The global movement to combat kleptocracy has wind in its sails. With its sights set on curbing this most pernicious form of corruption – often referred to as “rule by thieves” – Congress, in December last year, passed the Anti-Money Laundering Act that makes it difficult for foreign autocrats to hide money in U.S. shell companies. In Europe, moves are underway to tighten the grip in a similar manner. Amplifying the issue further, the Biden administration has committed to combatting corruption in all its forms as a key element of U.S. foreign policy.
Several experts have outlined measures that would make it harder for foreign authoritarians to leverage the U.S. dollar-based international financial system to launder the proceeds of systematic corruption. Very thoughtful proposals from both the right and the left have emphasized the role that the U.S. Treasury and State Department can play in paving the way for improved international cooperation to detect and sanction kleptocrats through promoting harmonized standards, regulations, and enforcement.
Undoubtedly, these efforts help constrain the enabling environment for corruption in the West; however, they do not sufficiently tackle how foreign authoritarian actors turbocharge kleptocracy and the role of non-Western enablers.
To dismantle kleptocracy, we need to couple efforts to erode the enabling environment by more decisively supporting domestic actors to uncover, expose, and counter high-level corruption.
Eroding the Enabling Environment: Necessary but Not Sufficient
There are signs that the enabling environment for transnational corruption might become less hospitable to kleptocrats. In addition to the 2020 legislation in the United States, a 2016 law in the United Kingdom created a public register of company owners. Looking forward, British offshore jurisdictions are expected to introduce greater transparency of company ownership by the end of 2023. Luxembourg and Cyprus have adopted similar measures to shed light on corporate ownership.
This reinvigorated focus on kleptocracy is a welcome change and long overdue, given the uniquely corrosive nature of systematic grand corruption at the highest levels of government. Kleptocracy hinders economic progress and democratic development and is a threat to the national security of the United States and other countries.
Yet, the laudable efforts many observers are making to bring attention to this exceptionally grotesque form of corruption risks downplaying other critical aspects of the phenomenon. Certainly, kleptocracy’s transnational dimension – and the key role that Western enablers play in facilitating the looting of resources – renders action by the international community, led by the United States, paramount to limit the stealing of public assets and facilitate their recovery. However, modern kleptocracy is increasingly fueled not just by Western governments’ inaction – and the complicity of a cadre of white-collar professionals – but by authoritarian actors’ strategic corruption and kleptocrats’ increased exploitation of non-Western jurisdictions.
By weaponizing corruption to advance their interests, China and Russia are entrenching kleptocracy abroad. As my colleagues have documented, opaque dealings, lopsided infrastructure agreements, and other corrupt schemes are often part of a concerted strategy by authoritarian powers to increase their influence over countries, enabling domestic elites to amass greater financial and political power in the process. Often, these empowered kleptocrats and their cronies will launder the proceeds and other looted assets through shell companies registered in places like Delaware or the British Virgin Islands, or through buying property in New York City, London, and other European capitals.
But, due to growing scrutiny in traditional jurisdictions and the rise of alternative financial centers, kleptocrats are increasingly turning to non-Western destinations such as Panama or Dubai. The well-intended — and necessary — recommendations for rich democracies do not fully address this, meaning a shift of attention is needed to find a more comprehensive solution to the problem.
Combatting Kleptocracy at its Source
To turn the tide on kleptocracy, the West needs to couple the efforts described above with supporting local democratic activists to counter foreign authoritarian influence and effect change in the emerging jurisdictions that facilitate kleptocracy. A two-pronged approach that emphasizes helping those on the front lines and provides them with resources they need is required.
The first pillar of this approach is exposing how malign actors prop up kleptocrats both financially and politically, and equipping local activists to uncover, expose, and counter corruption.
The few victories against kleptocracy of the last few years have been the result of bottom-up mobilizations, from Malaysia to the Maldives. While the link between autocracy and systematic corruption has become increasingly apparent, it is necessary to continue to illuminate the various ways revisionist powers undercut public integrity and democracy in countries under kleptocratic rule. To protect their interests and prevent exposure, malign external actors manipulate the information space; for instance, by embedding news articles and taking majority stakes in local media. These efforts heighten the importance of aiding indigenous investigative journalism platforms. In tandem, a global anti-corruption agenda should underpin coalition-building efforts both by providing access to specialized resources and protecting activists’ physical security, including by putting pressure on opaque and unaccountable governments through diplomacy. The recent honoring of Anti-Corruption Champions by the State Department is a good step in that direction.
The second key component to this anti-kleptocracy strategy is supporting those with skin in the game (business chambers, entrepreneurs, reform-minded politicians) to tighten regulations in offshore financial centers.
In countries that are destinations for illicit assets and not part of the OECD, including Panama and Dubai, the democracy assistance community should put pressure to comply with emerging international standards, and work with organized interest groups to mount domestic campaigns aimed at ending banking secrecy laws and other regulations that benefit foreign dictators, their allies, and other criminals. Empowering those who are directly affected by the lack of transparency and related loss of revenue, including non-financial economic sectors, and investing in independent media are critical in ensuring the success of these initiatives.
The attention that the United States, the United Kingdom, and others have given to addressing the role that wealthy democracies play in enabling kleptocracy is a great victory for the international anti-corruption movement and might lead to much-needed action. Yet, an excess of confidence in what a revamped global financial governance framework would be able to achieve might distract from the impeding challenge that remains. Only in a completely integrated global financial system could this type of international response be fully effective.
Although there is a moral imperative to act, the practical effects of an international push against kleptocracy will be watered down by the lack of compliance of rising financial centers outside the West and the active efforts of kleptocrats to expand their influence. A long-term strategy to counter authoritarianism and corruption globally can mitigate against this risk by putting locally led efforts to uncover and push back against kleptocracy at the center.
Image: Aerial view of the financial centre of Panama City taken on April 25, 2019. Photo by LUIS ACOSTA/AFP via Getty Images