THE DEKLEPTOCRACY REPORT
August 9, 2024
Welcome to The Dekleptocracy Report! The Dekleptocracy Project (TDP) is a 501(c)(3) following the authoritarian money from Virginia. We’re on a mission to show how existing levers of accountability can protect democracy and prevent authoritarians, their networks, and enablers from exploiting or circumventing the US system. As always, please sign up and forward this newsletter.
BOTTOM LINE UP FRONT
Welcome to our landmark 20th newsletter! In this issue, we take a deeper look at Venezuela’s rigged election results and the US and global response. While we believe the current suffering of the Venezuelan people is primarily the result of chronic mismanagement of the economy and corruption, sectoral sanctions in place since 2018 have certainly taken their toll. We look at whether the current approach is trying to satisfy too many competing aims – market stability, US private-sector interests and more, and if a more direct focus would force Nicolás Maduro to recognize the actual winner of July’s election.
In this issue we also mark our 20th issue with an editorial that outlines TDP’s vision as a non-partisan 501(c)(3) organization. Namely, we argue that today’s authoritarians, unlike their 20th century predecessors, are reliant on US and allied institutions – including goods and services – to launder their money and build the weapons needed to prosecute their wars. We argue that the economic weapon, when properly used and guided by properly funded oversight institutions, can help us achieve principled policy goals that sanctions programs alone cannot achieve.
In the Digest, we look at the recent violence in more than 20 UK cities incited by false claims that an asylum seeker was behind a very real and terrible attack on children at a dance class that took three lives and wounded many more. As the UK’s Home Secretary has noted, social media platforms allowed the spread of false claims in the critical hours after the attacks and outbreak of violence. We also look at a potentially important but frustrating editorial by former Secretary of State Mike Pompeo that purports to outline a future Trump administration’s approach to Ukraine. The points raised are vital (and the Harris campaign has not outlined its goals) but it is not clear that Pompeo speaks for the Republican candidate. Finally, we look at the collapse of the prosecution of 28 people linked to the landmark Panama Papers leak. While it is lamentable from our perspective that Panama’s newly elected president praised the development, we also note the conclusion of international observers that the country’s recent elections passed utterly without incident.
EDITORIAL:
ANTI-CORRUPTION AS NATIONAL SECURITY
Kristofer Harrison
President, The Dekleptocracy Project
Authoritarians see the rule of law as a threat because they cannot remain in power without corruption. This means that our powerful anti-corruption authorities and transparency tools like anti-money laundering (AML), beneficial ownership, or any of the dozens of related regulations can play a central national security role against authoritarians. At TDP, we focus on this intersection between corruption and national security and novel uses of domestic authorities. Today, we want to focus on how anti-corruption authorities and tools here in the US (and to a great degree in the UK, EU, Japan, etc.) can have such a tremendous impact on authoritarians abroad.
The reason is globalization. Unlike last century’s versions, today’s authoritarians have never needed self-sufficiency and are not very good at it. Today’s authoritarians can just go buy what they need on global markets – markets that the US and its allies govern. For example, unlike Josef Stalin who had to first industrialize his country and then train a cadre of engineers to build and operate machine tools, Vladimir Putin was able to go to the US or Germany and just buy the latest machine tools and obtain service and training prior to 2022. And, despite recent sanctions and export controls, Russia can still access many of our most sensitive goods and services through complex intermediary and re-export networks centered on China and other third countries.
Americans spend a lot of time talking about US security risks stemming from globalization (for example the CHIPS Act, designed to stimulate domestic production of microchips), but we don’t spend our time looking at the other side of that equation. At the same time, do we remember the times when authoritarians have faked technological sophistication? They’ve done this in both the civilian and military spheres for both domestic purposes and to give the West pause in confronting them. Putin bamboozled Westerners into believing that Moscow was a tech center, yet when he tried to produce it himself, he had to resort to Wizard of Oz technology. He needs access to foreign markets, and the use of anti-corruption authorities against the enablers is a threat to authoritarians.
