[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]




                               BEFORE THE


                                 OF THE

                      COMMITTEE ON FOREIGN AFFAIRS
                        HOUSE OF REPRESENTATIVES


                             SECOND SESSION


                            DECEMBER 7, 2016


                           Serial No. 114-240


        Printed for the use of the Committee on Foreign Affairs


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                      COMMITTEE ON FOREIGN AFFAIRS

                 EDWARD R. ROYCE, California, Chairman
ILEANA ROS-LEHTINEN, Florida         BRAD SHERMAN, California
DANA ROHRABACHER, California         GREGORY W. MEEKS, New York
STEVE CHABOT, Ohio                   ALBIO SIRES, New Jersey
JOE WILSON, South Carolina           GERALD E. CONNOLLY, Virginia
MICHAEL T. McCAUL, Texas             THEODORE E. DEUTCH, Florida
TED POE, Texas                       BRIAN HIGGINS, New York
MATT SALMON, Arizona                 KAREN BASS, California
DARRELL E. ISSA, California          WILLIAM KEATING, Massachusetts
TOM MARINO, Pennsylvania             DAVID CICILLINE, Rhode Island
JEFF DUNCAN, South Carolina          ALAN GRAYSON, Florida
MO BROOKS, Alabama                   AMI BERA, California
PAUL COOK, California                ALAN S. LOWENTHAL, California
RANDY K. WEBER SR., Texas            GRACE MENG, New York
SCOTT PERRY, Pennsylvania            LOIS FRANKEL, Florida
RON DeSANTIS, Florida                TULSI GABBARD, Hawaii
MARK MEADOWS, North Carolina         JOAQUIN CASTRO, Texas
TED S. YOHO, Florida                 ROBIN L. KELLY, Illinois
CURT CLAWSON, Florida                BRENDAN F. BOYLE, Pennsylvania
REID J. RIBBLE, Wisconsin
DAVID A. TROTT, Michigan

     Amy Porter, Chief of Staff      Thomas Sheehy, Staff Director

               Jason Steinbaum, Democratic Staff Director

         Subcommittee on Europe, Eurasia, and Emerging Threats

                 DANA ROHRABACHER, California, Chairman
TED POE, Texas                       GREGORY W. MEEKS, New York
TOM MARINO, Pennsylvania             ALBIO SIRES, New Jersey
MO BROOKS, Alabama                   THEODORE E. DEUTCH, Florida
PAUL COOK, California                WILLIAM KEATING, Massachusetts
RANDY K. WEBER SR., Texas            LOIS FRANKEL, Florida
REID J. RIBBLE, Wisconsin            TULSI GABBARD, Hawaii
DAVID A. TROTT, Michigan

                            C O N T E N T S



Mr. Charles Davidson, executive director, Kleptocracy Initiative, 
  Hudson Institute...............................................     5
Mr. Ivan Vejvoda, senior vice president for programs, The German 
  Marshall Fund of the United States.............................    10
Mr. Sergei Kolesnikov (former co-founder of Petromed Holding)....    23


Mr. Charles Davidson: Prepared statement.........................     7
Mr. Ivan Vejvoda: Prepared statement.............................    12
Mr. Sergei Kolesnikov: Prepared statement........................    25


Hearing notice...................................................    48
Hearing minutes..................................................    49
The Honorable Gerald E. Connolly, a Representative in Congress 
  from the Commonwealth of Virginia: Prepared statement..........    50


                      WEDNESDAY, DECEMBER 7, 2016

                       House of Representatives,

         Subcommittee on Europe, Eurasia, and Emerging Threats,

                     Committee on Foreign Affairs,

                            Washington, DC.

    The subcommittee met, pursuant to notice, at 10:05 a.m., in 
room 2172, Rayburn House Office Building, Hon. Dana Rohrabacher 
(chairman of the subcommittee) presiding.
    Mr. Rohrabacher. I hereby call this hearing of the Europe, 
Eurasia, and Emerging Threats Subcommittee into order. This 
will be the final subcommittee event of the year, and I must 
say it has been a pleasure to chair this subcommittee and to 
serve with my friend and colleague and ranking member, Mr. 
    Mr. Meeks, thank you so much. We have had a good 2 years 
together here. We will see what happens next time around. No 
one knows. I very much look forward to continued collaboration 
one way or the other in the new Congress.
    So with that said, for this hearing we are focusing on 
corruption in Europe and Eurasia. This issue has not been 
really the recipient of much attention. It certainly hasn't 
received the attention it deserves. Both globally and in 
particular countries this committee oversees it seems that this 
issue just hasn't really been touched on. It is like maybe some 
sort of a hot stove.
    But the corruption, we have to recognize, has been a major 
factor since the end of the cold war in the former Soviet 
states. These countries have worked with various degrees of 
success to privatize their own state-owned industries and build 
various institutions that allow for democracy and prosperity.
    In short, for them corruption has been a common stumbling 
block to progress, as it is also, as we recognize, in Third 
World countries, whether or not it is petty corruption, perhaps 
by a police officer who is looking to give you a ticket or, at 
a grander level of corruption, where private interests actually 
capture control of large chunks of state assets. It hampers 
reforms, corruption holds back economic growth, and in far too 
many cases it also impoverishes low-income populations in 
countries that could be doing much better for their entire 
    Now, when government institutions serve private interests, 
enriching oligarchs and enriching politicians instead of 
addressing the needs of its people, that undermines the faith 
in government and the rule of law, it undermines the basic 
stability and any chance for prosperity, at least any chance 
for ordinary people to live in prosperity in these countries.
    Hence, if we understand the general aim of U.S. policy as 
promoting prosperous, peaceful, and pluralistic countries, 
fighting corruption should be at the center of that effort. 
Unfortunately, it is not, and perhaps because there are 
powerful Western accomplices to these crimes of corruption in 
developing countries.
    While we should call out and hold accountable corrupt 
officials, it is important to understand that in some places 
corruption is the rule, not the exception. I would like to cite 
a recent survey released by Transparency International that 
found that one in three people living in Europe and Central 
Asia believe corruption to be one of the largest problems of 
their country.
    Policymakers in the United States and Europe need to think 
about broad and systematic approaches to this challenge. For 
example, Western banks, are they complicit in money laundering 
for corrupt officials? Does that make them an accomplice to the 
theft of resources that should serve the poorest and most 
vulnerable people of the world, but instead those resources are 
being utilized and the profit from it are going to large 
financial institutions in cooperation with local gangsters and 
thugs in those countries?
    What about us? Could we do more to ensure that corrupt 
officials can't store their ill-gotten gains in Western banks 
or use it to buy property or businesses in our country?
    This is too much for today, it is too much for just today, 
but it will be the subject for an investigative hearing or 
investigative hearings in the years ahead, whether I am here or 
    I am looking forward to a discussion today of these things 
with our witnesses, and I look forward to their testimonies. 
And without objection, their written statements will be made 
part of the record.
    And I will turn to my ranking member, Mr. Gregory Meeks.
    Mr. Meeks. I want to thank you, Mr. Chairman, for calling 
this timely hearing--our last. I guess, this will be our last 
of the 114th Congress----
    Mr. Rohrabacher. That is why it was timely.
    Mr. Meeks [continuing]. To discuss the role of corruption 
and eroding democracy in Europe. And I do appreciate your 
cooperation in working together over the last couple--last 4 
years actually--and to work more on Europe together. My 
intentions are to stay here, you know, we will be in the next 
Congress--unless you, of course, have other plans.
    Mr. Rohrabacher. We will see. Don't count on it.
    Mr. Meeks. So hopefully we will do this again.
    The fight against corruption is a civic duty, and I am 
against corruption here in the United States just as much as I 
am against corruption in Ukraine, France, and Russia, or 
anywhere on the planet. I think we can all agree on that. And 
corruption is often ill-defined, ambiguous, and sometimes woven 
in with cultural norms.
    Yet, while it take many forms, we know that it has costs. 
When bad actors in the public sector use political power to 
enrich themselves, there are consequences. The state is less 
effective and citizens less trusting of its political leaders.
    They do not act alone. Government officials who steal 
public money often use legal loopholes to launder their loot 
abroad in real estate or offshore accounts. This is done by 
employing willing enablers, lawyers or business partners, who 
take the money while looking the other way.
    Now, I have found it important when speaking of corruption 
in Europe that I can't avoid mentioning particularly the role 
of the Russian Government and Russia itself in exporting 
corruption abroad. The Russian Government has successfully 
muddied the waters in the media and politics with its dirty 
money in neighboring countries looking to reform, notably 
Ukraine, Moldova, and Montenegro. This is very troubling.
    Furthermore, the Russian taxpayer rubles have found 
sanctuary here in the United States and across Europe, giving 
us more reason for concern. And while Ukraine struggles to 
reform and create ambitious, transparent systems for the 
benefit of its people, we see Russian businesses and 
politicians with significant influence in trying to make us 
think that Ukraine can never reform.
    It is not only a morally troubling situation, it is also a 
national security question. It is one thing to look away when 
another country's government robs its own people; it is another 
to allow that government to use its citizens' money to corrupt 
and meddle in our democratic, rule-of-law-based society.
    This is the one reason I will continue to demand--I will 
continue to demand--here in the United States that President-
elect Trump release his tax returns and completely divest from 
his international companies. The American people have a right 
to know who our President may be beholden to.
    Now, fortunately for some of us, there are brave 
investigative journalists, lawyers, and activists who have shed 
light on the kleptocracy in the Kremlin and the way the Russian 
people are worse off because of it. Because Russia did not 
successfully reform after the fall of the Soviet Union and yet 
is home to vast amounts of natural resources, it is ripe 
territory for corruption at the highest levels.
    One of those brave men is here with us today. And I want to 
thank Mr. Kolesnikov for your bravery and work for the Russian 
people. I look forward to hearing your testimony and your 
firsthand knowledge of what drives the highest levels of 
Russian Government.
    I want to let you know that there is a reason why we should 
focus on Russia here today. It is because we believe that 
Russia is an important country, a potential partner. Russia can 
be better, can reform, and can be democratic and can be free.
    As a senior member of the Financial Services Committee, I 
am also deeply interested in how we can safeguard our financial 
institutions from corruption. It is that vulnerability to 
foreign and malign influences that worries me. What laws should 
we consider to amend beneficial ownership, for example? What 
are the risks today to American sovereignty in these areas?
    So, again, I want to thank you and all of our witnesses. 
And I look forward to working with my colleagues and to keep 
America and our allies safe from the unvirtuous spiral of 
corruption. And I yield back.
    Mr. Rohrabacher. We have been joined by two of our other 
colleagues. Do either of our other colleagues have an opening 
    Mr. Connolly, you are welcome to. You are not on the 
committee, but you are welcome to have an opening statement.
    Mr. Connolly. Thank you, Mr. Chairman.
    And I want to associate myself with the remarks just made 
by my good friend from New York. And I also salute the bravery 
of our guest witness here today. Thank you for participating.
    And I would ask unanimous consent my full statement be 
entered into the record at this time.
    Mr. Rohrabacher. Without objection.
    Mr. Connolly. I thank the chair, and I thank my good friend 
Mr. Meeks.
    Mr. Rohrabacher. And Mr. Weber has decided not to have an 
opening statement; although, I am sure he would like to comment 
on how the Democratic candidates deserve to be investigated in 
our last election in their financial dealings as well. But I 
won't put words into his mouth, but I thought somebody needed 
to make that point.
    So with that said, I would like to welcome the witnesses. 
And if we could, if you could summarize your testimony in 5-
minute segments, and then we will get into the questions and 
answers. And what I will do is I will introduce all of you and 
then we will start with Mr. Davidson after this introduction.
    So we have Charles Davidson, who is the executive director 
of Kleptocracy Initiative at the Hudson Institute, as well as 
being the publisher of the American Interest magazine. The 
Kleptocracy Initiative and its stated goal is to conduct 
original research into the growing threat posed by democracies 
by autocratic regimes structured as kleptocracies.
    And I think it will be very fascinating to get into some 
definitions, not only kleptocracy but exactly what is 
corruption and what is not corruption. And looking forward to 
your testimony.
    And then we have also with us Ivan Vejvoda, who is a senior 
vice president for programs at the German Marshall Fund here in 
Washington. From 2010 to 2013 he was the executive director of 
that organization's Balkan Trust for Democracy Program. Before 
that, he was an adviser to the Serbian Government and a long-
time advocate of democracy in that region and honest 
    And we have also with us today, and as we heard from Mr. 
Meeks, a Russian-born businessman, Mr. Sergei Kolesnikov.
    Is that right? Did I get it?
    Mr. Kolesnikov. Kolesnikov.
    Mr. Rohrabacher. Okay. And we are very happy to have you 
with us today.
    He is a Russian-born businessman who has traveled from 
outside the United States to come here today to testify at this 
hearing. In 2010, he left Russia and went to the press about 
certain allegations of high-level corruption within the Russian 
    So today we are going to be focusing on corruption both in 
theory and definitions of what is and what is taking place, but 
also in specifics in terms of different examples of corruption 
that are going on and how they impact--which is important--how 
that corruption impacts the people of the countries which are 
suffering from that corruption of their government.
    So with that said, Mr. Davidson, you may begin your 5-
minute presentation.


