Ever since President Donald Trump took office, people have been struggling to explain his administration’s sometimes sharp departures from American norms. Theories have ranged from personality disorders to alarms about the potential birth of an American autocracy.
Let me suggest another: kleptocracy. The Trump administration, its personnel and early practices, resembles nothing so much as a kleptocratic network of the type seen in many developing countries and post-Soviet states. No, I am not implying that Trump is about to turn the U.S. into a banana republic. But Americans would do well to scrutinize nascent changes in the ways the most powerful sectors of our society are interacting.
I have spent the past decade studying corruption overseas. The problem has gained more attention of late, toppling governments even in modern, prosperous countries like Brazil and South Korea, and figuring prominently in the 2016 U.S. election campaign. Some 60 to 70 nations by my count can be classified as systemically corrupt.
By “corruption,” I do not mean cash in the proverbial envelope, or opportunistic self-dealing by some public officials, or cracks in the system that venal businessmen and drug dealers can exploit. I am talking about places where corruption amounts to the operating system of sophisticated networks, structured to a greater or lesser degree, which can be remarkably successful. Not at governing in the interests of their people, of course. But that’s not their objective. Their objective is making money.
One feature of these networks is their horizontal integration. Americans can get into heated arguments about which is more pernicious, the public or the private sector. But we presume there is a distinction between the two. In kleptocracies, that line is rubbed out.
In Afghanistan, for example, where I lived when I began thinking about all this, one of then — President Hamid Karzai’s brothers, Mahmoud, was part owner of the country’s largest private bank, which processed all U.S. payments to Afghan soldiers and police. It proved to be a Ponzi scheme, with a hole in its books equalling about 6 percent of the country’s gross domestic product.
Mahmoud Karzai has not been prosecuted for the alleged $23 million in fraudulent loans he received, and his brother the president thwarted the central bank governor’s effort to have some bank shareholders’ assets frozen overseas. Mahmoud also owned one of his nation’s biggest cement factories, and a stake in a firm that won millions of dollars in U.S. contracts.
Similarly, Azerbaijan’s ruling Aliyev family owns no less than 11 banks and consortiums that straddle energy, real estate, infrastructure contracting and tourism. In Honduras, as I discovered during a year-long investigation, the overlap between private and public sectors is less absolute. But two banks control about half the financial industry. Members of a tight-knit clique of families in charge of them and several smaller banks, as well as the energy and fast-food sectors and much of the market in contracting public works, operate hand-in-glove with the administration of President Juan Orlando Hernández and have regularly held top government positions.
A common trend in all these places is how family members serve as ligaments binding the intertwined systems together. Note also the economic sectors that feature. Energy is ubiquitous — be it national oil companies like Azerbaijan’s Socar, or Nigeria’s NNPC, which was hemorrhaging about a billion dollars a month in 2013 and 2014, or the private companies that populate the value chain. In Honduras, which lacks fossil fuels, the network of elites dominates solar and hydropower generation.
Banking is another favorite business of kleptocracies. In Tunisia under President Zine El Abedine Ben Ali, who was toppled early in the Arab Spring, private banks would make unrecoverable loans to the ruler’s inner circle and were then bailed out by the central bank.
Luxury real estate and infrastructure also offer choice opportunities for money laundering and looting public coffers, through self-dealing procurement and contract fraud. Even fashion crops up frequently. Gulnora Karimova, the infamous daughter of Uzebek strongman Islam Karimov, had a fashion company that was suspected by human-rights advocates as serving as a cover for a sex-trafficking operation.
The role of the members of these integrated networks who hold public office is to retool government agencies and institutions to serve network purposes. This is often done with devilish creativity. One of Tunisia’s major exports are succulent Deglet Nour dates. Date palms grow in desert oases irrigated by the national water department. Members of Ben Ali’s network would approach the highest quality producers and announce the below-market price they intended pay for their yield. If a farmer balked, his water was cut. There and elsewhere, tax authorities have been made to serve disciplinary functions, brandishing potentially bankrupting audits like a whip.
Of all government functions, though, the institution that kleptocratic networks absolutely must capture in order to survive is the justice system. It’s not merely that corrupt leaders need to protect themselves. It’s that their networks are held together by a bargain. Subordinate members funnel a part of their take upward to their seniors. This goes for everything from “petty” bribes extorted by cops or teachers at street level up to public procurement fraud on multimillion-dollar contracts. In return, those at the top guarantee impunity down the line. If the deal is violated, the system collapses.
For example, in Afghanistan, when an official from the presidential palace was arrested on suspicion of influence peddling, Karzai ordered him released within hours. Asked by ABC’s Christian Amanpour, he practically boasted about it. “Yes, yes, absolutely I intervened. Not only I intervened, but I intervened very, very strongly.”
Legal professionals who display the least independence are circumvented or cast aside. An avalanche of new legislation in Egypt pushed by the government of Abdel Fattah el-Sisi, a former armed forces commander-in-chief, is reducing the jurisdiction of civilian courts in favor of military tribunals. In a 2009 Honduran version of Richard Nixon’s “Saturday Night Massacre,” Hernandez, who was then president of Congress, fired four Supreme Court justices out of five. And, in every country I have studied, public prosecutors and police investigation units are special targets.
The reverse also holds: in Brazil, Guatemala and South Korea, where corrupt leaders have recently been ousted, independent justice professionals were central to the events.
In cases where kleptocratic networks can’t actively weaponize state agencies, they disable or cannibalize them. The most spectacular recent examples were the hollowing out of the militaries of Iraq, Nigeria and Ukraine, which collapsed under the attacks of far weaker adversaries in 2014. In those cases, the forces were largely being pillaged for their budgets. Environment ministries, such as in Honduras, see their staffs and budgets slashed to prevent them from interfering with network operations. The most attractive revenue streams are often connected to land use and natural resources.
Another feature of these kleptocratic networks is that, like the globalized business conglomerates or drug cartels, they are transnational. The small Eurasian state of Moldova is a case in point. Its banking sector is effectively part of Russia’s kleptocratic network, allegedly providing money-laundering services to the tune of billions per year. Turkish business interests are deeply embedded in Azerbaijan. And Central American business-government networks are working on an integrated grid that will create an almost infinite sweetheart market for electricity generated in violation of environmental laws.
Two conclusions emerge from this analysis.
First, it is impossible to operate in economic sectors controlled by such networks — in places like Azerbaijan, the Philippines, Kazakhstan or Turkey — without becoming entangled. That means either receiving favors — such as cut-rate prices on things like land, utilities or hard-to-get permits — or participating in money laundering, or submitting to a pay-to-play bargain, effectively paying bribes. Or all of the above.
Second, networks are stubborn, flexible, resilient structures. In case after recent case, sanctioning a top network member, even bringing down a government, has failed to eradicate the network and its practices. In Brazil and Guatemala, rival strands, alike in practices, have taken the place of disgraced kleptocratic cliques. Egypt’s military network seemed content to decapitate itself, throwing former President Hosni Mubarak to the mob, only to better reconstitute in the years since the 2011 revolution. Even Tunisia’s trajectory could best be described as restoration, not transformation.
The lesson for Americans is this. These networks are like weeds, and it takes far more than the punishment of a few crimes, even spectacular ones, or the removal of a few people to fully uproot their tendrils from the economic and political institutions we hold dear.
Frontpage April 14, 2020