Dermokratiya, USA

With rampant talk of Russian interference, it’s worth recounting Washington's role in undermining Russia’s 1996 election.

Bill Clinton and Boris Yeltsin in 1995. FDR Presidential Library & Museum

In January, the CIA, FBI, and NSA released their much-anticipated report on Russian interference in the 2016 election. It states that Putin had a “clear preference” for Trump and personally ordered operations designed to get him elected. Russia’s intervention, the report goes on, was the “boldest” in its “longstanding desire to undermine the US-led liberal democratic order.”

The outcry over Russian machinations comes with a heavy dose of irony considering that, twenty years ago, the United States launched an even bolder interference campaign to ensure Boris Yeltsin’s reelection.

The 1990s were one of the most tumultuous and tragic periods in modern Russian history. In 1996, a chaotic mix of Russian schemes — from fraud and profiteering to old-fashioned conspiracy — worked to keep Yeltsin in the driver’s seat. Throughout, American players silently watched, facilitated, and at times, actively helped construct the Faustian bargain between Yeltsin and his oligarch supporters. This pact would have ruinous effects on Russia’s democracy and economy in the decades to come.

Indeed, the Americans supported Yeltsin in body and spirit, much to his and his backers’ delight. You don’t need to delve into conspiracy theories to see the United States’s hand, especially if you evaluate it according to the criteria used to assess Russia’s involvement in the American election last year.

That said, it’s striking that American influence in Russia was so openly acknowledged. The public record shows clear points of direct American coordination, collusion, and action in Yeltsin’s favor. One can only guess what the two nations’ archival records would reveal.

What follows is not intended as a reminder of American hypocrisy or a gesture toward moral equivalence. All great powers engage in a little electoral meddling here and there. Rather, telling the story of American involvement in the 1996 Russian election helps us remember the history of relations between these two countries.

Ultimately, the United States interfered not to facilitate the will of the Russian people but to advance its foreign policy goals. “[W]e thought it was imperative that Yeltsin win, or that someone like Yeltsin win in June of 1996, in order to continue the reform process,” recalled Thomas Graham, the chief political analyst at the US embassy in Moscow in 1996. “This was a classic case of the ends justifying the means, and we did get the result that we wanted.”

While it seems unlikely that the memory of this “humiliation” motivated Putin to get revenge in 2016, it did remind the Russian people that American democratic mantras are often thinly disguised rhetoric that promote US power. The Putinists have deployed past interference — both real and imagined — to justify political repression, and they will certainly do so again as Russia approaches its 2018 presidential elections.

Bill Hearts Boris

The Clinton administration’s foreign policy was primarily focused on Russia’s transition to capitalism. The president’s approach, however, didn’t come from simple ideological commitment; he had a real personal affinity for Yeltsin.

Bill was taken with Boris from their first meeting in 1993. “I liked him,” Clinton wrote in his memoir My Life. “He was a big bear of a man, full of contradictions — Compared with the realistic alternatives, Russia was lucky to have him at the helm.” He described Yeltsin as a “courageous and visionary leader,” “full of piss and vinegar, a real fighter,” qualities Clinton liked to claim for himself. Even the Russian president’s drunkenness didn’t faze him. After one boozy escapade, Clinton told his advisers to relax: “[a]t least Yeltsin’s not a mean drunk.”

Though the personal bond between Clinton and Yeltsin fell short of producing a Russian Marshall Plan, as many hoped it would, the United States provided massive financial and political support for the “Chubais Clan” of young Russian free marketeers. Throughout the 1990s, the IMF, the US Agency for International Development (USAID), and other American and European sources poured tens of billions of dollars into Russia. USAID had funneled over $40.4 million in noncompetitive grants through Harvard University’s Institute for International Development (HIID) by June 1996, the majority of which went to “assist private sector development” with only a sliver for “democracy assistance.”

Nevertheless, this sliver directly intervened in Russian social and political life. HIID created and financed NGOs that led seminars and distributed materials on how to run Western-style campaigns and elections.

