The Judiciary Is Vital To Secure Democracy
Lecture to International Students at George Mason University
October 25, 2023. Frank Vogl
Business and Morality
The Morgan Library & Museum in New York will open an exhibition on November 10 called Medieval Money, Merchants, and Morality. As the museum notes: Medieval Europe witnessed an economic revolution: trade was conducted on an unprecedented scale, banks were established, and coin production surged. The expanding role of money in daily life sparked ethical and theological debates as individuals reflected on fluctuating markets, disparities in wealth, personal conduct, and morality.
Indeed, for a short period, the city state of Sienna in Italy was Europe’s leading banking center. The nine eminent councilors of Sienna were concerned about the moral hazards of grand finance and they turned to the artist, Ambrogio Lorenzetti, to commission great murals for the city’s opulent council chamber. Between February 1338 and May 1339, Lorenzetti painted three adjoining large frescoes titled the The Allegory of Good and Bad Government. The frescoes remain on show today, although it was not long after their completion that Sienna fell on hard times – first with the Black Death plague of 1348 and soon thereafter with a major financial scandal. Scandals continue to this day.
All of us, whether we are powerful politicians and judges, or just small business people, or even university professors, have a fundamental choice in life. We can decide to be guided by a crystal clear moral compass and determine our actions on a powerful ethical course. Or, they can pursue a very different approach. A former New York public prosecutor, who won guilty verdicts against Mafia bosses, and wrote a book called the “The Gotti Wars – Taking down America’s most notorious mobster” - which was published last year – wrote: “Once people decided they weren’t going to obey the law, there were so many ways for them to get rich.”
That is as true of mafia bosses, as it is of politicians who seek to place themselves above the law and enjoy impunity. Once they have taken control of the courts and the institutions of law enforcement then, too often, together with partners in organized crime, these politicians steal on a grand scale from the public.
Authoritarianism & The Rule of Law
More than one-half of the world’s population today live under dictatorships, or quasi-authoritarian rule. That is approximately four billion people who lack the freedoms that we in the United States so often take for granted. Organized crime and kleptocracy – the grand theft of public funds by politicians and their associates - know no national boundaries in the 21st century.
As all of you knows and has experienced, publicly unaccountable governments are corrupt governments. We see this absence of public accountability from Central America to Argentina, from the Central African Republic to Russia and to China as well. The famous Chinese artist Ai Weiwei, who published a memoir last year, wrote: “Corruption of the judiciary is the public face of a morally bankrupt body politic, a scar disfiguring the era in which we live.”
The application of the law against corruption and illicit finance is one of the great challenges today and we in the United States and across Western Europe are falling short. In my most recent book, THE ENABLERS, I stressed in the sub-title “How the West supports kleptocracy and corruption-endangering our democracy.” It is wrong to look at the global challenges of corruption and just highlight the crimes across the developing nations – the culpability of the leading democratic nations is profound. Corruption is universal.
Mark Koplik, partner in the New York law firm of Henderson & Koplik LLC, not knowing that he was being secretly filmed for national television, once stated: “We run the country – we make the laws and when we do so we make them in ways that’s advantageous to the lawyers. We make the laws and some people say we selectively enforce them.” He quoted what he said was an old adage: “A good lawyer knows the law and a great lawyer knows the judge.”
We want to think in the United States that our judges are honest and can take immense pressure from those who are dishonest. Right now, we are seeing tough judges refusing to bow to incredible pressure from former President Donald Trump.
In the United States, we have, overall a respected and honest judiciary – more and more challenged by a corrupt political system. A few years ago the Supreme Court took actions that allow any individual or corporation to spend as much money as it likes in support of the campaign of a political candidate. Staggering amounts of money go into these campaigns today. One of the Supreme Court Justices who opposed the majority decision on campaign finance was Justice Stephen Breyer who warned: “Where enough money calls the tune, the general public will not be heard.”
An independent judiciary is the single most important safeguard that a democracy has in the confrontation with authoritarianism. You know this. But not enough people in the global media, in international organizations like the United Nations and the Organization of American States, adequately appreciate this basic point.
