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Saturday, January 07, 2017

The Curious World of Donald Trump’s Private Russian Connections
James S. Henry


Donald Trump, Tevfik Arif, and Felix Sater

 Did the American people really know they were putting such a "well-connected" guy in the White House?

 Intro by David Cay Johnston

Pulitizer-Prize winning author, The Making of Donald Trump.

Throughout Donald Trump's presidential campaign, he expressed glowing admiration for Russian leader Vladimir Putin. Many of Trump's adoring comments were utterly gratuitous. After his Electoral College victory, Trump continued praising the former head of the KGB while dismissing the finding of all 17 American national security agencies that Putin had directed Russian government interference to help Trump in the 2016 American presidential election.

 As veteran investigative economist and journalist Jim Henry shows below, a robust public record helps to explain the fealty of Trump and his family to this murderous autocrat and the network of Russian oligarchs.

 Putin and his billionaire friends have plundered the wealth of their own people. They have also run numerous schemes to defraud governments and investors in the United States and Europe. From public records, using his renowned analytical skills, Henry shows what the mainstream news media in United States have failed to report in any meaningful way: for at least three decades Donald Trump has profited from his connections to the Russian oligarchs, whose own fortunes now depend on their continued fealty to Putin.

We don't know the full relationship between Donald Trump, the Trump family and their enterprises with the network of the world– class criminals known as the Russian oligarchs. Henry acknowledges that his article poses more questions than answers, establishes more connections than full explanations. But what Henry does show should prompt every American to rise up in defense of their country, to demand a thorough out in the open Congressional investigation with no holds barred. The national security of United States of America and of peace around the world, especially in Europe, may depend on how thoroughly we understand the rich network of relationships between the 45th president and the Russian oligarchy. When Donald Trump chooses to exercise, or not exercise, his power to restrain Putin's drive to invade independent countries and seize their wealth, as well as to loot countries beyond his control, Americans need to know in whose interest the president 's acting or looking the other way.



Tell me who you walk with and I’ll tell you who you are.”


“I’ve always been blessed with a kind of intuition about people that allows me to sense who the sleazy guys are, and I stay far away.”

—Donald Trump, Surviving at the Top

Even before the November 8 election, many leading Democrats were vociferously demanding that the FBI disclose the fruits of its investigations into Putin-backed Russian hackers. Instead FBI Director Comey decided to temporarily revive his zombie-like investigation of Hillary’s emails. That decision may well have had an important impact on the election, but it did nothing to resolve the allegations about Putin. Even now, after the CIA has disclosed an abstract of its own still-secret investigation, it is fair to say that we still lack the cyberspace equivalent of a smoking gun.

Fortunately, however, for those of us who are curious about Trump’s Russian connections, there is another readily accessible body of published and other Internet material that has so far received surprisingly little attention. This suggests that whatever the nature of President-elect Donald Trump’s relationship with President Putin, he has certainly managed to accumulate direct and indirect connections with a far-flung private Russian/FSU network of outright mobsters, oligarchs, fraudsters, and kleptocrats. Vladimir-putin-judo

Any one of these connections might have occurred at random. But the overall pattern is a veritable Star Wars bar scene of unsavory characters, with Donald Trump seated right in the middle. The analytical challenge is to map this network—a task that most journalists and law enforcement agencies, focused on individual cases, have failed to do.

Of course, to label this network “private” may be a stretch, given that in Putin’s Russia, even the toughest mobsters learn the hard way to maintain a respectful relationship with the “New Tsar.” But here the central question pertains to our new Tsar. Did the American people really know they were putting such a “well-connected” guy in the White House?

The Big Picture: Kleptocracy and Capital Flight

A few of Donald Trump’s connections to oligarchs and assorted thugs have already received sporadic press attention -- for example, former Trump campaign manager Paul Manafort’s reported relationship with exiled Ukrainian oligarch Dmytro Firtash. But no one has pulled the connections together, used them to identify still more relationships, and developed an image of the overall patterns.

Nor has anyone related these cases to one of the most central facts about modern Russia: its emergence since the 1990s as a world-class kleptocracy, second only to China as a source of illicit capital and criminal loot, with more than $1.3 trillion of net offshore “flight wealth” as of 2016.[1]


This tidal wave of illicit capital is hardly just Putin’s doing. It is in fact a symptom of one of the most epic failures in modern political economy -- one for which the West bears a great deal of responsibility. This is the failure, in the wake of the Soviet Union’s collapse in the late 1980s, to ensure that Russia acquires the kind of strong, middle-class-centric economic and political base that is required for democratic capitalism, the rule of law, and stable, peaceful relationships with its neighbors.

Instead, from 1992 to the Russian debt crisis of August 1998, the West in general—and the U.S. Treasury, USAID, the State Department, the IMF/World Bank, the ERDB, and many leading economists in particular—actively promoted and, indeed, helped to finance one of the most massive transfers of public wealth into private hands that the world has ever seen.

For example, Russia’s 1992 “voucher privatization” program permitted a tiny elite of former state-owned company managers and party apparatchiks to acquire control over a vast number of public enterprises, often with the help of outright mobsters. A majority of Gazprom, the state energy company that controlled a third of the world’s gas reserves, was sold for $230 million; Russia’s entire national electric grid was privatized for $630 million; ZIL, Russia's largest auto company, went for about $4 million; ports, ships, oil, iron and steel, aluminum, much of the high-tech arms and airlines industries, the world’s largest diamond mines, and most of Russia’s banking system also went for a song.

In 1994–96, under the infamous “loans-for-shares” program, Russia privatized 150 state-owned companies for just $12 billion, most of which was loaned to a handful of well-connected buyers by the state—and indirectly by the World Bank and the IMF. The principal beneficiaries of this “privatization”—actually, cartelization—were initially just 25 or so budding oligarchs with the insider connections to buy these properties and the muscle to hold them.[2] The happy few who made personal fortunes from this feeding frenzy —in a sense, the very first of the new kleptocrats—not only included numerous Russian officials, but also leading gringo investors/advisers, Harvard professors, USAID advisers, and bankers at Credit Suisse First Boston and other Wall Street investment banks. As the renowned development economist Alex Gerschenkron, an authority on Russian development, once said, "If we were in Vienna, we would have said, "We wish we could play it on the piano!"

For the vast majority of ordinary Russian citizens, this extreme re-concentration of wealth coincided with nothing less than a full-scale 1930s-type depression, a sudden “shock therapy”-induced rise in domestic price levels that wiped out the private savings of millions, rampant lawlessness, a public health crisis, and a sharp decline in life expectancy and birth rates.

Sadly, this neoliberal “market reform” policy package that was introduced at a Stalin-like pace from 1992 to late 1998 was not only condoned but partly designed and financed by senior Clinton Administration officials, neoliberal economists, and innumerable USAID, World Bank, and IMF officials. The few dissenting voices included some of the West's best economic brains -- Nobel laureates like James Tobin, Kenneth Arrow, Lawrence Klein, and Joseph Stiglitz. They also included Moscow University’s Sergei Glaziev, who now serves as President Putin’s chief economic advisor.[3] Unfortunately, they were no match for the folks with the cash.

There was also an important intervention in Russian politics. In January 1996 a secret team of professional U.S. political consultants arrived in Moscow to discover that, as CNN put it back then, “The only thing voters like less than Boris Yeltsin is the prospect of upheaval.” The experts' solution was one of earliest "Our brand is crisis" campaign strategies, in which Yeltsin was “spun” as the only alternative to "chaos." To support him, in March 1996 the IMF also pitched in with $10.1 billion of new loans, on top of $17.3 billion of IMF/World Bank loans that had already been made.

With all this outside help, plus ample contributions from Russia’s new elite, Yeltsin went from just 8 percent approval in the January 1996 polls to a 54-41 percent victory over the Communist Party candidate, Gennady Zyuganov, in the second round of the July 1996 election. At the time, mainstream media like Time and the New York Times were delighted. Very few outside Russia questioned the wisdom of this blatant intervention in post-Soviet Russia’s first democratic election, or the West's right to do it in order to protect itself.

By the late 1990s the actual chaos that resulted from Yeltsin's warped policies had laid the foundations for a strong counterrevolution, including the rise of ex-KGB officer Putin and a massive outpouring of oligarchic flight capital that has continued virtually up to the present. For ordinary Russians, as noted, this was disastrous. But for many banks, private bankers, hedge funds, law firms, and accounting firms, for leading oil companies like ExxonMobil and BP, as well as for needy borrowers like the Trump Organization the opportunity to feed on post-Soviet spoils was a godsend. This was vulture capitalism at its worst.

The nine-lived Trump, in particular, had just suffered a string of six successive bankruptcies. So the massive illicit outflows from Russia and oil-rich FSU members like Kazahkstan and Azerbaijan from the mid-1990s provided precisely the kind of undiscriminating investors that he needed. These outflows arrived at just the right time to fund several of Trump's post-2000 high-risk real estate and casino ventures – most of which failed. As Donald Trump, Jr., executive vice president of development and acquisitions for the Trump Organization, told the “Bridging U.S. and Emerging Markets Real Estate” conference in Manhattan in September 2008, on the basis, he said, of his own “half dozen trips to Russia in 18 months”:

"[I]n terms of high-end product influx into the United States, Russians make up a pretty disproportionate cross-section of a lot of our assets; say in Dubai, and certainly with our project in SoHo and anywhere in New York. We see a lot of money pouring in from Russia."

All this helps to explain one of the most intriguing puzzles about Donald Trump’s long, turbulent business career: how he managed to keep financing it, despite a dismal track record of failed projects.[4]

According to the “official story,” this was simply due to a combination of brilliant deal-making, Trump’s gold-plated brand, and raw animal spirits – with $916 million of creative tax dodging as a kicker. But this official story is hokum. The truth is that, since the late 1990s, Trump was also greatly assisted by these abundant new sources of global finance, especially from "submerging markets" like Russia

This suggests that neither Trump nor Putin is an “uncaused cause.” They are not evil twins, exactly, but they are both byproducts of the same neoliberal policy scams that were peddled to Russia’s struggling new democracy.

A Guided Tour of Trump's Russian/FSU Connections

The following roundup of Trump’s Russo-Soviet business connections is based on published sources, interviews with former law enforcement staff and other experts in the United States, the United Kingdom, and Iceland, searches of online corporate registries,[5] and a detailed analysis of offshore company data from the Panama Papers.[6] Given the sheer scope of Trump’s activities, there are undoubtedly other worthy cases, but our interest here is in overall patterns.

Note that none of the activities and business connections related here necessarily involved criminal conduct. While several key players do have criminal records, few of their prolific business dealings have been thoroughly investigated, and of course they all deserve the presumption of innocence. Furthermore, several of these players reside in countries where activities like bribery, tax dodging, and other financial chicanery are either not illegal or are rarely prosecuted. As former British Chancellor of the Exchequer Denis Healey once said, when it comes to financial chicanery, the difference between “legal” and “illegal” is often just “the width of a prison wall.”

So why spend time collecting and reviewing material that may either not point to anything illegal and or in some cases may even be impossible to verify? Because, we submit, the mere fact that such assertions are widely made is of legitimate public interest in its own right. In other words, when it comes to evaluating the probity of senior public officials, the public has the right to know about any material allegations—true, false, or, most commonly, unprovable—about their business partners and associates, so long as this information is clearly labeled as unverified.

Furthermore, the individual case-based approach to investigations employed by most investigative journalists and law enforcement often misses the big picture: the global networks of influence and finance, licit and illicit, that exist among business people, investors, kleptocrats, organized criminals, and politicians, as well as the "enablers" -- banks, accounting firms, law firms, and havens.

Any particular component of these networks might easily disappear without making any difference. But the networks live on. It is these shadowy transnational networks that really deserve scrutiny.

Bayrock Group LLC—Kazakhstan and Tevfik Arif

 We’ll begin our tour of Trump's Russian/FSU connections with several business relationships that evolved out of the curious case of Bayrock Group LLC, a spectacularly unsuccessful New York real estate development company that surfaced in the early 2000s and, by 2014, had all but disappeared except for a few lawsuits. As of 2007, Bayrock and its partners reportedly had more than $2 billion of Trump-branded deals in the works. But most of these either never materialized or were miserable failures, for reasons that will soon become obvious.

Bayrock’s “white elephants” included the 46-story Trump SoHo condo-hotel on Spring Street in New York City, for which the principle developer was a partnership formed by Bayrock and FL Group, an Icelandic investment company. Completed in 2010, the SoHo soon became the subject of prolonged civil litigation by disgruntled condo buyers. The building was foreclosed by creditors and resold in 2014 after more than $3 million of customer down payments had to be refunded. Similarly, Bayrock’s Trump International Hotel & Tower in Fort Lauderdale was foreclosed and resold in 2012, while at least three other Trump-branded properties in the United States, plus many other “project concepts” that Bayrock had contemplated, from Istanbul and Kiev to Moscow and Warsaw, also never happened.

Carelessness about due diligence with respect to potential partners and associates is one of Donald Trump’s more predictable qualities. Acting on the seat of the pants, he had hooked up with Bayrock rather quickly in 2005, becoming an 18 percent minority equity partner in the Trump SoHo, and agreeing to license his brand and manage the building.[7]

Donald Trump and Tevfik Arif

 Exhibit A in the panoply of former Trump business partners is Bayrock’s former Chairman, Tevfik Arif (aka Arifov), an émigré from Kazakhstan who reportedly took up residence in Brooklyn in the 1990s. Trump also had extensive contacts with another key Bayrock Russian-American from Brooklyn, Felix Sater (aka Satter), discussed below.[8] Trump has lately had some difficulty recalling very much about either Arif or Sater. But this is hardly surprising, given what we now know about them. Trump described his introduction to Bayrock in a 2013 deposition for a lawsuit that was brought by investors in the Fort Lauderdale project, one of Trump’s first with Bayrock: “Well, we had a tenant in …Trump Tower called Bayrock, and Bayrock was interested in getting us into deals.”[9]

According to several reports, Tevfik Arif was originally from Kazakhstan, a Soviet republic until 1992. Born in 1950, Arif worked for 17 years in the Soviet Ministry of Commerce and Trade, serving as Deputy Director of Hotel Management by the time of the Soviet Union’s collapse.[10] In the early 1990s he relocated to Turkey, where he reportedly helped to develop properties for the Rixos Hotel chain. Not long thereafter he relocated to Brooklyn, founded Bayrock, opened an office in the Trump Tower, and started to pursue projects with Trump and other investors.[11]

Tevfik Arif was not Bayrock’s only connection to Kazakhstan. A 2007 Bayrock investor presentation refers to Alexander Mashevich’s “Eurasia Group” as a strategic partner for Bayrock’s equity finance. Together with two other prominent Kazakh billionaires, Patokh Chodiev (aka “Shodiyev”) and Alijan Ibragimov, Mashkevich reportedly ran the “Eurasian Natural Resources Cooperation.” In Kazakhstan these three are sometimes referred to as “the Trio.”[12]

The Trio has apparently worked together ever since Gorbachev's late 1980s perestroika in metals and other natural resources. It was during this period that they first acquired a significant degree of control over Kazakhstan’s vast mineral and gas reserves. Naturally they found it useful to become friends with Nursaltan Nazarbayev, Kazakhstan’s long-time ruler. Indeed, State Department cables leaked by Wikileaks in November 2010 describe a close relationship between “the Trio” and the seemingly-perpetual Nazarbayev kleptocracy.

