U.S. Helsinki Commission Takes the Lead on Combatting Kleptocracy

By Nate Sibley

The Commission on Security and Cooperation in Europe (also known as the Helsinki Commission) has used a series of recent events to highlight the threat posed by global kleptocracy to the U.S. and its allies.

On October 3, KI Executive Director Charles Davidson testified at a Helsinki Commission hearing on Combatting Kleptocracy with Incorporation Transparency. Senators Ben Cardin, John Boozman, Sheldon Whitehouse, Jeanne Shaheen, and Representative Gwen Moore heard how kleptocracy has become “the business model of 21st century authoritarianism.” Mr. Davidson’s full written statement is reproduced below.

More recently on October 11, Helsinki Commission Policy Advisor Paul Massaro said that “kleptocracy is the gravest transnational threat that Western states face” as a panelist at the launch of KI’s report, How Non-State Actors Export Kleptocratic Norms to the West by Ilya Zaslavskiy. Mr. Massaro’s full statement can also be found below.

And back in July, the Helsinki Commission invited Mr. Zaslavskiy (who sits on KI’s Advisory Council) to discuss corrupt practices, values, and finance emanating from the former Soviet Union at a public briefing, Kleptocrats of the Kremlin: Ties Between Business and Power in Russia.

The Helsinki Commission’s leadership on this issue reinforces broader bipartisan Congressional efforts to end Western complicity in globalized corruption and secure the U.S. and its allies against authoritarian influence. These include an unprecedented raft of proposed legislation to end anonymously-owned U.S. companiescounter illicit Russian financial flows in Europe, and plug some of the anti-money laundering gaps in the U.S. financial system. And of course, U.S. authorities have been handed powerful and highly visible new weapons with the passing of new Russia sanctions and the Global Magnitsky Act.

You can read Mr Massaro’s and Mr. Davidson’s statements below.


Statement by Charles Davidson, Executive Director of Hudson Institute’s Kleptocracy Initiative (“Combatting Kleptocracy with Incorporation Transparency,” Helsinki Commission, October 3, 2017)

Acting Chairman Whitehouse, Co-Chairman Smith, and Members of the Helsinki Commission, thank you for inviting me to testify today. I would also like to thank Paul Massaro, staff of the Commission, for helping to arrange this important discussion. My name is Charles Davidson and I am the Executive Director of the Hudson Institute’s Kleptocracy Initiative, which researches how authoritarian regimes and globalized corruption threaten democracy, capitalism, and security.

1 — Kleptocracy: The Business Model of 21st Century Authoritarianism

Today, the most dangerous threat to our national security is the aggression of authoritarian regimes that actively seek to undermine our freedom and democracy, and to export authoritarianism into the OSCE region and around the globe. And let us not be mistaken: What is at stake is the survival of our civilization.

These regimes have already upended the post World War II international order via invasion and violation of treaties, perverted a rules-based global system of relatively fair economic exchange via intellectual property theft and corrosive business practices, and attacked our government’s computer systems. And these regimes are sharing best practices and increasingly behaving like an axis of evil.

The most important thing I want to bring to our attention today: It is essential to understand that these authoritarian regimes have ALL adopted the business model of 21st century authoritarianism, a model whereby those who govern, usually a very small group, family, or even individual, loot their own country, and store the proceeds in free and democratic nations such as ours, whose rule of law and reliable institutions serve to protect their ill- gotten gains. That business model = kleptocracy.

21st century authoritarianism cannot be dissociated from kleptocracy. They have tied the knot. Where we find one, we find the other. And the situation is serious. Authoritarian kleptocracy has been growing, while freedom and democracy has been in recession.

But the authoritarian/klepocratic model has an obvious vulnerability. Given that kleptocratic loot is stored within our shores, we have huge leverage over this business model. The problem is, we often don’t know where they’ve stored their loot, due to the ease with which one can establish anonymity of ownership.

And we, the United States of America, are the easiest and safest place to establish anonymity of ownership. For a superb summary of this disgraceful situation, I recommend Kara Scannell & Vanessa Houlder’s piece in the Financial Times published May 8th, 2016, “US tax havens: The new Switzerland”.

As a general proposition, as an overarching challenge our society faces, as a fundamental existential issue for our civilization as we know it, it should be obvious that we cannot push back and reverse the authoritarian surge while being the bankers, lawyers, yacht builders, luxury lifestyle purveyors, to those who seek the destruction of freedom and democracy.

2 — Kleptocracy: A Vector of Political Decay

How is kleptocracy undermining our freedom and democracy, promoting political decay?

When the kleptocrats come here, they bring along their values, which are not ours. We were naive. We thought their offspring would go to school here and become freedom and democracy lovers. That hasn’t happened.

