Dismantling the Authoritarian-Corruption Nexus.
The end of the Cold War was the beginning of a new era: one in which conflict occurs less in proxy wars and grand ideologies but more in trade wars and boardrooms. For the foreseeable future, turmoil around the world will be driven by competition between free societies and the authoritarian-corruption nexus. The authoritarian-corruption nexus is the growing convergence of licit and illicit state and non-state actors that facilitates and launders the profits of illegal activity reinforcing the strength and survival of authoritarian systems of governance everywhere.
Modern dictators require more than good stories and parades to garner loyalty from elites and subdue publics. Ideologies certainly remain important in contemporary authoritarian politics, especially nationalism and Salafi-jihadism, but their role is weaker and more individualized due to the internet. Authoritarian survival now depends more on procuring currencies, goods, and services that can be strategically redistributed to regime loyalists.
Economic entanglement with authoritarian states must be scaled back, diversified, and diverted to states with the capacity and willingness to compete on a level playing field. Failing to disentangle will continue to introduce destabilizing security risks while intensifying the effects of economic inequality. The opportunity costs of long-delayed investments at home and among rule of law allies create domestic tension, while the authoritarian-corruption nexus facilitates disparate, global threats to security such as nuclear proliferation, international terrorism, supply-chain risk, and media disinformation campaigns.
The solutions to dismantling the authoritarian-corruption nexus reside in democratic capitalism and must be pursued at the domestic and international levels to succeed. Domestic efforts should include addressing the (ab)use of anonymous shell corporations, federalizing the Treasury's Financial Crimes Enforcement Network, lifting the Patriot Act's exemption on real estate, upgrading US foreign trade zones, reevaluating the Foreign Agents Registration Act, and giving the private sector a greater role in anti-corruption efforts. On the international stage, the US should seek to reestablish the Group of Seven as a formal institution for developed democracies and revise the processes of the Financial Action Task Force to fight trade-based money laundering.
The end of the Cold War was the beginning of a new era: one in which conflict occurs less in proxy wars and grand ideologies but more in trade wars and boardrooms. For the foreseeable future, turmoil around the world will be driven by competition between free societies and the authoritarian-corruption nexus. The checked and balanced nature of decision-making in America has delayed our official entry into the fight, but the tipping point is coming, and it is time to prepare.
The lights are flashing red everywhere. Yet there is nowhere near a consensus on what the big-picture struggle is or what to do about it. China, Iran, North Korea, and Russia are all clearly national security hot spots. Reports of military buildups and irredentism reach the desks of presidents, prime ministers, and CEOs daily. But guns are not the only underlying security concern; insecure supply chains are another growing problem. Intellectual property theft, immigration crises, and illicit financial flows all pose related security risks to governments and businesses that strain budgets, damage bottom lines, and ultimately tear at the social fabric of free people everywhere.
The authoritarian-corruption nexus is the growing convergence of licit and illicit state and non-state actors that facilitates and launders the profits of illegal activity, reinforcing the strength and survival of authoritarian systems of governance everywhere. It depends on and resides in the complex and rapidly changing global economic currents flowing in and out of American markets. It is the defining threat to freedom in the 21st century. If it is not effectively addressed, the costs will be immense.
A Competition of Governance Systems
Authoritarian regimes are involved in all of today's wars and humanitarian crises. (3) They foment genocide, cause mass migrations, create famines, and too often end just as violently as they began. Particular developments regarding dictatorship and its associated ideologies vary over time. (4) But the underlying trends remain robust. The effects of authoritarianism are now both amplified and obfuscated by the interconnectivity of the internet and globalization. Combating authoritarianism and addressing the dark networks that support its consolidation are the unavoidable strategic challenges to global security. (5)
Tactical strategy, military might, and diplomacy cannot resolve what is irreconcilable. Liberty and authoritarianism cannot coexist in a shrinking world. Globalization will likely deepen, driven by technological advancements and the innate human desire for free exchange. A conservative approach to this new environment should aim to consolidate gains in liberty where they have been made and mitigate future risk where possible. The tools that the authoritarian-corruption nexus (ab)uses to threaten national security are the very openness, individual rights, and transparency that underpin the US's existing rule of law system. Mitigating domestic and systemic economic risk is a missing puzzle piece in a new national security strategy.
Illicit economic activity now crosses sovereign borders, spreads corruption, and funds activities in the United States and other rule of law-based democracies at unprecedented levels. Networks of nexus actors are maintained by product-agnostic opportunists for hire and have imposed untold costs on American society. They launder the profits from opioids that contributed to 72,000 American deaths in 2017. (6) Much of the fentanyl involved in these deaths is manufactured in China and then smuggled through Mexico, shipped by decentralized and anonymized criminal networks. (7)
Terrorist groups and transnational criminal organizations (TCOs) operate globally and either survive in the shadows of authoritarian governments or work directly with them. TCOs and terrorist groups thrive in failed authoritarian states, such as Somalia and Libya. Terrorist groups, such as the Islamic State and al Qaeda, survive in the governance gaps of weak states such as Syria and Afghanistan. Younger and less-developed democracies with high levels of corruption (such as Nigeria and Nicaragua) indirectly or directly support the authoritarian-corruption nexus by failing to prevent the obfuscation of finance and trade data.
Authoritarians, such as Nicolas Maduro in Venezuela or Bashar al Assad in Syria, trigger mass migration events that drive refugees to seek asylum in free states. Forced migrations strain social services, increase the costs of border security, and create opportunities for human traffickers in more secure neighbors. (8) Hundreds of thousands of women and children in the US today are the victims of human trafficking, trapped in sex or labor slavery. (9)
Nexus activities further compound the costs in less-obvious ways. Shell companies buying condos for corrupt foreign officials frequently pay no local property taxes and artificially inflate real estate prices. Cigarette smugglers in the US cause hundreds of millions in lost tax revenues. (10) Problems surrounding fraud and corruption in the US are also compounded by authoritarian media campaigns, cyber hacking, strategic leaks, bribery, and extortion. These acts are dealt with individually in various ways, yet as a whole they erode societal and institutional trust--a key element that influences perceptions of political efficacy among Americans. (11)
Internationally, nexus actors threaten regional stability, as is the case in Iran's proxy war with Saudi Arabia in Yemen and its provision of weapons to Assad in Syria. Iran does so directly and through its state-sponsored terrorist group, Hezbollah, which also profits from illicit trade, drug trafficking, and money laundering throughout Latin America, the Middle East, and West Africa. (12) Meanwhile, North Korea's nuclear weapons were likely developed with help from nexus actors. (13) North Korean operatives were also involved in the cyberattack on Sony, the WannaCry ransomware, and several international bank robberies. (14) Pyongyang is known as one of the best counterfeiters of US dollars and maintains a massive network of forced labor camps around the worlds. (15) In addition to revisionist geostrategic policy stances, Russia is at the heart of possibly the largest money laundering scandal in world history, and Chinese development goals rely on intellectual property theft and high levels of corruption in developing states. (16)
These are not isolated developments; they are all connected and must be strategically treated as such. As a guide for dismantling the authoritarian-corruption nexus, this report begins with an analysis of the changing nature of modern authoritarianism--a trend in global affairs that facilitates and weaponizes the nexus to undermine stability in states based on the rule of law. The report then details how the nexus operates and the various tools used to infiltrate rules-based countries, including descriptions of recent, high-profile cases of nexus activities. Finally, the report concludes with a set of recommendations designed to signal that the United States has recognized the threat and is determined to dismantle the authoritarian-corruption nexus.
