The Rise of Strategic Corruption How states weaponise graft
How states weaponise graft
By Philip Zelikow, Eric Edelman, Kristofer Harrison and Celeste Ward Gventer
A LITTLE CONFLICT OF INTEREST
US adversaries are not the only ones that have weaponised corruption. Turkey is just one example of a nominal ally that has also tried its hand at the technique. Last year, US federal prosecutors charged the second-largest state-owned bank in Turkey, Halkbank, with organising a massive scheme to evade international sanctions on Iran by shipping gold to the Islamic Republic in exchange for oil and gas. After initially protesting that US courts had no jurisdiction, Halkbank pleaded not guilty, and the case is awaiting trial in New York. But Turkey wasn’t just trying to undermine the effort to isolate and weaken the Iranian regime, which is one of Washington’s most important foreign policy goals; it was also attempting to produce a specific policy outcome.
In 2016, an Iranian Turkish businessman involved in the conspiracy, Reza Zarrab, was arrested in the United States. There was a significant chance that he might plead guilty and talk, perhaps about the involvement of senior Turkish officials in his scheme. Before Zarrab entered his plea, however, Giuliani and his longtime friend Michael Mukasey, who served as attorney general in the George W. Bush administration, agreed to represent Zarrab and worked hard to free him.
Before allowing the two lawyers to represent Zarrab, the judge in the case held a number of hearings to explore their potential conflicts of interest. Giuliani’s law firm was a registered agent for Turkey, and the judge noted that Giuliani might be barred from reaching a resolution to the case “that would be contrary to Turkey’s interests.” In February 2017, Giuliani and Mukasey traveled to Turkey to discuss Zarrab’s case with Turkish President Recep Tayyip Erdogan. Then, according to The Washington Post, in the fall of that year, the two lawyers secured a meeting with Trump in which they lobbied the president to release Zarrab; the bait was the idea of swapping him for Andrew Brunson, an American pastor whom the Turks had arrested on pretextual charges.
According to the Post, Trump was tempted, and then Secretary of State Rex Tillerson was called over to the Oval Office. He was surprised to find Giuliani and Mukasey there and refused to go along with the deal. Nor would the Justice Department. The White House chief of staff at the time, John Kelly, was also reportedly quite concerned about the Giuliani-Mukasey-Trump effort to interfere in a criminal investigation. The swap never occurred (Brunson was released anyway in 2018), and Zarrab eventually pleaded guilty and spilled vital evidence that led to the indictment of Halkbank
Ever since, Halkbank and Turkish officials have worked on Trump, trying to protect the bank from having to pay the kind of huge, multibillion-dollar fines levied in a similar case against the French firm BNP Paribas. Their task has been made easier by the fact that Tillerson, Kelly, and many other potential objectors are now gone and that there seems to be no shortage of willing interlocutors in addition to Giuliani. Trump’s son-in-law and senior adviser, Jared Kushner, has become a key go-between for relatives of Turkish leaders—including one of Erdogan’s sons-in-law. Last year, Lindsey Graham, a Republican U.S. senator from South Carolina, was fooled by a prank caller posing as the defense minister of Turkey, who recorded Graham’s assurances that Trump was “very sensitive” to Turkey’s concerns about the Halkbank case
It’s impossible to say for certain what Turkey has offered through its informal channels to Trump. But in November 2019, Trump’s former national security adviser John Bolton delivered an off-the-record speech to a private group in which he reportedly expressed his belief that “there is a personal or business relationship dictating Trump’s position on Turkey.” Other evidence suggests this may be true: Trump has been remarkably deferential to Erdogan and has treated the Turkish president with a leniency that stands in stark contrast to the manner in which Trump has dealt with the leaders of close U.S. allies, such as former British Prime Minister Theresa May and German Chancellor Angela Merkel. In 2012, when Trump Towers Istanbul opened, Trump’s daughter Ivanka Trump tweeted her thanks to Erdogan for attending the opening ceremony. And according to the Washington Examiner, Trump himself once remarked in regard to Turkey, “I have a little conflict of interest, because I have a major, major building in Istanbul.”
It is surprising that a state-owned bank of a nominal US ally defied Washington by helping Iran thwart sanctions. But what is far more dismaying is that when this activity came to light, those involved looked for and found American proxies who could plead their case to prevent the US government from punishing their behaviour. That goes well beyond pay-to-play. It is pay-for-policy; it is strategic corruption. And so far, it has succeeded. Halkbank has not paid significant fines for its massive violations of the sanctions against Iran.
LONDON’S CAUTIONARY TALE
For the United States and its partners, strategic corruption poses three dangers. First, there is the direct and obvious threat of bad policy outcomes. Then, there is the more general risk that stems from rivals adopting corruption as a technique for global influence building, as the Chinese have done in developing the BRI. Such efforts amount to a steady reversal of the post–Cold War effort led by the United States and its allies to promote prosperity in developing countries through transparency, political reforms, and economic liberalisation. In the past, by following such advice, countries could enhance their status in Western institutions and join the community of nations. In contrast, the new Beijing-centered system has built a global network of oligarchs who owe their positions and livelihoods to their Chinese patrons. As the Chinese system grows in influence and expands its geographic reach, it corrodes not only the development prospects of the affected countries but also their participation in open trade relationships and their security cooperation with others.
