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. Last Updated: 07/27/2016

ESSAY: Putin Greased Wheel for Humanitarian Aid

In the early 1990s, Vladimir Putin was St. Petersburg's first deputy mayor and a figure so powerful within Mayor Anatoly Sobchak's liberal administration that he was often seen as the acting mayor himself. It was Putin's keen interest in attracting business investment to the city that rescued my company, one of the first non-profit companies in northwest Russia to invest in small businesses.

In June 1993, I was appointed general director - and founder - of CARESBAC-St. Petersburg, which was owned operated by the Washington-based small business assistance group CARESBAC. Now known as the Small Enterprise Assistance Fund, CARESBAC was initially formed by CARE employees to help distribute packages of frozen U.S. butter to Russia, Bulgaria and Poland.

CARESBAC-St. Petersburg's charter was to accept shipments of frozen butter in St. Petersburg, sell the butter on the commodity exchange locally, and invest the proceeds - expected to be about $9 million - in small Russian businesses. We were to operate as a nonprofit, reinvesting any proceeds into new investments. However, Russian law had no provision for nonprofit corporations, so we were registered as a regular Russian corporation.

Almost directly after my arrival - and our first $1.2 million deposit in butter proceeds in a Russian bank - we were notified that something called the Russian Humanitarian Aid Commission in Moscow believed our business activities were about to violate some humanitarian aid law. Immediately, my Washington colleague and I flew to Moscow to meet members of the commission.

The meeting was disastrous from the start. Several very grumpy, self-righteous old men jeered the idea that investing money in small companies constituted "humanitarian aid." We showed them agreements between the Department of Agriculture and the Russian government that stipulated our use of our butter-sale proceeds without taxation - or confiscation.

They happily told us that a new law, apparently voiding this agreement, would mean every dollar we invested to help the small business community would be forfeited directly to them. I asked them: "Is there any way we can avoid confiscation?"

The chairman laughed and said: "Get [President] Boris Yeltsin to write a law exempting you."

Thirteen months later, Putin, Sobchak and I were toasting each other at the mayor's favorite St. Petersburg restaurant.

Then-Prime Minister Viktor Chernomyrdin had signed a bill exempting CARESBAC-St. Petersburg from the confiscation provision in the commission's law. And the St. Petersburg Dental Clinic No. 1 had $1.5 million worth of new dental equipment. That was the Putin-Humes deal, worked out after our trouble with the commission.

Other avenues besides Putin had proved hopeless. The U.S. Consulate declined to help us get a meeting with Putin or Sobchak because of our official status as a for-profit business, even though they knew otherwise. The U.S. State Department and Department of Agriculture suggested giving the commission half our projected $9 million proceeds, which would have sunk us.

After arduous effort, we got a meeting with Putin - the one the U.S. Consulate said it could not arrange. I explained to Putin and aides the effect that this punitive law was to have on us. We wanted our money to go to legitimate city needs, and not fatten the pockets of the bureaucrats at the commission. We needed Sobchak to intercede.

Putin said he doubted, as a lawyer, such a law even existed but would check back with us.

Some days later, we were called back. He sternly told us the law was a fact and, in his reading of it, he could confiscate our money for St. Petersburg before any of it went to Moscow. But then his sternness broke into a smile as he said: "We are going to do it your way. We will try to get you an exemption so that St. Petersburg can benefit both ways."

Putin initiated discussions with Chernomyrdin, through Sobchak we believed, and we kept meeting with him to iron out details of our gift to the city. With CARESBAC headquarters in Washington, we decided to offer City Hall about $2.2 million.

We were told during our negotiations with Putin that Sobchak wanted a new dental clinic to stop the spread of AIDS in St. Petersburg's antiquated facilities. German company Siemens, manufacturing in the United States, offered St. Petersburg equipment at half price. I negotiated with Siemens, and the deal was cut.

Meanwhile, Chernomyrdin hit a roadblock of opposition to our bill in his Cabinet. Months went by during which we could not invest.

In February 1994, several tons of butter shipped to us was detained at a custom dock in St. Petersburg. The hold up had come under direct orders of the Russian Humanitarian Aid Commission.

Over the course of several meetings with Putin, he finally expressed optimism about getting Chernomyrdin's signature on our legislation.

In late November, Chernomyrdin paid a state visit to St. Petersburg. He asked Sobchak and Putin: "What can I do for St. Petersburg?"

Putin had prepared a copy of the bill. He put it under Chernomyrdin's pen and said, "Sign this." The next morning, Putin invited me to City Hall to receive my official copy of the ad hoc legislation. In December 1994, Dental Clinic No. 1, the one Sobchak had wanted, was opened at a ribbon-cutting with the mayor and a round of applause for CARESBAC and its general director.

At the celebratory dinner, I sat between Deputy Mayor Putin and one of his aides. Many toasts were made to CARESBAC. When I toasted Mayor Sobchak, I compared him to successful American politicians. Then I asked why he didn't ask for even more money in the style of American politicians. During the translation, Sobchak looked confused. Putin whispered in his ear. Sobchak rose, toasted me again and asked for an additional $500,000, which in fact, was part of the original deal I had hammered out with Putin. I graciously toasted Sobchak and said, "You've got it." Putin thoroughly enjoyed the exchange, especially since many in the room thought I had given a new gift. That was the last time we met with Putin.

In contrast to many dealings we had with the city and officials, Putin was direct and businesslike, not lacking in humor, but maintaining control of each meeting, giving the impression that he could be a difficult foe. No one connected with his office that I know of ever suggested any variant of our negotiations that might have diverted any money from the Dental Clinic. He has almost no detractors, which is phenomenal in today's Russia.

In my experience with Putin, I considered him to be professional and skilled in political tactics, enabling him to dance around the old apparatchiks in order to achieve openings for foreign capital to benefit fledgling Russian businesses. To Peterburgers he is a cultured man of the new generation who should get credit for his record of public service.

Graham Humes served as general director for CARESBAC-St. Petersburg from 1993 to 1995. He is a trustee at the Foreign Policy Research Institute, which initially published this piece. It is reprinted with their permission.