The following article is part 4 in a six-part series on Russia's transition from communism to capitalism during the 1990s. Links to previous posts: introduction, part 1, part 2, part 3. It is an excerpt from Chapter 3 of my book, Grand Deception: the Truth About Bill Browder, the Magnitsky Act, and Anti-Russia Sanctions. The book's previous incarnation was banned last summer by some of the same actors we'll be discussing today. This post should prove relevant today, in light of hysterical rebukes of President Trump's recent summit with his Russian counter part in Finland, particularly regarding the role and trustworthiness of the so-called "intelligence community."
yeltsin gorbachev
Boris Yeltsin and Mikhail Gorbachev
Now, why does the west applaud Gorbachev and Yeltsin? Do you think that the West wants Soviet people to live in luxury, be well fed? Not remotely! The West wants the Soviet Union to break up. Gorbachev and Yeltsin get a pat on the back because the West thinks they are destroying the country. - Alexander Zinoviev, March 1990 on French TV channel Antenne 2 during a debate with Boris Yeltsin
Western commentators usually focus on the period from 1991 to 2000 and blame the administration of Bill Clinton for mismanaging their aid to Russia. However, blaming the Clinton administration is a bit like reading a book from the middle rather than from the beginning. To understand the U.S. government's role in the Russian tragedy, we have to go at least ten years back, to the beginnings of the administration of President Ronald Reagan. We must also distinguish between the legitimate U.S. government, and an illegal, parallel structure of power operating within it. For a long time, this "secret government" could not be discussed in polite society because its existence was deemed a wild conspiracy theory.

But that all changed in the fall of 1986 when an American supply plane got shot down over Nicaragua and Reagan's illegal arm sales to Iran became exposed. These events brought to light the "Iran-Contra" affair. A full congressional investigation was launched and its proceedings revealed the existence of a parallel power structure operating unlawfully within legitimate government structure. For the first time, the actions of this network, also referred to as shadow government, deep state or the Enterprise, came out on record and could no longer be dismissed as mere conspiracy theory.

In his special report titled "Secret Government," journalist Bill Moyers described the organization as, "an interlocking network of official functionaries, spies, mercenaries, ex-generals, profiteers and super-patriots who for a variety of motives operate outside of the legitimate institutions of government. Presidents have turned to them when they can't win the support of the Congress or the people, creating that unsupervised power so feared by the framers of our constitution." Late Senator Daniel Inouye characterized it as "a shadowy government with its own air force, its own navy, its own fundraising mechanisms and the ability to pursue its own ideas of national interest, free from all checks and balances, and free from the law itself."1

For the purpose of our analysis it is important to keep in mind the existence of this network as well as William Casey, the highest Reagan administration official directly associated with it.

Reagan Administration Cold Warriors Formulate The Policy...

When Reagan took office in 1981, he appointed William Casey as Director of Central Intelligence (DCI).2 Casey was Reagan's election campaign manager, but he was no ordinary party apparatchik. He had close ties in the political, financial and intelligence circles and counted among the most powerful people in the U.S. establishment.3 It was Casey in fact who put forward the former CIA director and key Iran-Contras co-conspirator George H. W. Bush as the Vice President on the Republican election ticket. Reagan made Casey a member of his government, which caused some consternation in Washington since this was the first time in history that DCI would also be a cabinet member. Casey was charged with the mandate "to build up C.I.A.'s ability to make military and political action outside the United States."4 This mission was important enough to justify a 17% rise in CIA's budget every year through the 1980s.5

Casey was a staunch anti-communist with very hostile views of the Soviet Union. This antagonism affected his work and at times caused serious tensions within the government and intelligence community, particularly at CIA's Office of Soviet Analysis (SOVA). Casey systematically demanded the most hardline interpretations of Soviet affairs in CIA's intelligence reports, even when evidence didn't support his case. Analysts who resisted this pressure were intimidated and sidelined as communist sympathizers. Casey's anti-Soviet bias went so far that State Secretary George Schultz later reported that he came to distrust all intelligence documents related to the USSR. Senator Daniel Moynihan went further, outright accusing the intelligence agency of lying, "repeatedly and egregiously."6

The Soviet economy was one of the CIA's focal points of interest. The agency closely tracked Soviet economic developments and produced an annual report about it for the US Congress' Joint Economic Committee. Already in the late 1970s, the CIA recognized serious economic problems in the USSR. Its 1977 report noted that, "the combination of slowing economic growth and rising military outlays poses difficult choices for the leadership over the next several years."7 Conditions continued to worsen over the years and by the time Mikhail Gorbachev came to power in 1985, economic growth had faltered to nearly zero. Gorbachev was keenly aware of the need for a drastic reform of the system, but he was facing a minefield of economic, political, and social problems that had compounded for decades and defied any straightforward solutions. A report by the Directorate of Intelligence pointed out that Gorbachev's reforms could not "simultaneously maintain rapid growth in defense spending, satisfy demand for greater quantity and variety of consumer goods and services, invest in the amounts required for economic modernization and expansion and continue to support client-state economies."8