The Nature of Modern Authoritarianism
To understand the origins of the authoritarian-corruption nexus, we must first understand the nature of the regimes at the core of the threat. Authoritarianism incubates a corrosive form of corruption that can be contained in sovereign borders or spread to other countries. Today, it is easier than ever for it to do both.
The relationships among dictatorship, corruption, and political instability is nothing new. People often understand government monopolies and excessive taxation as a form of corruption and use it to justify revolution. Similar opposition to perceived corruption cascaded through the American and French Revolutions. The command economies of the 20th century were based on collectivist ideologies, but corruption in the Union of Socialist Soviet Republics helped lead to economic sclerosis and collapse in 1991. (17) Today, the autarkic and murky economies of North Korea and Cuba are continuously dogged by corruption, as are more developed authoritarian states.
The Rise of Personalism, Kleptocracy, and Strongman Rule. Personalism is a hallmark of the growing authoritarian-corruption nexus. Most are familiar with the related idea of strongman rule. It manifests itself in images of Saddam Hussein holding a rifle or Kim Jong Un overlooking massive military parades. Today, these conceptions are more subtle. Strongmen now wear a suit and tie, run global business empires, and employ teams of lawyers, consultants, and publicists. The "iron fist" of the past more often now dons a velvet glove.
The concentration of power in any system of government leads to theft, whether by taxation or embezzlement. The stolen wealth is then moved through global economic channels across multiple jurisdictions using an array of methods for obfuscating the true owner. This top-down process tends to create, expand, and entrench non-state networks capable of reaching the centers of power in rule of law systems. It is a complex development that can enrich both autocratic regimes and individuals anywhere while threatening international stability everywhere. This dynamic can appear to strengthen the power of authoritarian regimes, but it can also hasten a fall when networks grow too powerful. In modern autocracies, regime change more often results in replacing one dictator with another, and network growth is also a core concern among authoritarians.
To highlight growing trends in personalism and kleptocracy, Figure 1 plots personalist and non-personalist dictatorships against a measure of executive theft and embezzlement. The jagged line at the top of each category represents the average embezzlement score each year for each category. Personalist strongmen have always been more likely to treat sovereign wealth as their own personal wealth, but this trend spikes considerably in the post-Cold War period for numerous reasons--chief among them, globalization and its associated technological and financial innovations.
Transparency Is Both a Tool and a Weapon.
Some authoritarian regimes disseminate a lot of political and economic data--some of it credible and some not so much. They do it not because the characteristics of authoritarian rule by law (as opposed to rule of law) require them to. They commit to some level of economic and political transparency because it tends to grow the economy and attract investors. In this sense, authoritarian transparency helps generate revenue in a more legitimate manner, but insofar as it is used to purchase loyalty from domestic actors, it is viewed as corruption. When profits are spirited out of the authoritarian country by oligarchs to purchase things such as real estate or yachts, it intensifies perceptions of inequality everywhere. When growth resulting from authoritarian transparency is used to build surveillance states, establish reeducation camps, fund military buildups, or force technology transfer, it becomes a national security threat.
But transparency is a double-edged sword for authoritarians. Whatever group monopolizes political power in a dictatorship must control, manage, or limit the dissemination of politically important economic data, which makes it less credible. Negative economic or political information often causes cascading effects in already fragile systems, such as capital flight and popular unrest. These effects, in turn, can drive elites to further entrench themselves in power and impose repressive controls or even commit violence to restore stability.
Therefore, the United States must be careful about pushing for greater transparency in dictatorships, but nonetheless, it should steadily push. In evaluating the credibility of information coming out of authoritarian regimes, the United States must place greater emphasis on the verification side of "trust, but verify." The manipulation of information in authoritarian states introduces unnecessary risk and inefficiencies in global supply chains, enables corruption, and ultimately threatens American national security.
Dictatorship, Democracy, and Corruption. Modern dictators require more than good stories and parades to garner loyalty from elites and subdue publics. Ideologies certainly remain important in contemporary authoritarian politics, especially nationalism and Salafi-jihadism, but their role is weaker and more individualized due to the internet. (18) Authoritarian survival now depends more on procuring currencies, goods, and services that can be strategically redistributed to regime loyalists. Drug cartels operate in much the same way, purchasing unquestioning loyally from foot soldiers.
The abuse of entrusted power for private gain is perceived by many as a form of corruption--whether in the service of a sovereign state, a local warlord, or a terrorist organization. Corruption is as old as government and will always be a concern everywhere. But rule of law systems are different. In free societies, leaders of every stripe in politics and business tend to earn their power through competition in elections and markets guided by a common set of rules more often than they try to outright purchase it. Free societies have their fair share of problems with corruption. However, they are disproportionately less pervasive.
Because authoritarian states are internally less transparent and less competitive, they tend to rely more heavily on exchanging private goods for loyalty. This corrupt dynamic of authoritarian rule is universal; it exists regardless of culture or any liberal, international institutions. The tendency of authoritarian systems to use corruption as a survival tool is not going to change any time soon. In fact, in the post-Cold War era, it has only intensified (Figure 2).
The things dictators require, and personally desire, to retain loyalty are more often than not the products of democracies: US dollars, euros, patents, real estate, art, and higher education. Some elites in every country are willing to lie, steal, or commit violence in exchange for these goods, but in authoritarian states, these elites are artificially concentrated and curated to enhance regime survival. To survive in office, authoritarians must continually consolidate and cull opposition within these groups. Anti-corruption campaigns are too often wielded as a weapon against real or perceived enemies in authoritarian states, rather than being used as a tool to build more efficient markets, impartially enforce laws, or support more representative government.
