The Urgency of Fighting Corruption

(An edited version of a speech to the Sulgrave Club, Washington DC)

     By Frank Vogl  February 22, 2023.

Addressing the House of Commons on February 24, 2022, then British Prime Minister Boris Johnson stated: “Shortly after 4.00 a.m. this morning, I spoke to President Zelenskyy of Ukraine as the first missiles struck his beautiful and innocent country and its brave people.”

Russia’s attack has highlighted in the brightest of colors one of the gravest challenges of our time – the threats to our security and to our democracy posed by authoritarian governments all of which today are corrupt.

The era of kleptocracy has dawned. Never before in modern times have so few people in so many countries stolen so much so swiftly from their citizens.

Hundreds of thousands of people have died over the last 12 months in Russia and in Ukraine. Many millions of Ukrainian citizens have been uprooted and become displaced persons. Thousands of Russians have fled their country. The Russian regime has long repressed its citizens, now conditions are even worse. As The Financial Times reported on February 17, 2023: “Authorities have shut down the press, criminalized speech around the war, ordered a string of arbitrary arrests and egregious jail sentences, and fostered a bitter culture of denunciations. Most journalists and activists have been forced out or jailed.”

The terrible consequences of kleptocracy have for too long been sidelined in public debate because of an under-appreciation of its threats to human rights, to international security, and to democracy. 

Kleptocracy’s Global Reach

More than one-half of the world’s population today live under authoritarian, or quasi-authoritarian rule. That is approximately four billion people who lack the freedoms that we so often take for granted. We stand in awe of the Ukrainian people as each day they suffer enormous hardship and yet continue to be unwavering in their fight for liberty. So too, consider the valiant protesters in the streets of Iran’s cities who crave basic freedoms, including the freedom to hold their government to account. Their fight is our fight because kleptocracy knows no national boundaries in the 21st century.

Publicly unaccountable governments are corrupt governments. They govern dozens of nations – from Azerbaijan and Belarus, through the alphabet to Venezuela and Zimbabwe.

Governments that are not accountable to their citizens pose enormous dangers to both their own citizens, whom they repress, and across their borders. They have a long track record of aggression against neighboring countries, of supporting civil wars and terrorism. In more recent times, we have seen Russia, China, and Iran, strive to undermine Western democracy, seek to steal technology and work to bolster autocratic regimes in developing countries.

“A scar disfiguring the era in which we live”

We live in a world where citizens either enjoy the rule of law, where there is fairness and honesty in the judiciary, or they live under the hammer of blunt force and tyranny. In his recent memoir, “1000 Years of Joys and Sorrows,” Chinese artist Ai Weiwei writes: “When administrative power is unlimited when the judiciary is subject to no scrutiny when information is shielded from public view, society is bound to operate in the absence of justice and morality. Corruption of the judiciary is the public face of a morally bankrupt body politic, a scar disfiguring the era in which we live.”

Today, all authoritarian regimes have captured the institutions of justice so securing the means to place their cronies and relatives in positions of power, the means to provide opportunities to steal state funds, and to secure the loyalty and support of top law enforcement, military and business leaders, while accumulating staggering wealth for themselves. The abuse of public office for personal benefit is the definition of corruption.

Hundreds of millions of people in the poorer countries of the world are daily subjected to extortion. Petty corruption abounds. The poor are extorted by the local police; they must pay bribes to get their children into schools and get the sick into clinics and secure decent housing. Many people, primarily women, are victims of Sextortion – when they cannot pay bribes with cash, then they are extorted to pay with sex.

Corruption’s Victims

In no country is petty corruption rampant where grand corruption is not present. Grand corruption is the wholesale theft of state assets by government leaders and their associates. It involves outright theft of tax revenues, huge kick-backs on public procurement contracts, plundering state-owned enterprises, and misusing law enforcement to extort cash from the private sector.

