Corrupter of the World

By John Lloyd

Tuesday, March 29, 2022

 

The depth and breadth of corruption in countries, leaders, and peoples has gained more and more public attention in recent years, another torment to add to those already disturbing the peace of the socially aware. It is tormenting because—like the warming of the globe, the advance of authoritarianism, and the prevalence of the various strains of COVID-19 (and other as yet undeveloped pandemics)—it only gets worse, no matter how much rhetoric, or even action, is thrown at it.

 

It has only become more tormenting now, amid the invasion of Ukraine, because it is represented as both the fundamental basis of Russian governance and as evidence of the West’s complicity in, and furtherance of, its sleaziest manifestations outside of Russia. Russia has indeed played a large part in the practice and growth of corruption in governance and commerce everywhere. Only a few islands of comparative rectitude remain, usually in small states. In Transparency International’s 2021 index of public corruption, the top 10 least corrupt countries include just one large member, Germany. Of the rest—Denmark, Finland, Luxembourg, the Netherlands, New Zealand, Norway, Singapore, Sweden, and Switzerland—only Sweden has a population exceeding 10m.

 

The other element which unites the top 10 is that they are democracies (we might debate Singapore). The master-corrupters, meanwhile, are autocratic regimes—in large part because the autocrat needs control of the public purse to reward the circle of officials and generals who sustain him, thereby ensuring their loyalty. Democracies have the advantage—for the demos—of providing checks on power, through independent judiciaries, political opposition, free media, NGOs, and active civil societies that live on criticism and revelation.

 

None of these institutions is without its flaws, some of which are serious. Even in the top 10, or just outside it at number 11 (the United Kingdom), apparently correct behaviour hides practices which may be formally legal, but which allow the very rich to escape the taxes paid by the vast majority. These taxes fund the institutions of an advanced society which benefit all, but they benefit the very rich disproportionately, since they most need law and order to protect their property, and tough libel laws to protect their reputations. Even here, opposition, investigation, revelation, and the mobilisation of public opinion sufficiently aroused to demand change can prompt reform.

 

But corruption is too bound up in human behaviour—the pursuit of self-interest and the desire to be kind to friends and assist family—to root out entirely. All that can be done is to recognise its corrosive, even murderous effects, and to oppose it. A long battle is urgently needed. It will require skill and courage, but it will never be able to claim a full victory.

 

***

 

The widespread revulsion towards Russia and Russians produced by the unprovoked invasion of Ukraine can be deeply unfair on the many thousands of Russians who hate the war. At demonstrations throughout Europe, they can be seen bearing placards that read mne stidna—I’m ashamed. The unjustified cancelling of performers, ballet dancers, and musicians is mostly moral preening, but at least a more unforgiving light is now being shone on the country’s oligarchs. Russia’s oligarchs agreed, perforce, to a pact with Vladimir Putin when he was elected president in 2000—they would get out of politics (in which many had been deeply enmeshed), and in exchange, they would be allowed to keep their wealth, however obtained.

 

In a recent column for the Atlantic, the Polish-American commentator and historian Anne Applebaum linked the threat of authoritarian states to their corruption:

 

We need a completely new strategy toward Russia, China, and the rest of the autocratic world, one in which we don’t merely react to the latest outrage, but change the rules of engagement altogether. We cannot merely slap sanctions on foreign oligarchs following some violation of international law, or our own laws: We must alter our financial system so that we stop kleptocratic elites from abusing it in the first place … we cannot rely on old ideas about the liberal world order, the inviolability of borders, or international institutions and treaties to protect our friends and allies: We need a military strategy, based in deterrence, that takes into account the real possibility that autocracies will use military force.

 

Until surprisingly recently, corruption in government was not regarded as a big deal, and even enjoyed quasi-official approval. In 1999, the IMF published an unusually (for the Fund) strongly worded report which said that “the early—apologetic—literature on corruption sought to make arguments in favour of corrupt behaviour under the premise that it increased economic efficiency.” The authors went on to argue that “the many activities typically defined as ‘corruption’ are in effect predatory in nature … an organizational solution to the expansionary intent of warlords and dictators alike.”

 

In his 2021 book, Controlling Corruption: The Social Contract Approach, the veteran Swedish anti-corruption scholar Bo Rothstein writes that “well into the 1990s, standard textbooks … hardly paid any serious attention to this problem.” He notes that while established democracies are usually less corrupt than authoritarian states, countries which have developed a measure of democracy—typically, regular elections—can become more corrupt than they were previously, since newly elected politicians with little or no reputation rely, not on strengthening or developing public systems in health, education, and the rule of law, but on local patronage networks to deliver targeted goods in exchange for votes, “fuelling clientism and corruption.”

