The Strategic Cost of Transnational Corruption

Every year $1 trillion in bribes are paid and another $2.6 trillion is lost to other forms of corruption.[1] Flooding through central financial hubs like New York and London, illicit financial flows fuel authoritarian repression, destabilize weak states, launder drug money, and fund terrorism. President Joe Biden’s Interim National Security Strategic Guidance recognizes that corruption is “increasingly weaponized by authoritarian states to undermine democratic institutions,” but it does not provide guidance on how the administration intends to address the problem.[2] The authors of the next National Security Strategy must ask how U.S. national security agencies fit in the anti-corruption landscape. To inform the development of a comprehensive strategy to address corruption, they should consider how the use of foreign policy tools by national security and foreign policy agencies, from seemingly benign foreign assistance to tactical foreign subversion, interact with and potentially amplify the very challenges they seek to remedy.  

Great power competition returned to the forefront of U.S. strategy in the 2017 National Security Strategy.[3] The United States’ chief competitors, China and Russia, promote a developmental model that enables kleptocracy and undermines good governance. Private and public Chinese and Russian entities offer kleptocrats opportunities to personally enrich themselves and their cronies through bribery, waste, and fraud. Required to abide by the rule of law, American companies can struggle to compete in kleptocratic contexts.[4]  

Beijing and Moscow have further weaponized corruption to influence and destabilize politics in their liberal democratic rivals.[5] They exploit lax transparency requirements in the U.S. financial and real estate sectors to conceal malign financial transactions; buy access to U.S. politicians through lobbying firms; fund U.S.-based think tanks, universities, and other non-profits to promote their policy positions in domestic disguise; and leverage the openness of U.S. social media platforms to spread disinformation. Anti-corruption efforts to improve transparency, accountability, and the rule of law globally would help American companies remain competitive internationally and reduce opportunities for China and Russia to undermine democracies.

The connection between kleptocracy’s destabilizing effects in other countries and the United States is not immediately obvious. At first glance, the root causes of the tumultuous events that overtook Ukraine in 2014 can appear domestically circumscribed. Popular resentment of the corruption of Ukraine’s leaders animated the Euromaidan movement that toppled pro-Russian Viktor Yanukovych’s kleptocratic government and spurred Russia’s subsequent annexation of Crimea and hybrid warfare in the Donbas. However, U.S. financial institutions also fit into the causal chain that precipitated the crisis because they provided the country’s kleptocrats with financial vehicles to launder their ill-gotten gains and secure them in trusted financial institutions in the United States, as well as Europe.

Rinat Akhmetov, Ukraine’s richest oligarch, funded Yanukovych’s Party of Regions and hired an American consultant, Paul Manafort, to rehabilitate the party’s image.[6] A 2020 leak of documents from a small bureau of the U.S. Treasury called the Financial Crimes Enforcement Network revealed that U.S.-based banks moved almost $2 billion for Akhmetov’s companies from 2009 to 2016 and over $50 million for Manafort while he consulted for Akhmetov and Yanukovych.[7] The transactions were detailed in suspicious activity reports, which are a confidential mechanism for banks to alert the U.S. government to irregular activity and possible crimes.

In total, the leak contained approximately 2,100 suspicious activity reports detailing more than $2 trillion of suspicious transactions made by suspected kleptocrats, criminals and terrorists, mostly between 2011 and 2017.[8] However, the leaked documents represent less than 0.02% of the 12 million suspicious activity reports filed by banks and other financial firms with the Financial Crimes Enforcement Network between 2011 and 2017.[9] Many reports go unvetted by the U.S. government and major banks continue to facilitate transactions they have identified as suspicious.

Most of the new anti-corruption authorities and funding provided by the National Defense Authorization Act for fiscal year 2021 are rightly centered on the U.S. Treasury Department. Housed at the Treasury, the Financial Crimes Enforcement Network is the leading U.S. government bureau geared towards fighting corruption in many of its forms including terrorist financing. However, the Financial Crimes Enforcement Network Files leak demonstrates that despite its expertise and dedication to its mission it is severely underfunded and understaffed.[10] The reforms called for by financial enforcers, multilateral standard setting bodies, and anti-corruption watchdogs require effective regulatory rulemaking by the Treasury and greater investment in the bureau.[11] However, the complexities of corruption threats also span the domains of defense, intelligence, and diplomacy, meaning the Treasury cannot be expected to solve the problem on its own.

