A Quick Primer on the Role of the U.S. in Foreign Kleptocracy and Corruption
We have a yearly trillion dollar problem, according Global Financial Integrity’s research. It’s not the national debt. Add to that 3.6 million deaths per year, by the One Campaign’s calculations. But not from war or genocide. The problem? Foreign corruption. If you’re thinking, “It happens over there”, that’s where you’re wrong. It’s not just their problem. It’s our problem. But shouldn’t we take care of corruption at home first? The problem is that we are the world’s home for corruption. The corrupt inside our borders use the same system as the corrupt outside our borders.
So, how’s it done? Potential sources for corrupt funds include development and multinational corporations, to name a few. Funds obtained corruptly often originate in the U.S., but the sources do not usually intend for them to be corrupted. Money gets corrupted when it’s used as a side payment, bribe, or kickback. Foreign officials can require businesses to work with a “consultant” who facilitates bribery. But what happens “over there” doesn’t stay “over there.”
Money corrupted in the third world often boomerangs to the first world to escape suspicion. Kleptocrats use developed markets to preserve stolen wealth. (Kleptocracy means “rule by thieves.”) Imagine seeing Hitler’s name on a deposit slip. Corrupt money must be shrouded in secrecy, hidden in a corporation masking the owner’s identity.
An advisor creates an anonymous corporation in Delaware, South Dakota, or Nevada. For more encryption, corporations are established by other corporations. Money might land in a bank, wealth management, luxury real estate, or personal aircraft. Laws encourage financial services to know-their-customers, but the real estate sector and airplanes are largely exempt from these laws.
In one case, Teodoro Nguema Obiang Mangue of Equatorial Guinea bought Malibu mansions and Italian sports cars on $6,000 a month. But he could have done the same thing as a criminal U.S. citizen. How? Through Sweet Pink, Beautiful Vision, and Unlimited Horizon. These are U.S. corporations his attorneys formed to get money inside U.S. banks, not names of designer drugs.
The DOJ/FBI, Homeland Security, Treasury, and the SEC are working to stop this. Yet, the total penalties are a drop in the ocean of illegal money flowing annually out of the third world. So, what needs to be done? Anti-corruption law enforcement is as important as development and should receive comparable funding. Curbing corruption could create wealth many times over from more global consumers, benefitting everyone. Anti-corruption law enforcement is investment.
The U.S. should lead in closing the loopholes. The Foreign Corrupt Practices Act needs to be amended to hold foreign officials liable. Currently, anti-corruption units must wait until a foreign official uses the U.S. monetary system to seize corrupt assets. Congress should pass the Incorporation Transparency and Law Enforcement Assistance Act, ending anonymous corporate ownership. Transparent ownership prevents investigative dead ends and keeps taxpayers from bankrolling criminals. Amend the U.S. Patriot Act to make sure aircraft and real estate transactions disclose buyer/owner identities. Real estate price increases from criminal behavior create unnecessary risk and drive out homebuyers. Fix the IRS Qualified Intermediary Program, that allows kleptocrats to bring money into the U.S. anonymously through foreign banks. Kleptocrats and criminals should not be able to hide behind a veil of secrecy to abuse the U.S. financial system.
The ball is in our court. How long will our participation in corruption be tolerated? Perhaps not much longer. We’ve seen Arab Spring and other anti-corruption revolutions across the globe leave instability and terrorism. Worse still are kleptocracies that feed off corruption, abuse human rights, and support crime and military aggression. We enable them. Is one more dirty dollar worth risking the safety and lives of friends, loved ones, and humanity?
Ted C. Moorman has a Ph.D. in finance and has published peer-reviewed articles in a number of prestigious academic finance journals. He has written on topics ranging from portfolio optimization and trading strategies to corporate governance and foreign exchange. He recently interviewed fifteen experts on kleptocracy and foreign corruption in the fields of international business, development, law enforcement, foreign policy, global compliance, and investigative journalism. In a recent article, he provides a general framework for understanding illicit financial systems and demonstrates why foreign corruption is the most devastating financial crime. Combining his subject matter expertise on data analytics and illicit financial systems, he is considering developing data analytical software to attack global illicit financial networks.