Countering Global Kleptocracy: A New US Strategy for Fighting Authoritarian Corruption

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In the most com­pre­hen­sive klep­toc­ra­cy pol­i­cy study yet pub­lished, Nate Sibley and Ben Judah exam­ine the per­va­sive threat to democ­ra­cy, pros­per­i­ty and secu­ri­ty posed by glob­al­ized cor­rup­tion and offer 70 rec­om­men­da­tions for US policymakers.

The dan­ger of coun­tries that have fall­en to author­i­tar­i­an klep­to­crats is real, and the dan­ger extends beyond the country’s bor­ders. Indeed, most of the threats our rule-of-law world faces emerge from coun­tries oper­at­ing with­out rule of law that are sinks of cor­rup­tion, autoc­ra­cy and law­less­ness.” – Senator Sheldon Whitehouse, Preface

Kleptocracy, or “rule by thieves,” has for too long been dis­re­gard­ed from main­stream for­eign pol­i­cy dis­cus­sions. It is often over­looked as a periph­er­al eco­nom­ic devel­op­ment issue: A prob­lem for tax jus­tice advo­cates and for­eign aid work­ers. Yet it has been shap­ing inter­na­tion­al pol­i­tics and the glob­al secu­ri­ty envi­ron­ment for decades. The Biden-Harris admin­is­tra­tion will have an unprece­dent­ed opportunity—and a unique responsibility—to con­front this per­va­sive threat with deci­sive action.

This chance comes not come a moment too soon. Since the end of the Cold War, cor­rup­tion has metas­ta­sized beyond nation­al bor­ders into a prob­lem of almost unimag­in­able scale. The United Nations has esti­mat­ed that $1 tril­lion are paid in bribes and a fur­ther $2.3 tril­lion oth­er­wise stolen annu­al­ly.1 Global Financial Integrity, a Washington-based think tank, cites cor­rup­tion as a key fac­tor in $8.7 tril­lion that van­ished from offi­cial records of trade between 135 devel­op­ing coun­tries and 36 advanced economies from 2008–2017.2

Kleptocracy is a blight on inter­na­tion­al devel­op­ment, gov­er­nance and democ­ra­cy, vast­ly wors­en­ing con­di­tions for pop­u­la­tions world­wide. The International Monetary Fund has cal­cu­lat­ed that glob­al tax rev­enues would increase by more than $1 tril­lion annu­al­ly if all coun­tries col­lect­ed tax­es as effi­cient­ly as those with the least cor­rupt gov­ern­ments, pro­vid­ing near­ly twice the rev­enue need­ed to meet the UN’s Sustainable Development Goals.3 4

These fig­ures show that cor­rup­tion is now a key fea­ture of finan­cial glob­al­iza­tion. Yet they are so vast as to run the risk of obscur­ing the human real­i­ty of life and death in soci­eties where the state has been robbed of its capac­i­ty to pro­vide secu­ri­ty and oth­er basic needs. The true cost of klep­toc­ra­cy can­not be count­ed in dol­lars, but in bil­lions of lives that have been ruined or lost through famine, vio­lence, abuse, and despair. It has been esti­mat­ed that 3.6 mil­lion peo­ple a year die from cor­rup­tionin­duced caus­es, con­cen­trat­ed in the world’s most vul­ner­a­ble economies and poor­est pop­u­la­tions.5 The time for action is now.

Beyond strict­ly human­i­tar­i­an con­cerns, it is no coin­ci­dence that the world’s most cor­rupt lead­ers also con­tin­u­al­ly under­mine glob­al secu­ri­ty. Authoritarianism and cor­rup­tion have meld­ed into a sin­gle per­va­sive threat. Ruling elites in China, Iran, North Korea, Russia, Venezuela and oth­er author­i­tar­i­an regimes are the most pro­lif­ic abusers of the glob­al finan­cial sys­tem, fus­ing oppor­tu­ni­ties for illic­it self-enrich­ment with malign geopo­lit­i­cal ambi­tions. Their cor­rupt offi­cials are rou­tine­ly impli­cat­ed in bribery, sanc­tions eva­sion, IP and tech­nol­o­gy theft, financ­ing of ter­ror­ism and oth­er crim­i­nal activ­i­ties. These are the for­eign pol­i­cy tools that inevitably emerge from domes­tic polit­i­cal sys­tems shaped by, and sus­tained through, endem­ic klep­toc­ra­cy. Corruption is used in all such regimes simul­ta­ne­ous­ly as a tool of repres­sion, to entrench and expand the regime, and to project pow­er beyond nation­al borders.

