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Take the money, ask no questions

The Wilson Center held a discussion this week on “Democratic and International Impacts of Kleptocracy,” with Edward Melon, Kennan Institute Fellow, along with Casey Michel, reporter at Think Progress, and Jodi Vittori, a Fellow at the Carnegie Endowment for International Peace. The panelists touched on kleptocracy in Asia, mainly in Tajikistan and Afghanistan, and its implications for democracy. They also addressed the implications of financial secrecy as practiced in some states.

Edward Melon diagnosed the political situation in Tajikistan as extremely corrupt, with one leader, Emomali Rahamon, holding a grip on the country for decades. Since coming to power, Rahamon has built an authoritarian regime grounded on nepotism and favoritism. His family controls politics and business all over the country. His eldest son is the current mayor of the capital city. His daughter is the chief of the staff. His sons-in-law and other family members monopolize the biggest companies and projects that render the most lucrative benefits. The also embezzle money embezzlement and export capital. Tajikistan is one of the most kleptocratic countries in Asia, with a highly unequal distribution of wealth.

The state apparatus silences voices of opposition and even, as Melon puts it, engages in “transnational oppression” by targeting its opponents outside the country. This strengthened authoritarianism could revive the civil war that tore the country apart from 1992 to 1997.

Michel focused on the US. It is increasingly a hub of explicit financial secrecy internationally. The small state of Delaware has been in the forefront of implementing financial secrecy rules. Friendly laws and a unique model of “take the money, ask no questions” has captivated myriad corporations. Big companies, embezzlers, traffickers and shady corporations moved there to cloak their money in secrecy. Michel claims, “Delaware now has more corporations than people.”

But Delaware is not the only state exploiting secrecy. Nevada and Wyoming have joined it. According to Michel, in 1991 Nevada loosened its laws to model itself as Delaware of the west. By 2001, it further increased financial secrecy to attract more corporations. The same thing goes for Wyoming; it has adopted similar policies to accommodate corporations. Shell companies find such states a safe haven for their money.

Michel argues the US is ranked as the second contributor to  financial secrecy in the world after Switzerland. Delaware, Nevada and Wyoming are at the bottom of the barrel in terms of financial stanadards.

Vittori offered an overview of kleptocracy in Afghanistan. Corruption there has become endemic in almost all segments of the Afghan state. High level officials are involved in payoffs, embezzlement, and drug trafficking, fueling insurgent groups instead of combating them. The insurgents are readily recruiting, as they can provide protection and money. Vittori sees the kleptocratic environment in Afghanistan as becoming normalized, rendering the status quo more beneficial for some than reform would be.

Security sectors in a majority of Third World countries are maintained by loyal people, mostly family members or trusted individuals. Their role has more to do with defending the regime than the borders or citizens. Vittori says around 50% of the budget in sub-Saharan Africa goes to security sector. Transparency and accountability are rarely raised. Patronage and nepotism cover things up.

Bottom line: kleptocracy is inherent in weak states. It undermines democracy and the rule of law. It feeds grievances, terrorism, and criminal groups. But some democratic countries do not care about kleptocracy in other countries, as long as the money flows to them.