Countering Kleptocracy: November 30, 2022

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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Untangling Kleptocracy in Partly Free Democracies // November 29

by Eguiar Lizundia, Senior Advisor for Governance and Anti-Corruption, International Republican Institute

In developing democracies, kleptocratic corrosion of institutions can be far more subtle than in autocracies. While the most nefarious kleptocrats hail from authoritarian systems, kleptocracy can also infiltrate and thrive in partly free democracies. These regimes’ vulnerability to kleptocratic networks is an existential threat to democratic governance. With adequate support, however, anti-corruption defenders can leverage existing checks and balances to push back against the looting and laundering of stolen assets, strengthening the transnational response to kleptocracy worldwide in the process.

Less than a decade ago, the term “kleptocracy” was virtually unknown. Today, there is finally a growing awareness of the ways in which corrupt leaders use the instruments of power to plunder resources around the world, and what to do in response. Democracies, while imperfect, have accountability mechanisms that mitigate the most egregious impacts of kleptocracy. As a result, there are sectors within democracies that are not completely captured by kleptocratic networks and can defend against kleptocratic erosion. These pockets of resistance prevent kleptocrats from using the tools in their playbook to their complete effect. And, unlike kleptocracy in authoritarian contexts, the existence of some rule of law norms discourages the wholesale theft of state resources. Yet, as a forthcoming research product by the International Republican Institute shows, the influence of kleptocratic actors in developing democracies is often as extensive as what we see in fully authoritarian regimes.

Honduras is an illustrative example. A “partly free” country according to Freedom House, corruption has been the modus operandi for decades; however, Honduras’s kleptocratic structure has become even more entrenched in recent years. From 2014 to 2022, former President Juan Orlando Hernández and his associates allegedly siphoned off funds from the country’s signature poverty reduction program, “Vida Mejor,” to enrich their patronage networks and for political gain. Through thousands of partisan activists placed on government payrolls spread across nearly every municipality, top government officials bought political loyalty and pocketed millions of dollars. The patronage system had linkages with transnational drug trafficking groups, earning Honduras the description of a “narco-state” by U.S. prosecutors. The program was partly funded by international financial institutions such as the World Bank and the Inter-American Development Bank, demonstrating that kleptocracy enablers are not limited to the private sector.

In Bangladesh, also designated “partly free,” the intertwined political and business classes—a fixture of kleptocracy—facilitates the diversion of government funds for private benefit. Over the last decade, Bangladesh has posted some of the fastest rates of GDP growth in the world, driven by garment exports. In tandem with its economic growth, the country has witnessed the extraordinary rise of a politically-linked moneyed class, who have also seen multifold increases in their wealth. In fact, many political leaders with ties to businessmen are under investigation for money laundering and other financial crimes. Constitutional provisions that limit parliamentarians’ ability to break from the party line and the lack of intra-party dissent perpetuate this dynamic by limiting the avenues for seeking accountability. Private banks, meanwhile, act as necessary conduits for asset expatriation through complex multijurisdictional transactions.

These are just two examples of the numerous democratizing countries that have fallen victim to kleptocratic governance. In all cases, weak institutions are exploited by unscrupulous leaders who are able to leverage the international financial system with the aid of white-collar professionals and cross-border criminal networks. Unlike in the most entrenched kleptocracies, however, activists, investigative journalists, and opposition parties in partly free and other developing democracies often have some legal protections and other avenues to expose and counter the systematic pilfering of government coffers. This endeavor can be risky, but it offers an opportunity for the global anti-corruption community to provide democracy advocates with a platform to advocate for “dekleptification” and educate enablers on the damage being done to developing democracies.

Eguiar Lizundia (@Eguiar) is a senior advisor for governance and anti-corruption at the International Republican Institute, where he leads the Institute’s efforts to counter kleptocracy globally. 