In contrast to the Treasury, the Department of Defense lacks the expertise to evaluate the role corruption plays in state fragility and security assistance. In practice, it has an incentive to ignore or deprioritize corruption risks associated with tools like arms sales and security assistance that are used to shore up strategic alliances and partnerships. Like the Biden administration’s Interim National Security Strategic Guidance, existing military doctrine notes corruption as a problem, but does not address what to do about it.

Joint Publication 3-24, Counterinsurgency discusses how corruption can undermine a counterinsurgency mission and how security assistance can exacerbate corruption in partner governments, but  does not mention American defense exports at all.[12] Regarding the governance of security assistance in fragile states, Field Manual 3-7, Stability says that corruption is a significant barrier to building governance in fragile states, but it fails to mention the destabilizing effects that American defense exports can have.[13] Neither document provides tangible guidance to American troops and defense officials on how to mitigate problems of corruption.[14] Doctrine and training on corruption need reform, but it is also important to ask whether arms sales and security assistance should continue to be managed primarily by the Defense Department.

Across the Middle East, U.S. arms sales enable domestic repression and perpetuate corruption. U.S. partners in the Gulf display questionable capacity to utilize the U.S.-made arms they purchase to defend themselves and therefore deter and contain Iran. Corruption further weakens the capacity of these states, making them vulnerable to influence from Russia or China should they fall into crisis as the Assad regime did in Syria. According to Transparency International, eight of the top ten importers of arms in 2019 are at a high risk of corruption including the United Arab Emirates, Saudi Arabia, Egypt, Qatar, and Iraq.[15] U.S. arms sales to these countries, and to others outside the Middle East, are highly likely to fuel corruption given the lack of oversight and accountability in their defense institutions. On the supply side, Transparency International found that three quarters of the world’s largest defense companies demonstrate little to no commitment to addressing corruption.[16]  

The Department of Defense’s minimal anti-corruption expertise, the secrecy of the defense sector, and the close relationship between defense contracts and politics in most countries raise the likelihood that arms sales are a key driver of corruption in recipient states. It is in America’s interest to prioritize anti-corruption in the approval of arms sales and to push its partners to be transparent, accountable, and thereby more capable and better governed to enhance their value as partners against regional adversaries and to inoculate them against Russian and Chinese influence.[17] 

Not all forms of military aid produce negative outcomes. Recent research by international relations scholar, Jessica Trisko Darden suggests U.S. military aid may actually decrease the likelihood of some kinds of state violence.[18] In part, this is because some assistance, such as surface-to-air missiles, is not particularly useful for repressing dissidents. However, Darden found that U.S. economic aid was associated with an increased likelihood in levels of mass killings, state killings, and repression, which supports her theory that recipient governments can harness foreign assistance to increase the coercive capacity of their security sectors regardless of the intended purposes of the aid.[19] She found that the coercive effect of foreign assistance was most likely in countries transitioning from authoritarian to democratic systems, as well as in countries with weak state institutions or a recent history of armed conflict.[20] Drawing on cases like South Korea and El Salvador, Darden concluded that ending foreign aid to dictatorial regimes may force them to become more accountable to their citizens and thereby facilitate democratization.[21] 

More investigation of the relationships between all forms of foreign assistance and the maintenance of repressive kleptocratic regimes is needed. Unstable governments prone to deploying state violence against restive populations are susceptible to the strategic corruption that America’s adversaries, chiefly China and Russia, wield to buy international influence. Effective anti-corruption in foreign policy may require the United States to eliminate foreign assistance to authoritarian states and prioritize assistance for accountable governments. 

Abdullah Abdullah, Chief Executive of Afghanistan, and Hamid Karzai, former President of Afghanistan, speak prior to an Afghanistan Independence Day ceremony Aug. 19, 2018, in Kabul, Afghanistan. (U.S. Air Force photo by Tech. Sgt. Sharida Jackson)

China and Russia are not the only countries to view corruption as a foreign policy tool. Indeed, America’s Central Intelligence Agency has long leveraged corruption as a tool of control and subversion in diverse settings with questionable results. In the early 21st century, the agency provided President Hamid Karzai with pallets of hard currency worth millions to fund a patronage system that corralled Afghanistan’s contentious landscape of warlords.[22] American reliance on warlords and strongmen was vital to its rapid military victory in 2001 and contributed to post-conflict stability by empowering informal institutions and actors, but it contradicted the long-term statebuilding goals of establishing the rule of law and creating a centralized formal government.[23] The kleptocracy the United States helped build in Afghanistan has pillaged foreign aid and security assistance at great cost to U.S. taxpayers ever since.[24] 

