THE DEKLEPTOCRACY REPORT

June 13, 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 16th newsletter! In this issue we take an in-depth look at plans by David Lammy – expected to become British foreign minister if Labour wins the July 4 general election – to launch a global campaign against kleptocracy. Lammy, who grew up in a working class North London neighborhood as the son of immigrants, has the ability to frame corruption as not an elite concern but a cancer that harms ordinary people, whether in the UK or the countries of the Global South. At the same time, Lammy will face the same stark constraints of tight budgets and lack of enforcement personnel as have faced every UK government since the Conservatives came to power in 2010. We believe that one important step he can take is launch an OSINT platform to support an international anti-corruption drive, providing a source of information about kleptocrats and their enablers that can be freely shared.

In the Digest we look at the recent indictment of the CFO of the Epoch Times, a newspaper founded by Chinese dissidents, which suggests that the publication’s meteoric rise to international prominence as a far-right dabbler in conspiracy theories, aided by millions of dollars in social media ad spending, was allegedly bankrolled through fraud. We also see how the US Department of the Treasury has raised the stakes by expanding rules that allow it to apply secondary sanctions to any foreign financial institutions working with a sanctioned Russian entity, not just companies in the arms industry. Other sanctions announced the same day targeted the main stock exchange, reportedly leading to immediate halts in some trading. 

In Qui Custodiet, we talk about the re-launch of Ukraine’s iconic War and Sanctions platform providing open source data on issues from sanctions to child kidnapping to foreign components in Russian weapons. The National Agency for Corruption Prevention previously and ably managed the site but now the country’s respected Defense Intelligence is maintaining it and they are pledging to keep expanding areas of coverage. We also look at the odyssey of the Biosecure Act, bipartisan legislation aimed at preventing US government funding for Chinese biotechnology companies linked to the state. It failed to make it into the National Defense Authorization Act despite wider concerns about security and intellectual property theft.

In Around the World we read about a former employee of Amazon Web Services (AWS) in the UK who has claimed in an employment tribunal that his employer sold facial recognition software to a Russian company, a potential sanctions violation. The claims have yet to be proven but they demonstrate the vulnerability of companies that have chosen to remain on the Russian market to allegations of sanctions violations. Finally, we highlight a recent essay by two Ukrainian researchers outlining the links between “big oil” and the war in Ukraine. Reading it leads us to reflect on Russia’s position as an economy almost exclusively dedicated to resource extraction. As they write, it has engaged in very real opposition to attempts to combat global warming, of which it sees itself as a beneficiary (never mind that this could be a catastrophic miscalculation).

THE UK’S COMING CAMPAIGN AGAINST KLEPTOCRATS

 

TDP is a non-partisan US organization and does not take a position on the UK’s coming general election to be held on July 4 (ahem). But all the polls indicate that Labour will form the next government. As our closest ally, a significant military power and a major international financial center, the UK’s foreign policy priorities matter. The current foreign minister, David Cameron, a former prime minister, has played an outsized role, especially as an advocate for confronting Russia for its aggression in Ukraine and more widely. Thanks to the British parliamentary institution of the Shadow Cabinet, we know who will almost certainly be nominated for this portfolio in the new government. Recently, the current Shadow Foreign Minister, David Lammy, a veteran MP, set out an ambitious agenda for combatting kleptocracy, not just in the UK but globally. This is a critical issue, as the UK’s financial services industry and real estate market have made it a famously attractive place for authoritarians from Russian oligarchs to Gulf princes to park their wealth. Can the UK, outside of the EU post-Brexit and reeling from waves of cuts to public services, muster the resolve to take on the entrenched interests that make the UK a haven for kleptocrats? And can a focus on open-source intelligence (OSINT) be the key to a global drive against international corruption? 

