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Kleptocracy

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This article is about the term for systematic corruption and thievery by the state or state-sanctioned corruption. For a state with ties to or aid from organized crime syndicates, see Mafia state.

Kleptocracy (from Greek κλέπτης kléptēs, "thief", or κλέπτω kléptō, "I steal", and -κρατία -kratía from κράτος krátos, "power, rule"), also referred to as thievocracy,[1][2] is a government whose corrupt leaders (kleptocrats) use political power to expropriate the wealth of the people and land they govern, typically by embezzling or misappropriating government funds at the expense of the wider population.[3][4] One feature of political-based socioeconomic thievery is that there is often no public announcement explaining or apologizing for misappropriations, nor any legal charges or punishment levied against the offenders.[5]

Detail from Corrupt Legislation, painting by Elihu Vedder (1896)

Kleptocracy is different from plutocracy (rule by the richest) and oligarchy (rule by a small elite). In a kleptocracy, corrupt politicians enrich themselves secretly outside the rule of law, through kickbacks, bribes, and special favors from lobbyists and corporations, or they simply direct state funds to themselves and their associates. Also, kleptocrats often export much of their profits to foreign nations in anticipation of losing power.[6]

According to the Oxford English Dictionary, the first use in English occurs in the publication Indicator of 1819: "Titular ornaments, common to Spanish kleptocracy."[7]

Characteristics

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Kleptocracies are generally associated with dictatorships, oligarchies, military juntas, or other forms of autocratic and nepotist governments in which external oversight is impossible or does not exist.[dubious – discuss][citation needed] They can also be found in liberal democracies with crony capitalism.[citation needed] Lack of oversight can be caused or exacerbated by the ability of the kleptocratic officials to control both the supply of public funds and the means of disbursal for those funds.[citation needed]

Kleptocratic rulers often treat their country's treasury as a source of personal wealth, spending funds on luxury goods and extravagances as they see fit. Many kleptocratic rulers secretly transfer public funds into hidden personal accounts in foreign countries to provide for themselves if removed from power.[6][2]

To some observers,[who?] kleptocratic societies allow the politically connected to redirect wealth to those deemed worthier by state apparatchiks.[citation needed] According to L.K. Samuels, one reason governmental bodies subscribe to theft-prone policies is to lay the groundwork for the socialization of labor and property, thus permitting kleptocrats to make a populace "subservient to an institutionalized authority."[8] Journalist Paul Greenberg, in writing in 1989 against the idea of the United States sending substantial foreign aid to Poland, argued that country was emerging from "40 years of a Communist thievocracy that has obliterated not only economic progress but also the idea of a modern economy."[9][full citation needed]

Raubwirtschaft—German for a "plunder" or "robber economy"—is viewed as a specific form of kleptocracy in which the whole economy of the state is based on robbing (looting and plundering) conquered territories.[original research?][citation needed] Jensen and McBay call attention to Arnold Toynbee's description of the Roman Empire as Raubwirtschaft, which they describe as being "internally based on... slave labor" and "externally based on continuing conquest and systematic plunder of colonies and subjugated territories" (rather than "actually producing things").[10]

Financial system

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Contemporary studies have identified 21st century kleptocracy as a global financial system based on money laundering, which "depends on the services of the world's largest banks and expert financial professionals".[11] The International Monetary Fund has suggested it could be a consensus of estimates, that money laundering made up 2–5 percent of the global economy in 1998.[12][13][14] Kleptocrats engage in money laundering to obscure the corrupt origins of their wealth and safeguard it from domestic threats such as economic instability and predatory kleptocratic rivals. They are then able to secure this wealth in assets and investments within more stable jurisdictions, where it can then be stored for personal use, returned to the country of origin to support the kleptocrat's domestic activities, or deployed elsewhere to protect and project the regime's interests overseas.[15]

Kleptocrats abuse the freedoms found in Western countries by transferring funds out of a kleptocracy and into Western jurisdictions for money laundering and asset security. Since 2011, more than $1 trillion has left developing countries annually in illicit financial outflows. A 2016 study found that $12 trillion had been siphoned out of the kleptocracies of Russia, China, and developing economies.[16] Western professional services providers are taken advantage of by kleptocratic Russians and Chinese, exploiting legal and financial loopholes in the West to facilitate transnational money laundering.[17][18] The kleptocratic financial system typically comprises four steps according to one opinion.[19]

