Autocracy - v - Democracy
UAA/DACOR Development Dialogue
Frank Vogl
Author of The Enablers
Wednesday, April 20, 2022.
Good afternoon. It is a great pleasure to be back here and to engage with you on the issue of anti-corruption. My special thanks to Alex Shakow for inviting me.
In his riveting new memoir, “1000 Years of Joys and Sorrows,” Chinese artist Ai Weiwei writes: “Corruption of the judiciary is the public face of a morally bankrupt body politic, a scar disfiguring the era in which we live.”
I open my new book by quoting President Biden: “Fighting corruption is not just good governance. It is self-defense. It is patriotism, and it is essential for the preservation of our democracy and our future.”
When I set out to write this book over two years ago in the Trump years, I could not imagine that there would soon be a U.S. President in office who would decry corruption so vigorously and who would host a Summit for Democracy, warning that we are in a bitter fight across the globe between autocracy and democracy. And I could not imagine that a corrupt, mad Russian leader would unleash a horrendous war, where one of the West’s responses would be to promote many of the anti-corruption policy actions that I advocate forcefully in this book.
Permit me to briefly highlight some of the key points in my book and then go beyond this volume to consider some rather fundamental issues about the paths ahead that U.S. foreign service officers, and US AID, should pursue in a world where grand corruption has emerged as such a powerful force.
At December’s Summit for Democracy, Maia Sandu, the courageous President of the tiny Eastern European country of Moldova, stressed that her country’s economic challenges have long been exacerbated by public officials and their cronies looting the nation’s banks and shipping the cash into Western financial markets.
President Sandu asserted that if Western democracies want to counter global corruption, then 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.”
Grand corruption today is a universal phenomenon.
The vast scale of corruption in Iraq, and the compelling investigations led by Special Inspector General for Iraq Stuart Bowen during the US occupation of that country, which found enormous abuse, should have served as a siren call: security in many parts of the world demands putting in place a justice system that is fair and respected by all citizens, and that is enforced free of political and military interference. In the preface to Bowen’s final report, General David Petraeus and Ambassador Ryan Crocker wrote that the lessons drawn from the Iraq experience “could help improve significantly the US approach to future stabilization and reconstruction operations.”
The lessons were not learned. The same mistakes were made on an even larger scale in Afghanistan. The exhaustive official accounts by the office headed by Special Inspector General John Sopko reveal how so much of the U.S. reconstruction and development aid to that country of over $140 billion was stolen and added to corruption problems.
Bowen and Sopko shown a bright light on abuse, that were too often ignored by our diplomats, aid agencies, the intelligence services, and our military.
I wrote this book as a wake-up call. For far too long Western governments and too many Western businesses have been complacent about global grand corruption. Our governments have repeatedly placed commercial goals above core values related to corruption and human rights.
For too long, foreign policy practitioners have seen the effort to develop good relations with foreign governments as a delicate balancing act where they have felt it best to push anti-corruption and human rights in such a delicate diplomatic manner that the impact was largely negligible. Unreliable partners, from Karzai to Mubarak, from Chalabi to Kagame, have known how best to take full advantage of the fact that our public anti-corruption rhetoric has too often been mere bluster.
Kleptocrats and their cronies in Russia, China, Nigeria, and many other nations, steal staggering amounts of money from their citizens. They seek safe and secret homes for their wealth. Western governments have known this for years and sought to do very little about it. Not just abroad, but here on our own shores.
We are talking about upwards of two trillion dollars of dirty cash flowing through the world’s financial system. I estimate that $600 billion is laundered and flows into US investments every year – more than the total annual sales of Walmart, the world’s largest retailer.
For example, sub-Saharan Africa loses about $90 billion – about 3.7 percent of its gross domestic product (GDP) - annually in illicit financial flows. This is almost double foreign aid inflows.
In my book I provide concrete examples, from the kleptocrat Aliyev family that runs and loots Azerbaijan, that is President Ilham Aliyev and the Vice President, his wife, Mehriban Aliyev, to Angola’s Isabel dos Santos, daughter of a former President, and once the richest woman in Africa. Kleptocrats need business partners – let us call them oligarchs – to help them keep in power, to pay off supporters, to finance assorted off-the-books schemes, and to increase their personal wealth.
