Dirty, anonymous money is destroying democracies, ‘Kleptopia’ author charges

Tom Burgis says financial secrecy has made the world safe for kleptocrats, and warns Israel is no exception

Simona Weinglass is an investigative reporter at The Times of Israel.

Tom Burgis, author of "Kleptopia" (Photo by Charlie Bibby)
Tom Burgis, author of "Kleptopia" (Photo by Charlie Bibby)

Since the 19th century, in fits and starts, democracy has spread to more and more parts of the world. Nations that were formerly governed by narrow elites for their own benefit extended voting rights, education, welfare and social security to larger swaths of their populations. But over the last two decades, many political scientists have noted a reverse trend: growing economic inequality combined with the rise of autocratic leaders, weakening democratic institutions and weakening rule of law in country after country.

In a new book, “Kleptopia: How dirty money has conquered the world,” Tom Burgis offers a global theory for why this is happening and how power actually works in 2020. Burgis is an award-winning investigations correspondent for the Financial Times in London who has reported extensively from the UK, Africa and South America. In 2012, he scooped the Israeli media by breaking the story of alleged bribery and corruption in Guinea by Israeli diamond mogul Beny Steinmetz.

Throughout the world, Burgis says, rulers, including elected rulers, are increasingly wielding power through corruption. They enact policies to enrich themselves and a small clique of their cronies. Their interests align more with those of kleptocratic leaders in other regimes than with those of the people they govern. After his election in 2016, writes Burgis, Donald Trump helped to build a new “global alliance of kleptocrats” controlling “the three great poles of power” — the US, China and Russia. The task of the incoming Biden administration in this regard, he argues, will be to “seek to restore the independence of the judiciary and law enforcement agencies that Trump so wantonly sought to compromise.” The opposite of kleptocracy, he notes, “is the rule of law.”

Burgis further suggests that the primary device through which kleptocratic leaders gain and hold onto power is the front company, or the anonymously owned offshore company. “We call these front companies because that’s all you can see: the front,” he has written. “They are the sleeper cells of an emerging global kleptocracy, mechanisms through which illegitimate power is turned into money and smuggled into democracies to buy influence over legitimate power.”

The book, which reads like a nonfiction novel, tells the story of this emerging world order through the activities of Nigel Wilkins, a British banker who tried to blow the whistle on the dark deeds behind the dirty money laundered through London’s City and was fired from his job at Britain’s Financial Conduct Authority. It also features a cast of Russian and central Asian oligarchs, including three men whose mining company, Eurasian Natural Resources Corporation (ENRC), came under a corruption investigation by the British Serious Fraud Office that has proceeded at a snail’s pace ever since three potential witnesses died and a government investigator fell ill from what he believed to be poisoning.

Several Israelis, including individuals who don’t actually live in Israel but managed to obtain Israeli citizenship, figure prominently in Burgis’s narrative. These include Alexander Mashkevitch, one of the shareholders of ENRC; Dan Gertler, an Israeli diamond tycoon and crony of politician Avigdor Liberman who was sanctioned by the United States Treasury for “opaque and corrupt mining and oil deals in the Democratic Republic of the Congo (DRC)”; and the Israeli spy-for-hire firm Black Cube, which Burgis claims was hired by ENRC oligarchs to dig up dirt on a rival Kazakh oligarch who fell out of favor with the regime.

Israeli billionaire Dan Gertler (Screen captureL YouTube)

The Times of Israel interviewed Burgis to try to understand more about his “kleptopia” theory, how it affects geopolitics, and the role Israel or Israelis play within the corrupt world order he describes.

The Times of Israel: Can you explain what “kleptopia” is and provide some examples of it?

Tom Burgis: Kleptopia is the transnational alliance of corrupt power. To my mind kleptopia is the rule of corruption, when corruption stops being an aberration and starts being the primary mechanism for wielding power.

So people hold power not through the consent of the people in whose name they rule, but to enrich themselves. In some cases, they go through elections. But those elections become to a greater or lesser extent shams because either all the candidates or the victorious candidate is actually not seeking to protect or advance the common good, but to enrich themselves and their clique, and then to use the corrupt enrichment to entrench that power further.