Meanwhile, Clinton unwaveringly supported Yeltsin. The Clinton administration solidly backed Yeltsin during the constitutional crisis between him and the Congress of People’s Deputies in 1993. Clinton told Strobe Talbott that “I guess we’ve just got to pull up our socks and back Ol’ Boris again.” Clinton smoothed over Yeltsin’s tank bombardment of the Russian parliament, which resulted in 187 killed and hundreds wounded, by telling reporters that Yeltsin had “bent over backwards” to avoid violence, adding, “I don’t see that he had any choice . . . If such a thing happened in the United States, you would have expected me to take tough action against it.”

As Thomas Pickering, then ambassador to Russia, explained, “We had no alternative.” Ironically, Yeltsin’s war against the Duma and his December 1993 referendum on a new constitution created the legal framework for the immense power Putin enjoys today.

The Clinton administration faced another “no alternative” moment in February 1996 when Yeltsin announced he would seek reelection. His prospects looked bleak: he ranked dead last in the polls, with only single-digit appeal. Gennady Zyuganov, his Communist Party challenger, had such a comfortable lead that many global elites and media had already started nuzzling up to him, assuming his victory was a foregone conclusion.

White House advisers suggested Clinton distance himself, but the president was determined to stand by Old Boris regardless of the risks. As Talbott reports, Clinton “let us know that he didn’t want to be lectured further on the subject.” “I know the Russian people have to pick a president,” Clinton told him, “and I know that means we’ve got to stop short of giving a nominating speech for the guy. But we’ve got to go all the way in helping in every other respect.”

According to a White House memo leaked to the Washington Times in March 1996, Clinton and Yeltsin had agreed to support each other in their respective reelection bids. Yeltsin reportedly told Clinton, “a leader of international stature such as President Clinton should support Russia and that meant supporting Yeltsin. Thought should be given to how to do that wisely.” Clinton responded that Secretary of State Warren Christopher and Russian Foreign Minister Evgeny Primakov “would talk about that” at their upcoming Moscow meeting.

According to the memo, Clinton then added that he “wanted to make sure that everything the United States did would have a positive impact, and nothing should have a negative impact. The main thing is that the two sides not do anything that would harm the other.”

The memo caused a congressional uproar. The Clinton administration confirmed its authenticity but called the leak “a violation of federal law” and opened a criminal investigation. White House press secretary Mike McCurry explained that Clinton considered “the leak to be far more sensitive than the typical anonymous disclosure” because “the president feels like he ought to be able to sit down with the president of Russia and have a private conversation.”

Despite domestic pressure, Clinton made good on his promises to Yeltsin. During the first half of 1996, the White House pushed for a timely IMF loan, refrained from publically pressing for NATO expansion, ignored the Russian oligarchs’ massive campaign of fraud and theft, and stayed silent on Yeltsin’s brutal war in Chechnya. Clinton also honored Yeltsin’s request to not meet privately with Zyuganov during his visit to Moscow. Pickering pressured Grigory Yavlinsky, a member of the liberal Yabloko Party, to drop out of the election’s first round to help Yeltsin’s chances.

Clinton’s staunch defense of Yeltsin’s Chechen assault eventually descended into the absurd. During his April 1996 visit, the president explained why he hadn’t criticized the campaign:

I would remind you that we once had a Civil War in our country in which we lost on a per capita basis far more people than we lost in any of the wars of the twentieth century over the proposition that Abraham Lincoln gave his life for, that no State had a right to withdraw from our Union.

After the presser, Clinton realized how ridiculous he sounded. “I guess I really painted a bull’s-eye on my butt with that Lincoln line.” Later that day, he added, “I want this guy to win so bad it hurts. I guess that shows.” Meanwhile, he insisted to reporters that the United States should not “take any position on the elections in another country.”

The Texas and California Connections

Most accounts of American interference in the 1996 election focus on the three American consultants — George Gorton, Joe Shumate, and Richard Dresner — who worked for the Yeltsin campaign. According to a Time magazine investigative report, published in July 1996, Yeltsin’s first campaign manager Oleg Soskovets “instructed” Felix Braynin, a Belarusian émigré and management consultant, to discretely “find some Americans.” Braynin used Fred Lowell, a Bay Area lawyer with Republican ties, to hire the trio, who were offered $250,000 plus expenses to help the Yeltsin team run a Western-style campaign. Both sides kept the arrangement under wraps to prevent the Communists from scoring any nationalist points.