The United States also has a history of utilizing foreign subversion to accomplish foreign policy goals. Supporting proxies is a relatively cheap form of statecraft, but it presents a high risk of corruption because recipients have wide latitude to determine the distribution of funds. In Syria, the U.S. partnership with the Syrian Democratic Forces has successfully countered the Islamic State, but the broader consequences of this form of intervention are poorly understood. Melissa M. Lee, an expert in statebuilding, has argued that foreign subversion plays an underappreciated role in weakening state authority and impeding state consolidation.[25] 

Kleptocrats flourish when state institutions are weak and territories outside of state control are permissible environments for organized crime and terrorist networks to operate. Proxy relationships that serve near-term security objectives may therefore simultaneously exacerbate corruption that undermines long-term stability. The United States should review how its use of foriegn subversion may–like foreign assistance–distort accountability and transparency in target countries to the detriment of other foreign policy goals. 

The corruption of kleptocrats and dictators who repress their citizens and loot the state can appear to be a foreign problem disconnected from life in the United States, but it is a transnational issue with far reaching ramifications. In recent years, recognition has grown that U.S. financial institutions play a central role in abetting corruption abroad. However, a combination of concerted lobbying from the U.S. private sector, a lack of political will, and under-resourced government entities have stymied progress on anti-corruption. For example, the U.S. Chamber of Commerce opposed measures targeting the anonymous shell companies that kleptocrats, criminals, and terrorists use to launder their money for nearly a decade. The business-oriented lobbying group’s reversal to endorse such measures in 2020 helped them pass within the National Defense Authorization Act for fiscal year 2021.[26] 

Corruption abroad is not only a moral issue worthy of political will in the United States. It also exacts profound costs on the United States. Kleptocracy, facilitated by the U.S.-led international financial system, makes it difficult for American companies that must abide by the rule of law to compete in international markets and contributes to the perpetuity of weak statehood and authoritarianism in contravention of U.S. national security interests. 

The nature of corruption–which further encompasses global economic, trade, development, and humanitarian challenges–requires a comprehensive set of responses. The extent of the problem should not be obscured by a purely securitized narrative, but as a threat multiplier, corruption is too detrimental to vital U.S. interests to be ignored in the next National Security Strategy. After all, a world safe for kleptocracy is a world in which great power competitors like China, regional adversaries like Iran, and all manner of terrorist groups are afforded asymmetric advantages rooted in ostensibly rules-based international institutions.

Ian J. Lynch is an independent foreign policy analyst with a Masters in Middle East, Caucasus, and Central Asian Security Studies from the University of St Andrews in Scotland. He previously led the development of girls’ education programs in Afghanistan between 2013 and 2018.

This article appeared originally at Strategy Bridge.

[1] United Nations, “Pervasive Corruption Costs $2.6 Trillion; Disproportionately Affects ‘Poor and Vulnerable’ Says UN Chief,” News release, (September 10, 2018), https://news.un.org/en/story/2018/09/1018892.

[2] The President of the United States, Interim National Security Strategic Guidance, March 2021, The White House, March 2021, https://www.whitehouse.gov/wp-content/uploads/2021/03/NSC-1v2.pdf.

[3] The President of the United States, The National Security Strategy of the United States, December 2017, The White House, December 2017, https://www.whitehouse.gov/wp-content/uploads/2017/12/NSS-Final-12-18-2017-0905-2.pdf.

[4] Daniel F. Runde and Christopher Metzger, Fighting Corruption for U.S. Economic and National Security, Center for Strategic and International Studies, April, 2020, https://www.csis.org/analysis/fighting-corruption-us-economic-and-national-security-interests.

[5] Philip Zelikow, Eric Edelman, Kristofer Harrison, and Celeste Ward Giventer, “The Rise of Strategic Corruption: How States Weaponize Graft,” Foreign Affairs, July/August, 2020, https://www.foreignaffairs.com/articles/united-states/2020-06-09/rise-strategic-corruption.

[6] U.S. Congress, Senate, Select Committee on Intelligence, Russian Active Measures Campaigns and Interference in the 2016 U.S. Election, 116th Cong., 1st Sess., 2019, S. Rep. 116-XX, 27, https://www.intelligence.senate.gov/sites/default/files/documents/report_volume5.pdf.