Now, kleptopia is that spirit, but also increasingly you can map it geographically. So if you look at all points from Budapest to Beijing, from Tehran to Pretoria, and from Buenos Aires northwards, and try to point out on that map places that are not primarily ruled through corruption, you’ll find, sadly, that you’re pointing out a minority, a shrinking minority of countries.

The vocabulary we use to talk about geopolitics and power is outdated. It belongs to a time when we talked about statecraft. We imagined nations, essentially as people, acting in their own interests. But what happens in kleptopia is that the interests of the rulers are detached from the interests of the ruled.

For years, everyone said that the conflict between Israel and its neighbors was this sort of religious and ethnic conflict. But then all of a sudden, we see that Israel is rumored to be about to make peace with Saudi Arabia. So how does one explain that [in the context of your argument]?

In my 2015 book, “The Looting Machine” I describe working as a reporter in Nigeria. You’ll see in a moment where I’m going with this. One day in 2010, we heard there’d been some terrible violence. Together with a couple of other journalists, we made it to this village, the inhabitants of which had been slaughtered in the most horrendous ways. A woman had been stuffed into a well. Children had been burned alive. It was like looking at hell.

That really messed me up for quite a long time. But it also made me think profoundly about these questions and about what caused this slaughter.

This comes to your point. On the surface, there’s a stock narrative about Central African or West African violence of this kind. In this case, it’s Christians versus Muslims. Or you can read it another way, which is one Nigerian ethnic group against another.

It is true that those identities are crucial to the violence. But there’s a deeper cause, which is why I spent a lot of time trying to figure out what was behind that particular massacre.

In this image taken from TV showing the bodies of victims of inter-faith violence as a crowd gathers around, in the town of Dogo Nahawa, Nigeria, about three miles (five kilometers) south of the city of Jos, March 7, 2010. Rioters armed with machetes slaughtered more than 200 people, many of them women and children, which are being collected from where they lay, in the streets of this central Nigerian town. (AP Photo/NTA TV)

The way the Nigerian system works is that it has oil that it sells it to foreign oil companies. They pay dollars, and the people who rule Nigeria carve up the dollars amongst themselves. And then they trickle a bit of it down to buy sufficient loyalty from a sufficient number of people to remain in power and be able to go on looting.

Now, that kind of patronage system is never enough on its own because, you know, someone could always come along and offer a bit more. There’s a lot of money in Nigeria and the patronage system works relatively well. But you need a second component.

Almost every kleptocratic system works like this. You need the second part, which is tribal loyalty. You cannot appeal to the people and say, “here is my record of advancing your interests.” because you’ve done no such thing. You’ve been nakedly stealing.

There is no contract between rulers and ruled. You’re not saying, “this is my record on health, education and so on.” Or you might say such things, but it’s complete rubbish. So what you do is you manipulate ethnic sentiment, the most basic and brutal form of loyalty. This happens everywhere. This happens in rich, advanced kleptocracies and very poor ones.

And so that massacre, I think, was the result of ethnic hatred being stirred up by a kleptocratic ruling class. You can follow the way money is dished out in that area, how it favors one group over another. And the groups who are not favored by that patronage system get whipped up into a sort of ethnic frenzy against those who do benefit from it. And those who do benefit from it are encouraged to think in ethnic terms about protecting their part of the kleptocratic system. And you get to violence.

I am not an expert on Israel and Palestine, but I think that model can be a useful way to try to examine Israeli and Palestinian politics and Israel’s foreign relations. Ethnic and religious narratives are very useful diversions when in fact what’s happening is that an increasingly corrupted Israeli elite is entering an agreement with an utterly corrupted Saudi elite.

At least from the Israeli point of view, normalization with the Saudis, the UAE and others in the region is hugely important — widening a circle of peace and turning enemies into allies. There are financial aspects to this, for sure. And among the first wave of Israelis flocking to do business in UAE are several who do business with and through shell companies. But normalization with the Arab world is a foundational Israeli goal.

A very good maxim for gauging in whose interests powerful people are really acting emerged during the Watergate affair: follow the money. Of course, there are always other forces at play too: personal, political, historical. But it is always wise to look through the kleptopian lens to see what we might miss if we just swallow the standard narratives of geopolitics.

Around the world we see this rising authoritarianism and we see even democratic countries becoming less democratic. In many of those countries, at the very same time, there seems to be greater animosity between left and right or between ethnic groups.

