• Alex Ralph, CJL

Frank Vogl on Corruption’s Role in Russia’s War Against Ukraine

By Alex Ralph, Editor, Corruption in Fragile States Blog


On March 18, I spoke to Frank Vogl to better understand the linkages between corruption and Russia’s invasion of Ukraine. Frank, a co-founder of Transparency International and the Partnership for Transparency Fund, has come out with a prescient new book, The Enablers: How the West Supports Kleptocrats and Corruption—Endangering Our Democracy. Our wide-ranging interview (lightly edited for clarity and length) ended with a question that Frank had gently prodded me to ask earlier in our talk: “If all of this corruption is so wrong, why hasn’t the international community done anything about those who enable it?” I found Frank’s answer—and indeed his whole interview—clear-eyed and deeply humane, a cocktail equal parts hair-pulling and inspiring. Hope you, our CJL readers, enjoy it.

Alex Ralph, Editor, Corruption in Fragile States Blog

 

Alex: Can you say more about what role you see corruption playing in Russia’s war against Ukraine?

Frank: Two things have happened because Putin was able over twenty years to cement his control and to organize his control system through a system of corrupt payoffs. First, he had to feel that he has absolute trust and total loyalty from the people closest to him. They may not be the most competent, but they are certainly the most loyal. When you replace any attempt at a meritocracy with a sycophancy, then corrupt people become head of the intelligence services, become head of the military, become head of the security systems. And now they’re all being deployed by Putin to play out his, I suppose, his dream, his vision of Greater Russia with Ukraine as the victim.

And second, at the same time, he called on various of the so-called oligarchs, the businesspeople who have direct access and loyalty to him, to deploy, if necessary, their own financed intelligence services. And they say yes, they have no choice. And they are being deployed in one form or other in Ukraine as well. So it’s not a typical sort of corruption that Putin is somehow bribing people to do his thing. And now he is deploying the corrupt system that he has built to unleash a nightmare on the people of Ukraine.

Who really has power, who gets the payoff, who gets the control? It’s totally opaque. And what’s so incredible is that you have people sitting in Washington and elsewhere claiming they know what Putin is thinking. And they haven’t got a clue. None of us have. Because this is a hermetically sealed system that Putin has created over many years.

"If we do not clamp down on these guys on Wall Street, how on earth are we going to clamp down on the guy in the Kremlin?"

Alex: The title of your most recent book, The Enablers, is very deliberately chosen. Whom do you mean by “enablers”? And why do they matter for understanding the scope of global systems of corruption?

Frank: It’s one thing for Vladimir Putin and other corrupt government leaders to know how to steal from their people. They take their taxes, they steal from government enterprises, and they inflate public contracts so that they can skim off the top. But what do they do with the cash they steal? They have a real problem. Because if they ever lose power, their successors will inevitably not only go after them but they will go after their wealth.

So, the whole group of sycophants who are at the top of the system, whether they’re in business or the intelligence service, all of these people who make a great deal of money from their thefts, all face the same problem. They’ve got to get their money out. And that takes skill. And the skill can be found in Wall Street, in London, and in Zurich. And what is that skill? It’s legal skill. It’s banking skill. It’s auditing skill. It’s investment skill. These skills that do not exist inside the autocratically run countries, or not to a degree that is sufficient for these people to get their money out.

Who are the enablers? They are precisely these people who know how to fix it. They aid and abet the transfer of dirty money into safe Western investments. And I argue if we do not clamp down on these guys on Wall Street, how on earth are we going to clamp down on the guy in the Kremlin?

Alex: In our most recently published post, Oksana Huss and Joseph Pozsgai-Alvarez argue that we should understand Russia as deploying “strategic corruption” to achieve its national interests and that Russia’s use of strategic corruption is a grave human security and human rights threat. Do you agree with Huss and Pozsgai-Alvarez’s assessment? And how in your experience should we understand the uses and effects of Russian strategic corruption?

Frank: I’d like to just throw something in before I answer that. In the 1980s, I had the opportunity to travel to dozens of developing countries. And what was obvious was that in many, many places poverty was far greater than it needed to be because governments were stealing public revenues. And what became a burning passion for me and still is, is that for every act of corruption there is a victim. One of the greatest victims are hundreds of millions of people who were trapped in far worse poverty, or in refugee situations, or in other intolerable humanitarian situations directly because of abuse of public office by their government leaders. I throw that in because if we forget for one minute that there are victims of corruption, we start to look at corruption as just another part of the political landscape—using lots of good jargon about strategy and this that and the other—and we forget the humanitarian and the human dimension.

