Kleptocracy
Kleptocracy is a government with corrupt leaders that use their power to exploit the people and natural resources of their own territory in order to extend their personal wealth and political powers. Typically, this system involves embezzlement of funds at the expense of the wider population.
Kleptocracy is different from a plutocracy and oligarchy. A kleptocracy is a government ruled by corrupt politicians who use their political power to receive kickbacks, bribes, and special favors at the expense of the populace, or simply direct state resources to themselves, relatives or associates. Kleptocrats may use political leverage to pass laws that enrich them or their constituents and they usually circumvent the rule of law.
Characteristics
Kleptocracies are generally associated with dictatorships, oligarchies, military juntas, or other forms of autocratic and nepotist governments in which external oversight is impossible or does not exist. This lack of oversight can be caused or exacerbated by the ability of the kleptocratic officials to control both the supply of public funds and the means of disbursal for those funds.Kleptocratic rulers often treat their country's treasury as a source of personal wealth, spending funds on luxury goods and extravagances as they see fit. Many kleptocratic rulers secretly transfer public funds into hidden personal numbered bank accounts in foreign countries to provide for themselves if removed from power.
Kleptocracy is most common in developing countries and collapsing nations whose economies are reliant on the trade of natural resources. Developing nations' reliance on export incomes constitute a form of economic rent and are easier to siphon off without causing the income to decrease. This leads to wealth accumulation for the elites and corruption may serve a beneficial purpose by generating more wealth for the state.
In a collapsing nation, reliance on imports from foreign countries becomes likely as the nation's internal resources become exhausted, thereby contractually obligating themselves to trading partners. This leads to kleptocracy as the elites make deals with foreign adversaries to keep the status quo for as long as possible.
A specific case of kleptocracy is Raubwirtschaft, German for "plunder economy" or "rapine economy", where the whole economy of the state is based on robbery, looting and plundering the conquered territories. Such states are either in continuous warfare with their neighbours or they simply milk their subjects as long as they have any taxable assets. Arnold Toynbee has claimed the Roman Empire was a Raubwirtschaft.
Financial system
Contemporary studies have identified 21st century kleptocracy as a global financial system based on money laundering. Kleptocrats engage in money laundering to obscure the corrupt origins of their wealth and safeguard it from domestic threats such as economic instability and predatory kleptocratic rivals. They are then able to secure this wealth in assets and investments within more stable jurisdictions, where it can then be stored for personal use, returned to the country of origin to support the kleptocrat's domestic activities, or deployed elsewhere to protect and project the regime's interests overseas.Illicit funds are typically transferred out of a kleptocracy into Western jurisdictions for money laundering and asset security. Since 2011, more than $1 trillion has left developing countries annually in illicit financial outflows. A 2016 study found that $12 trillion had been siphoned out of Russia, China, and developing economies. Western professional services providers are an essential part of the kleptocratic financial system, exploiting legal and financial loopholes in their own jurisdictions to facilitate transnational money laundering. The kleptocratic financial system typically comprises four steps.
The United States is international kleptocrats' favoured jurisdiction for laundering money. In a 2011 forensic study of grand corruption cases, the World Bank found the United States was the leading jurisdiction of incorporation for entities involved in money laundering schemes. The Department of Treasury estimates that $300 billion is laundered annually in the United States.
This kleptocratic financial system flourishes in the United States for three reasons.
The vast majority of foreign transactions take place in US dollars. Trillions of US dollars are traded on the foreign exchange market daily making even large sums of laundered money a mere drop in the bucket.
Currently, there are only around 1,200 money laundering convictions per year in the United States and money launderers face a less than five percent chance of conviction. Raymond Baker estimates that law enforcement fails in 99.9% of cases to detect money laundering by kleptocrats and other financial criminals.
Other Western jurisdictions favoured by kleptocrats include South Africa, the United Kingdom, and its dependencies, especially the British Virgin Islands, the Cayman Islands, Guernsey, and Jersey. Jurisdictions in the European Union which are particularly favoured by kleptocrats include Cyprus, the Netherlands, and its dependency the Dutch Antilles.
Effects
The effects of a kleptocratic regime or government on a nation are typically adverse in regards to the welfare of the state's economy, political affairs, and civil rights. Kleptocratic governance typically ruins prospects of foreign investment and drastically weakens the domestic market and cross-border trade. As kleptocracies often embezzle money from their citizens by misusing funds derived from tax payments, or engage heavily in money laundering schemes, they tend to heavily degrade quality of life for citizens.In addition, the money that kleptocrats steal is diverted from funds earmarked for public amenities such as the building of hospitals, schools, roads, parks – having further adverse effects on the quality of life of citizens. The informal oligarchy that results from a kleptocratic elite subverts democracy.
Examples
According to the "Oxford English Dictionary", the first use in English occurs in the publication "Indicator" of 1819: “Titular ornaments, common to Spanish kleptocracy.”According to at least one commentator, parasitism may be the new social paradigm involving class warfare and exploitation of electoral processes of myriad and disparate countries around the world. See Oligarchy and Elite capture.
