Dark money politics: Why Europe should join Biden’s fight against corruption

The mem­bers of the G7 recent­ly reached an agree­ment to cur­tail glob­al tax avoid­ance by multi­na­tion­als, which accounts for more than one-third of for­eign direct invest­ment in glob­al sta­tis­tics – “phan­tom cap­i­tal” that only appears to be such invest­ment. Although the final form of the deal dis­ap­point­ed many civ­il soci­ety organ­i­sa­tions (and appeared to exclude mega­banks), the arrange­ment seems to reflect a recog­ni­tion by its sig­na­to­ries that glob­al­i­sa­tion should not retain the extreme form it has had in recent decades.

European coun­tries and the US could build on the G7 agree­ment, in ways that align with Biden’s for­eign pol­i­cy for the mid­dle class, through the cre­ation of ini­tia­tives to counter klep­to­crats’ abuse of tax havens, shell com­pa­nies, and oth­er struc­tures with­in the inter­na­tion­al finan­cial sys­tem. By estab­lish­ing nation­al anti­cor­rup­tion insti­tu­tions that focus on domes­tic and for­eign pol­i­cy, the allies could pur­sue their strate­gic goals while address­ing pub­lic dis­il­lu­sion­ment with the polit­i­cal sys­tem and the abuse of entrust­ed pow­er in their own societies.

Summary

• Many Europeans and Americans believe that their polit­i­cal sys­tems are corrupt.
• This dis­il­lu­sion­ment, com­bined with klep­to­crats’ increas­ing use of “strate­gic cor­rup­tion” in Europe and else­where, desta­bilis­es Western pol­i­tics and dam­ages the transat­lantic relationship.
• US President Joe Biden has respond­ed to these chal­lenges by declar­ing that the fight against cor­rup­tion is a core nation­al secu­ri­ty pri­or­i­ty and part of his “for­eign pol­i­cy for the mid­dle class”.
• European pol­i­cy­mak­ers should draw on his approach to anti­cor­rup­tion to help rebuild the Western alliance and address the abuse of entrust­ed pow­er in their own societies.
• They should set up high-pro­file, DfID-style nation­al insti­tu­tions that are charged with tack­ling cor­rup­tion and capa­ble of work­ing with­in an inter­na­tion­al network.

Introduction

The anti­cor­rup­tion fight and its fail­ures have begun to trans­form Western pol­i­tics. Donald Trump won the US pres­i­den­cy in a cam­paign that decried graft among politi­cians in Washington, clear­ing the way for four years of unre­pen­tant self-deal­ing in the White House and hav­oc in the transat­lantic rela­tion­ship. Keymem­bers of the British gov­ern­ment trav­elled a sim­i­lar path to pow­er, play­ing on ideas about a venal Brussels elite in a cam­paign that led to the United Kingdom’s depar­ture from the European Union. Authoritarians in Hungary and Poland have cor­rupt­ed state struc­tures so thor­ough­ly that, at one point last year, the EU appeared to stake its future – in the form of its bud­get and its coro­n­avirus recov­ery fund – on strength­en­ing the rule of law in those coun­tries. Public dis­con­tent with cor­rup­tion, real and imag­ined, has unset­tled Western soci­eties. Yet Europe and the United States have an oppor­tu­ni­ty to redi­rect this ener­gy towards strength­en­ing their polit­i­cal sys­tems and renew­ing their alliance.

The oppor­tu­ni­ty has arisen out of two recent devel­op­ments. The first is the advent of Joe Biden’s pres­i­den­cy, which came short­ly after the US Congress passed some of the strongest anti­cor­rup­tion leg­is­la­tion in decades. Layered with­in the National Defense Authorization Act, the leg­is­la­tion is designed to out­law the anony­mous US shell com­pa­nies that have long ben­e­fit­ed cor­rupt lead­ers and crim­i­nal organ­i­sa­tions across the world. Biden has begun to build on this by pri­ori­tis­ing ini­tia­tives to “close the loop­holes that cor­rupt our democ­ra­cy”, as he put it dur­ing his pres­i­den­tial cam­paign. The State Department announced in February 2021 that it would counter this “glob­al threat to secu­ri­ty and democ­ra­cy” by enact­ing reforms that ful­fil the United States’ inter­na­tion­al com­mit­ments on anti­cor­rup­tion, and by strength­en­ing insti­tu­tions that pro­tect the rule of law, as well as civ­il society.

The sec­ond devel­op­ment is Europe’s post-Trump effort to rebuild the transat­lantic rela­tion­ship. In a joint state­ment fol­low­ing its June 2021 sum­mit with the US, the EU stat­ed that it would “lead by exam­ple at home” through “con­crete actions to defend uni­ver­sal human rights, pre­vent demo­c­ra­t­ic back­slid­ing and fight cor­rup­tion”. This came days after the Biden admin­is­tra­tion imposed anti­cor­rup­tion sanc­tions on sev­er­al polit­i­cal­ly influ­en­tial Bulgarians – mea­sures that were long over­due. In the build-up to the administration’s planned Summit for Democracy, European states have a strong diplo­mat­ic incen­tive to address the caus­es of wide­spread pub­lic con­cern about graft: 62 per cent of EU cit­i­zens say that gov­ern­ment cor­rup­tion is a “big prob­lem”, accord­ing to a sur­vey Transparency International con­duct­ed late last year.

Domestically, this means pun­ish­ing and deter­ring bla­tant­ly ille­gal abus­es of entrust­ed pow­er – as well as acts in a legal grey zone that cause vot­ers to see the polit­i­cal sys­tem as cor­rupt – and strength­en­ing the insti­tu­tions that pre­vent such abus­es. Internationally, it means coun­ter­ing author­i­tar­i­an states’ increas­ing use of what Biden calls “strate­gic cor­rup­tion” to achieve their polit­i­cal goals in var­i­ous regions, not least Europe. Such threats often form part of a con­tin­u­um that runs across nation­al bor­ders – as he observed in 2018, com­ment­ing that “there is ample evi­dence of dark mon­ey pen­e­trat­ing oth­er democ­ra­cies, and no rea­son to believe we are immune from this risk.”

For Western pol­i­cy­mak­ers who focus on anti­cor­rup­tion, much of the chal­lenge lies in coun­ter­ing graft in ways that cit­i­zens notice, under­stand, and sup­port. The com­plex and obscure nature of many cor­rup­tion net­works – run­ning through weak­ly reg­u­lat­ed, low-pro­file legal and finan­cial struc­tures in mul­ti­ple coun­tries – is hard to fit into a com­pelling polit­i­cal nar­ra­tive about a government’s com­mit­ment to the rule of law. The chal­lenge is par­tic­u­lar­ly acute in rela­tion to strate­gic cor­rup­tion, which is moti­vat­ed by not just per­son­al gain but also a com­pe­ti­tion for influ­ence between states. Biden argued in 2017 that author­i­tar­i­an lead­ers are able to use this form of cor­rup­tion as a weapon due to “the dif­fi­cul­ty of prov­ing that it even exists, or that its pur­pose is polit­i­cal”. As far as most cit­i­zens of Western coun­tries are con­cerned, many anti­cor­rup­tion ini­tia­tives are sim­i­lar­ly invis­i­ble. Such ini­tia­tives are often dif­fused across a range of gov­ern­ment bod­ies that vot­ers are unlike­ly to asso­ciate with the anti­cor­rup­tion fight either in their own soci­eties or as an ele­ment of for­eign pol­i­cy, such as rel­a­tive­ly low-pro­file finan­cial reg­u­la­tors and units in intel­li­gence agencies.

This paper argues that the US and Europe should strength­en their defences against graft in a way that has sus­tain­able pub­lic sup­port. To achieve this, they should estab­lish nation­al anti­cor­rup­tion insti­tu­tions of a kind unseen in the West. In time, the US gov­ern­ment and its European coun­ter­parts should ensure that these insti­tu­tions col­lab­o­rate with one anoth­er – as part of a net­work designed to counter klep­to­crats and oth­er pow­er­ful cor­rupt actors who threat­en the Western alliance. The insti­tu­tions would coor­di­nate domes­tic and exter­nal anti­cor­rup­tion efforts, while help­ing facil­i­tate for­eign gov­ern­ments’ work in areas such as judi­cial and secu­ri­ty-sec­tor reform.

