Why Is Putin’s ‘Private Slush Fund’ Courting Jared Kushner?

Look behind any of the Kremlin’s foreign-policy priorities, and chances are a little-known bank called Vnesheconombank will turn up as a big player.

In Ukraine, the state-controlled development bank propped up heavy industry and was used to lure Kiev back toward Moscow’s orbit. In Chechnya, the bank has bolstered the rule of friendly strongman Ramzan Kadyrov. And in the United States, the bank has served as an entree to the inner circle of President Donald Trump.

Last month, the White House revealed that Trump’s son-in-law and jack-of-all-trades advisor, Jared Kushner, had met in December with Sergey Gorkov, the head of Vnesheconombank, also known as VEB. According to the New York Times, he failed to disclose the meeting in security clearance forms. 

Both sides offered different explanations for the meeting. The White House called it a routine diplomatic meeting to consider the political relations between the United States and Russia. VEB said the tête-à-tête came as part of meetings with “representatives of the largest banks and business establishments of the United States.”

But for executives at VEB, there is little real distinction between business affairs and matters of state. A review of the bank’s recent history and its deals reveals that VEB, slapped with sanctions by the United States after Russia’s annexation of Crimea in 2014, is a central, versatile tool in the Kremlin’s foreign-policy machinations. The bank functions as an off-the-books kitty that allows President Vladimir Putin to reward his allies and shower money on his pet projects and political priorities.

Set up as a fairly traditional development bank — like the World Bank or the European Bank for Reconstruction and Development — VEB’s initial mandate was to provide long-term financing for projects that private sector banks might avoid, said Karen Vartapetov, a sovereign credit analyst at Standard & Poor’s. But over time, the Russian state-owned bank “turned into a special purpose agency to finance politically important projects.”

“Essentially, the bank was used as an off-the-books budget for the government,” Vartapetov said.

VEB’s board consists of Kremlin ministers and is chaired by Prime Minister Dmitry Medvedev. Its current head — just like its previous leaders — has strong ties to the KGB and its successor organization, the FSB. Gorkov was educated at an FSB academy, and the bank sometimes collaborates with Russian security services by providing their operatives with cover.

As Putin seeks to restore Russian influence in areas dominated by Moscow at the height of the Soviet Union — including Ukraine, Eastern Europe, the Caucasus, and parts of the Middle East — VEB is a vehicle to help make that happen. And while other development banks also promote varied political agendas — from market-friendly policies pushed by Western development banks to China’s anticipated use of the Asian Infrastructure Investment Bank to advance its influence across Eurasia — Russia’s development bank is a precision-guided diplomatic weapon.

“Putin effectively runs VEB as his private slush fund,” said Anders Aslund, a senior fellow at the Atlantic Council. “If Putin wants to throw money at something like a bailout, or [the Winter Olympics in] Sochi, or the Ukraine steelworks, he uses VEB.”

On Wednesday, American authorities deported Evgeny Buryakov, an operative for Moscow’s foreign intelligence arm, the SVR, after he served about two years in prison for his role in a New York spy ring busted in 2015. Buryakov posed as a New York City banker working for VEB while trying to recruit sources. Other operatives in Buryakov’s spy ring attempted in 2013 to recruit the consultant Carter Page, who served as a foreign-policy advisor to the Trump campaign during the 2016 U.S. presidential election.

American intelligence agencies assess that Russian operatives interfered in the 2016 U.S. election to boost Trump’s electoral chances and to discredit Western democracy. No evidence has emerged so far to implicate VEB in that campaign, but congressional and FBI investigators are now examining the meeting between Kushner and Gorkov as part of their sprawling inquiry into whether Trump aides may have coordinated with Russian operatives to hack into political rivals and publish the fruits of those raids online in order to influence the election.

VEB did not respond to requests for comment.

In recent years, Putin has relied on a campaign of covert intelligence operations to bolster Russian power and to demoralize and undermine his enemies. In the Baltics, Russia has used hacking and information wars to unsettle NATO members that a generation ago were part of the Soviet Union. In Ukraine, Moscow created and militarily supported a pro-Russian insurgency waging war in the country’s east.