First, kleptocrats or those operating on their behalf create anonymous shell companies to conceal the origins and ownership of the funds. Multiple interlocking networks of anonymous shell companies may be created and nominee directors appointed to further conceal the kleptocrat as the ultimate beneficial owner of the funds.[20]
Second, kleptocrats violate Western laws when they illegally transfer funds into the Western financial system.
Third, financial transactions conducted by the kleptocrat in a Western country complete the integration of the funds. Once a kleptocrat has purchased an asset this can then be resold, providing a defensible albeit illegal origin of the funds. This is known as money laundering and is illegal throughout the Western world. Research has shown the purchase of luxury real estate to be a particularly favored method, especially by Chinese and Russian kleptocrats.[21][22]
Fourth, according to a British tabloid, kleptocrats may use their illegally laundered funds to engage in reputation laundering, hiring public relations firms to present a positive public image and lawyers to suppress journalistic scrutiny of their political connections and origins of their wealth.[23][24]

In a 2011 forensic study of grand corruption cases, the World Bank found the United States was the leading victim of illegal incorporation of entities involved in money laundering schemes.[25] The Department of Treasury estimates that $300 billion is laundered annually in the United States in violation of US law.[26]

This kleptocratic financial system flourishes in the United States by illegally abusing the United States' liberal economic structure for two reasons.

First, the United States does not have a beneficial ownership registry, and kleptocrats take advantage of this privacy benefit.[27]
Second, kleptocrats take advantage of incorporation agents, lawyers, and realtors to unknowingly launder their money.
 
Montenegro's president Milo Đukanović was listed among the twenty richest world leaders according to the British tabloid newspaper The Independent in May 2010, which described the source of his wealth as "mysterious".[28][29]

Currently[when?], there are only around 1,200 money laundering convictions per year in the United States and money launderers face a less than five percent chance of conviction.[30] Raymond Baker estimates that law enforcement fails in 99.9% of cases to detect money laundering by kleptocrats and other financial criminals.[31]

Other Western jurisdictions favoured by kleptocrats include South Africa, the United Kingdom, and its dependencies, especially the British Virgin Islands, the Cayman Islands, Guernsey, and Jersey.[32][33] Jurisdictions in the European Union which are particularly favoured by kleptocrats include Cyprus, the Netherlands, and its dependency the Dutch Antilles.[34][35]

 
Demonstration banner with text in Czech: "Demokracie místo kleptokracie" (Democracy instead of kleptocracy); peace rally in Brno for Real Democracy NOW, Moravian Square[[]] [cs], Brno, Czech Republic

Political and corporate kleptomania

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Other forms of a thievery society that can induce a "culture of systematic fraud" has been described as "political and corporate kleptomania."[36] In this case the plunder and looting enriches not only high government officials, but a narrow class of plutocrats, who usually represent wealthy individuals and families who have amassed great assets through the usage of political favoritism, special interest legislation, monopolies, special tax breaks, state intervention, subsidies or outright graft. This type of economic system of political spoils is sometimes referred to as crony capitalism.[37][38]

Effects

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The effects of a kleptocratic regime or government on a nation are typically adverse in regards to the welfare of the state's economy, political affairs, and civil rights. Kleptocratic governance typically ruins prospects of foreign investment and drastically weakens the domestic market and cross-border trade. As kleptocracies often embezzle money from their citizens by misusing funds derived from tax payments, or engage heavily in money laundering schemes, they tend to heavily degrade quality of life for citizens.[39]

In addition, the money that kleptocrats steal is diverted from funds earmarked for public amenities such as the building of hospitals, schools, roads, parks – having further adverse effects on the quality of life of citizens.[40] The informal oligarchy that results from a kleptocratic elite subverts democracy (or any other political format).[41]

Examples

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Suharto, the former President of Indonesia, was reported to have stolen over $15 billion during his presidency.