The son of Guyanese immigrants who grew up in the North London neighborhood of Tottenham, Lammy is a charismatic veteran of British politics. He served in ministerial roles a rung below cabinet level under Prime Ministers Tony Blair and Gordon Brown before Labour lost the 2010 general election. He returned to Labour’s front bench in 2020 as Shadow Justice Minister and became Shadow Foreign Minister in 2021. Notably, Lammy has significant ties to the US, something he makes sure to share with American audiences. Last month he told an audience at the Hudson Institute: “I’ve been to the United States more times than I’ve been to France. I’ve lived in America, I’ve studied in America, I’ve got family in America. My father is buried in Texas.”

He has also worked to distance himself from the Labour Party of the recent past. Conservatives won’t overlook that Lammy nominated leftist Jeremy Corbyn for party leader in 2015. He apologized for this in 2021 – saying that he never “believed he would become leader.” This pivot was important as many Jewish leaders in the UK and abroad were appalled by anti-Semitic statements by some party representatives under Corbyn’s tenure. In a 2021 report, the UK’s public human rights watchdog found this failure had resulted in “unlawful” acts of harassment and discrimination. Notably, as party leader, Keir Starmer accepted the report’s findings. The party suspended Corbyn as an MP and banned him in 2023 from standing for election (he is running as an independent).

Law and Order 

It is notable that Lammy has led what he terms “progressive realism” with a declaration of war on kleptocracy. While the Daily Telegraph suggested in recent days that Keir Starmer “is planning class war,” the putative future prime minister has solid law and order credentials, was the country’s former top prosecutor for five years, and is seen as more milquetoast than Marxist by traditional Labour activists. Lammy trained and practiced as a lawyer – including a stint working in the US — before becoming an MP in 2000. In contrast, there is a longstanding perception that the ruling Conservatives are too close to the banks in the City of London and its perceived cozying up to  kleptocrats – Prime Minister Rishi Sunak was a successful banker and hedge fund manager before entering full-time politics. (Notably, Labour’s Shadow Chancellor, Rachel Reeves, oversaw one of the major banking collapses during the 2007-08 crisis.)

In a recent interview with the New Statesman, Lammy outlined the proposed campaign against kleptocracy. He said the government would push for creating a live database of the beneficial ownership of companies and trusts and an international anti-corruption court to prosecute serious financial crime. He also described a “crackdown on the enablers” in the UK, including the enforcement of sanctions laws, the development of whistleblower programs offering large rewards and a ban on enablers from entering the country. Among other steps, the government would also push through regulations requiring trusts, often used to acquire property in the UK, to disclose their beneficiaries and other data. 

Along with the New Statesman interview, Lammy also debuted his campaign on May 21 at the Institute for Public Policy Research (IPPR) during a roundtable with the optimistic title of “Anti-Corruption Capital of the World?” against a background of the Square Mile, the financial district that is the City of London. Fellow guests included Oliver Bullough, a journalist and writer who has publicly exposed oligarchic excesses in London for many years, even running “Kleptocrat Tours” in posh neighborhoods. Arguably, however, the most striking speaker was Ukrainian MP Oleksandr Merezhko, who crucially framed corruption as a critical component of Russia’s hybrid war strategy in Ukraine and globally. He also recently met with Yulia Navalnaya, the widow of Alexei Navalny.

 

The quid stops here

The message that transnational corruption – including deals conducted in London or New York – directly enables Russia and other autocratic countries is a crucial and welcome one. As Lammy has also made clear, corruption harms the Global South and promotes poverty and destabilization that end up as crime and exploitation on the streets of London. He told the New Statesman: “You can’t be both a London MP and someone with ties like mine to the Caribbean and Africa and not see how this laundromat worsens lives in the Global North and Global South at the same time.”

