Countering Kleptocracy: May 8, 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.


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the common agenda of anti-kleptocracy and environmental sustainability // may 8

by Lily Sabol and Aidan McGahey, International Forum for Democratic Studies

Our research at the International Forum has consistently outlined kleptocracy’s threat to democracy, good governance, and the financial system, but there is also another aspect of kleptocracy’s unfolding impact: the threat to environmental sustainability. Corrupt countries enable environmental degradation through both the lack of resource protection provided by the rule of law and a general disregard among kleptocrats for the health of citizens and the environment. In many countries, kleptocratic behavior is financed by income from fossil fuels that serves to bolster kleptocrats’ ability to engage in illicit financial activities. Leaders profit from the extraction of natural resources that can cause extensive environmental damage; at the same time, they weaponize rare earth minerals essential to climate solutions and embezzle Western funding for environmental programs.

Many solutions to combat kleptocracy and tackle climate change, in fact, go hand-in-hand: creating and upholding anti-corruption safeguards, building and expanding the anti-corruption and climate activist network, and bringing this issue to the forefront of new policy debates.

The contexts in which kleptocracy thrives also incentivize environmental destruction. Weak rule of law in kleptocratic source countries facilitates corrupt business practices and impedes the enforcement of environmental protections and regulations, through networks of bribery and corruption. In the Democratic Republic of the Congo, for example, government officials, criminal groups, and militias abuse the environment with no consequences due to a lack of authority that is perpetuated by the kleptocratic regime. Shell companies and illegal assets are also used by environmental abusers to hide their cashflows from regulators and financial watchdogs. From 2011-2015, Nigerian businessmen paid bribes to the head of the country’s state-owned oil company to obtain the oil contracts, and then used the funds to purchase assets through shell companies in the United States. Other environmentally harmful industries, from illegal logging and fishing to oil extraction, rely upon these same shadowy financial networks to shield their cash flows from regulation and oversight.

More specifically, environmentally destructive resource exploitation, namely of oil and gas, enriches leading kleptocratic regimes. Some of the countries widely recognized to be captured by kleptocratic networks—Russia, Venezuela, Equatorial Guinea, the Republic of the Congo—all have regimes that rely heavily upon oil, natural gas, and rare earth minerals for their revenue. Moreover, the extractive process for minerals used in green technology creates opportunities for corruption and labor abuses, particularly given the presence of such minerals in countries with high levels of corruption. As numerous studies show, the large influx of financing to extract natural resources, along with easily swayed local officials, creates an enormous opportunity for embezzlement and enables kleptocratic behavior.

In the midst of this concerning context, funding for environmental and sustainability programs—frequently from Western donors—is often provided to kleptocratic countries. The most corrupt countries are simultaneously some of the top recipients of climate-related assistance. Unsurprisingly, studies have demonstrated that this assistance is often abused and stolen. For example, a Foreign Policy investigation has shown that a UN environmental project in Russia misappropriated millions of dollars. UNDP officials did not adequately oversee and monitor the project, seeing as funding was often provided to relatives of Russian UN officials managing the project.

The same safeguards that anti-kleptocracy advocates promote for transparency and accountability—such as scaling enforcement mechanisms, modifying procurement processes, repatriating assets, and improving beneficial ownership regulations—are also important for preventing environmental damage. There is significant overlap between the tactics used by environmental criminals and kleptocrats, as well as the situational context that enables their crimes. Actions to protect the health of the planet, like minimizing reliance on fossil fuels and protecting access to vital minerals, would have a secondary effect of weakening the enabling environment for kleptocratic rule.