In early 2004, the German anti-corruption NGO Transparency International released a list of ten self-enriching leaders in the two decades previous to the report. Transparency International acknowledged that they were "not necessarily the 10 most corrupt leaders" and noting that "very little is known about the amounts actually embezzled".[42]

In descending order of amount allegedly stolen (converted to United States dollars), they were:

  1. Former Indonesian President Suharto ($15 billion to $35 billion)
  2. Former Philippine President Ferdinand Marcos ($5 billion to $10 billion)
  3. Former Zairian President Mobutu Sese Seko ($5 billion)
  4. Former Nigerian Head of State Sani Abacha ($2 billion to $5 billion)
  5. Former Yugoslav President Slobodan Milošević ($1 billion)
  6. Former Haitian President Jean-Claude Duvalier ($300 million to $800 million)
  7. Former Peruvian President Alberto Fujimori ($600 million)
  8. Former Ukrainian Prime Minister Pavlo Lazarenko ($114 million to $200 million)
  9. Former Nicaraguan President Arnoldo Alemán ($100 million)
  10. Former Philippine President Joseph Estrada ($78 million to $80 million)

The political system in Russia has been described as a Mafia state where president Vladimir Putin serves as the "head of the clan".[43][44]

Former Malaysian Prime Minister Najib Razak had $731 million in his personal bank accounts when his ruling-party alliance Barisan Nasional lost the 14th election to opposition party Pakatan Harapan led by former Prime Minister Mahathir Mohamad, in part because of allegations of participating in the 1MDB scandal.[45][46]

Azerbaijan has been described as a kleptocracy for its use of oil-revenue to enrich an oligarch class, including that of the ruling Aliyev dynasty.[47][48]

In 2010, Washington Times estimated that HDZ elites in Croatia led by former prime minister Ivo Sanader had "stolen or siphoned off" about 1 billion USD.[49]

Narcokleptocracy

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A narcokleptocracy is a society in which criminals involved in the trade of narcotics have undue influence in the governance of a state. For instance, the term was used to describe the regime of Manuel Noriega in Panama in a report prepared by a subcommittee of the United States Senate Committee on Foreign Relations chaired by Massachusetts Senator John Kerry.[50]

In 2020, the United States charged the president of Venezuela, Nicolas Maduro with drug trafficking, as well as many officials and head figures of his administration.[51][52] [53]