The catch-22 for authoritarians is that people everywhere are willing to commit to honest labor in exchange for these same goods. This is a comparative advantage of the free societies that create these goods. But opportunities for honest work and education in authoritarian states are too often limited and managed by corrupt political monopolies. As free societies work to uphold the impartial rule of law in a global economy, authoritarians increasingly depend on transnational networks of non-state actors, enablers in rule of law systems, and outright theft to obtain the goods necessary for survival. This dependence on illicit transnational networks is the authoritarian-corruption nexus' Achilles' heel. With a clearer understanding of the personalistic and kleptocratic foundations of modern authoritarianism, our understanding of the authoritarian-corruption nexus begins to take shape.
Understanding the Authoritarian-Corruption Nexus
Over half the world's countries are now less free than they were in 2015 (Figure 3). The global democratic recession disproportionately affects the United States and its largest trading partners. The authoritarian-corruption nexus is siphoning the life out of democracy and the rule of law.
The authoritarian-corruption nexus is a guiding concept for the fluid nature of economic criminality that is merged with and aided by authoritarian regimes that threaten the security of free societies. Every year, $300 billion in profits from illegal activities is laundered in the United States. (19) Globally, it is estimated that money laundering accounts for 5 percent of the world's gross domestic product. (20) Losses from intellectual property theft might be as high as $600 billion a year in the US alone. (21) Illicit flows out of poor countries are in the trillions. (22) Trade in counterfeit goods accounts for 2.5 percent of worldwide imports. (23) Organized crime and terrorism are multibillion-dollar enterprises.
The above estimates are useful but tend to inspire divergent efforts. A new conceptual framework is needed to bring public and private actors together in addressing these interconnected threats meaningfully and practically.
Beyond Great-Power Competition. The promises of liberal universalism have again proved Utopian, and deepening engagement with authoritarian regimes has been shown to increasingly feed the beast rather than tame it. Furthermore, the capacity of hegemonic stability to deal with fluid networks of economic criminality in a technologically globalized economy is quickly eroding.
The 2017 National Security Strategy names authoritarian states--China, Iran, North Korea, and Russia--as the most pressing threats to America's national security. (24) However, the growing convergence of non-state and state authoritarian networks is a new phenomenon. The authoritarian-corruption nexus has no coherent ideology, yet it directly threatens the institutions and norms of open and free societies.
Economic entanglement with authoritarian states must be scaled back, diversified, and diverted to states with the capacity and willingness to compete on a level playing field. Failing to disentangle will continue to introduce destabilizing security risks while intensifying the effects of economic inequality. (25) The opportunity costs of long-delayed investments at home and among rule of law allies create domestic tension, while the authoritarian-corruption nexus facilitates disparate, global threats to security such as nuclear proliferation, international terrorism, supply-chain risk, and media disinformation campaigns. (26)
The mistake free societies often make is to forget they are in their own driver's seat. (27) Similar to cars on a road, every rule of law system is unique, but they carry a common creed. Dictators, terrorists, and criminals are passengers tugging on the wheel, highwaymen pointing toward a dead end, or simply bomb throwers and pirates trying to disrupt and plunder. America must continue to restrain these unruly free riders while ensuring its own rule of law system does not veer into a ditch in the process.
National security policies that focus on counterbalancing and treat adversarial states as unitary actors are now just as ineffective as those that rely on diplomacy and liberal international institutions. Addressing the authoritarian-corruption nexus will require difficult choices, but it is the core challenge. New strategies and foreign policy tools must be developed to effectively counter these nontraditional threats.
Anonymity, Criminals, and Terrorist Organizations. Increased opportunities to obfuscate or anonymize economic transactions, identities, and information flows allow criminals and terrorists to contract out their respective networks to each other as necessary and increasingly borrow methods from each other. This is clearly demonstrated by the growing trend of "religiously pure" terrorist groups not only recruiting petty criminals who can move more freely across borders but also leveraging drug trafficking, gambling, and prostitution to finance their campaigns of terror. We also observe criminal groups (increasingly meeting online) developing their own ideologies and charities or conducting violent attacks on innocent civilians to instill fear and pursue political objectives.
When criminal and terrorist networks find a method that allows them to believe they are truly anonymous, they tend to become even more risk acceptant, as the likelihood of being caught and paying for their actions decreases. Examples of this type of behavior are observed in everyday places, such as internet comment sections, but it also occurs in emerging economic sectors, such as cryptocurrencies, which are specifically designed to allow anonymous monetary transactions.
Transnational criminals and terrorists clearly understand that rule of law systems tend to enshrine individual rights. Rights to private property and privacy protect individuals from the authoritarianism of mob or arbitrary rule. But adversarial authoritarian states see the strength of individual rights in free societies as an opportunity to hide or move value, often using the same methods or networks that criminals and terrorists do. When authoritarian, terrorist, and criminal networks converge, it is a marriage of convenience. It works because privacy is too often conflated with anonymity. This is incorrect. Confusion over the difference between privacy and anonymity often comes up in debates over beneficial ownership registries and the protection of online personal data.
Non-state actors are too often connected to authoritarian adversaries. To improve sanctions and dismantle the authoritarian-corruption nexus, clearer strategies for addressing issues regarding anonymity in trade, finance, and information are needed across the board.
Non-State Adversaries, Sanctions, and Technology. Transnational non-state adversaries view sovereignly as a tool rather than a barrier and treat anonymity as a commodity. These threats grow to meet demand. New technologies and the shift from traditional great-power ideological rivalry to market-based economic competition determines the demand curve. The result is a mash-up of licit and illicit networks that provides short-run benefits for some while exacerbating long-run national security risks.
The list of non-state operatives that prop up authoritarian regimes, pursue nefarious goals, or simply profit outside of the rule of law is fartoo longto list here. The premium on anonymity and the obfuscation of ownership in the authoritarian-corruption nexus means that (1) many actors are not known and may never be, (2) many may be suspect but not definitively involved, and (3) many may be unwitting or unintentional players. What should be done about this situation is an unavoidable, central question for policymakers.
Sanctions are an important tool, but they are less effective against non-state actors for two reasons: (1) State sovereignly means that law enforcement is ultimately a domestic action in every country, and (2) there is no globally agreed on designation of terrorist groups. For example, the United States has identified Hezbollah as a terrorist group for decades, but because some Latin American allies do not, Hezbollah can run businesses in America's backyard with all the privileges of being "legitimate" in that country. This unavoidable dynamic means that punitive actions against non-state actors often have the counter-effect of entrenching old and cultivating new networks of corruption designed to maintain access to US markets. Sanctions and law enforcement can easily disrupt and scatter non-state networks at home and abroad, but alone they will ultimately grow the authoritarian-corruption nexus, making it more creative, defiant, and bold.
Technologies, such as the internet and cryptocurrency, play an important role enabling the growth of the nexus, but they are not the root cause. Technologies are merely tools in a new theater of competition. Much like a hammer, they can be used to build wonderful things or wielded as a weapon; it depends on the user. Policies and efforts to develop and foster new technologies in the United States and other rule of law systems should be doubled, if not tripled.
