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Frank Vogl: Understanding the Kleptocrats and Their Enablers

“Too often, people think of corruption as something that happens somewhere else: in Russia, in authoritarian regimes.”

Editor’s note: This interview has been lightly edited for length. 

On December 15th, Frank Vogl sat down with Merion West and Andrew Scott to discuss his latest book The Enablers: How the West Supports Kleptocrats and Corruption—Endangering Our Democracy, which was released in November. Mr. Vogl is an adjunct lecturer in the Department of Government at Georgetown University and co-founded and now chairs the Partnership for Transparency Fund, an international, not-for-profit, anti-corruption organization. Mr. Vogl and Mr. Scott discuss highlights from the book and explore the most effective strategies for combatting corruption, both in the United States and abroad.

Can you start off by telling me a little bit about your background?

Yes. I grew up in the U.K., graduated with a bachelor’s degree from the University of Leeds, became a foreign correspondent for Reuters, based in Brussels, then moved to be the European business correspondent of The Times of London, covering all of continental Europe based in Frankfurt, Germany. In 1974, I became the U.S. economics correspondent for The Times in Washington D.C. covering the last part of the Watergate scandal and everything thereafter for eight years. I left journalism in late 1981 to become the chief spokesman of the World Bank. Soon after leaving the World Bank in 1990, I joined with a few others to plan the launch of Transparency International (TI), which happened in 1993. Today, TI is the largest global anti-corruption organization, operating in over 100 countries.

How would you say this book fits in with your previous work?

So, over several decades, I’ve been doing two things that come together in this book. The first is that I’ve been an anti-corruption activist, not only with Transparency International, but also with another group that I helped to create in 1998 called the Partnership for Transparency Fund, which deals specifically with working with civil society in developing countries to counter corruption on the ground. At the same time, from 1990 to 2017, I ran an international public relations company dealing in global economic policy and finance, working very closely with the largest banks, financial institutions, and think tanks in the world. This book deals with the universality of corruption. Too often, people think of corruption as something that happens somewhere else: in Russia, in authoritarian regimes. The fact is, not only do we have a lot of corruption in the United States, but we have a lot of people in the financial community in the U.S. who are aiding and abetting the kleptocrats and authoritarian countries basically to invest their loot. So, this book focuses very strongly on those people who help the kleptocrats. I call them enablers: bankers, lawyers, auditors, financial consultants, art dealers, real estate brokers, all of whom help to invest stolen money in the United States, the United Kingdom, and Western Europe.

Can you give some examples of who these enablers are? Why did you decide to focus the book on the enablers as opposed to the kleptocrats themselves?

First of all, a lot of my work in the past and my previous book, which was called Waging War on Corruption, dealt with the problems in developing and emerging market countries caused by corruption, particularly focusing on the victims of corruption: the mass poverty, the civil society groups that are censored and hounded, and the journalists who are harassed and jailed and sometimes even murdered. But so much of the focus, when we talk about corruption, is on these authoritarian regimes that we sometimes forget the fact that there are lots of very powerful people on our own shores who are working with those kleptocrats. And if we don’t curb the activities of these enablers and do far more to counter the illicit flow of money around the world, we will not be able to contain the rising momentum behind authoritarianism around the world. So this is a question of national security and a question of our own democratic health, and that’s why I focused on the enablers.

So can you speak to maybe a worst-case scenario with this situation?

Sure, you asked for examples, so yes—sorry I didn’t answer that part of your question. To start with one case, Goldman Sachs, one of the largest banks in the world, paid around $1.6 billion to bribe former senior officials in the government of Malaysia at the time they were in official positions to get business deals from that government, including the issuance and management of $6 billion of international bonds for Malaysia’s international development assistance agency, known as 1MDB. Of the $6 billion, $4.5 billion was stolen by the former Prime Minister of Malaysia and his associates, with the connivance of senior executives at Goldman Sachs. A year ago, after investigations by the government of Malaysia, the U.S. Justice Department, the U.K., Singapore, and the Swiss Authorities, Goldman Sachs paid upwards of $4 billion in fines. Two of its Asian executives have been prosecuted, and they may well go to prison.

But the chairman of Goldman Sachs has not been criminally prosecuted. The top officials of that bank have not seriously been penalized. Goldman will tell you that the board agreed that the top officials would lose some of their compensation, while their immediate predecessors would lose some of their pensions—in total, hundreds of millions of dollars. However, outstanding profits at the bank since then have resulted in the top executives recently being awarded absolutely enormous new bonuses. It’s as if those claw-backs of the past were really insignificant. So here we have a situation: The people of Malaysia now have to find the money to pay back international investors on debt that basically was stolen from them. The former Prime Minister of Malaysia, Najib Razak, was found guilty in court, sentenced to 12 years in prison, and the Supreme Court of Malaysia has upheld that sentence. But the very top people at Goldman Sachs (and I can mention a half-dozen other banks that have been caught red-handed in major money laundering scandals as enablers) have suffered absolutely nothing. And they’ve all retained their positions in their firms.