In any case, the Trio has recently attracted the attention of many other investigators and news outlets, including the September 11 Commission Report, the Guardian, Forbes, and the Wall Street Journal. In addition to resource grabbing, the litany of the Trio's alleged activities include money laundering, bribery, and racketeering.[13] In 2005, according to U.S. State Department cables released by Wikileaks, Chodiev (referred to in a State Department cable as “Fatokh Shodiyev”) was recorded on video attending the birthday of reputed Uzbek mob boss Salim Abduvaliyeva and presenting him with a $10,000 “gift” or “tribute.”

According to the Belgian newspaper Le Soir, Chodiev and Mashkevich also became close associates of a curious Russian-Canadian businessman, Boris J. Birshtein. who happens to have been the father-in-law of another key Russian-Canadian business associate of Donald Trump in Toronto. We will return to Birshtein below.

The Trio also turn up in the April 2016 Panama Papers database as the apparent beneficial owners of a Cook Islands company, “International Financial Limited.” [14] The Belgian newspapers Het Laatste Nieuws, Le Soir, and La Libre Belgique have reported that Chodiev paid €23 million to obtain a “Class B” banking license for this same company, permitting it to make international currency trades. In the words of a leading Belgian financial regulator, that would “make all money laundering undetectable.”

The Panama Papers also indicate that some of Arif’s connections at the Rixos Hotel Group may have ties to Kazakhstan. For example, one offshore company listed in the Panama Papers database, “Group Rixos Hotel,” reportedly acts as an intermediary for four BVI offshore companies.[15] Rixos Hotel’s CEO, Fettah Tamince, is listed as having been a shareholder for two of these companies, while a shareholder in another—“Hazara Asset Management”—had the same name as the son of a recent Kazakhstan Minister for Sports and Tourism. As of 2012, this Kazakh official was described as the third-most influential deputy in the country’s Mazhilis (the lower house of Parliament), in a Forbes-Kazakhstan article.

According to a 2015 lawsuit against Bayrock by Jody Kriss, one of its former employees, Bayrock started to receive millions of dollars in equity contributions in 2004, supposedly by way of Arif’s brother in Russia, who allegedly “had access to cash accounts at a chromium refinery in Kazakhstan.”

This as-yet unproven allegation might well just be an attempt by the plaintiff to extract a more attractive settlement from Bayrock and its original principals. But it is also consistent with fact that chromium is indeed one of the Kazakh natural resources that is reportedly controlled by the Trio.

As for Arif, his most recent visible brush with the law came in 2010, when he and other members of Bayrock’s Eurasian Trio were arrested together in Turkey during a police raid on a suspected prostitution ring, according to the Israeli daily Yediot Ahronot.

At the time, Turkish investigators reportedly asserted that Arif might be the head of a criminal organization that was trafficking in Russian and Ukrainian escorts, allegedly including some as young as 13.[16] According to these assertions, big-ticket clients were making their selections by way of a modeling agency website, with Arif allegedly handling the logistics. Especially galling to Turkish authorities, the preferred venue was reportedly a yacht that had once belonged to the widely-revered Turkish leader Atatürk. It was also alleged that Arif may have also provided lodging for young women at Rixos Group hotels.[17]

According to Russian media, two senior Kazakh officials were also arrested during this incident, although the Turkish Foreign Ministry quickly dismissed this allegation as “groundless.” In the end, all the charges against Arif resulting from this incident were dismissed in 2012 by Turkish courts, and his spokespeople have subsequently denied all involvement.

Finally, despite Bayrock’s demise and these other legal entanglements, Arif has apparently remained active. For example, Bloomberg reports that, as of 2013, he, his son, and Rixos Hotels’ CEO Fettah Tamince had partnered to pursue the rather controversial business of advancing funds to cash-strapped high-profile soccer players, in exchange for a share of their future marketing revenues and team transfer fees. In the case of Arif and his partners, this new-wave form of indentured servitude was reportedly implemented by way of a UK- and Malta-based hedge fund, Doyen Capital LLP. Because this practice is subject to innumerable potential abuses, including the possibility of subjecting athletes or clubs to undue pressure to sign over valuable rights and fees, UEFA, Europe’s governing soccer body, wants to ban it. But FIFA, the notorious global football regulator, has been customarily slow to act. To date, Doyen Capital LLP has reportedly taken financial gambles on several well-known players, including the Brazilian star Neymar.

The Case of Bayrock LLC—Felix Sater

06TRUMPSOHOweb2-master675Our second exhibit is Felix Sater, the senior Bayrock executive introduced earlier. This is the fellow who worked at Bayrock from 2002 to 2008 and negotiated several important deals with the Trump Organization and other investors. When Trump was asked who at Bayrock had brought him the Fort Lauderdale project in the 2013 deposition cited above, he replied: “It could have been Felix Sater, it could have been—I really don’t know who it might have been, but somebody from Bayrock.” [18]

Although Sater left Bayrock in 2008, by 2010 he was reportedly back in Trump Tower as a “senior advisor” to the Trump Organization – at least on his business card -- with his own office in the building.

Sater has also testified under oath that he had escorted Donald Trump, Jr. and Ivanka Trump around Moscow in 2006, had met frequently with Donald over several years, and had once flown with him to Colorado. And although this might easily have been staged, he is also reported to have visited Trump Tower in July 2016 and made a personal $5,400 contribution to Trump’s campaign.

Whatever Felix Sater has been up to recently, the key point is that by 2002, at the latest,[19] Tevfik Arif decided to hire him as Bayrock’s COO and managing director. This was despite the fact that by then Felix had already compiled an astonishing track record as a professional criminal, with multiple felony pleas and convictions, extensive connections to organized crime, and — the ultimate prize —a virtual “get out of jail free card,” based on an informant relationship with the FBI and the CIA that is vaguely reminiscent of Whitey Bulger.[20]

Sater, a Brooklyn resident like Arif, was born in Russia in 1966. He reportedly emigrated with his family to the United States in the mid-1970s and settled in “Little Odessa.” It seems that his father, Mikhael Sheferovsky (aka Michael Sater), may have been engaged in Russian mob activity before he arrived in the United States. According to a certified U.S. Supreme Court petition, Felix Sater’s FBI handler stated that he “was well familiar with the crimes of Sater and his (Sater’s) father, a (Semion) Mogilevich crime syndicate boss.” [21] A 1998 FBI report reportedly said Mogilevich’s organization had “approximately 250 members,” and was involved in trafficking nuclear materials, weapons and more as well as money laundering. (See below.)

But Michael Sater may have been less ambitious than his son. His only reported U.S. criminal conviction came in 2000, when he pled guilty to two felony counts for extorting Brooklyn restaurants, grocery stores, and clinics. He was released with three years’ probation. Interestingly, the U.S. Attorney for the Eastern District of New York who handled that case at the time was Ms. Loretta Lynch, who succeeded Eric Holder as US Attorney General in 2014. Back in 2000, she was also overseeing a budding informant relationship and a plea bargain with Michael’s son Felix, which may help to explain the father's sentence.

By then young Felix Sater was already well on his way to a career as a prototypical Russian-American mobster. In 1991 he stabbed a commodity trader in the face with a margarita glass stem in a Manhattan bar, severing a nerve. He was convicted of a felony and sent to prison. As Trump tells it, Sater simply “got into a barroom fight, which a lot of people do.” The sentence for this felony conviction could not have been very long, because by 1993 27-year-old Felix was already a trader in a brand new Brooklyn-based commodity firm called “White Rock Partners,” an innovative joint venture among four New York crime families and the Russian mob aimed at bringing state-of-the art financial fraud to Wall Street.

Five years later, in 1998, Felix Sater pled guilty to stock racketeering, as one of 19 U.S.-and Russian mob-connected traders who participated in a $40 million “pump and dump” securities fraud scheme. Facing twenty years in Federal prison, Sater and Gennady Klotsman, a fellow Russian-American who'd been with him on the night of the Manhattan bar fight, turned "snitch" and helped the Department of Justice prosecute their co-conspirators.[22] Reportedly, so did Salvatore Lauria, another "trader” involved in the scheme. According to the Jody Kriss lawsuit, Lauria later joined Bayrock as an off-the-books paid “consultant.” Initially their cooperation, which lasted from 1998 until at least late 2001, was kept secret, until it was inadvertently revealed in a March 2000 press release by U.S. Attorney Lynch.

Unfortunately for Sater, about the same time the NYPD also reportedly discovered that he'd had been running a money-laundering scheme and illicit gun sales out of a Manhattan storage locker. He and Klotsman fled to Russia. However, according to the New York Times, citing Klotsman and Lauria, soon after the events of September 11, 2001 the ever-creative Sater succeeded in brokering information about the black market for Stinger anti-aircraft missiles to the CIA and the FBI. According to Klotsman, this strategy “bought Felix his freedom,” allowing him to return to Brooklyn. It is still not clear precisely what information Sater actually provided, but in 2015 US Attorney General Loretta Lynch publicly commended him for sharing information that she described as “crucial to national security.”

SaterBizCardMeanwhile, Sater’s sentence for his financial crimes continued to be deferred even after his official cooperation in that case ceased in late 2001. His files remained sealed, and he managed to avoid any sentencing for those crimes at all until October 23, 2009. When he finally appeared before the Eastern District's Judge I. Leo Glasser, Felix received a $25,000 fine, no jail time, and no probation, in a quiet proceeding that attracted no press attention. Some compared this sentence to Judge Glasser's earlier sentence of Mafia hit man “Sammy the Bull” Gravano to 4.5 years for 19 murders, in exchange for “cooperating against John Gotti.”

In any case, between 2002 and 2008, when Felix Sater finally left Bayrock LLC, and well beyond, his ability to avoid jail and conceal his criminal roots enabled him to enjoy a lucrative new career as Bayrock’s chief operating officer. In that position, he was in charge of negotiating aggressive property deals all over the planet, even while—according to lawsuits by former Bayrock investors — engaging in still more financial fraud. The only apparent difference was that he changed his name from “Sater” to “Satter.” [23]

In the 2013 deposition cited earlier, Trump went on to say “I don’t see Felix as being a member of the Mafia.” Asked if he had any evidence for this claim, Trump conceded “I have none.”[24]

As for Sater’s pal Klotsman, the past few years have not been kind. As of December 2016 he is in a Russian penal colony, working off a ten-year sentence for a failed $2.8 million Moscow diamond heist in August 2010. In 2016 Klotsman was reportedly placed on a “top-ten list” of Americans that the Russians were willing to exchange for high-value Russian prisoners in U.S. custody, like the infamous arms dealer Viktor Bout. So far there have been no takers. But with Donald Trump as President, who knows?

The Case of Iceland’s FL Group

 One of the most serious frauds alleged in the recent Bayrock lawsuit involves FL Group, an Icelandic private investment fund that is really a saga all its own.

Iceland is not usually thought of as a major offshore financial center. It is a small snowy island in the North Atlantic, closer to Greenland than to the UK or Europe, with only 330,000 citizens and a total GDP of just $17 billion. Twenty years ago, its main exports were cod and aluminum – with the imported bauxite smelted there to take advantage of the island's low electricity costs.

But in the 1990s Iceland’s tiny neoliberal political elite had what they all told themselves was a brilliant idea: "Let's privatize our state-owned banks, deregulate capital markets, and turn them loose on the world!" By the time all three of the resulting privatized banks, as well as FL Group, failed in 2008, the combined bank loan portfolio amounted to more than 12.5 times Iceland’s GDP -- the highest country debt ratio in the entire world.

Iceland 2008 - All Cross-Holdings

For purposes of our story, the most interesting thing about Iceland is that, long before this crisis hit and utterly bankrupted FL Group, our two key Russian/FSU/Brooklyn mobster-mavens, Arif and Sater, had somehow stumbled on this obscure Iceland fund. Indeed, in early 2007 they persuaded FL Group to invest $50 million in a project to build the Trump SoHo in mid-town Manhattan.

According to the Kriss lawsuit, at the same time, FL Group and Bayrock’s Felix Sater also agreed in principle to pursue up to an additional $2 billion in other Trump-related deals. The Kriss lawsuit further alleges that FL Group (FLG) also agreed to work with Bayrock to facilitate outright tax fraud on more than $250 million of potential earnings. In particular, it alleges that FLG agreed to provide the $50 million in exchange for a 62 percent stake in the four Bayrock Trump projects, but Bayrock would structure the contract as a “loan.” This meant that Bayrock would not have to pay taxes on the initial proceeds, while FLG’s anticipated $250 million of dividends would be channeled through a Delaware company and characterized as “interest payments,” allowing Bayrock to avoid up to $100 million in taxes. For tax purposes, Bayrock would pretend that their actual partner was a Delaware partnership that it had formed with FLG, “FLG Property I LLC,” rather than FLG itself.

The Trump Organization has denied any involvement with FLG. However, as an equity partner in the Trump SoHo, with a significant 18 percent equity stake in this one deal alone, Donald Trump himself had to sign off on the Bayrock-FLG deal.

This raises many questions. Most of these will have to await the outcome of the Kriss litigation, which might well take years, especially now that Trump is President. But several of these questions just leap off the page.

First, how much did President-elect Trump know about the partners and the inner workings of this deal? After all, he had a significant equity stake in it, unlike many of his “brand-name only” deals, and it was also supposed to finance several of his most important East Coast properties.

Second, how did the FL Group and Bayrock come together to do this dodgy deal in the first place? One former FL Group manager alleges that the deal arrived by accident, a “relatively small deal" was nothing special on either side.[25] The Kriss lawsuit, on the other hand, alleges that FLG was a well-known source of easy money from dodgy sources like Kazakhstan and Russia, and that other Bayrock players with criminal histories— like Salvatore Lauria, for example—were involved in making the introductions.

