The Despot's Guide to Wealth Management

On the International Campaign against Grand Corruption

J. C. Sharman

• Publisher: Cornell University Press
• Year: 2017
• ISBN:
  9781501708435
• Topic: Politics & International Relations
• Subtopic: Political Corruption & Misconduct
• Index: Politics & International Relations

An unprecedented new international moral and legal rule forbids one state from hosting money stolen by the leaders of another state. The aim is to counter grand corruption or kleptocracy ("rule by thieves"), when leaders of poorer countries—such as Marcos in the Philippines, Mobutu in the Congo, and more recently those overthrown in revolutions in the Arab world and Ukraine—loot billions of dollars at the expense of their own citizens. This money tends to end up hosted in rich countries. These host states now have a duty to block, trace, freeze, and seize these illicit funds and hand them back to the countries from which they were stolen. In The Despot's Guide to Wealth Management, J. C. Sharman asks how this anti-kleptocracy regime came about, how well it is working, and how it could work better. Although there have been some real achievements, the international campaign against grand corruption has run into major obstacles. The vested interests of banks, lawyers, and even law enforcement often favor turning a blind eye to foreign corruption proceeds. Recovering and returning looted assets is a long, complicated, and expensive process.

Sharman used a private investigator, participated in and observed anti-corruption policy, and conducted more than a hundred interviews with key players. He also draws on various journalistic exposés, whistle-blower accounts, and government investigations to inform his comparison of the anti-kleptocracy records of the United States, Britain, Switzerland, and Australia. Sharman calls for better policing, preventative measures, and use of gatekeepers like bankers, lawyers, and real estate agents. He also recommends giving nongovernmental organizations and for-profit firms more scope to independently investigate corruption and seize stolen assets.

1

THE RISE OF THE ANTI-KLEPTOCRACY REGIME

Political leaders by definition have power over the use of public money. Perhaps unsurprisingly, many take this opportunity to transfer this money from state accounts to their own, behavior that according to one common definition, the abuse of public power for private gain, constitutes corruption. Aside from direct theft, senior officials may enrich themselves at the expense of the public interest by receiving or extorting bribes, trading in influence, or appointing their friends and families to sinecure posts. Corruption is a difficult problem to address at the best of times, but most of all when the state apparatus used to enforce laws is controlled by people dedicated to breaking them. In the absence of a world government, how can those at the apex of political power in sovereign states ever be punished for their corruption?

In responding, this chapter has three main aims. The first is to flesh out the brief discussion of kleptocracy in the Introduction by providing a portrait of one of the most publicized and influential early examples of kleptocracy, that of Mobutu Sese Seko in the Congo (renamed Zaire 1971–1997). This sketches out the corruption of Mobutu and his clique while they were in power from 1965 to 1997 and the unsuccessful efforts to recover the loot held abroad after their fall.

The second and most important aim is to show how the global anti-kleptocracy norm and the resulting regime came into being. Though there are many reasons, two in particular stand out. The first is the incremental process of building a policy consensus concerning why measures designed to foster growth in poor countries had failed. Beginning in the 1990s, policy makers and others became convinced that corruption prevented development, and hence that fighting corruption was necessary to reduce poverty. Even more importantly, at around the same time the sudden end of the Cold War undermined the security rationale for the United States and other Western powers to support kleptocratic client governments in the Third World.

For different reasons, a wide variety of intergovernmental organizations, NGOs, and governments from Africa, Asia, and Latin America stressed that corruption implicated rich countries as well as poor, because funds looted from poor countries tended to end up in rich ones. The United States independently had previously sought to co-opt other governments to join its attempts to tackle cross-border corruption. Looking at havens for the proceeds of corruption, rather than just corrupt governments as such, put the issue of returning stolen assets on the agenda. Most of the policy tools for tracing and confiscating illicit funds were already at hand, thanks to unrelated efforts as part of the “war on drugs” and broader efforts to combat money laundering. The story of intertwined normative and policy change at the global level in this chapter provides context for the subsequent analysis of how well these rules work at a national level in the later chapters on the United States, Switzerland, Britain, and Australia.

The final part of the chapter briefly summarizes the main features of the resulting system of rules. It focuses on how the central elements of the global anti-kleptocracy regime have been institutionalized in law and practice by considering two important examples. The first is the United Nations Convention Against Corruption, the primary formal statement of the underlying anti-kleptocracy norm. The second is the most specifically relevant international organization, the joint UN–World Bank Stolen Asset Recovery Initiative (StAR), designed to mobilize both technical assistance and moral pressure to combat kleptocracy.

