FEATURED VS. THE KLEPTOCRATS? BY TOM MAYNE AND PETER ZALMAYEV 20 | HARRIMAN When we examine U.S. anti- corruption efforts related to this region, the overwhelming focus has been on Russia, due to the allegations of state-sponsored election meddling and the introduction in 2012 of the Magnitsky Act, which sanctioned those involved in a specific scandal—the imprisonment and resulting death of a lawyer who had been working on a Russian corruption case. This was expanded in 2018 with the introduction of the Global he presidency of Joe who sat on committees that Magnitsky Act, which allows the Biden comes at a determine foreign aid budgets. If U.S. to sanction any foreign actor time when there is a the problem were just a question involved in corruption and human growing awareness of corrupt foreign actors, Western rights abuses anywhere in the world. of “kleptocracies”— law enforcement agencies could Yet, before December 2020, only two Tcountries where a ruling elite embezzles seize assets, refuse visas, or jail these individuals from the former Soviet state funds at the expense of the people. individuals. Yet the problem is more Union had been sanctioned: the The damage caused by this corruption insidious, and key to understanding daughter of the former president of isn’t just local; it also has a corrosive kleptocracies is the West’s role in Uzbekistan and a Latvian oligarch. effect on democratic countries. enabling such theft in the first place. This is surprising, given that countries Oligarchs from abroad who buy luxury People tend to think of kleptocracies such as Azerbaijan, Turkmenistan, and apartments and mansions (which often as geopolitical backwaters—of little Kazakhstan have consistently poor sit empty) raise property prices past importance to the West, save for their scores on international corruption what the average citizen can afford. oil and gas; however, this fails to take rankings. The reasons for this blind Corrupt money destabilizes markets into account the interconnectedness of spot are debatable, but they are likely when companies are used as cash the political economy of these corrupt to be a combination of a relative cows and need to be bailed out—not nations with the financial economies lack of geopolitical interest and a to mention, democracy itself can be of so-called liberal democracies. preoccupation with countries undermined by these forces. Kleptocrats can only thrive when involved in high-profile human There are several examples of a team of Western enablers helps rights abuse cases, such as Yemen these corrosive effects. To cite them—lawyers, accountants, real estate and Saudi Arabia. just one, for years the Azerbaijani agents, reputation managers who government ran a secret slush fund facilitate the transfer of officials’ ill- that funneled millions of dollars to gotten gains from their home countries Above: Opposition supporters hold various entities. In turn, these entities to our shores. Harriman director portrait of Russian lawyer Sergei would lobby governments across Alexander Cooley and coauthor John Magnitsky during a march in memory the world in its favor. One recipient Heathershaw make this point in their of murdered Kremlin critic Boris of these funds was a mysterious 2017 book Dictators without Borders; Nemtsov in downtown Moscow Baku-based organization that hired “dictators operate beyond borders . (February 29, 2020). Photo by Nikolay a Virginia firm to lobby the U.S. and across borders [using] elite and Vinokurov/Alamy Stock Photo. government; for more than a decade even cosmopolitan networks that have it orchestrated praise for Azerbaijan enhanced the international status of and funneled campaign donations these autocrats and safeguarded the to senators and representatives privacy of their dealings,” they write. HARRIMAN | 21 FEATURED Change may be on the horizon, however: December 2020 saw Raimbek Matraimov, a former customs official of the Kyrgyz Republic, added to the sanctions list for his involvement in a customs scheme in which at least $700 million was laundered. The Biden administration can draw a sharper line by adding Kazakh, Uzbek, Tajik, Turkmen, and Azerbaijani officials who commonly feature in corruption investigations. The first question would be: where to start? Nazarbayev, was alleged to have been UK and EU, real estate agents are not In Azerbaijan, the president’s in line to receive a €12 million bribe in bound by the same money laundering daughters control key telecoms and relation to a deal involving the sale of regulations as bankers. This means mining contracts and invest the helicopters to Kazakhstan by Airbus. that professionals involved in a real money in luxury real estate in the Along with sanctioning individuals, estate transaction in the U.S. do not UK. In Turkmenistan, the country’s the U.S. can do much to improve the have to perform due diligence on eccentric president, Gurbanguly oversight of the U.S. banking system their client, or even establish whether Berdymukhamedov, runs his