    Mr. Davidson. Mr. Chairman, Ranking Member Meeks, and 
distinguished members of the subcommittee, I appreciate the 
invitation to appear before you today. And I must say, these 
opening statements were so impressive to me. I think that 
Chairman Rohrabacher's statement perfectly summarizes the 
overall issue. And I agree with everything that Mr. Meeks said.
    So I will try to run through my statement very rapidly and 
touch on this enabler issue which was brought up, and go to the 
conclusions as to what we can do about this sort of thing. So I 
am going to gloss over agreeing with you on these various 
    And in terms of what corruption does to societies in 
undermining rule of law, subverting institutions, encouraging 
cultures of lawlessness, how it impoverishes the citizens of 
these countries, we all see this. I think it is worth reminding 
ourselves again and again that the Maidan Revolution was really 
about corruption. All those young people were talking about 
corruption all the time. It was really the driver of that 
    And in terms of the definitions and how all this evolved, 
institutionalized corruption, when it becomes the norm and 
consolidates its political power and we get actual state 
capture, that is what we talk about at least in terms of being 
kleptocracy. It is when corruption has really taken over the 
state and we get the rule of thieves.
    And obviously, these kleptocratic regimes have little 
appetite for democracy. I think an important point, in 
particular for our business community, is that these regimes 
have very little taste for free-market competition, so little 
taste that, in fact, corruption and exporting it is sort of an 
existential issue for them. They can't compete in the free 
    And we have, indeed, as was mentioned, been a partner in 
this whole system. And the way that has worked--and we 
published an article about this called, ``Stage Hands: How 
Western Enablers Facilitate Kleptocracy''--well, first, you 
have got to be able to loot the country, take it out of the 
country and put it in a safe place. We provide that safe place. 
Then, of course, there is a third stage where you hire public 
relations people and you put your children in the right schools 
and you become a full-fledged member of the West and become a 
very respectable person.
    And I think another thing we need to focus on more is the 
issue of incentive. When we do this, when we provide this safe 
haven, we are incentivizing corruption, and then we are further 
incentivizing all the way to kleptocracy. And this is something 
we really need to think about, and stop providing the punch 
bowl, if you will.
    The Ukrainian example we have already looked at.
    We don't really talk enough about authoritarianism in all 
of this. What we see now with the authoritarian threats is that 
authoritarian regimes that have become very militarily 
aggressive--and there are two I have in mind, which I barely 
need to name. They both happen to be structured as 
kleptocracies. Their elites are keeping their loot in the West, 
in our banks and financial institutions, in our real estate. 
And you would think we have a little bit of leverage over them, 
perhaps more than we are using.
    On this overall issue I mentioned, we published a paper 
called ``The Kleptocracy Curse,'' which may be of interest, 
which is almost an expansion of Chairman Rohrabacher's initial 
statement, expands on all those points.
    What can we do? I have 33 seconds to talk about that, and I 
will go right to the issue of anonymous companies, shell 
companies, whatever we want to call them. There are a few other 
recommendations in the testimony, they all pale in the face of 
the importance of the anonymous company question, in my opinion 
and in the opinion of many people that I have spoken with in 
law enforcement and the State Department, private 
investigators, large private investigator firms. There seems to 
be a real consensus that this is a huge part of the problem.
    And I will leave it at that. Thank you very much.
    [The prepared statement of Mr. Davidson follows:]

    Mr. Rohrabacher. You may proceed.