Some six months into Gorbachev's term, the CIA's newly created Societal Issues branch of the SOVA published a comprehensive report titled "Domestic Stress on the Soviet System," detailing the many issues affecting the Soviet society. The report noted that USSR was handicapped with an apathetic labor force plagued with rising criminality and alcoholism, and that its political system, parasitic bureaucracy and moribund leadership all obstructed economic growth and reforms. It emphasized mounting pressures from the Soviet people's aspirations and the system's inability to provide them any real venues of fulfillment.

The CIA understood that these tensions were potentially a threat to the stability of the regime itself: "these tensions could eventually confront the regime with challenges that it cannot effectively contain without system change and the risks to control that would accompany such change."9 This report was so important to Reagan administration's Soviet policy that its lead author, Kay Oliver, personally briefed the President about its findings and implications: that the Soviet system was unsustainable, that it needed drastic social and economic reforms, and that such reforms might destabilize the regime and cause the Communist party to lose political control over the country.

Western observers were aware that if Gorbachev pursued the necessary reforms in earnest, he would jeopardize communist party's control of the country and risk his own political suicide. Consequently, part of the foreign policy establishment thought that Gorbachev was merely posturing to buy time and get concessions and aid from the west. In 1987, NSA's Lieutenant General William Odom noted: "It seems more and more clear that Gorbachev himself does not intend systemic change. ... If what one means by reform is a significant improvement in the standard of living for Soviet citizens and increased protection of their individual rights under law, that kind of reform cannot go very far without bringing about systemic change - the kind of change that Gorbachev cannot want."

But the doubters would soon have to reconsider their mistrust of the Secretary General: in the fall of 1988 Gorbachev, who was now under growing pressure from the old guard communists, called for multiparty elections and moved to outflank the hardliners by seeking his own appointment as president. It became clear that his reforms were for real and he meant business. However, Gorbachev was by now clashing with so many vested interests that a major conflict within the communist party leadership was building up. The circumstances compelled him to speed up the reforms, and his measures became visibly more hasty and erratic, generating an uncomfortable level of uncertainty that would have an adverse effect on the economy. As a result, in 1988 the economy again took a turn for the worse.

The USSR's growing vulnerability presented a golden opportunity for the American cold warriors to vanquish their great geopolitical rival. For the hardcore anti-communist zealots and their financier overlords, this was too great an opportunity to ignore and they resolved to take an active role in managing the looming fallout. As Reagan's National Security Council Special Assistant Jack Matlock said, "What you had to do was find a policy that would protect you if [true reform] didn't happen, but would take advantage of it if it did. And that's what we devised. It was a policy with no downsides."10

Since that time, some elements of that policy had leaked out into the public. Russian sources revealed an alleged 1986 CIA document titled "Change the Constitutional and Political System in Eastern Europe and the USSR." The document spelled out the key measures of the US policy. These included recruitment of collaborators from among influential representatives of the state apparatus, integration of public and financial institutions into political and economic system of the state, and "setting control over financial flows and removing assets from the economies of developed countries."11 As the events unfolded, they largely corroborated the authenticity of these leaked documents. So did various other American official sources.

Preparing The Ground in The Soviet Union

The collapse of the USSR unleashed a wave of jubilation within the ranks of the American leadership, public servants and opinion makers. In their triumphalist rush to take credit for defeating the scourge of communism, many of them spoke openly, even boastfully about their actions, revealing rather a lot about what had actually taken place. One such zealot was the Washington Post's David Ignatius. For a journalist, he was as close to the belly of the beast as a journalist could be. A graduate of Harvard and Cambridge, his Washington reporting covered the U.S. Department of Justice, the Senate and the CIA. His writing on the CIA's activities particularly became subject of derision for its credulous tone and PR-ish bias. Veteran CIA operative Melvin Goodman called Ignatius "Washington Post's long-time apologist-in-chief for the CIA..."12 This detail about Ignatius is relevant to our analysis because it indicates his allegiances and close connections within the intelligence community.