See also

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References

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Notes

  1. ^ "The Trauma of Ascending to Presidency Through the Backdoor". Modern Ghana. Retrieved April 24, 2021.
  2. ^ a b Matsilele, Trust (December 2013). The political role of the diaspora media in the mediation of the Zimbabwean crisis : a case study of The Zimbabwean – 2008 to 2010 (Thesis). Stellenbosch: Stellenbosch University. Retrieved April 24, 2021.{{cite thesis}}: CS1 maint: date and year (link)
  3. ^ "kleptocracy", Dictionary.com Unabridged, n.d., retrieved November 1, 2016
  4. ^ "Kleptocracy". The Oxford English Dictionary. Oxford University Press. 1st ed. 1909.
  5. ^ "Zanu thievocracy knows no boundaries" Archived February 19, 2020, at the Wayback Machine,The Zimbabwean, December 20, 2008
  6. ^ a b Acemoglu, Daron; Verdier, Thierry; Robinson, James A. (May 1, 2004). "Kleptocracy and Divide-and-Rule: A Model of Personal Rule". Journal of the European Economic Association. 2 (2–3). Oxford University Press (OUP): 162–192. doi:10.1162/154247604323067916. hdl:1721.1/63819. ISSN 1542-4766. S2CID 7846928. SSRN 476093. Archived from the original on May 24, 2012. Retrieved November 15, 2017. Paper presented as the Marshall Lecture at the European Economic Association's annual meetings in Stockholm, August 24, 2003{{cite journal}}: CS1 maint: postscript (link)
  7. ^ "Oxford English Dictionary: Kleptocracy".
  8. ^ Samuels, L.K. (2019) Killing History: The False Left-Right Political Spectrum, Freeland Press, p. 484.[full citation needed]
  9. ^ Greenberg, Paul (November 12, 1989) "Invasion: Here Come the Debtors," Congressional Record: Extensions of Remarks, p. 31757,[full citation needed] as reported in the Washington Times, Nov. 20, 1989.[full citation needed]
  10. ^ Jensen, Derrick; McBay, Aric (2009). What We Leave Behind. Seven Stories Press. p. 374. ISBN 978-1583228678. Retrieved August 10, 2024. Also available as an author excerpt at Jensen, Derrick (2024). "Excerpt from What we Leave Behind, Collapse of Rome (p. 374), From chapter "Collapse"". Collapse of Rome. Retrieved August 10, 2024 – via DerrickJensen.org.
  11. ^ Sharman, J. C. (2017). The Despot's Guide to Wealth Management: On the International Campaign against Grand Corruption. Ithaca, NY: Cornell University Press. p. 1. ISBN 9781501705519.
  12. ^ Cooley, Alexander; Sharman, J. C. (September 2017). "Transnational Corruption and the Globalized Individual". Perspectives on Politics. 15 (3): 732–753. doi:10.1017/S1537592717000937. hdl:10072/386929. ISSN 1537-5927. S2CID 148724584.
  13. ^ "January 2018". Journal of Democracy. Archived from the original on September 26, 2018. Retrieved July 19, 2018.
  14. ^ Camdessus, Michel (February 10, 1998). "Money Laundering: the Importance of International Countermeasures". IMF. Retrieved July 19, 2018.
  15. ^ Walker, Christopher; Aten, Melissa (January 15, 2018). "The Rise of Kleptocracy: A Challenge for Democracy". Journal of Democracy. 29 (1). National Endowment for Democracy: 20–24. doi:10.1353/jod.2018.0001. S2CID 201780159. Retrieved July 19, 2018.
  16. ^ Stewart, Heather (May 8, 2016). "Offshore finance: more than $12tn siphoned out of emerging countries". The Guardian. Retrieved July 19, 2018.
  17. ^ Cooley, Alex; Sharman, Jason (November 14, 2017). "Analysis | How today's despots and kleptocrats hide their stolen wealth". The Washington Post. Retrieved July 19, 2018.
  18. ^ Gershman, Carl (June 30, 2016). "Unholy Alliance: Kleptocratic Authoritarians and their Western Enablers". World Affairs. Archived from the original on July 2, 2016. Retrieved July 19, 2018.{{cite news}}: CS1 maint: unfit URL (link)
  19. ^ "The Money-Laundering Cycle". United Nations Office of Drugs and Crime. Archived from the original on November 3, 2019. Retrieved July 19, 2018.
  20. ^ Vittori, Jodi (September 7, 2017). "How Anonymous Shell Companies Finance Insurgents, Criminals, and Dictators". Council on Foreign Relations. Retrieved July 19, 2018.
  21. ^ Bump, Philip (January 4, 2018). "Analysis | How money laundering works in real estate". The Washington Post. Retrieved July 19, 2018.
  22. ^ "Towers of Secrecy: Piercing the Shell Companies". The New York Times. Retrieved July 19, 2018. Collection of 9 articles from 2015 and 2016.{{cite news}}: CS1 maint: postscript (link)
  23. ^ Sweney, Mark (September 5, 2017). "'Reputation laundering' is lucrative business for London PR firms". The Guardian. Retrieved July 19, 2018.
  24. ^ "The Rise of Kleptocracy: Laundering Cash, Whitewashing Reputations". Journal of Democracy. Retrieved July 19, 2018.
  25. ^ "The Puppet Masters". Stolen Asset Recovery Initiative, The World Bank. October 24, 2011. Archived from the original on November 21, 2018. Retrieved July 19, 2018.
  26. ^ Grassley, Chuck (March 16, 2018). "The peculiarities of the US financial system make it ideal for money laundering". Quartz. Retrieved July 19, 2018.
  27. ^ "FACT Sheet: Anonymous Shell Companies". FACT Coalition. August 16, 2017. Retrieved July 19, 2018.
  28. ^ David, Usborne (May 19, 2010). "Rich and powerful: Obama and the global super-elite". The Independent. Independent. Retrieved October 19, 2016.
