Hay was then creating) using the inside information that the Russians trustingly provided to Mr. Hay. Would not you agree that Mr. Hay has sullied the image of American consultants somewhat?
When the lawsuit against Mr. Hay alleging millions of dollars in improper profits was filed, Ms. Hebert contributed to the City of Moscow a statue called “Little Ducks,” representing these lovely creatures, cast in bronze, following the mother duck to the water. The then US Ambassador to Russia Jim Collins personally attended the dedication of this generous and necessary gift to the Russian people. But Collins never found the time to comment on the accusations against Mr. Hay.
About a year ago, there was an article in The Kyiv Post about the Eurasia foundation. The article claimed that $385K was embezzled from Eurasia and that 11 employees were under investigation. Not only did American officials fail to act on the charge, but Ms. Sarah Carey, who chairs the Board of the Eurasia Foundation, was recently chosen to lead a seminar on Financial Accountability and Business Management for Russians and Ukrainians. Ms. Carey also sits on the board of the Defense Enterprise Fund (DEF), my former employer.
On April 4, 2001, The Moscow Times printed the largest Special Report in its history, six full pages, 10,000 words. It was called “Investing, Pentagon-Style”. One American (yours truly) alleged that $20M of US funds from DEF that were supposed to be used for conversion of the former Soviet producers of weapons of mass destruction were lost due to gross mismanagement, mostly by one American, Richard Nordin.
The Special Report, written by Matt Bivens, the paper’s former editor, cited the following facts: There indeed were significant losses and faulty business practices, in line with my allegations; The avoidable losses, some of them extremely embarrassing, did appear to come to about $20M; Some Russian business contacts of Mr. Nordin were quoted as saying that in their view, Mr. Nordin, formerly a major with the US Rangers, was a spy; Richard Nordin was described as living in a million-dollar apartment built with DEF money, and playing golf at the Moscow Country Club. After the Special Report was published, The Moscow Times also printed a letter from me, where I called Nordin a “marauder”, which I see as a very serious accusation. And yet there was no response whatsoever. Not from the Departments of State and/or Defense, not from the US Embassy in Moscow, and certainly not from Richard Nordin. There is a web page dedicated to the DEF investigation (http://www.matthew-maly.ru/), and my original letter of concern is there.
This letter, now three and a half years old, still has not been officially refuted or confirmed. I translated the Moscow Times Special Report into Russian, and Russian media reprinted it. From this website, Russians could learn that the first investigation of DEF was overtly phony (and that it is being kept secret), that the first Audit of DEF done by DoD was phony as well, that the second Audit of DEF was officially described as “correcting the mistakes of the first one,” and that the Defense Criminal Investigative Service has been looking into DEF for the last two years (!) with no apparent result, one way or the other. How do you think Russians should react to all this? Do you see the American government on the side of truth, accountability, openness, and unselfish assistance to Russia? I don’t.
Ambassador Vershbow issued a strongly-worded statement about the expulsions. It tells me that the Ambassador can talk. Yet, three and a half years ago I asked the Department of State what happened with the $67M DEF program. I got no answer. I asked why was I blacklisted for my letter of concern that has since been confirmed by the DoD audit. I got no answer. The Moscow Times lent its pages to opinions that the manager of a strategic US assistance program may have been a thief, a marauder, and even a spy. There was no answer.
The US government gave DEF, a venture capital fund, $67M, and the value of DEF was supposed to increase, to bring profit to the US Treasury. Yet, the DoD audit done three years later estimated (optimistically, in my view) DEF’s portfolio to be worth just $11M. That loss had nothing to do with the Russian economic situation as DEF was investing exclusively in start-ups, but it had everything to do with those who know how to spell “kickback”. Of course, not all DEF money was invested: DEF spent half of the money on itself, and DoD auditors note that this is twenty-five times the industry average. A little more than $2M was listed as “unallowable” expenses.
Well, now we have just $11M where a conversion program used to be. What next? An American company, Russia Partners, graciously agrees to manage what’s left of the fund for a fee of $10M ($2M a year for five years). You will note that $11M in assets is almost equal to the $10M in management fees. The definition of theft is “an agreement to manage your asset in a way that the value of this asset for you is reduced to zero”. So, here we do not have pure theft, but merely 90% theft. And yet, we should be even more upset at the possibility that the ten-million dollar fee may have been paid for the luxury of being able to pretend, for the next five years, that this crucial weapons of mass destruction conversion program is still operational. For Russia Partners, the deal appears very lucrative, but then Russia Partners’ boss, Andrew Guff, sits on the Board of the Eurasia Foundation together with Sarah Carey, the Financial Accountability guru.
After my letter of concern, the DEF Board fired Nordin’s company as DEF’s manager, because the company’s performance was seen as “poor”. Nordin described this performance as “shitty” in a letter to me. Yet, after the DEF Board agreed to hire Russia Partners for $10M, Russia Partners agreed to rehire Nordin as DEF’s new President. Nordin’s company (which consisted of two people, including Nordin) may have been “shitty”, but apparently not Nordin himself.
Let’s not lose our focus here: we are not talking about money, but about the safety and security of the world. When Vector Plant of Novossibirsk, the Soviet Army’s prime facility for producing militarized anthrax and smallpox spores, asked for just $1M to convert itself — DEF did not have the money. When Nordin asked DEF for $1M to finance Nordin’s private apartment in Moscow, DEF did have the money. Now Bush goes to war with Iraq because Saddam may have anthrax, and hundreds of thousands of US servicemen risk their health getting smallpox vaccinations (at a price tag of several billion dollars, I might add).
That’s pathetic, that’s unbelievable! But does the US government do anything about it? Yes, it does. The Pentagon has conducted four phony investigations to keep Nordin out of jail, and the Department of State coordinated efforts to have me blacklisted. When I continued to press for a fair investigation, the IRS came up with a ludicrous claim and froze my US bank account with $120 in it - that I had to my name.
Unfortunately, my struggle turned out to be very personal, as no arms control or civic organization (and I have repeatedly contacted any I could find) came to my support (or, better to say, to my rescue). But were there any verdicts in this struggle? Yes, there were. Defense Threat Reduction Agency (DTRA) is DEF’s project supervisor. At the end of the second DEF audit, there is a letter of DTRA’s Deputy Director, and I recommend reading it for pure hedonistic pleasure. It states that since the US Congress did not expressly forbid “unallowable use of funds” (may I respectfully opine that the expression stands for “theft”), DEF was not (I am quoting, I am quoting!) “in violation of the terms of the grant”. In other words, under the guise of weapons conversion, the US Congress made a $67M personal gift to Mr. Nordin. I was not aware of that, so I complained, and am now being punished.
We know the world is unfair, and it is easy for all of us to deal with this fact, until the moment when this unfairness touches us personally. Sixty seven million dollars that DEF used to have is nothing for America, Nordin is now rich, I am poor, and Ambassador Vershbow is a bit uncomfortable when he chances to meet me. And all of this does not really matter provided we are sure that no Vector scientist went to Iraq with a vial of anthrax. Russia’s decision to expel Americans is wrong, but it is not entirely without justification. Not only have some American consultants mismanaged or exploited positions of trust in Russia, but American officials have consistently refused to do anything to clean up the situation.