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A 10-Step Program to Fight Kleptocracy Around the World

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Editor’s note: This excerpt is from “Ill Winds: Saving Democracy from Russian Rage, Chinese Ambition, and American Complacency” by democracy expert and Stanford scholar Larry Diamond. The book is published by Penguin Books, and this excerpt is republished here with permission. Of Diamond’s 10 steps to curb kleptocracy, we note that one of them is “increase international support for investigative journalism.”

Beyond the moral imperative, there is one overriding reason to make the battle against kleptocracy a global priority. It would help revive democratic progress in the world.

Just as widespread corruption threatens the legitimacy of democratic rule, its rot undermines autocracies as well. Predatory corruption is the soft underbelly of authoritarian rule. If these dictators’ pillaging of their countries was revealed and internationally prosecuted, the domestic and international support base for their rule would begin to unravel.

The most important condition for fighting kleptocracy is political will. Kleptocracy is not just mega-corruption; it is the movement and laundering of stolen money across national borders. Kleptocracy thrives not just because the legal and political systems in the countries of origin are debased but because powerful interests in the world’s wealthy democracies — “including bankers, real estate brokers, accountants, lawyers, wealth managers, and public-relations agents,” not to mention American state governments –want to cash in on this debasement. This complicity is degrading and endangering our democracies.

The path to reform is not mysterious. It requires closing the loopholes that permit international criminal actors — whether drug lords, terrorists, or corrupt politicians — first, to place their illicit funds in legitimate banks and businesses in the West, using front individuals, anonymous companies, and sophisticated lawyers; second, to layer the money, concealing its origins by transferring it “through multiple bank secrecy jurisdictions” or anonymous shell companies, trusts, and limited partnerships; and third, to circulate the illicit money in the bloodstream of the legitimate economy through the purchase of assets like real estate. When a former Ukrainian prime minister buys a $5 million home in Marin County, California, for example, that should be a red flag.

A 10-step program can close loopholes in the legal system in the United States, strengthen enforcement mechanisms, and generate broader momentum for an international war on kleptocracy. While I offer these steps with the US in mind, they invoke general principles that all liberal democracies should rally behind. (Many of these reforms are drawn from the superb work of the Kleptocracy Initiative.)

1. End anonymous shell companies. Federal law should require the real ownership of all US companies and trusts to be disclosed and listed in a register, which would be accessible at least to law enforcement agencies and ideally to the public (as is done in the UK). Deception by owners or agents to mask real ownership should meet with serious civil or criminal penalties. Moreover, the US should encourage other states to adopt similar laws requiring full transparency in business ownership.

2. End anonymous real estate purchases. Washington should require all real estate purchases in the US to reveal the true owner behind the purchase. Real estate agents, lawyers, and other professionals and firms involved in these transactions should have to undertake serious due diligence to verify the true identity of the purchaser, with biting penalties for negligence or deliberate noncompliance. And a new law should forbid any US government agency (especially those conducting sensitive work) from leasing office space from unknown owners or from any owner or business linked to an authoritarian or corrupt government.

3. Modernize and strengthen the Foreign Agents Registration Act. We should close the loophole that enables many agents for foreign principals to simply register under less onerous reporting requirements as lobbyists. We need an integrated system for reporting all lobbying and public relations advocacy on behalf of foreign interests. This line of work has exploded in recent years, with “an estimated 1,000 US lobbyists working for foreign principals” and receiving “half a billion dollars for their services annually,” but almost no one is ever prosecuted for noncompliance with the law. The US Justice Department has a staff of only eight people working to enforce FARA; the department needs more staff, more investigative powers, and more painful civil or criminal penalties for violations.

4. Strengthen prohibitions and monitoring of political contributions by foreign actors. Foreign political and campaign contributions are forbidden in the US (except by permanent residents), but only comprehensively at the federal level, and some foreign contributions could be filtering in through donations made by lobbyists and agents for foreign actors. Foreign contributions to all candidates and political campaigns, at every level of government, should be prohibited in the US, and all political contributions by foreign agents should be monitored by a well staffed federal agency. Other democracies around the world should also ban foreign financial contributions to their political parties and campaigns.

5. Ban former US officials and members of Congress from lobbying for or representing foreign governments. Soon after entering the White House in January 2017, President Trump signed an executive order restricting the future lobbying activities of his political appointees and banning them for life from lobbying for foreign governments or political parties. This lifetime ban should be embedded in law and extended to retired members of Congress as well. And the Justice Department should maintain a list of foreign businesses, foundations, and organizations that, because of links to their authoritarian governments, are also off limits for representation by former US officials. We may even want to go further: do we really want to allow some future retired American official or member of Congress to work for a company effectively controlled by the Kremlin or the Chinese Communist Party?