At this stage the evidence with respect to this second question is incomplete. But there are already some interesting indications that FL Group’s willingness to generously finance Bayrock’s peculiar Russian/FSU/Brooklyn team, its rather poorly-conceived Trump projects, and its purported tax dodging were not simply due to Icelandic backwardness. There is much more for us to know about Iceland’s “special” relationship with Russian finance. In this regard, there are several puzzles to be resolved.

First, it turns out that FL Group, Iceland’s largest private investment fund until it crashed in 2008, had several owners/investors with deep Russian business connections, including several key investors in all three top Iceland banks.

Second, it turns out that FL Group had constructed an incredible maze of cross-shareholding, lending, and cross-derivatives relationships with all these major banks, as illustrated by the following snapshot of cross-shareholding among Iceland’s financial institutions and companies as of 2008.[26]

Cross-shareholding Relationships, FLG and Other Leading Icelandic Financial Institutions, 2008


This thicket of cross-dealing made it almost impossible to regulate “control fraud,” where insiders at leading financial institutions went on a self-serving binge, borrowing and lending to finance risky investments of all kinds. It became difficult to determine which institutions were net borrowers or investors, as the concentration of ownership and self-dealing in the financial system just soared.

Third, FL Group make a variety of peculiar loans to Russian-connected oligarchs as well as to Bayrock. For example, as discussed below, Alex Shnaider, the Russian-Canadian billionaire who later became Donald Trump’s Toronto business partner, secured a €45.8 million loan to buy a yacht from Kaupthing Bank during the same period, while a company

Cross-shareholding Relationships, FLG and Other Leading Icelandic Financial Institutions, 2008

belonging to another Russian billionaire who reportedly owns an important vodka franchise got an even larger loan.[27]  

Fourth, Iceland’s largest banks also made a series of extraordinary loans to Russian interests during the run-up to the 2008 crisis. For example, one of Russia’s wealthiest oligarchs, a close friend of President Putin, nearly managed to secure at least €400 million (or, some say, up to 4 times that much) from Kaupthing, Iceland’s largest bank, in late September 2008, just as the financial crisis was breaking wide open. This bank also had important direct and indirect investments in FL Group. Indeed, until December 2006, it is reported to have employed the FL Group private equity manager who allegedly negotiated Felix Sater’s $50 million deal in early 2007.[28]

Fifth, there are unconfirmed accounts of a secret U.S. Federal Reserve report that unnamed Iceland banks were being used for Russian money laundering.[29] Furthermore, Kaupthing Bank’s repeated requests to open a New York branch in 2007–08 were rejected by the Fed. Similar unconfirmed rumors repeatedly appeared in Danish and German publications, as did allegations about the supposed Kazakh origins of FLG’s cash to be “laundered” in the Kriss lawsuit.

Sixth, there is the peculiar fact is that when Iceland’s banks went belly-up in October 2008, their private banking subsidiaries in Luxembourg, which were managing at least €8 billion of private assets, were suddenly seized by Luxembourg banking authorities and transferred to a new bank, Banque Havilland. This happened so fast that Iceland’s Central Bank was prevented from learning anything about the identities or portfolio sizes of the Iceland banks’ private offshore clients. But again, there were rumors of some important Russian names.

Finally, there is the rather odd phone call that Russia’s Ambassador to Iceland made to Iceland’s Prime Minister at 6:45 a.m. on October 7, 2008, the day after the financial crisis hit Iceland. According to the PM's own account, the Russian Ambassador informed him that then Prime-Minister Putin was willing to consider offering Iceland a €4 billion Russian bailout.

Of course this alleged Putin offer was modified not long thereafter to a willingness to entertain an Icelandic negotiating team in Moscow. By the time the Iceland team got to Moscow later that year, Russia’s willingness to lend had cooled, and Iceland ended up accepting a $2.1 billion IMF "stabilization package" instead. But according to a member of the negotiating team, the reasons for the reversal are still a mystery. Perhaps Putin had reconsidered because he simply decided that Russia had to worry about its own considerable financial problems. Or perhaps he had discovered that Iceland’s banks had indeed been very generous to Russian interests on the lending side, while -- given Luxembourg’s fact actions -- any Russian private wealth invested in Iceland banks was already safe.

On the other hand, there may be a simpler explanation for Iceland’s peculiar generosity to sketchy partners like Bayrock. After all, right up to the last minute before the October 2008 meltdown, the whole world had awarded Iceland AAA ratings – depositors queued up in London to open high-yield Iceland bank accounts, its bank stocks were booming, and the compensation paid to its financiers was off the charts. So why would anyone worry about making a few more dubious deals?

Overall, therefore, with respect to these odd “Russia-Iceland” connections, the proverbial jury is still out. But all these Icelandic puzzles are intriguing and bear further investigation.

The Case of the Trump Toronto Tower and Hotel—Alex Shnaider

 Our fourth case study of Trump's business associates concerns the 48-year-old Russian-Canadian billionaire Alex Shnaider, who co-financed the seventy-story Trump Tower and Hotel, Canada’s tallest building. It opened in Toronto in 2012. Unfortunately, like so many of Trump’s other Russia/FSU-financed projects, this massive Toronto condo-hotel project went belly-up this November and has now entered foreclosure.

Donald Trump and Alex Shnaider

According to an online profile of Shnaider by a Ukrainian news agency, Alex Shnaider was born in Leningrad in 1968, the son of "Евсей Шнайдер," or "Evsei Shnaider" in Russian.[30] A recent Forbes article says that he and his family emigrated to Israel from Russia when he was four and then relocated to Toronto when he was 13-14. The Ukrainian news agency says that Alex's familly soon established "one of the most successful stories in Toronto's Russian quarter, " and that young Alex, with "an entrepreneurial streak," "helped his father Evsei Shnaider in the business, placing goods on the shelves and wiping floors."

Eventually that proved to be a great decision – Shnaider prospered in the New World. Much of this was no doubt due to raw talent. But it also appears that for a time he got significant helping hand from his (now reportedly x) father-in-law,   another colorful Russian-Canadian, Boris J. Birshtein.

Originally from Lithuania, Birshtein, now about 69, has been a Canadian citizen since at least 1982.[31] He resided in Zurich for a time in the early 1990s, but then returned to Toronto and New York.[32] One of his key companies was called Seabeco SA, a "trading" company that was registered in Zurich in December 1982.[33] By the early 1990s Birshtein and his partners had started many other Seabeco-related companies in a wide variety of locations, inclding Antwerp,[34] Toronto,[35] Winnipeg,[36] Moscow, Delaware,[37] Panama, [38] and Zurich.[39] Several of these are still active.[40] He often staffed them with directors and officers from a far-flung network of Russians, emissaries from other FSU countries like Kirgizstan and Moldova, and recent Russia/FSU emigres to Canada.[41]

According to the Financial Times and the FBI, in addition to running Seabeco, Birshtein was a close business associate of Sergei Mikhaylov, the reputed head of Solntsevskaya Bratva, the Russian mob's largest branch, and the world’s highest-grossing organized crime group as of 2014, according to Fortune. [42] A 1996 FBI intelligence report cited by the FT claims that Birshtein hosted a meeting in his Tel Aviv office for Mikhaylov, the Ukrainian-born Semion Mogilevich, and several other leaders of the Russo/FSU mafia, in order to discuss “the sharing interests in Ukraine.”[43] A subsequent 1998 FBI Intelligence report on the "Semion Mogilevich Organization" repeated the same charge,[44] and described Mogilevich's successful attempts at gaining control over Ukraine privatization assets. This FT article also described how Birshtein and his associates had acquired extraordinary influence with key Ukraine officials, including President Leonid Kuchma, with the help of up to $5 million of payoffs.[45] Citing Swiss and Belgian investigators, the FT also claimed that Birshtein and Mikhaylov jointly controlled a Belgian company called MAB International in the early 1990s.[46] During that period, those same investigators reportedly observed transfers worth millions of dollars between accounts held by Mikhaylov, Birshtein, and Alexander Volkov, Seabeco's representative in Ukraine.

In 1993, the Yeltsin government reportedly accused Birshtein of illegally exporting seven million tons of Russian oil and laundering the proceeds.[47] Dmytro Iakoubovski, a former associate of Birshtein’s who had also moved to Toronto, was said to be cooperating with the Russian investigation. One night a gunman fired three shots into Iakoubovski’s home, leaving a note warning him to cease his cooperation, according to a New York Times article published that year. As noted above, according to the Belgian newspaper Le Soir, two members of Bayrock’s Eurasian Trio were also involved in Seabeco during this period as well—Patokh Chodiev and Alexander Mashkevich. Chodiev reportedly first met Birshtein through the Soviet Foreign Ministry, and then went on to run Seabeco’s Moscow office before joining its Belgium office in 1991. Le Soir further claims that Mashkevich worked for Seabeco too, and that this was actually how he and Chodiev had first met.

All this is fascinating, but what about the connections between Birshtein and Trump's Toronto business associate, Alex Shnaider? Again, the leads we have are tantalizing.The Toronto Globe and Mail reported that in 1991, while enrolled in law school, young Alex Shnaider started working for Birshtein at Seabeco’s Zurich headquarters, where he was reportedly introduced to steel trading. Evidently this was much more than just a job; the Zurich company registry lists "Alex Shnaider" as a Director of "Seabeco Metals AG" from March 1993 to January 1994. [48]

In 1994, according to this account, reportedly left Seabeco in January 1994 to start his own trading company in Antwerp, in partnership with a Belgian trader-partner. Curiously, Le Soir also says that Mikhaylov and Birshtein co-founded MAB International in Antwerp in January 1994. Is it far-fetched to suspect that Alex Shnaider and mob boss Mikhaylov might have crossed paths, since they were both in the same city and they were both close to Shnaider’s father-in-law?

According to Forbes, soon after Shnaider moved to Antwerp, he started visiting the factories of his steel trading partners in Ukraine.[49] His favorite client was the Zaporizhstal steel mill, the Ukraine's fourth largest. At the Zaporizhstal mill he reportedly met Eduard Shifrin (aka Shyfrin), a metals trader with a Ph.D. in metallurgical engineering. Together they founded Midland Resource Holdings Ltd. in 1994.[50]

As the Forbes piece argues, with privatization sweeping Eastern Europe, private investors were jockeying to buy up the government’s shares in Zaprozhstal. But most traders lacked the financial backing and political connectons to accumulate large risky positions. Shnaider and Shifrin, in contrast, started buying up shares without limit, as if their pockets and connections were very deep. By 2001 they had purchased 93 percent of the plant for about $70 million, a stake that would be worth much more just five years later, when Shnaider reportedly turned down a $1.2 billion offer.

Today Midland Resources Holdings Ltd. reportedly generates more than $4 billion a year of revenue and has numerous subsidiaries all across Eastern Europe.[51] Shnaider also reportedly owns Talon International Development, the firm that oversaw construction of the Trump hotel-tower in Toronto. All this wealth apparently helped Iceland's FL Group decide that it could afford to extend a €48.5 million loan to Alex Shnaider in 2008 to buy a yacht. [52]

            As of December 2016, a search of the Panama Papers database found no less than 28 offshore companies that have been associated with “Midland Resources Holding Limited.”[53] According to the database, "Midland Resources Holding Limited" was a shareholder in at least two of these companies, alongside an individual named “Oleg Sheykhametov.”[54] The two companies, Olave Equities Limited and Colley International Marketing SA, were both registered and active in the British Virgin Islands from 2007–10.[55] A Russian restaurateur by that same name reportedly runs a sushi franchise owned by two other alleged Solntsevskaya mob associates, Lev Kvetnoy and Andrei Skoch, both of whom are pictured below with Sergei Mikhaylov below. Of course mere inclusion in such a group photo is no evidence of any wrong-doing. (INSERT Picture Link here: According to Forbes, Kvetnoy is the 55th richest person in Russia and Skoch, now a deputy in the Russian Duma, is the 18th. [56]           

            Finally, it is also intriguing to note that Bori Birshtein is also listed as the President of "ME Moldova Enterprises AG," a Zurich-based company" that was founded in November1992, transferred to the canton of Schwyz in September 1994, and liquidated and cancelled in January 1999.[57] Birshstein was a member of the company's board of directors from November 1992 to January 1994, when he became its President. At that point he was succeeded as President in June 1994 by one "Evsei Shnaider, Canadian citizen, resident in Zurich," who was also listed as Director of the company in September 1994.[58] " Evsei Schnaider" is also listed in the Panama registry as a Treasurer and Director of "The Seabeco Group Inc," formed on December 6, 1991, [59]and as Treasurer and Director of Seabeco Security International Inc.," formed on December 10, 1991. As of December 2016, both companies are still in existence.[60] Boris Birstein is listed as President and Director of both companies.[61]

The Case of Paul Manafort’s Ukrainian Oligarchs

 Our fifth Trump associate profile concerns the Russo/Ukrainian connections of Paul Manafort, the former Washington lobbyist who served as Donald Trump’s national campaign director from April 2016 to August 2016. Manafort’s partner, Rick Davis, also served as national campaign manager for Senator John McCain in 2008, so this may not just be a Trump association.


Dymytro Firtash

One of Manafort’s biggest clients was the dubious pro-Russian Ukrainian billionaire Dmytro Firtash. By his own admission, Firtash maintains strong ties with a recurrent figure on this scene, the reputed Ukrainian/Russian mob boss Semion Mogilevich. His most important other links are almost certainly to Putin. Otherwise it is difficult to explain how this former used-car salesman could gain a lock on trading goods for gas in Turkmenstan and also become a lynchpin investor in the Swiss company RosUrEnergo, which controls Gazprom's gas sales to Europe[62]

In 2008, Manafort teamed up with a former manager of the Trump Organization to purchase the Drake Hotel in New York for up to $850 million, with Firtash agreeing to invest $112 million. According to a lawsuit brought against Manafort and Firtash, the key point of the deal was not to make a carefully-planned investment in real estate, but to simply launder part of the huge profits that Firtash had skimmed while brokering dodgy natural gas deals between Russia and Ukraine, with Mogilevich acting as a “silent partner.”

Ultimately Firtash pulled out of this Drake Hotel deal. The reasons are unclear – it has been suggestd that he needed to focus on the 2015 collapse and nationalization of his Group DF's Bank Nadra back home in the Ukraine.[63] But it certainly doesn't appear to have changed his behiavor. Since 2014 there have been a spate of other Firtash-related prosecutions, with the US try to extradict from Austria in order to stand trial on allegations that his vast spidernet "Group DF" had paid $18.5 million in bribes to Indian officials to secure mining licenses. The Austrian court, knowing Firtash like a brother, required him to put up a record-busting €125 mm bail while he awaits a decision. [64] And just last month, Spain has also tried to extradite Firtash on a separate money laundering case, involving washing €10 million through Spanish property investments.