In early 2004, the German anti-corruption NGO Transparency International released a list of what it believed to be the ten most self-enriching leaders in the past two decades.
In order of amount allegedly stolen USD, they were:
- Former Indonesian President Suharto
- Former Philippine President Ferdinand Marcos
- Former Zairian President Mobutu Sese Seko
- Former President of Burma Ne Win
- Former Prime Minister of Malaysia Najib Razak
- Former Nigeria Head of State Sani Abacha
- Former Yugoslav President Slobodan Milošević
- Former Haitian President Jean-Claude Duvalier
- Former Peruvian President Alberto Fujimori
- Former Ukrainian Prime Minister Pavlo Lazarenko
- Former Nicaraguan President Arnoldo Alemán
The Russian president Vladimir Putin is alleged to be the "head of the clan", whose assets are estimated at over $200 billion. A list of Russian and Ukrainian politicians associated with "kleptocratic style" has been published by the Kleptocracy Archives project.
Sources have also alleged that former Egyptian President Hosni Mubarak stole up to $70 billion.
In addition, other sources have listed former PLO Chairman Yasser Arafat as having stolen $1 billion to $10 billion; and Pakistani President Asif Ali Zardari to have received kickbacks on contracts and misappropriating public funds, siphoning over $2 billion to his Swiss accounts.
Former Sudanese President Omar al-Bashir has been accused of siphoning off up to $9bn of his country's funds by the chief prosecutor of the International Criminal Court.Luis Moreno Ocampo told the BBC that President Bashir had hidden the money in personal accounts outside Sudan. Mr Ocampo's suspicions originally came to light when a diplomatic cable obtained by Wikileaks was published by the Guardian newspaper. Sudan has forcefully denied the claims. The ICC's chief prosecutor has charged Mr Bashir with crimes against humanity, war crimes and genocide over alleged atrocities in Sudan's Darfur region.
The former Chairman of BTA Bank Mukhtar Ablyasov is alleged to have embezzled more than $6 billion from his bank committing the largest financial fraud in history.
In May 2017, the Carnegie Endowment for International Peace released a report detailing what it called a kleptocratic network across the government and private sector in Honduras.
Nursultan Nazarbayev is a head of the Kazakhstan ruling clan with $7 billion assets.
China's former prime minister, Wen Jiabao, left office in 2013 with his close relatives controlling assets worth at least $2.7 billion. These revelations were censored in print and censored online in China.
Former Malaysian Prime Minister Najib Tun Abdul Razak had $731 million in his personal bank accounts when his ruling-party alliance Barisan Nasional lost the 14th election to opposition party Pakatan Harapan led by former Prime Minister Mahathir Mohamad, in part because of allegations of participating in the 1MDB scandal.
In Spain, Catalan former regional president Jordi Pujol from 1980 until his retirement in 2003, allegedly of all public works in Catalonia for his party and himself. In 2014, he confessed to own millions in bank accounts in Andorra. Two of his sons, Jordi and Oriol, both politicians, served jail sentences for corruption that continued when his party returned to power in 2010. Diverse sources affirm that the Pujol family stole from 1.8 to 3 billion euro.
Spanish real estate mogul and right-wing populist politician Jesús Gil implemented a kleptocratic system during his tenure as mayor of Marbella, from 1991 to 2002, when he was jailed for moving money from the city council to the association football club Atlético Madrid, which he owned. HBO biographic series El Pionero depicts Gil breaking corporate, urbanism and environmental laws and offering bribes to local judges. After Gil was barred from office, members of Gil's party as Julián Muñoz and Marisol Yagüe continued the kleptocratic system as mayors of the city. Despite Gil died in 2004, investigations in 2006 led to the Operation Malaya, one of the greatest corruption scandals in Spain. Under Gil's party's rule, the city became a haven for organized crime. 500 million euro were stolen, over 600 million were laundered, and when the Marbella city council was dismissed by Prime Minister José Luis Rodríguez Zapatero, it owed over one billion euro in taxes to the Government of Spain.
The term kleptocracy was also used to refer to the Russian economy, soon after the Soviet collapse in 1991. The "democrats", led by Yegor Gaidar and Anatoly Chubais, freed prices in 1992 and unleashed hyperinflation before they privatized Russia's assets. Most Russian citizens lost their savings in only a few weeks. A few billionaire "oligarchs" amassed fortunes not by creating new enterprises, but by arbitraging the huge difference between old domestic prices for Russian commodities and the prices prevailing on the world market. Instead of investing in the Russian economy, they stashed billions of dollars in Swiss bank accounts. Experts estimate that as much as $15 billion left Russia each year as either capital flight or laundered money from illegal transactions. Referring to Russia, Daniel Kimmage also used the terms: "kerdocracy" or "khrematisamenocracy".