Globalist Bookshelf

Confronting the Kleptocrats? Contain Their Western(!) Financial Managers

The governments participating in the November 2021 Biden Summit should hit the authoritarians where it hurts them the most – in their wallets.

Takeaways


  • The kleptocratic leaders are almost all not only paranoid and narcissistic, but extraordinarily greedy.
  • We have the means to cripple authoritarian leaders’ vast money laundering schemes.
  • Armies of financial and legal advisors, real estate and luxury yacht brokers, art dealers and auction house managers, diamond and gold traders, auditors and consulting firms are based in the City of London, on Wall Street, in Zurich and Geneva,
  • Total illicit financial flows exceed $2 trillion every year and more than $600 billion is invested annually in the world’s single largest capital market, the US.
  • Not a single CEO of the largest global auditing firms, or the top global banks, has been personally prosecuted for the crimes pursued by the organizations that they run.
  • Western authorities have failed to indicate that they will provide adequate budget resources to ensure that the new regulations protecting the world against the scourge of illicit finance are fully enforced.
  • We need to know who owns those apartment building in Miami, Munich and Monte Carlo, and how they obtained their cash.

The crimes perpetrated by the kleptocrats governing Russia, China, Iran, Egypt, Hungary, Nigeria and many more nations not only impoverish their own citizens. They ultimately impoverish all of us.

More gallingly, we are assisting them in their greed and their corruption. Even more worrying, Western governments, as well as major multinational corporations headquartered across Western Europe and North America, are complicit in their quest.

Mounting threats to international security

The leaders of kleptocratic regimes and their cronies strive for ever more power, reaching far beyond their own national borders.

Their insatiable appetite for wealth directly undermines an already fraying consensus on globalization and poses mounting threats to international security.

It is no solace that their activities are moving forward at a time when authoritarianism is on the rise across much of the world, while the major democracies are deeply troubled.

Countering authoritarianism

Government officials on both sides of the Atlantic are now preparing proposals, including action plans, for President Biden’s virtual White House “Summit for Democracy” on December 9, 2021 (the UN International Anti-Corruption Day) and December 10 (the UN’s Human Rights Day). Countering authoritarianism is the central theme of the event.

But the relevance of that entire effort, to a large extent, depends on whether we finally show the courage and follow-through to tackle the issue of illicit finance.

Protecting the cohesion of the democratic world

Allowing autocrats to avail themselves of high-end financial services provided by Western institutions directly undermines the credibility of the West, if not the cohesion of the democratic world.

Sanctions have been prime tools that have been used in recent years by the United States, the UK and the EU to counter the dictatorships.

But is this sufficient to contain the oligarchs and the companies which they control? As the Biden Summit’s planners must acknowledge, authoritarianism has just kept marching ahead.

Insufficient will power

The Trump years of White House corruption, the Brexit vote, the Kremlin’s direct efforts to undermine U.S. and German elections, the increasing Chinese endeavors to obtain Western technology by all means, are just some of the illustrations of this trend.

Moreover, many governments have used the Covid-19 pandemic to curb the activities of civil society, to censor and jail journalists, and to reduce transparency in public procurement.

Authoritarian regimes consolidate their power at home by providing special benefits to their supporters. Meanwhile, they abuse the human rights of critics and opponents – real or imagined.

Extraordinarily greedy

The kleptocratic leaders are almost all not only paranoid and narcissistic, but extraordinarily greedy.

The governments participating in the Biden Summit should hit the authoritarians where it hurts them the most – in their wallets.

We have the means to cripple authoritarian leaders’ vast money laundering schemes. We can also stop the flow of hundreds of billions of dollars that currently flow licitly into the treasuries and central banks of governments that are run by officials who refuse to publicly explain just what they do with all this cash.

Shameful Western enablers

Central to Western complicity with kleptocrats and their associates are many of the world’s largest banks, together with armies of financial and legal advisors, real estate and luxury yacht brokers, art dealers and auction house managers, diamond and gold traders, auditors and consulting firms.

Many of these entities are based in the City of London, on Wall Street, in Zurich and Geneva, and in other important global financial centers.