The challenge that kleptocracy poses to democracy is immense and complex. To properly combat it, a broad coalition of activists, including those working on solutions to climate change, is needed to galvanize the many different parts of civil society for a cohesive response. By working together, climate and democracy advocates can leverage collective action to make this connection clearer to journalists and policymakers, and campaign for a healthier, more democratic world.

state capture and development: a conceptual framework (journal of international relations and development)

A recent article by Elizabeth Dávid-Barrett, professor at the University of Sussex, argues that state capture serves as a critical frame of reference when analyzing patterns of grand corruption. State capture is the process by which political elites, oligarchs, or other interest groups manipulate institutions and mechanisms that form public policy in their own interest. This process, which impacts policy formation, implementation, and accountability mechanisms, hinders economic development and incentivizes further corruption.


the end of londongrad? the impact of beneficial ownership transparency on offshore investment in u.k. property (United Nations University)

Kleptocrats have turned to property markets in London to conceal and launder their wealth. As a result, U.K. policymakers enacted the “Economic Crime Act” in 2022, requiring that overseas companies disclose their beneficial owner(s) in a public registry. U.K. property sales to companies based in tax havens have since decreased, including in tax havens more likely to be used by Russians as well as those employed by other “highly corrupt” countries.


gold mafia (al jazeera investigates)

An investigation by Al Jazeera exposed how kleptocratic networks allegedly use gold to evade Western sanctions and launder their countries’ wealth on a massive scale. The findings, published in the Gold Mafia podcast, highlighted how criminals exploit Dubai’s lax financial regulations as well as vulnerable banks in Zimbabwe and South Africa to launder their wealth before funneling it through Western financial institutions, all with the approval of corrupt local leaders.


two companies, one trade: the switch that keeps putin’s oil flowing (FInancial times)

Swiss oil company ParamountEnergy & Commodities SA used a Dubai-based affiliate to continue to trade Russian oil well above the $60 per barrel price cap imposed by the G7. As one researcher at the NGO Global Witness explained, authorities in democracies need to bolster their enforcement capabilities as companies disregard the price cap on Russian crude oil. Such tactics highlights how actors in the private sector are willing to continue to work with Putin’s regime and enable him to fund Russia’s war of aggression in Ukraine.


u.s. and u.k. sanctions against russian oligarchs

British officials have widened the scope of their punitive sanctions against Russian oligarchs, targeting their enablers outside Russia. The newest round of targets for sanctions include Cypriot and Ukrainian businessmen, as well as family of oligarchs who hold assets in their name. Separately, the U.S. has refused to grant visas for Russian foreign minister Sergey Lavrov and the Russian delegation to chair an upcoming meeting of the UN Security Council in a further pushback against Putin’s kleptocratic regime.

One Year Of War: Sanctions Impact Assessment And Action Plan For 2023 (Kyiv School of Economics and Yermak-McFaul International Working Group on Russian Sanctions)

More than one year after the Kremlin launched its full-scale invasion of Ukraine, Russia’s economy is feeling the sting of international sanctions. The “unprecedented” sanctions regime has, among other outcomes, limited revenues from the energy sector and diminished the value of the ruble. In the coming year, the working group suggests three key measures that can help bring about the end of the destruction in Ukraine: further restricting the revenue Russia generates from oil and gas, systematically isolating key sectors, and transparently reallocating frozen Russian assets to support Ukrainian relief programs.


The Global Information Wars: Is the U.S. Winning or Losing? | Testimony of NED Vice President Christopher Walker, Committee on Foreign Relations Subcommittee on State Department and USAID Management, International Operations, And Bilateral International Development, United States Senate

Journal of Democracy | April 2023: Don’t miss the latest edition of the Journal of Democracy, featuring articles on “The Rise of Sportswashing,” “The Putin Myth,” and more.

The Digitalization Of Democracy: How Technology Is Changing Government Accountability | New Forum Report written by Krzysztof Izdebski, Teona Turashvili, Haykuhi Harutyunyan, and ed. by Beth Kerley, International Forum for Democratic Studies

The Autocrat Sliding Into Your DMs | Op-ed by Forum Assistant Program Officer Ariane Gottlieb, American Purpose


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