As Donald Trump slanders judges every day, hits at the FBI, asserts he will get revenge on the judiciary, and declares that if he is elected President in 2024 he will put his own people in the Justice Department – so, in fact, placing himself above the law. This is the talk of a dictator. Perhaps his statements will wake up influential people across the world to be far more alert to efforts by dictators to coopt and to manipulate the judiciary.
Democracies need to have forceful systems in place to counter corruption, which I define as the abuse of public power for personal gain. The United States today does not have such systems in place – our defenses against corruption are far weaker than we would like and we can later discuss how this can have a negative impact on the countries that are so close to the United States, such as those in Central America.
Bribery and the United States
I have mentioned one weakness in suggesting our system of elections is overrun with money – indeed, the 2020 presidential and Congressional election here involved campaign spending of more than $14 billion. Another weakness takes us back to the U.S. Supreme Court.
In 2014, a jury here in Virginia found both former state governor Robert McDonnell and his wife, Maureen McDonnell, guilty on multiple charges of corruption. They had received gifts from a businessman, including a gold Rolex watch, a Ferrari, $50,000 in financial aid for their beach house and a significant portion of the costs of their daughter’s wedding. They admitted that they had received the gifts for over $175,000. They agreed that their business friend had taken part in parties at the governor’s mansion where he mingled with state officials, enjoyed access to such officials as a result of his friendship to the governor and his wife. They argued that they provided no specific business favors in return for the gifts.
The McDonnell’s appealed the guilty verdict all the way to the Supreme Court where the arguments of the defense lawyers were accepted The U.S. Supreme Court overturned the convictions in a June 2016 ruling. It determined that illegal corruption needed to show that in any transaction there is a specific quid pro quo.
To be clear, a case of criminal corruption can only be brought when a politician takes a direct action that leads to a meaningful financial benefit for an individual or organization that has provided the politician with valuable gifts. The Court ruled that there has to be a specific benefit and that setting up a meeting, calling another public official, or hosting an event does not, standing alone, qualify as an “official act.”
So, the standard now is that there has to be a smoking gun that shows that gifts explicitly resulted in a real business gain for the giver. The ruling by the Supreme Court was central to the events in the New Jersey court in 2015 where U.S. Senator Robert Menendez was on trial for alleged corruption. The jury could not come to a verdict, a mistrial was determined, and prosecutors did not call for a new trial because of the Supreme Court’s decision. The Senator was reelected in 2016 to another six-year Senate term. That he did favors for friends who contributed significantly to his campaigns is not in doubt, but the specificity of the benefits granted to the donors did not rise to the full understanding of quid pro quo in the view of some of the members of the jury.
And, right now, the same Senator Menendez of New Jersey faces a whole set of new corruption charges. Before being indicted last month he was Chairman of the US Senate’s Foreign Relations Committee. The FBI found hundreds of thousands of dollars in cash in his home, a pile of gold bars, and a new Mercedes as well – all gifts from friends of his. The allegation is that he obtained the gifts because he provided intelligence and other actions for the government of Egypt, who was secretly represented by these gift-giving friends. He will argue in his defense that while he took the gifts, there was no specific quid pro quo.
It would be tragic if he wins with this defense, but given the views of thew Supreme Court everything is now possible here.
Enforcement
It is one thing to have good laws, quite another to have good enforcement of these laws. One of America’s first leading politicians, Alexander Hamilton wrote more than two hundred years ago in his Federalist Papers: good administration is the key to good government.
Commenting on this in his memoir, the late, brilliant American central banker Paul Volcker wrote in 2021 that what has changed since Hamilton’s days “is the complexity, the rapidly changing technology, the multiplicity of programs, the intensity of political and lobbying pressure.” All these factors have come into play when we examine the enforcement of anti-corruption and anti-money laundering laws and regulations in the United States and, indeed, across Western highly developed democracies.
The drug cartels may reside in, for example, Latin America, but their clients are in the wealthy countries, and the safe harbors for their profits are also in these countries. Why do I say safe harbors, because only a tiny fraction of all the dirty cash that is laundered by criminal organizations and authoritarian dictators, and their associates around the world, is ever caught by law enforcement.