Now to your question. All of today’s authoritarian regimes are led by people who steal from their people. And, therefore, the victims in the first instance of their misrule are their own citizens. Including the citizens of Russia.

The second point is that they steal for two reasons. One of them is of course to increase their personal wealth. But two, it is to ensure that they can pay armies of sycophants to secure their loyalty over and above government pay. And the longer they stay in power, the more they entrench the system of theft that they perpetuate. Because their position in power depends on them keeping on fueling their supporters. That’s exactly the situation in Russia today. And it’s the situation, by the way, in many other countries.

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Alex: You’ve written that countries like the US, Canada, Singapore, and the UAE are beginning to make anti-corruption efforts, specifically countering illicit finance, a greater priority. And yet you also note that despite these efforts, “their combined impact is modest when seen against the full magnitude of international grand corruption and money laundering today.” What actions do you think the international community could and should undertake to combat illicit finance?


March 2022 G7 Summit at NATO Headquarters. Source: Wikimedia Commons

Frank: Three things, plus a fourth that we’ll get into. First, as a result of the Russian invasion, there is now a general consensus among the UK, the European Union, Canada, Switzerland, and the United States that coordinated action against money laundering and transnational corrupt practices is essential. That is unprecedented.

Second, we’ll need institutions of justice, which means institutions of investigation and particularly prosecution, which are sufficiently resourced to make a difference. Until very recently, the department of the US Treasury responsible for monitoring money laundering had 300 staff. And we’re talking about inflows of dirty money into the US of $600 billion a year or more. 300 staff. That’s pathetic. And in the UK, according to the Russia Report, the head of the National Crime Authority of Britain, said, “We don’t have the funds to prosecute.” That’s ridiculous. If you’re going to go against multibillion-dollar oligarchs with pennies, you’re never going to get anywhere. So we have to have real budget resources for enforcement.

Third, we need a few new laws. These have been widely discussed. They relate to beneficial ownership of holding companies to ensure that we know not only who owns the assets, but also makes it imperative that real estate companies, art auction houses, and yacht brokers, and all who potentially handle dirty money are forced to do due diligence on their clients. There’s a lot of momentum to get these new laws into place, and I’m all for that. But we will find that these new laws will have loopholes. It’s going to take us time to get these laws right. We need a rule that also makes the top executives of money laundering institutions criminally liable.

So we’ve got coordination, enforcement, and the law. But I mentioned a fourth element that I think is terribly important. The Russian invasion of Ukraine has led many corporations to withdraw from doing business in Russia. Why? Because of peer pressure. Because of public pressure. Truth is, in many cases they shouldn’t have been there anyhow. I argue as strongly as I can that integrity in business is important. And that the company’s culture should be highly sensitive to serving the public interests. And it isn’t when the company is quite willing to deal with corrupt regimes and corrupt oligarchs. And why is this? Because in the last twenty years we have seen such a massive inflation in bonuses in the financial sector tied directly to short-term profit maximization. And the huge risk-taking that this short-term profit maximization culture produces led to the subprime mortgage crisis that almost brought down the global financial system. And it has also led to this huge amount of money-laundering deals and tax evasion deals and other corrupt practices that we read about in the Panama Papers. So we have to change the business culture to serve the public interest. That may be a stretch, but I don’t think it’s something we should overlook.

"The solution to the health crisis produced by the pandemic has been unbelievably retarded by the pervasiveness of corruption in many of the poorer places in the world."

Alex: Can you say more about how the actions of “kleptocrats and their enablers” contributes to global poverty and inequality?

Frank: A couple of elements here are really important. Citizens in the US, for example, often don’t understand how corruption overseas affects them. If they don’t understand it, there will not be the public policy actions needed to produce change. Let me give you a couple of examples.

Central American countries are riven by political corruption infused with organized crime. The result is that there is incredible violence in these countries and incredible insecurity amongst the citizens. And the result of that is an enormous effort by the citizens of those countries to find refuge in the United States. So much of the immigration challenge the United States has discussed in recent years cannot be understood without understanding the impact of corruption in the countries from which these people are coming.