 

Rothstein identifies the late 1990s as the period when closer concern with corrupt behaviour at last emerged, and this moment is significant. By that time, two elemental movements—one already well-established, the other busy establishing itself—were coming together, the first of these wrapping itself like a thick, warm blanket round the other. The warm blanket (for some) was globalisation. It, too, hadn’t attracted much attention in its early—and relatively discreet—manifestations. Even as it was looming and being planned in the period before it was unveiled in the 1960s, policymakers, central bankers, and journalists largely ignored its implications.

 

In his forthcoming book, Butler to the World, Oliver Bullough, among the most stubborn and stylish chroniclers of corruption’s hydra-headed beast, quotes the economist Andrew Shonfield. As early as the 1950s, Shonfield was pointing out that the “unrestrained flow of money among countries”—the sine qua non of globalisation—would “at once set pretty narrow limits to what governments could do about taxation, about social expenditure, about nationalisation and a number of other major political issues.” Shonfield was one of only a tiny group who saw that this would be more than a trading convenience and a liberation from irksome currency controls. It would mean, Bullough writes, that “countries would have to compete with each other to attract this footloose capital, which meant its owners would be able to pick and choose which jurisdiction to favour with their custom.”

 

Globalisation meant that finance, in its various forms and by virtue of its manoeuvrability, became, in many respects, more powerful than governments. By the 1960s, the City of London, accustomed to acting as the treasury for the Empire, was being shorn of its imperial reach. But it produced—in the then-small but inventive Midland Bank and the outsider bank, Warburg—two centres of finance with the imagination and daring to find new markets by getting around the rules, or at least bending them. Midland created the Eurodollar market, and Warburg created the Eurobond market, both of which were tailored to evade regulations. They discovered the joys of “offshore” jurisdictions, which were barely legal but largely untouchable by the police or judiciaries in conventional states.

 

From these beginnings, a new spirit seized the international markets. Transactions could be effected by financial instruments besides simple currency. Shaping these instruments required a sophisticated grasp of the markets and regulations; their complexity meant that the banks had to attract many of the brightest graduates of the ’60s and later with very high salaries. The new generations of bankers demolished the regulation-bound, upper-class-led City (and in the US, Wall Street), and replaced them with men and women whose job was to increase earnings by any available means. Most of these means were pure financial speculation searching for the highest return—activities which, skilful as they were, brought nothing productive to the economy.

 

But they did bring about a second movement—that of the Russian oligarchs. These men—they are all men, so far—had been among the first to understand the opportunities presented by the collapse of the Soviet Union in 1991. For them, it opened the door to luxury beyond the imagining of even the conventionally rich, and more like the vast, sprawling wealth of the Florentine Medicis or a pre-revolutionary French monarch. They came to Britain mainly for the expertise of the City, but they also appreciated the severity of the country’s libel laws. The mere threat of legal action from a distinguished practice was usually enough to ensure the retraction of an article or the pulping of a book that looked too closely at how an oligarch had acquired his wealth. They also found that they liked the English cult of the gentleman, and the culture of the country estate.

 

In their 2010 book, Londongrad, Mark Hollingsworth and Stewart Lansley detail the purchases of one of the wealthiest and, in the waning years of Boris Yeltsin’s presidency, most politically powerful oligarchs, Boris Berezovsky. Berezovsky spent £50m on country houses soon after his arrival in the UK in 2000, including an estate near Virginia Water in Surrey which he purchased for £20.5m. Hollingsworth and Lansley say that he bought the property after he flew over it in a helicopter, exchanged contracts the following morning, and completed the deal the following Monday. He did not even look inside the house, although he later made it his main UK residence.

 

This speaks to a kind of money mania, an acquisitiveness divorced from appreciation or even pleasure. This mania was topped by his former protégé, Roman Abramovich, whose even more furious house- and flat-buying was accompanied by the purchase of Chelsea football club, which he has now lost on account of what British intelligence believes is his closeness to Vladimir Putin. Abramovich and Berezovsky, once close and then the most acid and litigious of enemies, were followed by many others, who have now also been deprived of (or are fearful of losing) their mansions, estates, and yachts.