After Firtash pulled out of the deal, Manafort reportedly turned to Trump, but he declined to engage. Manafort stepped down as Trump’s campaign manager in August of 2016 in response to press investigations into his ties not only to Firtash, but to the Ukraine's previous pro-Russian Yanukovych government, which had been deposed by a uprising in 2014.  However, following the November 8 election, Manafort reportedly returned to advise Trump on staffing his new administration.  He got an assist from Putin -- on November 30 a spokeswoman for the Russian Foreign Ministry accused Ukraine of leaking stories about Manafort in an effort to hurt Trump.

The Case of “Well-Connected” Russia/FSU Mobsters

 Finally, several other interesting Russo/FSU connections have a more residential flavor, but they are a source of very important leads about the Trump network.

Indeed, partly because it has no prying co-op board, Trump Tower in New York has received press attention for including among its many honest residents tax-dodgers, bribers, arms dealers, convicted cocaine traffickers, and corrupt former FIFA officials. [65]

Semion Mogilevich

One typical example involves the alleged Russian mobster Anatoly Golubchik, who went to prison in 2014 for running an illegal gambling ring out of Trump Tower -- not only the headquarters of the Trump Organization but also the former headquarters of Bayrock Group LLC. This operation reportedly took up the entire 51st floor. Also reportedly involved in it was the alleged mobster Alimzhan Tokhtakhounov, [66] who has the distinction of making the Forbes 2008 list of the World’s Ten Most Wanted Criminals, and whose organization the FBI believed to be tied to Mogilevich’s. Even as this gambling ring was still operating in Trump Tower, Tokhtakhounov reportedly travelled to Moscow to attend Donald Trump’s 2013 Miss Universe contest as a special VIP.

In the Panama Papers database we do find the name “Anatoly Golubchik.” Interestingly, his particular offshore company, "Lytton Ventures Inc.," [67] shares a corporate director, Stanley Williams, with a company that may well be connected to our old friend Semion Mogilevich, the Russian mafia’s alleged “Boss of Bosses” who has appeared so frequently above. Thus Lytton Ventures Inc. shares this particular director with another company that is held under the name of “Galina Telesh.”[68] According to the Organized Crime and Corruption Reporting Project, multiple offshore companies belonging to Semion Mogilevich have been registered under this same name -- which just happens to be that of Mogilevich’s first wife.

A 2003 indictment of Mogilevich also mentions two offshore companies that he is said to have owned, with names that include the terms “Arbat” and “Arigon.” The same corporate director shared by Golubchik and Telesh also happens to be a director of a company called Westix Ltd.,[69] which shares its Moscow address with “Arigon Overseas” and “Arbat Capital.”[70] And another company with that same director appears to belong to Dariga Nazarbayeva, the eldest daughter of Nursultan Nazarbayev, the long-lived President of Kazakhstan. Dariga is expected to take his place if he ever decides to leave office or proves to be mortal.

Lastly, Dmytro Firtash—the Mogilevich pal and Manafort client that we met earlier—also turns up in the Panama Papers database, as part of Galina Telesh’s network neighborhood. A director of Telesh’s “Barlow Investing,” Vasliki Andreou, was also a nominee director of a Cyprus company called “Toromont Ltd.,” while another Toromont Ltd. nominee director, Annex Holdings Ltd., a St. Kitts company, is also listed as a shareholder in Firtash’s Group DF Ltd., along with Firtash himself.[71] And Group DF’s CEO, who allegedly worked with Manafort to channel Firtash’s funding into the Drake Hotel venture, is also listed in the Panama Papers database as a Group DF shareholder. Moreover, a 2006 Financial Times investigation identified three other offshore companies that are linked to both Firtash and Telesh.[72] 

Anatoly Golubchik’s Panama Papers Network Neighborhood

Of course, all of these curious relationships may just be meaningless coincidences. After all, the director shared by Telesh and Golubchik is also listed in the same role for more than 200 other companies, and more than a thousand companies besides Arbat Capital and Arigon Overseas share Westix’s corporate address. In the burgeoning land of offshore havens and shell-game corporate citizenship, there is no such thing as overcrowding. The appropriate way to view all this evidence is to regard it as "Socratic:" raising important unanswered questions – not providing definite answers.

In any case, returning to Trump's relationships through Trump Tower, another odd one involves the 1990s-vintage fraudulent company YBM Magnex International. YBM, ostensibly a world-class manufacturer of industrial magnets, was founded indirectly in Newtown, Bucks County, Pennsylvania in 1995 by the "boss of bosses," Semion Mogilevich, Moscow’s “brainy Don.”

This is a fellow with an incredible history, even if only one-half of what has been written about him is true. [73] Unfortunately, we have to focus here only on the bits that are most relevant.. Born in Kiev, and now a citizen of Israel as well as the Ukraine and Russia, Semion, now 70, is a lifelong criminal. But he boasts an undergraduate economics degree from Lviv University, and is reported to take special pride in designing sophisticated, virtually undetectable financial frauds that take years to put in place. To pull them off, he often relies on the human frailties of top bankers, stock brokers, accountants, business magnates, and key politicians.[74]

In YBM’s case, for a mere $2.4 million in bribes, Semion and his henchmen spent years in the 1990s launching a product-free, fictitious company on the still-badly under-regulated Toronto Stock Exchange. Along the way they succeeded in securing the support of several leading Toronto business people and a former Ontario Province Premier to sit on YBM’s board. They also paid the “Big Four” accounting firm Deloitte Touche very handsomely to issue glowing audits. By mid-1998, YBM’s stock price had gone from less than $.10 to $20, and Semion cashed out at least $18 million—a relatively big fraud for its day—before the FBI raid its YBM's corporate headquarters. When it did so, it found piles of bogus invoices for magnets, but no magnets. [75]

In 2003, Mogilevich was indicted in Philadelphia on 45 felony counts for this $150 million stock fraud. But there is no extradition treaty between the United States and Russia, and no chance that Russia will ever extradite Semion voluntarily; he is arguably a national treasure, especially now. Acknowledging these realities, or perhaps for other reasons, the FBI quietly removed Mogilevich from its Top Ten Most Wanted list in 2015, where he had resided for the previous six years.[76]

For our purposes, one of the most interesting things to note about this YBM Magnex case is that its CEO was a Russian-American named Jacob Bogatin, who was also indicted in the Philadelphia case. His brother David had served in the Soviet Army in a North Vietnamese anti-aircraft unit, helping to shoot down American jet pilots like Senator John McCain. Since the early 1990s, David Bogatin was considered by the FBI to be one of the key members of Semion Mogilevich’s Russian organized crime family in the United States, with a long string of convictions for big-ticket Mogilevich-type offenses like financial fraud and tax dodging.

At one point, David Bogatin owned five separate condos in Trump Tower that Donald Trump had reportedly sold to him personally.[77] And Vyacheslav Ivankov, another key Mogilevich lieutenant in the United States during the 1990s, also resided for a time at Trump Tower, and reportedly had in his personal phone book the private telephone and fax numbers for the Trump Organization’s office in that building.[78]


So what have we learned from this deep dive into the network of Donald Trump's Russian/FSU connections?

¶ First, the President-Elect really is very "well-connected," with an extensive network of unsavory global underground connections that may well be unprecedented in White House history. In choosing his associates, evidently Donald Trump only pays cursory attention to questions of background, character and integrity.

¶ Second, Donald Trump has also literally spent decades cultivating senior relationships of all kinds with Russia and the FSU. And public and private senior Russian figures of all kinds have likewise spent decades cultivating him, not only as a business partner, but as a "useful idiot."

After all, on September 1, 1987 (!), Trump was already willing to spend a $94,801 on full-page ads in the Boston Globe, the Washington Post, and the New York Times, calling for the US to stop spending money to defend Japan, Europe, and the Persian Gulf, "an area of only marginal significance to the US for its oil supplies, but one upon which Japan and others are almost totally dependent.''[79]

This is one key reason why just this week, Robert Gates, a registered Republican who has served Secretary of Defense under Presidents from both parties, as well as Director and Deputy Director of the CIA, critized the response of Congress and the White House to the alleged Putin-backed hacking as far too "laid back." [80]

¶ Third, even beyond questions of illegality, the public clearly has a right to know much more than it already does about the nature of such global connections. As our opening quote from Cervantes suggests, these relationships are probably a pretty good leading indicator of how Presidents will behave once in office.

Unfortunately, for many reasons, this year American voters never really got the chance to decide whether such low connections and entanglements belong at the world’s high peak of official power. In the waning days of the Obama Administration, with the Electoral College about to ratify Trump's election and Congress in recess, it is too late to establish the kind of bipartisan 9/11-type commission that would be needed to explore these connections in detail.

Finally, the long-run consequence of careless interventions in other countries is that they often come back to haunt us.  In Russia's case, it just has.


James S. Henry, Esq. is an investigative economist and lawyer who has written widely about offshore and onshore tax havens, kleptocracy, and pirate banking. He is the author of The Blood Bankers (Basic Books, 2003,2005), a classic investigation of where the money went that was loaned to key debtor countries in the 1970s-1990s. He is a Senior Fellow at the Columbia University's Center on Sustainable Investment, a Global Justice Fellow at Yale, a Senior Advisor at the Tax Justice Network, and a member of the New York Bar. He has pursued frontline investigations of odious debt, flight capital, and corruption in more than 50 developing countries, including Russia, China, South Africa, Brazil, the Philippines, Argentina, Venezuela, Nicaragua, Mexico, and Panama.


[1] Author’s estimates; see for more details.

[2] For an overview and critical discussion, see

[3] See Lawrence Klein and Marshall Pomer, Russia's Economic Transition Gone Awry (Stanford U. Press, 2002); see also James S. Henry and Marshall Pomer, "A Pile of Ruble," The New Republic, 1998, 219 (10), 20-21.

[4] See this Washington Post report, which counts just six bankruptcies to the Trump Organization’s credit, but excludes failed projects like the Trump SoHo, the Toronto condo-hotel, the Fort Lauderdale condo-hotel, and many others Trump was a minority investor or had simply licensed his brand.

[5] For example, the Swiss federal and cantonal corporate registries, available at

[6] For ICIJ's April 2016 "Panama Papers" database of offshore companies, see

[7] Trump’s minority equity deal with Bayrock was unlike many others, where he simply licensed his name. See this March 2008 New York Magazine piece.

[8] “I dealt mostly with Tevfik,” he said in 2007

[9] Case 1:09-cv-21406-KMW Document 408-1. Entered on FLSD Docket 11/26/2013. p. 15.


[11] Bayrock reported its co-ownership of six Rixos hotels in a 2007 press release.

[12] See also Salihovic, Elnur, Major Players in the Muslim Business World, p.107;

[13] See also;;

[14] According to the Panama Papers database, "International Financial Limited" was registered on April 3, 1998, but is no longer active today, although no precise deregistration date is available. See

[15]According to the Panama Papers, “Group Rixos Hotel” is still active company, while three of the four companies it serves were struck off in 2007 and the fourth, Hazara Asset Management, in 2013.


[17] See also [17]; [17]

[18] Case 1:09-cv-21406-KMW Document 408-1. Entered on FLSD Docket 11/26/2013. p. 16.

[19]The exact date that Sater joined Bayrock is unclear. A New York Times article says 2003, but this appears to be too late. Sater says 1999, but this is much too early. A certified petition filed with the U.S. Supreme Court places the time around 2002, which is more consistent with Sater’s other activities during this period, including his cooperation with the Department of Justice on the Coppa case in 1998–2001, and his foreign travel.

[20] See;;

; [20] Note that previous accounts of Sater's activities have overlooked the role that this very permissive relationship with federal law enforcement, especially the FBI, may have played in encouraging Sater's subsequent risk-taking and financial crimes. See

[21] See, 13.

[22] Sater’s 1998 case, never formally sealed, was U.S. v. Sater, 98-CR-1101 (E.D.N.Y.) The case in which Sater secretly informed was U.S. v. Coppa, 00-CR-196 (E.D.N.Y.). See also

[23] Sater also may have taken other steps to conceal his criminal past. According to the 2015 lawsuit filed by x Bayrocker Jody Kriss, Arif agreed to pay Sater his $1 million salary under the table, allowing Sater to pretend that he lacked resources to compensate any victims of his prior financial frauds. See Kriss v. Bayrock, pp. 2, 18, at The lawsuit also alleges that Sater may have held a majority of Bayrock's ownership, but that Arif, Sater and other Bayrock officers may have conspired to hide this by listing Arif as the sole owner on offering documents.

[24] See, 155.

[25] "Former FL Group manager," interview with London, August 2016. Sigrun Davidsdottir, Iceland journalist.

[26] See "Report of the Special Investigation Commission on the 2008 Financial Crisis." (April 12, 2010), available at

[27] These loans are disclosed in the Kaupthing Bank's "Corporate Credit – Disclosure of Large Exposures > €40 mm." loan book, September 15, 2008. This document was disclosed by Wikileaks in 2009   See;, p.145 (€79.5mm construction yacht loan to Russian vodka magnate Yuri Shefler's Serena Equity Ltd.;   p. 208: (€45.8 mm yacht construction loan to Canadian-Russian billionaire Alex Shnaider's Filbert Pacific Ltd..

[28] Kriss lawsuit, op. cit.; author's analysis of Kaupthing/ FL G employees published career histories.

[29] Author's interview, "Iceland Economist," Reykjavik, July 2016.

[30] The passage in Russian, with the father's name underlined, is as follows: "Родители Алекса Шнайдера владели одним из первых успешных русских  магазинов в русском квартале Торонто. Алекс помогал в бизнесе отцу – Евсею Шнайдеру, расставляя на полках товар и протирая полы. С юных лет в Алексе зрела предпринимательская жилка.  Живя с родителями, он стал занимать деньги у их друзей и торговать тканями и электроникой с разваливающимися в конце 80-х годов советскими предприятиями." "Евсею Шнайде

ру" is the dative case of "Евсей Шнайдер," or "Evsei Shnaider," the father's name in Russian.

[31] The Zurich company registry ( reports that "Seabeco SA" (CHE-104.863.207) was initially registered on December 16, 1982, with "Boris Joseph Birshtein, Canadian citizen, resident in Toronto" as its President. It entered liquidation on May 5, 1999, in Arth, handled by the Swiss trustee Paul Barth. The Zurich company registry listed "Boris Joseph Birshtein, Canadian citizen, resident in Toronto," as the President of Seabeco Kirgizstan AG in 1992, while "Boris Joseph Birshtein, Canadian citizen, resident in Zurich," was listed as the company's President in 1993. "Boris Birshtein" is also listed as the President and director of a 1991 Panama company, The Seabeco Group, Inc. as of December 6 1991. See below.