    Mr. Vejvoda. Mr. Chairman, Ranking Member, members of the 
committee, thank you very much for the invitation to testify 
before you today on this important subject, as we have heard 
both from the introductory statements and from my colleague 
Charles Davidson.
    Democratic transitions after 1989 confront the issue of the 
fact that there was practically no democratic political culture 
in the post-Communist space, in the space where one party ruled 
there was no pluralism, and where human rights were unknown to 
people. And so it had to begin with, as Hannah Arendt would put 
it, giving people the right, to understand that they have a 
right to have rights.
    And so the legacy of the old, the inertia of the old 
corrupt ways lives on as the democratic transition advances and 
as the democratic political culture tries to find its roots. 
And probably the best comparison is between Poland and Ukraine 
that had the same level of economic development in 1990. We see 
where Poland is today and we see what has happened to Ukraine, 
complete differences in standards of living and the 
institutional democratic culture, not that Poland is without 
problems today, as we know.
    The political winners of the Communist system--the 
political losers as democratic transition happens become the 
economic winners because they have all the inside information. 
They have the network through the secret services. And 
ultimately, as economic winners, they again become the 
political winners because of the nexus between the oligarchic 
structures and political parties.
    One particularly difficult issue that is addressed is that 
of political parties themselves, as they rise from nowhere 
after the crumbling of the Communist system. And the problem 
there is the financing of political parties. Where do these 
parties find moneys to actually have a party structure 
throughout a country?
    And that means, of course, that they have to lean on 
private business, and this is where a lot of the corrupt 
practices between the politics and economics, to speak all too 
gently, happens and where a lot of the corrupt practices. Of 
course, in Western societies we know that there are also these 
kinds of issues, but I would really like to highlight that 
problem in addressing the issue of corruption.
    I, unfortunately, coming from the former Yugoslavia and 
Serbia, had to live through the worst of a criminalization of 
society and the state of Serbia under sanctions that were 
imposed in 1992. For a country under sanctions to survive, it 
goes into full corrupt mode.
    And so when we emerged from the Milosevic regime in 2000, 
this was the state of affairs that we had to confront, how does 
one start pushing back this criminalization that was pervasive 
through the state. And of course it requires what other post-
Communist countries do, and that is to reinforce the structures 
of democratic institutions, of structural reform, et cetera.
    But that, as you know, requires support from the outside. 
And the role that the United States, Canada, the European Union 
member states, with their support through USAID, through 
development agencies has been extremely important.
    It, of course, behooves the citizens and governments in 
each of these countries, whether we are talking about Ukraine, 
Moldova, Serbia, Montenegro, Albania, Kosovo, to actually do 
the work of reform. They need to be the stakeholders. They need 
to sense the desire of citizens to have a society democratic 
based on the rule of law and human rights.
    And so that burden is principally on them, but it cannot be 
done without the principle of solidarity that we have seen 
delivered through these 25 and more years. And it requires in 
terms of what is to be done a holistic approach, and some of it 
we have already heard from Charles Davidson. So support to 
journalists, investigative reporting, support to civil society 
that pressures from below the governments to make them more 
accountable and responsible. Customs are an extremely sensitive 
    But the key and the backbone is judicial reform, a truly 
independent judiciary where citizens feel that no one is above 
the law and that everyone gets a fair trial. And we see the 
difficulties in acquiring fully independent judiciaries.
    And so I would urge that the continuing work of USAID with 
the European Union in support of these democratic processes is 
one of the backbones, as I said, along with the citizens 
themselves and their elected officials pushing toward 
strengthening the rule of law and creating further stability 
for democratic political culture.
    [The prepared statement of Mr. Vejvoda follows:]


    Mr. Rohrabacher. My goodness, everybody is following the 
rules and 5-minute rule.
    Mr. Vejvoda. Rule of law.
    Mr. Rohrabacher. Rule of law.
    Sir, you may proceed.

                       PETROMED HOLDING)

    Mr. Kolesnikov. Mr. Chairman, ladies and gentlemen, I am 
speaking here not in the capacity of an academic or a 
politician, but as a person who was directly impacted by a 
system of the Russian corruption. Furthermore, I had a unique 
chance to observe this system from within and made a conscious 
choice not to become a part of it. I am not going to delve into 
details of my case, since it was well described in the article 
by Mr. David Ignatius of 2010, which is included in your 
    I should add that once I realized that the whole scheme was 
illegal and sent all the paperwork to then-President Medvedev, 
my life was put under threat. And if not for a timely warning, 
I would probably have ended up just like Sergei Magnitsky, 
except you would have never heard my name. I love Russia. It is 
my homeland. But because of my story, I was forced to leave it 
and live abroad.
    What I would like to speak about is my firsthand experience 
of working closely with senior Russian officials and explain 
why Russian corruption is much more dangerous for the world and 
for the U.S. interests than corruption in Eastern and Central 
Europe and other nations of the world.
    Indeed, corruption is all-pervasive because it is a part of 
the human nature. It exists in France, Great Britain, Germany, 
and even the United States. However, as Aristotle and Hegel 
pointed out, it is the category of measure which makes the key 
difference between good and evil.
    The scale of corruption which permeated all levels of 
government, top down to the lowest ones, creates a perilous 
precedent of the major nuclear power where the whole chain of 
command over the weapons of mass destruction is a part of a 
vertically organized criminal system. Corruption in Russia is 
the cement which keeps the vertical of power together.
    Investigation by Alexey Navalny's Fund Against Corruption, 
many other journalists' investigations in Russia and abroad, 
for example the Panama Papers, clearly demonstrated the 
corruptness of the Russian Government officials on all levels 
of power. Billions of dollars were discovered in the accounts 
belonging to the friends of the President, relatives of the 
members of the government, governors, and many other officials.
    Recent broadly publicized arrests of Russian governors, 
police, and military generals, and even that of the minister of 
economy, is not an indication of an anticorruption campaign, 
but of an internecine fight of clans for access to the budget.
    Corruption causes bad management and inept economic 
policies, which in turn creates social and economic instability 
in the superpower with nuclear weapons. Steep decline of level 
of life in Russia needs to be justified. The Russian Government 
resorted to a time-tested method of distracting its population 
by creating an image of an external enemy. And the enemy is the 
United States and its Western allies.
    Two days ago, an official spokesman for the Russian Defense 
Ministry, General Konoshenkov, stated, to paraphrase, that the 
blood of the Russian servicemen is on the hands of the United 
States and its allies, who have created and are supporting the 
    Ladies and gentlemen, I am not a politician. In the last 5 
years, I have built a successful business in Europe. The reason 
for me accepting your invitation and speaking here is a desire 
to see my children's, all children's future in a safe and 
secure world, not imperiled by the actions of corrupt 
    Thank you very much.
    [The prepared statement of Mr. Kolesnikov follows:]