Global Finance and the Enablers of Corruption (Global Integrity Anti-Corruption Evidence Programme, ACT International Consulting, and UK Aid) 

Private sector professionals in the Global North—including accountants, lawyers, and realtors, among others—help facilitate illicit financial flows (IFF) from the Global South by helping obscure the true source of illicit funds and launder money within financial institutions in democracies through shell companies, tax advice or legal counsel, and other tactics. Given the existing loopholes within legal frameworks designed to counter IFFs, Global Integrity argues that closing data gaps about enabler behaviors and enhancing communication about the dangers of IFFs can help mitigate the role of such enablers.


Made in China: China’s Role in Transnational Crime and Illicit Financial Flows (Global Financial Integrity) 

China is a key facilitator of transnational crime and IFFs, serving as an origin, transit point, and “demand country” for illicit assets. Money laundering allows corrupt individuals and criminal entities to obscure the true source of ill-gotten gains using tactics such as investing in real estate, establishing offshore shell companies, and more. China’s financial malfeasance bolsters the Chinese Communist Party’s economic, political, and military influence in targeted countries while undermining the global economic system based on the rule of law.


Documents Reveal Wagner’s Golden Ties to Sudanese Military Companies (OCCRP)

Moscow’s state-linked mercenary force, the Wagner Group, has used cross-border kleptocratic links to project Russian influence across Africa, fund the Kremlin’s war machine, and reinforce  Sudan’s violent authoritarianism. The Wagner Group and its affiliates, Meroe Gold Limited and M Invest (both of which are linked to the oligarch, Yevgeny Prigozhin), have sent millions of dollars to a Sudanese security firm with covert ties to the military. Former Sudanese president Omar al-Bashir waived a requirement for Meroe that would mandate it give 30% of shares to the Sudanese Ministry of Minerals. Meroe was also granted additional lucrative licenses and exploration rights, prompting some experts to question if a quid pro quo had been established.


When Organized Crime is the Government (El País English Edition)

State corruption has evolved in recent years from the bribery of public officials to infiltrating the seats of power. Moisés Naím characterizes this trend as “Corruption 3.0,” in which leaders within mafia states turn to corruption not just for personal enrichment, but as a tool to strengthen their own rule at home and abroad. The illicit redirection of state resources to armies and other authoritarian partners abroad poses a severe threat to the world’s democracies and global security.


Ukrainian Recovery Funding Must be Tied to Anti-Corruption (Brookings Institution)

Josh Rudolph and Norman Eisen argue that establishing a robust anti-corruption framework must be a central condition of all U.S. foreign assistance packages for Ukraine’s post-war recovery. Three core political and geopolitical factors underlie this principle: the Kremlin uses strategic corruption as an avenue for malign influence; Kiev’s transition from kleptocracy to a system built upon the rule of law is not yet complete; and corruption scandals will prove detrimental to public support for ongoing assistance to Ukraine among the U.S. electorate.


Treasury Targets Corruption and the Kremlin’s Malign Influence Operations in Moldova (U.S. Department of the Treasury)

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) levied sanctions against Russian-linked individuals and entities with the aim of countering the Kremlin’s disinformation and systemic corruption in Moldova. These sanctions target oligarchs who have sought to capture, influence, and corrupt the nation’s political, economic, and media institutions. Moscow’s use of strategic corruption has allowed the Kremlin to bolster pro-Russian political figures and preserve its influence in Moldova, undermining democracy in the country.


Nineteenth Annual Seymour Martin Lipset Lecture: Anne Applebaum on “Autocracy Inc.”: On December 1, 2022, NED will host the Nineteenth Annual Seymour Martin Lipset Lecture, with featured speaker Anne Applebaum.

Translated Research and Analysis | International Forum for Democratic Studies:
Check out newly translated Forum publications, including analysis on transnational kleptocracy around the world. Check out reports on authoritarian reputation launderingsanctionsthe Biens Mal Acquis trial in France, and more. Content is available in Spanish, French, Arabic, Chinese, Russian, and Portuguese.

Why Sanctions Don’t Work Against Dictatorships | Agathe Demarais, Journal of Democracy

First Global Magnitsky Sanctions Submitted Against Congo Brazzaville Officials by Sassoufit | Collectif Sassoufit


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