[32] See

[33] The Zurich company registry reports that "Seabeco SA" (CHE-104.863.207) was initially registered on December 16, 1982, with "Boris Joseph Birshtein, Canadian citizen, resident in Toronto" as its President. According to the registry, it entered liquidation on May 5, 1999. See also!topic/soc.culture.ukrainian/1mtgIacNtMw. The liquidation was handled by the Swiss trustee Paul Barth, in Arth.

[34] For Seabeco's Antwerp subsidiary, see

[35] "Royal HTM Group, Inc." of Toronto, (Canadian Federal Corporation # 624476-9), owned 50-50 by Birshtein and his nephew. See,%20Inc.&crpNmbr=&bsNmbr= .

[36] Birshtein was a director of Seabeco Capital Inc. (Canadian Federal Incorporatio # 248194-4,) a Winnipeg company created 6/2/1989 and dissolved 12/22/1992 )

[37] Since 1998, Boris Birshtein (Toronto) has also served as Chairman, CEO, and a principle shareholder of "Trimol Group Inc.," a publicly-traded Delaware company that trades over the counter. (Symbol: TMOL). Its product line is supposedly "computerized photo identification and database management system utilized in the production of variety of secure essential government identification documents." See;

However, according to Trimol's July 2015 10-K ( the company has only had one customer, the former FSU member Moldova, with which Trimol's wholly-owned subsidiary Intercomsoft concluded a contract in 1996 for the producton of a National Passport and Population Registration system. That contract was not renewed in 2006, and the subsidiary and Trimol have had no revenues since then. Accordingly, as of 2016 Trimol has only two part time employees, its two principle shareholders, Birshtein and his nephew, who, directly and indirectly account for 79 percent of Trimol's shares outstanding. According to the July 2015 10-K, Birshtein, in particular, owned 54 percent of TMOL's outstanding 78.3 million shares, including 3.9 million by way of "Magnum Associates, Inc.," which the 10-K says only has Birshtein as a shareholder, and 34.7 million by way of yet another Canadian company, "Royal HTM Group, Inc." of Ontario (Canadian Federal Corporation # 624476-9), which is owned 50-50 by Birshtein and a nephew. It is interesting to note according to the Panama Papers database, a Panama company called "Magnum Associates Inc. was incorporated on December 10, 1987, and struck off on March 10, 1989.   See As of December 2016, TMOL's stock price was zero.

[38] See the case of Trimol Group Inc above. The Seabeco Group, Inc., a Panama company that was formed in December 1991, apparently still exists. Boris J. Birshtein is listed as this company's Director and President. See "The Seabeco Group Inc." registered in Panama by Morgan Y Morgan, 1991-12.06, with "Numero de Ficha" 254192,;

[39] As of December 2016, the Zurich company registry ( listed a Zurich company called "Conim Investment AG" (CH- was originally formed in May 1992, and in January 1995 was transferred to Arth, in the Canton of Schwyz, where it is still in existence. (CHE-102.029.498). This is confirmed by the Schwyz Canton registery: According to these registries, Conim Investment AG is the successor company to two other Zurich campanies, "Seabeco Kirgizstan AG,"formed in 1992, and "KD Kirgizstan Development AG," its direct successor.   (

The Swiss federal company registry also reports the following Swiss companies in which Boris J.Birshtein has been an officer and or director, all of which are now in liquidation: (1) Seabeco Trade and Finance AG (CH-, 4/3/92-11/30/98 ), ; (2) Seabeco SA (CHE-104.863.207,12/16/82-5/9/99) ; (3) Seabeco Metals AG (4/3/92-6/11/96); (4) BNB Trading AG (CH-, 1/10/92-11/19/98 ); and (5) ME Moldova Enterprises AG (CH-, 11/10/92-9/16/94). All of these liquidations were handled by the same trustee, Paul Barth in Arth.

[40] As of December 2016, active Birshtein companies include "Conim Investment AG" (CH- in the Swiss Canton of Schwyz and he Seabeco Group, Inc. in Panama.

[41] For example, the Zurich and Schwyz company registries indicates that the following have been board members of Birshtein companies: (1) Seabeco Trade and Finance AG: Iouri Orlov (citizen of Russia, resident of Moscow), Alexander Griaznov (citizen of Russia, resident of Basserdorf Switzerland), and Igor Filippov (citizen of Russia, resident of Basel). (2) ME Moldova Enterprises: Andrei Keptein (citizen of FSU/ Moldova; Evsei Shnaider (Russian émigré to Canada); (3) Seabeco Kirigizstan/ Conim Investment AG: Sanjarbek Almatov (citizen of Bishkek, FSU/ Kirgizstan), Toursounbek Tchynguychev (citizen of Bishkek, FSU/Kirgizstan), Evsei Shnaider (Russian émigré to Canada); (4) BNB Trading AG: Yuri Spivak (Russian émigré to Canada; (5) Seabeco Metals AG: Alex Shnaider (Russian émigré to Canada).

[42] Charles Clover, "Ukraine: Questions over Kuchma's adviser cast shadows," FT, October 30, 1999, available at See also Misha Glenny, 2009. McMafia: A Journey Through the Global Criminal Underworld. (New York: Vintage Books), 63-65.

[43] Charles Clover, "Ukraine: Questions over Kuchma's adviser cast shadows," FT, October 30, 1999, available at .

[44] See FBI, Organizational Intelligence Unit (August 1998), "Semion Mogilevich Organization: Eurasian Organized Crime," available at

[45] Charles Clover, "Ukraine: Questions over Kuchma's adviser cast shadows," FT, October 30, 1999, available at

[46] Charles Clover, "Ukraine: Questions over Kuchma's adviser cast shadows," FT, October 30, 1999, available at .

[47] Toronto Star, Aug 28, 1993 “Boris knows everyone,”

[48] See Zurich corporate registry for "Seabeco Metals AG" (CH-, formed 4/3/92 and liquidated 6/11/96.




[52] See Kaupthing Bank, "Loan Book, September 2008," wikileaks:,_26_Sep_2008

[53]The Panama Papers database provides an address for “Midland Resources Holding Limited" ( that exactly matches the company's corporate address in Guernsey, as noted by Bloomberg's corporate data base. Here are the 28 companies that are associated with Midland in database:  

Aligory Business Ltd.,;

Anglesey Business Ltd.,;

Blue Industrial Skies Inc.,;  

Cl 850 Aviation Holdings Ltd.,;

Cl 850 Aircraft Investments Ltd.,;

Caray Business Inc.,;

Challenger Aircraft Company Limited,;

Colley International Marketing S.A.,;

East International Realty Ltd.,;

Filbert Pacific Limited,;

Gorlane Business Inc.,;

Jabar Incorporated,;

Jervois Holdings Inc.( ,

Kerryhill Investments Corp.,;

Leaterby International Investments Corp.,

Maddocks Equities Ltd.,(,

Maverfin Holding Inc.(,

Midland Maritime Holding Ltd.(,

Midland River-Sea Holding Ltd. (,

Midland Drybulk Holding Ltd.(,

Midland Fundco Ltd. (,

Norson Investments Corp.(,

Olave Equities Limited,;;

Orlion Business Incorporated,

Perseus Global Inc.,;

Sellana Investments Global Corp.,

Stogan Assets Incorporated,

Toomish Asset Ltd.,

[54] With the address "11 First Tverskaya-Yamskaya Street; apt. 42; Moscow; Russia.";;;

[55] As for the Midland-related offshore vehicles still listed as active, one shareholder in two of them -- -- Stogan Assets Incorporated and Blue Sky Industries Inc. -- happens to have the same name as Russia’s Deputy Culture Minister Gregory Pirumov, reportedly arrested in March 2016 on embezzlement charges. The “Gregory Pirumov” in the Panama Papers ( has a registered address in Moscow (4 Beregkovskaia Quay; 121059), as do the reported agents of these two companies: "Global Secretary Services Ltd. Mal. Tolmachevskiy pereulok 10 Office No.3 Moscow, Russia 119017 Attention: Katya Skupova)." See A "Georgy Pirumov" is also listed separately in the Panama Papers as having been a shareholder in the same two companies (; For what it is worth, in September 2016, one "Georgy Pirumov" was convicted in Moscow of "illegally taking over a building in Gogolevsky Boulevard," and sentenced to 20 months in a minimum-security correctional facility. See The Investigative Committee of the Russian Federation, Sept 15, 2016, At this point, however, we need to emphasize that there is still plenty that needs to be investigated -- we cannot yet confirm whether "Georgy" and "Gregory" are the same person, whether they are related, how they might be related to Shnaider's Mineral Resources, or whether they are the same people named in the articles just noted above about criminal prosecutions.


[57] See Schwyz canton corporate registry,, ""ME Moldova Enterprises AG," CH-

[58] See Zurich corporate registry,, "ME Moldova Enterprises AG," CH- (11/10/92-9/16/94).

[59] See "Seabeco Group Inc.," Panama Corporate Registry # 254192,, formed 12-6-1991.

[60] See "Seabeco Security Intl Inc." Panama Corporate Registry #254206, formed 12-10-1991,"

[61] Ibid, footnotes 58 and 59.


[63] See


[65] See

[66] A.K.A. "Tochtachunov." See FBI, Organizational Intelligence Unit (August 1998), "Semion Mogilevich Organization: Eurasian Organized Crime," available at, 1.

[67]According to the Panama Papers, as of December 2016, Lytton Ventures Inc., incorporated in 2006, was still an active company but its registration jurisdiction was listed as "unknown." See

[68] For Telesh’s company the director’s name is given as “Stanley Williams,” as compared with “Stanley Edward Williams” in Golubchik’s, but they have the same address. See Telesh’s company, Barlow Investing, was incorporated in 2004. In the PP database, as of December 2016 its status was “Transferred Out,” although its de-registration date and registration jurisdiction are unknown.

[69] Westix Ltd., registered in 2005, is still active, according to the Panama Papers. See

[70] In the Panama Papers, Telesh’s company and Golubchik’s reportedly have the same director, one Stanley Williams. Williams is also reportedly a director of Westix, which shares its address with two other offshore companies that use corporate names that Mogilevich has reportedly used at least twice each in the past. Arbat Capital, registered in 2003, was still active as of December 2016, as was Arigon Overseas, registered in 2007.

[71] See the diagram below.

[72]These three offshore companies are not in the Panama Papers data base. Firtash acknowledged these connections to Telesh but still told FT reporters that he didn’t know her. The three companies identified in the report are (1) Highrock Holdings, which Firtash and Telesh each reportedly owned 1/3rd of, and where Firtash served as director beginning in 2001; (2) Agatheas Holdings, where Firtash apparently replaced Telesh as director in 2003; and (3) Elmstad Trading, a Cyprus company owned by Firtash which in 2002 transferred the shares of a Russian company named Rinvey to Telesh and two other people: one of them Firtash’s lawyer and the other the wife of a reputed Mogilevich business partner. See also

[73] On Mogilevich, see, for example,

[74] See also FBI, Organizational Intelligence Unit (August 1998), "Semion Mogilevich Organization; Eurasian Organized Crime," available at


[76] See;

[77]David Cay Johnston, interview with the author, November 2016. Wayne Barrett, Trump: The Greatest Show on Earth: The Deals, the Downfall, the Reinvention (Regan Arts, 2016).

[78]Johnston, interview; see also [78] In another interesting coincidence, the President of YBM Magnex was also reportedly a financial director of Highrock in the late 1990s, before Manafort-client Dmytro Firtash joined the company as a director in 2001. See note 151.





January 7, 2017 at 11:37 PM | Permalink | Comments (0)

Friday, December 03, 2004

Matthew Maly

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_40558321_kiev203bodyafp Ukraine has just had perhaps its luckiest week in its history -- a week where everything went right, and the educational process was so intense, so logical, so marvelously cogent that the country went through a hundred years of political evolution. It is now, by right, a part of Europe, a part of the Western cultural tradition, a true democracy! This has been not merely a week in life of one country, but an entire page in the history of the world -- and, let us hope, global democracy!


It all started out rather unpromising with this fall's presidential elections. The alternatives were the usual: on one hand, Prime Minister Viktor Yanukovich, with a much smarter and more sinister person, Viktor Medvedchuk (and Kuchma’s son-in-law Viktor Pinchuk in tow), lurking behind; on the other hand, former Prime Minister Viktor Yushchenko, with a much smarter and more sinister person, Yulia Timoshenko, lurking behind.

_40480639_vik2 Both Yanukovich and Yushchenko were appointed by one and the same President Kuchma. Medvedchuk and Timoshenko had both proved that they know how to turn their government connection into enormous personal wealth. I could tell the difference between these two teams no better than I could tell Coke from Pepsi.

There was another divide: Ukraine speaks Ukrainian and Russian, it has Western and Eastern part, it can join NATO or ally itself with Russia. Yanukovich is from the Russian-speaking part of Ukraine, speaks bad Ukrainian, and so his campaign was getting its local currency by exchanging the rubles it had. Yanukovich’s campaign tone was thuggish, unmistakably betraying presence of Russian political consultants. Medvedchuk_putins_1

Yushchenko’s power base was in Western Ukraine, its tone was uncharacteristically sleek, it tended to mention democracy, and it was not hurting for dollars and euros.

Yanukovych_putins Since I wanted Ukrainian people to actually have a better life, I had no preference between the two. But I strongly felt that using a thuggish tone was a better electoral tactic as that was something the Ukrainians could relate to. My money was on Yanukovich, and I thought I was smart.


Then an amazing thing happened: people appeared to deeply resent Yanukovich talking down to them, while actually appreciating Yushchenko’s respectful and meaningful messages.

Yanukovich’s billboards, with wonderful, in a certain way, ultimate, slogans “Just because!” and “That’s the way it should be!” were everywhere, while Yushchenko’s slogan “Yes!” (with a horseshoe as a symbol of luck), were nowhere to be seen. In Ukraine, it is called “using the administrative resource”: after all, Yanukovich is a current Prime Minister while Yushchenko is just an opposition leader. Ukraine is a democracy, and everyone can sell advertising space to Yushchenko if they wish to have all their documents for the last five years audited by someone extremely unfriendly and their permits and licenses withdrawn. And of course there could not be any fair description of Yushchenko on any state-owned media.

_40565531_yushchenko_203 Then, right in the middle of the campaign, Yushchenko had a little problem: in one day, his entire face got covered with horrific acne-like inflammation, his nose swelled to twice its former size, so that he started to look like a Hollywood movie monster. Since nobody in the world has ever had such a disease, especially one that developed so quickly and in such an inopportune time, people suspected that Yanukovich may have poisoned Yushchenko, probably with dioxin.

