Analysis | Strategic corruption exemplified (Part 1): Russia, the progenitor
As part of our New Global Commons Working Group series on emerging diplomatic challenges, funded by the Carnegie Corporation of New York’s Bridging the Gap Initiative, ISD has convened a working group on combatting strategic corruption, building on the findings of its fall working group “Kleptocracy: Confronting Corruption at Home and Abroad.” This post is part of a series on strategic corruption, drawing on the research and discussions of ISD’s spring working group.
In our first post in this series, we broadly defined strategic corruption as the exploitation of official positions, resources, and processes for geopolitical purposes. Increasingly, autocracies the world over are deploying corruption as a strategic weapon to undermine democratic institutions and weaken the defenses of their adversaries. No one does this better than Russia and China. Both countries use corruption to gain a stranglehold over other countries’ key industries and infrastructure, create leverage over politicians and other leaders, curtail negative depictions of and actions toward their regimes abroad, and muddy the waters in domestic elections. These efforts have been increasingly successful– and they’re just getting started.
Our next few blog posts in this series will examine each of these countries individually, and their strategies for utilizing corrosive capital, malign influence, and election interference to create an increased level of influence in target countries and regions, weaken democracies from the inside, and gain space to operate and spread their forms of authoritarian government. Up first, Russia.
A government dependent on corruption
Since the fall of the Soviet Union, the Russian government has been built upon corruption and kleptocracy. As Matthew H. Murray, Alexander Vindman, and Dominic Cruz Bustillos highlight, “in Russia…corruption is not simply a matter of individual officials abusing public power for private gain but, rather, an organizing principle of governance. Formal government decision-making is captured by informal networks of political and business patrons who control the allocation of public resources.” This, as the authors note, means that the “rule of law poses a strategic threat.” Because of this, “Russia seeks to combat the U.S.-led post-Cold War liberalization of global trade, finance and markets. It is pushing oligarchic control as an alternative to the Western model of a free market driven by private-sector competition based on the protection of private property.”
More specifically, as a Center for International and Strategic Studies (CSIS) report demonstrates, “Russia seeks to gain influence over (if not control of) [other countries’] critical state institutions, bodies, and the economy and uses this influence to shape national policies and decisions.” This can, at times, lead to what the CSIS authors refer to as “state capture.” In order to do so, Russia “uses state-owned enterprises in the energy and defense sector, private business surrogates, money laundering, and financing of political campaigns.”
Energy: Russia’s ultimate weapon
Arguably the most important weapon in Russia’s strategic corruption toolkit is energy, which is on stark display today. Moscow uses all of the tools at its disposal, including kickbacks, bribes, stoppages, and entrenched middle men to gain leverage over governments through its supply of oil and gas. According to the CSIS report, “Russia uses a price determination scheme that depends more on a country’s reliance on Russian supplies and the dominant role of a single company on the market rather than on domestic and regional energy demand.”
The authors go on to note that:
On the one hand, Russia has been able to offer very lucrative delivery, transit, and/or service contracts to regional leaders to entice them into making concessions on other important deals and issues central to its interests in countries. But Russia has also been able to take advantage of the debts that local gas distributers are often forced to incur in order to purchase Russian natural gas as a pretext for the temporary cancellation or suspension of contracts, which have political consequences and have prompted civil protests.
This is all the more worrisome for many Eastern European countries because many of them receive the majority, or the totality, of their gas from Russia. These same gas industries, most notably Gazprom, are conduits for funneling money to Russian oligarchs and external groups and individuals. In 2011 alone, according to a Transparency International report, “the total amount of loss due to waste and corruption in Gazprom may have reached $40 billion USD, compared to $44.7 billion USD in profits. Time and again, Gazprom made decisions that were not in the financial interests of the company, but which enabled it to funnel wealth to individuals.” In one notable example that has direct ties to U.S. politics, Ukrainian tycoon Dimitry Firtash, former Gazprom middle-man in Ukraine, and head of the Turkmenistan-Ukraine-Russia gas trade, paid $1 million to Lev Parnas and Igor Fruman. These two were partnered with Rudy Giuliani and front and center in the tangled web of President Trump’s first impeachment over his attempted blackmail of Ukrainian President Volodymyr Zelensky.
Elections: The ultimate prize
Russian individuals and entities began donating “dark money” to Western populist parties beginning in 2014 using the money they had gained through corruption. This included 9.4 million Euros to French far-right populist Marie Le Pen as thanks “for publicly endorsing Russia’s annexation of Crimea.” The money came from “a Czech bank ultimately owned by Gennady Timchenko, an alleged former KGB operative from St. Petersburg who worked closely with Putin and became the sixth richest Russian by trading oil bought at a discount from Russian state-owned supplies,” according to Josh Rudolph, of the Alliance for Securing Democracy .
In another instance, which demonstrates the influence Russia can gain through dark money political donations, “former Lithuanian President Rolandas Paksas…was accused of having received campaign financing from individuals suspected to be linked to Russian organized crime, in exchange for granting them Lithuanian citizenship and for divulging classified information on investigations into their business dealings.”
Gazprom and other Russian energy companies play a key role in political party funding. In Lithuania and Latvia, for example, “a single firm formed by the manager of the local Lukoil subsidiary reportedly funded multiple political parties opposed to the entry of Western energy firms into local markets. In Croatia…Russian firms reportedly funded political parties in order to empower local friendly politicians.” In arguably the most notorious case, former German Chancellor Gerard Schroder is on the board of Russian energy giant Rosneft, a seat which he has conspicuously refused to give up amidst Russia’s attack on Ukraine.
Bulgaria is a prime example of Russian influence bordering on “state capture.” The Kremlin dominates foreign direct investment (FDI) in strategic sectors of Bulgaria’s economy and Gazprom is the country’s “sole natural gas provider.” Russia has used “its dominant position in strategic sectors to strengthen existing relationships and cultivate new ones with corrupt businessmen and local oligarchs. These businessmen, in turn, are linked to prominent politicians over whom they exert considerable control. The politicians cut deals that benefit businesses and deepen their power within the country’s corrupt networks and over state institutions. Increasingly, the middle step is removed and the pro-Russian local businessman enter politics themselves and attain positions of prominence whining state institutions to directly promote pro-Russian business interests and politics.”
New Generation Warfare
Energy sector corruption, election interference, and ultimately, state capture come together to form part of what Russia calls its doctrine of New Generation Warfare, which seeks to break “the internal coherence of the enemy system.” Over decades, they have taken their kleptocratic networks– originally built to stabilize the post-Soviet Russian regime– and weaponized them, using them to transfer key elements of their internal systems abroad and undermine their democratic adversaries.
There is no question that these efforts have been successful in some instances. The question is: What will democracies do to fight back?
This publication was made possible in part by a grant from the Carnegie Corporation of New York. The statements made and views expressed are solely the responsibility of the authors.
Kelly McFarland is a U.S. diplomatic historian and the director of programs and research at the Institute for the Study of Diplomacy. Follow him on Twitter @McFarlandKellyM.
More from ISD’s Fall and Spring Working Groups on Corruption:
Analysis| Strategic corruption is a threat to democracy. It’s time to confront it.
Analysis | Kleptocracy: Confronting corruption at home and abroad
ISD’s new working group on corruption | Kelly McFarland and Alistair Somerville