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Kleptocracy: How governments are becoming central to modern corruption

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In modern US politics, we can see a resembling trend of governance to one of the post-Soviet dictators and autocratic strongmen elsewhere. That is one of Trump’s illiberalism, and predilection for the expansion of corruption, one that hardly remains a secret. Trump’s administration is simply a culmination of the US’s long strive towards becoming the center of modern kleptocracy. Kleptocracy is a government whose corrupt leaders use political power to appropriate the wealth of the people under their governance, often by embezzlement and misappropriation of funds at the expense of the wider population. Today, the US has become the world’s greatest offshore asylum, allowing the devious to launder their gains across the country: capital seized from national treasuries and populations from abroad. 

Arguably, Russia’s Putin has laid the groundwork for a modern kleptocracy, throughout his collective 15 years in power, seemingly not ending anytime soon. The restoration of Russia’s status as a world leader has always been a top ideological priority of the Putin era. The economy, however, poses a significant drawback to that goal. Even during the boom in the year of 2000-2007, the size of the economy never approximated their geopolitical ambitions. Since 2014, in combination with low oil prices, Western economic sanctions imposed as a response to Russia’s aggression in Ukraine, have further disabled the appetite for power via economic means. Yet, Russia’s governance has shown true flair in using economic resources as a powerful tool for exploiting the etiquette of the globalized world order for the benefit of Russia’s very niche elite. This regime has used large-scale corruption both regionally and internationally to undermine principles in already established democracies, as well as to influence foreign economic exclusives. 

At the same time, the ultra-rich who are responsible for this capital disappearance from Russia cannot fully control their wealth themselves. The institutionalized rule of law on property rights in Russia supports the ability of these oligarchs to continue accumulating wealth, or even maintain control of assets which, however, remains contingent on their standing within Putin’s regime. Throughout his tenure, formerly powerful state actors and oligarchs who have shown political disloyalty have been arrested on fraudulent charges, resulting in their assets being seized by the states.

How do these funds get distributed? To other oligarchs with better political reputations. As a result of this, it is commonly understood that it is in the personal interest of these oligarchs to maintain the regime’s political favor. What is particularly unusual in the case of Russia’s oligarchs, contrasting it from other systems, is the motivation, buying political goodwill as insurance against the confiscation of assets. The consequent close alignment of wealthy Russians’ global activities with the Russian state and their foreign policy goals. 

The biggest single provider of anonymous shell corporations in the world is the US state of Delaware. The reason for that is federalism. Due to the US’s federal structure, company formation remains overseen at the state level, rather than in Washington. This signified that as an autocrat, looking to launder money, you would not turn to federal officials in Washington. Instead, one would look at state officials in major cities of Delaware, in order to help construct anonymous shell companies to clean illegitimate money. For the world’s criminals and autocrats, there is nothing finer than an anonymous American shell company. 

At last check, Delaware made around $1.3 billion annually from the company formation industry, meaning that whenever a human trafficker or extremist network sets up an anonymous shell company registered to a city, there is very little incentive for officials at the state level to figure out who may be behind those companies. The US having its arms wide open to shady foreign money may seem illogical, considering the US’s previous role as a leader in the anti-corruption war. However, while the US targets dirty money, and those who are enabling its flow, internally as well as externally, it automatically re-jigs the system to attract that same money. This makes the US a hegemon in the world of tax sanctuary. 

When it comes to the US and Russia’s role as a laundromat for dirty money, the Trump administration (arguably following the footsteps of Putin), is simply continuing a trend, or even a legacy in the making. 

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