The Scope of the Argument

Although most of the financial flows associated with grand corruption tend to go from poor countries to rich ones, it is important to highlight exceptions. Clearly, senior officials in developed states are also prone to corruption.¹ Former French president Jacques Chirac was convicted of embezzlement in 2011, and his successor Nicholas Sarkozy has been investigated for corruption offenses.² Former German chancellor Helmut Kohl was placed under criminal investigation in connection with kickbacks from a Saudi arms deal that were laundered as undeclared campaign donations to the Christian Democratic Union, though this matter was settled without a conviction.³ Most of the Italian political class was found to have been corrupt in a series of investigations in the early 1990s.⁴ At one stage more than half of the members of the legislature were under indictment. In an ironic reversal in light of later events during the Arab Spring, former prime minister Craxi received refuge from Ben Ali in Tunisia so as to avoid a twenty-seven-year jail term. Craxi’s “defense,” both before and after his flight, was that although he was taking bribes, so was everyone else. More recently, Silvio Berlusconi avoided jail on corruption charges thanks to a series of legal amendments to the criminal code introduced by his own government.⁵

Across the Atlantic, the term “money laundering” was first used in connection with the criminal conspiracy of the Nixon administration in the Watergate scandal.⁶ Some US states have had endemic problems with corrupt senior officials. For example, the Senate seat vacated by Barack Obama was filled at the discretion of Illinois governor Rod Blagojevich, who was wiretapped musing, “I’ve got this thing, and it’s fucking golden. I’m just not giving it up for fucking nothing.” In December 2011 he was sentenced to fourteen years in prison for corruption offenses. Former Canadian prime minister Brian Mulroney accepted paper bags stuffed with $1,000 notes from an Airbus lobbyist in 1993 and 1994. Despite denying the payments under sworn testimony and failing to declare these cash payments of C$ 225,000 on his income tax return, Mulroney successfully sued the Canadian government when it alleged corruption.⁷ Japan and South Korea have also had major corruption scandals at the highest level of government.⁸ The list could be extended much further, but the point is that leaders in many rich countries also have been engaged in serious corruption offenses.

Why, then, the disproportionate focus on corrupt leaders from Africa, Asia, eastern Europe, and Latin America in this book? One answer is that recent corruption among senior officials in North America and western Europe does not seem to have had the same effect on the economy in general and hence the welfare of their citizens. Reasoning from the analogue of post-Communist Russia, one former CIA official explained to Congress what the United States would look like if it were a kleptocracy:

It would be necessary to have massive corruption by the majority of the members of Congress as well as by the Departments of Justice and Treasury, the agents of the FBI, CIA, DIA, IRS, Marshal Service, Border Patrol, state and local police officers, the Federal Reserve Bank, Supreme Court justices, US District Court judges, support of various Organized Crime families, the leadership of the Fortune 500 companies, at least half the banks in the US, and the New York Stock Exchange. This cabal would then have to seize the gold in Fort Knox and the federal assets deposited in the entire banking system. It would have to take control of the key industries … and claim these items to be their private property…. This unholy alliance would then have to spend 50% of its billions in profits to bribe officials that remained in government and be primary supporters of all the political candidates…. The President would not only be aware of such activities but would support them.⁹

While all political systems probably suffer from some form of corruption, it is untrue and unhelpful to say that all such systems are equally corrupt.

A last caveat is that although the focus here is on looted wealth that is moved across borders into major financial centers, a lot of this wealth is spent at home. Aside from the palaces and opulent domestic living, kleptocrats may dissipate much or even most of the money they steal in maintaining the support of subordinates, perhaps especially in the army and police. Their political edifice is usually built on a network of patronage and payments that demands a constant supply of money and favors, often involving a subcontracting out of bribe-taking opportunities.¹⁰

What Does Kleptocracy Look Like? Mobutu in Congo/Zaire

The case of Mobutu Sese Seko in Zaire (now the singularly misnamed Democratic Republic of the Congo) is an iconic instance that powerfully shaped popular and policy perceptions of kleptocracy and was important in putting this issue on the international policy agenda. In particular, this case is notable in fixing the notion of a link between the rapacious predation of the ruler and his family in stripping out the national patrimony, the baroque opulence of their lifestyle, and then the extreme poverty of those they ruled and the dysfunctionality of the state. The emerging policy narrative interpreted the former as the cause of the latter. As discussed later in this chapter, kleptocracy came to be seen as an extreme form of the bad governance that was held to be responsible for a wide range of development failures. This case also highlights a change in the international landscape that was crucial for bringing kleptocracy on to the agenda: the end of the Cold War. As with the foibles of other reliably anti-Communist US client dictators like Ferdinand Marcos in the Philippines and the Duvaliers in Haiti, before the end of the East-West confrontation the grand corruption of Mobutu and his inner circle had been ignored in favor of overriding geopolitical concerns.

