How the U.S. Can Fight Corruption After Trump

To combat international graft, America needs to first clean up its own financial institutions.

Earlier this year, former Vice-President Joseph Biden spelled out his plan for America’s foreign policy in an essay in Foreign Affairs. Biden offered a vision of global leadership rooted in principles and objectives that would be familiar to veterans of past Democratic administrations, such as the importance of alliances and partnerships in confronting shared challenges; the moral imperative to defend democracy and human rights; the pursuit of an international economic system that works for the American middle class; and a preference for diplomacy and negotiation over military force.

But alongside these familiar themes, Biden’s essay exhibited a more novel preoccupation: corruption. In describing how he would advance American values and interests abroad, the vice president repeatedly linked the defense of democracy with the fight against graft. Corruption, Biden wrote, is an “insidious pandemic” that is “fueling oppression” and “equipping authoritarian leaders with a powerful tool.” The presumptive Democratic nominee promised to issue a presidential directive during his first year in office “that establishes combating corruption as a core national security interest and democratic responsibility.”

Biden was not the only Democratic primary candidate to draw attention to corruption in his foreign policy platform. Elizabeth Warren, widely hailed as the policy heavyweight of the election season, released two separate foreign policy-related corruption plans during her campaign. Bernie Sanders made fighting corruption a central element of his two major speeches on U.S. foreign policy, asserting that “inequality, corruption, and oligarchy” are “part of the same system” and must be “fought in the same way.” By contrast, Hilary Clinton’s most extensive speech on foreign policy during the 2016 presidential campaign didn’t reference corruption at all.

The newfound emphasis on international graft in left-of-center thinking is long overdue. As transparency advocates have long pointed out, it’s hard to think of a U.S. foreign policy interest or progressive value that isn’t undermined or threatened by corruption. Left to fester, corruption drains governments of their ability to carry out their most elemental duties and respond to the needs of their citizens. At a minimum, this breakdown of state functions impairs effective action on major global challenges, such as climate change. In more severe cases, it leads public officials to become complicit in activities such as transnational crime, human rights abuses, and terrorism. Black market dealings even helped Pakistan acquire nuclear weapons.

Even for hard-nosed advocates of a “realist” foreign policy, corruption should be a leading concern. The increasingly pro-Moscow tilt of governments in Hungary and Serbia has coincided with a growing Russian economic footprint in the energy sector, made possible through public contracts awarded through opaque,non-competitive tenders. And highly corrupt governments everywhere tend to be unreliable security partners. In Afghanistan, the efforts of the United States and its allies to build an effective Afghan military and government foundered on a political system plagued by systemic graft. The U.S.’s decades-long effort to reduce narco-trafficking in Latin America has failed in large part because cartels and other criminal organizations have been successful in bribing the region’s bureaucrats and politicians.

But it won’t be possible to tackle corruption by treating it as a foreign policy problem alone. Joe Biden, to his credit, wrote as much in his Foreign Affairs essay, arguing that “we need to close the loopholes that corrupt our democracy” in order to “reinforce the democratic foundation of the United States and inspire action in others.”

Such a call to action is laudable, but it won’t be easy—and it will involve more than just closing loopholes. As Donald Trump’s blatant self-enrichment, sordid business past, and suspected dealings with foreign powers illustrate, corruption is not just a problem for low-income countries. And while the victims of corruption do often live under poor and dysfunctional governments, its enablers can be found in some of the wealthiest and best-governed countries in the world. Kleptocrats abroad funnel their money through Americanand European financial institutions. Businessmen store their bribes in our banks. Until the United States and other advanced economies get serious about breaking the chain of corruption at home, it will continue to thrive abroad.

Although corruption is by its nature clandestine, thanks to the Panama Papers and other leaks from offshore financial centers and exposés by investigative journalists, the last decade has provided a glimpse into its reach and breadth. These streams of information all point towards the same conclusion: much of the grand corruption that exists in the world today runs through and depends on global financial centers and access to high-value assets in advanced economies.

What may be the biggest money laundering scandal in history, for example, occurred not in an infamously secret jurisdiction like the Cayman Islands, but in Estonia, a country at the heart of the European Union and perhaps the most tightly-regulated and professionally managed market economy in the world. The primary culprit was not a shadowy, fly-by-night entity but rather Danske Bank, the largest bank in Denmark. Between 2007 and 2015, an estimated 200 billion euros in suspicious transactions—a significant portion of which is believed to be connected to Russian wealth, including the family of Vladimir Putin and the Russian intelligence services—passed through the institution’s Estonia branch. In many cases, it used opaque corporate vehicles registered in the United Kingdom. As the cash flowed, Danske Bank’s management repeatedly declined to rein in its branch, despite both an internal whistleblower complaint and concerns from Danish and Estonian regulatory authorities.

