• Oksana Huss, Bologna University

Strategic Corruption as a Threat to Security and the New Agenda for Anti-Corruption

By Oksana Huss, Research Fellow, Bologna University and Joseph Pozsgai-Alvarez, Associate Professor, Osaka University


The post-Cold War period ended abruptly with Russia’s invasion of Ukraine. Alongside significant geopolitical consequences, the unprovoked attack on Ukraine’s sovereignty also represents the end to an international agenda on anti-corruption and human security that can now be described as transitional. It is the failures of this transitional period—punctuated by the integration of world markets and important but insufficient regulatory frameworks for controlling illicit financial flows and other white-collar crimes—that emboldened Vladimir Putin to pursue a new conflict with the West.


Although many experts from the realist tradition in international relations like Henry Kissinger, George Kennan, and John Mearsheimer have pointed to NATO’s eastward expansion as the reason for the war, such conclusions remain flawed, rooted as they are in understanding international security principally from the perspective of sovereign states and their military power. Instead, what this line of argument overlooks is how the Russian political leadership has expanded its sphere of influence not just by antagonizing other nations but by corrupting the systems and institutions that make up the political structure of democratic countries.

Photo taken by Andriy Dubchak, DonbasFrontliner

Unfortunately, it has taken the war in Ukraine for the international community to more fully recognize the security threats caused by illicit economic ties. This threat is manifested through the professional networks and practices that for years had developed around the transfer and management of suspicious assets. Thus, it’s not, as the realists would have it, the West’s antagonism towards Russia but rather Russia’s use of ‘strategic corruption’—a country’s weaponization of corruption against other states in pursuit of national goals—that must be identified as among the biggest threats to international and human security.

The history of illicit Russian money in the West

Since the 1990s, Russian money has flowed liberally into the West, much of it coming from wealthy individuals who previously benefitted from the opaque and irregular privatization processes launched after the Soviet Union’s dissolution. This first wave of Russian oligarchs was later joined by individuals close to Vladimir Putin after his accession to power; they were protected from a corruptible justice system and profited from their personal contacts with the state apparatus (even if not directly involved in it). Many of these people are among the individuals and entities now sanctioned across the West.


For more CJL work on the nexus between illicit wealth, corruption, and the erosion of democracy, see James Cohen’s “Why we need to connect peacebuilding and illicit financial flows: a global approach” and Jared Miller’s “The cost of democracy: how dark money is funding democratic backsliding.”

The accumulation of illicit wealth by the Russian elite has produced a constant stream of dirty money into the open financial centers of the world—particularly those of Europe and North America. There, it is hidden, laundered, reinvested, and put it into political action in the host countries. According to Transparency International UK, Russian citizens accused of financial crimes own properties in the United Kingdom valued at over £1.5 billion (or about US $2 billion), with some informal estimates putting the profits in UK tax revenue at hundreds of millions per year. Analyzing last year’s leaks of financial documents known as the “Pandora Papers,” the International Consortium of Investigative Journalists reported that the largest country of origin of identified billionaires was Russia, with the British Virgin Islands being the most popular jurisdiction to set up their shell companies. American and international banks such as Bank of America, JP Morgan, Wells Fargo, HSBC, Deutsche Bank, and others processed hundreds of millions of US dollars’ worth of assets from Russian individuals, many of whom, either directly or through state-owned entities, also held substantial contracts with the U.S. government. In total, between 2010 and 2014 over US $20 billion had been transferred out of Russia.


Contrary to how corruption and related economic crimes are often discussed in policy circles, the resources illicitly extracted by Russian elites have served Moscow in at least two distinct ways. First, they have strengthened Putin’s hold on power by tying business leaders to clientelist networks and discouraging would-be-reformers by threatening them with expulsion from reward channels (or worse). Second, and most importantly, they have created dependencies between economic sectors in the West and the fortunes of oligarchs working with Putin’s blessing, making both sides highly receptive to Moscow’s wishes and eroding the political legitimacy of democratically elected leaders.

“Now more than ever it is clear that anti-corruption is indivisible from human security and human rights; to miss the first is to surrender the latter two."