    Mr. Rohrabacher. Well, thank you, all, for your testimony 
    And I am going to let Mr. Meeks start off the questioning. 
Why don't you go right ahead. Okay. Well, I will go ahead then.
    Mr. Meeks. I don't interrupt the chair.
    Mr. Rohrabacher. I will take my orders from the boss over 
here. All right.
    Well, let me ask our last witness here, when you talk about 
corruption in Russia, what form does that take? See, we have 
businessmen here who make money and then do whatever they want. 
They are making millions of dollars. And yet we know that there 
are millions of dollars coming out of Russia that are not 
equated to our businessmen. They would base it on some corrupt 
activity that they are involved in.
    What is that corrupt activity that they are able to extract 
the wealth and then take it and deposit it somewhere else?
    The Interpreter. Mr. Kolesnikov is going to speak Russian, 
and I am going to be interpreting for him if you don't mind.
    Mr. Rohrabacher. That is fine.
    [The following answers were delivered through an 
    Mr. Kolesnikov. The main task of the Russian politicians 
who run the country right now today is to stay in power as long 
as they can. They perceive Russia as the source of their 
wealth; however, they prefer to live, to reside abroad, in 
Europe and the United States.
    They are perfectly aware that their money, that their 
wealth can be safely protected only in a democratic country 
based on the rule of law. Therefore, they try, they do their 
best to wire their money to democratic countries, being 
perfectly aware that in Russia at any moment they can be taken.
    Mr. Rohrabacher. We understand that, that that is, of 
course, taken, and something I hope we need to deal with. He is 
talking about corrupt officials sending money to the West. And 
as I stated in the opening statement, we are going to have some 
focused hearings on that, whether or not American banks and 
Western banks and other institutions are actually accomplices 
with a criminal activity that is basically extracting wealth 
from developing countries.
    The question I am asking is, you are saying that there are 
a large number or a certain number of officials in Russia that 
are engaged with corrupt activity. What is that activity that 
gives them the money in order to put in the Western banks?
    Mr. Kolesnikov. The main problem of Russia is that it is a 
very wealthy country, and the main source of income, of 
revenues, are the natural resources of Russia, as well the 
factories and enterprises which were built by the whole Russian 
    After the Soviet Union collapsed, practically all the 
properties and all the natural resources ended up in the hands 
of a very small group of people. And in order to pump out the 
money out of the country and wire to the West, you need to have 
control, you need to control power. In any democratic country 
where you have freedom of speech and free media and free 
elections, it would not be possible, where you have courts and 
when the rule of law--the law is above everything else.
    Mr. Rohrabacher. Okay. Well, let me try another approach or 
another thought here anyway.
    When we are talking about Serbia, and you mentioned that 
sanctions actually led to an expansion of corruption in Serbia, 
so a sanctions approach to a country actually perhaps makes 
things worse rather than makes things better. Is that correct?
    Mr. Vejvoda. Chairman, thank you for that question.
    Sanctions are a double-edged sword, and any diplomat who 
has been engaged in this will say that. It is a kind of middle-
of-the-road measure. It is without going and attacking a 
country for what it is doing. It doesn't want to leave that 
country unsanctioned or unpenalized. And thus sanctions are 
    When a country is under sanctions, it is obliged to somehow 
survive on the international market. And because there are 
sanctions through banks, through training, it goes underground. 
And there are ways in which people benefit from this, both 
domestically and internationally, by breaking sanctions rules.
    That means internally, domestically, that everything is 
under control of the government. There is much less 
transparency or none at all in some of these dealings. And that 
particularly means energy imports, imports of foodstuffs. Then 
the customs, of course, becomes complicit because they have to 
let these things through without the people's right to taxation 
on trade being accomplished, and that then further empowers 
those and enriches those who are in power.
    And so the reversal, once sanctions are lifted--and in the 
case of Serbia, sanctions were lifted only after the fall of 
Milosevic, it took about 10 years to do that--you then have to 
do all the work that any other country does in instilling the 
rule of law and strengthening the institutions.
    Mr. Rohrabacher. So if there is a general problem with a 
level of corruption in a society, for us to pick out an issue 
that is important to us and to put sanctions on that government 
in order to pressure them on a particular issue actually makes 
things worse in the long run?
    Mr. Vejvoda. Domestically, definitely. As I said, it 
empowers the, quote/unquote, deg. ``elite'' or those 
who are in power.
    Mr. Rohrabacher. Well, I hope some of my colleagues are 
taking that in too, because I would take this as a general 
    And would you like to comment on that, Mr. Davidson?
    Mr. Davidson. Yeah. Sanctions aren't something that I have 
thought about a great deal or that we have really covered in 
our work at the Kleptocracy Initiative. But my impression, and 
here I wander out of my train of expertise, but it seems to me 
that, we take the sanctions on Russia, for instance, we are 
thinking more short term about weakening the economy there and 
dealing with a security threat as opposed to thinking of the 
long-term health of the society.
    Certainly, sanctions are not something that can go on 
forever if there is going to be a healthy relationship, but in 
the short term it can be a very effective parry.
    Mr. Rohrabacher. Let me just note that in your testimony--
    Mr. Vejvoda. Chairman, could I----
    Mr. Rohrabacher. Oh, yeah, go ahead.
    Mr. Vejvoda. I would just add a few words. I am sorry.
    Having lived under full sanctions--and what I am going to 
say is literal, that means that there were no Mickey Mouse 
cartoons on TV anymore, there was no Coca-Cola, it was really 
blanket--what happened was there was a learning curve where we 
eventually advocated, those of us who were in civil society 
fighting against the regime, was let's try and find something 
that has come to be called smart sanctions or rather targeted 
sanctions to individuals in the regime, to particular 
companies, to banks, et cetera, and not to have those who are 
actually working for democracy or freedom actually also be 
subject to it.
    And that is what happened. The European Union, the United 
States then evolved in that regard. And that is how you then 
got individuals who were targeted, as is in the case of Russia, 
for example, or others.
    Mr. Rohrabacher. Let's note that in Serbia we ended up with 
violence and a war and mass killings that went on. In many 
cases, and this is a rule of thumb which I didn't include in my 
opening statement, is that if you take a look at some of the 
conflict areas of the world and some of the things that are 
going on, quite often, if you trace back what the root cause 
is, that the corruption level in those societies reached a 
point where large numbers of people were willing to commit acts 
of violence and actually get involved with more fanatic 
organizations, et cetera, like we saw in Serbia, where the 
Serbian people, who now I think are exemplary and they are 
doing as good a job as anybody else in Europe, they went along 
with horrible crimes that were being committed by their 
    So in the end, if you have corruption and it creates 
uncertainty among ordinary people, it can lead to the type of 
fanaticism that then leads to terrorism, aggression, et cetera, 
et cetera, which may well be seen elsewhere.
    One last point, and then I am going to let Mr. Meeks take 
over here.
    Mr. Davidson, you made a point that children of the crooks 
and their families eventually, if someone is part of a criminal 
syndicate in a country, eventually they have so much money that 
they eventually become part of the elite cultural people of 
that society. They are the prominent citizens after one or two 
    Let me just note that this doesn't happen in those 
countries; that has happened in our country. How many people in 
prominent families started out here as slavers? They sold 
slaves, that despicable act that even where it was legal in the 
South, they thought that was a despicable profession to be in. 
But yet, people emerged. Bootleggers and people involved in 
gangster families in our country have after one or two 
generations become prominent citizens. And so what you are 
saying is not something that we should be just pointing over 
there; we have got to understand that that is a cycle that 
happens here.
    Today, what I am very concerned about is not the children 
and not the prominent families in the future that this will 
create, but instead how we have perhaps institutions in our 
society that are respectable institutions that are being 
utilized by especially foreign corrupt officials and gangsters 
in other societies.
    I mean, how many people are making real estate deals with 
criminals now in our country? And those criminals may not well 
be Americans. They may be Russians or they could be Chinese or 
they could be any number of countries that come here to launder 
their money, and yet we have our very respectable and prominent 
citizens engaged in what would have to be an accomplice to a 
    So anyway, Mr. Meeks, you may proceed, and we will have a 
second round of questions afterwards for everybody.
    Mr. Meeks. Thank you, Mr. Chairman.
    Very interesting. I want to thank the witnesses for their 
testimony and I am going to try to go through everybody real 
    Maybe I will start with you, Mr. Davidson, and just trying 
to figure out, moving forward first, how are corruption and 
populism related in Europe? And what examples can you provide 
that would be helpful to monitor corruption in 2017 as we move 
forward? Because a lot is going on in Europe right now, 
politically and otherwise, and corruption could do something 
that indeed could destroy the democratic countries, many of 
whom are allies.
    So I was wondering if you could just tell us what could be 
helpful. How can we monitor what is going on in 2017 so that we 
can be--it could be helpful as we deal with our allies over 
    Mr. Davidson. Okay. That is a tough question. I will take a 
shot at it.
    I think if we look at populism in Europe, and we can relate 
that to populism in our country too perhaps, but certainly when 
you have corruption--well, let's take--Ukraine would be a sort 
of exaggerated example of this. If people feel that the 
political leadership is corrupt and that they can't trust their 
leaders, they turn to populism, very simply. So I think that is 
what we are seeing.
    Mr. Meeks. Do you want to say, Mr. Vejvoda?
    Mr. Vejvoda. Yeah, it is definitely not an easy question, 
because what we see in populism is a kind of a perfect storm 
where there has been resilience and patience on the number of 
people who have been the losers of globalization.
    And yet, it is strange, because if you take Germany, for 
example, it is one of the countries where there is the lowest 
level of unemployment, where they have high income in the 
working class, and yet there is a populist movement because 
