President Volodymyr Zelensky’s appointment of a new director for the National Anti-Corruption Bureau of Ukraine is the most recent in a series of actions taken to eradicate the country’s endemic corruption and move closer to the European Union. This move comes on the heels of a government shakeup under a renewed anti-corruption campaign, which saw over a dozen government officials dismissed or reassigned, including the deputy head of the president’s office, the deputy defense minister, the deputy minister of infrastructure, and even the minister of defense. With these policies, Ukraine is now writing a roadmap for countering corruption even while fighting for its survival. Zelensky has not fixed the problem, but he has taken another step toward ridding Ukraine of lingering Soviet legacies, and reminded the world of the stark contrasts between his government and Russia’s.
Corruption is located on the fault line in today’s geopolitical competition between democracies and authoritarians. As the Biden administration seeks to situate this competition as the main struggle the world will face in the coming decades, anti-corruption efforts could very well be the key to success or failure. While no government or society is entirely free of corruption, kleptocratic structures are the foundation of most authoritarian regimes and have become a key strategy in their foreign policies. Authoritarians use corruption to gain, and maintain, their power.
At the Institute for the Study of Diplomacy, we have argued that, to effectively challenge this entrenched system of global corruption, the United States and its partners should launch a much larger and more sustained campaign against corrupt networks, kleptocracies, and those who enable them. The invasion of Ukraine provides a key moment that the international anti-corruption community can use to build support for this effort. Ultimately, the Biden administration and the U.S. Congress should take legislative action, such as passing the Enablers Act, to root out corruption at home, while using diplomatic tools to support local civil society groups and build a coalition of allies and partners abroad. Zelensky’s vow to combat corruption in Ukraine, even amidst a war, is a hopeful sign.
Corruption Unbound
Kleptocrats continue to benefit from the interconnectivity and complexity of today’s financial systems, which facilitate corruption on an unprecedented global scale. According to the World Economic Forum, “the global cost of corruption is at least $2.6 trillion, roughly 5 percent of global gross domestic product, and the World Bank estimates that more than $1 trillion is paid in bribes annually.” Meanwhile, Transparency International’s 2022 Corruption Perceptions Index suggests that the world is collectively failing in the struggle against corruption. Last year, 26 countries received their lowest score ever and 155 countries either remained level or declined in their corruption scores over the past decade.
This is not just a case of unearned dollars, yachts, or mansions. The cost of this corruption can also be measured in lives lost. The recent earthquakes in Turkey painfully illustrate this point. Over 40,000 people have died after buildings collapsed on them while they slept — buildings that Turkish President Recep Tayyip Erdogan allowed to be built by his friends and allies. These construction projects, doled out as patronage, cut corners and failed to follow code. Compounding this failure, Erdogan has stacked his government with cronies unprepared to do their jobs, leading to a horrendous government response rate and leaving many to die beneath the rubble.
Turkey is not alone. Research has shown that anywhere that corruption runs rampant, deaths from natural disasters, and especially earthquakes, are bound to be high. Across the globe, the healthcare sector showed particular vulnerability to corruption during the COVID-19 pandemic. Nations with the lowest scores on the Corruption Perceptions Index routinely showed the worst management of the pandemic, as their permissive structures allowed money to be drained from funds meant to fight COVID-19, while doctors and nurses in deeply corrupt countries were left without resources or pay. Corruption in the health sector hastens the spread of all disease, not just COVID-19, and, what’s more, makes it harder for governments and health experts to gain legitimacy in the eyes of the public.
Taking Corruption on the Road
Corruption also has national security stakes for the United States. The Russian and Chinese governments, unsatisfied with the domestic corruption that props up their autocratic regimes, have begun to use corruption as a tool of grand strategy. According to corruption specialist Josh Rudolph, there are three ways in which authoritarians spread their dark money abroad: corrosive capital, malign influence, and election interference. Ultimately, the goal of strategic corruption is to create an increased level of influence in target countries, to weaken democracy from the inside, and to gain space to operate or spread authoritarian governance.
Under the prince of kleptocrats, Vladimir Putin, Russia has been using strategic corruption across all areas for some time now. Putin uses state-owned enterprises in the energy and defense sector, private business surrogates, money laundering, and financing of political campaigns to gain influence over critical state institutions in foreign countries to shape their national politics.