And these oligarchs 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. Without the enablers the crooks could never launder their dirty loot; they could never invest their cash in safe and secret investments here in the United States and across the largest developed economies.
I provide concrete examples of how some of the biggest banks played major roles as enablers – BNP-Paribas laundering $6 billion for Sudan’s President Omar al-Bashir at the very time he was perpetrating genocide in Darfur, Deutsche Bank laundering billions of dollars of Russian cash. J. P Morgan Chase bribing Chinese officials, by giving jobs to their sons and daughters, to secure government contracts; and, Goldman Sachs bribing Malaysian officials, then floating $6 billion of bonds for the country’s development agency of which around $4.5 billion went missing – into the pockets of some of the bank’s executives and the former President of Malaysia Najib Razak and his friends.
Not a single chairman or top executive of a US bank was prosecuted after the massive sub-prime mortgage frauds, and none has ever been prosecuted for money laundering, tax evasion and other crimes by their institutions. The banks pay fines. They look at these as the costs of doing business in an era when massive bonuses are paid to the leaders of finance, tied to short-term profit maximization.
I provide details of the dirty cash flowing into real estate from Vancouver to Londongrad; of the opacity of the art auction houses; of the ease with which lawyers can establish trusts and companies, from South Dakota and Delaware to the British Virgin Islands, where the beneficial owner’s name need not be documented.
In addition, I discuss klepto-debt – the licit financing of corrupt regimes through the sovereign bond markets. Hundreds of billions of dollars flow licitly to countries that are not creditworthy like Zambia that has defaulted; like Argentina that has defaulted nine times; like Lebanon that is in default today; and like Belarus and Russia and other countries run by kleptocratic dictators.
The reckless system that I describe in my book must end. We cannot keep on sending money to kleptocracies; opening our markets to oligarch investments; permitting the enablers on Wall Street and beyond to pursue activities that not only run counter to the public interest and endanger our security, but that are illegal.
We have seen Russian oligarchs finance espionage to undermine our elections in 2016 and 2020 and the German elections last year. We have seen Gazprom bully Ukraine, and many other European countries because of the power of its natural gas resources – Gazprom has raised over $40 billion from Western investors through the markets.
I argue that if we are to eradicate what Ai Weiwei called the “scar disfiguring the era in which we live,” then we must use every device under the law to oppose the kleptocrats and their cronies and their oligarchs. At the same time, we must be determined to use the full force of the law against the enablers. How?
First, the culture in our financial industry of massive profit maximization needs to change – integrity and serving the public interest must be restored. It has taken the Russian aggression in Ukraine to finally make some of the major Western corporations recognize that operating in Russia supports a regime that is determined to destroy Western democracy.
Second, as Alexander Hamilton wrote in the Federalist Papers, “good administration is the key to good government.” We need administrative reforms.
We need a massive ramp-up of enforcement on both sides of the Atlantic of existing anti-money laundering and anti-corruption laws and regulations; far higher standards of Know-Your-Customer rules for all the enabling institutions so they are truly honest and thorough in doing due diligence on how their rich clients amassed their wealth, and far greater transparency on the beneficial owners of investment assets. I call for explicit actions to make top bankers criminally liable for major corruption-related crimes by their institutions.
Finally, we need political reforms, embracing all those proposals before the Congress on ending revolving doors, tightening lobbying rules and above all, curtailing money in politics. We will never bring the enablers to end their dirty games until we reduce their political influence. The top bankers are deeply connected into the political elite networks of their countries; they hire lobbyists; they finance political campaigns; they do everything they can to maintain a status quo that, in effect, allows them to pursue criminal activities at low risk.
This must change. Because of the Russian invasion of Ukraine, we are seeing a far greater focus by the Administration and Congress on precisely the kinds of measures that I have long advocated.
The big question is whether the anti-corruption zeal will be sustained, or will it decline as the Ukraine news moves off the front pages and as the lobbyists quietly work to undermine reforms?