Let’s talk about the enablers. Imagine for a second Brezhnev had been able to stroll down K Street and hire a lobbyist, Wall Street banks had fought for Mao’s account, and hedge funds had begged to help launder his pilfered gains, or if Castro could have outfitted weapons factories with an American-built assembly line. In broad terms, that kind of behavior is mostly legal today. Enablers working on K Street, Wall Street or even US manufacturers are helping despots prosper using our system. And we allow it. We would argue, however, that access to globalized markets is a privilege based on observance of commonly agreed rules and values.
Today’s authoritarians have rested entire pillars of their political and military foundations on enablers that live here and that we regulate. This gives us tremendous leverage that, by and large, we are not using even as we try and get sanctions applied to arms factories in Tatarstan. Today’s authoritarians rely on us and, as a result, have made themselves vulnerable to the economic weapon.
The economic weapon is primarily domestic enforcement of our existing laws, alongside tighter regulation of services authoritarian clients can legally access here, like lobbying and legal counsel. It’s non-kinetic but has enormous potential to cause damage to authoritarians if it is properly targeted. But the US cannot wield it today because the current and past administrations have chronically under-resourced domestic anti-corruption authorities. By cutting off authoritarian access to key technology and revenue streams, the economic weapon has the potential to degrade Russian battlefield capabilities in Ukraine and create deterrence against China invading Taiwan.
By contrast, the US has made an attempt at using the economic weapon against Russia by assembling a massive wall of sanctions. Yet, it has failed to take an enforcement action against or otherwise prosecute a major Western corporation for violating Russian sanctions that has not self-reported since 2014. No doubt China has noticed. Violating sanctions is, in essence, a financial crime and involves legal maneuvering that goes into getting around them. While direct sales to Russian military industry have mostly stopped, the problem remains that American and allied technology is still making its way into Russia’s war machine. It’s true that complex third-country trade networks often obscure the final customer and create a level of plausible deniability. But it’s also likely that, in many cases, the original manufacturer is aware of where its products are going – or at least has suspicions. US domestic law enforcement agencies could focus on identifying, investigating, and prosecuting cases where major American manufacturers knew or should have known that export-controlled products were likely to end up in the wrong hands.
Prosecution is not the only form of leverage, though. US government budgets are another. If an American company has supplied a Russian arms factory with robots used in assembling high-precision weapons (as has happened), the Pentagon could ask the company to choose between selling to Russia or China and selling to the US government.
Part of that policy calculus also needs to be properly funding key Treasury and Commerce offices like OFAC and BIS and providing the information-gathering capabilities needed to police the critical enablers here without whom Russia and China cannot build sophisticated weapons. Those are the hardworking but woefully under-resourced offices that should have the ability to police domestic enablers as well as go after international networks.
This understanding of the interplay of our anti-corruption authorities and globalization deserves a policy seat at the center of policy planning and execution, too. For example, Vladimir Putin, is seeking to gain leverage on the global LNG market through the Arctic LNG-2 megaproject, copying what he did with pipeline gas in Germany with Nord Stream gas in the decade leading up to the full-scale invasion of Ukraine. His problem is that Russia neither has the technology base to build the necessary LNG infrastructure, nor does the capacity to get there. Still, while the US sanctioned the project last fall, it was already too late for much of the construction.
But they’ll have a mulligan. Unlike with oil, LNG can’t be transferred ship-to-ship at scale. Instead, Russia has a huge floating LNG storage barge near Murmansk, the SAAM FSU, where it likely plans to offload LNG from expensive ice-rated tankers onto cheaper, used tankers that it is buying up. From there, it could ship cheap gas all over the world. However, these tankers will all have to sail through the Barents Sea, where they will be easily observable. Sanctioning them and any port that accepts this gas would foil this attempt to corner a significant part of the global LNG market.
Because the US leads the international liberal order, it is blessed with enormous leverage over today’s corrupt authoritarians. Our globalized economy has resulted in many authoritarians having exposure to market institutions and law enforcement under US control. They remain reliant on enablers in the US, the UK and elsewhere. China’s current stance of threatening Taiwan isn’t nearly as easy a choice for them to make if we demonstrate ability to marshal our domestic authorities, control the enablers here and thus block Chinese access to key market resources.This applies to varying degrees to other authoritarians around the globe.