The paper focus­es on the anti­cor­rup­tion ele­ment of Biden’s “for­eign pol­i­cy for the mid­dle class” and its impli­ca­tions for Europe. The first part of the paper dis­cuss­es the domes­tic ori­gins of his con­cerns about cor­rup­tion, includ­ing the ways in which graft has dam­aged US cit­i­zens’ faith in the polit­i­cal sys­tem. The sec­ond part analy­ses the com­mon threats that cor­rup­tion pos­es to Europe and the US. The third and fourth parts dis­cuss two focal points for transat­lantic coop­er­a­tion against graft: klep­to­crats’ and author­i­tar­i­ans’ use of strate­gic cor­rup­tion to exert influ­ence abroad; and cor­rup­tion enabled by finan­cial multi­na­tion­als. The final part describes how the new anti­cor­rup­tion insti­tu­tions could oper­ate in practice.

Throughout, the paper draws on some of the aspects of anti­cor­rup­tion that Biden appears like­ly to pri­ori­tise. It shows that, by estab­lish­ing such insti­tu­tions, Western coun­tries could simul­ta­ne­ous­ly strength­en their alliance, raise one another’s gov­er­nance stan­dards, and address pub­lic dis­il­lu­sion­ment with their polit­i­cal systems.

The domestic origins of Biden’s anticorruption campaign

Biden’s for­eign pol­i­cy for the mid­dle class is based on a sim­ple idea: ensur­ing that the every­day con­cerns of Americans have greater influ­ence on the United States’ rela­tion­ship with the rest of the world. As he argued in his first for­eign pol­i­cy speech as pres­i­dent, “there’s no longer a bright line between for­eign and domes­tic pol­i­cy. Every action we take in our con­duct abroad, we must take with American work­ing fam­i­lies in mind.” It will be impor­tant for European lead­ers to under­stand some of these con­cerns if they are to antic­i­pate shifts in US anti­cor­rup­tion pol­i­cy under the administration.

While Biden faces a broad­er array of crises than many of his pre­de­ces­sors, he has said sev­er­al times that he will pri­ori­tise efforts to tack­le cor­rup­tion. This may seem an odd choice, giv­en that US admin­is­tra­tions of recent decades have often paid lit­tle atten­tion to the issue. Yet one of Biden’s defin­ing views of inter­na­tion­al rela­tions appears to be that democ­ra­cies are locked in an exis­ten­tial bat­tle with cor­rupt author­i­tar­i­an states. And, in the after­math of the Trump era, there are com­pelling domes­tic rea­sons to pri­ori­tise anti­cor­rup­tion. Much of the moti­va­tion for Biden’s new approach like­ly comes from Americans’ recog­ni­tion of how graft is erod­ing the polit­i­cal system.

American disillusionment

The out­come of Trump’s sec­ond impeach­ment tri­al, announced in the Senate on 13 February 2021, was a low point for account­abil­i­ty in American pol­i­tics. Only 57 sen­a­tors vot­ed to con­vict the for­mer pres­i­dent of incit­ing an insur­rec­tion, falling short of the two-thirds major­i­ty required to find him guilty under the con­sti­tu­tion. Among the 43 who vot­ed for acquit­tal, minor­i­ty leader Mitch McConnell sharply con­demned Trump while main­tain­ing a four-year habit of enabling his per­son­al­i­sa­tion – and mon­eti­sa­tion – of the pres­i­den­cy. Yet McConnell’s rhetoric has not always been emp­ty. As a uni­ver­si­ty lec­tur­er in the 1970s, he claimed that the require­ments for polit­i­cal suc­cess in America are “mon­ey, mon­ey, mon­ey”. That state­ment was nev­er com­plete­ly inac­cu­rate, but it would prove increas­ing­ly apt in the inter­ven­ing decades – part­ly thanks to his efforts.

Between 1986 and 2018, the cost of win­ning a seat in either cham­ber of Congress more than dou­bled (after adjust­ing for infla­tion). On polit­i­cal action com­mit­tees for con­gres­sion­al elec­tions dur­ing the peri­od, the share by which cor­po­rate spend­ing out­stripped labour spend­ing rose from rough­ly 50 per cent to around 300 per cent. The Supreme Court ruled in 2010 that cor­po­ra­tions have a right under the First Amendment to spend unlim­it­ed funds on elec­tion cam­paigns, and can do so with­out pos­ing a sig­nif­i­cant threat of cor­rup­tion – that, put anoth­er way, such spend­ing is a form of free speech. Six years lat­er, the court great­ly nar­rowed the basis on which elect­ed offi­cials can be con­vict­ed of bribery. Meanwhile, US pol­i­cy­mak­ing became ever more pri­va­tised. For instance, dur­ing the cre­ation in 2017 of Trump’s sig­na­ture fis­cal pol­i­cy, a rushed mul­ti­tril­lion-dol­lar tax reform that pri­mar­i­ly ben­e­fit­ed the top 1 per cent of house­holds, the 130 staff on the Senate’s finance and joint tax­a­tion com­mit­tees con­tend­ed with around 6,200 lob­by­ists. No won­der that, accord­ing to a Gallup poll tak­en in 2018, 72 per cent of Americans said that cor­rup­tion is wide­spread in the US gov­ern­ment – a lev­el of cyn­i­cism slight­ly high­er than that of Russians in their views of the Kremlin.

Biden began to empha­sise the impor­tance of such issues in his cam­paign for the pres­i­den­cy, argu­ing that “for too long, spe­cial inter­ests and cor­po­ra­tions have skewed the pol­i­cy process in their favor with polit­i­cal con­tri­bu­tions.” He promised to sign a pres­i­den­tial pol­i­cy direc­tive that would estab­lish com­bat­ing cor­rup­tion as a core nation­al secu­ri­ty inter­est and demo­c­ra­t­ic respon­si­bil­i­ty – a com­mit­ment that he ful­filled in June this year (short­ly before Congress estab­lished a bipar­ti­san cau­cus against kleptocracy).

Key fig­ures in his admin­is­tra­tion have elab­o­rat­ed on the idea of a for­eign pol­i­cy for the mid­dle class and the need to tack­le cor­rup­tion at home and abroad simul­ta­ne­ous­ly. Secretary of State Antony Blinken referred last year to “a cri­sis in the cred­i­bil­i­ty of our insti­tu­tions … cor­rup­tion per­me­at­ing our sys­tems in dif­fer­ent ways”. National Security Advisor Jake Sullivan drew links between eco­nom­ic pol­i­cy and efforts to counter klep­toc­ra­cy. Treasury Secretary Janet Yellen called for new mea­sures to strength­en US anti-mon­ey laun­der­ing laws(and to address the relat­ed issue of glob­al tax avoid­ance). And USAID Administrator Samantha Power iden­ti­fied anti­cor­rup­tion as cru­cial to rebuild­ing the United States’ rep­u­ta­tion as a com­pe­tent inter­na­tion­al actor with unique capa­bil­i­ties – an effort that should begin at home.

In this con­text, ‘the mid­dle class’ appears to be a broad con­cept relat­ed to the soci­etal dam­age caused by dan­ger­ous­ly high lev­els of inequal­i­ty, num­ber­ing as the US does among the 60 nations world­wide with a Gini coef­fi­cient high­er than 40. As such, the Biden administration’s approach to cor­rup­tion is like­ly to have three main strands: restor­ing Americans’ faith in their insti­tu­tions; reform­ing domes­tic polit­i­cal and eco­nom­ic sys­tems that facil­i­tate cor­rup­tion glob­al­ly; and work­ing with for­eign allies to counter the threats that klep­toc­ra­cy pos­es to demo­c­ra­t­ic states. Nonetheless, at times, these strands are so inter­wo­ven as to be indis­tin­guish­able from one anoth­er. One can see this in a series of scan­dals and dis­as­ters that have rever­ber­at­ed between the US and Ukraine in recent years.

Dark money in the heartland

As a tar­get of Russian mil­i­tary aggres­sion and a mem­ber of the Eastern Partnership, Ukraine has received a great deal of atten­tion from European pol­i­cy­mak­ers in the past decade. Support for the country’s bat­tle against Russian-backed klep­to­crats – who aim to weak­en the Ukrainian polit­i­cal sys­tem enough to draw it into the Kremlin’s sphere of influ­ence – is impor­tant to the EU’s efforts to sta­bilise its neigh­bour­hood. For sim­i­lar rea­sons, Ukraine has played an out­sized role in the anti­cor­rup­tion ele­ments of US for­eign pol­i­cy – and in Biden’s recent career.