There is no direct evidence that Yanukovich was involved. But if you look like a thug, talk like a thug, and behave like a thug, people tend to suspect that you are a thug. It does not help matters if you come from a mafia-controlled Donetsk region of Ukraine, have a long history of association with the murderous mafioso who controls the region, and having had two criminal convictions, did time in jail. In a word, Yanukovich got stereotyped.

Yushchenko got stereotyped as well: people assumed that since he had suffered horrible disfigurement for talking about the truth and democracy he must have really meant it. You have the stigmata – you must be Jesus Christ. And as a result, two things happened: Yushchenko became infallible; for Ukrainians, he became the focus of all their dreams and aspirations, and (pay close attention!) truth and democracy became important because Yushchenko was talking about them. As far as poisoning, believers duly noted that mortal poison did Yushchenko no lasting harm.

Let me say it again, since this is very important. Jesus was the guy who could perform a miracle here and there. People did not have, nor could they understand, the moral code that Jesus was proposing. But since Jesus could do miracles, people accepted his moral code as their own.

Same here. Make no mistake, truth and democracy meant nothing for Ukrainians. Ukrainian students cheated and waited for the time when they become businessmen so they could start stealing. Kiev’s Mercedes-riding bureaucrats were the very epitome of graft, and now they are walking after Yushchenko with the strange smile on their faces, inviting students who demonstrated in the cold to spend the night in their palaces: obviously, there was more to them than graft.

Ukrainians did not accept the theoretical notion that somewhere there could be a government that actually served the people, respected them, and told them the truth. It has all changed now in Ukraine, probably forever, just because Yushchenko said that it should.


Then there came the first round of voting on October 31. It is now clear that Yushchenko got more than 50% of the vote. But God had mercy on Ukraine and prevented Yushchenko’s win in the first round. God has firmly decided to make Ukraine free and democratic once and for all, and for that Ukraine needed to go through some suffering so as to earn its freedom. There was serious fraud in favor of Yanukovich, with the result that both Yushchenko and Yanukovich got about 39% each, with Yushchenko getting marginally more votes. The total is less than 100% because there were 22 other candidates.

Now, that was really something. Never in the post-Soviet space did the opposition presidential candidate get more votes than the candidate of power. In fact, many people thought that voting against Yanukovich was quite useless. Other people thought that voting for Yanukovich was quite useless, but Yanukovich did much to disabuse them of this notion. Regional officials of the regions where Yanukovich would not win, knew they would be immediately fired (and they were). So, a lot of little tricks were used. Voting in Ukraine is voluntary, and students who wanted to get a failing grade on their next exam could abstain from voting. For the rest, the procedure was as follows: a student would obtain a ballot, choose any candidate he or she wanted as long as it was Yanukovich, show the ballot to the person quietly standing by the ballot box, probably their Civics or Ethics professor, drop the ballot into the ballot box, and be assured of a passing grade on their next Chemistry examination. For the older generation, there was another trick. Fail to vote for Yanukovich, and see your heat and water turned right off.

And yet, even with all these tricks, Yanukovich only obtained 45% of the vote. It meant that his true level support could not have been greater than 30%. And yet, Yanukovich HAD to win the second round, had to get at least 20% more. Why could not Yanukovich lose? Because there is a lot of stolen property at stake, and when property is stolen, there is no receipt to prove ownership. That means that a new government could take the property away. Whatever you could say about the famous Khodorkovsky case, it is no longer advisable for the oligarchs to have property for which they have absolutely no legal title.

In the second round, there was even more fraud on behalf of Yanukovich. As this is now well documented, I will not go into that. People of Ukraine are no strangers to fraud, and they could have submitted to it easily, with barely a sigh. But now they had a lightning rod of Yushchenko, a highly moral person they imagined him to be. Regardless of who Yushchenko actually is, what matters is that people appointed him as a personification of all the best that is in them, a focal point of all their hopes. From now on, a stab at Yushchenko was a stab in their heart.

And that made Yushchenko much more than a President: he is now in the same league with Reagan, the Pope of Rome, and the Beatles. There is a Woodstock atmosphere in Kiev, and Yushchenko supporters, people of all ages, look like the happiest people in the world. They have clearly found themselves, their inner freedom, and their strength.


Let us again return to what happened here, as it is unprecedented. In the second round of voting on November 21, Yushchenko got about 70% of support, and if the elections were fair he would have by now be the President-elect. Would Ukraine be a real democracy now?

Absolutely not!!! Ukraine would have gotten Yushchenko as President, and would have calmly gone back to cheating, stealing, hiding from authorities, and suffering as it always has.

After all, Yushchenko already HAD BEEN a Prime Minister, and quite recently. And there was no enthusiasm, no support, no happiness, no tears of joy, and lousy economic results, worse than those demonstrated by Yanukovich.

If the elections were fair, it would have made no difference who won, Yushchenko or Yanukovich. Again. After all, Yanukovich is no worse than Ken Lay: just a tough, self-serving, and cynical kind of guy.

What happened? With great help from Yanukovich, and thanks to him, Yushchenko has lit the inner light in the souls of mortally insulted people, the light they did not know was there. Truth, democracy, justice, or heroism mean nothing unless they are sanctified. In one fell swoop, Yushchenko have sanctified them all, and faces of his followers have changed. What happened in Ukraine is that the truth and justice were lost and are now being defended as a newfound, cherished, and fundamental possession of every citizen.

If Yushchenko now represents God, his detractors are with the Devil. Some of them, to be sure, are hellish personalities, gangsters and murderers, such as the Head of the Donetsk Region or the Mayor of Odessa.


I am more interested in a momentary transformation. There is a woman I know who went on TV to defend Yanukovich. Her eyes looked dead, her hands were shaking, and she had made her worst hairdo. Across from her, there was a woman who defended Yushchenko, and that one grew ten years younger in four days, her back was straight and her eyes were shining. Was the debate about Yushchenko? Absolutely not.

Actually both of these women used to be equally skeptical about him. But inside one woman a tiny flickering light was now almost extinguished, while the other had the light of her soul burning as brightly as it could, just like the bright orange she wore. It was the debate about human dignity, with Yushchenko as a starting point.

Yushchenko is a tall man with a robust face of a peasant. Women here consider him attractive. But after the second round of elections, with his pockmarked and swollen face, he is universally seen as beautiful. This adoration brings a real danger of Yushchenko not being able to live up to it, but this is the case right now.

And let me just mention the designer revolution that happened here: people that used to choose between gray and gray were now proudly wearing bright orange, and 99% of them are doing so for the very first time in their lives.

Ukrainian TV these last four days is beyond description. First, there was Channel 5, a pro-Yushchenko private channel beamed straight to the Independence Square where most of the demonstrations took place. Channel 5 had a constant stream of interviews with intellectuals, artists, politicians, etc, all of them wearing something orange. Most of the times, the orange color looked attractive, stylish, appropriate for a successful, accomplished, strong-willed person that was being interviewed.

But I remember a man in his seventies, in the cheapest brown suit and a pitiful tie. Around his thin wrinkled neck, he was wearing an bright orange woolen scarf they gave him in the studio, and this scarf looked horribly out of place on this frail, poor, sickly creature. Very uncomfortable in front of the camera, the man said, “I am a retired army major, a World War II veteran. I wish to address myself to the soldiers. My sons! Soldiers! I am kneeling before you! Do not shoot at people, the people have made their choice! I want to say… Soldiers… When I was young…”

The old man was searching for words, panicking as he was being broadcasted live to a huge, country-wide audience. “Thank you very much!” said the anchorwoman in a bright and crisp professional voice, eager to end his suffering. The camera zoomed in for a goodbye. For the first time, the old man looked straight into the camera and said, “People just want to be free!” The orange scarf did not look out of place, and I could suddenly tell the guy really was a major. The guy was having his moment, even if a bit late in life.

And this is important. God did not create Man to chew cud for seventy years and then die: God created Man for one, two, or three defining moments, and the old man was having his.

But sometimes official channels were even better than the opposition TV. One report I saw informed the public that “special riot police is always ready to defend the Constitution” and the camera proceeded to get a close-up of fearsome black police dog.

Then I realized that President Kuchma, unwittingly, is a true father of his nation! Im522094136237

There are things in the world, such as trees, oceans, and countries, whose existence depends on all people. And then there are things, such as love, truth, dignity, inspiration, that exist only because of you. If you are not ready to give your all to defend your love and your truth they cease to exist. Again: truth is something that depends solely and exclusively on you; if you fail to defend it, it dies.

There simply is no way to transfer this responsibility on someone else’s shoulders. And from the bottom of my heart I thank God for the existence of President Kuchma, who showed guard dogs to thousands and thousands of Ukrainian students so that they would stand up, put away their Chemistry textbooks, attach their orange armbands and go to the Square.

For truth cannot be defined as a statement that corresponds to reality. Truth is what makes you unafraid of guard dogs. What happens on that Square is no rock concert, people are braving dogs and weapons – and hallelujah! a nation is reborn!

© Matthew Maly, SubmergingMarkets™, 2004


December 3, 2004 at 02:30 PM | Permalink | Comments (1) | TrackBack

Tuesday, November 23, 2004

Monday Nov. 22, 2004
Matthew Maly

(Note:  Matthew Maly is a courageous and astute Russian-American who is based in Kiev, and is a SubmergingMarkets Contributing Editor. He filed the following brief eyewitness report late Saturday night, as demonstrations in the city were mounting.  As journalists who are intimately familiar with so-called "democratic" countries that routinely subvert democratic elections and press freedoms, we wish to express our solidarity with the people of the Ukraine.)
_40554983_kiev_ap Matthewmaly
Kiev is a city of 4 million people. About a million of them today wore
Yushchenko's orange color, and that includes all students, and a fair number of grandmothers, yuppies, businessmen, etc. His opponent is a twice convicted Al Capone, for whom no more than 30% of Ukrainians voted.
There was tremendous electoral abuse. There is a Woodstock
atmosphere in the city which the people will never forget. Half a
million Kievites and "visitors" (some with good military skills)were on the main square today, screaming "Yushchenko" so that I heard it a mile away. _40480639_vik
Nothing like that has ever happened in the CIS, ever. It is not even similar to winning a Superbowl. Ukraine will never be the same, whatever happens, as the young people will never forget.

Tonight the people may storm the Presidential Administration, and there may be lots of blood. I tried to stop the bloodshed all day today by pushing a neat political trick I invented, a certain Open Letter I wrote. They listened, but they already were handing out the guns....

©Matthew Maly, SubmergingMarkets™, 2004


November 23, 2004 at 04:57 PM | Permalink | Comments (1) | TrackBack

Monday, June 14, 2004

The "Reagan Revolution," Part One:
Did He Really Win the Cold War?

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Former President Reagan’s $10 million taxpayer-funded bicoastal funeral extravaganza is finally over, so we may now be able to regain a little objectivity about the man’s true accomplishments. This really was an extraordinary Hollywood-scale production – one of Reagan’s best performances ever. Apparently the actor/President started planning it himself way back in 1981, shortly after he took office, at the age of 69. Evidently he never expected to live to be 94.

For over a week we have been inundated with neoconservative hagiography from adoring Reagan fans -- one is reminded of Chairman Leonid Brezhnev's funeral in 1982. Even the final event’s non-partisan appeal was slightly undercut by the fact that only die-hard conservatives like President George W. Bush, former President George H. W. Bush, Margaret Thatcher, and Canada’s Brian Mulroney were invited to give eulogies. But at least this saved Democrats the embarrassment of having to say nice things about their fiercest, most popular, and most regressive antagonist of the 20th Century.

Some Bush campaign staff members reportedly recommended shipping the casket home from DC to California by train. Cynics suggested that this was intended to prolong the event and further distract voters from Bush’s serious political difficulties.

Thankfully Nancy Reagan spared us this agonizing spectacle. She probably recognized that it would only invite unfavorable comparisons with FDR, whose family eschewed the state funeral in favor of the more humble train ride. Furthermore, AMTRAK no longer serves most of the towns along the way, due in part to service cutbacks that really got started under President Reagan.

There has already been quite a bit of dissent from the many one-sided tributes to Reagan. Most of it has focused on domestic policy -- especially Reagan's very mixed track record on civil rights and the HIV/AIDs epidemic, his strong anti-union bias, the huge deficits created by his “supply-side” legerdemain, his deep cutbacks in welfare and education spending, and his weak leadership on conservation, the environment, consumer protection, and energy policy. Reagan’s hard-right bias on domestic policy certainly was underscored by the almost complete absence of blacks and other minorities among the ranks of ordinary Americans who lined up to mourn his passing.
With respect to foreign policy, the “Iran-Contra” arms scandal and Reagan’s support for apartheid were recalled by some observers. But most of the attention was directed to Reagan's supposedly uniformly positive contributions to the demise of the Soviet Union and the end of the Cold War.

In this article, the first of two in this series, we'll examine Reagan's foreign policy contributions more closely. The analysis has important implications not only for our assessment of Reagan, but also the White House's current incumbent.


We can debate this alleged role endlessly. Of course, like John Kennedy (“Ich bin ein Berliner”), Reagan made one very forceful speech in Berlin (“Tear down this wall, Mr. Gorbachev.”) Especially during his first term, he also supported policies that tried to roll back the Soviet Empire’s frontiers in distant places like Afghanistan, Angola, Nicaragua, and Grenada. He also expanded the US defense budget, accelerated the deployment of theater-nuclear missiles in Europe that had already been started by President Carter, and financed the (largely-nonproductive) first round of the “Star Wars” anti-missile program. All these moves no doubt increased pressure on the Soviets, and probably encouraged them to negotiate and reform.

However, Reagan was hardly responsible for the fact that the “Soviet Empire” had been more or less successfully “contained” almost everywhere except Cuba, Vietnam, and Afghanistan from the 1950s to the 1980s, and that even these client states had become more of a burden to the USSR than a blessing.

Nor was he responsible for the fact that President Carter had initiated anti-Soviet aid to the Poles and the Afghan rebels in the late 1970s; deployed the first long-range cruise and Pershing II missiles in Europe in December 1979, partly in response to the Soviets’ deployment of SS-20 missiles in Eastern Europe; suspended Senate consideration of the SALT II Treaty in January 1980; and issued Presidential Directive 59 in August 1980, adopting a new, much more aggressive “countervailing force” strategy for nuclear war.

Nor did Reagan have much to do with the fact that a whole new generation of Soviet leaders, including Mikhail Gorbachev, took power in 1984-85, or the fact that these new leaders chose the “glasnost/ big bang” route to reform rather than the more gradual and successful one that has kept the Chinese Communist Party in power to this day. This was also a matter largely of the Soviets' own choosing.