Four Mechanisms of Strategic Corruption

Strategic corruption departs from the traditional understanding of malfeasance in that it de-emphasizes illicit economic gain and instead focuses on the asymmetrical, cross-national dependencies that open channels for illegitimate influence and compromise the political stability and defense capabilities of target countries. Reflecting this new approach, there are different mechanisms–if not illegal, then certainly illegitimate–through which Russia has increasingly wielded corruption against European countries.


Gerhard Schröder, 2016, Source: Wikimedia Commons

1. The Revolving Door. A first, explicit use of strategic corruption involves the revolving door of officials from the public sector into private sector roles. This has meant giving prominent EU politicians high management positions in strategic Russian companies to use their connections and influence to lobby on behalf of Russian national interests. The most prominent example of many is ex-Chancellor of Germany Gerhard Schröder, who in the same year he left his Chancellor post, began working for Gazprom as Chairman of the Shareholders’ Committee on the Nord Stream board and then serving as Chairman of the Supervisory Board of the Russian state energy company Rosneft. Despite sporadic press criticism about how Schröder’s actions undermine trust in democracy, it is only now, in March 2022, that he faces criminal charges as a designated member of the Gazprom Board of Directors.


Gas and oil exports have never been mere business for Russia—instead, Russia uses them geostrategically. Since 2015, when Russia invaded Crimea and occupied Donbas, concerns increased that the new North Stream 2 project would open the door for the invasion of the rest of Ukraine. At the same time, Gazprom purchased up to 25% of Germany’s gas storage and subsequently failed to fill the storage for the 2021-22 winter. The increase in German gas prices, which is also due to its storage shortage, helps explain Germany’s reluctance to adopt full economic sanctions against Russian entities and exports, including embargoing energy resources and cutting Russia off from SWIFT.


2. Illegitimate political finance. Russia undermines the West through illegitimately financing European political parties, such as the Front National in France, AfD in Germany, and the Conservatives in the UK. This is part of what the Alliance for Securing Democracy has called ‘malign finance’—the “funding of foreign political parties, candidates, campaigns, well-connected elites, or politically influential groups, often through non-transparent structures designed to obfuscate ties to a nation state or its proxies.” These populist political parties funded by Russian agents—often taking the form of wealthy Russian “entrepreneurs” or “philanthropists”—span the political spectrum and serve their purpose by undermining the EU’s capacity to sanction Russia in the European Parliament. They also play a role in the Russian propaganda machine, echoing reports of foreign “support” for Russia’s actions and amplifying Russian misinformation efforts among their own supporters abroad.

“It is time to accept that anti-corruption efforts must focus on the transnational networks that enable it, most of which are rooted in high-income countries as much as in the developing world.”

3. Money laundering. Western countries embraced dirty money and helped members of the Russian elite—politically exposed persons (PEPs)—launder their ill-gotten gains. Due to these practices, corrupt politicians from authoritarian countries like Russia, Belarus, and Kazakhstan have been afforded almost unlimited access to privileges (e.g., real estate and luxury goods) hardly granted to their fellow countrymen—or even to most citizens of the host countries, for that matter—while holding few scruples about the damage done to their national economies.

While money laundering isn’t a new phenomenon, its existence helps foster resentment among both national and foreign audiences against the “hypocrisy” of democratic policy makers. Russian state media control amplifies the corruption of private actors in the West while downplaying or obscuring the true source of the illicit assets.

Despite longstanding debates, the comprehensive EU regulation that effectively prohibits money laundering is still not implemented. And those countries that have traditionally welcomed Russian assets beyond EU borders (e.g., Switzerland, the UK) imposed belated and still fragmented sanctions against oligarchs and PEPs only after fierce public pressure.


4. Judicial corruption. Russia has employed strategic corruption to undermine Ukraine since its independence. This became all the more evident in 2020, at a time when Ukraine’s High Anti-Corruption Court was proving that independent anti-corruption authorities were becoming increasingly effective in their work. In response, the Constitutional Court illegitimately undermined the foundations of anti-corruption legislation and practice. Unsurprisingly, multiple judges belonging to the Constitutional Court were found to have acted with a conflict of interest and with explicit connections to Russia.


Subscribe here to receive the Corruption in Fragile State Blog's biweekly posts. (Biweekly as in twice a month, not twice a week--because we at CJL want to be kind to your inboxes.)