And the bank executives are aware that this is happening?

There’s money in it. The fines are just seen as the cost of doing business. It’s part of a banking culture that has evolved very rapidly over the last 20 years. Maybe I should just draw back and explain that.

Sure.

In the late 1990s, the so-called Glass-Steagall legislation was eliminated, which was a restriction on what banks could do. It was a very clear demarcation—going back to the 1930s—to limit the scope of banking, if you will, making a clear line between banking and investment banking, for example. That was got rid of at a time when the deregulation of banking was very, very fashionable, and it was supported by the Federal Reserve Board, amongst others. At the same time, because of new technologies, the competition between financial institutions intensified enormously, and the speed with which money whizzed through the global financial system accelerated greatly.

And the pressure on top bankers—and not just bankers but, frankly, the leaders of all major corporations—to increase their short-term profits as rapidly as possible from hedge funds, from private equity, all new kinds of investment institutions, also increased. What did all that do? It put a greater focus on short-term profit maximization, to secure rising share prices—and banking bonuses were closely tied to these profits—and what does that do in a deregulated environment? It increased the willingness to take risks: even risks to do criminal acts. What was the result? The subprime mortgage crisis of 2008-2009, the greatest financial crisis since the 1930s, was one of those results. It was the result of criminal activity by major banks and other financial institutions in an environment of deregulation that almost brought the whole of the U.S. economy into a situation as bad as the Great Depression—not quite, but almost. At the same time as that high-risk work was going on with subprime mortgages, banks were also increasing their propensity to get involved in money laundering and corruption, and there are many cases that—as you see in my book—illustrate that.

I am wondering if you can expand on this a little bit. In your book, you talk about the art industry’s role in this phenomenon. I thought that was interesting, for example.

[Laughs.] Well, you know, relatively speaking, it’s a small fragment of the whole picture of investment assets the kleptocrats use. But it is interesting because there’s almost no meaningful regulation of the art industry. I quote in the book there’s a U.S. Senate investigation that said this is the most opaque of all investment industries. When you buy a painting from an auction house, you have no guarantee that the painting comes from somebody who didn’t use stolen money to acquire it in the first place. And when a major piece of art is sold again at an auction house, very often the auction house does not publicly report who bought it, and there is no obligation on the auction houses or on art dealers to do due diligence on exactly where their customers, their clients, got their money.

Let’s go back to Goldman Sachs. One of the associates of the Prime Minister of Malaysia, who was very deeply involved in arranging the dirty deals with Goldman Sachs, amongst other things, bought masterpieces of art at auction in New York. We know that because the U.S. Justice Department investigated and was able to trace those paintings worth many millions of dollars. It’s just one example. There are warehouses in duty-free zones in Switzerland near Geneva, full of art. We don’t know who owns them. There is no due diligence on the ownership and the control of the art in those warehouses. And for all we know, a lot of that art is owned by people who basically stole money from the citizens of developing countries and East European countries.

You quote the FBI director, Christopher Wray, talking about China engaging in physical theft. 

The Chinese, according to the FBI, as well as others, have devoted enormous amounts of resources to trying to obtain American technology. They want that technology not only to build and strengthen their own business sector but also their military. Now, we know very little about the flow of funds from China into Western countries and around the world. We do know that a large amount of Chinese money comes into Canada and the United States that buys real estate, that buys many other assets, maybe buying companies here. We don’t know for sure, but the FBI suspects that a lot of that money (and some of it could be dirty money by entrepreneurs) is used to obtain American technology, and that’s a danger fundamentally to our security and to our democracy.

But, at the same time, the Chinese government is the largest single lender today to Sub-Saharan Africa. And the indebtedness of many developing countries to China is certainly weakening those countries in many respects, and it’s all opaque. We do not know the terms and conditions of Chinese lending, and, in many respects, we don’t even know where the money goes. It could very well be that quite a bit of that money is stolen. After all, something like $90 billion of illicit funds flowed out of Sub-Saharan Africa last year, according to the United Nations, compared to, say, $54 billion of direct foreign investment flowing into Sub-Saharan Africa. And the Chinese are right in the middle of massive financial transfers and transactions in Africa, in Latin America, in Asia, and also in the United States.

I think you mentioned the amount of money that’s gone missing could end world hunger at this point. With something that’s this big of an issue, where do we start? How do we combat this?