Therefore, as Senator Sheldon Whitehouse and General David Petraeus observed in 2019, “the fight against cor­rup­tion is more than a legal and moral issue; it has become a strate­gic one — and a bat­tle­ground in a great pow­er com­pe­ti­tion… Complacency about graft and klep­toc­ra­cy beyond US bor­ders risks com­plic­i­ty in it — with grave con­se­quences both for the nation’s rep­u­ta­tion abroad and Americans’ well-being at home.6

In fact, “fol­low­ing the mon­ey” from over­seas cor­rup­tion cas­es has often led American experts uncom­fort­ably close to home. All too often, it is unwit­ting or unscrupu­lous Western pro­fes­sion­al ser­vices providers who laun­der, con­ceal, and claim lucra­tive com­mis­sions from funds derived from transna­tion­al crime and cor­rup­tion. This is not a case of “bad apples” but a struc­tur­al prob­lem. The klep­toc­ra­cy that afflicts devel­op­ing coun­tries and pow­ers author­i­tar­i­an regimes is not only facil­i­tat­ed but incen­tivized by off­shore tax havens and poor­ly-reg­u­lat­ed major finan­cial cen­ters, some of the most sig­nif­i­cant of which are locat­ed with­in the United States itself. In this way, the pro­ceeds of klep­toc­ra­cy find their way into demo­c­ra­t­ic soci­eties as well, with an increas­ing­ly cor­ro­sive effect on their own polit­i­cal, legal, and finan­cial institutions.

President-elect Biden will assume office amid a sea change in atti­tudes towards cor­rup­tion. Despite the secre­cy sur­round­ing the murky world of transna­tion­al klep­toc­ra­cy, there is now grow­ing pub­lic aware­ness of how it works in prac­tice. In 2016, the Panama Papers – a leak of 11.5 mil­lion doc­u­ments from off­shore law firm Mossack Fonseca – offered an unprece­dent­ed glimpse into the meth­ods used by polit­i­cal elites to move unex­plained wealth world­wide. Thanks to a new col­lab­o­ra­tive mod­el of inves­tiga­tive jour­nal­ism, sim­i­lar leaks are emerg­ing with aston­ish­ing fre­quen­cy, notably the Paradise Papers in 2017 and the Luanda Leaks in ear­ly 2020. Most recent­ly, the FinCEN Files high­light­ed the prob­lem­at­ic rela­tion­ship between finan­cial insti­tu­tions respon­si­ble for report­ing sus­pi­cious finan­cial activ­i­ty and the under-resourced gov­ern­ment agency tasked with ana­lyz­ing the data. The harm­ful effects of transna­tion­al cor­rup­tion have also been illus­trat­ed by a string of high-pro­file crim­i­nal cas­es in recent years. These include Malaysia’s 1MDB scan­dal, the pros­e­cu­tions of var­i­ous high-lev­el Venezuelan offi­cials, and ongo­ing inquiries into alleged mon­ey laun­der­ing by Ukrainian oli­garch Ihor Kolomoisky. Most obvi­ous­ly, the Special Counsel inves­ti­ga­tion of Russian inter­fer­ence in the 2016 US pres­i­den­tial elec­tion had the effect of open­ing many Americans’ eyes to finan­cial entan­gle­ments between their own polit­i­cal elites and those of some of the most cor­rupt coun­tries on Earth.

This chang­ing per­cep­tion of transna­tion­al cor­rup­tion reflects the acute strate­gic chal­lenge fac­ing the next admin­is­tra­tion. Kleptocracy con­tin­ues to dev­as­tate the devel­op­ing world while fuel­ing almost every major threat to glob­al secu­ri­ty, poi­son­ing inter­na­tion­al mar­kets, and under­min­ing democ­ra­cy. This prob­lem is far more seri­ous and per­va­sive than the car­i­ca­tures of Cold War despots hoard­ing gold bul­lion, or even Russian “oli­garchs” enjoy­ing the high life in London, would tend to sug­gest. Ultimately, coun­ter­ing glob­al klep­toc­ra­cy is not a mat­ter of tar­get­ing iso­lat­ed instances of cor­rup­tion around the world, but win­ning a com­pe­ti­tion to shape the glob­al econ­o­my in the 21st cen­tu­ry. Tackling glob­al cor­rup­tion is not a dis­trac­tion from deal­ing with China, Russia and oth­er strate­gic com­peti­tors, but cen­tral to it. 

Every so often, a major threat or cri­sis com­pels the US gov­ern­ment to exam­ine sys­temic vul­ner­a­bil­i­ties in its own finan­cial sys­tem. In the last decades of the 20th cen­tu­ry, the War on Drugs result­ed in new legal author­i­ties and unprece­dent­ed resources for law enforce­ment to tar­get the finan­cial pro­ceeds of crime. The ter­ror­ist attacks of September 11, 2001 like­wise result­ed in sweep­ing new pow­ers with which US intel­li­gence and law enforce­ment agen­cies could pur­sue the fun­ders of ter­ror­ism through an increas­ing­ly sophis­ti­cat­ed glob­al finan­cial sys­tem. We face no less a chal­lenge now, in the shape of an adver­sar­i­al China intent on reshap­ing the glob­al order to its own ends, a hos­tile Russia bent on sow­ing dis­cord with­in its per­ceived ene­mies’ ranks, and the broad­er upheavals of ongo­ing geopo­lit­i­cal realign­ment. Kleptocracy has fueled these devel­op­ments, yet efforts to upgrade America’s finan­cial defens­es and tools of eco­nom­ic state­craft have only just begun.

