Countering Kleptocracy: March 27, 2023

Understanding transnational kleptocracy as a vehicle for theft, repression, and democratic erosion…and how we can respond. If you enjoy this newsletter, forward it to a friend or share on social media so that others can subscribe.


Image Credit: Shutterstock / muratologia

Kleptocracy, Repression, and the Iranian Regime // March 27

by Ariane Gottlieb and Aidan McGahey, International Forum for Democratic Studies

On March 8, the world celebrated International Women’s Day, in honor of those fighting for women’s rights. March also marked the sixth month since Masha Amini’s death in Iran, after she was detained by the country’s morality police for allegedly violating hijab regulations. This tragedy sparked a wave of protests denouncing gender inequality, corruption, and oppression. Yet, in their cries for “Woman, Life, Freedom,” protesters must confront a regime and security apparatus reliant upon a brutal strategy of cracking down on dissent and, ultimately, an expansive kleptocratic architecture.

In Iran, hundreds of billions of dollars have likely been lost to kleptocracy, while 17 percent of the population reportedly lives in poverty. The country’s Supreme Leader, Ayatollah Ali Khamenei, is at the helm of an opaque, untaxed conglomerate believed to be worth about $200 billion and comprised of hundreds of companies, prominent energy and agricultural organizations, and a massive real estate portfolio. While kleptocrats often use their ill-gotten gains to fund lavish lifestyles, Khamenei seemingly uses his wealth to bolster his own rule.

Transnational kleptocracy is inextricably linked to Iran’s repressive security apparatus. Kleptocracy undergirds the IRGC, a powerful political, economic, and military force in the country. IRGC-linked entities dominate key sectors. The organization secures contracts and funding through collusion and purchased political influence, and it does not disclose the total revenue from its vast economic holdings. These funds are then used to covertly influence Iran’s political and economic policy. Furthermore, the IRGC is a key facilitator of money laundering, smuggling, and drug trafficking. These ill-gotten gains are used to support influence and terrorist operations abroad and perpetuate protracted regional conflicts; beneficiaries include the IRGC’s Quds force as well as Hezbollah and the Houthi.

Tehran has developed a covert financial network to help circumvent international sanctions. Iranian business entities and banks rely upon overseas front companies, transaction clearinghouses, and other entities to facilitate illicit foreign trade with an estimated value of tens of billions of dollars per year. In addition, these exchanges help procure foreign currency that the heavily sanctioned regime lacks. By relying upon business entities registered in third party settings such as the United Arab Emirates, China, and others, Iranian entities are able to access banks in the U.S. and Europe. In blunting the impact of sanctions, these transactions grant Iranian authorities some leeway to resist U.S. efforts to reenter the 2015 Nuclear Deal and fulfill other international commitments.

Tehran uses its expertise to support another kleptocratic power: Russia. According to recent reports, meetings between Russian and Iranian officials likely helped lay the groundwork for collaboration on sanctions subversion. Tehran and Moscow are also developing a trade corridor linking Russia to India and the Persian Gulf, likely helping both countries further evade sanctions. The notion of Tehran and Moscow supporting one another is part of an alarming trend of authoritarian cooperation, or “Autocracy Inc,” as Anne Applebaum explained at NED’s 2022 Lipset Lecture. By collaborating on economic, military, and intelligence fronts, Tehran is not only enriching itself, but enabling Putin to mitigate the impact of sanctions and continue Russia’s campaign of violence in Ukraine. As a network of deals between Venezuela’s Maduro regime and Iranian state-owned companies and proxies shows, this trend is also apparent beyond Russia.

Democratic governments have already taken steps to sanction Iranian state-linked business entities and the IRGC and its affiliates—including its smuggling and money laundering networks. Democracies must double down on legislation penalizing entities engaging in illicit activities, such as financing terror or enabling Russia to circumvent sanctions. Policymakers in democracies must also address loopholes that allow sanctioned individuals or organizations to launder their wealth via third party countries. Outside of the kleptocracy space, advocates for democracy and human rights in Iran must mainstream counter-kleptocracy mechanisms into their work. A comprehensive, multisectoral response to entrenched kleptocratic structures is a necessary prerequisite to democratization in Iran—heeding the protestors’ call of “Woman, Life, Freedom.”