The economic weapon relies on figuring out where an authoritarian has become reliant on a good or service provided by the US or an ally and then depriving them of it. Often, that means blocking their access to enablers here. This newsletter relays research from our civil society partners identifying some of where authoritarians rely on enablers. And TDP is always looking to help focus various jurisdictions on ways they can leverage their domestic authorities against authoritarians.
MADURO GOES FOR BROKE
It appears clear from exit polls and refusal of the regime of Nicolás Maduro to release local results that it falsified the results of the presidential elections in Venezuela on July 28. Those that have endorsed the results – Russia, China, Iran and Cuba – represent an axis of authoritarian states and each has built up a significant stake in the regime. The evidence for fraud appears straightforward, as the opposition and the US Department of State have outlined. For the US, the crisis is a test of the sanctions regime, with individual designations in place since 2015 and sectoral sanctions implemented in 2018. The US eased them for several months under the Biden administration until Maduro’s intent to rig the current elections became clear earlier this year. The question today is whether sanctions can be part of a coherent program of economic warfare that targets Maduro and his cronies while not adding to the misery of the Venezuelan people and overcoming the overt support of his authoritarian sponsors.
While the US has been outspoken about fraud, it appears other countries, including Venezuela’s neighbors, are hedging their bets on Maduro. Both the Organization of American States (OAS) and the EU were unable to muster unequivocal statements in the aftermath of polling day. The OAS Permanent Council failed to pass a resolution condemning the fraud, with 17 members voting in favor, 11 abstaining and five skipping the vote altogether. Brazil, Mexico and Colombia all failed to back the measure – grim pragmatism from three countries that are already feeling the brunt of Venezuela’s economic meltdown and the flight of at least six million refugees.
In the case of the EU, Hungary – which holds the rotating presidency of the Council of the European Union – reportedly vetoed a statement in the crucial hours after the Venezuelan government claimed victory. Seven EU countries — France, Germany, Italy, Spain, the Netherlands, Poland and Portugal – have since called on the Venezuelan electoral commission to release all tally sheets and expressed “great concern”. Hungary’s action, however, was a crucial fillip for Maduro, as it left the opposition and the US. The latter a long-standing scapegoat for Maduro and faces perennial distrust in the wider region – as the primary voices denouncing the result in the immediate aftermath of the vote. It is no coincidence that Hungarian Prime Minister Viktor Orbán has close relationships with China and Russia, both countries that have endorsed Maduro’s apparent fraud.
War by other means
The existence of some targeted US sanctions on Venezuela date back to 2005 and the administration of President Hugo Chavez. President Barack Obama imposed targeted sanctions against individuals and entities related to the Maduro regime found to be engaging in anti-democratic actions, corruption or human-rights abuses. From 2018, the administration of Donald Trump imposed broader sectoral sanctions under Executive Order 13850. These latter sanctions went after the commanding heights of the Venezuelan economy, including state oil company Petróleos de Venezuela, S.A. (PdVSA), the Central Bank, the National Development Bank and the state-owned gold company, with measures including dozens of individuals, entities and vessels. Notably, the US government stopped recognizing Maduro as the legitimate president in 2019.
It is an obvious but important point that Venezuela is a petrostate – roughly two thirds of its government budget comes from hard currency generated from oil exports, while oil accounts for 90% of all exports. State monopoly PdVSA runs the sector. US sanctions against PdVSA therefore strike at the heart of the economy and Venezuela’s budget, even as Venezuela’s allies, especially Russia, aim to keep the oil flowing, at least to the extent that it provides hard currency for the regime and its sponsors.
Until sometime in 2020, Russian state-owned oil major Rosneft managed the bulk of PdVSA’s exports and provided Venezuela with a cash lifeline amid sanctions by pre-paying for oil, reportedly spending US$1.5 billion more than it earned from 2010-20. In 2020, it sold its Venezuela stakes to Russia’s 100% state-owned Zarubezhneft. On the plus side for Russia, Rosneft’s status as a listed company allowed analysts to see how much money Rosneft was throwing away at suspect projects aimed at propping up the Maduro regime. There’s no such worries of transparency with Zarubezhneft, but it also likely lacks Rosneft’s resources and, erm, relative managerial talent. Still, Russia continues to provide a crucial lifeline for the Maduro regime, both financially and (para)militarily, with the reported deployment of Wagner contractors to help physically crush post-election protests.