Arguably the most important weapon in Russia’s strategic corruption toolkit is its vast energy resources. Russia has used all the tools at its disposal, including kickbacks, bribes, stoppages, and entrenched middle men to gain leverage over governments through its supply of oil and gas. The recent European response to Russia’s invasion of Ukraine demonstrates the power of Russia’s energy weapon, as European governments have had to scramble to determine new supply sources to offset Russia’s stranglehold on gas and have had to deal with rising costs to consumers.
Russia has also become adept at using dark money to support the rise of populism in the West. Since 2014, the Kremlin has spent $300 million to support foreign officials and political parties, according to a U.S. intelligence report. This includes €9.4 million ($10.1 million) to French far-right populist Marie Le Pen, who notably endorsed Russia’s annexation of Crimea. Russia’s use of dark money has been most prolific in Eastern Europe. In Bulgaria, Hungary, and Serbia the Russian government has funneled money to far-right political groups through Russian-connected businesses. These groups then push for a deepening of their countries’ economic and energy ties to Russia, giving Putin another corrupt lever to pull as he tries to influence foreign governments.
China has also begun to play this game. Beijing has elevated strategic corruption to undermine alternative forms of government and international order, promote positive depictions of the Chinese Communist Party, and gain leverage over external businesses, governments, and politicians. China’s tool of choice is infrastructure projects connected with its Belt and Road Initiative, which provides massive amounts of money to fund corrupt actors across Eurasia.
Sri Lanka best illustrates this approach. Chinese dark money was used to secure control of port infrastructure that enhances China’s military reach in the region. Chinese officials spent years cultivating ties with former Sri Lankan president Mahinda Rajapaksa. Beijing viewed Rajapaksa as a key asset in their “efforts to tilt influence away from India in South Asia.” The Chinese government provided funds to build a port in an area deemed not economically viable but that was part of Rajapaksa’s home district. As suspected, the port was a failure and the Sri Lankan government “loaned” the port to China for 99 years in December 2017. China’s corrupt practices in Sri Lanka undoubtedly aided in creating that country’s broken economy, which eventually led to the government’s downfall and the current political crisis.
Pandora’s Briefcase
Over the last decades, criminals, kleptocrats, and their enablers have chipped away at domestic boundaries, rendering them almost meaningless. Corruption is made more widespread due to facilitators in every country, including in democracies such as the United States. Clandestine financial flows have exploded in recent decades, “enabled by the flourishing of legal and financial services that specialize in providing anonymity in cross-border transactions.”
The Pandora Papers, a high-level expose of the dark world of kleptocrats, billionaires, and politicians, paint a damning portrait of the ways in which corrupt actors launder their money around the world to hide it from prying eyes. Not only did the papers highlight the role of the U.S. financial system in the movement of illicit funds, but they also described how South Dakota now rivals financial service providers in Caribbean tax havens when it comes to enabling kleptocracy. In America, it still requires more personal information to acquire a library card than it does to create a shell company.
Among other striking examples, the Pandora Papers describe how Russian President Putin most likely purchased a multimillion-dollar home in Monaco for the mother of his illegitimate daughter, almost certainly using pilfered Russian state funds. They also describe how billionaire Czech politician Andrej Babis, who recently lost his bid for the country’s presidency, purchased a $22 million house in Cannes in 2009 that sports a movie theater and multiple swimming pools using a shell company that hid his identity. Meanwhile, Jordan’s King Abdullah II, whose country received $1.5 billion of aid from the United States in 2020 alone, spent nearly $70 million from unknown sources on three ocean-front homes next to each other in Malibu over a three-year span in the last decade.
A number of white-collar professions facilitate this type of behavior, thereby threatening democracy. These include hedge funds, private equity firms, real estate agents, and title insurers, not to mention company formation agents, art and antiquities dealers, lawyers, accountants, covert public relations firms, luxury car and yacht sellers, and cryptocurrency businesses. It also apparently includes FBI agents: The former special agent in charge of the agency’s counterintelligence division in New York was charged with, among other things, violating economic sanctions. This retired FBI official supposedly accepted hundreds of thousands of dollars from Oleg Deripaska, a Russian aluminum magnate who is sanctioned by the United States and has close ties to Putin, in return for helping him investigate rival oligarchs and get off the U.S. sanctions list.
Recognizing the role of these facilitators serves as a reminder that for the United States and its democratic allies the fight against corruption begins at home. Democracies around the world owe their legitimacy to their ability to provide citizens with good governance and quality services, both of which are weakened by corruption. By ignoring or tolerating the role of corrupt actors in their economies, democracies undo themselves from within.