Shortly after the August 1991 anti-communist coup in Russia,13 Ignatius penned an article in the Washington Post exalting the role of western "pro-democracy" operatives in bringing down the Soviet regime. Gushing over "the great democratic revolution that has swept the globe," Ignatius makes a surprising revelation about the makings of this revolution: "Preparing the ground for last month's triumph14 of overt action was a network of overt operatives who during the last 10 years have quietly been changing the rules of international politics. They have been doing in public what the CIA used to do in private - providing money and moral support for pro-democracy groups, training resistance fighters, working to subvert communist rule."15

Ignatius may be a tad disingenuous in insisting that these activities were overt as opposed to covert. Things like training resistance fighters and working to subvert Communist rule could not have been done overtly. Perhaps just for effect, Ignatius merely misspelled the word covert by omitting the "c" - kind of like if I characterized his assertions as rap.

Ignatius singles out the work of the pro-democracy activist Allen Weinstein who began to organize Soviet dissidents already in 1980. Weinstein "quickly became connected with the network of pro-democracy activists...Soon he was sponsoring conferences for dissidents, arranging visits for them to the United States and otherwise making trouble."16 Early on, Boris Yeltsin and his aides became drawn into Weinstein's "transatlantic hospitality suite." Weinstein remained in close communications with Yeltsin's circle, particularly during the critical August 1991 events. "When Boris Yeltsin's aides were trying to rally support for their resistance in Moscow on Aug. 19," writes Ignatius, "they needed to broadcast their defiant message to Russia and the world." One of them faxed Weinstein in Washington, requesting that the American President issue a public statement of support for Yeltsin. Promptly, George Bush called Yeltsin to express his support and then went on television to describe their telephone conversation. Weinstein's ability to engage the President of the United States on such a short notice was indeed an incredible feat of power networking for a humble pro-democracy activist.

Of course, Weinstein was not the only operative "making trouble" against the USSR. Ignatius also credits William Miller of the American Committee on U.S.-Soviet Relations, George Soros of the Open Society Foundation, John Mroz of the Center for East-West Security Studies, John Baker of the Atlantic Council and Harriett Crosby of the Institute for Soviet-American Relations. The National Endowment for Democracy (NED) headed by Zbigniew Brzezinski was the "sugar daddy of overt operations."17 It had been active inside the Soviet Union for years - overtly, of course - financing various Soviet trade unions and the liberal "Interregional Group" in the Congress of People's Deputies. The Interregional Group was the first legally organized opposition group in the Soviet Union and was subsequently identified as the prime catalyst of "democratic reforms" in Russia.

We can now vaguely discern how Boris Yeltsin, a communist party apparatchik from Sverdlovsk in Siberia, stumbled upon the whole plot of taking down the Soviet communist regime and privatizing Russia's wealth. The populist leader was well known as an ambitious careerist willing to "trample anyone to get to his goal,"18 and had racked up an impressive track record of making trouble for the communist party. Among other things, Yeltsin preached about multi-party democracy to the Komsomol, the Youth Communist League, where Russia's future oligarchs were recruited and groomed to take part in the privatization of Russia on behalf of their Western sponsors.

In 1987 Yeltsin's troublemaking led to a collision with the Moscow communist authorities after he publicly criticized the party leadership for dragging their feet on reforms. Public criticism of the party dignitaries was a grave affront in the USSR. He was strongly reprimanded, barred from politics, and forced to return to Sverdlovsk to a simple business management function. During his exodus, but possibly even before that, Boris Yeltsin became closely associated with a circle of liberal dissidents and academicians led by Gennady Burbulis. Burbulis was the leader and one of the founders of the above mentioned "Interregional Group," which was funded by the U.S. National Endowment for Democracy. Burbulis became one of Yeltsin's closest associates and helped him resurrect his political career. In 1991, he managed Yeltsin's successful election for the Russian presidency (June 1991) and became the first Secretary of State in Yeltsin's cabinet.

Almost as soon as Yeltsin became president in 1991, the advance guard of Harvardites and other Westerners started to arrive in Moscow. They spent time at a dacha outside the city to recruit their Russian collaborators and chart the course of events that would determine Russia's tragic fate for the remainder of the decade.

