The Rise of the Kleptocrat

Transparency International’s co-founder issues a call to stiffen laws

By: Frank Vogl

It is a fact today that almost all authoritarian regimes are run by kleptocrats who steal from their citizens while ruthlessly abusing their human rights. The crimes being perpetrated by the governments of Myanmar, Malaysia, Iran, Egypt, Nigeria, and many more nations, not only impoverish their own citizens. They ultimately impoverish all of us.

Authoritarian regimes steal public funds in part to consolidate their power at home by providing special benefits to their supporters. At the same time, kleptocratic leaders are almost all not only paranoid and narcissistic, but extraordinarily greedy. They have an insatiable appetite for ever more wealth and, because they fear it might be expropriated if they ever leave public office, they go to great lengths to move their loot into secure assets in the world’s leading capital markets.

The Covid-19 pandemic has accelerated these trends, prompting autocratic regimes to further curb freedoms of the press and public assembly, while in the United States, for example, the anti-vaccine movement has emerged as a key pillar of the Republican Party politics in many parts of the country.

The combination of all of these developments has made the goal of containing authoritarianism the central theme of US President Joe Biden’s global policies and is the basis for his call to all democratic governments to join his virtual “Summit for Democracy” on December 9 and 10.

While authoritarianism is the overarching Summit issue, the White House has announced two closely related sub-themes: corruption and human rights.

Nations that are likely to be represented at the Biden Summit (which serves as the world’s most important financial centers, from the US and the UK, to Switzerland and Singapore) are assisting the kleptocracies in their greed and their corruption.

The Summit is expected to provide an opportunity to highlight this complicity and to build support to secure fundamental change. This will demand that the participating governments demonstrate the courage to challenge some of the most powerful corporations in their own countries – starting with the biggest banks, real estate brokers, and accounting firms.

These institutions, plus hedge funds, private equity firms, art dealers and yacht brokers and major law firms are the enablers: they are indispensable in assisting the kleptocrats to move their loot safely and secretly across the world into shares and bonds listed on the major stock exchanges, into the acquisition of vast mansions, apartment buildings and office towers in Vancouver, Toronto, Los Angeles, London and Panama, and into other investment assets.

There is a tsunami of dirty cash flowing into the world’s leading capital markets, exceeding an annual US$2 trillion. I estimate that at least US$600 billion of this loot goes into the US each year – more than the annual sales of Walmart, the world’s largest retailer that alone accounts for around 10 percent of all U.S. consumer spending.

The enablers use extensive and sophisticated networks of shell companies, registered from the British Virgin Islands to South Dakota to Luxembourg – jurisdictions that allow companies to be registered without having to identify who the true owners are – to ensure secrecy as they aid and abet their kleptocratic clients.

While most countries have laws and government regulations designed to counter transnational graft and money laundering, their enforcement is modest, and the punishments fail to discourage wrongdoing.

Over a number of years, for example, HSBC, with sprawling Asian operations, was caught laundering cash for Mexican drug cartels and other criminal networks. The dirty deals started when the bank’s chairman was John Bond, who would retire as Sir John, being knighted for “services to banking” without a blemish to his reputation.

HSBC was fined a then-record US$1.9 billion by the U.S. Justice Department in 2012, which defended the punishment by stating that it was concerned that a more severe punishment might damage international banking stability. The astonished reaction at that time by the Chairman of the US Senate’s Banking Committee, Senator Charles Grassley of Iowa at a public hearing was: “are the banks too big to jail?

Despite many fines paid by many leading banks and other enablers for money laundering, not a single chairman of a major institution has been criminally prosecuted, let alone even fired from his post.

The largest single case of corporate bribery of foreign government officials and money laundering involved the Wall Street firm of Goldman Sachs as its managed around US$6 billion of bond issues to raise cash for Malaysia’s IMDB development fund. The money should have assisted economic growth and benefited millions of citizens. Instead, with the connivance of Goldman Sachs executives, most of the cash was stolen, allegedly by former Malaysian Prime Minister Najib Razak and his close associates.

After Goldman Sachs agreed to pay fines of more than US$4 billion its chairman, David Solomon, stated in October 2020, that the board of directors was cutting the pay and pensions of a host of its former and current top officials, including Solomon, by a total of US$100 million. One year later, after the bank secured record earnings, the board announced a special deal that will provide Solomon with a possible special bonus of US$30 million over the next five years. 

We have the means to cripple authoritarian leaders’ vast money laundering schemes. There is a need for governments to end the system of anonymous shell holding companies and require that all enterprises register their true beneficial owners, while all institutions that are financial enablers enforce rules that should require them to determine the true source of the funds entrusted to their management.

Such minimum requirements, uniformly adopted by, for example, the US, Canada, the UK, European Union, Switzerland, Singapore, and the United Arab Emirates, need to be accompanied by commitments to fully fund law enforcement agencies that can ensure that there is meaningful compliance with the laws and regulations.

And, in addition, laws need to be formulated that make top chairmen and chief executive officers criminally liable for money laundering by the institutions that they run. The days when these highly-paid executives revel in their impunity need to end.

The Biden Summit participants know that such new laws and regulations and their enforcement will be difficult to push through their own national parliaments. The most powerful 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 US, they also rely on making large political campaign contributions to protect their operations.

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 curb the power and the money laundering operations of the enablers. Failure risks seeing still further growth of the already vast parallel universe of dark money that strengthens the authoritarians and endangers our freedoms and security.

The world will be watching on those carefully selected two days that the White House has selected for its meeting: December 9 is the UN’s annual “International Anti-Corruption Day” and December 10 is the UN’s annual “Human Rights Day.” 

Frank Vogl is the Chairman of the Partnership for Transparency, co-founder of Transparency International, an adjunct professor at Georgetown University, and author of the forthcoming book The Enablers: How The West Supports Kleptocrats and Corruption – Endangering Our Democracy (to be released on November 15, 2021)

This article is among the stories we choose to make widely available. If you wish to get the full Asia Sentinel experience and access more exclusive content, please do subscribe to us.