Look at it in a cold-eyed way. Look at Viktor Orban’s government in Hungary, look at [Russian President Vladimir] Putin. Look at Donald Trump, who governs like a kleptocrat. You can put money in his pocket through his hotel or Mar-a-Lago. Before he was president, he spent long years, as I show in the book, being sustained by money from the ex-Soviet kleptocracies. Those are his allies.

US President Donald Trump (left) welcomes Hungarian Prime Minister Viktor Orban to the White House in Washington, May 13, 2019. (AP Photo/Manuel Balce Ceneta)

Look at North Korea. It’s a fantastic example to think of North Korea primarily as a kleptocracy with all sorts of absolutely insane founding myths about the Kim family. Look at Putin’s nationalism, Orban’s nationalism, look at Maduro’s nationalist posturing. These guys are kleptocrats. What they are doing is looting. I’m sure they believe their propaganda that they are visionaries and nationalist heroes and so on. But the mistake we make is to think that the nationalism is what this is about. The nationalism is the diversion.

You know, Putin has grown closer to the Orthodox Church and become more nationalist as his regime has stolen more and more money. Orban’s regime is riddled with corruption. So is that of Duterte in the Philippines.

You write about the rise of kleptocracy and the demise of the liberal world order. How did we get to this state of affairs?

I’d like to pick three big factors. One is globalization. After the end of the Cold War, electronic money became global. The systems by which money moves and acts became global, but the systems for regulating money remained national. So we essentially lost control of money.

As societies we lost any way to regulate money and to subject it to the law because the institutions to do that were national, but money was global, so we couldn’t grab hold of the money we were supposed to impose society’s norms upon.

That’s one factor. A second factor is the collapse of the Soviet Union, which
precipitated maybe the greatest-ever transfer of money held by a state to private individuals. The 1990s was the decade when that money was appropriated or stolen or privatized or whatever you want to call it.

That process created a wildly kleptocratic system that is inherently volatile and lacks the protection of the rule of law. All the people who had that money wanted to put it in places that did have the rule of law so they could protect it.

They moved their money into democracies. Democracies are the best place to put your money, because they have courts that are more or less independent. As a result, a huge tidal wave of money started to move into democracies. With the money came a sort of kleptocratic spirit. So if you’re going to buy a big house, why not also buy a politician? Why not try to manipulate a court case? What started to happen was that democratic institutions started to be manipulated by kleptocrats.

The biggest source of this kleptocratic money came from Russia and the rest of the former Soviet Union. But a lot of it came from kleptocratic client states like Congo, parts of South America and Malaysia.

The third factor is that instead of being connected to superpowers, these dictatorships became connected to the corporate world. The superpowers and the old imperial powers were essentially replaced by corporate powers.

So, for instance, ExxonMobil is the imperial power of Equatorial Guinea. The people of Equatorial Guinea have absolutely no say or hold over Exxon Mobil’s decisions and actions.

Russian President Vladimir Putin, left, and President of Equatorial Guinea Teodoro Obiang Nguema Mbasogo pose for a photo during their meeting on the sideline of the Russia-Africa summit in the Black Sea resort of Sochi, Russia, Thursday, Oct. 24, 2019. (Valery Sharifulin, TASS News Agency Pool Photo via AP)

As a result you have multinational corporations, very, very powerful ones, richer than almost any country, locked in relationships with dictators. This is driven by places that sell the basic ingredients of the global economy, like oil and minerals.

Those are three big trends — globalization, the collapse of the Soviet Union, and the rise of multinational corporate power linking up with dictatorships.

A lot of people make a lazy, sometimes borderline racist assumption that corruption is something that is inherent to people in poor places. My experience of living in kleptocracies is that quite often the opposite is true, that kleptocracy is imported to those places. It’s the big economic powers from the West and increasingly China that use corruption to ensure their political and economic interests in poor places.

Has kleptopia suffered a setback in your view as a result of Joe Biden’s win? 

Donald Trump openly monetized the presidency, formed a global alliance of kleptocrats, energetically undermined the rule of law — and received more than 70 million votes when he stood for reelection. Without the pandemic, he might well have had four more years. He may yet make destructive moves as he seeks to preserve his immunity from prosecution. I fear that the proponents of kleptopia will be feeling very pleased at their advances into the world’s strongest democracy.