Nor was Reagan responsible for the fact that Gorbachev, who actually sought to preserve a stronger, reformed version of the Soviet Union rather than disband it, proved to be much less adept at Russian politics than Boris Yeltsin.

Even if we acknowledge that Reagan’s policies contributed to ending the Cold War, therefore, the historical record is very far from giving him “but for” credit for this happy ending.

In fact, even if "Cold War liberals" like Jimmie Carter and Fritz Mondale had presided over the US throughout the 1980s, the odds are that the very same key systemic and generational factors that helped to produce fundamental change in the Soviet system would have still applied – with very similar outcomes.


In the literature on the economics of investment, it is well established that (at least in equilibrium, with competitive markets) there are no increased rewards without increased risk. When it comes to evaluating historical leaders, however, apparently this basic principle is often overlooked.

Reagan’s confrontational approach to the “Evil Empire” clearly was very distinctive. But this was hardly an unmixed blessing. Indeed, we now know that he took incredible risks in the early 1980s, and, as discussed below, that we are all extraordinarily lucky to have survived this period intact.

Furthermore, we are all still living with serious systemic risks that are a direct byproduct of Reagan’s high-risk strategies—even apart from the long-term legacy of his Afghan “freedom fighters” and latter-day terrorists.


For example, only in the mid-1990s, after the USSR’s collapse, did we learn that the Soviet Politburo and top Soviet military planners really had become convinced in the early 1980s that Reagan had adopted a new pro-nuclear war-fighting strategy, changing from “mutually assured destruction” to the pursuit of an all-out victory.

Soviet leaders came to this conclusion partly because of several key developments in military technology and strategy.

  • By the early 1980s the US had acquired a growing advantage in submarine-based nuclear weapons (D-5 Trident missiles, with greater accuracy and short flight times) and anti-submarine warfare techniques, as well as space-based communications, surveillance, and hunter-killer satellite capabilities.
  • As noted, Carter and Reagan both started to deploy cruise and Pershing II missiles in Europe and on submarines. These were just 4-6 minutes from the Soviets’ command-and-control centers and many of their ICBM silos, which they counted on for up to two-thirds of their deterrent capability.
  • In the early 1980s the US also took several steps that were apparently intended to increase its chances of surviving a nuclear war. These not only included “Star Wars,” but also hardened telecommunications, new command-and-control systems and some “civil defense” measures, and revised policies for “continuity in government.”

On top of these structural changes, the Reagan Adminstration’s aggressive rhetoric and behavior also contributed to this new Soviet view of US intentions.

In early 1981, for example, Reagan ordered the military to mount a still-highly-classified series of “psyops” that probed USSR airspace and naval boundaries with US and NATO jet fighters and bombers, submarines, and surface ships. The US and NATO also conducted several large-scale exercises in 1982-84. The US also sharply increased its assistance to “freedom fighters” like the Nicaraguan contras, the Afghan rebels, and Jonas Savimbi’s bloodthirsty South-Africa-assisted renegades in Angola.

As we now know, all this belligerent US activity scared the living daylights out of old-line Soviet leaders like Yury Andropov. It reminded them of Hitler’s sudden blitzkrieg attack on the Soviet Union in 1941, a searing experience for which Stalin had been surprisingly unprepared. They came to believe that the US was actually planning the nuclear equivalent of this blitzkrieg -- a first strike that would decapitate Soviet command-and-control while minimizing the effects of retaliation on the US. Of course Europe would be probably destroyed in such a confrontation. But the Soviets assumed, perhaps correctly, that the US saw “Old Europe” as dispensable.

In response to this perceived US threat, the Soviets did not roll over and play dead. Rather, drawing on their 1941 experience, their first response was to assume the worst and try to prepare for it.

  • From May 1981 on, they ordered a worldwide intelligence alert, code-named “RYAN”, aimed at keeping the Politburo informed on a daily basis of US preparations for a first strike.
  • The Soviets shifted their nuclear posture decisively to “launch-on-warning.” For the first time they also provided the Politburo with the ability to sidestep the Soviet General Staff and launch all strategic missiles with a central command. To support this shift, they also deployed new ground-based radar and space-based early-warning systems.
  • Most striking of all, in the early 1980s the Soviets also implemented a full-scale nuclear “doomsday” system, code-named “Perimeter.” This system, first tested in November 1984, placed the power to unleash a devastating retaliatory strike against the US essentially on autopilot, whenever the system “sensed” that a nuclear strike against Moscow had either occurred, or was about to occur.

Together, all these shifts in Soviet defensive strategy cut the decision time available to their leaders, when deciding how to respond to a perceived US/ NATO attack, to as little as 3-4 minutes.

As Gorbachev later remarked,

“Never, perhaps, in the postwar decades was the situation in the world as explosive and hence, more difficult and unfavorable, as in the first half of the 1980s.”


To our great distress, despite the mutual de-targeting that was announced with so much fanfare by Presidents Clinton and Yeltsin in 1994, both these Cold War “hair trigger” responses to Reagan’s initiatives are still in place today, responsible for controlling at least the 5000+ strategic nuclear warheads that Russia still maintains.

Lt. Colonel Petrov had been forced to make a profound decision about world civilization in a matter of minutes, with alarms and red lights going off all around him.

These systems have already experienced several close calls. Among the incidents that we know about were those in September 1983, August 1984, and January 1995. In this last incident, President Yeltsin -- who was not always a picture of mental health and stability -- came within minutes of unleashing a full-scale nuclear retaliation in response to a false alarm set off by a Norwegian research missile that was sent aloft to study the Northern Lights. Apparently it bore a striking resemblance to an incoming Trident missile on Soviet radar until it crashed harmlessly in the sea.
The September 1983 incident, at the height of Soviet tensions with the Reagan Administration, and just a few months after the huge anti-Soviet NATO exercise “Able Archer” in Western Europe, was even more scary. In 2000, Lt. Colonel Stanislov Petrov, the duty officer who had been in charge of an early-warning bunker south of Moscow at the time, told Western journalists what happened when the new early-warning computers at his facility suddenly reported a full-scale US attack:

"I felt as if I'd been punched in my nervous system. There was a huge map of the States with a US base lit up, showing that the missiles had been launched. I didn't want to make a mistake…..I made a decision and that was it. In principle, a nuclear war could have broken out. The whole world could have been destroyed. After it was over, I drank half a liter of vodka as if it were only a glass and slept for 28 hours."

Ultimately it turned out that the new Soviet early-warning system had malfunctioned. Lt. Colonel Petrov had been forced to make a profound decision about world civilization in a matter of minutes, with alarms and red lights going off all around him.

Fortunately for all of us, he decided to not to believe his own computers.

Unfortunately for all of us, a modified version of that same hair-trigger early warning system is still in place in both Russia and the US to this day, since neither side has ever reverted to the pre-Reagan “MAD” strategy -- and Lt. Colonel Petrov has long since retired to a humble Moscow flat.


From this vantage point, President Reagan’s long-term legacy is a little more difficult to evaluate, even with respect to his impact on the Cold War.

  • Clearly he had a great deal of help from others, as well as from sheer fortuity.
  • We are still living with the heightened risks in the world system that were partly created by the aggressive nuclear strategy adopted by President Reagan, and to some extent by President Carter before him. If Russia’s early warning systems and doomsday systems – both of which are now reportedly starved for maintenance funds -- should ever fail, history may not be so kind to Ronald Reagan, assuming that there is anyone left to write it.
  • Much of Reagan’s vaunted “strength” was really based on a blithe combination of sheer ignorance, blind faith, and risk taking. Compared with President Nixon (who, like FDR, also eschewed a state funeral), Reagan knew almost nothing about world affairs other than what he read in The Readers Digest and (perhaps) The National Review.
  • On the other hand, compared with the insecure Nixon, who was constantly seeking reassurance from his advisors, Reagan certainly did have much more faith in his own convictions. With respect to the Soviet Union’s nuclear strategy, like a determined child, he may have never fully appreciated the fact that he was playing with…well, er.., much more than dynamite.

After the fact, of course, like any high-stakes gambler who bets it all on “black,” spins the wheel, and wins, Reagan looks like a hero, at least to many Americans.

However, whether or not ordinary citizens of the world should look back on this track record and cheer, much less encourage our present and future leaders to adopt similar blind-faith strategies, is very doubtful.

Indeed, today, most of the rest of the world seems to regard President Reagan -- rather more accurately than many Americans -- as the friendly, fearless, perhaps well-meaning, but really quite reckless “cowboy” that he truly was.


(c) James S. Henry,, 2003. Not for reproduction or other use without express consent from the author. All rights reserved.

June 14, 2004 at 03:00 AM | Permalink | Comments (1) | TrackBack

Sunday, June 06, 2004

The Forgotten Members of the "Greatest Generation"

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This weekend President Bush was in Europe, celebrating the 60th anniversary of D-Day. He was joined by thousands of American, British, Canadian, and French veterans of World War II, members of the so-called “Greatest Generation,” as well as the Queen, the UK’s Tony Blair, France’s Jacque Chirac, Russia’s Vladimir Putin, and Germany’s Gerhard Schroeder, all of whom converged on Normandy for commemoration ceremonies. As Schroeder duly noted, the fact that all the leaders of these former allies and enemies could finally come together to celebrate D-Day for the first time means that “the post-war period is finally over.”

Many other US leaders, from Donald Rumsfeld and Dick Cheney to John McCain and John Kerry, have also recently tried to associate themselves with the valor and sacrifices of American veterans in our increasingly long list of foreign wars. Their tributes have been similar, whether the veterans in question fought in wars that were short or long, one-sided or evenly matched, just or unjust -- and whether or not the politicians in question have ever spent even a single minute on an actual battlefield.
This year, such martial rhetoric is flying thicker than usual because of the coincidence of several events. In late April, the long-awaited $190 million memorial to America’s World War II veterans was finally unveiled in Washington DC. Its architectural reviews have been decidedly mixed, especially by comparison with the beautifully-understated Vietnam War memorial. But this certainly is a long-overdue tribute to the 16.4 million Americans who served in that objectively “good” war and the 405,000 who lost their lives in it.

We are also in the middle of an unusual US Presidential election race, which is proceeding while the country fights two wars at once – the war in Iraq and the less visible, potentially much more dangerous “war on terror.” Both key Presidential candidates are vying hard to be viewed as stalwart defenders of national security and close friends of the veterans community.

Indeed, the whole period from Memorial Day to July 4th has become a high season for veteran commemorations and martial romanticism. Those who happen to part of the majority of Americans who are neither veterans nor members of the “Greatest Generation” may feel a bit uncomfortable – sort of like non-Christians at Christmas.

I don’t happen to share this discomfort. To begin with, my family has done more than its share of fighting for the nation since it arrived in Virginia in the 1620s. We’ve volunteered for almost every single “good” American war in history, from the Revolutionary War and the War of 1812 to the Civil War, World War I, World War II, and the Korea War. As for the “Greatest Generation,” we also supplied several authentic members, including my father, a World War II veteran who served four years with the Navy in the South Pacific, and my uncle, one of General Patton’s tank commanders who helped to liberate the Buchenwald concentration camp.

It is also not the fault of subsequent generations that almost all the wars that the US has chosen to fight since the Korean War in the early 1950s have been one-sided affairs, undertaken against more or less defenseless Third World countries like Vietnam, Cuba, Nicaragua, Granada, Panama, Afghanistan, and Iraq. Except for Afghanistan, where the Taliban allowed al-Qaeda to build training camps, none of these countries ever attacked us or our allies, posed a serious direct threat to our national security, or even had air forces or navies, much less nuclear weapons.

These wars were basically neo-imperialist adventures in gunboat diplomacy. Not surprisingly, most of them proved to be vastly more lethal to the hapless natives than to US troops. For example, while the US lost 58,226 killed and 2300 missing in Vietnam, the Vietnamese lost an estimated 1 million combatants killed, 4 million killed and 200,000 missing in action, most of them to our relentless bombing campaigns.
Furthermore, while those American veterans who have served in genuinely defensive wars certainly deserve to be honored, our political leaders do no service by oversimplifying their contributions. As the history of Germany indicates, excessive militarism and the idealization of martial values like “honor, duty, and blind obedience to one’s superiors” may help to encourage still more aggressive wars, which creates more veterans, which creates more glorification, which encourages still more wars…..

So, in the interests of reversing this venomous cycle, we offer the following critique of “Greatest Generation” mythology -- and also pay homage to other members of the Greatest Generation whose contributions have largely been forgotten.


The conventional image that most Americans seem to have of the US role in World War II is that we – or, at most, the US and the UK – basically won the war.

In this view, fed by sixty years of Hollywood films, poltical rhetoric, jingoistic reportage in the mass media, and bad history courses, the vast majority of the “Greatest Generation” supposedly volunteered courageously to fight against the Axis Powers. The US military supposedly played a decisive role in defeating not only Japan but also Nazi Germany and Italy, and the Normandy invasion was supposedly critical to the German defeat.

Unfortunately, it was not quite that simple.

>Draftee Predominance. To begin with, of the 16.4 million US veterans who served in World War II, only about a third were volunteers. The rest were drafted. Even in this “best of all possible wars,” therefore, where the lines between good and evil could not possibly have been any clearer, compulsion, not volunteerism, was the main motor force. In fact, volunteerism was even less in evidence during World War II than it was during the Vietnam War. Just a quarter of the 2.6 million Americans who served in the Vietnam War from 1965 to 1973 were draftees – notwithstanding the role that the draft played in stimulating opposition to that war.

>Casualties. On D-Day, June 6, 1944, the US suffered a grand total of 6603 casualties, including about 2000 killed in action or missing. Our other non-Soviet Allies added another 3646 casualties. All told, that first day, there were about 3000 killedamong all the Allies. For the entire Battle of Normandy, the US suffered 126,847 casualties, including about 30,000 killed, and the UK and other non-Soviet allies added 83,045 casualties.
For World War II as a whole, as noted, the US suffered 405,000 American deaths. About 290,000 of these were due to combat, the rest to accidents and disease.

These were impressive losses by comparison with other American wars. Only the Civil War recorded a larger number of total fatalities, but those included a huge number who died from disease. World War II's combat fatalities was the largest for any US war.

Despite these records, the fact is that all these US and non-Soviet Allied casualty statistics pale by comparison with those suffered by our key Ally on the Eastern Front, the Soviet Union.
All told, the USSR lost 8.7 million to 11 million troops killed in combat against Germany, Italy, Rumania, and the other Axis coalition members from 1941 to 1945. This included 500,000 troops killed at the Battle of Stalingrad alone from September 1942 – January 1943. There were also 440,000 Soviet troops killed at the Siege of Leningrad from 1941 to 1944, 250,000 at the decisive Battle of Kursk in June 1943, and 450,000 on the march to Berlin in 1945.