Lammy’s argument is that corruption ultimately (and ironically) also hurts the City of London as a global financial capital. It taints institutions and the practical effect of sanctions is tens of billions of dollars of assets sitting frozen on balance sheets. The property market is distorted by around US$1 billion in property that belongs to sanctioned Russians (as the figure is from 2022, it has likely grown). It is frozen, but nothing has been done to seize it. A whole UK-based industry of lawyers, bankers, consultants and  a coterie of luxury goods companies has made huge amounts of money from autocracies around the world. But this trade  has arguably become a drag on the rest of the British economy, and authoritarians and their enablers in the UK have weaponized Britain’s famously pro-plaintiff libel laws to muzzle free speech and led to the shameful intimidation of journalists and researchers investigating the problem. A relevant example was the 2021libel suit Russian oligarch Roman Abramovich  launched against journalist Catherine Belton after she published a landmark book tracing the rise and enrichment of Vladimir Putin and his inner circle. 

The question, as always, is resources. In January 2024, the UK launched a new sanctions enforcement agency. Yet most agencies do not have enforcement power. Most prosecutions rely on the Crown Prosecution Service (CPS), which Keir Starmer formerly headed. Yet the body is chronically backlogged due to lack of manpower and budgetary issues. At one point in 2022, some 75,000 defendants were awaiting trial amid warnings of “catastrophic” cuts to budgets. A cynic might say that prior governments have deliberately starved enforcement bodies to permit corruption. A more charitable explanation is that the UK government has for years faced unpalatable choices amid the dislocation of Brexit, COVID and inflation. One important step the UK could take is to prioritize OSINT. The UK, like the US, over-classifies information and under-resources enforcement. A global campaign against kleptocracy requires large volumes of transparent and shareable information about the activity of kleptocrats and their enablers. The intelligence community is not positioned to do this and shouldn’t be asked to play this role. In the meantime, Lammy has a valuable skill that will help build a coalition with the US for the campaign against kleptocrats: the ability to talk to both sides of the aisle. While Labour has traditionally been more aligned with the US Democratic Party, Lammy has also demonstrated a willingness to reach out and listen to American conservatives, especially elected politicians and think tanks, who are traditionally suspicious of the Labour Party (whose Corbyn-era agenda was dubbed “radically anti-American” by the Washington Post in 2015). With the US’s own electoral showdown a few months away, Labour has been hedging its bets by building channels to both parties. This should help ensure that the campaign against kleptocracy is heard in the White House and Foggy Bottom in 2025, whoever wins our presidential election in November.

Epoch fail – Media corruption and authoritarian influence

The Epoch Times has charted an unusual path through the American media landscape. Once a small print newspaper, the outlet – founded by Chinese dissidents affiliated with the Beijing-banned Falun Gong movement in 2000 – is now part of a conglomerate operating in several languages with online and broadcasting arms. And it has carved out a position on the far right of US and European politics. Investigative journalist Seth Hettena wrote in 2021: “The Times has built a global propaganda machine, similar to Russia’s Sputnik or RT, that pushes a mix of alternative facts and conspiracy theories that has won it far-right acolytes around the world.” However, according to a US Department of Justice indictment unveiled last week, the outlet’s chief financial officer (CFO) allegedly laundered “at least” US$67 million, including funds from fraudulently obtained unemployment insurance benefits, and these funds reportedly drove Epoch Times’ meteoric rise as a top media outlet with an international reach.

In a statement to NPR, the newspaper said it was cooperating with the investigation while underlining that the CFO had the presumption of innocence. One analyst told NPR that the fraud made the outlet’s rapid financial growth make more sense. Headquartered in NY, The Epoch Times is not exactly an outlet funded by a foreign power, like Iran’s Press TV or Russia’s RT. But it has played a significant role in promoting a far-right agenda in Europe. There’s an irony that a publication founded by opponents of the Chinese Communist Party has promoted an agenda – including a raft of conspiracy theories – that dovetails with Russian and other authoritarian interests, even while publishing investigations of Beijing’s malfeasance. The promotion of this agenda appeared highly lucrative, with Epoch Times reporting an increase in revenue from US$4 million in 2016 to US$128 million in 2021. Whether that was achieved through fraud is important because it would signal that a key international voice on this set of issues paid for things like social media campaigns with allegedly stolen funds. 