These are the enablers, who are motivated not only by the substantial incomes they obtain for aiding and abetting kleptocrats and their associates, but by the minimal risks they take in doing so.

Indispensable agents of the kleptocrats

The enablers are the indispensable agents of the kleptocrats. They alone have the skills to ensure that the flows of dirty cash through the world’s financial system finds a safe and secret home in investments across the leading Western industrial economies.

At a minimum, total illicit financial flows exceed $2 trillion every year and I conservatively estimate that more than $600 billion is invested annually in the world’s single largest capital market, the United States.

When banks, auditing firms and other enablers get caught red-handed by justice departments for laundering cash and bribing foreign government officials, then they settle the charges by paying fines – which have come to be seen as just the costs of doing business.

A stunning fact

Not a single chairman or chief executive officer of the largest global auditing firms, or the top global banks, has been personally prosecuted, let alone jailed, for the crimes pursued by the organizations that they run.

Until that happens, one can count on this shameful practice of enabling despots and autocrats to continue.

See who revels in impunity

The top enablers in Western countries, like the kleptocrats at the helm of power in authoritarian nations, all revel in their impunity.

The most powerful Western enablers, led by the heads of the biggest banks, are deeply networked into the political establishments of their countries.

To safeguard their activities, they have equipped themselves with teams of professional lobbyists. In the case of the U.S., they also rely on making large political campaign contributions to protect their operations.

Ending business as usual

This needs to change. And democratic countries actually have a very potent avenue to see to it that it changes.

After all, many of the same enablers are at the center of the sovereign bond markets. Their firms arrange bond issues for governments, mobilize international investors, and so raise vast sums of hard currency.

They do so for governments from Albania and Belarus to Zambia, not to mention such state-owned enterprises as Russia’s Gazprom, which alone has outstanding international notes and bonds in excess of $100 billion.

The Biden Summit opportunity

The Biden Summit has been called because the U.S. President and an increasing number of members of the U.S. Congress, both Republicans and Democrats, are increasingly concerned about the threats that authoritarian regimes are posing to democracies.

They, like UK and EU authorities now support regulations that seek to strip away the secrecy of investments by forcing the identification of the true owners of shell companies, often registered in offshore havens.

Alas, so far Western authorities have failed to indicate that they will provide adequate budget resources to ensure that the new regulations protecting the world against the scourge of illicit finance are fully enforced.

Sunshine on the sources of cash

The Biden Summit provides an opportunity for action — and here the enablers need to be a key target. All categories of enablers should have to conform to rigid know-your-customer requirements that ensure they report all suspicious transactions to authorities.

We need to know who owns those apartment building in Miami, Munich and Monte Carlo, and how they obtained their cash.

The basic responsibility to serve the public interest

Enforcement of current international money laundering and anti-corruption laws needs to be sharply increased with new laws that make top executives fully responsible for criminal actions pursued by their institutions.

Corporate boards of directors need to recognize that the top priority of short-term profit maximization dare no longer shunt aside the basic responsibility to serve the public interest, which means refusing to aid and abet kleptocrats.

Focus on the enablers

The menu of actions that should be taken against the enablers, which would hit their kleptocratic clients very hard, is substantial.

But it demands countering the enormous influence that the biggest banks and financial institutions, together with leading law firms and auditors, have on our political systems.

Conclusion: Restoring trust in government

Public opinion polls across the world show that trust in government is exceptionally low and that too many politicians are boosting their fortunes and those of their business associates at the public’s expense.

The time has come for Western government leaders to address these concerns directly. They need to recognize the threats of authoritarianism and demonstrate the courage to finally challenge the major financial institutions on our Western shores that assist the kleptocrats to become ever-more secure in their power and ever richer.

Editor’s note: This article is adapted from Vogl’s new book, to be published on November 15, 2021 – THE ENABLERS – How The West Supports Kleptocrats and Corruption – Endangering Our Democracy

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About Frank Vogl

Frank Vogl is co-founder of Transparency International and author of Waging War on Corruption: Inside the Movement Fighting the Abuse of Power. [Washington D.C., United States]

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