Kleptocracy #5 | Pandora Papers Prompt Action Against Western Enablers
News, research and analysis on how corruption is reshaping global politics
Welcome to Kleptocracy, the newsletter from Hudson Institute on how corruption is reshaping global politics and security. As always, keep scrolling if you’re just here for the latest news, research and analysis gathered from around the world.
And yet—what corruption newsletter could cope with the deluge of news unleashed by the Pandora Papers this week? The leaks implicate—rightly or wrongly, as a flood of defamation suits will soon reveal—no less than the King of Jordan, the presidents of Ukraine, Kenya and Ecuador, the prime minister of the Czech Republic, and former UK prime minister Tony Blair among many others.
The Pandora Papers are just the latest blockbuster emerging from a new model of collaborative, cross-border investigative journalism that began with the 2016 Panama Papers—and which is proving more than a match for the shady transnational networks that characterize modern, globalized forms of corruption and kleptocracy. The principal players in these investigations may change, but the supporting cast remains astonishingly predicable: a minority of unscrupulous Western lawyers, investment managers, accountants, and real estate professionals who use labyrinthine networks of shell companies and other legal vehicles to move money through secretive jurisdictions in ways that go far beyond what is necessary to preserve reasonable expectations of client privacy.
We discuss all this with Miranda Patrucic of the Organized Crime and Corruption Reporting Project on this week’s Making a Killing podcast. As one of 600 journalists who spent months sifting through 11.5 million documents, it’s a fascinating glimpse behind the scenes of the biggest journalism investigation in history.
It’s also a chance to hear a little history in the making, as KI’s very own Paul Massaro was busy helping finalize the introduction of the ENABLERS Act—Congress’ bipartisan policy response to the Pandora Papers—during the recording. The bill, which is co-sponsored by Representatives Tom Malinowski (D-NJ) and Maria Salazar (R-FL), would pick up where the recent ban on anonymous ownership of shell companies left off by fixing the other major weakness in America’s financial defenses: unregulated professionals who facilitate global corruption, allowing dirty and dangerous money to flood our shores. I can’t put it better than Representative Salazar herself:
“Dictatorships like the Castro regime in Cuba, the Maduro regime in Venezuela and the Ortega regime in Nicaragua regularly use enablers to facilitate the movement of stolen assets into the United States. These kleptocrats rob their people and undermine democracy. It’s time to crackdown on this manipulation and stand with the victims of corruption who cry out for freedom from this oppression…
America must not do business with dictators.”
New from KI
Making a Killing #24: Inside the Pandora Papers with Miranda Patrucic
In this week’s podcast, Miranda Patrucic—a senior Organized Crime and Corruption Reporting Project (OCCRP) journalist who worked on the leaks—explains how she and 600 others followed the money. Paul Massaro provides an update on the US Congress’ response to US professionals’ complicity in global money laundering—just minutes before the bipartisan ENABLERS Act was introduced.
The United States of Dirty Money - how a landlocked state became one of the world’s hottest destinations for offshore funds. | Casey Michel, The Atlantic
“South Dakota trusts provide precisely the kind of anonymity that [criminal] clients are looking for. Not only can those establishing trusts list themselves as beneficiaries—contradicting the original purpose of a trust, which is to shield assets for others—but they don’t even need to visit the state to set one up. The state prohibits sharing information about these trusts with other governments, and any court documents pertaining to South Dakota trusts are kept private in perpetuity.”
The fatal flaw in the West’s fight against autocracy - the Pandora Papers reveal the critical role Western countries play in enabling autocrats. | Casey Michel, Foreign Policy
“Over and again, democratic leaders have dropped any pretense of working for the West’s—for democracy’s—best interests. Instead, they’ve created an entire cottage industry of former Western leaders hopping in the pockets of these kleptocratic figures…”
Pandora Papers Highlights
The Washington Post highlighted the previously underreported problem with US family trusts being abused by transnational criminals—and how a race to the bottom on deregulation turned the US into a global money laundering hub.
Given that China is the preeminent user and abuser of the offshore financial system, Communist Party kleptocrats were curiously absent from the Pandora Papers (with the honorable exception of National People’s Congress deputy Feng Qiya, who reportedly used a BVI shell company to trade US stocks worth $2 million). But David Barboza used the files to pursue a different line of inquiry: How major Chinese companies use offshore firms to circumvent Chinese law and list themselves on the US stock exchange. The opaque nature of “variable interest entities,” combined with Xi’s ongoing private sector crackdown, creates a $700 billion risk to US investors. | ICIJ / The Wire China
This is hardly the first appearance by Azerbaijan’s ruling Aliyev family in offshore leaks—but this time, they reportedly used offshore companies to obtain $700 million worth of real estate in London. It dwarfs previous estimates of their dealings (some of which were registered in name of an 11 year old boy). | OCCRP
Konstantin Ernst and Gennady Timchenko, both members of Putin’s inner circle listed on the “Navalny 35” list of human rights abusers and kleptocrats, reportedly used offshore companies in various suspicious deals. | OCCRP / The Guardian
King Abdullah II of Jordan reportedly used a sprawling web of offshore companies and professional advisors to obtain $106 million worth of real estate in London, Washington, and Malibu. | ICIJ
In Other News…
Austria’s Kurz under suspicion for bribery and embezzlement in corruption probe - prosecutors believe chancellor masterminded illegal effort to pay off pollsters and journalists in his rise to power. | Politico
US Navy hit by another international bribery scandal - in a case with strong echoes of the Fat Leonard scandal, a defense contractor is accused of delivering cash bribes and bilking the Navy out of at least $50 million to service its ships in foreign ports. | Washington Post
Fu Zenghua helped bring down one of China's most corrupt officials. So why is the country cheering his downfall? - the former chief justice minister has become a target himself in Xi's relentless crackdown on graft and disloyalty. | CNN
Brazil's Petrobras pays $853.2 million fines to DOJ, SEC - the payment ends US monitoring of the company after a corruption probe that began with the Car Wash investigation. | Reuters
Odesa mayor charged with corruption - Hennadiy Trukhanov is charged with illegally acquiring several plots of land in Ukraine’s largest port city, the latest in a series of criminal cases opened against him. | RFE/RL
Moldova's top prosecutor suspended and detained - Alexandru Stoianoglo was charged with abuse of office "in favour of... criminal groups," as president Maia Sandu’s graft-busting administration moves to clean house. | Reuters
Slovenia shamed on corruption by European watchdog - the country implemented an impressive zero percent of official anti-money laundering recommendations it has received in recent years. | EU Observer
Mozambique's tuna corruption scandal puts justice on trial - the case involves more than $2.7 billion of undisclosed state debts that were supposed to fund trawlers and patrol boats, but were allegedly diverted to corrupt officials. | BBC
Saudi Arabia: 271 Saudis and expatriates arrested - 639 others are reportedly being investigated after being accused of administrative corruption and other crimes by the authoritarian regime. | Gulf News
Could Czechia’s newest anti-corruption party be this election’s dark horse? - Although only founded in January, the Prisaha movement of former policeman Robert Slachta has attracted interest and controversy in equal measure. | Balkan Insight
Insights: Research and Analysis
Banking sector reforms and asset recovery in Sudan | The Sentry
Why Putin’s money eludes offshore investigators | Leonid Bershidsky, Washington Post
America’s list of ‘undemocratic and corrupt actors’ just keeps growing | Christopher Sabatini, New York Times
World Bank’s “Doing Business Index,” a thorn for kleptocrats, must be protected | Anders Aslund, Just Security
Time to rethink Ukraine’s fight against corruption | Bohdan Vivitsky, Atlantic Council