In the meantime, on the left side of the spectrum, the Washington Post reported earlier this month – citing hacked emails and other materials – that one of the editors of US news website Grayzone allegedly took money from Iran’s Press TV. The site’s founder, Max Blumenthal, previously appeared on RT and accepted a trip to Moscow for a celebration of RT featuring Vladimir Putin. A cynic might say that money talks across the US and European media spectrum.  But the allegations against Epoch Times and a Grazyone editor underline that corruption feeds an agenda supported by authoritarian states, including the promotion of conspiracy theories on social media. 

US expands sanctions authorities on foreign banks

Almost every issue of this newsletter in 2024 has referenced Executive Order 11414, announced just before Christmas 2023. The order significantly expanded the authority of the Department of the Treasury to impose secondary sanctions on foreign financial institutions (FFIs) that are found to do business with Russia’s arms industry. And it has proved to be one of the most effective single steps in the battle to keep banks in third countries for facilitating deals with Russia. This week, the US government announced plans for an expansion of a secondary sanctions program to any bank doing business with a sanctioned Russian entity, not just defense companies. The title of the US Department of the Treasury’s press release set out both the problem’s scope and the response’s scale: “As Russia Completes Transition to a Full War Economy, Treasury Takes Sweeping Aim at Foundational Financial Infrastructure and Access to Third Country Support.” 

This is a major step as it increases the number of risky customers for FFIs from the current 1,200 to all 4,500 designated entities (along with 300 new designations this week), including major targets as Russia’s largest banks. At a minimum, this will force Moscow and Beijing to ringfence banks that will do business with sanctioned entities, much as Russia, in 2018, prior to the full-scale invasion, created a single major, state-owned institution, Promsvyazbank, to handle most defense business. But Chinese banks may continue to be wary of having exposure to sanctioned entities. Along with anecdotal data suggesting Chinese and Turkish banks have become wary of working with Russians. Trade data from the first quarter of the year, for example, from Turkey, appears to show a decline in exports to Russia coinciding with the executive order’s implementation beginning this year. More data in the coming weeks should help show the extent of the “de-banking” of Russian entities. It may also be driving a shift into cryptocurrency payments, as the Wall Street Journal showed in April in a major investigation of a Hong Kong-based crypto network supplying drone components to Kalashnikov Concern, one of Russia’s largest defense plants. One immediate result of the action? New sanctions on Russia’s largest stock exchange to halt US dollar and euro trading and this step could have a significant impact on equity, debt and currency markets that have proved stubbornly resilient to previous rounds of Western sanctions. Ukraine and its allies will be hoping that this is just the first blow as banks worldwide begin to see all their Russian assets and relationships as potentially toxic.

Ukraine intel re-launches accountability platform

You might not expect transparency from a country’s military intelligence body. But at the beginning of this month Ukraine’s Defense Intelligence (HUR) re-launched a vital platform allowing Ukrainians and their allies to track Russia’s enablers.  The War & Sanctions site is a welcome update to the War & Sanctions portal Ukraine’s National Agency for Corruption Prevention (NACP) launched in the early months of the war in 2022. The site gained international attention when companies (and their home governments) objected to a section called “International Sponsors of War.” Earlier this year, the Austrian government reportedly pressured Ukraine to have Raiffeisen Bank International, the largest European bank in Russia (with a large Ukrainian footprint as well) removed from the list. Ukraine refused. The new incarnation of the site allows visitors to search databases in six categories ranging from child kidnappers to foreign components in Russian weapons, although not all databases were live as of writing this update. As HUR noted about the updated site: “This is the first time in the world that a state’s intelligence agency has shared so much open data on an aggressor with the world.” This seems true and points to the value of OSINT and the power of Ukraine’s crowd-sourced approach to solving problems. It should also put foreign companies that continue to work in Russia on notice that they will continue to be named and shamed online in English, Ukrainian and Russian. For individual offenders, it is a warning that law enforcement and international courts will also be able to track their actions during the war, as will the wider world, and hold them accountable in the future.