Sanctions can always be fine-tuned, law enforcement will always desire greater resources, and technological development marches on. The largely unaddressed question is how a free society should go about increasing transparency in a way that respects the individual rights of a rule of law system in an environment of rapid technological advancements with global reach. To counter the novel threat posed by the authoritarian-corruption nexus, we must be prepared to alter the status quo by working to establish a new one: a more level playing field.
Approaches to Dismantling the Authoritarian-Corruption Nexus
The solutions to dismantling the authoritarian-corruption nexus reside in democratic capitalism, but they must first be identified and scrutinized. As the world's most powerful rule of law democracy, it falls to the United States to pave the way. America has always been a reluctant global leader, but as outlined earlier, this is not as much an ideological battle as it is a competition of governance systems: freedom and authoritarianism. Its battlefield is the world's first truly global economy. It is not as much a struggle for control of other nations or territory as it has been throughout much of history, but rather a fight to create a level playing field, strengthen the rule of law, and maintain the relative international peace and stability of the postwar era.
Measures of freedom provide a basis for predicting where deeper partnerships in dismantling the nexus will be more likely to produce positive long-term gains. It also provides an intuitive heat map for gauging the risks of conflict, threats to national security, and authoritarian-corruption nexus' origins. Traditional security threats will remain, and the United States must be prepared to defend against them, but the status quo will not hold in the post--Cold War global competition. New technologies and the speed of information, goods, and services create irreconcilable contradictions between rule of law and authoritarian systems that will continue to cause problems. These problems radiate from authoritarian states, corroding and corrupting hard-won gains in liberty over the past 70 years (Figure 4).
However, authoritarian systems are sovereign states. Whether free peoples want to admit it or not, authoritarians ultimately have "the right" to repress and kill their own people, build weapons systems, produce fake news, rig their own elections, or restrict the opportunities of their citizens--in their own lands. They do not, however, have the right to abuse the liberty of America's legal system in the commission of such acts.
Rule of law democracy is a road with no set destination. Authoritarianism is a destination with a plan to get there. Once authoritarianism gets somewhere it feels safe, it works to maintain its survival, rather than creating the rule of law foundations necessary for human flourishing. This is the inexorable fault line of a fundamentally different great-power competition. The battlefields are no less dangerous than in the past, but thankfully, the solutions and strategies necessary for victory reside more in economic and information exchanges than arms races and proxy wars.
The following policy proposals that conclude this report are not a destination. They are suggested road improvements. Anyone who drives in a city knows that road improvements are constant, often annoying, and easier to deride than celebrate. But drivers also know that without such repairs the commute to work gets only more difficult as conditions deteriorate.
Domestic Adjustments. The US should mitigate risk by promoting greater transparency and growing the formal economy.
Address the (Ab)use of Anonymous Shell Corporations. These legal entities are prolific in the United States and are a primary money laundering concern. Beneficial ownership transparency has been debated in Congress for over a decade. (39) There is no shortage of proposed solutions to the scourge of anonymous ownership, and there is bipartisan agreement that something should be done. Any solution should begin with a simple recognition that more information on the ultimate beneficial owner of any legal entity should be required to conduct business and financial transactions in the United States. The simplest approach to this would be to pass a law making it illegal to knowingly transact with an entity that does not have an identifiable human owner. In 2002 the Patriot Act banned transactions with shell banks, (40) and they practically disappeared around the world in a short time.
Federalize Treasury's FinCEN. FinCEN is a financial intelligence unit (FIU), (41) charged with identifying and tracking financial crimes. It is not designed for such a large and evolving task. In addition to FinCEN, each US state should have its own FIU for addressing geographically distinct issues in money laundering, other financial crimes, and information sharing between state-level public and private sectors and FinCEN.
Lift the Patriot Act Exemption on Real Estate. In 2002 the US Treasury temporarily exempted real estate closings and settlements from the basic anti-money laundering (AML) and countering the financing of terrorism (CFT) provisions of the Patriot Act. (42) This gap in AML and CFT countermeasures has led to the increasing use of real estate as a mechanism for illicit value storage while distorting market valuations. FinCEN and state-level FIUs would need to help the real estate sector develop standards and procedures in this realm, which will impose costs. But these costs are outweighed by the costs to American consumers in distorted market values and the security issues that arise when adversaries obtain physical properties in the US.
FinCEN has already begun to address this problem through what are known as geographic targeting orders (GTOs) that require the reporting of such information in high-value markets such as New York City and Miami. (43) Preliminary evidence regarding GTOs shows them to be remarkably effective. (44) One proposed solution is to make GTOs permanent and nationwide. However, lifting the temporary exemption of Patriot Act applications to real estate would essentially have the same effect.
Upgrade US Foreign Trade Zones. Known as "special economic zones" around the world, more than 200 US zones play a key role in global supply chains. (45) US zones are connected to at least 3,500 worldwide zones, many known as hotbeds for illicit trade. The United States should clearly identify problematic zones worldwide, develop more transparent standard operating procedures for its own zones, work to better educate the US public about the importance of trade zones, and work to grow the use of US zones to facilitate greater economic exchange according to the rule of law.
Reevaluate the Foreign Agents Registration Act Law. The Foreign Agents Registration Act (FARA) of 1938, originally designed to combat Soviet propagandists, has often been criticized as being selectively enforced and has not been significantly overhauled since 1966 (46) The applicability of FARA should be reevaluated in several concerning areas--particularly media, campaign finance, and university funding--but one simpler area would be for lawmakers to consider whether FARA applies to the institutional use of anonymous social media accounts, as the pervasiveness of anonymity is not only a core aspect of the authoritarian-corruption nexus but also a key role in foreign propaganda campaigns (the original target of FARA before it became more focused on financial ties). It may be time for social media giants to require all accounts be connected to an identifiable person in some way.
Give the Private Sector a Role in Anti-Corruption Efforts. Anti-corruption efforts too often seek to reduce the abuse of government power for private gain by creating more government power. The private sector plays an important role in anti-corruption. Growing the opposite of corruption--the use of earned power for public gain--requires the competitiveness of private actors under a common set of rules (in other words, democratic capitalism).
American companies that do business in countries with high levels of corruption should be rewarded for efforts to boost transparency and strengthen representative government in those places. Business partnerships with local nongovernmental organizations and media campaigns aimed at educating the public, as well as private or public partnerships geared toward practical steps at addressing issues of corruption in the markets those businesses cater to, are already squarely in the interests of those companies, but these actions should be more explicitly incentivized by US lawmakers. It may be time to reevaluate the Foreign Corrupt Practices Act's role in maintaining a level playing field and encouraging private firms to play a greater role in anti-corruption efforts. (47)
International Institutions. The US should consolidate post-Cold War gains in liberty through deepening partnerships with other democracies and prepare for the future by solidifying the legal basis for international norms regarding the rule of law and financial transparency. The amorphous nature of the authoritarian-corruption nexus and the fact that it has no coherent ideology means that rule of law states will need to deepen partnerships and create a formal center of cooperation.