On a vis­it to Kyiv short­ly after the country’s 2014 Revolution of Dignity, he used meet­ings with lead­ers such as then-pres­i­den­tial can­di­date Petro Poroshenko to implic­it­ly link US aid to Ukrainian anti­cor­rup­tion reforms. By the fol­low­ing year, Biden’s think­ing on the issue appeared to have evolved: he told an audi­ence in Washington that cor­rup­tion had become a strate­gic weapon for hos­tile states such as Russia, as seen in its con­flict with Ukraine. Between the two events, Biden’s son took a seat on the board of Ukrainian ener­gy com­pa­ny Burisma. The appoint­ment would even­tu­al­ly spark a scan­dal that, while it led to an illu­mi­nat­ing debate on the US influ­ence indus­try, seemed large­ly based on unsub­stan­ti­at­ed claims by Trump and his followers.

In 2018 two US cit­i­zens with ties to Dmitry Firtash – a Ukrainian oli­garch who alleged­ly worked with the Kremlin to con­trol ener­gy mar­kets in cen­tral Asia and east­ern Europe – joined Trump ally Rudy Giuliani, along with two for­mer employ­ees of Ukrainian law enforce­ment agen­cies, in a smear cam­paign that tar­get­ed Biden (as well as the then-US ambas­sador to Ukraine, Marie Yovanovitch). The fol­low­ing year, Trump was impeached for alleged­ly threat­en­ing to with­draw US sup­port for Ukraine unless Kyiv: pro­duced com­pro­mis­ing mate­r­i­al on Biden; dis­put­ed evi­dence used in the tri­al of Paul Manafort; and claimed that for­mer Ukrainian offi­cials were behind the 2016 hack of the Democratic National Committee. McConnell and oth­ers ensured that the Senate dis­missed the impeach­ment charge. Still, they could do noth­ing to dis­pel the impres­sion that the Ukrainian polit­i­cal sys­tem, long trou­bled by endem­ic cor­rup­tion, had more par­al­lels with its US coun­ter­part than any­one cared to admit.

If the net­work around Firtash showed how klep­toc­ra­cy could warp US pol­i­tics and pol­i­cy­mak­ing at the high­est lev­el, the net­work around two oth­er Ukrainian oli­garchs revealed how it could dam­age the lives of American cit­i­zens more direct­ly – includ­ing the mid­dle class that Biden seeks to rep­re­sent and pro­tect. Hennady Boholyubov and Ihor Kolomoisky are per­haps best known in the West as the for­mer own­ers of Ukraine’s largest finan­cial com­pa­ny, PrivatBank. In 2016 Kyiv nation­alised the bank in response to an alleged scheme to defraud Ukrainian tax­pay­ers of around $5.5 bil­lion, which fun­nelled mon­ey through the firm’s Cypriot branch. This is just one of the many cas­es in which Boholyubov and Kolomoisky have alleged­ly exploit­ed Western economies’ open­ness to flows of stolen funds.

According to research by the International Consortium of Investigative Journalists (ICIJ), the two mag­nates bought up an array of com­pa­nies and prop­er­ties in the US between 2006 and 2016. They were alleged­ly assist­ed in the task by a European-head­quar­tered firm, Deutsche Bank, which appears to have moved $750m into the US for Kolomoisky over sev­er­al years – even as its employ­ees repeat­ed­ly raised con­cerns about the nature of the trans­ac­tions. In the process, Boholyubov and Kolomoisky trans­ferred funds through com­pa­nies in secre­cy juris­dic­tions such as the British Virgin Islands, Cyprus, and Biden’s home state, Delaware.

They bought up a steel fac­to­ry in Ohio, an inac­tive Motorola plant in Illinois, an office tow­er in Louisville, and more than 20 oth­er prop­er­ties – at one point becom­ing the largest com­mer­cial land­lords in Cleveland. These sup­posed invest­ments fell into a pat­tern of neglect con­sis­tent with large-scale mon­ey laun­der­ing net­works. Multiple vio­la­tions of safe­ty and envi­ron­men­tal laws alleged­ly led to a series of acci­dents that severe­ly wound­ed work­ers, includ­ing explo­sions at fac­to­ries in Indiana and Ohio in 2010 and 2011 respec­tive­ly. As the ICIJ found, at least four steel plants owned by the oli­garchs filed for bank­rupt­cy. Many of the prop­er­ties racked up unpaid tax­es, util­i­ty bills, and debts to local businesses.

Ukrainians will be all too famil­iar with the lega­cy these trans­ac­tions had for some Americans: phys­i­cal and emo­tion­al scars, lost jobs and eco­nom­ic ruin, and fury at a sys­tem that seems to allow the wealthy to oper­ate with impuni­ty. It appears to have been Ukrainian reg­u­la­tors and the National Anti-Corruption Bureau of Ukraine (NABU) – not US reg­u­la­tors, nor the firms prof­it­ing from many of the trans­ac­tions – that were pri­mar­i­ly respon­si­ble for halt­ing the flow of Kolomoisky’s mon­ey into the US, in 2016. In this way, an anti­cor­rup­tion insti­tu­tion in a dis­tant coun­try helped pro­tect American citizens.

The Biden admin­is­tra­tion sanc­tioned Kolomoisky in March 2021. Yet, if the US had in place a ded­i­cat­ed domes­tic anti­cor­rup­tion insti­tu­tion, Americans would like­ly not have been so vul­ner­a­ble in the first place. Such an insti­tu­tion, work­ing in a net­work with those of the country’s allies, could have lim­it­ed the finan­cial and polit­i­cal reach of fig­ures such as Firtash, Boholyubov, and Kolomoisky.

Europe’s and America’s shared corruption problems

Large-scale cor­rup­tion net­works of these kinds, run­ning through gov­ern­ments or through exclu­sive­ly pri­vate chan­nels, are as much a prob­lem for Europe as for the US. The tawdry fire­works of the Trump pres­i­den­cy may have left some cit­i­zens of the EU and the UK with a sense of moral supe­ri­or­i­ty – a con­vic­tion that, how­ev­er bad things were, Americans had it worse. The real­i­ty is less clear-cut.

Like the US, Europe is home to many vot­ers who view the polit­i­cal sys­tem as syn­ony­mous with graft. According to a sur­vey the Pew Research Centre con­duct­ed in 2020, the share of vot­ers who see most politi­cians as cor­rupt is 46 per cent in France, 45 per cent in the UK, and 29 per cent in Germany. As shown by a study the European Council on Foreign Relations con­duct­ed in 2020, an aver­age of 36 per cent of vot­ers in Austria, Denmark, Finland, France, Germany, the Netherlands, Poland, and Sweden are con­cerned about finan­cial waste and cor­rup­tion in coun­tries’ use of the EU coro­n­avirus recov­ery fund.

There could be some recen­cy bias in all these find­ings. The surge of pub­lic pro­cure­ment in response to the pan­dem­ic led to a series of high-pro­file cor­rup­tion cas­es across Europe. The cri­sis has shown European cit­i­zens how, by siphon­ing off pub­lic funds intend­ed for life-sav­ing treat­ment or pre­ven­tion mea­sures, cor­rup­tion net­works can harm peo­ple they know.

In some European coun­tries, the pan­dem­ic has­tened the ero­sion of insti­tu­tions that tra­di­tion­al­ly guard against the abuse of entrust­ed pow­er. Western pol­i­cy­mak­ers gen­er­al­ly recog­nise that, in states such as Iraq and Ukraine, anti­cor­rup­tion reform is close­ly linked to these insti­tu­tions’ capac­i­ty to enforce the rule of law. Without such pro­tec­tion, there is lit­tle to pre­vent politi­cians and oth­er pow­er­ful fig­ures from engag­ing in graft. However, Western gov­ern­ments have not always applied this log­ic at home. Today, pub­lic dis­con­tent with cor­rup­tion among the elite runs much deep­er than the effects of the pandemic.

In March this year, a court in France hand­ed down a three-year sen­tence to for­mer pres­i­dent Nicolas Sarkozy for attempt­ed bribery of a judge in 2014. The deci­sion came a decade after the con­vic­tion on cor­rup­tion charges of anoth­er for­mer pres­i­dent, Jacques Chirac. In both cas­es, the French courts sig­nalled that no one is above the law. And nei­ther Sarkozy nor Chirac com­mit­ted these crimes while serv­ing as pres­i­dent. Yet their behav­iour like­ly height­ened French vot­ers’ cyn­i­cism about the options the polit­i­cal sys­tem presents them with at elec­tions. Former prime min­is­ter François Fillon, who was forced to drop out of the 2017 pres­i­den­tial race due to his involve­ment in an embez­zle­ment case, will have done noth­ing to restore their faith if he – as report­ed – becomes the lat­est retired European politi­cian to join the board of a Russian ener­gy firm.

