Return to Winter: Russia, China, and the New Cold War Against America (34 page)

It’s not possible to do justice to the depth and scope of the CIA story here, but as this brief sketch should suggest, the agency and the U.S. intelligence community as a whole do not inspire confidence. Reforms have attempted to heal the bureaucratic sclerosis and the corruptions of careerism and turf loyalties, but for the most part, we have succeeded only in making the CIA’s organizational flowchart even more complex. As Mark Steyn put it in
National Review
: “Don’t ask me why there’s a director of national intelligence and a director of central intelligence. Something to do with 9/11, after which the government decided it could use more intelligence. Instead it wound up with more directors of intelligence, which is the way it usually goes in Washington.”
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We have capabilities, assets, and resources in abundance; what we do not have is an effective organizational approach to using them; nor do we have—most important—the political and strategic commitment to employ them in ways that benefit the national interest. The losses have been costly, and they are mounting.

HOW ECONOMIC TIES WEAKEN U.S. INTELLIGENCE LEVERAGE

A vital and underappreciated aspect of the intelligence situation is that the U.S., by virtue of its close economic and financial ties with China and Russia, is necessarily limited in how it can respond to transgressions. Too much is at stake in other realms for the U.S. to take forceful action.

This is especially true when it comes to China. Most Americans know by now that the federal government is essentially in hock to Beijing. The Chinese government owns about 8 percent of publicly held U.S. debt, making it the third-largest holder behind the Social
Security Trust Fund and the Federal Reserve.
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China also holds slightly more than a fifth of America’s foreign-held Treasury securities. It buys Treasuries at low rates, allowing the U.S. to keep its interest rates low and enabling U.S. companies to finance their operations affordably.
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Although many feel it’s unlikely, some worry about a scenario in which China would liquidate its holdings.

In an interview with the
Daily Telegraph
, two Chinese officials indicated that China could cause the U.S. dollar to collapse if it chose to do so, though they admitted that such an action would also hurt China and the global economy.
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In a 2011
China Daily
editorial, Ding Gang, a Communist Party mouthpiece, suggested that China should punish America for selling arms to Taiwan by refusing to buy U.S. Treasury bonds, or “massively reducing” how many it buys:

       
Now is the time for China to use its “financial weapon” to teach the United States a lesson if it moves forward with a plan to sale [sic] arms to Taiwan. . . . some US Congress members hold a contemptuous attitude toward the core interests of China . . . China–US relations will always be constrained by these people and will continue along a roller coaster pattern if China does not beat them until they feel the pain.
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If China decided to sharply reduce its investments, the results could be a catastrophic spike in American interest rates and a serious recession, if not a depression.
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Of course, the Chinese also have a strong interest in U.S. economic health: They need us to pay our debts and consume their goods. One might call it a stalemate. But it also means that there is constant maneuvering on both sides of this equation, with each nation trying to gain advantage over the other.

Perhaps the greatest pressure leveled by the Chinese comes from the amount of Western, and in particular American, investment in their economy. In 2009, American investment in China reached $49
billion. American companies have flocked to China to capture business from its vast and expanding middle class, especially as growth in the developed world slows. American multinationals’ investment commitment in China shows no sign of lessening. Starbucks, Coca-Cola, Ford, Pepsi, Volkswagen, Las Vegas Sands, and Wynn Resorts were all cited by
Forbes
in 2010 as top investors in China. GM sold more cars in China in 2010 than it did in the United States. In 2009, it closed 10 plants in the United States; since the turn of the century, the automaker has opened 15 plants in China. Yum Brands, the owner of KFC, Pizza Hut, and other fast-food staples, reported $1.2 billion in sales in China in the first quarter of 2010, eclipsing its U.S. sales for the first time.
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Smaller and midsize companies have also been turning to China in recent years.
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To a lesser but still important extent, the U.S.–Russian economic relationship presents entanglements that make it difficult to implement a tougher intelligence policy. Russian commodities have become crucial to some American businesses. Russia exports many key industrial minerals to the United States. These include quartz crystal, thallium, diamonds, potash, cobalt, titanium, palladium, chromium, silicon, nickel, ammonia, ammonium, and magnesium—vital materials in the manufacturing of industrial or electronic components.
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Russia also exports some industrial components crucial to American business. In 2007, the Russian company OAO VSMPO-Avisma, the world’s largest maker of titanium products, signed a $1 billion contract with Boeing to produce titanium forgings for the Boeing 787 Dreamliner.
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American financial houses invest substantially in Russian banks, and they keep offices in Moscow that turn big profits for their companies. The Russians know that if Americans are heavily invested in the wealth derived from Moscow’s dependent neo-colonies, then hard business sense will dictate caution in dealing with Moscow and its intelligence practices. Here is where the influence game, an important
part of the intelligence wars, can be deployed in lieu of traditional espionage. With its open society and markets, the U.S. allows commercial considerations to influence its strategic decisions. This dynamic becomes more insidious when one recognizes how Russia and China have been willing to treat Western businessmen.