The Group of Seven (G7). Formed during the Cold War to address economic problems among noncommunist industrialized nations. Current members are all highly developed democracies.
Formalize the group. Currently, the G7 has no formal charter or secretariat. The addition of Russia (G8), and its subsequent haphazard removal over the annexation of Crimea, has proved to divide rule of law states in various ways more than it has united them in its natural opposition to authoritarian systems of governance. This confusion over the direction and actions of the G7 can be remedied by formalizing the institution.
Make it exclusively for democracies. Rule of law systems tend to be more transparent, suffer from lower levels of corruption, and do not go to war with each other. Every rule of law system is different, but they share many commonalities. Identifying and codifying these in a charter would form a center for coordinating action and send a clear signal to the world that liberty is not compatible with authoritarianism.
Include a process for expulsion and ascension in the charter. Keeping the group small at first is important for two reasons: (1) It allows for a clearer determination of first principles, and (2) it provides a clearer understanding of what it takes to join or be kicked out. Because the rule of law is a road and not a destination, there will always be debates and backsliding concerning adherence to first principles. (48) A mechanism for expulsion from the charter would help in identifying, clarifying, and addressing such issues as they arise.
Financial Action Task Force (FATF). The FATF is the international anti-money laundering body established by the G7 in 1989.
Review the peer-review process. The current 38 member states are subject to years-long mutual evaluation reporting (MER) regarding money laundering risks. (49) The United States should push to provide faster and more focused reviews. The MER selection process is not necessarily applied systematically and often fails to keep pace with quickly developing global issues. One way to approach this would be to take one issue area, such as human trafficking or cryptocurrencies, and evaluate all members in a comparative report.
Address trade-based money laundering (TBML). FATF reviews are based on 40 recommendations. (50) They are periodically adjusted to reflect technological change (such as the proliferation of cryptocurrencies) and new techniques in money laundering (called "typologies"). FATF should explicitly define TBML and develop new recommendations based on addressing the risks it poses, as it is a foundational tool of the authoritarian-corruption nexus.
Things are not as dire as they may seem to some. What is needed is a new perspective and conceptual framework for understanding the current situation. In a global competition of governance systems not driven by grand ideologies or arms races, the old models simply do more to confuse our strategic thinking than to clarify it. The authoritarian-corruption nexus has no sovereign borders--no coherent ideology--and treating it as such will not work in dismantling it. The fight against authoritarianism and corruption is not a struggle for global domination, as many have been keen to characterize it. It is a fight for creating a more level playing field according to the rule of law, not by it.
The nexus is where authoritarian regimes knowingly and unknowingly collude with terrorists and criminals in a way that threatens international stability and can destabilize states founded on the rule of law. Dismantling the nexus does not require interfering with the sovereignty of other states. Rather, it requires recognizing that authoritarianism and liberty are not compatible and then taking steps to consolidate gains in liberty where they exist. Everyone has a role to play, and this is only the beginning.
About the Author
Clay R. Fuller is a Jeane Kirkpatrick Fellow at the American Enterprise Institute, where he focuses on authoritarian survival, corruption, and the means through which dictators, terrorists, and criminals use free markets to restrict freedom, sow discord, and legitimize their actions.
(1.) UN Conference on Trade and Development, "Trade Wars: The Pain and the Gain," news release, February 4, 2019, https://unctad.org/en/pages/PressRelease.aspx?OriginalVersionID=500.
(2.) Organisation for Economic Co-operation and Development, "Trade in Fake Goods Is Now 3.3% of World Trade and Rising," news release, March 18, 2019, https://www.oecd.org/newsroom/trade-in-fake-goods-is-now-33-of-world-trade-and-rising.htm.
(3.) Throughout the report the terms "authoritarianism," "dictatorship," and "autocracy" are used interchangeably.
(4.) This includes fascism, Nazism, communism, Islamic radicalism, Bolivarianism, socialism, Xi Jinping Thought, or Juche.
(5.) Barbara Geddes, Joseph Wright, and Erica Frantz, How Dictatorships Work (New York: Cambridge University Press, 2018).
(6.) National Institute on Drug Abuse, "Overdose Death Rates," January 2019, https://www.drugabuse.gov/related-topics/trends-statistics/overdose-death-rates.
(7.) Bryce Pardo and Peter Reuter, "China Can't Solve America's Fentanyl Problem," Foreign Affairs, January 2, 2019, https://www.foreignaffairs.com/articles/china/2019-01-02/china-cant-solve-americas-fentanyl-problem.
(8.) Rima Kawas, "To Address the Global Migration Crisis, We Need a Political Approach to SDG16," Diplomatic Courier, September 17, 2018, https://www.diplomaticourier.com/posts/to-address-the-global-migration-crisis-we-need-a-political-approach-to-sdg16.
(9.) Polaris, "The Facts," https://polarisproject.org/human-trafficking/facts.
(10.) New York Times, "Towers of Secrecy: Piercing the Shell Companies," February 7, 2015, https://www.nytimes.com/news-event/shell-company-towers-of-secrecy-real-estate.
(11.) Mark Warren, "Trust and Democracy," in The Oxford Handbook of Social and Political Trust, ed. Eric M. Uslaner (New York: Oxford University Press, 2018).
(12.) Emanuele Ottolenghi, State Sponsor of Terrorism: An Examination of Iran's Global Terrorism Network, testimony before the Subcommittee on Counterterrorism and Intelligence, House Homeland Security Committee, April 17, 2018, https://docs.house.gov/meetings/HM/HMos/20180417/108155/HHRG-115-HM05-Wstate-OttolenghiE-20180417.pdf.
(13.) Nicholas Eberstadt, "The Method in North Korea's Madness: A Monstrous Regime's Rational Statecraft," Commentary, January 2018, https://www.commentarymagazine.com/articles/method-north-koreas-madness/.
(14.) White House, "Press Briefing on the Attribution of the WannaCry Malware Attack to North Korea," news release, December 19, 2017, https://www.whitehouse.gov/briefings-statements/press-briefing-on-the-attribution-of-the-wannacry-malware-attack-to-north-korea-121917/.
(15.) Jason Arterburn, Dispatched: Mapping Overseas Forced Labor in North Korea's Proliferation Finance System, C4ADS, August 2, 2018, https://static1.squarespace.com/static/566ef8b4d8af107232ds3s8a/t/sbfc1b8ab8ao4sb4co408779/1543248819621/Dispatched.pdf.