The United States’ approach to transna­tion­al cor­rup­tion and oth­er forms of illic­it finance has not always fall­en behind the curve. In 1977, America became the first coun­try to ban its own com­pa­nies from brib­ing for­eign offi­cials through the land­mark Foreign Corrupt Practices Act. In 1986, it became the first coun­try to crim­i­nal­ize mon­ey laun­der­ing at the fed­er­al lev­el. In 2010, it launched a ded­i­cat­ed inter­a­gency Kleptocracy Asset Recovery Initiative. And in 2016, it became the first coun­try to intro­duce sanc­tions tar­get­ing human rights abus­es and cor­rup­tion in the form of the Global Magnitsky Act. Working mul­ti­lat­er­al­ly, the US played a lead­ing role in launch­ing the Financial Action Task Force (1989), as well as shap­ing the OECD Anti-Bribery Convention (1997), the UN Convention Against Corruption (2003), and oth­er impor­tant inter­na­tion­al agree­ments. President George W. Bush intro­duced a National Strategy to Internationalize Efforts Against Kleptocracy as ear­ly as 2006, while President Barack Obama launched a US Global Anticorruption Agenda in 2014. These and many oth­er exam­ples show that, more than any oth­er coun­try, the United States can inno­vate, adapt, and lead the rest of the world in beat­ing back klep­toc­ra­cy if it so chooses. 

Indeed, America has a unique capac­i­ty and spe­cial respon­si­bil­i­ty to take on klep­toc­ra­cy and oth­er forms of illic­it finance. This is because the United States alone bears the “exor­bi­tant priv­i­lege” of eco­nom­ic hege­mo­ny while over­see­ing the glob­al reserve cur­ren­cy. This gives the US gov­ern­ment tremen­dous polit­i­cal lever­age world­wide and means that even seem­ing­ly minor reg­u­la­to­ry mea­sures enact­ed in Washington, DC can send shock­waves through the entire glob­al finan­cial system.

The Biden-Harris admin­is­tra­tion should use this pow­er to trig­ger anoth­er trans­for­ma­tion­al moment in America’s decades-long strug­gle against cor­rup­tion. Encouragingly, the President-elect has in fact already com­mit­ted to doing so. In a March 2020 Foreign Affairs arti­cle, he out­lined plans for a mul­ti­lat­er­al Summit for Democracy that would put coun­ter­ing glob­al klep­toc­ra­cy at the heart of US for­eign policy:

…the United States will pri­or­i­tize results by gal­va­niz­ing sig­nif­i­cant new coun­try com­mit­ments in three areas: fight­ing cor­rup­tion, defend­ing against author­i­tar­i­an­ism, and advanc­ing human rights in their own nations and abroad. As a sum­mit com­mit­ment of the United States, I will issue a pres­i­den­tial pol­i­cy direc­tive that estab­lish­es com­bat­ing cor­rup­tion as a core nation­al secu­ri­ty inter­est and demo­c­ra­t­ic respon­si­bil­i­ty, and I will lead efforts inter­na­tion­al­ly to bring trans­paren­cy to the glob­al finan­cial sys­tem, go after illic­it tax havens, seize stolen assets, and make it more dif­fi­cult for lead­ers who steal from their peo­ple to hide behind anony­mous front com­pa­nies.”7

President-elect Biden has also com­mit­ted to address­ing domes­tic vul­ner­a­bil­i­ties to malign for­eign influence:

I will pro­pose a law to strength­en pro­hi­bi­tions on for­eign nation­als or gov­ern­ments try­ing to influ­ence US fed­er­al, state, or local elec­tions and direct a new inde­pen­dent agency—the Commission on Federal Ethics—to ensure vig­or­ous and uni­fied enforce­ment of this and oth­er anti­cor­rup­tion laws. The lack of trans­paren­cy in our cam­paign finance sys­tem, com­bined with exten­sive for­eign mon­ey laun­der­ing, cre­ates a sig­nif­i­cant vul­ner­a­bil­i­ty. We need to close the loop­holes that cor­rupt our democ­ra­cy.”8