  29. ^ "OCCRP announces 2015 Organized Crime and Corruption ‘Person of the Year’ Award". Organized Crime and Corruption Reporting Project.
  30. ^ "United States' measures to combat money laundering and terrorist financing". fatf-gafi. December 2016. Retrieved July 19, 2018.
  31. ^ "Countering International Money Laundering". FACT Coalition. August 23, 2017. Retrieved July 19, 2018.
  32. ^ Worthy, Murray (April 29, 2008). "Missing the bigger picture? Russian money in the UK's tax havens". Global Witness. Retrieved July 19, 2018.
  33. ^ "Financial Secrecy Index – 2018 Results". Tax Justice Network. Retrieved July 19, 2018.
  34. ^ Rettman, Andrew (October 27, 2017). "Cyprus defends reputation on Russia money laundering". euobserver. Retrieved July 19, 2018.
  35. ^ "Dutch banks accused of aiding Russian money laundering scheme". NL Times. March 21, 2017. Retrieved July 19, 2018.
  36. ^ Wazir Johan Karim (2020), The Global Nexus: Political Economies, Connectivity, and the Social Sciences, London and Hackensack, NJ, World Scientific Publishing, pp. 170–171< [ISBN missing]
  37. ^ Rubin, Paul H. (2015). "Crony Capitalism". Supreme Court Economic Review. 23: 105–120. doi:10.1086/686474. S2CID 225085891.
  38. ^ "Comparing crony capitalism around the world: The Economist's crony-capitalism index", The Economist, May 5, 2016
  39. ^ Guess, George M. (1984). Bureaucratic-authoritarianism and the Forest Sector in Latin America. Office for Public Sector Studies, Institute of Latin American Studies, University of Texas at Austin. p. 5. Retrieved February 12, 2018.
  40. ^ "Combating Kleptocracy". Bureau of International Information Programs, U.S. State Department. December 6, 2006. Retrieved November 15, 2016.
  41. ^ "National Strategy Against High-Level Corruption: Coordinating International Efforts to Combat Kleptocracy". United States Department of State Bureau Public Affairs. Retrieved August 8, 2008.
  42. ^ Hodess, Robin; Inowlocki, Tania; Rodriguez, Diana; Wolfe, Toby, eds. (2004). Global Corruption Report 2004 (PDF). Sterling, VA: Pluto Press in association with Transparency International. p. 13. ISBN 074532231X.
  43. ^ Dawisha, Karen (2014). Putin's Kleptocracy: Who Owns Russia?. Simon & Schuster. ISBN 978-1476795195.
  44. ^ Luke Harding (January 1, 2010). "WikiLeaks cables condemn Russia as 'mafia state'". The Guardian. Retrieved November 16, 2022.
  45. ^ Paddock, Richard (July 22, 2016). "Justice Dept. Rejects Account of How Malaysia's Leader Acquired Millions". The New York Times.
  46. ^ Paddock, Richard (June 14, 2018). "Mahathir Mohamad, Leading Malaysia Again at 92, Is on a Mission". New York Times.
  47. ^ "Crude Intentions: How Oil Corruption Contaminates the World". Oxford Academic. p. 132. Retrieved January 23, 2024. During the price boom, Azerbaijan's annual oil revenues rose from $5.5 billion in 2007 to $23 billion in 2011. Fueled by these riches, Aliyev used government contracts, loans, and other channels to enrich his allies and build a robust and pervasive kleptocracy. These money flows did relatively little to develop the country's nonoil economy, and after the boom the country faced a major recession as a result.Years before his sons began shopping for jets, Heydarov worked as the head of Azerbaijan's customs agency, where—according to US diplomats— he built his influence and benefited President Aliyev through such means as creating import monopolies for certain products and allocating them to business people loyal to the regime.
  48. ^ Rankin, Jennifer (February 1, 2017). "Council of Europe urged to investigate Azerbaijan bribery allegations". The Guardian. ISSN 0261-3077. Retrieved January 24, 2024. The parliamentary assembly of the Council of Europe (Pace) has been accused of turning a blind eye to corruption, after allegations that a former senior member was paid €2.39m (£2.06m) to engineer votes to protect the kleptocratic regime of Azerbaijan's president, Ilham Aliyev.
  49. ^ Kuhner, Jeffrey T. (September 20, 2010). "KUHNER: A modern mafia state". Washington Times.
  50. ^ Subcommittee on Terrorism, Narcotics and International Operations, Committee on Foreign Relations, United States Senate (December 1988). "Panama" (PDF). Drugs, Law Enforcement and Foreign Policy: A Report. S. Prt. Vol. 100–165. Washington, D.C.: United States Government Printing Office (published 1989). p. 83. OCLC 19806126. Archived from the original (PDF) on October 7, 2016.{{cite book}}: CS1 maint: multiple names: authors list (link)
  51. ^ Rashbaum, William K.; Weiser, Benjamin; Benner, Katie (March 26, 2020). "Venezuelan Leader Maduro is Charged in the U.S. With Drug Trafficking". The New York Times. Archived from the original on March 26, 2020.
  52. ^ "Nicolás Maduro Moros and 14 Current and Former Venezuelan Officials Charged with Narco-Terrorism, Corruption, Drug Trafficking and Other Criminal Charges". March 26, 2020.
  53. ^ "US indicts Nicolás Maduro and other top Venezuelan leaders for drug trafficking". The Guardian. TheGuardian.com. March 26, 2020.

Further reading

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