What’s next?
In Venezuela, the past decade has witnessed one of the worst-ever examples of economic depression, hyperinflation, and humanitarian crisis in South America’s history, with up to 90% of households living in poverty. Reporting and analysis have often highlighted the role of US sanctions in Venezuela’s meltdown and subsequent refugee crisis. This includes the Washington Post’s recent entry on Venezuela in its “money war” series. Yet, the initial collapse in living standards and runaway inflation in Venezuela pre-date US sectoral sanctions and are closely linked to ideology, mismanagement and corruption during Maduro’s 11-year rule, and the US has provided more than US$1.6 billion in humanitarian assistance since 2017. However, it’s also clear that US targeting of PdVSA crippled the oil giant and, therefore, what was left of the Venezuelan economy. If American sanctions did not bring about Venezuela’s collapse, it is hard to argue that our policies haven’t “exacerbated” the crisis, as the Washington Post concluded in its seminal and stinging critique of the concept of economic warfare.
If the US sanctions regime has been a driver of the crisis, Maduro’s authoritarian backers have ensured he is able to stay in power without doing anything to address deep poverty and the refugee crisis. Cuban intelligence and weapons help Maduro keep the population in check, while China has promised specific investment projects, like rebuilding the power grid. But for Russia, the refugee crisis and its impact on the US border represent vital leverage, especially in a US election year. The House Homeland Security Subcommittee noted last year that it is a “safe assumption” that Russia and China want to exploit the border crisis because of its toxic impact on US politics. In this brutal calculus, the refugee crisis is the feature, not the bug.
As with any sanctions policy, we must ask what other levers we are using. Are we relying on the passive effect of financial sanctions or going after violators and using sanctions as a weapon? Are we punishing Russian and Chinese companies and institutions for propping up the regime? Is the US issuing licenses to companies like Harry Sergeant III’s Oil Terminals to buy asphalt or European oil major Repsol in a bid to keep markets stable or PdVSA ticking over? Did the Biden administration’s brief relaxation of sanctions in late 2023 and early 2024 achieve anything politically or just strengthen Maduro’s hand and allow the economy to bounce back even briefly? The harsh reality for the US is that the sanctions regime in place since 2018 has now seen its second rigged election, its second legitimate winner deprived of power and another crackdown, while the immiseration of the Venezuelan people continues to deepen over the longer term. If the goal is economic warfare to bring Maduro to the negotiating table, it appears we have been pursuing multiple, even contradictory policies while failing to aggressively enforce the sanctions we already have. Arguably, this is a mirror of the current US approach to Russia in its full-scale war on Ukraine. A concerted effort aimed at paralyzing PdVSA and punishing its enablers or not at all appears to be our best bet and the one most likely to achieve swift change and minimize suffering.
Social Media Promotes and Amplifies Violence in UK
Riots across the UK represent the first major test for Prime Minister Keir Starmer and his government, less than a month after the decisive election put Labour in power for the first time in 14 years. The original crime itself was horrifying enough – a 17-year-old with a knife broke into a dance studio in the seaside town of Southport, fatally stabbing three girls aged six and seven and wounding up to ten more. But the reaction was both unexpected and deeply disturbing. A peaceful vigil on July 30 appeared to be hijacked by members of far-right gangs. Crucially, it appears social media accounts, some possibly connected to Russia, were spreading a false name for the assailant and claiming he was an asylum seeker and a Muslim. British rules often prevent law enforcement from publishing the names of suspects, but the Merseyside Police did disclose that the attacker had, in fact, been born in Cardiff to Rwandan parents. No matter, the violence metastasized, first spreading to Sunderland and Hartlepool on the opposite coast and then going as far as Northern Ireland, with more than 20 towns and cities hit. The violence has been brutal: for example, rioters set a hotel housing asylum seekers on fire in Rotherham and tried to do the same in Tamworth.