Strange as this cen­tral focus on cor­rup­tion may sound to the US for­eign pol­i­cy estab­lish­ment, it is by now hard­ly a rad­i­cal agen­da – or even a par­ti­san one. Many peo­ple will remem­ber the 116th Congress as one of the most divid­ed in liv­ing mem­o­ry, but advanc­ing an unprece­dent­ed raft of anti-klep­toc­ra­cy leg­is­la­tion was one of the few areas in which law­mak­ers from both sides of the aisle felt strong­ly enough to put aside their dif­fer­ences. It was a process in which the US Helsinki Commission, with its decades-long mis­sion to fos­ter­ing bipar­ti­san coop­er­a­tion on human rights, secu­ri­ty and eco­nom­ic issues, played a lead­ing role. This momen­tum cul­mi­nat­ed in the pas­sage of the Anti-Money Laundering Act of 2020 (as an amend­ment to the National Defense Authorization Act), which man­dates the most sig­nif­i­cant upgrades to America’s finan­cial defens­es in near­ly two decades. President-elect Biden’s com­mit­ment, com­bined with ongo­ing con­gres­sion­al efforts, reflects a key area of bipar­ti­san under­stand­ing in which it should be pos­si­ble to expe­dite domes­tic reforms that end America’s cur­rent sta­tus as a mag­net for dirty money. 

The Biden admin­is­tra­tion can then take this agen­da over­seas by mak­ing coun­ter­ing klep­toc­ra­cy a cen­tral pil­lar of US for­eign pol­i­cy and of the planned Summit for Democracy. Among demo­c­ra­t­ic part­ners the United States needs a clear diplo­mat­ic agen­da, regroup­ing allies in the G7, OECD and NATO to pass their own bold reforms against illic­it finance. This can only be achieved by work­ing close­ly with like-mind­ed part­ners such as the European Union, the Five Eyes coun­tries, and strate­gic allies such as Japan and India. Renewed American influ­ence and lead­er­ship can then be lever­aged through oth­er mul­ti­lat­er­al orga­ni­za­tions and insti­tu­tions such as the G‑20, World Bank, International Monetary Fund and Financial Action Task Force to pres­sure cor­rupt regimes.

Taking on klep­toc­ra­cy also offers a way for the United States to dis­tin­guish itself from strate­gic rivals, espe­cial­ly the Chinese Communist Party and its disin­gen­u­ous anti-cor­rup­tion cam­paign. At some point in 2021, the United Nations General Assembly will hold a once-in-a-gen­er­a­tion Special Session on cor­rup­tion that could set the inter­na­tion­al agen­da for decades to come.9 As China and Russia’s lead­ers work to seize key anti­cor­rup­tion insti­tu­tions and build a new glob­al con­sen­sus that shields them from account­abil­i­ty, a US plat­form that con­sists of past vic­to­ries, a decent enforce­ment record, and delayed reforms will not be good enough. A bold inter­na­tion­al agen­da against cor­rup­tion, by con­trast, will rep­re­sent a renewed state­ment of val­ues and the mes­sage that the “swing states” of the inter­na­tion­al order need to hear.

This paper pro­vides a pol­i­cy blue­print for achiev­ing what the US now urgent­ly needs: A com­pre­hen­sive strat­e­gy for con­fronting author­i­tar­i­an cor­rup­tion and coun­ter­ing glob­al klep­toc­ra­cy. The first sec­tion sets out domes­tic reforms need­ed to defend America’s finan­cial sys­tem. The sec­ond sec­tion out­lines mea­sures to tar­get cor­rup­tion over­seas, while the third pro­pos­es ini­tia­tives to renew US glob­al lead­er­ship against klep­toc­ra­cy. In the final sec­tion, we set out a sequen­tial check­list con­tain­ing 70 pol­i­cy rec­om­men­da­tions for both the Executive Branch and Congress.

These pro­pos­als will enable the United States to assert new glob­al stan­dards and lead ini­tia­tives that can unite demo­c­ra­t­ic allies in a com­mon cause, bring bil­lions of peo­ple clos­er to the promise of democ­ra­cy, and grad­u­al­ly trans­form the glob­al econ­o­my into a hos­tile envi­ron­ment for author­i­tar­i­an klep­to­crats who seek to abuse it. It is a task on which America’s own democ­ra­cy, secu­ri­ty and pros­per­i­ty ulti­mate­ly depends.

We are grate­ful for the sup­port of the Smith Richardson Foundation in com­pil­ing this paper; and to the many lead­ing experts who impart­ed their time and insights dur­ing our research, includ­ing many for­mer and serv­ing US offi­cials. Any errors are, of course, our own. We do not endorse any spe­cif­ic leg­is­la­tion, but have cit­ed rel­e­vant bills for ease of ref­er­ence and to illus­trate the grow­ing momen­tum behind US anti-klep­toc­ra­cy efforts. We hope the fol­low­ing report will help in its own small way.

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Nate Sibley & Ben Judah, Hudson Institute

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