CAPITALISM FOR KEEPS: THE AXIS ATTACK ON WESTERN BUSINESSMEN

The global economy has brought great riches to businesses and individuals in the West, as well as in Russia and China. But what appeared to be, on the surface, a force for potential unity and increased comity—former adversaries united by their devotion to markets and economic activity—has had some unexpected results. An open exchange of goods and services has also brought with it easier access for espionage and all manner of secret operations. Whereas, in the Cold War, business relations between the West and the Communist world were strictly circumscribed, no clear boundaries obtain today. The globalization of commerce and finance has created interdependence between large portions of the U.S. economy and the economies of Russia and China.

In the Soviet era, the separation of East and West in all things actually made the intelligence wars easier. Now the battle lines have blurred, and Washington is pressured from multiple angles to soft-pedal its approach so as to protect business interests. Both Russia and China have learned to play the capitalist game, and they do it with a tough-minded focus on global power strategy; their aim is not to bring freedom and prosperity to their own people or to their allies but merely to bring legitimacy to arbitrary rule. They are playing for keeps, while we play for ideals.

The result is that the world of business has become an intelligence battleground. It’s a field where, at least for now, the Axis nations have held the upper hand. Western businessmen are constantly followed,
wiretapped, intimidated, and even killed—as several high-profile cases have shown.

Neil Heywood and Bo Xilai

Consider the case of British businessman Neil Heywood, an expatriate living in Beijing. The wealthy and well-connected Heywood spoke Mandarin and acted as an intermediary between Chinese and Western firms and the Chinese government. In 2011, he was found dead in a hotel room in Chonqing, allegedly from alcohol poisoning. Heywood’s friends said that he was not a heavy drinker. His family was told that he had died of a heart attack. Heywood was cremated without an autopsy.
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In February 2012, Chongqing’s chief of police, Wang Lijun, was demoted; four days later, he fled to the U.S. Consulate. There, he told a shocking story about Heywood’s death and its connection to Bo Xilai, then a popular Chinese politician and party boss in Chongqing, and Bo’s wife, Gu Kailai. Wang had worked with Bo to institute punitive police policies, including work camps for criminals.
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Persuaded to leave the consulate, Wang was immediately arrested by Chinese authorities.
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Reporters have never fully uncovered what Wang told the Americans at the consulate; the story emerged in fragmentary fashion over several months.

