Stop the kleptocrats: more needs to be done to stem the influx of dirty money to the West

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Stop the kleptocrats: more needs to be done to stem the influx of dirty money to the West


Sanctions imposed on Russia in response to its aggression in Ukraine highlight the crucial role of transnational finance in enabling corrupt and autocratic regimes to flourish. Assets held overseas by specific members of the Russian elite have been frozen because they “share the Kremlin’s corrupt conquests,” as Daleep Singh, US Deputy National Security Advisor explains“And now they will share the bread”.

But retrospective efforts to identify and freeze the foreign assets of individual oligarchs are not enough: we can and must also do more to stem the massive influx of dirty money from around the world into Western economies.

The breadth and depth of the sanctions announced so far have been limited by fears of collateral damage not only to the Russian population but also to Western economies. The reluctance of Germany and other countries to address energy shortages, for example, prevented the use of the “nuclear option” to completely block Russian access to SWIFT, the global electronic banking network used to pay for gas and oil. imported.

Further measures to target the wealth of the corrupt elite, however, such as ending their ability to launder money through anonymous shell companies, would not harm the public. The only collateral damage would be to accomplishments: bankers, lawyers, brokers and accountants who help corrupt elites move and hide assets, pocketing a slice of the loot in the process. These enablers also shared the corrupt gains and should share the pain.

It is not just the Russian oligarchs who are relying on hired enablers. Of over 130 billionaires whose hidden offshore wealth was revealed in millions of documents leaked in Pandora cards, the Russians top the list with 52, but the rest come from all over the world. In one country after another, transnational looting networks manipulate states and markets alike to extract wealth and hide it from prying eyes.

The kleptocrats whose money flows through these networks include ruling elites from countries ravaged by desperate poverty. In our book, “On the trail of capital flight from Africawe and our co-authors examine the financial alchemy by which oil in Angola, cocoa in Côte d’Ivoire and minerals in South Africa are turned into private fortunes and illegally pushed abroad, giving rise to the “paradox of abundance”, resource-rich lands with many of the poorest people in the world. Over the past five decades, Sub-Saharan Africa has lost more than $ 2 trillion due to capital flight; the bleeding is now average 65 billion dollars a yearmore than the annual inflow of official development aid.

There are two ways to tackle the problem of dirty money. The first is a piecemeal a posteriori approach that targets people whose transgressions have prompted the authorities to act. Task Force KleptoCapture, established last week by the Biden administration, is an enhanced version of this tactic. But finding hidden resources takes time and money, and such efforts rarely succeed in blocking more than a small fraction of the illicit gains.

The second strategy is a preemptive and generalized attack on the transnational looting networks that allow illicit financial flows. Rather than waiting for kleptocrats to cross the line, for example by invading a neighboring country, this approach focuses on the system vulnerability exploit in the international financial system. The economic crime law presented last week by the UK government is one late step in this direction.

Ending collusion with kleptocrats is not just a matter of moral righteousness, although it is morally right. Nor is it just a matter of selfless concern for those suffering under their misrule. It is also in the self-interest of law-abiding citizens in countries that now serve as havens for capital flight.

Our book describes the repercussions of turning a blind eye on dirty money. One example is the turbulence on European financial markets in 2014 following the collapse of Portugal’s Banco Espírito Santo, a scandal sparked in part by its unsecured loans to Angolan elites. Another is the great inflation of real estate prices in metropolitan centers like New York and “LondragradPushed by the acquisitions of oligarchs from around the world, which make it difficult or impossible for local residents to afford housing in their cities. At the New York Times 2015 investigation revealed, for example, that more than 54 percent of luxury real estate sales in Manhattan were to offshore shell companies with anonymous owners.

The Russian invasion of Ukraine is a wake-up call in more ways than one. We shouldn’t wait for the kleptocrats to get angry before we move to disable them. We should do this as a matter of course – and a matter of principle.

James K. Boyce And Leonce Ndikumana are economists at the University of Massachusetts Amherst and co-editors of “On the Trail of Capital Flight from Africa: The Takers and the Enablers” (Oxford University Press).


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