What steps can a Biden administration take to strengthen democracy and combat corruption in the US and around the world?

The opposite of kleptocracy is the rule of law. On that front, the Biden administration should seek to restore the independence of the judiciary and law enforcement agencies that Trump so wantonly sought to compromise. That means not interfering in whatever legal reckoning is coming for Trump and his people. More broadly, an agenda of radical financial transparency — coupled with a much tougher stance towards openly kleptocratic US allies such as Saudi Arabia — could help to combat the spread of corruption.

How does dirty money or kleptocratic money or anonymous money corrupt a society? In Israel, the third largest source of foreign investment is the Cayman Islands. A lot of that money, billions of dollars, is invested in high-tech. And the investors are essentially anonymous.

There you have it.

Isn’t it possible that these Cayman Islands investors invest in Israeli high-tech in a totally hands-off way? How would that corrupt a society? Maybe these investors are just providing money and not getting involved in how it’s used?

I think you have to go back to the basics. My book is an attempt to pierce the veil of financial secrecy, to say “these are the human beings gaining power and wealth and using that power and wealth for actions that will dramatically affect the lives of millions and millions of people.”

Here’s an example. Look at the way Robert Mugabe was reelected to power in Zimbabwe in 2008 and 2013.

In 2008, he was about to be forced from power, having helped destroy the promising Zimbabwean economy and turned Zimbabwe into a full-on kleptocracy plundered by those who claimed to be its liberators. How did he get out of that situation?

This photo taken on November 8, 2017 shows Zimbabwe’s President Robert Mugabe (L) addressing party members and supporters gathered at his party headquarters to show support to Grace Mugabe (R) becoming the party’s next Vice President after the dismissal of Emerson Mnangagwa. (AFP PHOTO / Jekesai NJIKIZANA)

He did it because he got a hundred million dollars by seizing a mine, and transferring that mine to an offshore company controlled by one of his cronies.
And that crony then sells that offshore company and the mine with it to a London-listed company that’s backed by some Wall Street hedge fund guys.

And you can read the market statement on that day, in the early phases of Mugabe’s brutal campaign to steal the election. You can read the market statement. It says, not in so many words, We are going to give Robert Mugabe $100 million. But it’s entirely translated into front-company speak.

There’s no reference to any people. There’s a reference to several offshore companies. And then Mugabe gets a hundred million dollars, and brutalizes the opposition. The guys who engineered this hundred million dollars to Mugabe’s regime, they subsequently cashed out by doing a deal with some Central Asian oligarchs.

And what’s the cost of that? It meant that Mugabe had another decade in power that he shouldn’t have had. So this is the point. You have to strip away these front companies to see what they’re doing.

Did you ever read “The Selfish Gene” by Richard Dawkins? There’s a wonderful line in that book about what money is. So Dawkins says that the evolutionary way to understand money is that it’s a token of delayed reciprocal altruism. He’s saying you can’t have a big society where lots of strangers cooperate without some sort of token to show that you’re all contributing.

So if you cut my hair, you’re a stranger. Why would you cut my hair? You’re not my friend. I’ll give you a token to say, “ok, thanks, you did something altruistic for me, there’s your altruism token.” You take it and this token proves you did something for someone else in society, for a stranger. I’m going to go and spend this altruism token on a guy who is going to paint my house. He can then take his token and get a loaf of bread. These tokens are the basic units of how human society operates.

Now, look at everything we’re talking about. When money can be used in such enormous quantities anonymously, with the human agency disguised, that system breaks down. That system is no longer going to work because we have no way of checking if the token has been validly gained by doing some altruistic action, by doing something that the rest of society values.

Once a front company allows an alternative reality in which money illicitly obtained by, of all things, subverting public office for private gain, the very opposite of altruism, once that money can be made to look like all the other altruism tokens, then society stops working.

Well, it creates a situation like the one you describe in the book where ordinary working people can’t afford real estate because the prices of real estate in London have been driven up by people whose sources of income are murky. You have the same situation in many major cities, by the way, including in Israel.