 

Many of them had made their fortunes the relatively easy way. In 1992, the new Russian government privatised state businesses by dispensing vouchers to the population which represented shares in companies. A small group of sharp-witted men realised how valuable many of these properties could be, and offered the working majority of Russians, who were worried that their salaries or pensions would not be paid (and quite often they were not), what seemed to be generous offers for their vouchers. In 1995, when President Boris Yeltsin found himself desperate for money to run his campaign for a second term, privatisation took place. In exchange for large loans, Yeltsin handed the oligarchs shares in the state’s most precious assets—oil, gas, and metals.

 

A new proprietorial and management class was born, which did not hesitate to take advantage of mass poverty and the opportunity for inside deals with an unpopular president fearful of losing power. The Communist Party was then riding high, and Yeltsin worried that if it won he would be put on trial. This approach to making money was reasonably simple, but it was also risky. The oligarchic class now found that it had to live with the ever-present threat of assassination. Berezovsky survived several attempts on his life, including a car-bomb which killed his driver but left him only slightly injured.

 

The first governments of a Russian state shorn of the rest of the Soviet Union were firmly neoliberal, which was then the growing orthodoxy in much of the capitalist world. This was partly a reaction to the slow collapse of the Soviet socialist economy and their identification of the market as a comprehensive (if initially painful) solution to the prevailing economic and social crisis. The state—a hangover from the Soviet days staffed by many of the same personnel—was their foe.

 

The group which formed around economist Yegor Gaidar, Yeltsin’s first prime minister, believed that markets would produce an efficient allocation of goods and rewards. But they also believed they had little choice. After the 1917 Bolshevik revolution, the sudden imposition of state controls had led to the disappearance of food from shops, as peasants hoarded their produce. As a result, relatively free market relations were licensed by Lenin’s “New Economic Programme” during the 1920s. Without liberalisation, Russia’s post-communist elites realised, the systems of production and distribution would simply seize up again. I was a reporter in Moscow at the time, and I remember walking around a supermarket, the shelves of which bore just one commodity—a much-reviled kind of canned fish. During a panicky interview, a Moscow city official told me that hundreds of thousands of battery chickens were dying in their coops for lack of feed.

 

The new government had assumed office promising to end communist authoritarianism and create a new democratic politics. As the Communist Party gained in popularity amid widespread shortages and misery, the Gaidar gang (as they came to be known, without affection) began to worry that the return of communism would end democracy itself. So, the neoliberals would have to use their precarious power to deprive the communists of their economic bases in the state corporations, the supply chains, and above all, in the oil and gas sector. Would-be oligarchs were therefore encouraged by the government to construct as free a market system as possible and not to worry too much about the doubtful morality of their acquisitions. They were bequeathed a certain positive glow as heralds of freedom. This was a time when it was widely assumed that free markets would support a free politics and society (a view that has been unable to survive the last few decades in China).

 

The new masters of the financial universe were all vehemently anti-communist. Until now, many of them had been semi-criminal merchants of forbidden but highly prized commodities, such as jeans and rock music CDs. They were also nearly all Jewish—members of a group suppressed with differing degrees of harshness during the communist decades. They had never lost touch with a religio-social strain of thought and custom which stressed self-reliance, importance of family, mutual support in an often hostile world, and hard work and study—values that offered a sort of prophylactic against communism, which barely tolerated any religious belief or private enterprise.

 

They grasped quickly that the world was opening up, and that the semi-autarky which was the Soviet Union had tumbled into a world in which borders were increasingly irrelevant to finance and corporations, as capital and production were liberated to move swiftly around the globe.

 

***

 

In the 1990s, London was globalisation central, even more linked in to the world than New York. But because it was less rich, London was also more inclined to grant requests from oligarchs to handle their deals without enquiring into the means by which they were made. A flurry of recent books and articles, many of which are written by journalists who have spent years trying to understand Russia and the Putin regime, have focussed on the mutually enriching relationship between the City and the oligarchs.

 

Among the very best of these is Catherine Belton’s 2020 book, Putin’s People, a closely detailed examination of Putin, his circle, and their corruption. One of her principal sources, an oligarch named Sergei Pugachev, was the first to create a bank in 1991:

 

Pugachev had long detected the influence of Russian cash in London … he’d met a string of English lords who’d guffawed and shaken his hand and told him how great they thought Putin was. In those days, they believed Pugachev was “Putin’s banker,” as the press had called him then, yet they’d still asked him to donate to the Conservative Party without any question or thought. … The list of officials resident in London was endless, said Pugachev, “they have sorted themselves out very well on this small island with terrible weather,” he sniffed. “In the UK, the main thing was always money. Putin sent his agents to corrupt the British elite.”