Instead, the kleptocratic life-juice of only valuing money and power has perverted our system. Kleptocratic regimes have become increasingly adept at purchasing many of the less morally vigilant members of our “elites”. (In Europe this is often referred to as “schroederization”.) And this pimping is often done surreptitiously, via obscure ownership structures where beneficial ownership is not known, providing among other things plausible deniability.

3 — Kleptocracy: We Incentivize it

As I said in testimony last December to the House’s Subcommittee on Europe, Eurasia, and Emerging Threats:

“Providing a safe haven for the proceeds of corruption establishes an incentive for corrupt practices. In my view this question of incentivization has been neglected, and is key to understanding the overall political challenge faced in terms of reform.”

Anonymous companies, the asset protection they provide assured by our rule of law and reliable institutions, incentivizes kleptocracy. We must take away the punch bowl. And we must be aware of the struggles of those trying to escape a kleptocratic past, and the role played by our European allies.

Ben Judah, in “How Offshore Finance Sank Western Soft Power” that appeared in The American Interest May 8th 2014, quotes Daria Kaleniuk, head of Kiev’s Anti-Corruption Action Centre: “What we found was that the money stolen in Ukraine was heading into British and European tax havens and hidden using shell companies inside the European Union. This was very uncomfortable to find out. What we felt is the Western elites were being hypocritical to us — preaching anti-corruption but allowing this…” Judah quotes Mustafa Nayem, one of the leaders of the Maidan revolution: “Why do they only now investigate the hidden fortunes that were stolen and hidden in Austria and in Switzerland? We told the Europeans and we told their embassies a hundred times this money was stolen and hidden in their countries. And nothing happened. Now that the regime has fallen, they suddenly — in a matter of days — can reveal the stolen money. But why did they not do this before? They are guilty — guilty of leaving us alone with these thieves. They are guilty of allowing them to plunder us.”

As per my above referenced Congressional testimony, “As Western diplomats struggled to impress on Kyiv’s politicians the value of the rule of law, Ukrainian elites were stashing wealth in the West. This happens across Eurasia, where authoritarian elites now treat London, New York, and other Western jurisdictions as corruption services centers.”

And what of the demand for better government and democracy in such a situation? As Francis Fukuyama said introducing Senator Carl Levin at a conference organized by Global Financial Integrity in 2008: “There can be no demand for democracy if all the rich people, if all the elites in the country, can manage to protect their own private fortunes, they have no reason to work with other people to resist the government, to demand democracy, to demand accountable government. There’s no demand for less corrupt government because everybody has taken care of themselves as an individual and it delegitimizes democracy…anything that can be done to reduce the ability of people to transfer assets and to avoid the sovereignty of the state, it seems to me, is very important.”

As we know from the difficulties of asset recovery efforts, including our Department of Justice’s Kleptocracy Asset Recovery Initiative, it is often very difficult to find assets hidden via anonymous companies.

We must stop incentivizing corrupt and kleptocratic practices.

4 — Kleptocracy: Reform, or Submit to Tyranny

As described, the anonymous ownership of assets is a dirty secret behind the rise of authoritarianism.

We must dramatically curtail secrecy in the ownership of assets:

— Abolish the anonymous ownership of assets in the United States of America

— Pressure other jurisdictions to do the same

Statement by Paul Massaro, Policy Advisor with responsibility for anti-corruption at the Helsinki Commission (“How Non-State Actors Export Kleptocratic Norms to the West,” Hudson Institute, October 11, 2017)

Good morning and thank you for having me here today to speak about kleptocracy and how we aim to confront this serious challenge. My name is Paul Massaro and I am the Helsinki Commission policy advisor responsible for anti-corruption. I would especially like to thank the Hudson Institute for hosting this discussion and, Charles Davidson and Ilya Zaslavskiy for the attention they have brought to this issue. Your work is invaluable in efforts to confront corruption and ensure that we uphold our democratic values.

Kleptocracy is the gravest transnational threat that Western states face. It encourages and empowers authoritarian governance, while undermining the rule of law and democratic institutions. Unchallenged, kleptocratic behavior becomes the modus operandi of government, subverting democracy and co-opting vast tracts of society into its institutionalized corruption scheme.

Kleptocracy also imperils the security and prosperity of our allies. Kleptocratic behavior both entrenches oppressive governance in authoritarian states and sows the seeds of anti-democratic values in the West.  Kleptocrats infiltrate and exploit our institutions, and encourage illegal and illiberal activity among our elites and civil society leaders, undercutting the foundations of our democracy.

Kleptocracy has entrenched itself nowhere in the OSCE region more so than Russia. The Russian government engages in kleptocratic activity in order to stifle democracy and sustain its domestic authority. The Kremlin governs undemocratically, suppresses free commerce, and stymies political transparency by stealing and hiding the assets of the Russian people through an opaque network of agents. Russian kleptocracy reinforces its authoritarian system and leaves its citizens with no possible recourse to contest it.