Biosecure Act stumbles

The Biosecure Act is a bipartisan bill that seeks to guarantee that “foreign adversary biotech companies” that pose a threat to national security “do not gain access to U.S. taxpayer dollars.” The bill is overtly aimed at Chinese biotechnology companies reportedly connected to their government, even naming four (WuXi AppTec, Beijing Genomics Institute, Complete Genomics and MGI). However, this week, the Rules Committee of the US House of Representatives failed to include the bill in the National Defense Authorization Act (NDAA) as it failed to garner support from either side of the aisle. The bill had raised concerns as several US and European pharmaceutical companies use Chinese contract manufacturers. Ultimately, the US biotechnology trade group, BIO, came out in support of the legislation. Earlier this year, US intelligence officials reportedly told senators that WuXi had allegedly shared intellectual property (IP) from a US customer with the Chinese government. Whatever the fate of the legislation, the alleged decision of a Chinese company to hand over its customer’s IP is a significant blow to China’s pharmaceutical contract manufacturing sector. The wider pattern of behavior helps explain why foreign direct investment in the country has been falling sharply.

Ex-employee claims Amazon sold facial recognition to Russian firm

A London employment tribunal saw allegations aired that Amazon Web Services (AWS) sold the company’s Rekognition facial recognition software to a Russian company in violation of UK sanctions. AWS has denied this, but the allegation underlines concerns that big technology companies may sell cutting-edge technology to authoritarian countries like Russia, where rights groups have brought lawsuits to limit the use of technology. The former employee claims to have been fired for whistleblowing issues at AWS, while AWS has said he was dismissed for “gross misconduct” related to working hours. This leaves the British authorities to determine if the claims are credible and if they will take any action. The UK, like the US, has almost never taken substantial action against a large Western company for violating sanctions on Russia brought following the full-scale invasion of Ukraine. Notably, after the invasion, AWS said it would not accept new customers in Russia or Belarus, while in 2023, the Russian government added the company to a list of entities that would be required to open local offices or face a potential ban. As we have seen so many times, continued engagement with Russia opens up multinationals both to the risk of actual sanctions violations and to accusations of collaboration with state-backed companies. 

Ukrainian researchers call out the role of big oil in supporting Russia’s war effort

The environment plays a huge role in the war in Ukraine, but have activists and policymakers made the link between big oil and Russia’s aggression? For environmentalists, the war has posed immediate emergencies, such as Russia’s destruction of the Kakhovka dam last year, an act called ecocide, a crime under Ukrainian law that activists are trying to make a specific crime in the convention that governs the International Criminal Court. But Ukrainian analysts Svitlana Romanko and Oleh Savitsky, writing recently on Euromaidan, describe how the OPEC+ cartel, including Russia, has kept oil prices high, despite the attempts of G7 countries to enforce a price cap, funding Russia’s aggression in Ukraine while sabotaging global efforts to combat climate change. The Ukrainian analysis walks through the long history of big oil companies such as ExxonMobil, Total Energies, and Shell in Russia before their withdrawal in, respectively, 2014 (ExxonMobil) and 2022 (non-US oil majors). This history is well-known, but the writers make a powerful case for seeing the war as another externality caused by the continued expansion of oil and gas production and our collective failure to deal with it. In turn, Russia, a country wholly dependent on natural resource extraction, has every incentive to maintain the outsized profits from oil and gas. And despite very real risks, it appears that its leadership sees physical benefits from a warmer climate on its territory and the Northern Sea Route that can bring its resource exports directly to Asia from the Arctic. For the rest of the world, understanding the environmental causes and consequences of the war should make taking collective action on climate a national security imperative.

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