Mobutu came to power in 1965 promising to live on a soldier’s salary, but during his thirty-two-year rule he instead set up a system referred to as “a kleptocracy to end all kleptocracies.”¹¹ Born Joseph-Désiré Mobutu, in an indication of his vaunting ambition and self-regard, Mobutu adopted the full name “The warrior who knows no defeat because of his endurance and inflexible will and is all powerful, leaving fire in his wake as he goes from conquest to conquest” (Mobutu Sese Seko Kuku Ngbendu Wa Za Banga). Congo, renamed Zaire from 1971 to 1997, became synonymous with both grand corruption and poverty.

Mobutu and his family and associates benefited from a wide range of corrupt schemes.¹² The most direct routes of enrichment were special presidential budget items in the national accounts. At one stage, Mobutu’s personal allocation comprised 17 percent of the total budget, more than the totals spent on health, education, and welfare combined.¹³ There were additional direct transfers from the central bank into Mobutu’s personal foreign accounts. Western governments paid bribes to Mobutu without even pretending they were part of a development package (these were put at $150 million in the 1960s).¹⁴ The state-owned diamond mine was reportedly instructed to divert 30 percent of its proceeds to private accounts, while there were other ad hoc sales of large quantities of copper and cobalt in which all the proceeds were corruptly diverted. Mobutu and his inner circle routinely demanded and received bribes and kickbacks from domestic and foreign investors. A campaign of nationalization in the early 1970s saw prime assets and key monopolies end up as the private possessions of the ruling clique. Borrowings from foreign private lenders, governments, and the Bretton Woods institutions were prone to expropriation, and development and military aid was similarly vulnerable.¹⁵

The politics of the national debt was particularly incendiary in the way it implicated Western banks and governments in the despoiling of the country and the illicit enrichment of its elite. Until the mid-1970s the Mobutu regime borrowed extensively from private Western lenders, the money often frittered away on graft-plagued white elephant projects. Realizing the slim chances of ever getting their money back, these banks stopped lending. Yet Zaire’s foreign debt ballooned through the 1980s as the World Bank and the International Monetary Fund stepped into the breach. Despite the serious and sometimes public misgivings of senior staff from both institutions, US and French political pressure ensured that new loans were granted under repeated pretenses of reform and restructuring.¹⁶ Mobutu’s willingness to let Zaire be used as a base for various anti-Communist guerrillas and covert actions was seen to far outweigh his venality and ensured that loans and direct aid payments kept on flowing. By 1986, debt servicing took 43 percent of the national budget.¹⁷ After billions of dollars of development lending, annual GDP per capita stood at $130 in 1994.¹⁸

The Search for Mobutu’s Loot

In the wake of his fall in 1997, the new government set up an Office of Ill-Gotten Gains to recover the assets stolen by Mobutu and his coterie. The search began in the newly renamed Congo but quickly extended abroad. The result was almost complete disappointment. Even though these efforts predated many of the new anti-kleptocracy measures discussed later in this chapter, the roadblocks encountered still stand today as a reminder of the difficulties facing a government from the developing world looking to recover illicit wealth transferred abroad. The problems encountered in the search for Mobutu’s foreign wealth have plagued many other similar efforts.

The French government was completely uncooperative from the start, despite Mobutu’s high-profile properties there. From before the fall of Mobutu right up to the present day, France has been a reliably unfussy host for the proceeds of grand corruption from Africa.¹⁹ The Swiss and Belgians, however, were initially willing to help. Journalist Michela Wrong recounts that freezes were placed on the assets of the former Zairean president as well as those of eighty of his senior officials. Interviewing a representative from the Swiss police, Wrong recounts a problem that would sound familiar to those searching for many other kleptocrats’ wealth: “We need more information and it has never come from Kinshasa…. They must at least show us there is some link between these assets and supposed crimes, a suspicion, if not actual proof, for the dossier to go further.”²⁰ The information never came, and the freezes lapsed. A search of Swiss accounts that was expected to come up with $8 billion instead netted only $4 million.²¹ Why had the process failed, when Mobutu’s corruption was so blatantly obvious, when at least some of the assets like properties were not hard to find, and when at least for a time some important host country governments were keen to help?

The point about a lack of necessary information from the victim country to establish a link between particular crimes and particular assets would be repeated again and again in subsequent cases. As discussed in relation to the Mubarak money in chapter 4, matters sometimes descended into an acrimonious exchange of charge and countercharge: the victim country complains of a lack of cooperation from the host country, and the host complains about a lac...

Table of contents

• Preface
• Introduction: Power and Money
• 1. The Rise of the Anti-Kleptocracy Regime
• 2. The United States: A Superpower Stirs
• 3. Switzerland: The Unlikely Crusader
• 4. The United Kingdom: Development, or Sleaze and the City?
• 5. Australia: In Denial
• Conclusion: Making Them Pay
• Notes
• Bibliography
• Index