And in the United States, it took the form of a coordinated information campaign to hurt the electoral chances of Democratic presidential candidate Hillary Clinton — who Putin blamed for stirring up protests in Russia in 2011 — and boost those of her Republican rival, a political neophyte who views the liberal international order America built after World War II with the same disdain as does the Kremlin.

Russia’s efforts to bring Ukraine back into the fold eventually involved armored formations and a naked land grab in the Crimean Peninsula. But before it turned to hard power, the Kremlin tried to pull Kiev out of Europe’s orbit through a mix of political intimidation and economic incentives.

In that campaign, VEB played a supporting role. Just as pro-Western demonstrators were gathering in Kiev’s central square to protest the decision by Russia-friendly President Viktor Yanukovych to reject closer ties with Europe, VEB’s chief executive went on television to talk up all the money it was showering on the Ukrainian economy — and to underscore the benefits of continued close ties with Russia.

In the aftermath of the 2008 financial crisis, VEB had pumped $500 million into the Ukrainian banking sector, then-Chairman Vladimir Dmitriev told Russia 24. The move, Dmitriev reminded the seemingly ungrateful Ukrainians, “helped Ukraine to avoid serious implications for its banking business and for banking sector as whole.” The bank, he promised, was mulling a range of other infrastructure projects meant to provide a “powerful impetus for the development of a whole number of Ukrainian and Russian economic sectors.”

VEB also participated in the acquisition of two major Ukrainian steel producers, the Industrial Union of Donbass and Zaporizhstal. Dmitriev said those investments totaled about $8 billion and had helped support the jobs of some 40,000 workers.

Those were clearly not financial investments. When VEB intervened in 2010, both steel companies were troubled, hampered by the low price of steel and rising costs. Aslund described Zaporizhstal as Ukraine’s worst steelworks, and the identities of the Russian investors involved were never revealed. But even if they weren’t meant to make money, the investments were designed to pay dividends.

Dmitriev touted the benefits Ukraine could see if it were to hitch its wagon to Russia’s star, rather than moving closer to Brussels. Putin has in recent years tried to coax former Soviet republics back into Russia’s embrace through the creation of regional trade zones, like the Eurasian Customs Union, which today links Russia with Belarus, Kazakhstan, Armenia, and Kyrgyzstan.

“If Ukraine joins the Customs Union, Ukraine is sure to win in terms of energy prices like Belarus,” Dmitriev said by way of example, referring to the discounted energy supplies provided to the Russian-allied state.

VEB dangled the carrot, just as riot police wielded literal sticks on Ukraine’s streets. But in the months that followed, Ukraine rejected Russia’s overtures, and Vnesheconombank was saddled with several awful investments in the crumbling Ukrainian steel industry. VEB is currently trying to sell the Industrial Union of Donbass. (“You can qualify them as nonperforming,” Vartapetov said of VEB’s Ukraine investments.)

The outbreak of civil war in eastern Ukraine left VEB in a precarious financial position, which was only worsened by the aftermath of the 2014 Sochi Olympics. With a price tag of $50 billion, the games ranked as the most expensive in history, with many of the projects at the Black Sea resort financed by VEB.

Between its portfolio of Sochi loans, Ukraine investments, and a hangover from cash injections for Russian banks during the financial crisis, VEB executives had no choice but to turn to the Russian government for a $20 billion bailout in 2015.

The Kremlin didn’t need to hear a turnaround plan. The ability to dispense largesse quickly and flexibly trumps the bottom line.

In September 2016, VEB issued one of its routine press releases. It featured Gorkov and Kadyrov, the Chechen leader, shaking hands in a sunny plaza after inking a deal for a new industrial park. A key Kremlin ally in the restive Caucasus, Kadyrov has served Moscow by co-opting the local brand of extremist Islam and brutally putting down an insurgency. Gorkov had been dispatched to distribute the rewards.

“The technopark is of high importance to the republic,” Kadyrov said in the press release. “It will make construction materials more affordable and create more jobs for people. As a result, 400 people will be employed and nearly 3 thousand specialists will be able to work in related sectors.”

Three months later, Gorkov was on a plane to meet Kushner.

“VEB does not do any ordinary banking business,” Aslund said. “Therefore, it is so remarkable that Jared Kushner met with the head of VEB.”

Photo credit: MICHAEL KLIMENTYEV/AFP/Getty Images