USAID and Diplomacy
And now let me turn directly to you and consider how my call for an all-out approach to anti-corruption and anti-money laundering should prompt changes in our diplomacy and aid work. Permit me to start with US AID. Thanks to Alex Shakow, I learned about the excellent new book by John Norris, “The Enduring Struggle” – the history of US AID. This agency has played an important and vital role in reducing poverty and humanitarian hardship across the world over many decades – its many dedicated professionals have fought the good fight, often without the praise that they so richly deserved.
I am very hopeful that today’s US AID leadership find ways to attain the critical objectives that were highlighted for it at the Summit for Democracy: 1) Support global coalitions of reformers, (2) protect anti-corruption activists and journalists, and (3) strengthen the capacity of our partners to detect, track, and expose dirty money.
Expert Shannon Green, who leads a special Anti-Corruption Task Force, reported to a Congressional committee last week that concrete plans are being rapidly developed in each of these priority areas. They should succeed but let us not underestimate how difficult implementation will be.
First, they will only be meaningful if sustained long-term: we must finally accept that results in these areas cannot be secured in one or two years and that, irrespective of which president is in the White House, these programs must be continued.
Second, implementing and managing these kinds of programs demand skills that you will not find in the Beltway contracting consulting firms that US AID has used for years. Greater priority must be given to direct partnerships with journalists and civil society organizations in countries, using them to design and manage and implement programs – trusting them and rercognizing their professional skills.
I became involved in anti-corruption, in establishing Transparency International 30 years ago, because of the devastating impact of corruption on poverty in many countries – it is a critically important contributor to the hardships that face the world’s poor every day. I helped to establish the Partnership for Transparency Fund to work directly with CSOs in countries to help them build the skills to monitor public procurement, to press for rule of law improvements, and to help eradicate extortion in basic social services delivery, such as in health and education.
PTF is an all-volunteer group. We have worked on scores of successful projects and seen how the skills of so many CSOs in many countries have grown dramatically. US AID and the World Bank must finally recognize these resources as the leaders in curbing corruption in their countries by providing them with both meaningful financial support and the authority to manage and implement.
If US AID is to be more effective on a sustained basis in countering corruption, then there needs to be fundamental change in the ways in which most of our diplomats work. For years, US administrations, including the present one, send mixed signals that diminish our credibility when it comes to human rights and anti-corruption.
For example, look at our relations with Egypt, which usually receives around $1.3 billion annually in total aid. According to the State Department’s new Human Rights Report, on Egypt: “International observers maintained the government detained or imprisoned between 20,000 and 60,000 individuals on politically motivated grounds.” The Committee to Protect Journalists reports that in 2021 Egypt jailed more journalists than every other country except for China and Myanmar. The newest Transparency International Corruption Perceptions Index ranks the country at 117th out of 180 with a score of just 33 out of a clean 100 – just four points cleaner than Russia.
This year the State Department withheld $130 million in aid because of human rights violations – why did we give this ruthless kleptocracy any money at all? Well, we are so concerned about keeping a good relationship with Cairo that having reduced the aid, we also, at the same time, gave the green light to US arms sales to Egypt of $2,5 billion. Our aid cut was pure tokenism lacking force and credibility. Worse, our arms sales send a message to the citizens of Egypt that we support their dictatorial government.
Take another example, that you will find in my book: Azerbaijan. Another ruthless, kleptocratic regime that locks up and murders journalists, controls the media, ships vast sums of dirty cash to the West, and receives US military assistance because of strange claims that it can help us against Iran. Our military aid sends a message to the citizens of Azerbaijan that we support their corrupt government – and that same message of course is registered by the citizens of Armenia who see, and loathe, our embrace of Azerbaijan’s Aliyevs.
Just a few weeks ago on March 15 a coalition of human rights groups[1] wrote to Secretary Blinken and stated in part: “additional U.S. assistance – above and beyond the $164,000,000 that has reportedly already been sent to the armed forces of Azerbaijan – risks materially strengthening Baku’s authoritarian capabilities and emboldening the unelected and unaccountable leaders of this authoritarian single-family regime. Azerbaijan, an oil-rich nation that already spends billions annually on its military, neither needs nor deserves U.S. tax dollars.”