there is a fear of migration, what it will do to the cultural 
identity of Germans. And so the so-called--the party called 
Alternatives for Germany, Alternative fur Deutschland, is 
capitalizing on that fear.
    I was in Berlin in January and then just last week. And in 
January, members of the German Parliament told me: You must 
understand that there is a sense of panic in this country with 
this wave of migration that is coming in, that the government 
has lost control, and that, simply, there will be a wave of 
people in German cities.
    Now, that has come under control, as you know, through the 
agreement between the European Union and Turkey. But the 
various segments of and reasons of why there is a populist 
movement are not solely in that case linked to issues of 
corruption. In Ukraine, it is definitely different, as was 
    So I think one needs to look at a country-by-country basis, 
fully understand that there is something common in the 
transatlantic arena as we watch these movements rise.
    Mr. Meeks. And you said something, and I get concerned, I 
think that Mr. Rohrabacher was probably right in certain things 
here even in the United States, because I get concerned that we 
may be turning into an oligarchy country, when you look at the 
number of folks with money and the financing. I think one of 
you mentioned the financing of political parties.
    And I look at how our political parties, both sides are 
financed now by the ultra-1 percent, et cetera. To me, those 
are warning signs. So I don't to point a finger over there if 
there is something similar happening here and how that leads to 
whether it is populism or leads to a scenario where you have a 
strong-armed person that becomes the head of state or something 
of that nature.
    And then at the same time you asked the question, Mr. 
Davidson, what can we do? And you had a certain thing. So I 
want to hear, what do you think we can do?
    Mr. Vejvoda, you said that sanctions is not something that 
works. I mean, from my perspective, it depends upon how, 
because I look at then, what do you do if not sanctions? Is 
there a special type of sanctions? Or what do you do?
    I look at, from my perspective, not in Europe, but the 
success that sanctions had in a place like South Africa to 
bring down a regime that was full of apartheid and injustices, 
et cetera.
    So the question then is, what do you do? You can't sit by 
and do nothing. What would you say we do?
    Start with Mr. Davidson.
    Mr. Davidson. Starting with me?
    Well, I will mention some of the other points that are in 
my testimony then. And just to underscore again the role of 
what I like to call anonymous companies in terms of, if we just 
think about Europe and the countries, the territory we have 
been focusing on, and corrupt officials bringing money out of 
those countries into the West, it is usually via the use of so-
called shell companies, anonymous companies. So the ownership 
is concealed, and these are the vehicles used for purchasing 
real estate to a great extent.
    In London, it is quite dramatic. There is some unbelievable 
number of expensive apartments and homes that are owned by 
shell companies, and nobody knows who really owns them, except 
we do, in some cases, because some of the really large ones, 
you see people going in and out of them now and it is reported 
on and stuff.
    But this is the low-hanging fruit right now is the 
anonymous shell company for corruption, very broadly, including 
the United States. I mean, when you want to hide something you 
are going to use an anonymous shell company.
    The second thing I have in my testimony, Mr. Meeks, is a 
little vague, one might say. But if we look at the offshore 
financial system and all the secrecy we provide, anonymous 
shell companies are one aspect of it, but there are all these 
smaller things, the blocking and tackling that we could do. And 
consulting experts at Treasury, at DOJ would be the way to go 
with that to get into more detail on it, I would think.
    And we have some very good things going on right now with 
our law enforcement agencies. The FBI has this relatively new 
group that started in January 2015, the international 
anticorruption squad. And the original name for it had the word 
``kleptocracy'' in there somewhere and now they have renamed 
it. And they are doing some very good work. Because of the 
power of our financial system and this almost trek that stuff 
sometimes has to go through New York, we can reach quite far in 
terms of taking anti-kleptocratic measures.
    And I won't mention the last point in my testimony because 
it is not really germane to your question, but the Global 
Magnitsky Act, for instance, has a provision in there that 
could give a lot of discretion to our government in terms of 
going after people for human rights abuses or--I mean, we have 
a lot of discretion there. So that is also something that could 
be part of the toolkit.
    Mr. Vejvoda. Thank you for your question, Congressman.
    I didn't say that sanctions don't work. I said they are a 
double-edged sword. They have an effect that one wants to reach 
if one imposes sanctions, but they have a second face to them 
which is the internal corruption of society and state. And so I 
think it is finding that balance, and that is why I talked 
about this search for smart sanctions, targeting individuals, 
certain companies, et cetera.
    In the case of Serbia, there was also this loose talk, as 
we heard in Russia when sanctions were just imposed: Oh, this 
will not have an effect, don't worry, we will be able to do it. 
But they do. They do have economic effect, as you mentioned, in 
South Africa; they were very effective in Cuba, as we know 
also, for many years. So they definitely hit like a radiation, 
maybe it is a scattershot that touches too many, has too many 
    So, yeah, I think one has to keep drilling down. And we 
have a number of examples internationally of sanctions, and I 
think much has been learned from the various examples that have 
been mentioned.
    I would also like to mention the case of Switzerland in 
regards to what Charles Davidson was saying about the banking 
secrecy in Switzerland and the pressure that the U.S. 
Government put on for many years for that secrecy to be 
revealed, because so many people from all over the world were 
putting their assets and their finances into. And Switzerland 
has had to come out and sign agreements on sharing information, 
both with the U.S., of course, and the European Union.
    And so I think that is an example of the way to go to 
uncover the shell companies and, as one would say colloquially, 
follow the money, but then see where the money is being held 
and hidden and so that light is shed into those places where 
these people actually find ways where the money is laundered, 
where their assets are kept.
    And Charles Davidson is right to mention London, which has 
been mentioned so many times over these past several years as a 
place where banks and institutions have profited.
    And the agencies, the various agencies of the U.S. 
Government, of course Treasury Department, are key through 
their investigative roles in finding where actually the paths 
and the dynamics in which this corrupt money finds its way on 
the international arena.
    And I would add that the international financial 
institutions play a key role, whether it is the International 
Monetary Fund, the World Bank, European Bank for Reconstruction 
and Development, who approve, of course, loans, or the various 
ways in which aid is given, but before that aid is given, 
countries need to accede to certain conditions and comply with 
certain conditions before money is sent.
    Mr. Kolesnikov. I would like to point out that there is a 
very simple and clear mechanism to fight corruption, which is 
to provide the population with the truth, with the true 
    In Russia, this doesn't exist today. The majority of 
Russians consume their information from TV, and the TV channels 
never, ever reveal any cases of serious corruption among the 
government and the people close to the government. Instead, the 
TV channels every day nails in the head of Russians the same 
message, that our life gets worse, it is not our fault, it is 
not because of us, it is because of the external enemy. And 
today, they have chosen this enemy, which is the United States.
    This is a very dangerous trend because many people in 
Russia today sincerely believe that the United States and 
European countries are true enemies of Russia.
    Ten years ago or 5 years ago nobody could have even 
fathomed the idea that there are going to be tank battles in 
the center of Europe and 10,000 people are going to be killed 
in fighting in Ukraine. However, it happened, and it happened 
because the information channels created the picture of an 
    Many Russians sincerely volunteered to go to Ukraine and 
fight against Nazis, against fascism. We live today in a very 
interesting new world where information wars are becoming no 
less dangerous than real wars. You have two options. You can 
kill a man or you can change his mentality, you can change his 
consciousness, and the effect is going to be the same.
    And referring to the sanctions, I should say, yes, the 
sanctions have a great impact on Russia today. And my only 
point is that any sanctions should have a very specific goal. 
If they are vague and ambiguous, they are not clear.
    Mr. Rohrabacher. Thank you very much.
    Mr. Weber.
    There will be a second round of questions.
    Mr. Weber. Thank you, Mr. Chairman.
    Mr. Vejvoda, you said political losses become economic 
winners in the new economy because they have insider 
information. So what you are seeing is a government, a country 
in turmoil, where it is going down because of the corruption, 
and yet the very ones who caused it to go down actually become 
the economic winners in the new order, if you will. Fix that 
for me.
    Mr. Vejvoda. Fix that?
    Mr. Weber. Uh-huh.
    Mr. Vejvoda. Well, it is being fixed more or less 
successfully, and has been fixed, for example, in the Baltic 
countries. In Poland there are mixed results. And then you go 
to scale, Moldova is probably at the other end in this region 
of the world that I know best, which is Central and Eastern 
Europe and southeastern Europe, the Balkans.
    Mr. Weber. But what do you do, specifics, how do you 
prevent that from happening?
    Mr. Vejvoda. Well, the prevention, as I said, requires, to 
put it simply, a holistic approach, it requires what the people 
of Maidan did.
    Mr. Weber. Holistic or ballistic?
    Mr. Vejvoda. Holistic.
    Mr. Weber. Okay. I missed that.
    Mr. Vejvoda. We are not going ballistic here.
    Society awakens to the fact that it has the freedom to 
actually voice its desire to have an orderly society based on 
democracy. That does not happen overnight. Rome was not built 
in a day.
    And we are seeing that even though many of us had illusions 
that it would go quicker in some of our countries, it has taken 
more time and there are twists and turns, as we see, for 
example, in Hungary, where there has been a regression of 
democracy over the past several years.
    But, by and large, the countries that have come out of 
communism have step by step moved and created democratic 
institutions, instilled them with habits of the heart that are 
a democratic political culture. And since democracy is not 
given on a plate, it needs to be conquered every day.
    And thus, people need to be vigilant to the fact that there 
are those who want to take on more power and rich, because in 
the end, many of these--at least the war in the former 
Yugoslavia was about retaining power. And populism and 