[7] International Consortium of Investigative Journalists, “Global Banks Defy U.S. Crackdowns by Serving Oligarchs, Criminals and Terrorists,” International Consortium of Investigative Journalists, September 20, 2020, https://www.icij.org/investigations/fincen-files/global-banks-defy-u-s-crackdowns-by-serving-oligarchs-criminals-and-terrorists/.

[8] Ibid.

[9] Fergus Shiel and Ben Hallman, “Suspicious Activity Reports, Explained,” International Consortium of Investigative Journalists, September 20, 2020, https://www.icij.org/investigations/fincen-files/suspicious-activity-reports-explained/.

[10] Despite its important role in national security and protecting the U.S. financial system, FinCEN’s annual budget is roughly equivalent to just one F-35 fighter jet. See Nate Sibley and Ben Judah, Countering Global Kleptocracy: A New US Strategy for Fighting Authoritarian Corruption, Hudson Institute, 2020, 13, https://www.hudson.org/research/16608-countering-global-kleptocracy-a-new-us-strategy-for-fighting-authoritarian-corruption.

[11] Josh Rudolph, Treasury’s War on Corruption: A U.S. Treasury Department Strategy to Fight Kleptocracy and Root Dirty Money Out of the U.S. Financial System, German Marshall Fund: Alliance for Securing Democracy, December 22, 2020, https://securingdemocracy.gmfus.org/wp-content/uploads/2020/12/Treasurys-War-on-Corruption.pdf.

[12] Department of Defense, Counterinsurgency, JP 3-24, (Washington, DC: Department of Defense, April 25, 2018), III–19, https://www.jcs.mil/Portals/36/Documents/Doctrine/pubs/jp3_24pa.pdf.

[13] Department of the Army, Stability, FM 3-07, (Washington, DC: Department of the Army, June, 2014), https://www.globalsecurity.org/military/library/policy/army/fm/3-07/fm3-07_2014.pdf.

[14] Jodi Vittori, A Mutual Extortion Racket: The Military Industrial Complex and US Foreign Policy – The Cases of Saudi Arabia and UAE, Transparency International Defense & Security Program, December 20, 2019, 49, https://ti-defence.org/wp-content/uploads/2019/12/US_Defense_Industry_Influence_Paper_v4_digital_singlePage.pdf.

[15] Transparency International Defence and Security, “World’s Largest Defence Companies not Doing Enough to Tackle Corruption,” News Release, (February 9, 2021).

[16] Ibid.

[17] Objectives of US Arms Sales to the Gulf: Examining Strategic Goals, Risks and Benefits before the Subcommittee on Middle East, North Africa, and International Terrorism, 116th Cong. (2020) (statement of Lt Col (Ret) Jodi Vittori, Carnegie Endowment for International Peace nonresident scholar), https://www.congress.gov/116/meeting/house/110808/witnesses/HHRG-116-FA13-Wstate-VittoriPhDJ-20200616.pdf.

[18] Specifically, mass killings, state killings, and torture, although there was no discernable effect of military aid on government repression. Jessica Trisko Darden, Aiding and Abetting: U.S. Foreign Assistance and State Violence (Stanford CA: Stanford University Press, 2020), 39.

[19] Ibid, 39, 18.

[20] Ibid, 31-32.

[21] Ibid, 118.

[22] Matthew Rosenberg, “With Bags of Cash, CIA Seeks Influence in Afghanistan,” The New York Times, April 28, 2013, https://www.nytimes.com/2013/04/29/world/asia/cia-delivers-cash-to-afghan-leaders-office.html.

[23] Mark Peceny and Yury Bosin, “Winning with warlords in Afghanistan,” Small Wars & Insurgencies 22, no. 4 (2011), 603-61.

[24] For an early example see Tierney, R. J. (2010). Warlord, Inc. Washington, DC: Subcommittee on National Security and Foreign Affairs, Committee on Oversight and Government Reform, U.S. House of Representatives. The U.S. Special Investigator General for Afghan Reconstruction publishes quarterly updates on dozens of other instances of waste, fraud and abuse.

[25] Melissa M. Lee, Crippling Leviathan: How Foreign Subversion Weakens the State (Ithaca NY: Cornell University Press 2020), 62-63.

[26] Eli Moskowitz, “U.S. Makes Progress on Legislation to Prevent Illicit Financial Flows,” Organized Crime and Corruption Reporting Project, July 1, 2020, https://www.occrp.org/en/daily/12667-u-s-makes-progress-on-legislation-to-prevent-illicit-financial-flows.