(16.) Frank Vogl, "The Danske Bank Money Laundering Trail," American Interest, January 4, 2019, https://www.the-american-interest.com/2019/01/04/the-danske-bank-money-laundering-trail/; Derek Scissors and Daniel Blumenthal, "China Is a Dangerous Rival, and America Should Treat It Like One," New York Times, January 14, 2019, https://www.nytimes.com/2019/01/14/opinion/us-china-trade.html; and Gary J. Schmitt ed., Rise of the Revisionists: Russia, China, and Iran (Washington, DC: AEI Press, 2018).
(17.) Mancur Olson, Power and Prosperity: Outgrowing Communist and Capitalist Dictatorships (New York: Basic Books, 2000).
(18.) Katherine Zimmerman, America's Real Enemy: The Salafi-Jihadi Movement, Critical Threats Project at the American Enterprise Institute, July 18, 2017, https://www.criticalthreats.org/analysis/americas-real-enemy-the-salafi-jihadi-movement.
(19.) US Department of the Treasury, National Money Laundering Risk Assessment 2018, December 20, 2018, https://home.treasurygov/system/files/136/2018NMLRA_12-18.pdf.
(20.) UN Office of Drugs and Crime, "Money-Laundering and Globalization," accessed May 15, 2019, https://www.unodc.org/unodc/en/money-laundering/globalization.html.
(21.) Commission on the Theft of American Intellectual Property, Update to the IP Commission Report, February 27, 2017, http://www.ipcommission.org/report/IP_Commission_Report_Update_2017.pdf.
(22.) Global Financial Integrity, "Illicit Financial Flows to and from 148 Developing Countries: 2006-2015," January 28, 2019, https://www.gfintegrity.org/report/2019-iff-update/.
(23.) Organisation for Economic Co-operation and Development, "Governance Frameworks to Counter Illicit Trade: Executive Summary," March 1, 2018, http://www.oecd.org/gov/risk/governance-frameworks-to-counter-illicit-trade.pdf.
(24.) White House, National Security Strategy of the United States of America, December 18, 2017, https://www.whitehouse.gov/wp-content/uploads/2017/12/NSS-Final-12-18-2017-090S.pdf.
(25.) Nieves Zuniga, "Correlation Between Corruption and Inequality," U4, July 6, 2017, https://www.transparency.org/files/content/corruptionqas/Corruption_and_inequality_2017.pdf.
(26.) Modern technologies also allow for easier penetration of free societies, often referred to as "sharp power," which is why more robust transparency and education campaigns in democracies are needed. Christopher Walker, "What Is 'Sharp Power'?," Journal of Democracy 29, no. 3 (2018): 9-23, https://www.journalofdemocracy.org/article/what-sharp-power; US Department of the Treasury, National Proliferation Financing Risk Assessment 2018, December 20, 2018, https://home.treasury.gov/system/files/136/2018npfra_12_18.pdf; US Department of the Treasury, National Terrorist Financing Risk Assessment 2018, December 20, 2018, https://home.treasury.gov/system/files/136/2018ntfra_12182018.pdf; Ariane M. Tabatabai, "A Brief History of Iranian Fake News," Foreign Affairs, August 24, 2018, https://www.foreignaffairs.com/articles/middle-east/2018-08-24/brief-history-iranian-fake-news; Heather A. Conley, "The Kremlin Playbook: Understanding Russian Influence in Central and Eastern Europe," Center for Strategic and International Studies, October 13, 2016, https://www.csis.org/analysis/kremlin-playbook/?si3; and Jamie Fly, Laura Rosenberger, and David Salvo, "The ASD Policy Blueprint for Countering Authoritarian Interference in Democracies," Alliance for Securing Democracy, June 26, 2018, https://securingudemocracy.gmfus.org/the-asd-policy-blueprint-for-countering-authoritarian-interference-in-democracies/.
(27.) John Adams famously said, "Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself. There never was a democracy yet that did not commit suicide." Political suicide is a choice.
(28.) US Department of Justice, "Acting Manhattan U.S. Attorney Announces Historic Jury Verdict Finding Forfeiture of Midtown Office Building and Other Properties," news release, June 29, 2017, https://www.justice.gov/usao-sdny/pr/acting-manhattan-us-attorney-announces-historic-jury-verdict-finding-forfeiture-midtown.
(29.) US Department of Justice, "Mexican Businessman Sentenced to Federal Prison for Role in Los Zetas Money Laundering Scheme and Bribery" newsrelease, March 23, 2016, https://www.justice.gov/usao-wdtx/pr/mexican-businessman-sentenced-federal-prison-role-los-zetas-money-laundering-scheme-and.
(30.) Federal Bureau of Investigation, "Equine Crime: A Horse Farm of a Different Color," news release, June 28, 2013, https://www.fbi.gov/news/stories/equine-crime-a-horse-farm-of-a-different-color.
(31.) United States of America v. Internet Research Agency LLC, 18 F.3d 32 (4th Cir. 2018), https://www.justice.gov/file/1035477/download.
(32.) Financial Crimes Enforcement Network, "FinCEN Names ABLV Bank of Latvia an Institution of Primary Money Laundering Concern and Proposes Section 311 Special Measure," news release, February 13, 2018, https://www.fincen.gov/news/news-releases/fincen-names-ablv-bank-latvia-institution-primary-money-laundering-concern-and.
(33.) Frances Coppola, "Why the U.S. Treasury Killed a Latvian Bank," Forbes, February 28, 2018, https://www.forbes.com/sites/francescoppola/2018/02/28/why-the-u-s-treasury-killed-a-latvian-bank/#24d185e17adc.
(34.) US Department of Justice, "ZTE Corporation Agrees to Plead Guilty and Pay over $430.4 Million for Violating U.S. Sanctions by Sending U.S.-Origin Items to Iran," news release, March 7, 2017, https://www.justice.gov/opa/pr/zte-corporation-agrees-plead-guilty-and-pay-over-4304-million-violating-us-sanctions-sending.
(35.) Joel Schectman, "China Telecom Firm ZTE Removed from U.S. Trade Blacklist," Reuters, March 28, 2017, https://www.reuters.com/article/us-usa-china-zte/china-telecom-firm-zte-removed-from-u-s-trade-blacklist-idUSKBN16Z204
(36.) Steve Stecklow, Babak Dehghanpisheh, and James Pomfret, "Exclusive: New Documents Link Huawei to Suspected Front Companies in Iran, Syria," Reuters, January 8, 2019, https://www.reuters.com/article/us-huawei-iran-exclusive/exclusive-new-documents-link-huawei-to-suspected-front-companies-in-iran-syria-idUSKCN1P21MH.