In the UK, the gov­ern­ment has made sev­er­al attempts to weak­en the insti­tu­tions that guard against the abuse of entrust­ed pow­er. Its con­tort­ed, four-year prepa­ra­tions to leave the EU led it to attack the inde­pen­dence of the judi­cia­ryand – with no appar­ent sense of irony – the suprema­cy of par­lia­ment. More recent­ly, the gov­ern­ment intro­duced leg­is­la­tion on Northern Ireland that would vio­late inter­na­tion­al law in a “spe­cif­ic and lim­it­ed way”; took an approach to pan­dem­ic-relat­ed pub­lic con­tract­ing that, as a poll by Survation found, 59 per cent of vot­ers see as cor­rupt; and put for­ward a bill that appeared to severe­ly lim­it the right to protest (among oth­er dra­con­ian mea­sures). The gov­ern­ment recent­ly com­mit­ted to using sanc­tions to tack­le mon­ey laun­der­ing. However, it was not until March this year that the UK author­i­ties launched their first crim­i­nal pro­ceed­ings against a major bank, NatWest, under 2007 mon­ey laun­der­ing regulations.

In Germany, a recent flur­ry of scan­dals involv­ing law­mak­ers and author­i­tar­i­an-backed cor­rup­tion net­works have – as ECFR’s Majda Ruge and Gustav Gressel write – threat­ened to dam­age pub­lic faith in the polit­i­cal sys­tem. And the col­lapse of Wirecard last year pro­vid­ed one more exam­ple of how the coun­try has failed to counter cor­rup­tion enabled by finan­cial multi­na­tion­als. The pay­ments giant met its fate amid alle­ga­tions that it was entan­gled in mon­ey laun­der­ing net­works, fraud schemes, Firtash’s deal­ings, and even Russian intel­li­gence oper­a­tions. Berlin report­ed­ly con­sid­ered bail­ing out the firm, only to decide against it at the last minute. Even before the sto­ry broke, it was hard to avoid the con­clu­sion that Europe’s most pow­er­ful state lacked the pow­er (or incli­na­tion) to uphold the rule of law in the finan­cial sys­tem. For instance, Deutsche Bank has been impli­cat­ed in every­thing from the Russian mir­ror trades scan­dal and vio­la­tions of sanc­tions on Iran and Syria to, as dis­cussed, Ukrainian oli­garchs’ dubi­ous acqui­si­tions in the US. Since 2002, the com­pa­ny has paid more than $15 bil­lion in fines to US reg­u­la­tors for a litany of crimes. But none of this stopped Chancellor Angela Merkel from deliv­er­ing a wel­come speech at the bank’s 2021 new year’s reception.

Meanwhile, rev­e­la­tions about mon­ey laun­der­ing through firms such as Swedbank and Nordea Bank have tar­nished the rep­u­ta­tions of sev­er­al Scandinavian coun­tries. Chief among these cas­es is that at Danske Bank, which alleged­ly facil­i­tat­ed the move­ment of around $230 bil­lion in stolen funds through its Estonian branch between 2007 and 2015. For cit­i­zens who fol­lowed the sto­ry close­ly, Denmark like­ly became one of many European states whose self-image as a com­mit­ted democ­ra­cy con­trast­ed with its role in enabling klep­toc­ra­cy else­where in the world.

The sit­u­a­tion in oth­er parts of the EU is even more dis­con­cert­ing. The rise of cor­rupt lead­ers in Poland and Hungary is well doc­u­ment­ed, involv­ing their gov­ern­ments’ alleged efforts to cur­tail the inde­pen­dence of the judi­cia­ry and divert EU funds to polit­i­cal allies, among oth­er trans­gres­sions. In the last few years, major cor­rup­tion scan­dals have roiled nations such as Croatia, Cyprus, Malta, Romania, Slovakia, and Slovenia – some­times lead­ing to wide­spread protests. The first EU report on mem­ber states’ adher­ence to the rule of law, pub­lished in September 2020, may have sev­er­al prob­lems with its method­ol­o­gy. But it found seri­ous weak­ness­es in the demo­c­ra­t­ic stan­dards of these coun­tries (and even short­com­ings relat­ed to civ­il soci­ety, crim­i­nal pro­ce­dure, and free­dom of expres­sion in Greece, Italy, and Spain respec­tive­ly). Judging by the report, Europeans might ask whether the EU’s con­tri­bu­tion to democ­ra­ti­sa­tion ends with the acces­sion process – espe­cial­ly giv­en that its Cooperation and Verification Mechanism does not seem to have improved these stan­dards in either of the two coun­tries in its remit, Bulgaria and Romania.

The EU’s reliance on una­nim­i­ty hob­bles its insti­tu­tions’ efforts to address cor­rup­tion in mem­ber states. The bloc was remind­ed of this last November, when Hungary and Poland vetoed its bud­get and coro­n­avirus recov­ery fund rather than accept finan­cial con­straints designed to deter fur­ther vio­la­tions of the rule of law. The EU even­tu­al­ly relent­ed by kick­ing the dis­pute to the European Court of Justice – appar­ent­ly in the hope of find­ing a legal­is­tic solu­tion to a polit­i­cal prob­lem. Influential European coun­tries could still pres­sure Hungary, Poland, and oth­er mem­ber states into demo­c­ra­t­ic reforms. But they would prob­a­bly have to do so as part of an anti­cor­rup­tion alliance – a coali­tion of the will­ing – rather than through the una­nim­i­ty-locked struc­tures of the EU.

In light of all this, European lead­ers who are con­cerned about the decline of democ­ra­cy at home and abroad should share many of Biden’s rea­sons for launch­ing an inter­na­tion­al cam­paign against cor­rup­tion. If the Trump era helped Biden recog­nise why anti­cor­rup­tion is an impor­tant ele­ment of a for­eign pol­i­cy cen­tred on domes­tic con­cerns, European states should react to their own strug­gles with graft in a sim­i­lar fashion.

It is cru­cial for Western coun­tries to not only tack­le transna­tion­al cor­rup­tion effec­tive­ly but to be seen to be doing so in ways the pub­lic finds per­sua­sive and respon­sive. Multilateral agree­ments are often use­ful for address­ing inter­na­tion­al prob­lems. But as shown by the EU’s fis­cal rules – which it was forced to sus­penddur­ing the pan­dem­ic – they can lead to pol­i­cy that is rigid, ill-suit­ed to deal­ing with crises, and short on demo­c­ra­t­ic legit­i­ma­cy. When lead­ers make social­ly trans­for­ma­tive deci­sions for demo­c­ra­t­ic states but vot­ers have no way to hold them account­able, pub­lic dis­il­lu­sion­ment with democ­ra­cy grows.

Some European gov­ern­ments may reject Biden’s view of inter­na­tion­al rela­tions as a strug­gle between democ­ra­cy and autoc­ra­cy, but they are all look­ing for ways to rebuild the transat­lantic rela­tion­ship after a dif­fi­cult four years. Anticorruption pol­i­cy pro­vides a way to do so with­out van­ish­ing into the kinds of grand strat­e­gy and geopo­lit­i­cal manoeu­vres that often seem remote from cit­i­zens’ lives. This pol­i­cy should involve the cre­ation of nation­al anti­cor­rup­tion insti­tu­tions to sig­nal to allies and, more impor­tant­ly, vot­ers that the gov­ern­ment is com­mit­ted to tack­ling graft. These insti­tu­tions should ini­tial­ly focus on two main themes: strate­gic cor­rup­tion, and cor­rup­tion enabled by finan­cial multinationals.

Strategic corruption

Trump is cul­pa­ble for much of the recent dam­age to the Western alliance, but not all of it. European lead­ers occa­sion­al­ly appeared to use his pres­i­den­cy as an excuse to pur­sue con­tro­ver­sial poli­cies they would have favoured any­way, jus­ti­fy­ing their actions as an asser­tion of ‘European sov­er­eign­ty’. On issues such as eco­nom­ic rela­tions with China, the euro’s glob­al role, and the Nord Stream 2 pipeline, the volatile bul­ly in the White House made for an ide­al foil in argu­ments that seemed more focused on com­mer­cial oppor­tu­ni­ties for multi­na­tion­als head­quar­tered in Europe than on the long-term inter­ests of European cit­i­zens. After the US shift­ed towards stark uni­lat­er­al­ism under Trump, its tra­di­tion­al allies in Europe had few­er oppor­tu­ni­ties to strength­en – but also few­er respon­si­bil­i­ties to main­tain – the transat­lantic relationship.