We need not assume that everyone involved worked for the CIA or knowingly sought to harm Russia. In all likelihood, most of Russia's reformers were earnest people yearning for change from an unsustainable, unsatisfactory system that was collapsing on itself. Without a doubt, many of them were seduced by the promise of western style democracy and capitalism which appeared so much better at satisfying people's needs and aspirations. When Boris Yeltsin himself toured the United States in September of 1989, he was mesmerized with the glitz and abundance he saw in Houston and Miami. When his hosts took him and his entourage to a supermarket in Clear Lake in Texas, Yeltsin remarked with amazement that in Russia, even members of the politburo couldn't dream of such abundance and variety of goods as were available to any middle class American.
yeltsin us 1989
© Houston ChronicleBoris Yeltsin visiting an American supermarket in September 1989. Even USSR’s politburo members could not dream of the variety and abundance available to any middle-class American consumer.
This all must have made a profound impression on Boris Yeltsin and perhaps ignited in him the resolve to do whatever it took to make Russia also a land of wealth, abundance and technological advancement. If the Americans got it right, following their advice must have seemed as the right thing to do. But where Russian reformers saw the lure, they did not see the hook. The generous outward friendliness of the American leaders disarmed the Russians who thought that as they left communism behind, they would now be friends and allies with the Americans.

This illusion was probably reinforced by the real, sincere friendship of the majority of those Americans and other Westerners who went to Russia to share their know-how and help guide the reforms. But the people who were higher up in command of this project were neither altruistic nor friendly. Their mindset was entrenched in cold war animosities and their objective was to defeat, dismember, and loot Russia of its wealth, and leave it so weakened and impoverished that it could never again challenge American hegemony. William Casey's deputy Robert Gates19 gave us a glimpse of this mindset in 1986, declaring: "We are engaged in an historic struggle with the Soviet Union ... [The Soviets] use conflict in the third world to exploit divisions in the Alliance and to try to recreate the internal divisions caused by Vietnam in order to weaken the Western response and provoke disagreement over larger national security and defence policy."20

Gates accused the Soviets of targeting four areas of expansion: the middle-east oil fields, the isthmus of Panama Canal, the mineral wealth of South America, and the Western political and military alliance. In other words, the Reagan administration saw the Soviet Union primarily as a rival in a global struggle for resources. The same Robert Gates would later acknowledge that the CIA had conducted a campaign of economic sabotage against the USSR and took credit for bringing about the fall of communism, which he considered, "the greatest of American triumphs."

  1. (Moyers 1987)
  2. The Office of the Director of Central Intelligence (DCI) was active from 1946 to 2005. The Director managed and coordinated the activities of all intelligence agencies, acted as the principal intelligence advisor to the President of the U.S. and the National Security Council and also acted as the head of the C.I.A.
  3. During World War II, William Casey served with the Army Intelligence and the Office of Strategic Services (predecessor of the CIA). Under President Ford, he served on the Foreign Intelligence Advisory Board, an executive committee of the U.S. intelligence community. During Nixon administration, he headed the Securities and Exchange Commission. After that post he took charge of the Export-Import Bank, an independent Government agency created to facilitate exports of American goods and services. From 1976 to 1981 he was associated with the Rogers & Wells law firm which operated in New York and Washington.
  4. (Pace 1987)
  5. (Jeffreys-Jones 2013)
  6. (Jeffreys-Jones 2013)
  7. (Lundberg 1995)
  8. The report in question was published in September 1985, titled "Gorbachev's Economic Agenda: Promises, Potentials and Pitfalls." (Lundberg 1995)
  9. (Lundberg 1995)
  10. (Lundberg 1995)
  11. (Popov 2016)
  12. (Goodman 2017)
  13. This was actually a counter-coup as it was the communists who staged the initial coup.
  14. Ignatius is referring to the 19th August 1991 counter-coup where Yeltsin's reformist faction prevailed over the Communist old guard that attempted to reassert Communist hold on power.
  15. (Ignatius 1991) Ignatius may be a tad disingenuous in insisting that these activities were overt as opposed to covert. Things like training resistance fighters and working to subvert Communist rule could not have been done overtly. Perhaps just for effect, Ignatius merely misspelled the word covert by omitting the "c" - kind of like if I characterized his assertions as rap.
  16. (Ignatius 1991)
  17. (Ignatius 1991)
  18. This is how Yakou Riabov, first secretary of the Sverdlovsk communist party and Yeltsin's early political mentor described him in an interview featured in the documentary film, "Boris Yeltsin - the Formation of a Leader." (Alfandari and Leconte 2001)
  19. Gates was the Deputy Director of Central Intelligence and specialist of Soviet studies William Casey's second-in-command. His remarks are from a speech he delivered on 25th November 1986.
  20. (Jeffreys-Jones 2013)
grand deception krainer
Alex Krainer is a hedge fund manager and author. His book, banned by Amazon in September 2017 is now available in pdf, kindle, and epub formats at the following link "Grand Deception: Truth About Bill Browder, the Magnitsky Act and Anti-Russian Sanctions." Paperback version is now available here (and on Amazon). EU-based readers can purchase it here. Alex also wrote one book on commodities trading.
Originally published on the Naked Hedgie.