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Dark Side Last Updated: Oct 25, 2021 - 11:50:01 AM


How American Kleptocracy Works
By Anders Åslund, Just Security, October 20, 2021
Oct 24, 2021 - 3:29:02 PM

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At long last, global kleptocracy has become a major topic. The initial big breakthrough was the publication of the Panama Papers in 2016. The current revelations of the Pandora Papers show how little has been done to stop such grand corruption. Several excellent books on global kleptocracy have been published in recent years as well, such as Oliver Bullough’s “Moneyland” (2018) and Tom Burgis’s “Kleptopia” (2020), though some less memorable books read like laundry lists (pun intended) of known money-laundering scandals.

University of California, Berkeley Professor Gabriel Zucman has assessed the world’s offshore wealth at one-tenth of all global financial wealth. And the United States of America is the biggest offshore haven in the world, with millions of anonymous companies. The critical question is: How do we best write about kleptocracy to make it understandable so that it can be effectively combatted?

In his excellent forthcoming book, “American Kleptocracy” (St. Martin’s Press), investigative journalist Casey Michel (who also has been a guest author at Just Security) provides a persuasive answer. Michel’s genius lies in his narrative, which weaves together the development of U.S. financial secrecy and countermoves with actions in the United States of two of the world’s great kleptocrats.

Michel’s two villains are Teodoro “Teodorin” Nguema Obiang Mangue, the son of the dictator and usurper of oil-rich Equatorial Guinea, and Igor Kolomoisky, a crooked Ukrainian oligarch. In highly readable chapters, Michel describes how they made their money and how they laundered it in the United States. The contrast between them is illustrative. Teodorin may be described as a rich and cruel country bumpkin, while Kolomoisky may be too clever by half. He must be insulted to be paired with Teodorin, but they illustrate alternative strategies to launder money in the United States.

Teodorin represents the crude, anything-goes approach. Michel unfurls his story to expose major weaknesses of U.S. money laundering controls. The author starts with the most elementary money laundering. “From 1995 through 2003, Riggs [Bank] hosted a mountainous $700 million for the Obiang regime,” Michel writes. As a consequence of new money-laundering controls introduced in the Patriot Act of 2001, the Allbritton family was forced to sell Riggs Bank (and proceeded to invest in and make money on Politico).

Teodorin, who appears more stubborn than intelligent, did not give up. After having been exposed on the East Coast, he went to the West Coast of the United States. There he found lawyers, anonymous companies, real estate, and Michael Jackson memorabilia sales not subject to any money-laundering controls. What is there not to like about California? Teodorin continued to spend conspicuously, like a true kleptocrat — on real estate, luxury cars, airplanes, yachts, and parties.

The sophisticated Ukrainian oligarch Kolomoisky creates an interesting counterpoint to Teodorin. Everybody knows that foreign kleptocrats buy real estate in New York, Miami, and California, so Kolomoisky bought up the center of depressed Cleveland, Ohio. But he did so through an American associate who appeared to be a saving angel, though he was not. Through another U.S. associate, Kolomoisky bought up half of the U.S. ferroalloy industry in the depressed Midwest through a cloud of anonymous offshore companies, with a dozen being formed in Delaware.

Most of his money came from the deposits in Ukraine’s biggest private bank, Privatbank, which Kolomoisky co-owned. When the Ukrainian government nationalized it in December 2016 because of apparent fraud, it turned out that the owners had relieved it of $5.5 billion, much of which had been transferred to the United States via anonymous companies in Delaware. Michel notes that Kolomoisky was the main sponsor of Ukraine’s current President Volodymyr Zelenskyy, which may be the reason why so far the Ukrainian government has not initiated any criminal case against Kolomoisky.

While telling us how Teodorin and Kolomoisky laundered their money in the United States, Michel also narrates how U.S. money laundering and the defenses against it evolved. Delaware wanted to make money on company formation, and it made itself attractive by offering secrecy to 1.5 million LLCs. Other states — Wyoming, Nevada, and South Dakota – followed by offering additional and alternative services. A problem is that U.S. federal powers are so limited that the federal government is unable to maintain elementary transparency.

Michel’s great transparency hero was the late Senator Carl Levin (D-Mich), whose main breakthrough was the Patriot Act because Levin had legislation ready to go and managed to incorporate it into the larger bill. Later actions, such as civil forfeiture and visa restrictions, appear to have had quite limited impact.

Considering all this, Michel is surprisingly optimistic at the end of the book. He believes the U.S. Corporate Transparency Act of 2020 that was signed into law on Jan. 1, 2021, is the ultimate breakthrough. I doubt it. It is focused on LLCs, and it will take three years to come into full legal force. Michel rightly emphasizes how many entities are not covered – real estate, lawyers, private equity and hedge funds, endowments, trusts, and arts sales. The Corporate Transparency Act must be broadened (and there are ). Furthermore, as Michel tells us so clearly, U.S. law enforcement on these issues is dismal.

After all, Kolomoisky remains a major force in Ukrainian politics and Teodorin’s father is still the dictator of Equatorial Guinea. Each of them lost a few tens of millions of dollars in U.S. civilian forfeiture, but what is that for such billionaires? Both of them live freely in extraordinary wealth, even if they dare not to come to the United States at present.

Clearly the United States is likely to remain the main center of anonymous companies, money laundering, and kleptocracy for a long time.


Source:Ocnus.net 2021

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