(37.) BBC, "Huawei Arrest: China Demands Canada Free Meng Wanzhou," December 9, 2018, https://www.bbc.com/news/world-us-canada-46494935.
(38.) For information on Cuba, see John R. Bolton, "Remarks by National Security Advisor Ambassador John R. Bolton on the Administration's Policies in Latin America" (speech, Miami, FL, November 2, 2018), https://www.whitehouse.gov/briefings-statements/remarks-national-security-advisor-ambassador-john-r-bolton-administrations-policies-latin-america/; and Roger F. Noriega, "Iran's Influence and Activity in Latin America," testimony before the Subcommittee on the Western Hemisphere, Peace Corps, and Global Narcotics Affairs, Committee on Foreign Relations, US House of Representatives, February 16, 2012, https://www.foreign.senate.gov/imo/media/doc/Roger_Noriega_Testimony1.pdf. For information on Venezuela, see Kejal Vyas and Ryan Dube, "U.S. Chides Russia for Military Ad to Venezuela," Wall Street Journal, March 25, 2019, https://www.wsj.com/articles/u-s-chides-russia-for-military-aid-to-venezuela-11553553299; Amy Mackinnon, "Maduro vs. Guaido: A Global Scorecard," Foreign Policy, February 6, 2019, https://foreignpolicy.com/2019/02/06/maduro-vs-guaido-a-global-scorecard-map-infographic/; and Financial Crimes Enforcement Network, "Updated Advisory on Widespread Public Corruption in Venezuela," news release, May 3, 2019, https://www.fincen.gov/sites/default/files/advisory/2019-05-03/Venezuela%20Advisory%2oFINAL%20508.pdf. For information on the roles of non-state actors, see New York Times, "Money Laundering at Lebanese Bank," December 13, 2011, https://archive.nytimes.com/www.nytimes.com/interactive/2011/12/13/world/middleeast/lebanese-money-laundering.html?mcubz=o; US Department of the Treasury, "Treasury Idene tifies Lebanese Canadian Bank Sal as a 'Primary Money Laundering Concern,'" news release, October 2, 2011, https://www.treasury.gov/press-center/press-releases/pages/tg1057.aspx; and Victoria A. Greenfield et al., Human Smuggling and Associated Revenues: What Do or Can We Know About Routes from Central America to the United States?, RAND Corporation, April 22, 2019, https://www.rand.org/content/dam/rand/pubs/research_reports/RR2800/RR2852/RAND_RR2852.pdf. For information on Iran, see Alexander Pearson and Lewis Sanders IV, "Syria Conflict: What Do the US, Russia, Turkey and Iran Want?," Deutsch Welle, January 23, 2019, https://www.dw.com/en/syria-conflict-what-do-the-us-russia-turkey-and-iran-want/a-41211604; BBC, "Yemen Crisis: Why Is There a War?," March 21, 2019, https://www.bbc.com/news/world-middle-east-29319423; and Vivian Wang, "Manhattan Skyscraper Linked to Iran Can Be Seized by U.S., Jury Finds," New York Times, June 29, 2017, https://www.nytimes.com/2017/06/29/nyregion/650-fifth-avenue-iran-terrorism.html. For information on Russia, see Anders Aslund, Russia's Crony Capitalism: The Path from Market Economy to Kleptocracy (New Haven, CT: Yale University Press, 2019). For information on North Korea, see Dan De Luce, "U.N. Investigating Suspected North Korean Arms Dealers in Iran," NBC News, March 12, 2019, https://www.nbcnews.com/news/north-korea/u-n-investigating-sushpected-north-korean-arms-dealers-iran-n982016; and Patrick Winn, "How North Korean Hackers Became the World's Greatest Bank Robbers," PRI, May 16, 2018, https://gpinvestigations.pri.org/how-north-korean-hackers-became-the-worlds-greatest-bank-robbers-492a323732a6. Finally, for information on China, see Grant Clark, "What Is Intellectual Property, and Does China Steal It?," Bloomberg, December 4, 2018, https://www.bloomberg.com/news/articles/2018-12-05/what-s-intellectual-property-and-does-china-steal-it-quicktake; Will Doig, "The Belt and Road Initiative Is a Corruption Bonanza," Foreign Policy, January 15, 2019, https://foreignpolicy.com/2019/01/15/the-belt-and-road-initiative-is-a-corruption-bonanza/; and Amnesty International, "Up to One Million Detained in China's Mass 'Re-Education' Drive," September 24, 2018, https://www.amnesty.org/en/latest/news/2018/09/china-up-to-one-million-detained/.
(39.) Liz Confalone, "A Brief, Recent History of Beneficial Ownership Transparency on the Global Agenda," Global Financial Integrity Decembers, 2014, https://www.gfintegrity.org/brief-recent-history-beneficial-ownership-transparency-global-agenda/.
(40.) USA Patriot Act of 2001, 31 USC [section] 1010.630 (2001); and US Securities and Exchange Commission, "Anti-Money Laundering (AML) Source Tool for Broker-Dealers," October 4, 2018, https://www.sec.gov/about/offices/ocie/amlsourcetool.htm#6.
(41.) Financial Crimes Enforcement Network, "The Egmont Group of Financial Intelligence Units," accessed May 15, 2019, https://www.fincen.gov/resources/international/egmont-group-financial-intelligence-units.
(42.) Stephanie Saul, "Treasury Urged to Scrutinize Foreign Real Estate Buyers for Money-Laundering Risk," New York Times, March 10, 2015, https://www.nytimes.com/2015/03/11/business/treasury-urged-to-scrutinize-foreign-real-estate-buyers-for-money-laundering-risk.html.
(43.) Financial Crimes Enforcement Network, "FinCEN Reissues Real Estate Geographic Targeting Orders and Expands Coverage to 12 Metropolitan Areas," news release, November 15, 2018, https://www.fincen.gov/news/news-releases/fincen-reissues-real-estate-geographic-targeting-orders-and-expands-coverage-12.
(44.) Sean Hundtofte and Ville Rantala, "Anonymous Capital Flows and U.S. Housing Markets" (working paper, University of Miami Business School, Miami, FL, July 25, 2018), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3186634&mod=article_inline.
(45.) Foreign-Trade Zones Act of 1934, 19 USC [section] 81 (1934).
(46.) US Department of Justice, "Foreign Agents Registration Act," accessed May 15, 2019, https://www.justice.gov/nsd-fara.
(47.) US Securities and Exchange Commission, "Spotlight on Foreign Corrupt Practices Act," February 2, 2017, https://www.sec.gov/spotlight/foreign-corrupt-practices-act.shtml.