An Anti-Corruption Strategy
If the problem before us feels deep and vast, that is because it is. This is why the United States should not attempt to go it alone. Instead, Washington can flex its diplomatic muscles as it has done throughout the war in Ukraine and build a coalition of like-minded democracies to embark on a wide-ranging anti-corruption campaign with a domestic and foreign policy component. What good are new laws or enhanced enforcement to fight money laundering in the United States if money can be easily moved to European banks?
The good news is that the Biden administration has made this type of campaign a priority, and recognizes the importance of an anti-corruption coalition. From the U.S. Treasury Department’s recent rulings on beneficial ownership information as part of the Corporate Transparency Act to the U.S. Agency for International Development’s “dekleptification guide,” a whole-of-government approach to anti-corruption efforts is taking shape. Additionally, the Biden administration’s campaign within the G20 and the Organization for Economic Cooperation and Development for a global minimum tax rate represent the type of coalition building that will form the foundation for an anti-corruption coalition. The biggest missing piece now is the funding and attention required to ensure that these agencies can carry through on these rulings and strategies.
The bad news is that recent stumbles in the U.S. Senate and the Court of Justice of the European Union continue to hobble anti-corruption efforts. The United States has introduced over 150 pieces of legislation targeting corrupt actors, but this scattershot approach to policy lacks the strategic coherence that tackling this problem requires. The Enablers Act, which would require non-financial entities such as law firms and art dealers to also investigate their clients, represents a more focused approach to preventing corrupt actors from laundering money through the United States. Unfortunately, the Senate failed to pass it in the last session of Congress despite bipartisan support. If congressional gridlock prevents the bill from passing in the 118th Congress, President Joe Biden should explore the possibility of enacting its key provisions through executive action.
Furthermore, the European Union, a key ally in any anti-corruption coalition, took a large step backwards in the fight for more financial transparency when its Court of Justice invalidated the 5th E.U. Anti-Money Laundering Directive on privacy grounds. The directive guaranteed public access to information on a company’s true owners, a key tool in the hands of civil society actors seeking to expose local corruption. Despite this, though, the Biden administration can still work with other allies, such as Canada and the United Kingdom, as well as with individual European countries to promote greater level of transparency domestically. And, as the European Union enters the sixth round of revision on their money-laundering tools, they should not give up the fight for more transparency. It is encouraging that E.U. officials have already announced that they are working to reconcile their directives with the privacy and data protection laws that blocked the necessary action in this round.
Governments are not the only friends and allies the United States has. Civil society organizations and journalists are perhaps the most vital soldiers in the crusade against corruption. They are often the most familiar with the actors involved, and are often the most knowledgeable on the social norms and institutional forces that can be leveraged to shame or prosecute perpetrators. Biden should follow through on his promise to “support civil society and others engaged in advocacy and action” by pushing his anti-corruption coalition to ensure that these groups are well-resourced and well-funded. Greater resources will make these groups more effective, and help provide them with greater security when they are targeted with legal prosecution, harassment, and even violence.
U.S. diplomats have an important role to play as well. More focused anti-corruption training from the State Department would help them to better identify the workings of corrupt networks in local countries. This training would work best if implemented early and often in officers’ careers. Ideally, diplomats would learn to identify victims of corruption and work with local actors to show how corruption results in lost livelihoods and lost lives. Making it easier for diplomats to meet and work with civil society actors would also go a long way toward convincing locals that foreign officials care about them too, not only those in power.
The Ukrainian people are paying the price of unchecked corruption, but they are not alone. Across the world corruption threatens all people who aspire to healthier, greener, more peaceful, and more democratic existences. And it threatens U.S. security as well. Washington should seize this strategic moment to fight back against corruption and the authoritarians who thrive off it.
Kelly M. McFarland is a U.S. diplomatic historian and the director of programs and research at Georgetown University’s Institute for the Study of Diplomacy. He recently authored the institute’s latest New Global Commons Working Group report, Enemies Foreign and Domestic: Confronting Kleptocrats at Home and Abroad. He also hosts the institute’s Diplomatic Immunity podcast. Prior to Georgetown, he served in the U.S. Department of State as an intelligence analyst. Follow him on Twitter @mcfarlandkellym
Daniel J. Henderson is the assistant director of programs and publications editor at the Institute for the Study of Diplomacy. He previously worked at the Council on Foreign Relations as a program coordinator for Washington External Affairs. He produces the institute’s podcast, Diplomatic Immunity, and edits its online magazine, The Diplomatic Pouch. Follow him on Twitter @Daniel_Hendo
Image: President of Russia
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