6. Modernize the anti-money laundering system. The current US system has a key flaw: it relies on someone to report suspicious activity, rather than empowering the Treasury Department’s Financial Crimes Enforcement Network to conduct its own investigations. As a result, money launderers “face a less than 5% risk of conviction” in the US, according to the Financial Action Task Force, an independent intergovernmental body that fights money laundering. We need a robustly funded and staffed watchdog mechanism that applies to financial institutions as well as to the “enablers” of money laundering — lawyers, investment advisers, real estate agents, and so on. In addition, the US should adopt something like Britain’s landmark 2017 legislation, which holds that if a foreign person with links to crime or public wealth in his home country makes an extravagant purchase (for example, property or jewels) that seems to be beyond his explainable means, law enforcement agencies can investigate the source of the money. If the source is found to be corrupt, or the individual cannot account for his or her wealth, the assets can be seized.

7. Increase the resources that the US and other rule-of-law states devote to monitoring, investigating, and prosecuting grand corruption and money laundering. This should include greater cooperation among various national intelligence and law enforcement agencies to identify illicit funds and property, and track and disrupt money laundering.

8. Strengthen cooperation among democracies in fighting kleptocracy, and end “golden visas.” Because Russian kleptocracy represents such a serious common threat, NATO is a logical forum for Western democracies to share intelligence, upgrade and harmonize their laws and strategies, and cooperate in tracking, sanctioning, and apprehending suspects. This will prevent kleptocrats from obscuring their wealth by playing off one jurisdiction against another. More must be done to call out countries with lax enforcement and help them plug loopholes, perhaps through a new State Department office to coordinate US anti-kleptocracy efforts. One especially high priority for standardizing these rules should be closing down the racket in securing residency and citizenship abroad; it is far too easy for the rich to buy a pathway to citizenship in major democracies such as the US, UK, Canada, and Australia — and it is easier still in small European Union countries that give kleptocrats a gateway to the rest of the EU.

9. Raise public awareness about kleptocracy in Russia and other offending states. The people of Russia, and other deeply corrupt states, deserve to know exactly who is pillaging their wealth, laundering it, and extravagantly investing it abroad. The Kleptocracy Initiative recommends establishing a Fund for the Russian People, into which seized assets could be deposited until such time as they could be returned to “a state governed by the rule of law.” But why not create such a fund — and publicize the details of known cases of money laundering and asset seizures — for all of the world’s leading kleptocracies? And why not offer fast-track asylum and financial rewards to whistleblowers from all countries who expose colossal government corruption that is laundered through the US and other advanced democracies?

10. Increase international support for investigative journalism, NGOs, and official institutions working to monitor and control corruption around the world. The best lines of defense against kleptocracy are usually found within the countries where it originates. This demands more than rewards for a few daring whistleblowers. We need to do much more to support the frontline defenders of the global rule of law. Courageous journalists are working at great risk to expose grand corruption and increase government accountability in their troubled countries. NGOs like the local chapters of Transparency International are lobbying to plug loopholes in monitoring and reporting, establish effective freedom-of-information laws, and give anti-corruption agencies more power, resources, and autonomy.

In many corrupt, low-grade democracies, dedicated civil servants and even some political appointees are trying against great odds to strengthen their countries’ institutions to fight endemic corruption. All these efforts need our financial and technical support, as well as our diplomatic backing, to help spare brave anti-corruption activists from arrest and assault. A prime example of the kind of global effort that merits support from democracy-promotion foundations and private philanthropies is the International Consortium of Investigative Journalists, which broke the Panama Papers story and now draws together more than 220 investigative journalists and more than 100 media organizations from some 80 countries to collaborate on in-depth investigative stories.

These 10 steps constitute an ambitious but feasible agenda for a serious assault on global kleptocracy. We might reach for one more distant star in the future: US district court judge Mark Wolf has proposed establishing an international anti-corruption court with a global role similar to that of the International Criminal Court. Where national judicial systems are capable of investigating and prosecuting grand corruption, they would continue to do so. But in countries whose judicial systems are too weak, politicized, or corrupt to act, the new court could step in. Such a court might not only punish global corruption but help return its rotten fruit back to the country of origin once a more transparent government was in place. Today, the concept is no more than a gleam in the eye of some farsighted international lawyers. But many innovations have started audaciously. Quoting a line often attributed to Nelson Mandela, Judge Wolf says, “It’s always impossible until it happens.”

Additional Reading

Investigating the Money Men of African Kleptocrats

How They Did It: Uncovering the Top 15 “Dark Money Groups” in US Politics

How to Track Looted Wealth: Tips for Reporters

Larry Diamond is a senior fellow at the Hoover Institution and at the Freeman Spogli Institute for International Studies (FSI) at Stanford University. He is the founding co-editor of the Journal of Democracy and a senior consultant at the International Forum for Democratic Studies of the National Endowment for Democracy.

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