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USA’s Future … “Russian-Style Kleptocracy?”
March 2019 Issue
Russian-Style Kleptocracy Is Infiltrating America
When the U.S.S.R. collapsed, Washington bet on the global spread of democratic capitalist values—and lost.
Much of the money that might have snuck into banks before the PATRIOT Act became law was … used to purchase property. The New York Times described the phenomenon in a series of exposés, published in 2015, called “Towers of Secrecy.” Reporters discovered that condos in the ultra-luxe Time Warner Center at Columbus Circle in Manhattan were owned by a constellation of kleptocrats. …
Over time, the gap between the noble intentions of the PATRIOT Act and the dirty reality of the property market became too wide to ignore. In 2016, Barack Obama’s administration tested a program to bring the real-estate industry in line with the banks, compelling brokers to report foreign buyers, too. The ongoing program, piloted in Miami and Manhattan, could have become the scaffolding for a truly robust enforcement regime. But then the American presidency turned over, and a landlord came to power. Obama’s successor liked selling condos to anonymous foreign buyers—and may have grown dependent on their cash.
In 2017, Reuters examined the sale of Trump Organization properties in Florida. It found that 77 of 2,044 units in the developments were owned by Russians. But that was likely an incomplete portrait. More than one-third of the units had been sold to corporate vehicles, which can readily hide the identity of the true owner. … Around the time that Trump took up occupancy in the White House, the PATRIOT Act’s “temporary” exemption for real estate entered its 15th year. Without anyone ever declaring it so, the ephemeral has been enshrined.
The war on kleptocracy had meanwhile been lurching forward on another front. If foreign plutocrats remained mostly unscathed as they made themselves at home in the U.S., American plutocrats eager to hide their fortunes abroad faced fresh trouble. In 2007, the United States experienced one of its bouts of moral clarity, jolted by the confessions of a banker named Bradley Birkenfeld, who came clean to the Department of Justice. … What he freely divulged to prosecutors were his client-recruiting efforts on behalf of UBS, the Swiss banking behemoth.
Birkenfeld described how he had ensconced himself in the gilded heart of the American plutocracy, attending yacht regattas and patronizing art galleries. … As part of an agreement with the Justice Department, UBS admitted to hiding assets totaling some $20 billion in American money.The scale of the hidden cash spun Congress into a fury. In 2010, it passed the Foreign Account Tax Compliance Act (FATCA), legislation with moral clout that belies its stodgy name. … According to one powerful strain of American exceptionalism, the nation boasts superior financial hygiene and a bedrock culture of good government. Indeed, the U.S. government has devoted more attention to money laundering than perhaps any other nation on the planet. But the bar isn’t very high, and the vigilance has its limits. In 2011, the Obama administration sought to collect more information about foreigners’ bank accounts and to share it with the relevant home countries. But banks—along with their lobbyists and intellectual mouthpieces—worked furiously to prevent the expansion. … The effort went nowhere in Congress.The pattern repeated itself when the Organization for Economic Cooperation and Development, following the original FATCA example, took the congressional template and extended it: Each year, banks would report foreign accounts to the tax authorities in the account holders’ home country. If every nation had signed on to the OECD standards, the effect would have been a hammerblow to tax havens, shattering the vital infrastructure that allows kleptocratic money to flow unnoticed. In the end, the United States was alone in refusing to join the OECD agreement, finalized in 2014.
This obstinacy stood to subvert everything the country had done to lead the fight against dirty money: While the U.S. can ask almost any other nation’s banks for financial information about American citizens, it has no obligation to provide other countries with the same. “The United States had bullied the rest of the world into scrapping financial secrecy,” … “but hadn’t applied the same standards to itself.” A Zurich-based lawyer vividly spelled out the consequences to Bloomberg: “How ironic—no, how perverse—that the USA, which has been so sanctimonious in its condemnation of Swiss banks, has become the banking secrecy jurisdiction du jour … That ‘giant sucking sound’ you hear? It is the sound of money rushing to the USA.”
In her important history, Corruption in America, Zephyr Teachout, a legal scholar and liberal activist, argues that during the country’s first 200 years, courts maintained the Founders’ vigilance against corruption. For a good chunk of American history, a number of states criminalized lobbying in many forms, out of a sense that a loosening of standards would trigger a race to the bottom. That near-phobia now looks quaint, and also prescient. The political culture, the legal culture, the banking culture—so much of the culture of the self-congratulatory meritocratic elite—have long since abandoned such prudish ways.
The defining document of our era is the Supreme Court’s Citizens United decision in 2010. The ruling didn’t just legalize anonymous expenditures on political campaigns. It redefined our very idea of what constitutes corruption, limiting it to its most blatant forms: the bribe and the explicit quid pro quo. Justice Anthony Kennedy’s majority opinion crystallized an ever more prevalent ethos of indifference—the collective shrug in response to tax avoidance by the rich and by large corporations, the yawn that now greets the millions in dark money spent by invisible billionaires to influence elections.
In other words, the United States has legitimized a political economy of shadows, and it has done so right in step with a global boom in people hoping to escape into the shadows.
American collusion with kleptocracy comes at a terrible cost for the rest of the world. All of the stolen money, all of those evaded tax dollars sunk into Central Park penthouses and Nevada shell companies, might otherwise fund health care and infrastructure. (A report from the anti-poverty group One has argued that 3.6 million deaths each year can be attributed to this sort of resource siphoning.) Thievery tramples the possibilities of workable markets and credible democracy. It fuels suspicions that the whole idea of liberal capitalism is a hypocritical sham: While the world is plundered, self-righteous Americans get rich off their complicity with the crooks.
The Founders were concerned that venality would become standard procedure, and it has. Long before suspicion mounted about the loyalties of Donald Trump, large swaths of the American elite—lawyers, lobbyists, real-estate brokers, politicians in state capitals who enabled the creation of shell companies—had already proved themselves to be reliable servants of a rapacious global plutocracy. … The looting elites of the former Soviet Union were far from rogue profiteers. They augured a kleptocratic habit that would soon become widespread. One bitter truth about the Russia scandal is that by the time Vladimir Putin attempted to influence the shape of our country, it was already bending in the direction of his.