Kleptocracy

Kleptocracy (from Greek κλέπτης kléptēs, "thief", κλέπτω kléptō, "I steal", and -κρατία -kratía from κράτος krátos, "power, rule") is a government with corrupt leaders (kleptocrats) that use their power to exploit the people and natural resources of their own territory in order to extend their personal wealth and political powers. Typically, this system involves embezzlement of funds at the expense of the wider population.^[1][2]

Kleptocracy is different from a plutocracy; A kleptocracy is a government ruled by corrupt politicians who use their political power to receive kickbacks, bribes, and special favors at the expense of the populace. Kleptocrats may use political leverage to pass laws that enrich them or their constituents and they usually circumvent the rule of law.

Characteristics

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. This 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. 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 numbered bank accounts in foreign countries to provide for themselves if removed from power.^[3]

Kleptocracy is most common in developing countries whose economies are based on the export of natural resources. Such export incomes constitute a form of economic rent and are easier to siphon off without causing the income to decrease.

A specific case of kleptocracy is Raubwirtschaft, German for "plunder economy" or "rapine economy", where the whole economy of the state is based on robbery, looting and plundering the conquered territories. Such states are either in continuous warfare with their neighbours or they simply milk their subjects as long as they have any taxable assets. Arnold Toynbee has claimed the Roman Empire was a Raubwirtschaft.^[4]

Financial System

Contemporary studies have identified 21st century kleptocracy as a global financial system based on money laundering (which the International Monetary Fund has estimated comprises 2-5 percent of the global economy).^[5][6][7]

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.^[8]

Illicit funds are typically transferred out of a kleptocracy 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 Russia, China, and developing economies.^[9]

Western professional services providers are an essential part of the kleptocratic financial system, exploiting legal and financial loopholes in their own jurisdictions to facilitate transnational money laundering.^[10][11] The kleptocratic financial system typically comprises four steps.^[12]

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.^[13]

Second, a kleptocrat’s funds are transferred into the Western financial system via accounts which are subject to weak or nonexistent anti-money laundering procedures.

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 legally defensible origin of the funds. Research has shown the purchase of luxury real estate to be a particularly favored method.^[14][15]

Fourth, kleptocrats may use their 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.^[16][17]

The United States is international kleptocrats’ favoured jurisdiction for laundering money. In a 2011 forensic study of grand corruption cases, the World Bank found the United States was the leading jurisdiction of incorporation for entities involved in money laundering schemes.^[18] The Department of Treasury estimates that $300 billion is laundered annually in the United States.^[19]

This kleptocratic financial system flourishes in the United States for three reasons. First, the absence of a beneficial ownership registry means that it is the easiest country in the world in which to conceal the ownership of a company. The United States produces more than 2 million corporate entities a year, and 10 times more shell companies than 41 other countries identified as tax havens combined.^[20] It currently takes more information to obtain a library card than to form a US company.^[21]

Second, some of the professions most at risk of being exploited for money laundering by kleptocrats are not required to perform due diligence on prospective customers, including incorporation agents, lawyers, and realtors.^[22] A 2012 undercover study found that just 10 of 1,722 U.S. incorporation agents refused to create an anonymous company for a suspicious customer; a 2016 investigation found that just one of 13 prominent New York law firms refused to provide advice for a suspicious customer.^[23]

Third, such anonymous companies can then freely engage in transactions without having to reveal their beneficial owner.

Currently, 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.^[24] Raymond Baker estimates that law enforcement fails in 99.9% of cases to detect money laundering by kleptocrats and other financial criminals.^[25]

Other Western jurisdictions favoured by kleptocrats include the United Kingdom and its dependencies, especially the British Virgin Islands, the Cayman Islands, Guernsey and Jersey.^[26][27] Jurisdictions in the European Union which are particularly favoured by kleptocrats include Cyprus, the Netherlands, and its dependency the Dutch Antilles.^[28][29]

Effects

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.^[30]

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.^[31] The informal oligarchy that results from a kleptocratic elite subverts democracy (or any other political format).^[32]

Examples

According to the "Oxford English Dictionary", the first use in English occurs in the publication "Indicator" of 1819: “Titular ornaments, common to Spanish kleptocracy.”^[2]

According to at least one commentator, parasitism may be the new social paradigm — involving class warfare and exploitation of electoral processes — of myriad and disparate countries around the world.^[33] See Oligarchy and Elite capture.