However, it is a new era. In his first major speech as sec­re­tary of state, Blinken men­tioned the threat of cor­rup­tion three times and empha­sised that “part­ner­ship means car­ry­ing bur­dens togeth­er, every­one doing their part – not just us”. “Wherever the rules for inter­na­tion­al secu­ri­ty and the glob­al econ­o­my are being writ­ten”, he said, “America will be there”. Blinken’s state­ment seemed to sig­nal that, while the tran­si­tion from Trump to Biden has many ben­e­fits for Europe, it also comes with new responsibilities.

By estab­lish­ing a net­work of nation­al anti­cor­rup­tion insti­tu­tions, European coun­tries and the US could engage in the kind of coop­er­a­tion against com­mon threats that would help repair the Western alliance. Through these insti­tu­tions, the allies could improve the trans­paren­cy and domes­tic legit­i­ma­cy of their own anti­cor­rup­tion cam­paigns. This would, in turn, push them to repli­cate the ele­ments of one another’s cam­paigns that proved effec­tive. Eventually, some of the insti­tu­tions’ most impor­tant work could focus on issues that required a great deal of intro­spec­tion – such as, in the British case, London’s out­sized role in inter­na­tion­al mon­ey laun­der­ing net­works. But, in the search for com­mon ground on which to rebuild the transat­lantic rela­tion­ship, the insti­tu­tions could ini­tial­ly focus on strate­gic cor­rup­tion in the fol­low­ing areas.

The EU’s neigh­bour­hood. The EU and the US both want to sta­bilise coun­tries in the bloc’s neigh­bour­hood and, in some instances, pro­tect their devel­op­ment into func­tion­ing democ­ra­cies and draw them into the Western alliance. This is why European and American pol­i­cy­mak­ers have some­times sought to lim­it the pow­er of oli­garchs who warp, through cor­rup­tion, the polit­i­cal sys­tems of states to the EU’s east and south.

It would be impos­si­ble to address the strate­gic chal­lenges Europeans face in these nations – be it polit­i­cal tur­moil in post-Soviet coun­tries or con­flict in the Middle East – with­out account­ing for the gov­er­nance prob­lems cre­at­ed by klep­to­crats. Governments’ sup­pres­sion of protests against a cor­rupt polit­i­cal sys­tem was at the heart of some of the deep­est crises in the EU’s neigh­bour­hood in the past decade, from the con­flict in Syria to the state vio­lence that helped spark the 2014 rev­o­lu­tion in Ukraine.As Biden remarked in 2015 when dis­cussing Russia’s use of strate­gic cor­rup­tion in Ukraine, “we need to help some of the new­er EU nations and those aspir­ing to join them, to shore up their insti­tu­tions, to put in place the mech­a­nism required to avoid becom­ing vul­ner­a­ble to this new for­eign pol­i­cy weapon.”

China. By labelling China as a “sys­temic rival” in 2019, EU pol­i­cy­mak­ers expressed some of the same con­cerns that their US coun­ter­parts had long held about Beijing’s grow­ing pow­er. The EU and the US are still at odds with each oth­er on a range of China-relat­ed issues. Yet the need to com­bat China’s alleged use of strate­gic cor­rup­tion should be a point on which they can agree.

In recent years, Beijing has report­ed­ly expand­ed its influ­ence through the use of bribery and oth­er cor­rupt bar­gains with com­pa­nies and polit­i­cal lead­ers in Africa, often as part of its Belt and Road Initiative. For exam­ple, mas­sive inflows of Chinese invest­ment have alleged­ly helped sup­port the cor­rupt, author­i­tar­i­an regime in Djibouti, a coun­try that is in a strate­gi­cal­ly impor­tant posi­tion on inter­na­tion­al trade routes and that hosts both US and Chinese mil­i­tary bases. Such Chinese activ­i­ties could thwart the EU’s efforts to deep­en its eco­nom­ic rela­tion­ships with coun­tries in Africa – efforts that the bloc’s for­eign pol­i­cy chief, Josep Borrell, advo­cat­ed last year as part of the response to the pan­dem­ic. In doing so, he devel­oped Europeans’ every­day health con­cerns – their height­ened sense of vul­ner­a­bil­i­ty to China as a sys­temic rival – into an ele­ment of for­eign pol­i­cy. European lead­ers should respond to pub­lic con­cerns about cor­rup­tion in a sim­i­lar way.

The UK, for its part, could be a will­ing part­ner in ini­tia­tives to address Chinese-backed cor­rup­tion in Africa, giv­en its recent moves to oppose Beijing’s human rights abus­es in Xinjiang and Hong Kong, and its dis­cus­sion of cor­rup­tion and illic­it finance in its 2021 inte­grat­ed review. The EU, aim­ing to show that it can pro­vide a demo­c­ra­t­ic alter­na­tive to Chinese eco­nom­ic activ­i­ties in Africa, could start by cur­tail­ing cor­rup­tion net­works’ alleged use of the euro to bypass US sanc­tions designed to pre­vent exploita­tion of African coun­tries’ nat­ur­al resources – and per­haps by build­ing on the G7’s pro­pos­al for a Clean Green Initiative.

Transnational organ­ised crime groups. Europol pub­lished in April 2021 its first threat assess­ment of seri­ous and organ­ised crime in four years. The report finds that 60 per cent of organ­ised crime groups in Europe reg­u­lar­ly use cor­rup­tion to achieve their ends, that legal busi­ness struc­tures are impor­tant to more than 80 per cent of crim­i­nal net­works, and that such activ­i­ty has a severe impact on the lives of EU cit­i­zens. Some organ­ised crime groups occa­sion­al­ly work on behalf of author­i­tar­i­an states such as Russia. European coun­tries could, along­side the US, address the anti­cor­rup­tion aspects of these prob­lems, ini­tial­ly by tar­get­ing groups that are equal­ly threat­en­ing to America and Europe.

One such organ­i­sa­tion is the Lebanese-based Hizbullah, which the US Office of the Director of National Intelligence list­ed along­side Cuba, Iran, Russia, and Venezuela in its report on for­eign inter­fer­ence in the November 2020 pres­i­den­tial elec­tion. Trump open­ly encour­aged for­eign enti­ties to inter­fere in US elec­tions. Biden has a whol­ly dif­fer­ent atti­tude to such behav­iour. He recent­ly announced new sanc­tions on Russia in response to the activ­i­ties dis­cussed in the report, after declar­ing that the coun­try would “pay a price” for its interference.

A sim­i­lar pun­ish­ment could await Hizbullah. Its impor­tance in Lebanese pol­i­tics aside, the group is remark­able for the sheer ambi­tion and geo­graph­i­cal scope of its alleged involve­ment in transna­tion­al organ­ised crime and cor­rup­tion. Its report­ed activ­i­ties include exploit­ing Gambia’s econ­o­my under klep­to­crat Yahya Jammeh; back­ing the cor­rupt author­i­tar­i­an gov­ern­ment of Venezuela; form­ingpart­ner­ships with Mexican and Colombian nar­co-ter­ror­ist organ­i­sa­tions; laun­der­ing mon­ey through a bank linked to the Syrian regime’s chem­i­cal weapons pro­gramme; traf­fick­ing drugs such as cocaine and Captagon into the US and Europe; and even stock­pil­ing explo­sives in London. The rev­enue from such activ­i­ties alleged­ly helps sup­port Hizbullah’s mil­i­tary and polit­i­cal oper­a­tions in Lebanon, Syria, and oth­er parts of the Middle East.

In all three of these areas, European coun­tries should coop­er­ate with the US to destroy the finan­cial net­works that sup­port klep­to­crats’ oper­a­tions. This should be one of the main aims of nation­al anti­cor­rup­tion insti­tu­tions as they coor­di­nate the some­times-dis­joint­ed anti­cor­rup­tion work of – for instance – finan­cial reg­u­la­tors, intel­li­gence agen­cies, law-enforce­ment bod­ies, ethics com­mit­tees, and eco­nom­ic pol­i­cy­mak­ers. The polit­i­cal impe­tus to do so can come from the high lev­els of pub­lic con­cern about cor­rup­tion in many Western coun­tries. As with the Africa pol­i­cy advo­cat­ed by Borrell, it will be up to European and US lead­ers to explain to vot­ers how tack­ling a strate­gic prob­lem abroad pro­tects cit­i­zens at home.

Corruption enabled by financial multinationals

The European and American finan­cial sys­tems are so inte­grat­ed that it is some­times impos­si­ble to tell where one ends and the oth­er begins. Kleptocrats have exploit­ed the weak­ness­es and uncer­tain­ties of this inte­gra­tion to cre­ate far-reach­ing net­works of impuni­ty in Europe.