Absolutely. I mean, I’d say Israel itself, it’s another extraordinary example. It’s not a place I write about a great deal in the book, but l think Misha Glenny’s [2008] book “McMafia” is a great book for understanding corruption in Israel. If you look at the idealism of the birth of Israel from the horrors from which it came, and the slow, profoundly depressing corruption of Israeli politics from within and without — it’s an incredibly disheartening example of what happens when slowly, slowly public office starts to be useful for private gains. It’s a simple process really, secretive but simple.

A scene from the BBC mini-series ‘McMafia,’ which depicts Russian mafia operating in the UK and Israel. (Screen capture: YouTube)

So often there is a fundamental mistake: We’ll try to find in the Israeli character a predisposition to corruption. Or we’ll try to find it in the Nigerian character. Or the Chinese character, or the British character. That is to fall into the trap, that’s to be distracted by the diversion.

There’s a wonderful line in Goethe. He says, “There is no crime of which I do not deem myself capable.” And when I was living in Nigeria, I was struck by what it’s like to live in a kleptocracy. I have lots of lots of friends in Nigeria trying to bring up a couple of kids, waking up every day with no moral choices available.

Your choice is between this corrupt action or that corrupt action, because the entire system is corrupt. So you and your children starve or you engage in corruption, from a tiny level on upwards — because the entire economy, every transaction, has become corrupt. Police, hospitals, schools, everything.

So yeah, my friends were behaving in a corrupt way — certainly not because they’re Nigerian, but because the system had become corrupted.

Why do we have institutions like courts to police laws that we write? Why do we write laws? We might think we’re writing them to stop our neighbor murdering us, but we’re also writing them to deter ourselves from murdering our neighbors. We know we all have the capacity within us.

That’s why it’s so important to cherish the institutions to keep us safe — for instance, institutions that constrain power, like parliaments, political committees and, above all, the independent judiciary. It’s not like some secret antidote to kleptocracy. We know exactly what to do: It’s to cherish these institutions. But they’ve been hollowed out by years of privatization and then, since the financial crisis, by austerity.

All the democracies hollowed out their defenses against kleptocracy because they cut especially crucial things like financial regulators and white-collar complex fraud teams. We’ve just thrown down our defenses.

In terms of the specifically Israeli characters in your book, some of them have Israeli citizenship, but haven’t really lived in Israel. What role does Israeli citizenship play in the world of kleptopia?

On the Israeli question, I would say, first, that obviously you should read my book. But once you’ve finished it you should go back to [Glenny’s] “McMafia,” because it’s dealt with that issue so well.

It goes back to late Soviet times. There was a trend for people from the former Soviet Union to take Israeli citizenship, as a sort of conduit out into the world. Israeli citizenship is more respectable in some ways. It gives you access to different kinds of clandestine pipelines of money, and in some ways it’s a useful disguise. Russian organized crime infiltrated Israel extremely effectively.

Semion Mogilevich, the “Brainy Don,” whom I describe in the book, has Israeli citizenship. You can go back to the first FBI attempts in the 1990s to understand the globalization of Russian organized crime. The main FBI investigators, people like Bob Levinson, again and again what they saw are these trails leading through Israel.

Israel served as a kind of forward base for Russian organized crime and the Russian oligarchy. And it’s a blurry line between these groups and the KGB and its successor agencies. Israel became a kind of staging post for corrupt Russian interests on their way westward.

In your book you write about former Israeli intelligence officers like the late Mossad chief Meir Dagan, who went to work for the British private intelligence firm Arcanum. You also talk about Black Cube. And often these private intelligence companies have some very corrupt clients. Why do so many Israelis seem to be involved in this private intelligence industry?

Partly I think it’s to do with Israel’s brilliant tech industry. It’s just an offshoot of that, I think. It’s a combination of a very advanced tech industry and very militarized society, a kind of natural marriage between the two.

The heart of this issue — and this applies to the Israeli private intelligence companies just as it does to the French and American ones — is what is intelligence for? Its standard definition is to gather information to inform the decision-making of leaders. In general terms usually that definition is taken to mean that the more-or-less legitimate ruler of a state be given impartial information by people who are paid to be impartial. In other words, they are paid to work for that state.

Israel’s Prime Minister Benjamin Netanyahu (right) hugs Meir Dagan, outgoing Mossad chief, at the beginning of the weekly cabinet meeting in Jerusalem, January 2, 2011 (AP Photo/Ronen Zvulun, Pool)

Now the founding principle of the private intelligence industry is a very different thing. It’s to do with the manipulation of information to serve a paying client. Those are two fundamentally different things. We call them both intelligence. In their techniques they are the same, but they have fundamentally different purposes.