We do this all the time. We send mixed signals. We declare in public rhetoric that we support civil society, but time and time again we fail to provide in-country civil society with the means to really hold their governments to account. We say we support investigative journalism, then we give Egypt and Azerbaijan, for example, aid and weapons. We may enjoy temporary good relations with the leaders of these nations, but we damage the standing of the United States in the eyes of their citizens.
One diplomat who understands this is Marie Yovanovitch, the former U.S. Ambassador to Ukraine, who writes of her more than 30 years as a diplomat in her new memoir, titled “Lessons from the Edge,” - “In principle, our values and our interests are nowhere more aligned than when it comes to fighting corruption. When leaders view their positions in government as sinecures serving their personal interests rather than those of their constituents, it not only contravenes our values, it also goes against our interests, our long-term interests.”
Ambassador Yovanovitch highlights how she struggled in her different posts to find ways to push anti-corruption while at the same time improving relationships with highly corrupt governments. I think she only really reached the conclusion that I just quoted in her final appointment in Ukraine – and it cost her her job. She was the victim of collusion between a corrupt Ukraine government and a corrupt White House.
All the same she is right. It is fundamentally naïve to believe that the US can secure long-term relationships that diminish security risks without boldly dealing with vast human rights and corruption abuses in many foreign governments.
Increasingly, we have sought to use sanctions to back up our human rights and anti-corruption public rhetoric. The Magnitzky Act, recently extended by Congress and the President, has been a valuable tool for strengthening US sanctions. It is named for a valiant lawyer who sought to speak out against Russia and was murdered by his Russian jailers.
We need to be realistic about sanctions. Those on Russia’s central bank and financial system may prove to be effective if sustained; those on US financial institutions that bar them from involvement in any form with Russian sovereign debt issues are welcome and overdue. Sanctions on individuals, such as the Russian oligarchs are harder to assess, despite the short-term public relations gains when TV cameras film FBI agents boarding oligarch superyachts.
Current sanctions law here and largely in the UK and Europe, allows for the blocking, the freezing of assets – but confiscating the assets in terms of full forfeiture requires that prosecutors prove that the true beneficial owner of an asset is indeed the sanctioned individual and that he and/or the assets in question are connected to a crime, such as laundered cash.
Identifying the assets and proving criminal connections under current laws is difficult. We need better laws to sharpen this weapon against global money laundering and the crooks that pursue it. The greater our enforcement powers and resources the stronger will be the diplomatic tools that our ambassadors can deploy in their candid conversations in foreign capitals.
Every foreign service and US AID officer needs to take note of Marie Yovanovitch’s warning that our security depends on maximizing our efforts in foreign policy to counter corruption. That means that the delicate balance in diplomacy needs to change. It means that our diplomats place the highest priority in forging relationship in foreign capitals on pushing anti-corruption.
That means that we should no longer shunt aside our values to sell a few more US aircraft and weapons systems, and to boost commercial prospects for US multinational corporations. We must understand that fundamentally corrupt, autocratic regimes are unreliable partners. The White House response to the Russian invasion of Ukraine is a major step forward in anti-corruption.
We are not winning across the globe in the confrontation between autocracy and democracy. We must redouble our efforts and in so doing, with US leadership we must spare no effort to support those who are on the front lines. People of extraordinary courage across the globe who are speaking truth to power despite enormous risks, from Belarus to China to Myanmar and of course Russia.
Alexei Navalny and Vladimir Kara-Murza are in Russian jails, so too are many other reporters and activists in Russia, in China, Egypt and Turkey. There are bold people forced into exile from Belarus and Azerbaijan and China and other nations who are still striving to promote freedom and democracy in their home nations. There are large numbers of civil society activists harassed by dozens of governments – but all remain committed to the cause of anti-corruption – they must be supported.
Thinking of them, permit me to highlight the final quote in my book by the late civil rights leader, Congressman John Lewis, who stated in his memoir: “I have been rejected, hated, oppressed, beaten, jailed and I have almost died only to live another day. I have witnessed betrayal, corruption, bombing, lunacy, conspiracy and even assassination – and I have still kept marching on.”
Let us march ahead together. Thank you.
[1] https://anca.org/press-release/diverse-coalition-calls-on-biden-to-stop-u-s-military-aid-to-azerbaijan/