Criminals, cronies, and the state have established a system that relies on secrecy and intimidation to maintain and grow their own authority and profits. All of these elements disdain every day, law-abiding citizens and jointly strive to suppress dissent. Kleptocrats view people as objects to be bought or eliminated. They only view themselves and their inner circle as having the right to free choice and protection.

Considered together, these factors have contributed to create a culture of criminality that has become idealized through the popular culture of kleptocratic states. Their lifestyle, behavior, and power is illustrative of this pervasive and damaging reality. As a consequence, citizens of kleptocratic states often see no other alternative to this ubiquitous system of corruption and are forced to accept it.

Alone, nations cannot challenge kleptocracy, given the enormity and extent of the threat. We must work cooperatively and involve international institutions in this endeavor.

The OSCE, the world’s largest regional security organization, which includes all FSU states, upholds democratic values, enshrines the sovereignty of its participating states, and promotes human rights. The agreements reached by participating states, including the founding Helsinki Final Act, ordain the OSCE to safeguard the post-Cold War order that is marked by economic freedom, political transparency, and participatory democracy. Kleptocracy and other corrupt practices jeopardize democratic stability in the OSCE region. Without question, opposing corruption and kleptocracy is central to the OSCE’s founding mission, especially when it emanates from one of its signatory members.

Over the past few years, the OSCE has paid greater attention to the scourge of corruption in participating states and outlined strategies to promote good governance and eliminate corruption and other kleptocratic activities. In this regard, the Dublin and Basel Declarations, finalized in 2012 and 2014 respectively, are excellent examples. Both agreements promote domestic reforms targeting political transparency initiatives in tandem with more concerted anti-corruption efforts. They also advocate for OSCE participating states to strengthen multi-stakeholder cooperation between the public and private sectors. Moreover, the OSCE seeks to encourage a greater role for private firms in identifying and combating blatant corruption. In order for the United States and its allies to extinguish kleptocracy in Europe, adherence to these agreements, core OSCE practices, and participation in future summits will be critically important.

The Helsinki Commission, too, is concerned by the rise and spread of kleptocracy, and is strongly committed to combating it. The Helsinki Commission is an independent Commission of the U.S. Congress, established in 1976 and led by nine Senators, nine Representatives, and three appointees from the executive branch. It is mandated to monitor the compliance of participating states with the consensus-based commitments of the OSCE.

Since July, the Commission has held a hearing on combatting kleptocracy with incorporation transparency; held briefings concerning the recovery of stolen assets, combating energy sector corruption, and the extent of Kremlin ties to corruption; and published multiple online pieces addressing the subject. On the Hill, we have become the primary forum for discussion of the topic. We will continue to work to expose the severity of kleptocratic practice to ensure that the United States is able to counter kleptocracy in all its forms.

As a result of our public engagement on this issue, we have already cultivated important relationships on Capitol Hill and elsewhere, building a network of committed policymakers and experts that offers fresh insights and new tactics to combat kleptocracy and reverse its deleterious influence. Today’s event is part of this process and I encourage all stakeholders to reach out to me—my door is always open. Only through collaboration can we successfully repel kleptocracy and the authoritarianism it engenders.

Commissioners have been hard at work to tackle global corruption. Commissioner Senator Sheldon Whitehouse introduced the “True Incorporation Transparency for Law Enforcement Act” (S. 1454), which would establish incorporation transparency such that anonymous shell companies cannot be abused by kleptocrats to launder their ill-gotten gains in the United States. Commissioner Senator Marco Rubio introduced the “The Corporate Transparency Act” (S. 1717), along with Senator Ron Wyden, which would do the same, though through a different mechanism. The Commission’s Co-Chairman Representative Chris Smith and Commissioner Representative Gwen Moore are co-sponsors of the House version of this bill (H.R. 3089).

Ranking Senate Commissioner Senator Ben Cardin introduced the “Combating Global Corruption Act” (S. 859), which envisions a tiered system of countries based off their level of corruption and efforts to fight said corruption. Commissioner Rubio has cosponsored this legislation. This is by no means an exhaustive list, but only a few examples of Commissioner engagement.

Ultimately, combating kleptocracy is more than a question of merely upholding the law and ensuring the free operation of public institutions—it is an ideological conflict between corruption and the rule of law. Kleptocratic regimes promote and export values that are inimical to our own. This systematic challenge to participatory democracy and the rule of law cannot be ignored.

As Ilya notes in his research, the Kremlin has imparted corrosive and illiberal values through its extensive kleptocratic campaign, encouraging its vast network of cronies, lawyers, and other prominent public figures to undermine our public institutions and profit from it. His latest paper succinctly outlines the weaponization of corruption and is a tremendous contribution to the field.

We must recognize this ideological threat, how it operates, and what we can do to combat it. Kleptocracy is the key challenge of the 21st century and we must be prepared to face it. Thank you.