I mean, can you imagine what would happen if for one year the CIA works for the USA and then the next year it works for Azerbaijan? It would obviously still know everything it knew from working for the US but now it would service Azerbaijan.

The most troubling thing the private intelligence industry does in my mind — apart from some of its more baroque techniques — is that it can manipulate the rule of law.

We’ve talked earlier about these massively under-resourced law enforcement agencies for money laundering and white-collar crime in democracies, essentially the agencies that are supposed to resist the spread of kleptocracy.

And they don’t?

They struggle to do that, because the system of mutual legal assistance between countries is completely broken. The Interpol system has been completely hijacked by political interests from kleptocracies.

These agencies pay a fraction of what the enormous laws firms that work for kleptocrats do, and so on.

So [here’s what happens] when someone from a well-resourced private intelligence agency, who did ten years in the Mossad, or MI6, and now works for a Russian oligarch A, walks in [to a law-enforcement agency] and says “Look, we’ve been doing some work. I can’t possibly tell you the client. That’s confidential. But I have a 500-page case file here on Russian oligarch B. We’ve got his bank records. I can’t tell you how we got those. Of course, that’s confidential, too. We know he’s screwing his sister-in-law. And we can show you how he paid a bribe to get this oil prospect.”

The incredibly harassed, I’m sure well-meaning, well-intentioned, intelligent, public-spirited, white-collar crime investigator is going to struggle not to look at the case and think, “Fantastic! We caught someone in corruption here. There’s a link to our country. We could do a big case and show that the rule of law applies here.”

And that will all be true. You know, it will be true that that Russian oligarch B was corrupt and deserves to feel the consequences of the law. But it’s also true that Russian oligarch A is corrupt. And the reason that the law enforcement agency in the Netherlands or London or wherever it may be is choosing to go after Russian oligarch B is because the system has been manipulated by the private intelligence industry. And that’s how oligarch B gets selected [for investigation] instead of oligarch A, which is fundamentally unjust.

So what is the solution? How can kleptopia be defeated?

Two ways. One is practical and one is philosophical.

The practical idea has to do with financial secrecy. I think financial secrecy is what enables kleptopia. And fundamentally, what that means is when the act of humans using money to exercise power is disguised.

I think that, on balance, that is a real social evil. And I would argue that it would be quite simple to legally reverse the way we look at this, to say “you are free if you wish to do business with an anonymously owned company. You’re free if you wish to do business without declaring your ownership of the company. ” But if two anonymously owned companies conduct a transaction that is later found to be corrupt, then the people involved in that transaction will be treated as if they had known.

It’s like a strict liability. The way most countries deal with taxes or with speeding are examples of strict liability. If you’re going twice the speed limit because your friend in the back seat is giving birth, it’s still a crime. If it wasn’t, we would all constantly be speeding because we’d all constantly have some excuse. We give up a little bit of our freedom for the greater good. That’s the essence of the social contract.

Financial secrecy should be treated like speeding. If you are party to a transaction with anonymous companies, and these companies are later found to be a front company for the oil minister’s cousin, then you’re on the line.

At the moment, a lot of the prosecutions of these cases are complicated because people use the front companies for the purpose for which they were created, which is plausible deniability. You can say, “Oh, I had no idea this company was owned by the dictator’s sister.” It is laughable, but it’s quite hard to pierce legally.

If we applied strict liability to financial secrecy, if we said, “if it happens, you’re responsible. It doesn’t matter if you were asleep or in a different country or you claim to have known nothing about it,” then I think very quickly, the main mechanism through which corruption happens would be blocked off.

The philosophical thing is to be like Nigel Wilkins [the whistleblowing private banker in Burgis’s book]: Insist that the past is real. Despite all the PR agents and the front companies and the private spies and all the rest of it, the past is real and must be insisted upon.

Bribes are paid. Kleptocracy acts through specific transactions that can be found and that can be revealed by courageous, well-resourced news organizations, by courageous, independent MPs and by courageous whistleblowers like Nigel Wilkins.

The common word is courageous. It’s simply a case of trying to stand up to overweening power. There’s nothing more to it than that.

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