nationalist feelings were used for that power-retention 
strategy, which took us down the hellhole of war from which we 
recovered 10 years later, the different parts of Yugoslavia.
    Mr. Weber. Yeah. Let me ask you this. I think you compared 
and contrasted, was it Yugoslavia and Poland or was it 
    Mr. Vejvoda. Ukraine and Poland.
    Mr. Weber. Okay.
    Mr. Vejvoda. That is an example, a comparison that so many 
people, economists, political scientists, use today to show how 
divergent these paths can be from an equal starting point.
    Mr. Weber. So Poland, the process in Poland good, the 
process in Ukraine bad?
    Mr. Vejvoda. Yeah.
    Mr. Weber. Why? What is the difference?
    Mr. Vejvoda. Well, the difference was that there wasn't 
this effort at structural democratic reform that Poland went 
through beginning with 1990--or rather 1989--when they had 
their first----
    Mr. Weber. Is that because somebody stepped up to the plate 
and took the lead on that?
    Mr. Vejvoda. Absolutely. Leaders like Lech Walesa, who, as 
you know, spoke here in front of the Congress, and others who 
were determined, one, to return to Europe and correct the 
division of Europe that happened, the embrace by the European 
Union and the United States, the support that they got in these 
efforts from agencies like USAID.
    Mr. Weber. So what you are describing is a political will 
married to individual courage.
    Mr. Vejvoda. Absolutely. And that is what we did not see in 
Ukraine. Even though there was an enormous hope after the 
Orange Revolution when everyone hoped, Ukrainian citizens first 
and foremost, that finally they had got the courageous leaders 
backed by the political will of the people to do it, it is 
mildly put to say that there was huge disappointment, because 
these leaders of the Orange Revolution turned out to be 
involved in the same corrupt activities.
    Mr. Weber. All right. Well, thank you.
    Let me move on. I know I am getting over my time. And so 
let me go to Mr. Kolesnikov.
    You have a successful business in Europe, true?
    Mr. Kolesnikov. Yes.
    Mr. Weber. Did you have one in Russia?
    Mr. Kolesnikov. Yes.
    Mr. Weber. Did you lose it?
    Mr. Kolesnikov. Yes.
    Mr. Weber. But you took those business principles that you 
learned in Russia and you applied them in Europe.
    Mr. Kolesnikov. I brought with me my skills and my 
experience, which is the crucial thing in business. If you 
manage to build a business, successful business, in such a 
difficult country like Russia, in a normal democratic country, 
it is way easier than that.
    Mr. Weber. Should that be incentive enough for someone to 
have the political will and marry it to that individual courage 
I talked about and make a better life, not just for them, but 
for their kids and their grandkids and the rest of the country?
    Mr. Kolesnikov. I can assure you that today the true 
entrepreneurs in Russia, people who build a business with their 
own hands and their brains, using their own skills and 
experience, their biggest dream is to have democracy in Russia 
where the courts are working properly and when the law is 
    Mr. Weber. Okay. Welcome to the American Dream.
    Mr. Kolesnikov. You know that probably you are perfectly 
aware that many Russian business people, scientists, 
researchers, they actually found in the United States a second 
    Mr. Weber. Well, it is what I like to say, all the smart 
Russians over in Russia ain't over in Russia, they are over 
    But let me end with this. How do you communicate to people 
in Russia that that American Dream, democracy, capitalism, free 
enterprise, is worth the risk and the price? When you do that, 
you will have enough people that will rise up and take that 
    Mr. Kolesnikov. You touched a very important issue, but 
today there is a very simple situation. Those of us, those 
people who would like to explain to Russians how it works and 
why it is worth, they have no ability, no opportunity to say 
that. In Russia, as I said earlier, the government, the corrupt 
government controls all the TV channels, which from dusk to 
dawn try to instill the same idea into the heads of Russian 
people: It is not our fault that we have bad life, it is 
enemies, external enemy. And the idea of the enemy is repeated 
over and over in talk shows and all kinds of different TV 
    Mr. Weber. Who was it that said the pen is mightier than 
the sword? Apparently he had never been in a sword fight.
    Well, thank you for being here today. You have your work 
cut out for you.
    Mr. Kolesnikov. Thank you very much.
    Mr. Rohrabacher. All right. Thank you all. And we are going 
to have a second round of questions if anybody would like to 
join us in that, and I will start that off.
    Let me just note about the talk of sanctions and the idea 
that aiming sanctions at specific corrupt and human rights-
abusing government officials is not a bad idea. I actually 
voted against it, however, because--and we are talking about 
the Magnitsky Act--because I happen to believe that naming it 
the Magnitsky Act was wrong.
    Because yet to prove--there are a lot of questions about 
that particular case, and those questions need to be answered 
before we compromise with our level of insistency on what we 
insist on for what is truth or not and what is a true crime. 
And the Magnitsky Act should not have been named that. And I am 
the only one who voted against it. I know my ranking member and 
I disagreed on this.
    But in terms of actually sanctioning individual government 
officials throughout the world who are engaged in some type of 
torture or anti--well, doing things that we would not accept 
here as acceptable, killing prisoners or committing acts of 
torture, et cetera, the human rights abuses.
    So with that said, I agree with that assessment. We should 
be focusing on those individuals. And, again, however, I think 
the Russians were mistreated in the Magnitsky case, because 
that title of that bill is maybe suggesting that something was 
done that has not been proven yet. So, anyway, that is just a 
    I think that we have to also note, we have oligarchs here. 
We have oligarchs in the United States. Many of them happen to 
be technology developers, okay, they came up with a new type of 
technology, they earned billions of dollars on it. And whether 
it is PayPal or whatever, or some type of new medical device or 
whatever, they made their money honestly.
    And the question is, however, in some countries, then, for 
an oligarch to take the money and transfer it outside the 
society is illegal, and that is where an oligarch becomes a 
corrupt person, okay?
    Is that what we are talking about here when we talk about 
oligarch corruption? Because our oligarchs do that. Our 
billionaires, multibillionaires, they take money out of the 
country and put it in banks and different investments overseas 
all the time. Maybe I will ask all of you on that question.
    Let's start with Mr. Davidson. How does that add up? That 
is not what we are talking about here, is it?
    Mr. Davidson. No. Mr. Chairman, I think it is sort of a fun 
question too in a way.
    Mr. Rohrabacher. Yes, I like to have fun at these hearings.
    Mr. Davidson. Yeah. No, fun is great. And I think it is a 
very good question, because what is an oligarch, really? And we 
sort of throw the term out there toward a lot of people.
    If we were to try to--I am just going to take a shot, just 
I am thinking aloud as to what an oligarch could be in the U.S. 
context. And very often when we use it in the European context, 
the territory that is our designated zone today, these are 
people who have seized monopolies in most cases on a given 
    So if we wanted to translate that into the U.S., what we 
would see with a lot of these technology entrepreneurs is 
indeed, I mean, they haven't done anything wrong, they just 
happen to have been so successful, they end up with a monopoly.
    Mr. Rohrabacher. Right.
    Mr. Davidson. And for that we have had antitrust in the 
past, which, of course, is not--perhaps it has been enforced 
more forcefully at times than it is right now, but it was used, 
of course, by Teddy Roosevelt in a big way to revolutionize our 
country, really. So was John D. Rockefeller an oligarch? I 
mean, I guess by that definition you might say yes.
    I detect a little bit of a notion in your question that 
some of these technology oligarchs have become too powerful in 
their given markets. If that is the case, it seems to me we do 
have the antitrust laws and ways that we could look at that.
    The problem we have, it seems to me, in the technology area 
is that a lot of these technology verticals are kind of natural 
monopolies. So I don't know how we would----
    Mr. Rohrabacher. Well, there are some oligarchs that have--
you can receive great government subsidies for whatever 
business practice they decided to go for. And did they impact 
the legislative or the executive branch people who were making 
the decision as to how much subsidy this or that would get?
    There are very serious questions when we start pointing 
fingers at other people. And as I say--look, I was designated 
about 2 years ago as the poorest Member of Congress, okay? 
Well, I am a happy man, and I am not someone who is resentful 
that somebody else has more. Sometimes I think that we teach 
people that we should resent them.
    And let me just note, of the billionaires in this country, 
Mr. Meeks, the vast majority supported your candidate for 
President, not mine. They did an analysis of the billionaires, 
and Hillary had a lot more than Trump, but Trump himself is a 
    So we can't just say because someone has a lot of money, 
that they are an oligarch, which then says that they are evil 
in some way. However, let me note that, and back to Russia.
    And Russia had a problem in the beginning, and one of the 
major problems was that money left that country and went into 
European and American financial institutions.
    We talk about England. Correct me if I am wrong, Mr. 
Davidson, but if someone transfers some money from Russia or 
from anywhere else into a bank in England, do they have that 
same rule that they can loan out 10 times the amount of money 
that they actually have on deposit?
    So what have we done? We have enriched England or that bank 
enormously by having that money going from Russia or wherever 
else into that bank in England. And, of course, what the bank 
in England provides is safe haven for people who want to get 
away from paying taxes and having that wealth controlled by the 
government in the country where they made that money.
    This is problematic, and I really believe that many of the 
situations that we have now that was described in Russia can be 
traced back to, yes, when Russia should have been prospering 
and it was going through this period, we ended up having the 
wealth taken out, which actually made it 10 times more 
difficult for them to have a stronger economy.
    And then we know now also that sanctions directed at Russia 
did not work, do not work in the long-run. Let me note that 
there is a bank in--is it Sberbank, is that what they call it, 
in Russia? Sberbank, when we visited Russia last and talked to 
the various leaders in the banking community, they were saying 
they followed every single rule that they were asked to follow, 
and yet there are sanctions against them that have impacted 
them in a negative way.
    So targeting sanctions is very important if we expect those 
people in these various countries to actually pay attention, to 
be supportive, and to cut out the type of corruption that we 
are talking about today.
    So I guess I have had my say. You guys, maybe you want to 