The Americans were sequestered in Moscow’s Presidential Hotel — the Yeltsin campaign headquarters — in a suite across the hall from the president’s daughter and campaign head, Tatyana Dyanchenko. They assisted in opinion polling; suggested a “dirty tricks” campaign that would include planting “truth squads” of hecklers to disrupt Zyuganov’s rallies; made Yeltsin’s ads slicker and his messages subtler; and urged him to travel around the country, stay on message, and connect with the Russian people.

Most importantly, the consultants claimed, they urged his team to “go negative” by rallying the oligarch-controlled Russian media to whip up “a wild anti-Communist psychosis among the people,” as one sympathetic news editor put it.

Hiring American campaign consultants, however, doesn’t prove the US government interfered in the election. Such moves have become the norm in post-soviet states, as the recent controversy around Paul Manafort shows (Manafort worked for Ukraine’s Party of Regions beginning in 2006 and then for Viktor Yanukovych 2010 presidential bid and again in 2014 for the Opposition Bloc, the post-Maidan rebranded Party of Regions. Manafort’s work for Yanukovych is often cited as a connection to Putin. Ukraine, however, is not Russia, Yanukovych tended to play the West and Russia off each other, and Manafort urged Yanukovych to sign the EU Association Agreement).

Further, it remains unclear how much influence Dresner, Gorton, and Shumate really had. They presented themselves up as Yeltsin’s “saviors” — an idea comically exaggerated in the 2003 film Spinning Boris. Aleksandr Korzhakov, Yeltsin’s former bodyguard, supported their story, saying the consultants were treated like “foreign royalty.” But many on the team downplayed their importance, belittled them as “whack job idiots,” or denied their presence even after the Time story broke.

Some Americans, like Michael McFaul, the Stanford guru of transitionology who served as Obama’s ambassador to Russia, also questioned their role. In an angry missive, he chided Time and Nightline for overstating the Americans’ importance and missing the real story — “the triumph of democrats and democracy in the first direct election of a head of state in Russia in a thousand years.” McFaul ridiculed the consultants’ claim that they delivered “simple education, Campaigning 101,” blatantly admitting to ongoing American interference in post-Soviet political life.

Dozens of people working on Yeltsin’s campaign had been through Campaigning 101 well before the American “teachers” ever set foot in Russia. Since 1990, the National Democratic Institute and the International Republican Institute have conducted hundreds of seminars, conferences, and exchanges on party organization, message development, focus groups, polling methods, television ads, and so on.

Established in 1983, the National Democratic Institute (NDI) and International Republican Institute (IRI) have had loose affiliations with the Democratic and Republican parties and received their funding from USAID, the National Endowment for Democracy, and the US State Department, among other domestic foundations and foreign governments. From 1992 to 1997, USAID gave them a combined $17.4 million for “democracy assistance” programs in Russia.

That the Yeltsin campaign employed American consultants is hardly controversial. The relay between Richard Dresner and Clinton’s chief strategist Dick Morris, however, crossed the line. In his memoir Behind the Oval Office, Morris notes that Dresner offered to keep him in the loop on the Russian presidential race. With Clinton’s approval, Morris received weekly opinion poll briefings that he would share with the president, who would in turn pass on recommendations to Dresner via Morris.

Moreover, Morris describes this “relationship [as] particularly useful” when Clinton visited Moscow in April 1996. Clinton wanted to know how he could help Yeltsin, and Dresner dutifully called with his suggestions. Since the Russian line was likely tapped, they referred to Clinton as “the governor of California” and Yeltsin as “the governor of Texas.” Dresner offered a list of talking points:

  1. Praise Yeltsin’s world role and campaign with him, since Yeltsin’s standing as a world leader was an important element in his appeal to Russians.

  2. Indicate that he regarded the Chechen war as an internal affair of Russia’s.

  3. Praise Russia’s recent economic progress.

Apparently Clinton didn’t need these cues, since in Morris’s words, “it’s likely that the president would have done this on his own.” In a 2003 interview, Morris confirmed the collusion between the White House and the Kremlin, emphasizing that the presidential pair “worked really closely in these elections.”