RICH LIST: Isabel dos Santos and the Dubai Diamond Deal (Whale Hunting)

Isabel dos Santos, daughter of the former Angolan president, has fled to the United Arab Emirates to evade prosecution for reportedly stealing from state coffers. Dos Santos is alleged to have plundered wealth from natural resources in her capacity as chief executive of Sonangol, the state oil company, and by loaning out hundreds of millions in state revenue through a diamond company that she had incorporated. Dos Santos is believed to be using her ill-gotten gains to finance legal campaigns against those moving to freeze her assets.


Who Enabled the Uzbek Princess? (Freedom for Eurasia)

A new report details how Gulnara Karimova, the daughter of Uzbekistan’s former president and the beneficiary of a kleptocratic network that controlled more than $1 billion in assets, was able to amass property holdings in the United Kingdom worth $57.8 million while supposedly under the scrutiny of UK regulators. Karimova’s schemes have been subject to past investigation, ultimately leading to her imprisonment on corruption charges in Uzbekistan. However, this report examines how enablers in the U.K’s private sector allowed Karimova to profit off the financial system in rule-of-law settings.


Loopholes in Sanctions Enforcement

Russia’s invasion of Ukraine brought a flurry of Western sanctions against Russian oligarchs and officials, but kleptocrats have become very savvy in evading these new restrictions. Russian exports of crude and refined oil have circumvented EU restrictions through an illicit network of loans and “grey finance.” Furthermore, oligarchs have exploited family connections to evade U.K. sanctions—a notorious example being the eight-year-old daughter of a former Russian regional governor who allegedly owns a flat worth 2.3 million pounds. For more on how kleptocrats subvert sanctions and rule-of-law measures, read the Forum report, “Kleptocratic Adaptation: Anticipating the Next Stage in the Battle Against Kleptocracy,” or watch our two discussions with the report authors.

Swiss Bank Employees Indicted in Connection to Russia President’s Vast Fortunes (International Consortium of Investigative Journalists)

In Switzerland, authorities indicted four bankers from the Swiss branch of Russia’s Gazprombank for laundering money for Sergei Roldugin, a Russian cellist and childhood friend of Vladimir Putin. Prosecutors allege that the bankers did not conduct legally mandated levels of due diligence to determine the beneficial owner of these assets. Roldugin was implicated by the Panama Papers in 2016 as part of an opaque network run by Putin’s associates.


Complex Systems of Secrecy: the Offshore Networks of Oligarchs (PNAS Nexus)

Researchers from Dartmouth College found that professional intermediaries play a crucial role in helping oligarchs maintain their massive financial empires. The findings suggest that sanctioning overseas intermediaries would prove more effective at reducing illicit financial flows than sanctioning kleptocrats themselves. Russian oligarchs would likely be particularly vulnerable to sanctions targeting their professional enablers, given their reliance upon a collection of boutique wealth management firms.


Funneling Trafficked Antiquities to Cultural Institutions In Democracies

Last month, the Cambodia’s Ministry of Culture and Fine Arts welcomed the repatriation of antiquities linked to art dealer Douglas Latchford, who plundered Cambodian art and sold them to museums and collectors overseas. Latchford’s criminal activities were enabled by curators, dealers, and academics in democracies as well as Cambodia’s Khmer Rouge—which used profits from trafficked art and antiquities to fund its brutal regime. In 2011, after investigators drew a connection between Latchford and the plundered antiquities, he set up two offshore trusts on the Island of Jersey to conceal the relics and the funds they generated. Such activities are commonplace within the global art trade, where illicit actors often hide their money and activities under shell companies and trusts.

Kleptocratic Adaptation: Scaling the Democratic Response | Royal United Services Institute, National Endowment for Democracy
Don’t miss the Forum and RUSI’s discussion on kleptocratic adaptation with Melissa Aten, Matthew T. Page, Jodi Vittori, Tom Keatinge, and Helena Wood.

Putin Has Assembled an Axis of Autocrats Against Ukraine | Justin Daniels, Foreign Policy

Returning Assets Indirectly through Third-Party Entities & Recovering Assets through Reconciliation Agreements | CiFAR

Russian Money in London Permeated its Service Sector & Secured Political Influence | Oliver Bullough, Silicon Curtain

Investigative Journalism Training Resources | Finance Uncovered

Russia’s Influence In Africa: Scenarios To Inform Greater Democratic Resilience | National Democratic Institute


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