The glob­al finan­cial sys­tem is dis­tinct from many oth­er forms of infra­struc­ture in the role it assigns to Western multi­na­tion­als. Entities such as cen­tral banks and the SWIFT mes­sag­ing ser­vice are vital to the sys­tem. However, the sys­tem is large­ly made up of major finan­cial com­pa­nies – sev­er­al of which have bal­ance sheets larg­er than the GDP of most countries.

In some ways, such firms are to finan­cial infra­struc­ture what roads and high­ways are to trans­port infra­struc­ture. Most inter­na­tion­al trans­ac­tions flow through them. And Western states have large­ly del­e­gat­ed over­sight of finan­cial crime to finan­cial multi­na­tion­als, which spent an esti­mat­ed $180 bil­lion on com­pli­ance with mon­ey-laun­der­ing and sanc­tions rules in 2020 alone. But these com­pa­nies are not up to the task.

As seen in the tor­rent of cor­rup­tion scan­dals that has engulfed finan­cial multi­na­tion­als such as HSBC, BNP Paribas, Danske Bank, Deutsche Bank, and Goldman Sachs in the past decade, mega­banks have become one of the main mech­a­nisms through which klep­to­crats – who have stolen the wealth of their home states – expand their finan­cial and polit­i­cal pow­er inter­na­tion­al­ly. If Western gov­ern­ments are to counter this threat, they will require a new approach to finan­cial multi­na­tion­als. Put anoth­er way, they will need to adjust the rela­tion­ship between the state and the market.

Biden’s cam­paign against graft will almost cer­tain­ly reverse many poli­cies of his pre­de­ces­sor – who, for exam­ple, report­ed­ly attempt­ed to cut bil­lions of dol­lars from aid pro­grammes designed to com­bat cor­rup­tion in states such as Ukraine. However, the most con­se­quen­tial shift in anti­cor­rup­tion pol­i­cy under Biden could cen­tre on the rela­tion­ship between the state and the mar­ket. This would mean a break with not just Trump but sev­er­al pres­i­dents before him.

Senior mem­bers of the Biden admin­is­tra­tion have sig­nalled such a shift. In July 2020, Blinken dis­cussed the chal­lenges for the US that come from “a huge dif­fu­sion of pow­er away from states, and a grow­ing ques­tion­ing of gov­er­nance with­in states”. (He appeared to be refer­ring to states’ rela­tion­ships with all sorts of enti­ties – not just the mar­ket.) Sullivan com­ment­ed on the issue more direct­ly the pre­vi­ous month. He said that a “reck­on­ing” was tak­ing place in America about the future of the econ­o­my, and that “it’s time for for­eign pol­i­cy­mak­ers to get into the game as well”. In an arti­cle co-writ­ten with Jennifer Harris ear­li­er in the year, Sullivan argued that some aspects of Washington’s geo-eco­nom­ic pol­i­cy have had lit­tle ben­e­fit for mid­dle-class Americans, cit­ing trade nego­ti­a­tions that pri­ori­tised Goldman Sachs’s access to Chinese finan­cial markets.

In 2020 the bank – nick­named ‘Government Sachs’ for its once and future employ­ees’ abil­i­ty to gain posi­tions of pow­er – account­ed for around 90 per cent of US reg­u­la­tors’ fines for non-com­pli­ance with rules on anti-mon­ey laun­der­ing, know your cus­tomer pro­ce­dures, data pri­va­cy, and the Markets in Financial Instruments Directive. Most of these penal­ties relat­ed to the firm’s involve­ment in the 1Malaysia Development Berhad (1MDB) cor­rup­tion scan­dal, which impli­cat­ed for­mer prime min­is­ter Najib Razak and busi­ness­man Jho Low in the theft of bil­lions of dol­lars from the Malaysian sov­er­eign wealth fund.

Goldman Sachs is among many “sys­tem­i­cal­ly impor­tant insti­tu­tions” to have received multi­bil­lion-dol­lar fines for their entan­gle­ment in inter­na­tion­al cor­rup­tion net­works. Governments apply the label to finan­cial multi­na­tion­als in recog­ni­tion of the fact that their fail­ure could desta­bilise the glob­al econ­o­my. Yet, even with the des­ig­na­tion in place, most of these firms have bro­ken the law so often that this appears to be part of their busi­ness models.

The $6.8 bil­lion in fines Goldman Sachs paid to reg­u­la­tors around the world for its involve­ment in 1MDB is sig­nif­i­cant but not unusu­al. Penalties such as this one almost cer­tain­ly fail to cap­ture the true scale of mega­banks’ crimes, giv­en the many weak­ness­es of gov­ern­ments’ finan­cial reg­u­la­to­ry and enforce­ment regimes. Nonetheless, glob­al­ly, banks have paid around $320 bil­lion to reg­u­la­tors for vio­la­tions of mon­ey laun­der­ing, ter­ror­ist financ­ing, mar­ket manip­u­la­tion, and oth­er reg­u­la­to­ry stan­dards since 2008. Many of these fines may be uncon­nect­ed to cor­rup­tion net­works, but those that are so con­nect­ed like­ly run into the hun­dreds of bil­lions of dollars.

Deutsche Bank’s alleged role in the Boholyubov and Kolomoisky net­work should have shown Western gov­ern­ments how mega­banks’ untouch­able sta­tus can harm cit­i­zens at home. So should have the finan­cial fall­out from the scan­dal at Danske Bank (a case that the European Banking Authority even­tu­al­ly declined to inves­ti­gate). Yet mega­banks’ ded­i­ca­tion to reof­fend­ing sug­gests that they have acquired such an impor­tant role in the econ­o­my that gov­ern­ments dare not hold them to account as they would a small­er com­pa­ny in the same industry.

These kinds of leviathan firms have often been cen­tral to the threat that cor­rup­tion pos­es to Western soci­eties. Long before the era of finan­cial glob­al­i­sa­tion or even the oli­gop­o­lies of the Gilded Age, the East India Company showed how destruc­tive it could be for gov­ern­ments to allow pri­vate inter­ests to acquire pow­ers usu­al­ly reserved for states.

At the height of its influ­ence in the eigh­teenth cen­tu­ry, the trad­ing firm plun­dered India so remorse­less­ly that it could afford to main­tain a stand­ing army larg­er than that of any Asian coun­try, and to cor­rupt the British polit­i­cal process by buy­ing off MPs rep­re­sent­ing “rot­ten bor­oughs”. The East India Company’s dom­i­nance over much of the British econ­o­my seemed to make it indis­pens­able. It was not until the 1786 impeach­ment of Warren Hastings, the first gov­er­nor-gen­er­al of India and a for­mer employ­ee of the firm, that ele­ments with­in the British state made a con­vinc­ing attempt to address the threat. Edmund Burke, who led the impeach­ment, con­demned Hastings for what he called “geo­graph­i­cal moral­i­ty … as if, when you have crossed the equa­to­r­i­al line, all the virtues die”. “Every oth­er con­queror”, Burke added, “has left some­thing behind him”.

That impeach­ment tri­al ran between 1788 and 1795 but – like both of Trump’s – end­ed in fail­ure. As his­to­ri­an William Dalrymple shows, an enter­prise that began in 1600 with a pio­neer­ing com­mer­cial idea, the joint-stock com­pa­ny, would even­tu­al­ly cut a wake of dev­as­ta­tion halfway across the world and cor­rupt the pol­i­tics of its home state.

Modern finan­cial multi­na­tion­als are far from becom­ing as destruc­tive as the East India Company – even if, as illus­trat­ed by the cas­es dis­cussed above, they have often engaged in eco­nom­ic exploita­tion that has severe polit­i­cal con­se­quences at home and in dis­tant coun­tries. However, the his­to­ry of all these firms has a straight­for­ward les­son for European and American pol­i­cy­mak­ers: left unchecked, con­cen­tra­tions of com­mer­cial pow­er pro­duce con­cen­tra­tions of polit­i­cal pow­er. In any soci­ety that is trou­bled by wide­spread cor­rup­tion and wants to retain its demo­c­ra­t­ic char­ac­ter, pol­i­cy on the finan­cial sys­tem should be about not only eco­nom­ics but also demo­c­ra­t­ic accountability.