There are other, arguably even more outrageous examples. In 2013, the U.S. branch of HSBC, Europe’s largest bank, admitted to laundering nearly $900 million for drug cartels in Mexico and Colombia. The federal investigation that led to that admission also determined the bank had facilitated transfers to terrorist groups in the Middle East. Rather than pursue criminal charges against the bank, however, senior officials at the Department of Justice overruled the recommendation of lower-level prosecutors and pursued a non-criminal settlement with HSBC over fears serious charges would lead to global financial turmoil. The bank’s executives, whom investigators believed were complicit in the breach, received no sanction other than partially deferred bonuses

Danske Bank and HSBC were not one-off glitches in an otherwise well-functioning system, but rather symptoms of a broader rot. The Miami housing market has become a favorite destination for Venezuelan officials to park money stolen from state coffers. One of the most prominent trading firms in Switzerland is under investigation by threedifferentgovernments for its role in pilfering mineral resources in Africa. Global consulting powerhouse McKinsey entered into an illegal contract in South Africa with the company at the center of biggest graft scandal the country’s history. A Malaysian embezzlement scheme that eventually toppled a prime minister was enabled by Goldman Sachs.

Indeed, recent years have demonstrated how malicious actors can use wealthy countries’ institutions to literally export corruption to vulnerable states. The Brazilian construction giant Odebrecht, for example, managed to corrupt half the governments of Latin America not because those countries’ justice systems were unusually feeble, but because the firm established a highly effective “bribery division” that used the same tools and techniques as kleptocrats and crime networks to dole out kickbacks on an industrial scale. A recent investigation into the scheme found that Oderbrecht “funneled hundreds of millions of dollars in secret payments through companies and banks in countries around the world,” including the United States, China, Switzerland, and the Netherlands. In one illustrative transaction, Oderbrecht sent funds to a company incorporated in the Bahamas, which passed it to a different firm registered in the Dominican Republican, which in turn bought a $2 million apartment in Manhattan.

Regardless of the outcome of the election in November, Trump will eventually have to leave office. If the person who succeeds him is serious about moving corruption to the center of the U.S. foreign policy agenda, they will need to reckon with the uncomfortable truths about global graft that the past four years have brought into stark relief. An anticorruption agenda that meets the lessons of the Trump era is one that recognizes corruption as an existential threat to global democracy that wealthy nations have played a disproportionate role in enabling—and by extension bear a disproportionate burden in combating.

Such an agenda means moving beyond the prevailing approach to corruption in many western capitals, which assigns a benevolent role to high-income democracies as anticorruption champions with the technical expertise, financial resources, and in some cases the law enforcement power to set graft-stricken countries on a path towards good governance. This mindset still animates much of anticorruption policy in Washington. A current bill before Congress, for example, seeks to counter overseas kleptocracy by establishing an “Anti-Corruption Action Fund” that would “provide extra funding during historic windows of opportunity for reform in foreign countries.” This is not to say that anticorruption-related foreign assistance should be curtailed, of course. But policymakers should recognize the hypocrisy and counterproductivity of scolding and cajoling poorer nations to clean up their institutions when their own firms and citizens have all contributed directly to corruption in the developing world.

The United States will need to think bigger to address the problem. We will need to impose real costs on companies and people that aid in corruption, such as criminally prosecuting and blacklisting large financial institutions and other private sector actors that enable money laundering and illicit financial flows. We will need to close the many glaring weaknesses in our anti-money laundering regulations. And last but not least, we will need to overhaul our domestic bribery and lobbying frameworks, which have effectively legalized corruption in our own political system. The Supreme Court, for example, recently interpreted the main federal bribery statue so narrowly that it excludes acts most observers would intuitively recognize as corrupt, such as a governor facilitating meetings with regulators on behalf of businessmen who had gifted him a Rolex and other pricey baubles

The U.S. will also need to rethink how it deals with foreign states. It must be willing, for example, to raise the international stakes for abetting in corruption. At a minimum, it must sanction secrecy jurisdictions and those who profit from them even where such measures could raise tensions with geopolitical partners. In certain cases—for example when a government is subject to a high degree of state capture by external actors—the U.S. could even strategically leak damning scandals to opposition figures, civil society and the press. It must placesustained pressure on other G-7 members and the European Union to give teeth to their anti-money laundering rules and other anticorruption norms. These initiatives should all be backstopped by a coordinated and well-resourced effort within the federal government to identify and disrupt kleptocratic networks overseas.

In the global fight against graft, the most promising and the most important ally for the United States will be the European Union. Combined, the United States and the EU have oversight of the lion’s shareof international financial transactions. A joint commitment to strengthen and harmonize anti-corruption efforts, if carried out in good faith, would result in a dramatic improvement in the transparency of the global financial system. One key innovation the two actors could pursue under such an anticorruption banner would be a multilateral information-exchange system for suspicious financial activity, similar to a mechanism that many countries use to share information about foreign-owned bank accounts for tax purposes.

These efforts cannot start too soon. For too long, the United States has kept the lights off in its own home and sought out corruption where it is most obvious. But what’s most visible may not be what’s most dangerous or most repugnant. The Trump presidency has put a harsh glare on some of the more squalid corners of our own system, but there are many dark rooms left to explore.

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Trevor Sutton

Trevor Sutton is a senior fellow for National Security and International Policy at the Center for American Progress.