Bankrolling Boris

If one aspect of American intervention played a decisive role in Yeltsin’s victory, it came when Clinton helped secure a $10.2 billion IMF loan in March 1996. But the assistance didn’t stop there.

Two weeks later, Germany and France loaned Yeltsin’s government $2.7 billion and $400 million, respectively. That sum conveniently covered the cost of his election-year spending promises.

All the cash quickly vanished. For example, Russia’s foreign currency reserves declined from $20 billion to $12.5 billion in the first half of 1996. The Russian government spent at least $9 billion, almost equal to the IMF loan.

According to Paul Klebnikov, “[s]ome of the money went to the Yeltsin campaign, some to well-connected businessmen and government officials, some to pay ordinary Russians their long overdue paychecks.” Yeltsin bragged to Rossiiskaya gazeta on the eve of the election that “Russians have already forgotten what empty shelves are. Now what’s needed is for people to forget about empty wallets.” One prominent scholar of Russian politics has argued that Yeltsin’s pork-barrel politics ensured his victory.

Clinton personally endorsed the IMF loan, and Yeltsin boasted that he “had to involve Clinton, Jacques Chirac, Helmut Kohl and [John] Major” to get it. The loan required Russia to further liberalize its economy, but many recognized these conditions as cover for different motives.

Helene Hessel, then director for Eastern Europe at Standard & Poor’s, told Reuters, “[t]he West is so scared that Yeltsin will lose that they are doing a lot of things to support him. This is certainly some political kind of decision.” The French paper Le Monde called the loan “an implicit vote in favor of candidate Yeltsin,” warned that “the West is playing a dangerous game,” and said there was “neither the urgency nor the necessity for a gesture so spectacular.” In the Moscow Times, Nicholas Eberstadt, a researcher at the American Enterprise Institute, wrote, “[s]ome of the assertions on this latest round of IMF lending are so implausible and absurd that only a Western government official, or an international civil servant, could possibly believe them.”

Even the Washington Post saw right through the chicanery, albeit approvingly:

NOW THIS is the right way to serve Western interests . . . It’s not to wave a flag for Boris Yeltsin, and thereby license his political malpractice and invite resentments flowing from foreign “interference.” It’s to use the politically bland but powerful instrument of the International Monetary Fund.

Though the loan’s intent was unambiguous, its role bankrolling Yeltsin’s reelection is a far more complex story.

Money — lots of it — flowed in and out of the campaign. Some of it was directly rerouted from Western sources, but the bulk came from laundering government funds through a string of Russian oligarch banks, offshore accounts, Western banks, and into the Yeltsin war chest. Large portions were skimmed off along the way.

No one knows just how much money went into the campaign. Russian electoral law capped campaign budgets at $2.9 million, but estimates of Yeltsin’s range from $100 million to “easily over $1 billion” to upwards of $2 billion. Pinning down an actual figure is impossible because a lot of the money flowed in and out of Yeltsin’s “black treasury.”

Boris Berezovsky concocted this ingenious system in January 1996 when he convinced Russia’s warring oligarchs — Vladimir Gusinsky, Vladimir Vinogradov, and Mikhail Khodorkovsky — to unite behind Yeltsin. Even better, the profitable scam allowed Russia’s oligarchs to further enrich themselves.

In an interview with Paul Klebnikov, Colonel Valery Streletsky, the head of the presidential security service’s anticorruption department, explained how the black treasury worked:

$50 million was transferred from a Russian bank to the Bahamas. Then this money was transferred to another country— in Europe, for instance, or the Baltic States. From there the money was brought into Russia in cash and deposited in the black treasury. But not all the money was brought back in.

Many suspected that the finance ministry redirected a lot of this money from the budget. When asked where the funds originated, economist Vadim Medvedev told the Toronto Star, “From the budget, naturally. I do not exclude some contributions from companies or private individuals. But I think the presidential team largely drew their funds from the budget.”

And what about the IMF money? Though the web is difficult to pull apart, a PricewaterhouseCoopers audit conducted in 1999 showed that the Russian Central Bank issued $1 billion in reserves for a finance ministry promissory note. Then $855 million was funneled through the Financial Management Co., or FIMACO, an offshore bank based in Jersey, Channel Islands.