There are estimates that more than $2 trillion in illicit finance cross national borders every year. I have argued that probably one-third, more than $600 billion comes into the United States every year – this is by far the largest single capital market in the world, with incredibly sophisticated financial systems, and with armies of very experienced enablers – bankers, lawyers, real estate agents, art dealers, auditors and financial consultants who know how to assist their crooked clients to wash their dirty money.
Yes, more than 600 billion – roughly equal to the total world sales of Walmart the world’s largest retail company. Very roughly the same amount as the base budget of the U.S. military.
As we meet here, so Sam Bankman-Fried, the former founder and head of FTX, one of the largest crypto-currency exchanges, is on trial in New York for committing massive fraud. Crypto exchanges claim total identity protection for their clients – what could be better for gangsters and corrupt politicians? They buy crypto-currency tokens in one part of the world and sell them for US dollars in another part of the world – this is just part of the complexity challenging law enforcement today.
There are very few laws and regulations in the United States or the United Kingdom or Switzerland that govern the actions of the enablers. Art auction houses are not required to publicly state who buys and sells or undertake due diligence on their customers. When Jho Low was part of a scheme working with Goldman Sachs that stole $4.6 billion from the Government of Malaysia, he bought paintings worth more than $60 million at a prominent New York auction houses, and nobody in Hollywood checked on his as he financed a multi-million dollar movie with Leonardo DiCaprio, called the Wolf of Wall Street, that was all about corruption.
Many of the magnificent apartments overlooking the ocean in and around Miami are owned by Latin Americans, and many others are owned by Russians and Chinese. Where did they all get their cash for such investments? Are the real estate agents required by the U.S. to do due diligence on their customers? No. Where did they get their cash.
The scale of the illicit financial inflows to the United States, and the channels by which terrorist organizations secure funds through U.S. institutions at times, makes these issues of great national importance. When you consider this together with a widely held view, and stated by President Biden that the overarching political challenge of our time is the contest between democracy and authoritarianism, then you will not be surprised that Congress has accepted these are matters of national security.
Beneficial Ownership
In late 2021, as part of national defense budget authorization, the Congress passed, and then President Biden signed, the Corruption Transparency Act. This called upon the U.S. Treasury to develop regulations so that every corporation and trust operating in the U.S. had to disclose to the Treasury its true beneficial ownership. The rules are close now to being finalized.
From Delaware to Nevada to South Dakota, there are local laws in place that allow people to establish companies without disclosing the identities of the owners. These holding companies and trusts, together with similar ones registered in the Cayman Islands, the British Virgin Islands and many other jurisdictions, are critically important for gangsters seeking to hide their cash.
However, beneficial ownership laws will only be effective if the government agencies charged with enforcement have the resources necessary to do the job. Providing those resources is fundamentally a political decision. While the UK and the EU are ahead of the US in establishing systems to reveal the beneficial owners behind shell corporations, skepticism may be in order as to whether national authorities will provide sufficient budget funds to make full use – for investigations and prosecutions – of the new information that they can obtain. The funding of the U.S. Treasury’s anti-money laundering operations is less than an annual $200 million – a minimal amount given the scale of the problem.
The U.S. does more than any other country to try and enforce anti-corruption and anti-money laundering regulations. Effective lobbying by banks and many influential enablers have constantly challenged the justice and financial regulatory authorities. The far-reaching sanctions that the U.S. and Europeans imposed on Russians after Russia invaded Ukraine in February 2022 have strengthened enforcement overall – but only modestly so. As one Swiss banker recently noted, the tighter regulations in Switzerland have only meant that the dirty money goes to Dubai instead.
Tough regulations are needed to shine a light on all aspects of asset management and asset investments by non-residents. Real estate brokers, bankers, auction house managers and art dealers, jewelers and others should be bound to file reports to authorities on all suspicious transactions and all investments on our shores by non-residents that are above an arbitrary level.
Enforcement will only be truly effective if the punishments for violations of the law are sufficient to serve as a deterrent. As of now, it has proven to be too complicated for public prosecutors to find sufficient evidence that heads of multilateral companies that paid bribes, or banks that laundered money, knew of such criminal acts and approved them. While large fines have been imposed on companies, which have had some beneficial effects, there remains the sense that for some enterprises, notably banks, the fines are largely seen as a cost of doing business.
