July 29, 2016

TAKE THE MONEY:

Unholy Alliance: Kleptocratic Authoritarians and their Western Enablers (Carl Gershman, July 2016, World Affairs)

The need to address the problem of kleptocracy is of central importance to activists who are promoting the rule of law and democratic governance in countries ruled by hybrid and autocratic governments. These activists are on the frontlines in the struggle against resurgent authoritarianism where regimes are tightening political controls and closing civic space.

One of them is Khadija Ismayilova, the courageous journalist from Azerbaijan whose investigative reporting established the links between Azerbaijani President Ilham Aliyev and his family to massive corrupt enterprises. Ms. Ismayilova was sent to prison on patently trumped up charges. The fact that her arrest and the arrest of other dissidents has not damaged Azerbaijan's participation in Western institutions is a cause of great concern. As Gerald Knaus pointed out in a July 2015 Journal of Democracy article entitled "Europe and Azerbaijan: The End of Shame," Azerbaijan's kleptocracy has a profound and corrosive effect within but also beyond the country's borders. Knaus explains in painful detail the ways in which the authorities in Azerbaijan "captured" the Council of Europe and in the process managed to neuter its human rights work.

Similarly, Rafael Marques de Morais of Angola has reported in World Affairs and elsewhere how that country's political elite has taken personal control of virtually all of the country's public wealth derived from minerals and, more recently, from massive investments by China. Here, too, the Angolan kleptocrats do not simply deprive their own country of critically needed resources for improving health, education, and infrastructure, but use this wealth beyond national borders to acquire an influential hand in media and financial institutions inside Portugal, an EU member state. Russia's kleptocracy has managed similar feats in Latvia, also an EU member state.

No country has suffered more from kleptocracy than Ukraine. Deeply entrenched and, indeed, institutionalized corruption has been an extraordinary challenge since Ukraine achieved its independence a quarter century ago. But in the four years that former President Viktor Yanukovych was in power, he took the country's corruption to new heights, enabling the theft of nearly $40 billion of Ukraine's public wealth. This massive corruption funneled wealth primarily to the president, his relatives, and a limited circle of businessmen around the president. As journalist Oliver Bullough has observed, "In 1991, Ukraine's GDP was about two-thirds of Poland's GDP; now it is less than one quarter." He notes that state corruption on such a scale has ruined Ukraine, "dooming a generation of Ukrainians to poor education, unsafe streets and blighted careers." This ravaging of Ukraine's economy and society brought about the EuroMaidan revolt, when millions of people rose up to extract their country from the grip of the kleptocrats and to try to chart a more democratically accountable course.

The fact that these authoritarian regimes are also kleptocratic makes the challenge facing democracy activists in such countries even more difficult because the kleptocrats have established an objective alliance with banks and other institutions that make up the global financial system. These institutions readily accept deposits of stolen funds after being laundered through offshore structures. With these assets safely invested and protected within the global system, the kleptocrats are then free to use their stolen wealth to increase their domination at home and purchase influence abroad, all the while expanding their massive business networks in the West and buying extravagantly priced properties in London, New York, Miami, and other global capitals.

The purchase of multimillion dollar properties, the arrangement of opaque offshore financial instruments, and the laundering of a kleptocrat's public image, do not happen by accident or on its own. Professional intermediaries in the established democracies are critical links for venal kleptocrats, who seek to move ill-gotten gains from authoritarian systems into the democracies and the international finance system, where the rule of law offers their ill-gotten wealth a safe and respectable haven. As journalist Bullough observes, "only with the help of Western enablers can a foreign kleptocrat transform the ownership of a questionable fortune, earned in an unstable country where jail is often one court decision away, into a respected philanthropist" who can be photographed alongside celebrated international figures and media stars.

Anne Applebaum has noted the irony that while the rule of law prevails in Britain, "over the past couple of decades, London's accountants and lawyers have helped launder billions of dollars of stolen money through the British Virgin Islands, among other British overseas territories." Their complicity in kleptocracy has corroded the legal integrity of the British system. As Bullough notes, "what Western enablers do is in a sense more egregious than what foreign kleptocrats do, because in the West we have a genuine, institutionalized rule of law, while kleptocrats operate in systems where no real rules exist. The result is that Western enablers effectively undermine democracy in foreign countries, even as Western governments lecture those same countries about civil society and the rule of law." A crucial element necessary for combating modern kleptocracy will be bringing the professional intermediaries in the West--the enablers--out of the shadows and into the sunlight.

Posted by at July 29, 2016 3:45 PM

  

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