In addition, there were also another 12-18 million civilian casualties in the Soviet Union during World War II, compared with the 60,000 civilian casualties that the British lost to Germany air raids, and negligible US civilian casualties.

>Strategic Role – Germany. Most important, far from playing a decisive role in defeating Hitler, the fact is that the D-Day invasion came so late in the war that even if it had been turned back by Hitler, the chances are that this would have only delayed the Soviet advances into Berlin by six months to a year at most, without fundamentally affecting the outcome of the war.

The Soviets had been lobbying hard for a D-Day invasion from 1942 on, but were resisted by Churchill, in particular, who favored a "southern" strategy through Italy and the Balkans -- and had been a lifelong hardline anti-Communist.
During the 1944 Normandy invasion and the Battle of France, the key battles involved, at most, about 15 Allied and 15 Germany divisions.

On the Eastern Front, by comparison, from 1941-44 more than 400 Germany and Soviet divisions battled each other along a 1000-mile front, and the Soviets succeeded in destroying more than 600 Germany divisions. (Overy, Why the Allies Won, 321).

Even as the Normandy Invasion was proceeding, the much larger Soviet Army was driving towards Berlin, destroying Germany’s main army group and costing the Axis powers nearly 4 million casualties.

Without this Soviet effort on the Eastern Front, therefore, the Normandy invasion could not have succeeded, and Hitler would probably have prevailed. Combined with the successful invasion of Normandy, by the time it came, the main effect was to shorten the war a bit in Europe.

Nor did the “Lend-Lease” aid provided to the Soviet Union by the US and the UK during the war prove decisive. Much more important was the fact that Soviet industry, relocated to the east, was able to out-produce Germany several times over in aircraft, tanks, and artillery pieces throughout the war.

Despite all this, the commemoration speeches given this weekend by Western leaders failed to even mention the Soviet contribution to the war effort. .

>Strategic Performance – Japan. As for the war with Japan, it has long been recognized by military historians that it was distinctly less important than the war with Germany. Without the victory over Germany, the victory over Japan would have been impossible; with it, given Japan’s relative weakness, V-J Day was basically just a matter of time. Consistent with this, the war with Japan only consumed about 15 percent of the total US war effort.

After Germany’s demise in April 1945, the US, with some belated help from the Soviet Union, turned its attention to Japan, and quickly swept it out of China and the Pacific. By August 1945, when the US dropped its two atomic bombs, the Japanese were already on the verge of surrender. As Gar Alperowitz, the leading historian of Truman’s decision to drop the bomb, has argued, that decision was largely undertaken to impress Stalin, not because of military necessity or to save American lives.


All this is not to say that American World War II veterans do not richly deserve the honors that have been bestowed on them. Millions of them fought valiantly, at D-Day and elsewhere.

However, especially in these times, when the US has given in to the temptation to launch an unprovoked war largely alone on its own, it is important to remember how much assistance the US needed from allies in its most important victory ever -- and how it achieved its best results when it was fighting a clearly justified defensive war.

This viewpoint offers a helpful perspective on several other popular myths about World War II. These include (1) the myth that British intelligence breakthroughs like “Ultra” – a program that broke German encryption codes -- were critical to the war’s outcome; (2) the myth that US economic capacity provided the decisive edge; and (3) the myth that the atomic bomb had to be used to force Japan’s surrender.

This analysis also provides an interesting perspective on the many critics who have deplored the “tragedy” of the Russian Revolution and the brutality of Stalin’s forced industrialization campaign during the 1930s.

The unpleasant reality is that Tsarist Russia had barely held its own against Germany during World War I. It t is very unlikely that a Tsarist regime or even a Kerensky-style liberal capitalist regime could have achieved anything like the rapid industrial development that Stalin accomplished during the 1920s and 1930s. however, in restrospect, there is little question that Stalin's crash industrialization program permitted the Soviet Union to acquire the industrial base that proved to be essential for the defeat of Nazi Germany.

So it is all very well for First World liberal democracies like the US and the UK to look down their long noses at Russia's developmental misfortunes. But perhaps we in the West should at least acknowledge our debt to the Russian Revolution, Stalin’s brutal industrialization program, his millions of victims, and especially the long-suffering Russian people. If they accomplished nothing else, at least they saved our liberal democracies from fascism. This is hardly an apology for Stalin. But if anyone deserves to be called “the Greatest Generation,” it was the generation of Russians that had to face down both Stalin and Hitler during the 1930s and 1940s.

This does not imply that the Normandy invasion was worthless. What it really may have accomplished was not so much the defeat of Hitler, per se, but a more balanced post-war political division of Europe. With the Soviet Army in control of Germany and perhaps even much of France and Italy after World War II, the post-war history of Europe might have been very different. In that sense, the value of D-Day was less a matter of defeating Hitler than of affecting the division of Europe with Stalin.


In retrospect, there is one group of American veterans that unquestionably deserves to be included in the “greatest generation” -- although it is never mentioned in veteran tributes, and none of its members have ever qualified for US veteran benefits.

This is the all-volunteer group of 2800 Americans that journeyed to Spain at their own risk and expense in 1936-39 to serve as members of the Abraham Lincoln Battalion in the Spanish Civil War.

A ragtag army, mainly consisting of leftists, union members, and many American Jews, they joined forces with some 56,000 other international volunteers from more than 50 countries, and fought against overwhelming odds to defend the Spain’s democratically-elected Republic against General Franco’s army, which was openly supported by Hitler’s Germany and Mussolini’s Italy.
Most of these volunteers were amateur fighters, without any military training. The arms embargo that was enforced by the future Allies -- the UK, France, and the US -- against the Spanish Republic – but not Germany or Italy – prevented the Lincolns and their comrades from having adequate arms and munitions. As a result, combat fatalities were very high. More than a third of the Lincolns died in battle, even higher than the 20-30 percent fatality rates recorded by US troops on D-Day.

Meanwhile, the US, the UK, France, and most other European countries (except the USSR), heavily influenced by conservative business elements and the Catholic Church, concocted the “non-intervention pact” that prevented arms and other aid from reaching the Spanish Republic. These Western countries also stood by and watched while Germany, Italy, and their allies aided Franco, seized Ethiopia, butchered China, and occupied Czechoslovakia. Throughout the 1930s, major US firms like GM, Texaco, Exxon, DuPont, Alcoa, and IBM, as well as Wall Street firms like JPMorgan, Brown Brothers Harriman, and Citibank, also continued to trade and invest, not only with Franco, but also with Hitler’s Germany and Mussolini’s Italy.

In the aftermath of the civil war, the Lincoln Battlion members continued to prove their heroism and commitment. After Franco won the civil war in 1939 and the Lincolns returned to the US, they were labeled as “premature anti-fascists” by the US government, prevented from holding government jobs or joining the military. To continue to fight the fascists, they had to enlist in foreign military services. In the 1950s, during the McCarthy era, many were blacklisted and otherwise persecuted. Despite such pressures, they continued to play a leading role in progressive causes throughout the last fifty years, right down to leading recent protests against the invasion of Iraq.
Ultimately, in the late 1970s, Franco’s dictatorship – which was supported by the US Government after World War II for nearly twenty years – gave way to the return of democracy in Spain.

Finally, in 1996, as a tribute to the Lincolns’ sacrifices, the “Second Spanish Republic” celebrated the 60th anniversary of the Spanish Civil War by welcoming those American veterans who had managed to survive to a commemoration ceremony in Madrid -- a modest version of this weekend's ceremonies at Normandy. Spain, at least, recognized that these American veterans had been the forgotten members of the Greatest Generation, whose courageous efforts were never properly honored by their own country.

American veterans like my father and uncle certainly displayed extraordinary courage, sacrifice, and heroism during World War II. But, as they would have been the first to admit, in some ways they actually had a relatively easy time of it. This was not only because they had a great deal of help from allies like the Russians, the British, and the Chinese (against Japan). It was also because, as noted earlier, their war was perhaps the most clear-cut struggle ever fought between good and evil.

The veterans of all too many other American wars have had to face the fact that their wars were much less virtuous. Bearing that kind of understanding honestly certainly requires a special kind of courage and sacrifice. Perhaps that is why there is so much enthusiasm for the World War II festivities -- perhaps there is a hope that some of that war's glory will rub off on these other efforts. Those of us who have an opportunity to prevent our overly-adventurous leaders from launching such misconceived efforts, or to bring them to a halt as soon as possible, have every obligation to do so.

Finally, as we saw in the case of the Lincoln Battalion, still other American veterans have sometimes had to defy their own country’s policies of the day in order to fight for justice, and then pay a very heavy price for being “prematurely” right.

This year, as we honor those who helped to defeat global fascism, we should also honor those who were among the very first to take up arms against it.


(c) James S. Henry,, 2003. Not for reproduction or other use without express consent from the author. All rights reserved.

June 6, 2004 at 09:47 PM | Permalink | Comments (0) | TrackBack

Wednesday, June 02, 2004

"Letters from the New World" (Ukraine):
#1.""Schwartzennation" - Microwave Democracy"

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About Matthew Maly



(Editor's Note: The following is the first in a series of essays by Matthew Maly, a leading Russian-born American free-lance journalist and business consultant who is based in Kiev, Ukraine. He is the latest addition to Submerging Markets' growing list of Contributing Editors. In this essay, Matthew provides an interesting non-US perspective on the limits of America's technocratic approach to exerting influence on other countries around the world. Matthew's latest book is the highly-acclaimed How to Make Russia a Normal Country. (St Petersburg: Bulanin, 2002). An English language version, Russia As It Is: Transformation of a Lose-Lose Society, is available in the US from Booklocker.Com.)


From where I sit, here in Kiev, it seems that the United States of America has become a nation of super-people. At the cost of a very few lives it has defeated an army of hundreds of thousands in Iraq, and occupied a country of 25 million. Like the Spanish conquistadors facing the Incas, America appears to be an era ahead of the rest of the world. And just like the Incas facing the conquistadors, the world is ambiguous towards America, fascinated yet fearful, trying democracy and Wrigley's Spearmint Gum for the first time.

If an American soldier dies in Iraq, every inhabitant of our planet learns about his death almost instantly: a giant falls with a thud. When a crowd of Iraqis carried the helmet of a dead American soldier it seemed like it took fifty of them to carry it. Yet like every giant from a fairy tale, the American giant has a vulnerability that may prove its undoing.

Historical eras are often distinguished from one another by technology, both industrial (how things are made) and social (how people interact). A key secret of America's economic and political advantages lies in its use of pioneering social technology, especially the concept of “win/win.”

There are countries where for every ten people who enable there are eight, ten, or twenty of those who destroy or impede. Per capita productivity in Russia is one tenth that of the US. Does this mean that a Russian can’t lift a five-pound sack of potatoes? No, it means that if a Russian wants to open a hot dog stand, a bandit and a tax collector immediately visit him. In America, one of your neighbors works to feed you and another to educate you. In Iraq, one neighbor spies on you and another teaches you hatred instead of arithmetic.

It is “win/win” social cooperation, supported by social values and a legal system that Americans often take for granted that opens the way for the introduction of new technology, not the reverse: industrial technology can be used only if your neighbors realize that your personal success will in turn help them advance their goals. America has long since accepted the basic premises of “win/win,” and this is what helps to make the American soldier grow a hundred feet tall.

But technology is a human attribute, not the essence of what a human being is all about. Technology, both social and scientific, has helped to make America successful, but America is in danger of neglecting human character, proposing solutions that are purely technical, and thus may well be inadequate.

This danger is nothing new. Paganism was a fascination with the technologies of nature: to be strong, people wore wolf's teeth or feather head-dresses. The Industrial Age worshiped the Machine Tool, a new God that produced everything, and people wanted to be like the Machine Tool's products: unanimous, marching in step, and wearing steel helmets. The Information Age proclaims: you are what you appear to be; ultimately it is all “bits and bytes.” If the celluloid Terminator can save the world, it follows that a human Arnold Schwarzenegger can save California. But is it really just a matter of technique and force?
If we compare a McDonald's to a French restaurant, we are likely to conclude that the McDonald's is cheaper, cleaner, faster, and friendlier. It is a triumph of technology, research, and training. The French restaurant has only two things going for it: you will not remember a McDonald's meal for the rest of your life, and you cannot propose at McDonald's. McDonald's stands for a satisfying technologically-assured result, but the French restaurant stands for life, whatever it is. McDonald's has a very useful role to play, but when it proposes itself as a substitute for a sit-down meal, there is a problem.

Too often, America says to the world, "Accept our technology because it is really works." And indeed it does usually “work”, but the world does not want to accept it - it prefers to keep its old ways of life. People want to be, not just to appear. America wants the world to wear a mask of "nice" and “new,” but the world wants to keep its tastes and traditions, its blemishes, its uncertainties, and even its vices. It is not that the world wants to remain "bad": the world simply resists the notion that every problem has a technological solution. The world may not be ready for such “solutions,” or it may believe that there are problems that await spiritual rather than technological solutions. The technocratic side of America seems to be saying, "If your marriage is unhappy it could only mean that your marriage contract was not elaborate enough," but the world sees this as technocratic madness, the worship of a new false pagan god, even in the midst of America’s purported “spiritual revival.”

Of course democracy can be a reasonable goal, be it for Canadians or for Afghans or Iraqis. But when democracy is presented as a ready-made technological solution – three minutes in the microwave, with a pickle and a smile - then people will refuse to swallow this prepackaged sandwich. The world wants to slaughter the lamb, skin it, and eat it with their hands.

The world resists American idea that politics (and art) are no longer about people, but about the application of various technologies – a democratic system of government being one of them. The Terminator saves the world not because he has the largest heart, but because, at the right moment, his guns make the greatest holes. The world sees this exclusion of people, with their hot beating hearts and their imperfect histories, as a serious threat.

India invented quiet contemplation and has congested, noisy streets; Britain invented good manners and reads the stolen letters of royalty; Russia stood for the soul elevated by beautiful literature, and so Russian prostitutes are the best-read in the world. The world abandons its values, and American culture pours in and rules. But the world understands that the American version of good is not good, and the stronger America becomes, the more it tries to impose its will, the more it will be resisted.

America should be extending its "win/win" spirit, which has been so successful at home, to its (belated) efforts to spread democracy abroad. It should not be turning itself into a fearsome giant that pretends that technology has made love, identity, and history obsolete. Just like in every fairy tale, at the end a single human child will defeat it.

© Matthew Maly, SubmergingMarkets™, 2004

June 2, 2004 at 07:30 PM | Permalink | Comments (0) | TrackBack