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Transatlantic Take

Europe and the United States Have Enabled Kleptocracy. Now They Have to Get Serious About Fighting It.

March 09, 2021
5 min read
Photo credit: photowalking / Shutterstock.com

Last week, the United States sanctioned Ihor Kolomoisky, one of Ukraine’s most notorious oligarchs, whom the authorities are investigating for money laundering in the country. While this testifies to the fact that the Biden administration is becoming serious about combatting international corruption, it is also indicative of how the United States and European countries remain key enablers of kleptocratic financial flows through their lax tax systems and often weak regulatory frameworks. The time has come for them to recognize the role they play in enabling kleptocracy at home and to use the current momentum to forge a transatlantic anti-kleptocracy approach that confronts authoritarians abroad.

U.S. anti-corruption efforts have gained remarkable momentum recently, which should serve as a rallying call for Europe to step up its efforts against kleptocracy, too. President Joe Biden has identified “combatting corruption as a core national security concern,” while Congress showed rare bipartisanship by passing the Corporate Transparency Act in January. The often-dubbed “biggest anti-money laundering reform in a generation” effectively ends anonymous shell companies and shuts down kleptocrats’ preferred modus operandi in the United States.

This gives cause for optimism, but forging an effective anti-kleptocracy approach requires recognizing existing deficiencies on both sides of the Atlantic. The U.S. regulatory framework, for instance, still offers ample opportunity for financial secrecy, such as trusts in Biden’s home state of Delaware, the lack of oversight in the real-estate market, or loopholes used by private equity and hedge funds.

Europe, too, has a questionable anti-corruption reputation. The United Kingdom remains the preferred destination for post-Soviet kleptocrats and their ill-gotten wealth. The 2020 House of Commons’ Russia Report stated: “The UK welcomed Russian money, and few questions – if any – were asked about the provenance of this considerable wealth.” Last year a leaked U.S. Treasury report branded the country as a “high-risk jurisdiction” for money laundering.

Europe’s tax paradises have also been reluctant to jump on the bandwagon of increased financial transparency. This week’s report by the Tax Justice Network listed the Netherlands, Switzerland, and Luxembourg among the world’s top ten tax havens, joined by four British Crown Dependencies and Overseas Territories. When President Barack Obama announced plans to counter tax avoidance in 2009, European countries voiced their dissatisfaction about being designated as tax havens. Considering Biden’s pledge to “go after illicit tax havens,” renewed reluctance in some European countries would hardly be surprising.

Meanwhile, maintaining anti-corruption momentum in key jurisdictions favored by kleptocrats has proven to be difficult. U.K. Prime Minister David Cameron’s 2016 Anti-Corruption Summit, for instance, introduced ambitious international anti-corruption goals. Two months later, however, British voters opted to leave the EU, Cameron left office, and the United Kingdom’s anti-corruption agenda all but disappeared. Subsequent U.K. governments have shown little ambition on addressing the issue of kleptocracy, as demonstrated by the House of Commons’ Russia Report. Maintaining momentum could prove even harder in times of the coronavirus pandemic and economic recovery.

A Transatlantic Approach to Kleptocracy

Shortcomings are abundant and forging a transatlantic approach to kleptocracy requires recognizing the role Europe and the United States themselves play in enabling it. However, there are prospects for a joint effort that confronts authoritarians and their kleptocratic systems, too.

While the U.S. Congress was in the process of ending anonymous shell companies, Cyprus finally abandoned its “golden passport” investor immigration scheme in October, which was popular with Russian kleptocrats. Earlier this year, the European Parliament adopted a resolution to clamp down on tax havens and pushed for tougher due-diligence requirements with regard to individuals accused of human-rights violations. 

To build on this momentum, an anti-kleptocracy agenda should be at the heart of the renewed relationship between the United States, the EU, and the United Kingdom now that the Biden administration has taken office. Such an approach offers opportunities for cooperation on a constructive geo-economic agenda in a transatlantic environment that is currently strained by controversy over the EU’s recently concluded investment agreement with China and over Nord Stream 2-related sanctions.

President Biden’s plan for a global Summit for Democracy, which identifies fighting corruption as its first priority, is a promising start. To keep anti-kleptocracy efforts at the top of the international policy agenda, and in order to get Europe on board, the United States must show continued leadership. In the end, it cannot fight kleptocracy without Europe, but Europe cannot fight kleptocracy without U.S. leadership.

At the same time, as a result of the United States and Europe recognizing their role in enabling international corruption, a transatlantic approach can be an effective tool against kleptocratic authoritarian regimes by cutting off the flows of corrupt money that fuel them. Ultimately, kleptocrats steal at home, but their corrupt networks are enabled by Western financial systems.

As the world’s main financial hubs, by cracking down on corrupt money domestically, the United States and Europe can effectively also push back against authoritarian regimes and their malign influence and actions abroad.  The case of Yevgeny Prigozhin—who is sanctioned by the United States, the United Kingdom, and the EU—is a good example of the intersection of kleptocratic finance and malign foreign influence. A transatlantic anti-kleptocracy approach is therefore not just about recognizing the corrupt money present in Western financial systems, but also about targeting kleptocrats where it hurts them most.

For long, Western governments have treated kleptocracy as a fringe issue: an abstract phenomenon that occurs in tropical Caribbean paradises or Central Asian deserts. Instead, kleptocracy thrives on political indifference and regulatory deficiencies in Europe and the United States. Guided by current U.S. momentum, now is the time to get serious about recognizing Western shortcomings and forge a comprehensive transatlantic approach to root out overgrown kleptocratic systems at home and abroad.