Well, I think, first of all, you’re absolutely right. The scale of illicit funds that move through the global financial system and trading system every year is staggeringly large. There have been estimates that I think are conservative estimates that put the amounts at $1.5-2 trillion per year. And certainly, if we had that kind of money, we could, certainly, counter global hunger many times over. Where do we start? We start at three simultaneous actions. First of all, there has to be the will of governments, Western governments, to meaningfully address this enormous issue. And we saw on December 9th and 10th with President Biden’s Summit for Democracy how many world leaders came together to make statements that underscored the urgency of this issue. The president of the tiny country of Moldova said at that summit, “Help us. The looting of our treasury, of our government, by past governments, and by bankers has left our economy in dire straits. We know where it’s gone. It’s gone to Western markets. We all have something to gain, the West and the emerging countries together, by addressing this issue. Let‘s work together.” And she’s right.

So, we need a lot of action by governments. At the same time, we need a lot of change in the culture of these enabling institutions to make them understand that the short-term profit maximization culture, in the long run, is contrary to what really is their basic interests, the interests of their customers, and the interest of the Western democracies. So we need cultural change there. Now, these are huge things, and what is going to bring it about? Public pressure. If the public is not adequately alerted to the seriousness of the problem and its scale, then those who know how to work the political system best, and this includes very influential financial institutions, those enablers again, who make major campaign contributions, who have armies of lobbyists, they will work to keep a deregulated environment. They will work to ensure that enforcement of the anti-corruption and anti-money laundering laws is very weak. So we need public pressure on Congress to bring about change.

As to the list of things to be done, the Biden administration issued on December 6th a strategy against corruption. It has five pillars that list many of the things that are actually in my book. And they talk about ending the secrecy of ownership of those shell companies that I mentioned to you earlier so that we expose the beneficial owners and strip away all of the secrecy elements that help the enablers and their clients to invest, for example, in art and real estate. They have argued that there should be much greater enforcement of the anti-money laundering laws, which means that it’s harder, then, for the banks and other financial institutions to basically help their clients move the money into this country.

They’ve argued for further action that would very specifically deal with trust funds, with hedge funds, and with other entities that are also widely used to move the dirty money. So the agenda is there. The one thing that I’m skeptical about, and I really urge very strongly in my book, is whether there will be sufficient resources for enforcement. If you don’t have really meaningful enforcement, all the regulations and laws in the world are really not worth much. So I’m very hopeful that there will be a much greater focus on enforcement. And the third area, if I may just add, USAID under Administrator Samantha Power, has articulated a whole new program for supporting anti-corruption work in developing countries and in emerging market countries, which includes far greater protection for journalists and civil society organizations who are on the front lines in seeking to reform within their countries.

At least we have something to sort of look forward to.

Well, we’ve got the action plan, right? Now we need action. Can I make one further point?

Sure, of course.

I end my book by noting that across the world, including in the United States, opinion polls show that trust in government is exceedingly low, and it’s low in part—not completely—but in part because of perceptions of governmental corruption. I believe that politicians need to be increasingly sensitive to what the public is telling them, in this case, through these polls. If our politicians do not address the trust gap, which means addressing corruption, I think our democracy is in very grave danger. I think it’s already in danger, but this adds to the danger. We are seeing, across many countries, from Belarus to Egypt, Sudan, and so on, we have seen public protests against authoritarian regimes, and those protests are largely motivated by anti-corruption concerns. We need to support those protests, but we also need to understand at home that the public is terribly distrustful today of government, the lowest trust ratings of any opinion polls in the last 50 years, according to Pew Research, and corruption is a factor. We need to respond to that. It may take a long time to get the anti-corruption agenda that I’d like to see, but we keep marching on, and I’m optimistic we’ll get there.

It seems like we have a big problem with lobbyists in this country.

It’s only part of the problem. It’s just a part. We have a huge problem with money in politics, of which lobbying is part of that. It’s not that we don’t know where the money is coming from. To a very large extent, it’s transparent. But money buys you access, it buys you influence, and the bankers and special interest groups of all kinds, on the Right and on the Left, are very expert at using money in the political system to influence public policy at the expense of the interest of a great majority of American citizens. And I should add here that this anti-corruption agenda that I’m talking about—and that is really a focal point in my book—is not partisan. We’re seeing members of Congress in the Republican Party and in the Democratic Party coming together to support anti-corruption measures, and part of the reason on the Right is very simple. Corruption undermines the free market system. It distorts fair competition. These are tenets that are terribly important to conservatives. It was the reason why the Foreign Corrupt Practices Act  was passed in 1978 by a strong bipartisan majority in Congress, and it’s why ever since there has been bipartisan support for anti-corruption measures. But not enough! And that’s why I say the public needs to become more involved and more aware of these issues, and that’s why I’m so grateful to you for doing this interview.

Of course, that’s why we’re here. Thanks again.

Thank you so much; all the best to you, Andrew.

Likewise.

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