comment on some of the things I just said, and then we will 
move on. Again, I voted against the Magnitsky Act, but only 
because of the title. The idea of targeting individuals for 
human rights abuses in those countries is a good idea. And when 
and if they prove that case in terms of Magnitsky, then I will 
change my position on that bill, but until then, I thought it 
was a gratuitous slap at Russia.
    And one last thought. I know I disagree with my colleagues 
here, but, no, we have had many gratuitous slaps at Russia, 
where things are just as bad over here, or over there, whether 
we are talking about oligarchs or whatever, manipulating the 
system and extracting wealth from the system. We have our 
oligarchs here, and we have lots of things that we do here that 
are being done over there and being labeled in a very hostile, 
pejorative way, and by people who actually want to have bad 
relations with Russia for whatever reason.
    So with that said, and maybe each witness can have a minute 
to refute everything I just said or to agree with it or 
whatever. Mr. Davidson, do you want to start?
    Mr. Davidson. Sure. No, I don't have anything to add to 
that. I agree with most of it. And I agree no one has a 
monopoly on virtue in general when we have looked at the 
enabling role of the West in this whole problem, which is 
    Now, you brought up also what happened in the 1990s in 
Russia and the role that was played. I mean, there are some 
very interesting things, we don't have time to get into that, 
but that could be a whole hearing, of course, unto itself.
    Mr. Rohrabacher. Well, we do have, for example, take the 
reason why we call it the Magnitsky Act. And the case, that I 
believe is yet to be settled, is based on an American who went 
to Russia, made billions of dollars off the economic turmoil, 
and then left the country and was able to take his money out of 
the country. And Magnitsky was his accountant. And the question 
is, is whether or not he paid the $250 million in taxes that 
were due from the billions of dollars that he had earned in 
that chaotic situation in Russia.
    Now, that is the heart of that case. Did the jailers of Mr. 
Magnitsky kill him because they were being afraid that he would 
finger them for that $250 million that they had some way 
managed to change the bookkeeping that they were able to keep 
or was he roughed up and maybe killed because he wouldn't say 
where that $250 million owed to the Russian government was? 
That is the whole crux of the matter, and it is yet to be 
determined which of those stories.
    But with that said, again, targeting corrupt officials, 
targeting human rights abusers specifically is a good thing as 
far as I am concerned.
    Yes, sir.
    Mr. Davidson. May I just comment on that, Mr. Chairman? 
Well, the whole story surrounding Magnitsky and all is a very 
good read. Bill Browder's book, ``Red Notice,'' is at least as 
good as any of the John le Carre. So quite a story. And it is 
incredibly intricate and complicated also, which sort of can be 
obfuscating in terms of how one approaches the issue.
    But I thought it was very interesting the way you support 
the principles of the bill and all of that. And I think it was 
silly--it was a mistake to call it the Magnitsky Act, because 
it makes it sound too personal, as though it is some vendetta 
or something like that, when in fact it is a general principle 
for which there has been huge support in the Congress and the 
    Mr. Rohrabacher. And it was a specific slap at Russia, 
which would make people think maybe this is just Russian 
situation of human rights abuses, and it was not. It was aimed 
at a general thing.
    Anyway, I just wanted to make sure I am on the record as to 
why I voted against that particular situation. I don't think 
gratuitously slapping Russia around is going to make things 
    Mr. Vejvoda. Mr. Chairman, thank you very much. Just, 
obviously, no one has the monopoly on virtue, but I think as 
democracy and capitalism evolved, there was an understanding 
that there is a need to put boundaries to wealth, respecting 
the full freedom of entrepreneurship, and that is what has made 
the West writ large successful, because of that freedom of 
speech, of enterprise, of association.
    And so when one speaks of oligarchs or simply wealthy 
people in the United States or Europe, it is the fact that they 
have to pay taxes. And obviously some of them try to avoid it 
by going to shell companies or sending their money abroad.
    Mr. Rohrabacher. Or giving campaign donations and making 
regulations that eliminate their tax liability or getting a 
large subsidy from the government.
    Mr. Vejvoda. Yeah. Well, Citizens United, as you know, is a 
contentious question here: Is money good in politics or bad? In 
Europe, there are limits, as you know, and parties get money 
from the Parliament and private money is not involved. So that 
is a whole very big and, I think, important issue for the type 
of polity and political framework that we all have.
    But I think the key thing here is really, again, the rule 
of law. And I think if, as Mr. Kolesnikov said, people who have 
money would rather have the rule of law where they can keep the 
money in their own national bank rather than have to have it 
somewhere else, I think it is that fear or threat of 
    There are countries where people are very successful 
business people, and then the government, because of the lack 
of the rule of law or authoritarian structure, simply say, 
``Well, okay, you have made this money now; now we take over,'' 
and you are lucky if you save your life, and go do business 
elsewhere. So I think that is really the major difference 
between these authoritarian countries and the others where 
there is a democratic system based on the rule of law.
    Mr. Kolesnikov. If we are going to be referring to the 
Magnitsky law, I believe that this is a more powerful tool than 
a bunch of nuclear submarines which the United States has in 
the world oceans, because this is the first specific language 
which says that if a government official steals money or 
violates human rights, he or she could be punished. It is not 
assured that he is going to be punished, but can be punished.
    Mr. Rohrabacher. Absolutely right.
    Mr. Kolesnikov. The Magnitsky case is not that difficult. 
The taxes were paid, but then the taxes were stolen from the 
national budget by investigators, by people who put Magnitsky 
in jail.
    Mr. Rohrabacher. That is the charge, and there are two 
different points of view on that. But that certainly is what 
the other side to that is saying.
    Mr. Kolesnikov. I agree that the business which Mr. Browder 
made his billions in Russia was not pretty, but he did it in a 
legal way, and he did pay his taxes, and then he removed his 
money out of Russia, probably because he sensed some kind of 
threat that he might not be able to take this money.
    Again, I am not saying that I find Mr. Browder's business 
in Russia pretty, but we should make it very clear, was it 
legal or illegal?
    Mr. Rohrabacher. By the way, again, I am not suggesting Mr. 
Browder is guilty or innocent. I am saying that what you are 
saying now has not been proven one way or the other, and thus, 
to put his name on the bill that holds public officials 
accountable for human rights abuses and name it that under this 
Russian case was a gratuitous slap at Russia before that case 
has actually determined whether or not the truth--where the 
truth lies.
    So I am very happy to have you express that opinion. There 
are other opinions as well that perhaps the opposite is true 
from what you said. That is what we need to find out.
    But still it is the principle of the case, which is--which 
we all agree on, you agree on, we agree on--hold specific 
officials accountable rather than making some generalized 
attack on a particular country.
    Mr. Kolesnikov. Well, the name of this act, after all, is 
just a name. What counts is the essence. Eventually you can 
change the title any time.
    Mr. Rohrabacher. Well, we might. We might do that someday.
    Well, thank you very much for being with us today.
    And, Mr. Meeks, you have the final words here.
    Mr. Meeks. Thank you, Mr. Chairman.
    Let me just ask--where do I want to start? I am going to 
start with Mr. Kolesnikov. Did you ever experience any 
intimidation either before you released your information or 
after, or now any in your regular walk of life?
    Mr. Kolesnikov. The reason why I left Russia was 
specifically because I was alerted that the false accusations 
were going to be trumped up against me. The drugs were supposed 
to be placed in my car, I was supposed to be arrested for 
possession of drugs, put in jail, and then you can easily 
figure out what could happen to me in jail. And the reason why 
it should have had happened was because I rejected to work in 
this illegal framework where I was suggested to take part.
    After I sent the documents to--all the paperwork to 
President Medvedev and they became public, I got many threats. 
But there is only so much you can do about it. It was my civic 
duty, it was the position of a citizen and patriot of my 
country, and I do not regret what I did.
    Mr. Meeks. Were you ever an associate of President Putin's?
    Mr. Kolesnikov. Yes.
    Mr. Meeks. Could you tell us how or if he had any 
involvement in any of this or how he rationalized this?
    Mr. Kolesnikov. The Petromed case is quite in detail 
described on my Web site and the articles written about my 
case, and anybody who is--because there are too many details, 
anybody can check and see it. It is going to take about 15, 20 
minutes for me to provide all the details about the case, which 
I am afraid is going to be too long for this venue. And Mr. 
Ignatius in his article set out most crucial elements of this 
case. If you have any specific questions, I am ready to answer.
    Mr. Meeks. Thank you, and we will. And I would love to come 
back and have a further dialogue. I know we are running out of 
time. I just wanted to ask Mr. Davidson and Mr. Vejvoda a 
couple of ending questions also, because it has been a great 
hearing, and I am listening and learning, et cetera.
    The question that comes into my mind now is, given what we 
have heard, is what does success even look like in the fight 
against corruption? What would you say? Can you give me an 
example, what does success look like? How can we make a 
determination if we are being successful?
    And I add that on, for example, we currently have sanctions 
against Russia. Is that successful? Is it not? Should we alter 
it? What do you think it looks like?
    Mr. Vejvoda. Thank you, Congressman Meeks, for those 
questions. Specifically on that last one, I think, having lived 
in a country that was under sanctions, they take time and they 
drill and they work and they cause pain to the economy, because 
you are not fully open. Of course, a country like Russia can 
impose countersanctions, which a small country like Serbia 
could not, and so there is pain in certain parts of the 
European economy. But as open, democratic, capitalist 
societies, they find easier ways in which they can reorient 
their trade.
    So, yeah, I mean, the answer is yes, I think they are 
effective. As we said at the beginning, or I said, they are a 
double-edged sword. They have diverse effect. And as diplomats 
will say, this is a kind of middle-of-the-road measure when you 
don't want to go to war and on the other hand you don't want to 
do anything. It is something in between.
    What is the measure of success? I think, as we all agree, 
there is corruption in every society, even the most democratic. 