 

One of the finest books about the Russian president himself appeared in 2013. In Mr Putin, Fiona Hill and Clifford Gaddy provide a cool assessment of a man who prizes loyalty above all other qualities. Putin ensures loyalty by constructing “some kind of hook … even with the crony oligarchs and others most closely linked to him. … Participants in the system are not bought off in the classic sense of the term. They are compromised, made vulnerable to threats … basically mutually assured incrimination to guarantee loyalty.” To survive in Kremlin circles—and to gain and keep great wealth in Russia—it is necessary to be at least in an outer circle of approval. One is forced to learn the strategies of a mafia don. These were the people who, in Belton’s study of the obscenely opulent, came to London because it offered most protection.

 

Oliver Bullough’s Butler to the World is a kind of sequel to his 2018 book, Moneyland. Of all of the recent books on Russia and corruption, Moneyland offers the most detailed picture of the ways in which money is laundered, transported, stored, and protected from tax. Britain is at the forefront of these operations, because many of the tax havens in which this happens are fragments of its empire, still nominally controlled by the UK. Many ministers and prime ministers have inveighed against these havens for years, and promised action. But, when implemented, these measures have been found to change little.

 

Bullough takes an essayist’s—or even a novelist’s—delight in plunging deep into the various mechanisms used to keep money from the taxes which fund civilised life. Among his targets are the British Virgin Islands, where hundreds of firms are registered in shell companies, and on whose shores these companies’ executives have never stepped:

 

What is the BVI selling? It is selling discreet and affordable asset protection services, all guaranteed by the pleasant and reassuringly solid presence of the British flag. These services have been used by North Korean arms smugglers, crooked Afghan officials, American tax dodgers, South American drug cartels, Kremlin insiders, corrupt football administrators and far too many criminals to name.

 

But the City of London remains Bullough’s largest target, and the Russian oligarchs are among his largest and richest villains. “By the most conservative estimate, hundreds of billions of pounds of criminal money flow through the City of London every year, most of it stolen from vulnerable people in some of the world’s poorest countries.”

 

Russians are notorious for this, but they have no monopoly. Indeed, one of the most hideous examples Bullough offers in Moneyland was a citizen of the country the Russian army is presently tearing apart. As Bullough tells it, the story of Viktor Yanukovich is a tour de force of horrified fascination. While he was president of Ukraine from 2010 to 2014 (his campaign was estimated to cost between $100–150m), Yanukovich amassed a colossal fortune, the fruits of which were displayed to the citizens after his flight from the revolt he had stirred up. The palace he had built outside Kyiv was constructed with hundreds of millions of dollars that he and his cronies had stolen from the budget of their poor state. And when the estate was thrown open to the public:

 

… people came to marvel at the edifice of the main building, the fountains, the waterfalls, the exotic pheasants. It was a temple of tastelessness, a cathedral of kitsch, the epitome of excess … the garages were an Aladdin’s cave of golden goods, some of them maybe priceless … piles of gold candlesticks, all full of portraits of the president, statues of Greek gods … dozens of icons, antique rifles and swords and axes … and a document announcing that a star had been named in his honour, and another for his wife.

 

Power begat money, money begat power. The liberation produced by the collapse of the Soviet Union was real enough—it brought to an end a system which blighted and cramped the lives of millions over more than seven decades. But the expectation—believed by many of the Western journalists in Russia at the time, including me—that a more or less stable democracy and a more or less active civil society would eventually emerge has so far met immovable forces. These include, most obviously now, President Vladimir Vladimirovich Putin, who is determined to allow democracy no closer than Ukraine’s western border, whatever the human cost.

 

After communism fell, a lot of longterm work was needed to accustom people to a new reality in which their ruler’s legitimacy no longer depended upon foreign conquest and imperial aggrandisement. Moves towards a more liberal and democratic polity were sporadically attempted under Boris Yeltsin, but even before the current war, they had been killed off, bit by bit, by Putin’s 22-year rule. The oligarchs, most of whom are horrified by this new challenge to their continuing enrichment, have never been courageous enough to develop a culture of opposition, preferring to grumble in their yachts and genuflect in the gilt chambers of the Kremlin. As Ukraine’s suffering grows, the failure of Russia to break from the brutal cycles of its past now threatens what order still exists among the nations of the world.