Second, according to a UN study, in 2020 something like $90 billion of illicit finance flowed out of Sub-Saharan Africa. Total foreign aid to Sub-Saharan Africa that year was about $45 billion, and total foreign direct investment was a little bit more. That’s catastrophic for a continent of young people. If you look at the age profile of many of the African countries, they are increasing the size of their population dramatically. They need to keep the resources and investment at home. If they don’t, there will be more civil war like in Ethiopia, Somalia, Yemen. There will be more hunger, destitution, more violence, and again, more refugee flows north to Europe. Again, corruption is at the core of this.

My last point is the most important of all. Corruption related to the Covid pandemic has strengthened autocracies. It has made tens of millions of people suffer in ways they should never have suffered. The solution to the health crisis produced by the pandemic has been unbelievably retarded by the pervasiveness of corruption in many of the poorer places in the world. And, unfortunately, our attention to that problem has not been sufficient.

"If we forget for one minute that there are victims of corruption, we start to look at corruption as just another part of the political landscape and forget the humanitarian and the human dimension."

Alex: You’ve been working on and writing about corruption for many decades. What has given you optimism about anti-corruption efforts? And what continues to keep you up at night?

Why do I do this? I’ve never had a paid position in the anti-corruption world. Why do I still have this passion? Across the world today, there are more young people of enormous courage willing to stand up against their corrupt governments and say, “We want open elections. We want transparent and accountable government.” These civil society activists, these investigative reporters, they’re taking enormous risk. And it would be absolutely wrong of me not to feel that I had to continue to try and support them in every possible way I can.

Slain journalist Daphne Caruana Galizia memorial site. Source: Wikimedia Commons

What keeps me up at night is that trends across the world show that these people are being harassed more by governments than ever before. These people face terrible dangers. Look at the number of journalists who are killed every year. Well, quite a few are killed because they’re trying to expose corruption. And ask yourself why? It’s because they are trying to root out corruption in their country and their governments don’t like it.

Alex: For readers hoping to grasp more about the role of corruption and conflict, what three books would you recommend?

Louise Shelley’s Dirty Entanglements. Michael Johnston’s Corruption, Contention, and Reform. And Global Corruption: Money, Power, and Ethics in the Modern World by Laurence Cockcroft. There are a huge number of books that tell the story of a particular corruption case or a corrupt particular leader like Putin. But if people want to understand this phenomenon in the broadest sense and its implications, I think these three books are excellent.

The question Frank asked himself because I didn’t: If all of this is so wrong, why hasn’t the international community done anything about the enablers. If the enablers are central to the grand corruption around the world, why aren’t we doing anything about them?

Frank: For some twenty years I worked with my PR company with chairmen of many of the world’s largest banks. These people spend an enormous amount of time making sure they’re unbelievably networked into the political establishment of our countries. The enablers in Britain and the United States and many other countries exert enormous political influence to ensure that enforcement is low. To ensure that the rules and regulations of the system permit them to continue to do business that is very profitable to them. And until we face the fact that from that source alone there is far too much money in our politics—and it has a huge public cost—we won’t really get the enablers.

It's enormously important that people understand how much effort is pursued in this country by the leading financial institutions, as well as the real estate and associations and the American Bar Association to ensure that regulation is kept basically to a minimum. It is totally counter to the public interest.

Regarding Ukraine, you have to ask, if there is a happy ending there, and of course we pray there is, will momentum for all the actions against oligarchs subside. Will we go back to failing to understand that corruption is a security question? It’s visually terrific to show that a yacht has been seized. To show that a $100-million mansion is frozen. But so far nobody has found a good method to criminally prosecute these guys. And I’m very scared actually that we will spend an enormous amount of time and resources trying to find ways to criminally prosecute these oligarchs whilst again ignoring their enablers.

 

Frank Vogl is the author of the new book “The Enablers: How the West Supports Kleptocrats and Corruption - Endangering Our Democracy.” He is a co-founder of Transparency International, the chairman of the Partnership for Transparency Fund and an adjunct professor at Georgetown University.




 

Alex Ralph began serving as the Corruption in Fragile States Blog editor in June 2021. In addition, he is a lecturer at the Gerald R. Ford School of Public Policy at the University of Michigan, where he teaches expository writing and courses on storytelling through public policy. When not editing or teaching, he is at work on a novel set in 1970s Detroit. His reporting on mental health and addiction service providers has appeared in the Cincinnati Enquirer and other outlets. He received his MFA in creative writing from the University of Michigan and currently lives in Cincinnati, Ohio.