The stolen funds are used by leaders to boost the incomes of subordinate politicians and public officials. These loyalty bribes must be constantly paid and that drives the leaders to constantly divert more and more public funds from legitimate government programs, such as basic public services. The poor are always the victims. Corruption is never a victimless crime.

Securing the loyalty of supporters gives senior officials enormous scope to rob and to plunder. Health ministers use their budgets to buy cheap counterfeit medicines from China, or out-of-date medicines. Generals sell weapons on the black market to rogue foreign groups, including terrorist organizations. Government infrastructure projects are a huge potential source of dirty income, from rigged bidding to inflated contracts.

And when public officials take bribes from building contractors so enabling buildings to be constructed far below safety standards then, when there is an earthquake, thousands of people lose their lives. We have seen this in China, in Mexico, in many nations and now in Turkey and Syria. Corruption kills.

Securing Dirty Cash

Those who steal on a grand scale are acutely sensitive to the risk that should they ever lose power then their successors will confiscate their wealth. They go to great lengths to ensure that their wealth resides outside of their countries and their favored destinations for their funds are the world’s largest and most open capital markets, notably the United States and Western Europe.

To ensure that their funds are transferred secretly and then safely invested the kleptocrats and their cronies, including the oligarchs, need skilled Western enablers. These are bankers, lawyers, auditors, real estate brokers, art and antiquities dealers, and financial consultants.

The enablers are on Wall Street, in the City of London, in Zurich, and in all of the key Western financial capitals. They aid and abet enormous transnational criminal activity. Indeed, the complicity of the enablers on our shores with corrupt regimes aboard highlights the universal nature of grand corruption today. It is a vast, threatening global conspiracy driven by greed. 

  We are talking about upwards of two trillion dollars of dirty cash flowing annually through the world’s financial system. I estimate that $600 billion is laundered into U.S. investments alone every year – more than the total annual sales of Walmart, the world’s largest retailer.

For example, according to a Justice Department filing in mid-December, over five years the Danske Bank of Denmark transferred over $160 billion into four U.S. banks from its branch based in Estonia for mostly Russian clients. We are talking about astronomical numbers.

  For example, the U.N. Conference on Trade and Development has estimated that illicit flows of cash from sub-Saharan Africa exceed $85 billion – close to double the total amount of foreign aid flowing into the region.

Bankers have no shame

Over the last 20 years, more major global banks have been investigated and forced to settle large-scale money laundering and corruption cases with the U.S. Justice Department than ever before. The cases underscore the greed and shamelessness of too many bankers.

When the leaders of Sudan were committing genocide in Darfur, they were transferring $6 billion into western markets through the Geneva branch of France’s largest bank, BNP-Paribas. When JP Morgan Chase and Deutsche Bank wanted to win governmental finance contracts in China so they put the children of senior Chinese officials on their payrolls. When the President of Malaysia and his cronies wanted to steal vast sums, so they conspired with Goldman Sachs that issued $6 billion of international bonds – around $4.5 billion was stolen.

The bankers are by no means alone. The enablers daily enrich themselves by pursuing secretive dealings for their kleptocratic clients. They use every loophole in U.S. laws and regulations. They take full advantage of Switzerland’s bank secrecy law. They secure opacity for their dealings from the governments of Cyprus and Malta, Austria and Luxembourg, and many more.  If we want to reduce the powers of the kleptocrats, then we must sanction them abroad, prosecute their enablers here at home, and support civil society pro-democracy forces across the world. 

Pursuing Enforcement Reform

We need a fundamental review of Western trading and financial international policies. Let us start with trade.

Saudi Arabia, which not long ago sent a woman to prison for 45 years for Tweeting anti-government comments, and that butchered journalist Jamil Khashoggi, continues to be allowed to buy American arms, as is the case with the United Arab Emirates. We seek to cultivate diplomatic and trading relationships with both these countries despite the fact that both conspired with Russia in 2022 to curb global oil supplies to secure very high prices. Moreover, Russians fearing sanctions have found refuge for themselves and their wealth in the UAE.

