Since being named president of Harvard University in 2001,
former U.S. Treasury secretary Lawrence Summers has sparked a
series of controversies that have grabbed headlines. Summers
incurred the wrath of African-Americans when he belittled the
work of controversial religion professor Cornel West (who left
for Princeton University); last year he infuriated faculty and
students alike when he seemed to disparage the innate
scientific abilities of women at a Massachusetts economic
conference, igniting a national uproar that nearly cost him his
job; last fall brought the departure of Jack Meyer, the head of
Harvard Management Co., which oversees the school's endowment
but had inflamed some in the community because of the
multimillion-dollar salaries it pays some of its managers.
Then, in quiet contrast, there is the case of economics
professor Andrei Shleifer, who in the mid-1990s led a Harvard
advisory program in Russia that collapsed in disgrace. In
August, after years of litigation, Harvard, Shleifer and others
agreed to pay at least $31 million to settle a lawsuit brought
by the U.S. government. Harvard had been charged with breach of
contract, Shleifer and an associate, Jonathan Hay, with
conspiracy to defraud the U.S. government.
Shleifer remains a faculty member in good standing.
Colleagues say that is because he is a close longtime friend
and collaborator of Summers.
In the following pages investigative journalist David
McClintick, a Harvard alumnus, chronicles Shleifer's role in
the university's Russia Project and how his friendship with
Summers has protected him from the consequences of that debacle
inside America's premier academic institution.
ff duty and in swimsuits, the mentor and his
protégé strolled the beach at Truro. For years,
with their families, they had summered together along this
stretch of Massachusetts' famed Cape Cod. Close personally and
professionally, the two friends confided in each other the most
private matters of family and finance. The topic of the day was
the former Soviet Union.
"You've got to be careful," the mentor, Lawrence Summers,
warned his protégé, Andrei Shleifer. "There's a
lot of corruption in Russia."
It was late August 1996, and Summers, 42, was deputy
secretary of the U.S. Treasury. Shleifer, 35, was a rising star
in the Harvard University economics department, just as Summers
had been 15 years earlier when he had first taken Shleifer
under his wing.
Summers' warning rose out of their pivotal roles in a
revolution of global consequence -- the attempt to bring the
Russian economy out from the ruins of communism into the
promise of Western-style capitalism. Summers, as Treasury's
second-in-command, was the architect of U.S. efforts to help
Russia. Shleifer's involvement was more intimate. Traveling
frequently to Moscow, he was directing key elements of the
reform effort under the banner of the renowned Harvard
Institute for International Development.
Working on contract for the U.S., HIID advised the Russian
government on privatizing its economy and creating capital
markets and the laws and institutions to regulate them.
Shleifer did not report formally to Summers but rather to the
State Department's Agency for International Development, or
AID, the spearhead of the U.S.'s foreign aid program.
Personal affection as much as official concern prompted
Summers' admonition. He had come to know that Shleifer and his
wife, Nancy Zimmerman, a noted hedge fund manager, had been
investing in Russia. Though he didn't know specifics, he
understood just enough to worry that the couple might run afoul
of myriad conflict-of-interest regulations that barred American
advisers from investing in the countries they were
Summers did not restrict his warnings to Shleifer.
"There might be a scandal, and you could become embroiled,"
Summers told Zimmerman. "You should make sure you're clear with
everybody. People might want to make Andrei a problem some day.
The world's a shitty place."
Summers' warnings proved at once prophetic and ineffectual.
Even as Shleifer and his wife strove to reassure their friend,
they were maneuvering to make an investment in Russia's first
authorized mutual fund company. Within eight months their
private Russian dealings, together with those of close
associates and relatives, would explode in scandal -- bringing
dishonor to them, Harvard University and the U.S. government.
The Department of Justice would deploy the Federal Bureau of
Investigation and the U.S. Attorney's Office in Boston to
launch a criminal investigation that would uncover evidence of
fraud and money laundering, as well as the cavalier use of U.S.
government funds to support everything from tennis lessons to
vacation boondoggles for Harvard employees and their spouses,
girlfriends and Russian pals. It would, in the end, be an
extraordinary display of an overweening "best and brightest"
arrogance toward the laws and rules that the Harvard people
were supposed to live by.