To con­duct an effec­tive inter­na­tion­al cam­paign against cor­rup­tion, Europe and the US will require eco­nom­ic poli­cies that account for the ways in which mega­banks’ busi­ness prac­tices influ­ence pol­i­tics at home and abroad. Many cit­i­zens of Western states like­ly ignore inter­na­tion­al cas­es such as 1MDB, but they are not blind to dys­func­tion in the glob­al finan­cial sys­tem. The biggest recent spike in Americans’ cyn­i­cism about cor­rup­tion in the US gov­ern­ment came not under Trump but in the wake of the 2007–2008 finan­cial cri­sis. The share of US vot­ers who saw cor­rup­tion as wide­spread in the gov­ern­ment leaptfrom 67 per cent to 79 per cent between 2007 and 2013 (before set­tling at around 75 per cent). A plau­si­ble expla­na­tion for this trend is that a grow­ing num­ber of Americans believed the gov­ern­ment had placed the wel­fare of finan­cial multi­na­tion­als above that of citizens.

Conclusion and recommendations

Corruption pos­es two main threats to Western democ­ra­cies. The first is that, in many European coun­tries and the US, an unset­tling­ly large share of vot­ers see the domes­tic polit­i­cal sys­tem and their elect­ed lead­ers as cor­rupt. Western gov­ern­ments need to address this dis­il­lu­sion­ment – which helped bring Trump and oth­ers like him to pow­er – if they are to sus­tain pub­lic engage­ment with demo­c­ra­t­ic politics.

The sec­ond threat comes from the way in which author­i­tar­i­an states use cor­rup­tion to build up their polit­i­cal and eco­nom­ic pow­er in the West, as well as places such as east­ern Europe, the Middle East, and Africa. When the Kremlin coor­di­nates with Ukrainian oli­garchs and Beijing spon­sors African auto­crats, they under­mine Europe’s efforts to bring sta­bil­i­ty, shared pros­per­i­ty, and demo­c­ra­t­ic account­abil­i­ty to these regions. When author­i­tar­i­an regimes appointretired Western politi­cians to lucra­tive roles in state-owned com­pa­nies, or appear to covert­ly fund Western polit­i­cal par­ties, they under­mine vot­ers’ faith in the polit­i­cal sys­tem and, per­haps, shape pol­i­cy in line with their interests.

Traditional mul­ti­lat­er­al ini­tia­tives such as the UN Convention against Corruptioncan help address the sec­ond of these threats. But they can­not do a great deal about the first. World lead­ers’ dec­la­ra­tions in Geneva or New York will restore lit­tle pub­lic faith in the domes­tic polit­i­cal sys­tem if cit­i­zens regard these same lead­ers as cor­rupt. This dynam­ic also applies in Brussels. The EU and its mem­ber states, includ­ing the UK in its time, have made many a pub­lic com­mit­ment to democ­ra­tis­ing Europe. Yet they have failed to pre­vent the ero­sion of demo­c­ra­t­ic stan­dards and insti­tu­tions in coun­tries such as Bulgaria, Hungary, Poland, and oth­ers – or to bring demo­c­ra­t­ic account­abil­i­ty to every part of the finan­cial system.

One of the main chal­lenges for Europe is in deal­ing with these two threats simul­ta­ne­ous­ly: coun­ter­ing strate­gic cor­rup­tion in a way that address­es Europeans’ con­cerns about graft in the domes­tic polit­i­cal sys­tem. In this sense, on anti­cor­rup­tion, European coun­tries need their own for­eign pol­i­cy for the mid­dle class.

When vot­ers com­plain that the gov­ern­ment is cor­rupt, they are say­ing that it pri­mar­i­ly serves pri­vate inter­ests and, as a result, has lost its demo­c­ra­t­ic legit­i­ma­cy. Therefore, the solu­tion to this dis­il­lu­sion­ment should come from the kinds of insti­tu­tions that help gen­er­ate and medi­ate such legit­i­ma­cy. In even the most pro-EU coun­tries, these are pri­mar­i­ly nation­al insti­tu­tions. This is because nation­al elec­tions are the chief means through which cit­i­zens assert their polit­i­cal views and grant politi­cians the author­i­ty to lead. National insti­tu­tions can rep­re­sent vot­ers with the flex­i­bil­i­ty, vis­i­bil­i­ty, and respon­sive­ness that are lack­ing in grand mul­ti­lat­er­al ini­tia­tives and strategies.

The DfID model

A promis­ing mod­el for nation­al anti­cor­rup­tion insti­tu­tions is the UK’s Department for International Development (DfID). Last year, the British gov­ern­ment fold­ed the insti­tu­tion into what was then the Foreign and Commonwealth Office (FCO). The estab­lish­ment of DfID two decades ear­li­er came as part of an attempt to ensure that the UK achieved one of its strate­gic goals: glob­al pover­ty reduc­tion. The gov­ern­ment of the day rea­soned that this was impor­tant enough to war­rant a more focused, inde­pen­dent approach – and that a ded­i­cat­ed insti­tu­tion would improve the trans­paren­cy and account­abil­i­ty of spend­ing on for­eign aid. Otherwise, so the argu­ment went, there was a dan­ger that this strate­gic goal would be lost among the FCO’s far-reach­ing aims, which involved every­thing from inter-state diplo­ma­cy to pro­mot­ing British com­pa­nies abroad.

Such a fate has befall­en many past efforts to counter graft. For exam­ple, the US anti­cor­rup­tion pro­gramme in Afghanistan was cru­cial to Washington’s attempt to achieve one of its strate­gic goals: build­ing a demo­c­ra­t­ic Afghan state. But, as for­mer US mil­i­tary advis­er Sarah Chayes recounts, the programme’s work was often side­lined by com­pet­ing diplo­mat­ic, intel­li­gence, and mil­i­tary oper­a­tions that ran on short­er – seem­ing­ly more urgent – time­lines. Arguably, if the anti­cor­rup­tion pro­gramme had the back­ing of a ded­i­cat­ed insti­tu­tion such as DfID, it would have found it eas­i­er to hold its own in inter­ac­tions with enti­ties such as the State Department, Central Command, and the CIA.

Another of DfID’s strengths was that it cre­at­ed a polit­i­cal­ly use­ful degree of sep­a­ra­tion from the FCO. Although the two insti­tu­tions were ulti­mate­ly under the lead­er­ship of the same gov­ern­ment, DfID could cred­i­bly claim to focus on chal­lenges such as pover­ty alle­vi­a­tion for their own sake – rather than as part of a quid pro quo involv­ing British diplo­mat­ic or com­mer­cial inter­ests. As such, it was eas­i­er for for­eign gov­ern­ments to accept assis­tance from DfID than from the FCO. An image of impar­tial­i­ty could be impor­tant to Western anti­cor­rup­tion pro­grammes abroad, espe­cial­ly in coun­tries in which the gov­ern­ment labels organ­i­sa­tions that pro­mote democ­ra­cy as “for­eign agents”.

Domestically, much of DfID’s val­ue as a mod­el for anti­cor­rup­tion insti­tu­tions comes from the pub­lic recog­ni­tion it gained. In some ways, the insti­tu­tion was too well known for its own good, giv­en that its merg­er with the FCO came after it was caught up in a polit­i­cal dis­pute about whether the UK spent too much on for­eign aid. Nonetheless, accord­ing to a sur­vey con­duct­ed in March 2020, only 48 per cent of British vot­ers did not know or did not care about the merg­er. This is a sur­pris­ing­ly low fig­ure for an insti­tu­tion whose pro­grammes had lit­tle direct impact on their lives.

Western gov­ern­ments should con­sid­er this sort of qua­si-inde­pen­dent, DfID-style mod­el when set­ting up nation­al anti­cor­rup­tion insti­tu­tions. Institutions ded­i­cat­ed to pub­licly hold­ing to account pow­er­ful polit­i­cal and busi­ness lead­ers at home, as well as abroad, could begin to restore cit­i­zens’ faith in the polit­i­cal sys­tem. For instance, in the case of Boholyubov’s and Kolomoisky’s US oper­a­tions, an anti­cor­rup­tion insti­tu­tion could have helped ensure that the gov­ern­ment prac­tised in America what it preached in Ukraine. Moreover, such an insti­tu­tion could out­last any one admin­is­tra­tion, increas­ing the resilience of the nation­al anti­cor­rup­tion cam­paign. And, when deal­ing with transna­tion­al cor­rup­tion net­works that run through finan­cial multi­na­tion­als, the institution’s dual focus on domes­tic and for­eign cor­rup­tion would enable it to track the oper­a­tions of these firms wher­ev­er they led.

