Time to Disrupt the Global Infrastructure of Crime and Corruption
Drew Sullivan, Co-Founder and Publisher, Organized Crime and Corruption Reporting Project
Marina Gorbis, Executive Director, Institute for the Future, and President of the Board, Organized Crime and Corruption Reporting Project
As Russian tanks roll through Ukrainian territory and people hide in underground shelters during air raids, the debate continues to rage in American media: whose fault is it? Clearly there is only one madman on whose conscience the destruction and the loss of lives (Russian and Ukrainian) rests — Vladimir Putin. However, there is much disagreement over who and what enabled, provoked, or caused Putin to behave the way he has. The leading theories include the expansion of NATO threatening Russia’s security, unfulfilled imperial ambitions, wounded pride caused by the disintegration of the great Soviet empire, failed Western-driven market reforms, and privatization spurring wholesale thievery of Russian assets. Any or all of these may have in some way contributed to the tragedy unfolding today. It is also quite possible that the transition to a peaceful, democratic Russia was always a pipe dream. You can’t easily reverse hundreds of years of despotic rule, whether under tsars or the Soviet Politburo. It is conceivable that after the breakup of the Soviet Union, Russia would have remained a struggling, undemocratic, corrupt state. We will never know because we simply can’t rewind history and run a different scenario.
We can, however, and should be asking ourselves why and how Russia’s corruption and criminality have so infiltrated the rest of the world, embedding itself in mansions with park views in London and penthouse apartments in New York (otherwise known as “safe deposit boxes with view”), in banks and investment firms in Switzerland and Silicon Valley, in yachts anchored in Maldives and St. Tropez, among other places. How have our institutions, laws, and regulations, or lack of them, been used for the past twenty years to enable corrupt politicians and oligarchs in Russia to attain legitimacy and accumulate immense wealth and power on the international stage?
This is precisely what investigative journalism organizations like Organized Crime and Corruption Reporting Project (OCCRP) have been doing for decades–uncovering the intricate workings of the global criminal infrastructure. It is vast and relies on an array of legitimate US, European, and global institutions — legal and accounting firms, banks, hedge funds, consultancies, registration agents and other service providers — who help individuals and companies eager to launder and hide their assets by setting up offshore companies and other tax shelters. Of course, corporations do this semi-legally to shift profits from high-tax countries, where such profits are earned, to entities that exist only on paper in low-tax jurisdictions. In fact, the same service providers use identical mechanisms to set up offshore shelters for corrupt oligarchs and criminal bosses from around the world. This is what is called the “criminal services industry” and it involves reputable global firms as well as not so reputable ones, all dedicated to finding loopholes and clever ways to help clients avoid paying taxes, launder money, hide assets, embezzle funds, avoid currency regulations and engage in other financial shenanigans. Criminal services has become its own industry, with its own conferences, “how-to” books, and manuals.
Investigation after investigation, from Panama Papers to Pandora and Paradises papers, to the most recent Suisse Secrets, found hundreds of oligarchs, torturers, despots, corrupt politicians, and outright criminals from around the globe use such services and mechanisms to hide ill-gotten wealth. Of course, Russian oligarchs lead the pack and the numbers prove it. According to experts, the top 500 ultra-rich Russians own over 40 percent of the country’s wealth.* Two thirds of this wealth resides in offshore accounts, which the newly announced Justice Department Task Force aptly called KLEPTOCAPTURE will be trying to track down. Russians are not alone. From America to Angola, lack of proper regulatory and enforcement mechanisms combined with the widely available network of criminal service providers are creating an ultra-rich class of citizens with the resources to “mitigate” their taxes and hide their wealth.
Much of this hidden wealth is not held in exotic locales like Liechtenstein or Panama, but in all-American places like Wyoming and Utah. Several US states have become preferred destinations for the corrupt and powerful of the world eager to shelter assets. Pandora Papers, another large-scale investigation of global crime and corruption flows, identified 206 US-based trusts with combined assets of over $1 billion, many of them linked to people or companies connected to fraud, bribery, human rights violations, and other criminal activities. Some states, including Delaware and South Dakota, in fact, market themselves as premier destinations for offshore company and secretive financial trusts registrations.
If there is any silver lining in the human tragedy unfolding in Ukraine (and we use this term very cautiously because there is nothing worth the loss of life and suffering the people of Ukraine are being put through), it is that the light is finally shining on the shady corruption and robbery of public wealth in Russia. But we need to shine the light on a wider territory. Corrupt money flows and sheltering of assets is a global phenomenon. We have globalized crime and corruption by creating mechanisms, services, and incentives that enable and promulgate it. The streams of profoundly corrupt money change our own society and political system. They undermine democracy by giving excessive power and influence to small numbers of people, they corrupt governments, and worsen wealth disparities. Huge inflows of often illicit capital have raised property costs, inflated asset bubbles and stoked inflation in the West, while the outflow of money from the developing countries raises interest rates, starves new businesses needing capital and impoverishes the people there.
This moment is our opportunity to disrupt this infrastructure, and we have tools at our disposal to do so. We can outlaw offshore companies or make creating and registering them much more difficult. Yes, there are legitimate reasons for them to exist, but opaque money is opaque power, and no company should be allowed to operate in a country without its citizens knowing who is behind it. Information on the ultimate beneficial owners should be provided to and checked by local authorities. That information should be public and easily accessible to all people. We need to create a global registry of assets that would act as a centralized clearinghouse for tracking ownership of real estate, hedge funds, investment funds, trusts, and other major asset classes. These should be subject to the same “know your customer (KYC) regulations” as banks are. Not only would it allow us to see the big picture of global wealth distribution, but it would also enable citizens to ask questions, such as “how can this public official in Russia or Kazakhstan on his/her meager salary afford yachts and mansions around the world?” We can eliminate regulations that make it difficult to track actual persons who control different entities through tangled webs of companies, trusts, and foundations — a scheme some have referred to as “matryoshka dolls,” in which the actual owners are nested deeply within the shells of other structures, just like the Russian souvenirs. Several countries have already established national public registries of beneficial owners, but to be effective, every country that wants to participate in the global economy must commit to doing so. Finally, we should tighten oversight and mete out real punishment, i.e. jail time, to those in positions of responsibility in our financial institutions when their institutions flout regulations or fail to provide sufficient oversight to prevent money laundering and other forms of illicit money flows. These are just some steps we can and need to take in order to make a serious blow to the criminal services industry.
Every day we read about something unimaginable happening. Today, we are witnessing the previously unimaginable invasion of a peaceful sovereign country. But what enabled it has been in the making for decades. This is a catalytic moment for the U.S. We need to say, “never again.” Never again will we support and be a part of the global infrastructure of crime and corruption that gives power to people like Putin and his wannabees.
* https://www.themoscowtimes.com/2021/06/10/russias-500-super-rich-wealthier-than-poorest-998-report-a 74180