country to unravel the often-complex offshore these clients are foreign officials or like a family business, with dissenters structures that corrupt officials use “politically exposed persons,” in anti- thrown in jail and never heard from to steal state resources. Last year’s money laundering lingo. When Radio again. In Kazakhstan, the country’s Financial Crimes Enforcement Free Europe revealed last year that the rich are all political cronies or family Network (FinCEN) file leak—of now former President Nazarbayev’s members of the country’s first Suspicious Activity Reports filed by relatives had invested $785 million president, Nursultan Nazarbayev. His banks when there is a suspicion or in real estate in six countries, it came son-in-law, Timur Kulibayev, earned risk of illegal financial activity—raised as no surprise that the United States tens of millions of dollars from a secret several important issues. First, that was one of them, with Nazarbayev’s scheme linked to the construction though filing a report is an obvious brother and his brother’s ex-wife of a multibillion-dollar gas pipeline good, banks have little incentive to owning a beachfront apartment in between Central Asia and China; close the account, as they continue to Florida, an eight-bedroom mansion and Karim Massimov, who served accrue bank fees while escaping legal in New Jersey, and three luxury two terms as prime minister under liability. Second, for such a system apartments in Manhattan.1 to stop financial crime successfully, On the plus side, the U.S. you need proper enforcement by a government has had some recent Above: IAEA Director General Mohamed well-funded FinCEN that is equipped success in clamping down on dubious ElBaradei (far left) escorts H. E. Mr. to analyze the 2.75 million reports it real estate investments: in January Nursultan A. Nazarbayev, president received in 2019. This is however not 2016 FinCEN introduced Geographic of Kazakhstan (center), during his the case: FinCEN is estimated to have Targeting Orders, requiring the departure at the IAEA headquarters only around 300 staff to investigate identification of the actual owners of in Vienna, Austria, alongside Vilmos literally millions of documents. So the companies used in all-cash purchases Cserveny (far right), IAEA Director, dubious money keeps flowing. of residential real estate over a certain Office of External Relations and Policy One likely destination for these value in key metropolitan areas. After Coordination (September 9, 2004). dubious funds is real estate. The initially being introduced in just Photo courtesy of IAEA image bank/ problem is especially acute in the two regions, Targeting Orders were Wikimedia Commons. United States where, unlike in the extended to cover 12 metropolitan 22 | HARRIMAN major setback when a wealth order related to the family of Kazakhstan’s former president Nazarbayev was rejected by the High Court. The case collapsed in part because UK law enforcement focused on trying to tie the properties to Nazarbayev’s dead son-in-law instead of on the sources of his daughter’s wealth. At the time, she chaired the Kazakh Senate. It is unclear why the UK did this, but one can well imagine the sort of political and diplomatic pressure that areas, including New York, Chicago, may have been in play. This raises and Los Angles—high-end markets an important point: political will is which attract potentially corrupt needed to go after kleptocrats, even buyers.2 According to research by the if it causes some geopolitical tension. Federal Reserve Bank of New York Historically, the United States has and the University of Miami, clients been one of the only countries not buying homes with cash via shell afraid to go after the networks of companies in Miami-Dade decreased those in political office, even our by an astonishing 95 percent in the so-called allies. In 2003, despite first year after Targeting Orders American companies vying for oil were introduced.3 It is clear that and gas contracts in Kazakhstan, the U.S. government should make the U.S. Department of Justice this legislation the norm across the indicted a Californian businessman, country to prevent criminals and James Giffen, on Foreign Corrupt corrupt foreign officials from simply Practices Act charges.4 This caused moving to a region not currently considerable embarrassment for one covered by it. of the bribe recipients, President The United States could also Nazarbayev, who, along with the follow the UK’s lead and introduce country’s oil minister, was alleged to Unexplained Wealth Orders, which have received $84 million in Swiss reverse the burden of proof. Instead bank accounts. Focusing enforcement of law enforcement officials having to prove criminality—an extremely time-consuming, resource-draining, Above: U.S. Secretary and often impossible task—foreign of State Rex Tillerson officials or those suspected of serious (right) meets with Kazakh crimes have to prove that their sources Chairman of the State of wealth are legitimate.