Maia Sandu, the courageous president of the tiny Eastern European country of Moldova, used President Biden’s Summit for Democracy on Dec. 9 to make a blunt appeal. She said her country faces extreme economic challenges largely because former public officials and their business cronies looted the nation’s banks.
What did they do with the money? They transferred it to the United States and other Western countries and parked their ill-gotten gains in stock, bonds, real estate, art, and other assets in our markets.
And so, Sandu said, if Biden and the leaders of other powerful democracies want to end the blatant theft of public resources that plagues struggling countries, they must accept that “corruption has to be combatted from both ends: from the sources where money is stolen and to the destinations where this money is finally invested.”
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Kleptocrats and their cronies from countries such as Russia, China, and Nigeria steal staggering amounts of money from their citizens and seek safe and secret homes for their wealth. To do this they need enablers — bankers, lawyers, auditors, real estate brokers, art dealers, and financial consultants — on Wall Street, in the City of London, and in other leading international financial centers.
Upwards of $2 trillion of dirty money is laundered this way every year. I estimate, conservatively, that some $600 billion of it flows into US investments — which is more than the annual sales of the world’s largest retailer, Walmart. Or consider that more than $235 billion of dirty money from Russia and neighboring countries was laundered over several years through the Estonian branch of Denmark’s Danske Bank — an amount larger than the GDP of Estonia itself.
The transfer of vast wealth from authoritarian regimes into Western investments strengthens the power and security of these regimes. And as we have seen with Russian efforts to undermine elections here and in Germany, and as Chinese authorities have sought to steal our technology and have ramped up their anti-democracy propaganda, the challenges that kleptocratic regimes pose to our security are formidable.
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These dangers prompted President Biden to launch the Summit for Democracy, where he noted: “By effectively preventing and countering corruption and demonstrating the advantages of transparent and accountable governance, we can secure a critical advantage for the United States and other democracies.”
He’s right that we can counter these kleptocrats by hitting them in their wallets. But this also demands curbs on the activities of the enablers on our shores.
While there are laws and financial regulations to counter money laundering and international corruption, they have been poorly enforced. And the kleptocrats’ enablers not only assist their foreign criminal clients directly; they also lobby Congress and other Western legislatures to keep the enforcement system weak and underfunded.
The holes in that system benefit people like Isabel dos Santos, who on Dec. 9 was placed on the US government’s sanctions list for her acts of corruption. She has used major international banks for years to safely invest her stolen assets. Dos Santos, the daughter of a former president of oil-rich Angola, is widely reputed to be the richest woman in Africa, with a personal fortune of more than $2 billion. An army of lawyers in several countries have helped her to evade Angolan prosecutors. Imposing sanctions on people like her after they have robbed their home countries and safely invested the proceeds abroad is unlikely to have a major effect.
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Significantly, a major feature of the Biden administration’s new anti-corruption strategy, revealed on Dec. 6, focuses on the need — at last — to ramp up enforcement and establish tougher regulations to curb the activities of the enablers. I do not think the proposed measures go far enough, but they are a start. The key will be ensuring the necessary level of enforcement.
Look at what happened in 2020 with Wall Street banker Goldman Sachs, which paid the largest-ever fine — $2.3 billion — to the US Justice Department for foreign bribery. Authorities here and in the UK, Singapore, and Malaysia determined that Goldman Sachs was the central enabler in a scheme in which Najib Razak, a former prime minister of Malaysia, together with his associates made off with about $4.5 billion of the $6 billion in bonds that were floated on behalf of the economic development fund of Malaysia — money intended to assist that country’s poorest people. Najib was hauled into court in Malaysia, found guilty of multiple financial crimes, and sentenced to 12 years in prison. As for Goldman Sachs, only two of its executives have been prosecuted in this scheme; the fine appears to be just a cost of doing business.
What more can be done?
Skilled lawyers help their kleptocratic clients create an architecture of shell companies, in which one holding company controls another, with each registered in such places as Delaware, South Dakota, the British Virgin Islands, and the Cayman Islands. What these places have in common is that they do not require newly registered companies to disclose who really owns and controls them.
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At a minimum, all banks and real estate and auction companies need to be subject to explicit know-your-customer rules that demand that they do thorough due diligence on where and how large potential customers have obtained their cash. Then the US banking and justice authorities need to have substantial budget resources to deploy artificial intelligence to monitor the tens of millions of financial transactions that cross borders into the US financial system and to investigate and, if necessary, prosecute.
Further, there needs to be a law that explicitly holds the board chairs and CEOs of major enabling institutions criminally accountable for money laundering and foreign corruption pursued by their businesses. After the Enron and WorldCom scandals two decades ago, Congress passed the Sarbanes-Oxley Act, which required top executives to sign the corporate accounting reports and held them criminally liable for false statements. A similar approach needs to be taken to hold top bankers and auditors and other enablers to public account.
Across the world, from the United States and the European Union to scores of developing countries, opinion polls show that people believe that the level of corruption in government has rarely been higher. To counter this troubling trend, Western governments, led by the United States, must demonstrate a far deeper commitment to rooting out corruption — both abroad and at home.
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Frank Vogl, a former World Bank official, is cofounder of Transparency International and chairman of the Partnership for Transparency Fund, both of which are anti-corruption organizations. His latest book is “The Enablers: How the West Supports Kleptocrats and Corruption — Endangering Our Democracy.”