(48.) This is a common problem in many international organizations that do not include clear mechanisms for expulsion, especially NATO and the European Union.
(49.) Financial Action Task Force, "FATF Issues New Mechanism to Strengthen Money Laundering and Terrorist Financing Compliance," news release, February 22, 2013, http://www.fatf-gafi.org/publications/fatfrecommendations/documents/fatfissuesnewmechanismtostrengthenmoneylaunderingandterroristfinancingcompliance.html.
(50.) Financial Action Task Force, "International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation--the FATF Recommendations," news release, February 16, 2012, http://www.fatf-gafi.org/publications/fatfrecommendations/documents/internationalstandardsoncombatingmoneylaunderingandthefinancingofterrorismproliferation-thefatfrecommendations.html.
In a February 2019 report, the United Nations Conference on Trade and Development declared that "the tit for tat moves of the trade giants [US and China] are likely to have a domino effect beyond the countries and sectors targeted. Tariff increases penalize not only the assembler of a product, but also suppliers along the chain." (1)
A policy of (c)overtly advocating for the restoration of lands formerly belonging to a country is Russian President Vladimir Putin's stance toward Belarus, Estonia, Georgia, Ukraine, and elsewhere. It is China's policy on Hong Kong, the South China Sea, Taiwan, and Tibet. It is inherently destabilizing and holds deep implications for international politics, people, and businesses.
Intellectual Property Theft
Over 75 percent of all seized counterfeit goods originate from China. Over 75 percent of the patent holders for those goods are American or European. (2) These statistics by the Organisation for Economic Co-operation and Development say nothing of the long-term effects of forced technology transfers in defense-related industries.
The debate over a border wall in the US is fueled by large numbers of economic immigrants fleeing the authoritarianism, corruption, and declining rule of law in their home countries. Similar forced migration events in Syria and Libya have led to still-developing political problems in Europe.
China, Iran, North Korea, Russia, and Venezuela are all at various stages of developing their own "sovereign" cryptocurrencies, designed specifically to allow for alternative payments outside of established financial systems. If successfully developed, these monetary systems would allow authoritarian states to make and accept payments outside the scope of US and international sanctioning authorities.
State-driven technology projects can produce results faster than the individual rights and innovation-driven processes of democratic capitalism. However, authoritarian state capitalism ultimately becomes inflexible, unimaginative, and disastrously corrupt. Technological innovation can be better fostered in the US and its rule of law allies by leading the charge to strengthen intellectual property rights worldwide.
The (Ab)use of Anonymous Shell Companies
Today, the most common financial tool that authoritarian states, TCOs, terrorist groups, and other nexus actors use to circumvent US authorities and funnel the money needed for their destabilizing actions is the anonymous shell company.
Below are descriptions of several recent, high-profile cases that demonstrate the extent to which the reach of the authoritarian-corruption nexus now spans the globe, affecting financial institutions and their customers in established democracies.
Iranian Government Real Estate Money Laundering. A verdict in June 2017 found Iran guilty of using a 36-story office building in Manhattan, worth at least $500 million, as a source of millions of dollars of income that was laundered to the Iranian government. (28) The setup violated sanctions laws by distributing rental income from the building to Bank Melli, the national bank of Iran, through two shell companies, Assa Company Limited and the Alavi Foundation.
Mexican Drug Cartel Funds Laundered Through Shell Companies in Horse Racing Industry. Los Zetas, a notoriously brutal Mexican drug cartel, used shell companies in the quarter horse industry in New Mexico, Oklahoma, and Texas to launder drug money. (29) The cartel laundered more than $22 million of drug money back to Mexico over three years. (30) Jose Trevino Morales, the brother of top-ranking officials in the cartel, was sentenced to 20 years in prison in 2013 for his role in the laundering scheme.
Internet Research Agency Used Shell Companies to Interfere in 2016 Presidential Election.
In 2018, the Mueller probe into collusion between the 2016 Trump presidential campaign and Russia indicted the Internet Research Agency, its financer Yevgeny Prigozhin, two Russian companies, and 12 Russian nationals for conspiring to interfere in political and electoral processes in the United States beginning as early as 2014. (31) The Internet Research Agency violated US law by operating social media accounts using stolen identities of Americans to influence public opinion in favor of presidential candidate Donald Trump and against his opponent Hillary Clinton. The Internet Research Agency used shell companies to hide its funding and agenda, employing them as intermediaries for funding between the indicted Russian companies, Concord Catering and its parent company Concord Management and Consulting LLC, and the Internet Research Agency.
Latvian Bank Evades US Sanctions on North Korea Using Shell Companies. ABLV Bank, previously one of the largest private banks in the Baltic region, was accused of money laundering by the Treasury's Financial Crimes Enforcement Network (FinCEN) in 2018. (32) FinCEN argued that the majority of ABLV Bank's customers were high-risk shell companies registered outside of Latvia and that the bank had facilitated high-level criminal activity on several occasions. (33) These include the theft of over a billion dollars from three Moldovan banks and the facilitation of public corruption by allowing politically exposed persons to use the bank through shell company accounts. Most damning, FinCEN accused ABLV Bank of violating US sanctions against North Korea by "[facilitating] transactions for parties connected to U.S.- and UN-designated Democratic People's Republic of Korea (DPRK or North Korea) entities." Under the Patriot Act, FinCEN banned US banking relationships with ABLV, causing a bank run, which the Latvian government responded to by freezing the bank's assets.
Chinese Telecommunications Companies Use Shell Companies to Violate US Sanctions. ZTE Corporation, a Chinese telecom giant, was accused of and later pleaded guilty to shipping items originating in the US to Iran.34 ZTE allegedly had a systematic plan to export US technology to Iran using shell companies, shipping Iran millions of dollars' worth of soft- and hardware from US companies without first obtaining the correct license to do so, and as such violating economic sanctions levied by the US against Iran. (35)
Huawei, another Chinese telecom company and the largest supplier of telecommunications network equipment globally, also fraudulently sold telecom equipment to Iran by employing a shell company. (36) Authorities in the US allege that Huawei's Chief Financial Officer Meng Wanzhou concealed Huawei's close ties with Skycom, a Hong Kong-based company that sold telecommunications network equipment in Iran. Meng was able to deceive international banks to clear transactions with Iran, which violated US economic sanctions, by claiming that Huawei, Skycom, and a shell company, Canicula Holdings Limited, were independent. Canicula had an office in Syria and operated there on behalf of Huawei. Meng was arrested in Canada in December 2018 for extradition to the United States, and the arrest has strained US-China relations. (37) The US Department of Justice's investigation is ongoing.
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|Author:||Fuller, Clay R.|
|Publication:||AEI Paper & Studies|
|Date:||Jul 1, 2019|
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