USAID Cancels Harvard Russia Project After Discovering Shleifer and Hay Used Insider Positions to Profit from Russian Investments

The United States Agency for International Development (USAID) canceled most of its funding for Harvard’s Russia economic reform project after investigations revealed that top Harvard Institute for International Development (HIID) officials Andrei Shleifer and Jonathan Hay had used their positions and insider information to profit from investments in Russian securities markets, violating strict conflict-of-interest provisions in their government contracts. Shleifer, a star Harvard economist and protégé of Lawrence Summers, and Hay, his deputy, had been running USAID’s $40.4 million Russia advisory program since 1992, wielding enormous influence over Russia’s privatization and market reforms. Investigations uncovered that Shleifer and his wife Nancy Zimmerman made $200,000 in indirect investments in Russian firms in 1994, while Zimmerman’s hedge fund Farallon Fixed Income Associates invested in Russian companies. Hay invested $20,000 in a Russian investment firm managed by his girlfriend Elizabeth Hebert, whose newly-established company Pallada became the first approved mutual fund program in Russia—beating out larger, older competitors—and operated out of HIID’s own offices in Moscow. Shleifer also purchased Russian oil company stocks under the name of Zimmerman’s father to avoid detection. The scandal exposed how Harvard advisors with monopoly control over U.S. economic assistance to Russia exploited their positions for personal enrichment while purportedly helping Russia transition to market democracy. A Government Accountability Office investigation revealed the contract had granted HIID extraordinary power over USAID’s entire $300 million Russia portfolio. The mismanagement and corruption scandal contributed to the disgrace and eventual 2000 dissolution of HIID itself. Despite the fraud, Shleifer remained a faculty member in good standing at Harvard, which colleagues attributed to his close friendship with Lawrence Summers.