In early 2004, the German anti-corruption NGO Transparency International released a list of what it believes to be the ten most self-enriching leaders in the past two decades.^[34] In order of amount allegedly stolen USD, they were:

1. Former Indonesian President Suharto ($15 billion – $35 billion)
2. Former Philippine President Ferdinand Marcos (at least $10 billion by 1986,^{[35][36][37][38]} equivalent to about $21.6 billion in 2014 dollars^[39])
3. Former Zairian President Mobutu Sese Seko ($5 billion)
4. Former Nigeria Head of State Sani Abacha ($2 billion – $5 billion)
5. Former Yugoslav President Slobodan Milošević ($1 billion)
6. Former Haitian President Jean-Claude Duvalier ("Baby Doc") ($300 million – $800 million)
7. Former Peruvian President Alberto Fujimori ($600 million)
8. Former Ukrainian Prime Minister Pavlo Lazarenko ($114 million – $200 million)
9. Former Nicaraguan President Arnoldo Alemán ($100 million)
10. Former Philippine President Joseph Estrada ($78 million – $80 million)

The Russian president Vladimir Putin is alleged to be the "head of the clan",^[40][41] whose assets are estimated at over $200 billion.^{[42][43][40][44][45]} A list of Russian and Ukrainian politicians associated with "kleptocratic style" has been published by the Kleptocracy Archives project.^[46]

Sources have also alleged that former Egyptian President Hosni Mubarak stole up to $70 billion.^[47]

In addition, other sources have listed former PLO Chairman Yasser Arafat as having stolen $1 billion to $10 billion; and Pakistani President Asif Ali Zardari to have received kickbacks on contracts and misappropriating public funds, siphoning over $2 billion to his Swiss accounts.^{[48][49][50][51][52]}

The former Chairman of BTA Bank Mukhtar Ablyasov is alleged to have embezzled more than $6 billion from his bank committing the largest financial fraud in history.^[53]

In May 2017, the Carnegie Endowment for International Peace released a report detailing what it called a kleptocratic network across the government and private sector in Honduras.^[54][55]

Nursultan Nazarbayev is a head of the Kazakhstan ruling clan with $7 billion assets.^[56]

China's former prime minister, Wen Jiabao, left office in 2013 with his close relatives controlling assets worth at least $2.7 billion.^[57] These revelations were censored in print and censored online in China.^[58]

Former Malaysian Prime Minister Najib Tun Abdul Razak had $731 million 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 1MDB scandal and various other corruption scandals. ^[59] (national debt of $250 billion) ^[60]

The term kleptocracy was also used to refer to the Russian economy, soon after the Soviet collapse in 1991. The "democrats", led by Yegor Gaidar and Anatoly Chubais, freed prices in 1992 and unleashed hyperinflation before they privatized Russia's assets. Most Russian citizens lost their savings in only a few weeks. A few billionaire "oligarchs" amassed fortunes not by creating new enterprises, but by arbitraging the huge difference between old domestic prices for Russian commodities and the prices prevailing on the world market. Instead of investing in the Russian economy, they stashed billions of dollars in Swiss bank accounts. Experts estimate that as much as $15 billion left Russia each year as either capital flight or laundered money from illegal transactions.^[61] Referring to Russia, Daniel Kimmage also used the terms: "kerdocracy" ("rule based on the desire for material gain") or "khrematisamenocracy" ("rule by those who transact business for their own profit").^[62]> The republic of South Africa is presently embroiled in " state capture"

Other terms

Demonstration banner with text: "Demokracie místo kleptokracie" (Democracy in place of kleptocracy). Peace rally in Brno for Real Democracy NOW, Moravian Square, Brno, Czech Republic.

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 Committee chaired by Massachusetts Senator John Kerry.^[63] The term narcostate has the same meaning.

See also

Look up kleptocracy in Wiktionary, the free dictionary.

• Conflict of interest
• Crony capitalism
• Kakistocracy
• Elite capture
• Failed state
• Kleptocracy Tour
• Lumpenbourgeoisie
• Mafia state
• Political corruption
• Rentier state

References

Further reading

• Machan, Tibor (2008). "Kleptocracy". In Hamowy, Ronald. The Encyclopedia of Libertarianism. Thousand Oaks, CA: SAGE; Cato Institute. pp. 272–73. doi:10.4135/9781412965811.n163. ISBN 978-1412965804. LCCN 2008009151. OCLC 750831024.