  Then, we have supplied arms to Azerbaijan, even though it imprisons opponents, including journalists, and has long been engaged in vast money laundering into the UK. Germany turned a blind eye for years to Russia’s domestic oppression as it became totally dependent on Russian oil and gas – it was a huge error. It failed to understand that governments run by tyrants are unreliable business partners.

 More fundamentally, you need to ask: what happens to our respect for human rights when we place securing trade deals ahead of integrity and our basic values? 

  I am not saying cut off all trade with corrupt regimes, which would be absurd – rather I am calling for far greater consideration of core issues of national security and human rights when Western governments are involved in trade with regimes that do us harm today, or could well do so in the future. To achieve this we need far greater all-of-government coordination to ensure that the Commerce Department does not approve a deal that the State Department might question and that USAID would view as directly counter to its goals.

Klepto-Debt

  We need to get tough in the arena of international finance. In recent years too many countries borrowed far more cash than they could manage. Some of the cash was stolen by top officials. Some of the debt came from China through non-transparent deals – China is now the largest official lender to sub-Saharan Africa. The result is that more countries are now in default than ever before on their foreign debts or on the brink of defaulting – from Argentina to Zambia, from Lebanon to Sri Lanka.

  I call it klepto-debt. The debtor governments turn to the International Monetary Fund and it responds with bail-out cash. It recently did a bail-out deal with Egypt whose military has consistently been plundering national finances and according to the Department of State has anywhere between 20,000 and 60,000 political prisoners.

 Or look at Pakistan which has been felled by massive floods, terrorism, decades of corrupt political leadership, and frequent financial crises – right now it is on the verge of bankruptcy and engaged in crucial talks with the IMF for a bail-out. This is a country run largely by a military establishment that undermined U.S. security efforts in Afghanistan over two decades.

The U.S. is the largest shareholder in the IMF and has great influence if it wishes to deploy it. There are mostly valid arguments that these bail-outs are essential for humanitarian reasons and to safeguard the global financial system. However, we cannot afford to continue adding debt upon debt to poor countries when there is no transparency in how the governments are using the cash, how they are precisely accounting for it, why they are not deploying the funds to reduce human misery, and as their foreign strategic policies undermine the goals of the major Western nations whose funds they are obtaining. 

Then, in recent years, the leading Western headquartered banks arranged bond financing for some of the most corrupt regimes in the world, including Belarus and Russia. Oligarchs and kleptocrats from across the globe, have used Western property companies to buy mansions and apartments from Miami to Vancouver, from New York City, and Washington DC, to Londongrad. And under current regulations these sales can go ahead without any serious checking on who the real buyers are and how they got their cash.

Good Administration

Our governments, if they seek to secure our democracies, need to heed the maxim of Alexander Hamilton who wrote in the Federalist Papers, “Good administration is the key to good government.”

 We need a major ramp-up of enforcement on both sides of the Atlantic of existing anti-money laundering and anti-corruption laws and regulations. Far higher standards of Know-Your-Customer rules are essential for all the enabling institutions so they are truly honest and thorough in doing due diligence on how their rich clients amassed their wealth – the regulations need to apply to banks and art dealers and real estate companies and budget resources need to be allocated on a scale that makes compliance enforcement meaningful.

           While there is progress in putting in place so-called beneficial ownership laws and regulations in an increasing number of countries, there is far too little evidence that these will be seriously enforced. The enablers are determined to undermine enforcement by their artful lobbying so that they can continue to construct clusters of trust and holding companies, registered from Panama to Delaware and South Dakota to the British Virgin Islands, so as to enable the true owners of dirty cash can continue to hide their control of criminal assets from the view of our authorities.

We must call out these lobbyists. And do so within the broader context of addressing the misuse of money in politics, including lobbying that benefits the enablers and their corrupt clients. Total transparency of all relationships between the private sector and politicians and government officials should be the norm, not the exception.