At the international level, the United Nations, the International Criminal Court, the OECD and other multilateral organizations say all the inspiring things, but they have not demonstrated that there is a powerful legal arm to bring the perpetrators of grand corruption to court and on to prison. Proposals for an International Anti-Corruption Court have been made and received considerable support from prominent legal experts around the world, but there is negligible political support for this proposal.
Seeking Reform
Complacency is the archenemy of efforts to curb corruption, combined with cynicism that suggests that people just don’t believe anything can ever be done about this problem. Professor Robert Klitgaard has noted that prosecuting people who engage in petty corruption will not do much to dent the cynicism, but a more positive impact can be secured by going after the masters of grand corruption – “the big fish.” Professor Klitgaard noted, for example, in an article on Southern Sudan in 2011: “Put the fight against corruption at the center of creating a new government. Create a core of qualified, well-paid government leaders. Demonstrate that impunity is over by frying some big fish.”
Promoting transparency and accountability in government and fair and honest administration of justice is an enormous challenge that many courageous civil society organizations are shouldering. They take risks of censorship, imprisonment and murder.
To succeed, Civil society organizations can be greatly helped if there are people in official positions of government who share their concerns and aspirations and are willing to strive to see that government responds positively to public demands for justice. The good news is that the U.S. AID today is more fully supporting civil society anti-corruption activism across the world than ever before.
Often, the moment for action by civil society in this context comes when there is a crisis, such as disclosure in the media of a major corruption scandal that hurls a government into disarray; or charges by political opponents to the government of far-reaching abuses of office that start to generate demonstrations and protests. Sometimes, civil society can seize the moment when people are willing to take to the streets en-masse as they reach that point of utter frustration with the hardships of life, and the sense that a tiny corrupt elite in their nation is accumulating vast spoils at the public’s expense.
In other words, in considering ways to curb corruption it is important to not only consider legal and political pathways, but to turn as well – especially in developing and emerging market countries – to pragmatic development operations that see citizens engaged in project planning, implementation and monitoring. At the grass roots levels, for example, citizen initiatives can seek to curb corruption in basic delivery of public services and thereby counter illegal activities at the petty corruption level.
In some countries, and Mexico immediately springs to mind, the risks of being murdered as an activist against corruption, or as an investigative journalist, are very high indeed. More journalists are killed in Mexico every year than in any other country. “The dirty entanglements”[i] described by Professor Louise Shelley highlight multiple cases that demonstrate the scale and near-universality of the threats to order and justice posed by the interlocking relationships between corrupt public officials, criminal and terrorist networks and here the counter-forces of civil society are understandably very weak.
It is absolutely crucial that led by the United States, the Western powers and their aid agencies and their justice departments, recognize the national and international security issues that are at stake.
The facts, as I see them, point in the other direction, despite the good news from US AID. The complicity of the West is so evident when we see Western governments, and big corporations backed by these governments, showing far more interest in selling arms to authoritarian corrupt regimes, and securing access to natural resources in their countries, than enforcing anti-corruption laws. This encourages dictators everywhere. It is a cause of the instability that we see from West Africa to Central America – regions where so often corruption is the system.
If we value our democracy and our security then our policies and our diplomacy need to be still more tied to our core values. In her memoir, titled “Lessons from the Edge,” Marie Yovanovitch, the brave former U.S. Ambassador to Ukraine, who was forced to resign by President Trump wrote: “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.”
The fight against corruption is not an end in itself. It is central to supporting human rights, democracy, and security. It is a war to promote a world where every individual can live in dignity and look forward to freedom and prosperity for their children. This is the fundamental importance of why across the world the gathering momentum of kleptocracy must be reversed. And it is why at the individual level it is vital that we do everything we can, starting with students and young people, to emphasize that a values-driven life is at the core of what we would like to think of as civilization.
[i] Shelly, Louise, “Dirty Entanglements: Corruption, Crime, and Terrorism,” by Louise Shelly (2014 - Cambridge University Press, 2014).