The third and final danger comes from countries such as China and Russia leveraging state-directed enterprises and illicit money flows to directly penetrate Western governments and institutions. Canadian banks, British real estate companies, and American lobbying and public relations firms, among others, now serve the interests of authoritarian states—wittingly or otherwise. In the United States, a steady drip of revelations about this foreign influence has fed citizens’ tendency to view their political system as corrupt and to conclude that US policy is for sale to the highest bidders—even overseas rivals.
This is, of course, by design. As a 2016 study published by the Center for Strategic and International Studies put it, “Russian influence centers on weakening the internal cohesion of societies and strengthening the perception of the dysfunction of the Western democratic and economic system. . . . This is achieved by influencing and eroding democratic governance from within its own institutions.” That is why, as the scholar Larry Diamond recently warned, “large-scale endemic corruption poses the single most urgent internal threat to democracy—and renders it all the more vulnerable to external subversion.”
For a cautionary tale about what happens when strategic corruption goes unchecked, Americans need look no further than the United Kingdom. Putin believes that he has so neutered Washington’s closest strategic partner that he feels secure deploying exotic clandestine weapons there to conduct political assassinations. To amass this staggering degree of freedom to maneuver, Putin and his cronies exploited a number of weaknesses in the British system. The United Kingdom’s anonymous property registry allowed Russian oligarchs to swamp London and its financial sector, where they stashed dirty money. British libel law favors plaintiffs far more than the equivalent U.S. statutes and doctrines do, and Russian oligarchs have ruthlessly exploited that advantage with the goal of censoring speech that exposes their schemes. In 2014, for example, Cambridge University Press backed away from plans to publish the American political scientist Karen Dawisha’s book Putin’s Kleptocracy out of fear that Russians named in the book would unleash an avalanche of frivolous libel lawsuits—with the help of high-powered British lawyers, of course.
HOW TO CLEAN HOUSE
The growing threat from strategic corruption has gone largely unnoticed or underappreciated in the Pentagon and the State Department. It is not enough to subcontract the problem out to federal prosecutors and hope for the best; the response needs to move to the center of foreign and national security policy. That will require public and private campaigns to monitor corruption, efforts by lawmakers to eliminate vulnerabilities in the US legal and political systems, and an end to Washington’s overreliance on economic sanctions, which will become less and less effective if US rivals can offer alternative means of support.
The policy moves that Washington needs to take to avoid London’s fate are not glamorous; they will rarely involve precision munitions or SEAL teams. But they are nevertheless vital. For starters, the traditional agenda of promoting transparency needs to be updated and reinforced. A first step would be for the federal government and state capitals to tighten their regulation of limited liability companies, the anonymous nature of which allows them to hide funds of questionable origin and the ownership of luxury properties. Last year, the House of Representatives passed the Corporate Transparency Act, which would, among other things, require disclosure of the beneficial owners of registered firms or corporations. This is a step in the right direction. Congress should also conduct fresh hearings on the scope and enforcement of FARA, which needs another round of amendments.
The United States also needs legislation to make it harder to pursue baseless libel claims designed to harass and censor critics. Twenty-nine states have already passed such laws, but that is not enough. Federal legislation may be a better route.
The fight against strategic corruption sometimes blurs the traditional lines between counterintelligence, law enforcement, and diplomacy. That can pose problems even when the federal government is in the hands of a normal presidential administration and is functioning well. Corruption investigations can overreach; they can become politicized. But U.S. intelligence and foreign policy agencies must be alert to the danger posed by strategic corruption. The defence against this threat cannot simply be left to a US attorney’s office or to the Treasury Department.
A normal US presidential administration would have already opened a national security investigation into the campaign against Yovanovitch, taking a hard look at Firtash and his associates and using resources that extend beyond those available to the FBI. But even without any inside knowledge of the Trump White House, it is not difficult to imagine the difficulties such an investigation would currently pose for career officials. The Halkbank case presents some analogous problems. And there may be similar situations that are not yet publicly known.
But the means to fight strategic corruption exist, and a future administration might decide to use them in an honest manner. A conscientious executive branch could take advantage of tools such as the Privacy and Civil Liberties Oversight Board, which was established in 2004 to help check the dangers of overzealous or politicised investigations. And of course, there are older methods for cleaning house, such as agency inspector generals (now being targeted by the current president) and congressional oversight (if Congress ever manages to earn back the public’s trust, which has almost entirely eroded in recent decades).
The danger of strategic corruption does not have to be a partisan issue. An anticorruption agenda could unite those on the left and the right who favor economic transparency—which protects consumers, investors, and citizens alike—and who want to stamp out crony capitalism. Those shared values explain why anticorruption is an animating issue for civil society groups across the political spectrum, from Transparency International to the Hudson Institute’s Kleptocracy Initiative.
Although Trump’s impeachment has receded into the rearview mirror, the Ukraine debacle that precipitated it still presents an opportunity. Instead of merely contributing to the polarisation and dysfunction that plagues Washington, that scandal and others can help reset the agenda for policy action. The Ukraine scandal is not just an alarm about the current US president. It is a warning that drives home how vulnerable governments have become to a new form of political warfare, a strategy that takes advantage of freedoms in order to discredit them.