Sanctions Need to Work

When Boris Johnson spoke to the House of Commons as Russia’s launched its attack against Ukraine, he, like other world leaders, announced a large package of economic sanctions on Russia and on the oligarchs. He declared with a Churchillian flourish: “We will continue on a remorseless mission to squeeze Russia from the global economy piece by piece, day by day and week by week.”

By mid-March 2023, Russia had become the world’s most sanctioned country. It is subject to more than 5,000 different targeted sanctions, with more than 1,000 alone by the United States. The White House was so convinced that the sanctions would cripple the Russian economy that in a “Fact Sheet” last March 24 it quoted the Institute of International Finance as stating: “The economy is forecast to contract as much as 15% or more in 2022. This economic collapse of Russia’s GDP will wipe out the past 15 years of economic gains in Russia.”

The sanctions have had some impact on the Russian economy and no doubt will continue to pose challenges to many companies and citizens. However, the sanctions have had a far smaller macro-economic impact than Western leaders suggested one year ago. The IMF reported last month that the Russian economy declined by only 2.2 percent last year and that it is set to grow modestly this year.

The Russians, aided by China, India, Turkey and many other countries, have circumvented many of the economic sanctions. Austrian and Italian banks are still highly active in Russia. Oil income remains robust. 

While some mansions and yachts belonging to oligarchs have been seized, there have been few asset confiscations, and even fewer criminal charges brought against oligarchs for sanction violations. The weaknesses of our enforcement systems, which I have mentioned earlier, have been exposed by the failures to bring the oligarchs to justice.

Democracy at Risk

It was encouraging that President Biden, who hosted the first Summit for Democracy in December 2021 should have so clearly made the point: “Fighting corruption is not just good governance. It is self-defense. It is patriotism, and it is essential for the preservation of our democracy and our future.”

Now, he is about to host the second Summit for Democracy (March 29/30) and in view of the events in Ukraine he no doubt has even greater awareness of why this meeting is so important. On his visits to Ukraine and Poland, the President has left no doubt about America's core commitment to freedom. Now, at the forthcoming meeting, world leaders who share Biden's stated values and commitment, need to act upon all their fine anti-corruption rhetoric of the past and agree upon concrete actions.

As a recent report by the Economist Intelligence Unit stressed: “Democracy is a moral system as well as a system of government, and it is moral in the sense that it expresses an attitude towards people. The basic moral premise of democracy is the idea that all people are equal. Democracy is made for people, not the people for democracy.”

If we value our democracy and our security then our policies and our diplomacy need to be still more tied to our core values. In her memoir, titled “Lessons from the Edge,” Marie Yovanovitch, the brave former U.S. Ambassador to Ukraine wrote: “In principle, our values and our interests are nowhere more aligned than when it comes to fighting corruption. When leaders view their positions in government as sinecures serving their personal interests rather than those of their constituents, it not only contravenes our values, it also goes against our interests, our long-term interests.”

Promoting Freedom

Across the world there are hundreds of journalists and civil society activists in Russian, Chinese, Egyptian, Iranian and Turkish prisons, or daily harassed by their governments. They are committed to the cause of anti-corruption as a vital key to securing freedom for all and the dignity of every individual.

These are amazing, inspirational people, from the women protesting right now in the streets of Iran to many Russians who have left their country and use social media and their skills to counter Putin’s propaganda, to Alexey Navalny who finds ways to continue to protest despite harsh treatment in a Russian jail.

The fight against corruption is not an end in itself. It is central to supporting human rights, democracy, and security. It is a war to promote a world where every individual can live in dignity and look forward to freedom and prosperity for their children. This is the fundamental importance of why Ukraine dare not be defeated and why across the world the gathering momentum of kleptocracy must be reversed.

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 Frank Vogl is an Adjunct Professor at Georgetown University; Chairman of the Partnership for Transparency Fund; Co-founder of Transparency International. His most recent book, published in November 2021 by Roman & Littlefield is “The Enablers: How the West Supports Kleptocrats and Corruption-Endangering Our Democracy.”