Notably, no single organization appears to be behind the far-right violence. As several commentators have noted, the English Defence League (EDL), a once high-profile militant group, appears to be defunct. But social media has fanned the flames. Elon Musk stirred the pot writing that “civil war is inevitable”, prompting an unhelpful war of words with the prime minister. Home Secretary Yvette Cooper said that social media companies had “put rocket boosters” under false and inflammatory content. Aspects of the UK’s Online Safety Act, approved last year and meant to be far-reaching in checking social media excesses, could apply to both users and social media companies, especially Meta, TikTok and X. According to the FT, false claims about attackers received 27 million impressions on X alone. And the role of hostile states deserves urgent investigation. According to reports, Russian websites and social media accounts, at minimum, inflamed the situation. This being the UK, there will be one or more public inquiries to get at the root causes of the violence. The incendiary actions of social media will be an obvious place to start, but the role of foreign states also cannot be ignored. And domestic security agencies will need to figure out just how organized far-right gangs have become since the implosion of the EDL several years ago. With Russia fanning the flames, we can expect more attempts to provoke violence in the UK, Europe and, yes, the US.
Pompeo co-authors op-ed about Ukraine, but does it represent Trump?
At TDP, we believe that both US leading party candidates should release detailed plans for what their administration will do to support Ukraine if they win. To date, neither side has done so. But former Trump administration Secretary of State Mike Pompeo co-authored an editorial called “A Trump Peace Plan for Ukraine,” published on July 25 in the Wall Street Journal. As a document, it merits serious discussion. It is not a sop to Hungarian Prime Minister Viktor Orbán’s quixotic mission, which included a stop-over to see Donald Trump, to sell a peace plan for Ukraine that he has never outlined publicly. Indeed, the op-ed calls for a more muscular US response and the activation of lend-lease to improve the flow of supplies. It also suggests enlisting Israel and Saudi Arabia while boosting US energy output – the latter allowing the US to replace Russian hydrocarbons in European markets.
All of this is worth engaging with. But the piece is also troubling – not in what it says, but who says it. First, the lead credit goes not to Pompeo but to David Urban, the managing director of BGR, one of DC’s premier lobbying shops. Pompeo is also simply billed as “served as secretary of state, 2018-21”. In our view, the Wall Street Journal left out an important detail, namely that Pompeo has been a non-executive and independent director at Kyivstar, Ukraine’s leading mobile telecommunications company, since late 2023. Kyivstar’s owner is NASDAQ-listed VEON. Currently, according to VEON’s website, LetterOne Investment Holdings S.A. owns 45.5% of VEON. Letterone’s owners include founders of Russia’s Alfa Group and Alfa Bank. We defer to the finding of the Office of Foreign Asset Control that “OFAC has not designated LetterOne and, based on information available to OFAC, LetterOne is not owned 50 percent or more by blocked persons.” At the same time, we would suggest that Pompeo simply disclose his affiliation. Substantively, the op-ed is also a challenge because we don’t know if, despite the title, it represents Trump’s current thinking and planning, making it a frustrating document. None of this gets the Harris campaign off the hook, of course. We believe she should let our friends and allies know if she plans to continue the present policy and address its shortcomings (several of which are pointed out in the Urban-Pompeo op-ed).
Panama stalls on anti-corruption drive
The acquittal of 28 defendants last month on money laundering charges related to the so-called Panama Papers leak was a serious blow to efforts to rid the state of its reputation as a money-laundering destination. While trying white-collar crime is a challenge in any jurisdiction, the reaction of newly sworn-in President Jose Raul Mulino was not encouraging. A former justice minister and law-enforcement head, he called the Panama Papers an “international hoax.” From an avowed law-and-order politician – albeit one who came to the top of the ticket after his populist running mate Ricardo Martinelli was disqualified from running in May due to a corruption conviction – the dismissal of the Panama Papers, a foundational leak that exposed hundreds of thousands of names, including political and business figures around the world, is dispiriting. The late entry of Mulino as a candidate for president and his decision to skip any televised debates make him an enigma beyond the assumption that he is a “stand-in” for Martinelli, one of the most enduring figures since the restoration of democracy in Panama in 1989. While Mulino has been disappointing in his stance on the Panama Papers, the election itself was a model for the Western Hemisphere: high turnout, internationally observed and even commended for taking place “within reasonableness and normalcy.” If only the US could be guaranteed such an outcome in November.