From there it was invested in Russia’s high-yield, short-term domestic bond market (GKO). In 1996, the GKO was paying out returns of over 200 percent, and Russians were not the only ones cleaning up. The IMF money pumped up the GKO to attract foreign investors, creating a lucrative bubble that Lawrence Summers, HIID directors Jonathan Hay and Andrei Shleifer, George Soros, and many others exploited.

In 1998, the GKO came crashing down, the ruble collapsed, and hundreds of thousands of ordinary Russians lost their savings. A year later, the IMF admitted it was aware of the scam and told the Russians it wasn’t a “good practice” but did nothing to stop it.

A portion of those GKO returns ended up in Yeltsin’s campaign. No one knows where the rest went, though Streletsky’s investigation estimates that between $200 million to $300 million was embezzled. In fact, in June 1996, his men searched the campaign office in the Russian White House and found $1.5 million in a safe inside deputy finance minister German Kuznetsov’s office.

The next day, in one of the infamous moments of the campaign, Streletsky busted Arkady Yevstafyev and Sergei Lisovsky — two Chubais guys — coming out of the White House carrying $500,000 in a Xerox paper box. According to Korzhakov, the campaign delivered packages like that all over the country to buy off regional elites and secure votes. When asked by Novaya gazeta about campaign funding in 1999, Lisovsky responded, “And where is the money going to come from? Last time [i.e., in 1996] the bulk of the money was Western. Now who in the West is going to invest in the Russian elections? And, more importantly, invest in who?”

We Were Enablers

That the West helped pay for Yeltsin’s campaign is an open secret. In 2002, the political scientist Lilia Shevtsova told Frontline:

Yeltsin was supported by Western money. For example, the IMF supplied Yeltsin with a transfer in a timely way. No one asked where the money went. It went to support companies, to support oligarchs, technocrats, the presidential team. Everyone pretended not to see this.

Strobe Talbott lamented, “We were enablers. We should have tried harder, working with Yeltsin and his key advisers to try to find some way to get him reelected without giving the oligarchs free rein over the economy.” But they didn’t, and the results devastated Russia’s democracy and its economy.

Yeltsin handedly won reelection in July 1996. The New Yorker’s David Remnick wrote that “[t]here was celebration in the State Department” when the results were announced. The New York Times declared the election “A Victory for Russian Democracy.” Clinton came out for Old Boris too: at an Independence Day rally in Ohio, he proclaimed that, in “a free and fair election . . . the Russian people chose democracy” and congratulated “Yeltsin and the people of Russia for their commitment to the freedom that we love.”

Yeltsin’s political comeback was hardly free or fair; allegations of widespread electoral fraud abounded. Western election monitors either ignored or dismissed these claims. According to Sarah Mendelson, “the US embassy warned the USAID staff in Moscow to keep their distance from monitoring efforts. Unofficially, they were told of worries that fraud benefiting Yeltsin might be uncovered.”

Even the head of the Organization for Security and Cooperation in Europe (OSCE) Russia mission, Michael Meadowcroft, has since admitted that his bosses pressured him to declare the elections clean. “The West let Russia down, and it’s a shame,” he said. Russian prime minister Dmitry Medvedev reportedly acknowledged in a 2012 closed-door meeting that “[t]here is hardly any doubt who won [that race]. It was not Boris Nikolaevich Yeltsin.”

January’s intelligence report on the 2016 American elections stated that Russia wanted  to “undermine public faith in the US democratic process.” The United States described its meddling in Russia throughout the 1990s in opposite terms: it wanted to help build Russian democracy. And though the Russian elite needs no assistance turning gold into shit and hope into despair, it’s telling that most Russians view the height of American political involvement not as the emergence of demokratiya (democracy), but as really existing dermokratiya (shitocracy).

As a 2000 congressional evaluation of the Clinton administration’s Russia policy put it: “By pursuing a policy of ‘reform’ that required the political victory of their reformers by whatever means necessary, the administration undermined the democratic process itself.”

Maybe the Russians did learn something from 1996 after all: dermokratiya can be returned to sender.