Why Russian corruption also harms the West

The massive inflow of dirty money into liberal democratic countries not only serves to line the pockets of lawyers, accountants, bankers, hedge fund managers, and real estate agents, but it also creates three security-related challenges to democracies.


First, it increases the costs of sanctions for Europe. Russian corruption weakens the national security architecture of targeted countries by creating financial dependencies on the will of Moscow. In particular, we see this through the naïve attitude towards the unilateral energy dependency that Russia has built through European infrastructure projects and lobby networks and that have increased the sanctions’ price for Europeans.


Second, these unhealthy dependencies are among the prime causes for the West’s late and fragmented response to Russia’s invasion of Ukraine. It is only due to intense public pressure and protests that Western nations have imposed economic sanctions. And yet despite public opinion polls favoring sanctions, in some heavily energy-dependent countries like Germany, the sanctions were even partially rolled back. The limited capacity to act in a timely and decisive manner has cost thousands of innocent lives and produced disastrous ecologic and humanitarian effects in Europe.

“Russia’s use of ‘strategic corruption’—a country’s weaponization of corruption against other states in pursuit of national goals—must be identified as among the biggest threats to international and human security.”

Third, Russian corruption undermines democracy and trust. We see this most clearly through former European politicians like Schröder who barter their social and political capital in order to promote Russian interests. This can raise questions in the public’s mind of whether a politician’s decisions in office serve foreign or national interests. Moreover, the disproportional privileges that oligarchs enjoy in Western countries increase frustration among citizens of liberal democracies.

Toward a better future, or what we should do


Photo taken by Andriy Dubchak, Ukranian Witness Project

Russia’s kleptocratic elite may yet well prove a double-edged sword for the regime’s own survival. To capture the Russian state, Putin has weakened it and isolated himself; without an active and vibrant citizenry, the Russian government can only rely on the support it can buy. With international sanctions already hurting its economy, the limits of a kleptocratic and authoritarian rule are being severely tested. It’s not entirely inconceivable that the war in Ukraine may end with the fall of Moscow.


Click here to see more of Andriy Dubchak’s photos, as well as that of the Donbas Frontliner Project.


Whatever the outcome of Putin’s needless and tragic war in Ukraine, the West must rethink its relationship with authoritarian regimes close and far. The transitional period that began with the end of the Cold War has ended. What lies ahead will not be the same lukewarm approach to global anti-corruption efforts that characterized the past three decades. Now more than ever it is clear that anti-corruption is indivisible from human security and human rights; to miss the first is to surrender the latter two.


More importantly, it is time to accept that anti-corruption efforts must focus on the transnational networks that enable it, most of which are rooted in high-income countries as much as in the developing world. For too long we have conceptualized anti-corruption practices as an issue in developing countries and restricted our corruption evaluations to within national borders. The global implications of Russia’s war against Ukraine show the limitations of such narrow thinking. In fact, the Russian invasion of Ukraine suggests that the first line of action in tackling international corruption must address the West’s own lobby and financial sector. To avoid this truth carries the gravest of all consequences—the suffering of innocent lives and nations devastated by conflict.


 

Dr. Oksana Huss is a researcher in the BIT-ACT research project at University of Bologna, Italy and lecturer at the Anti-Corruption Research and Education Centre in Kyiv, Ukraine. Her areas of expertise cover political corruption, open government and social movements against corruption in the post-communist states. She is a co-founder of the Interdisciplinary Corruption Research Network and author of How Corruption and Anti-Corruption Policies Sustain Hybrid Regimes: Strategies of Political Domination under Ukraine’s Presidents in 1994-2014 (ibidem Press, 2020).

 

Dr. Joseph Pozsgai-Alvarez is an Associate Professor at the School of Human Sciences of Osaka University. His research activities focus on (anti-)corruption, public integrity, and social norms. He is the founder of the Japan Network of Anti-Corruption Researchers (JANAR) and the editor of The Politics of Anti-Corruption Agencies in Latin America, published by Routledge in 2021. He was also the co-creator of the ACE Digital Library, an online database of corruption literature hosted by the NGO Global Integrity.https://ace.globalintegrity.org/corruptioncorpus/