Bo was soon removed from his post as party chief because of his involvement in what had become known as the Wang Lijun Incident. Rumors suggested that Bo and Wang had had a falling out over an investigation into Bo’s family on corruption charges. Others claimed that Bo had somehow been involved in Heywood’s death. By the end of March, the British government demanded that China reexamine the businessman’s death. Bo was eventually stripped of his Communist Party title and, along with his wife, placed under investigation for a possible role in Heywood’s death.
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As the case unfolded, rumors flew. Some claimed that Heywood and Gu had had an affair; others suggested that Heywood had somehow been involved in illegal business dealings with Bo or Gu, or both. Others suggested that Gu had demanded that Heywood divorce his Chinese wife and commit to her. There was even the hint of a possible espionage component: It came out that Heywood had connections to a firm started by ex-MI6 agents.
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The increasingly sordid incident led to the downfall of almost every person involved. In August, Gu Kailai and her aide, Zhang Xiaojun, stood trial for the intentional murder of Heywood. She received a “suspended death penalty,” or life in prison, for poisoning Heywood with cyanide.
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By the end of September, Wang Lijun had also been tried and convicted—in his case for defection, power abuse, and taking bribes. Bo was charged with obstructing the investigation into Heywood’s death, wiretapping other Party officials, and even engaging in illicit sexual relations with multiple women.
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We’ll probably never know the truth about Neil Heywood’s demise, though it seems clearly bound up with corruption, espionage, and international business. The scandal illustrates not only the shadowy relations between Chinese business and government but also the inability of foreign governments to protect their nationals. Heywood’s alleged connections to the MI6, and the fact that his death took place against the backdrop of a massive power transition within the Communist Party, could suggest that he was a pawn of Communist Party machinations beyond his control.

The Hermitage Capital Scandal and the Death of Sergei Magnitsky

Hermitage Capital, an investment fund based in Guernsey, England, was once one of the largest foreign investors in Russia. Its CEO, William Browder, was a vocal champion of Russian investment. He
tirelessly combated negative media stereotypes about the Russian government and Russian business.

Then, without warning, in 2005, while Browder was on a routine trip from London, Russian officials barred him from entering the country. Somehow, his name had found its way onto a list of individuals considered security threats to Russia.
Bloomberg Businessweek
speculated at the time that private interests had placed Browder’s name on the list, given that he was an outspoken supporter of the Russian government’s.
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Browder discussed the issue with then–Deputy Prime Minister Dmitri Medvedev, but to no avail.
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In February 2007, Lieutenant Colonel Artem Kuznetsov of the Russian Interior Ministry contacted Hermitage. Kuznetsov claimed he could resolve Browder’s visa problem in exchange for certain information, favors, or money. Four months later, he returned with 25 officers to raid Hermitage’s offices. The offices of Firestone Duncan, Hermitage’s lawyer, were also raided. Kuznetsov claimed to be investigating tax evasion by Kameya, a Hermitage company. Hermitage claimed that one of their lawyers had been severely beaten during the raid and needed hospitalization for two weeks. As it turned out, shortly before the raid, Russian tax authorities had issued a report indicating that Kamaya had committed no wrongdoing.
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Moreover, according to Hermitage, an obscure company called Pluton—if it even was a company—dispatched lawyers to surrender Hermitage assets under false premises.
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Finally, fed up with the intimidation and cloak-and-dagger tactics, Hermitage instructed Sergei Magnitsky, a top Firestone Duncan lawyer, to investigate.

Magnitsky quickly determined that the charges against Hermitage were fraudulent. He also discovered what might be the greatest fraud scheme in Russian history. Evidence indicated that the Russian police had stolen documents, corporate seals, and other information about Hermitage’s subsidiaries that allowed them to produce forgeries of
important Hermitage documents. Magnitsky alleged that $260 million in taxes that Hermitage had paid to the Russian government had been stolen in a complex network of phantom claims, orchestrated with the compliance of judges, policemen, tax officials, and government agents.
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One of the policemen whom Magnitsky identified was then assigned to investigate him—and in short order, Magnitsky was himself accused of tax evasion and sent to jail. For more than a year, while awaiting trial, he was detained in a prison, denied family visits and even medical attention when he developed pancreatitis. In November 2009, Magnitsky was taken to the medical unit and placed in a straitjacket. He died shortly thereafter.
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This horrifying story—as heartbreaking as it is mysterious—led multiple agencies to investigate the Russian government’s behavior. The Public Oversight Commission, a Moscow-based watchdog, interviewed doctors charged with Magnitsky’s treatment.