Networked anticorruption institutions

The cre­ation of nation­al anti­cor­rup­tion insti­tu­tions in this mould should not lead Western states towards uni­lat­er­al­ism. Some of the most resilient forms of inter­na­tion­al coop­er­a­tion against com­mon threats involve net­works of nation­al insti­tu­tions, such as the Five Eyes intel­li­gence alliance, rather than broad mul­ti­lat­er­al arrange­ments. On anti­cor­rup­tion, these coali­tions of the will­ing should include Western states that have a sim­i­lar com­mit­ment to inde­pen­dent insti­tu­tions and a shared desire to rebuild the transat­lantic alliance around demo­c­ra­t­ic norms and standards.

For instance, the UK’s depar­ture from the EU may have dam­aged its rela­tion­ship with France more than any event in decades, but cit­i­zens in both coun­tries are con­cerned about cor­rup­tion in the domes­tic polit­i­cal sys­tem. Collaborating through nation­al anti­cor­rup­tion insti­tu­tions, France and the UK could sup­port the civ­il soci­ety organ­i­sa­tions that have done a great deal to com­pen­sate for short­com­ings in anti­cor­rup­tion pol­i­cy in recent years, such as the ICIJ and the Organised Crime and Corruption Reporting Project. By launch­ing this kind of joint ini­tia­tive, Paris and London could pres­sure each oth­er into reforms or inves­ti­ga­tions when the organ­i­sa­tions uncov­ered evi­dence of cor­rup­tion involv­ing French or British com­pa­nies or politi­cians. In doing so, they would demon­strate to French and British cit­i­zens a nation­al com­mit­ment to such reforms. Other gov­ern­ments could join this ini­tia­tive, there­by demon­strat­ing to vot­ers that they were tak­ing action to address the threat.

Similarly, Berlin and Washington may dis­agree on issues such as Nord Stream 2, but they both aim to sta­bilise Ukraine by pro­tect­ing the country’s polit­i­cal sys­tem from the depre­da­tions of Kremlin-backed oli­garchs. Coordinating their work through nation­al anti­cor­rup­tion insti­tu­tions, the two allies could pun­ish and deter these cor­rupt actors by tar­get­ing their assets, includ­ing those in German- and US-head­quar­tered megabanks.

European coun­tries’ anti­cor­rup­tion insti­tu­tions could focus on many broad­er areas. Corporate account­abil­i­ty is one: for instance, fol­low­ing the deba­cles over Wirecard and Nord Stream 2, the German gov­ern­ment could task such an insti­tu­tion with assess­ing and pub­li­cis­ing the cor­rup­tion risks asso­ci­at­ed with promi­nent firms and eco­nom­ic projects that receive high-lev­el polit­i­cal spon­sor­ship. Another such area is the abuse of the legal sys­tem: a British insti­tu­tion of this kind could over­see the imple­men­ta­tion of leg­is­la­tion to pre­vent alleged klep­to­crats from launch­ing report­ed­ly vex­a­tious law­suits against jour­nal­ists and oth­er mem­bers of civ­il society.

However, finance is per­haps the most com­pelling area in which to begin. In June 2021, the Financial Action Task Force placed Malta on its grey list along­side coun­tries such as Pakistan, South Sudan, and Syria – sub­ject­ing the EU mem­ber state to increased mon­i­tor­ing due to its report­ed vul­ner­a­bil­i­ty to inter­na­tion­al mon­ey laun­der­ing and ter­ror­ist financ­ing. Like the sanc­tions the US imposed on polit­i­cal­ly influ­en­tial Bulgarians, this was an indict­ment of European coun­tries’ defences against large-scale cor­rup­tion networks.

The European Public Prosecutor’s Office, an EU insti­tu­tion that became oper­a­tional in June, expressed sup­port for Bulgarian cit­i­zens fol­low­ing the sanc­tions – and may even­tu­al­ly help address some of these broad­er chal­lenges (not least by rais­ing their pub­lic pro­file). However, the fact that mem­ber­ship of the insti­tu­tion is vol­un­tary bodes ill for its capac­i­ty to tack­le graft in coun­tries such as Hungary and Poland. Both coun­tries have, of course, refused to join – cit­ing con­cerns about the impact on their sovereignty.

In the long term, such argu­ments about sov­er­eign­ty – be it of the nation­al or European vari­ety – could be one of the great­est imped­i­ments to transat­lantic coop­er­a­tion on anti­cor­rup­tion. The sov­er­eign­ty argu­ments that the US adopts to con­demn European con­straints on American tech giants, and that European coun­tries use to crit­i­cise US fines on EU-head­quar­tered mega­banks, could help pre­serve aspects of the rules-based eco­nom­ic order that have helped klep­to­crats flour­ish. These aspects of the order embody a kind of lib­er­tar­i­an­ism, in which demo­c­ra­t­i­cal­ly elect­ed gov­ern­ments have no place inter­fer­ing in multi­na­tion­als’ pur­suit of com­mer­cial oppor­tu­ni­ties – regard­less of their impact on the health of society.

Nonetheless, if European coun­tries and the US can break through these lim­i­ta­tions, transat­lantic coop­er­a­tion to strength­en the rule of law in the finan­cial sys­tem would set their new anti­cor­rup­tion insti­tu­tions on firm ground. The US pri­mar­i­ly shaped the social norms of the finan­cial sys­tem, but European (not least French) pol­i­cy­mak­ers cod­i­fied most of its legal rules, by work­ing through the EU, the Organisation for Economic Co-oper­a­tion and Development, and the International Monetary Fund. Far from emerg­ing from some ele­men­tal force of glob­al­i­sa­tion, this Western-dom­i­nat­ed sys­tem was care­ful­ly con­struct­ed over decades – and, as such, can be recon­struct­ed to deal with a more chaot­ic age.

The ten­den­cy to erode nation­al insti­tu­tions – part of the dif­fu­sion of pow­er away from states Blinken spoke of – is a fea­ture of both finan­cial glob­al­i­sa­tion and inter­na­tion­al cor­rup­tion net­works, as seen in the many mon­ey laun­der­ing scan­dals that involve Western mega­banks. These firms have prof­it­ed more than most from the capac­i­ty to choose when and how they obey nation­al laws. As legal schol­ar Katharina Pistor argues, “choos­ing the law that is most con­ve­nient for your own inter­est should be made more dif­fi­cult”. This, she observes, “fol­lows from basic prin­ci­ples of demo­c­ra­t­ic self-gov­er­nance. Democratic poli­ties gov­ern them­selves by law. The more loop­holes there are for some to escape these laws, the less effec­tive self-gov­er­nance will be.”

The mem­bers of the G7 recent­ly reached an agree­ment to cur­tail glob­al tax avoid­ance by multi­na­tion­als, which accounts for more than one-third of for­eign direct invest­ment in glob­al sta­tis­tics – “phan­tom cap­i­tal” that only appears to be such invest­ment. Although the final form of the deal dis­ap­point­ed many civ­il soci­ety organ­i­sa­tions (and appeared to exclude mega­banks), the arrange­ment seems to reflect a recog­ni­tion by its sig­na­to­ries that glob­al­i­sa­tion should not retain the extreme form it has had in recent decades.

European coun­tries and the US could build on the G7 agree­ment, in ways that align with Biden’s for­eign pol­i­cy for the mid­dle class, through the cre­ation of ini­tia­tives to counter klep­to­crats’ abuse of tax havens, shell com­pa­nies, and oth­er struc­tures with­in the inter­na­tion­al finan­cial sys­tem. By estab­lish­ing nation­al anti­cor­rup­tion insti­tu­tions that focus on domes­tic and for­eign pol­i­cy, the allies could pur­sue their strate­gic goals while address­ing pub­lic dis­il­lu­sion­ment with the polit­i­cal sys­tem and the abuse of entrust­ed pow­er in their own societies.

About the author

Chris Raggett is an edi­tor at the European Council on Foreign Relations. He pre­vi­ous­ly worked as an asso­ciate edi­tor at the International Institute for Strategic Studies. His pre­vi­ous pub­li­ca­tions for ECFR include “Networks of impuni­ty: Corruption and European for­eign pol­i­cy”.

Acknowledgments

The author would like to thank ECFR’s European Power pro­gramme for fund­ing the pub­li­ca­tion of this paper. He would also like to thank Susi Dennison, Anthony Dworkin, and Nicu Popescu for their help­ful reviews of an ear­li­er draft; Adam Harrison for his rig­or­ous edit­ing; and Marlene Riedel and Chris Eichberger for their wiz­ardry in cre­at­ing the graphics.

Ecfr.Eu by Chris Raggett