I guess in a Sweden or wherever, you will find examples. I 
remember the case of former Chancellor Helmut Kohl, the unifier 
of Germany in the beginning of the 1990s, he was caught with 
his hand in the party slush fund of the Christian Democratic 
Union. That was quite a well-known case. I think of Enron here 
in the U.S. or things like that. There are things that spring 
    But I think the measure is really how high or low the level 
of corruption is. I don't think one can eliminate it. There is 
something in human nature where people will try and skew the 
rules. You have British parliamentarians who have abused the 
moneys they have used. I don't want to mention any names here, 
but some of them have actually gone to jail. Your colleagues in 
Westminster simply paid out of what was supposed to be for 
their staffers for a house aid or their garden or some home 
improvement. So that shows that even if you live in a 
democratic country, you are not immune to that.
    So I would simply say that the lower the level of 
corruption, the more successful we are in actually tackling it. 
And, again, it is something like democracy itself. One needs to 
work at it every day to have the agencies of government, to 
have the supervisors of the supervisors at customs posts, the 
various agencies, to oversee whether things are being done 
appropriately. And, of course, the taxation system that needs 
to oversee the fact is everyone actually paying their fair 
deal, and I would say more for those who are wealthier 
disproportionately than at the other end, but the law is equal 
for everyone.
    Mr. Meeks. Mr. Davidson.
    Mr. Davidson. What would success look like? Well, certainly 
less corruption, and that we all agree to, but it also means on 
a sustained basis. So it is not something where we can sort of 
parachute in for a bit and, well, any number of means to 
improve things for a bit in one country, and then get out, and 
things fall apart. We have tried to do that in a few cases, not 
in Europe, but elsewhere, of course, and it is a dramatic 
failure and costs us a ton of money.
    But I think success really is about changing the global 
financial system in terms of secrecy and providing a safe haven 
for corrupt people with political power when there has been 
state capture in particular.
    Now, one of the effects, if we push the money back into the 
country, at a minimum things will be better. So the resources, 
instead of the $150 million house in London, you will have that 
$150 million in the country. People can argue over it. It will 
get invested somehow. Even if it is buying Rolls-Royces, 
whoever is servicing those Rolls-Royces in the garage down the 
street will have a job at least, as opposed to starving.
    So I think we need to force the money back into these 
countries by cleaning up our own act and ceasing to shelter the 
    Mr. Meeks. I think my last, because I talked a lot about 
Russia, but I also wanted to just ask a question quickly about 
    Vice President Biden described corruption as eating Ukraine 
like a cancer; eating Ukraine like a cancer. How is the 
Government of Ukraine, if you have any ideas, working to fight 
this cancer? And what do you think are the stumbling blocks to 
it being successful?
    Mr. Vejvoda. If I may start. I was in Ukraine just at the 
beginning of November when they voted in the electronic 
government, e-government element on procurements. And this is 
one of the key--one of many measures that needs to be 
implemented in many places, because it simply makes the 
procurement process, governmental procurement process 
transparent. And people can follow on the Web sites, rather 
than in dark rooms, where deals are made and deals are made 
much more difficult, if not impossible, if you have an e-
procurement system.
    The other thing that has been positive is that Ukrainian 
officials have had to declare their assets, all of them. And 
the punishments or penalties if they do not that were pretty 
high, and so everyone declared their assets. Now, the surprise 
was that many parliamentarians declared that they had 10 
apartments or 10 cars or whatever, and so the Ukrainian people 
suddenly were a bit in shock and awe because their 
representatives suddenly, they realized, had made money in ways 
that are not appropriate.
    So as in any country, I would say that Ukraine is doing a 
lot to clean up their act, to put it colloquially, but on the 
other hand, the old habits are not going away so quickly. And 
the various levels of corruption, and I think Vice President 
Biden rightly spoke in those terms about a cancer, and it is a 
battle royal that is going on for, to put it poetically, the 
soul of Ukraine, while they are at war, while they are in a 
situation where a part of their territory has been taken by 
Russia, contrary to all international law, and where there is 
the conflict in the east where Russia is involved in various 
ways. So it is like reforming, you know, repairing a ship in a 
high storm.
    But, again, this is really a test case where, with the 
support of the United States, of the European Union, and the 
European Union is putting equally a lot of money into Ukraine 
and their reforms, and I would say that this needs to be 
pursued, even though there are these difficulties that everyone 
perceives, and keep the feet to the fire of the elected 
Ukrainian officials to pursue these efforts.
    There will be setbacks, but if the vector is recognizably 
in the good direction, I think we should, as the West, support 
this country that wants--and, again, the Maidan was a clear 
signal that the people of Ukraine do want to change.
    I would add to what Charles Davidson said, that it was 
about corruption, which it absolutely was, but it was also 
about the fact that the Ukrainians thought that their 
government was taking them to the European Union. The day that 
Yanukovych, former President Yanukovych, decided not to sign 
that next step to the European Union, that is when Maidan 
    So it was a coincidence of two things. If we feel, as the 
people of Ukraine, that you are taking us to Europe, however 
slowly you are moving, we are okay, and we know that you are 
corrupt and we will clean this up. But the day that Yanukovych, 
said, no, we are not going to Europe, that is when all the 
European flags came onto the Maidan. So I think it is important 
to understand those two things.
    Mr. Davidson. Well, regarding Ukraine, I think the 
institutionalized corruption at the top seems daunting, and we 
don't seem to have seen much progress lately with that. And I 
avoided using the ``K'' word there. I will leave it at 
institutionalized corruption.
    I would go back to what Congressman Weber said earlier in 
terms of Ukraine. And in terms of their leadership, I think 
they need political will and individual courage.
    Mr. Meeks. Thank you.
    Mr. Kolesnikov. I should say that I see eye to eye with Mr. 
Vejvoda. I completely agree. And I have been to Ukraine three 
times this year, and I have very close relations with my 
Ukrainian business partners.
    The key difference between Ukraine and Russia is, number 
one, there is true real freedom of speech in Ukraine, they have 
true real elections in Ukraine, and they have real civil 
society in Ukraine, which took shape now and which does not 
want to live in a corrupt society.
    I spoke to many Ukrainians on the street, and they are 
completely different than Russians because they freely express 
their opinions. They openly admit that, yes, we have corrupt 
government officials, yes, we have corrupt legislators, we are 
perfectly aware of it, but we can change the situation and we 
will change the situation. That is the biggest difference.
    Mr. Rohrabacher. Well, I would like to thank all of our 
witnesses. Just a couple thoughts. And let me just note, I was 
there during the Orange Revolution. I actually camped out in 
Maidan in the tents they had there. It was cold, I might add.
    And let me just note that Cathy Chumachenko, who worked 
with me in the Reagan White House, turned out to be first lady, 
and she and her husband, who came into power after that, the 
Orange Revolution, as has been indicated in the testimony, 
their administration was so corrupt that the people of Ukraine 
ended up voting for Yanukovych in the next election.
    And Yanukovych, I might add, was democratically elected, 
OSCE verified it. However, he didn't leave office in a 
democratic election. He left office because there was a violent 
revolution that started in Maidan right after he decided to go 
with the European Union. And there are discussions about 
whether the European Union was indeed interfering with what was 
going on.
    But let me just say this, that had Yanukovych not been 
overthrown or not been kicked out with violent demonstrations 
in the Maidan, that he would have been kicked out in the next 
election. There is no doubt. He was corrupt and he was doing 
things that the public didn't like, and the very next election 
he would have been kicked out. And had they waited to kick him 
out rather than overthrow him 2 years earlier than the free 
election demanded, I do not believe that any of this horror 
story that we faced in the last couple years in Ukraine would 
have happened. You would have had a peaceful transfer of power, 
which is what they should have had.
    Yanukovych deserved to be removed by his people, because he 
was as corrupt as the people who he replaced, who were as 
corrupt as the people they replaced. And I am not sure how that 
bodes well in the future for Ukraine, because the information I 
am getting now is that the current government is also deeply 
engaged in corrupt practices and the sending of large amounts 
of money to European banks.
    So with that said, let's pray that that problem will some 
way be relieved from the poor suffering Ukrainians, who I don't 
know any other people in the 20th century and now into this 
century that have suffered more than the Ukrainian people, 
between World War I, World War II, the Soviet occupation, and 
now these horrible things. Let's hope that we can try to find a 
peaceful answer and get the Russians out of their country and 
return to some sort of democratic rule and rule of law.
    Just one or two other thoughts, and that is the shell 
companies, this was a very good tipoff today, that to solve the 
problem we have got to make sure that you can't have companies 
that nobody knows who runs the companies begin to control and 
own assets. We need to know who controls various assets and 
various amounts of wealth in a society. Shell companies are 
something I was not aware of being a problem. Thank you very 
much for that tipoff today.
    Also, again, I think that we need to make sure that we 
examine our own banking system and financial system here so 
that it does not encourage corrupt practices in other 
countries. We have given foreign aid to countries in Africa, 
for example, where the African dictator ends up being 
overthrown, and then we find out all the money that we gave has 
gone overseas to some European or otherwise bank.
    And then, of course, by the way, the banks don't ever give 
the money up. What do the banks do with the money once some 
petty dictator gangster in the Third World has given them $1 
billion in deposits? What do they do with it? They envelop it 
into their own system. They are the ones who end up with the 
    Well, there will be future hearings on this issue, and we 
need to work on that before we start pointing fingers at 
everybody else right now, because we have some things we can do 
to help the situation become better.
    So with that said, I really have enjoyed this hearing. I 
hope you did too.
    And thank you, Mr. Meeks. I think we have had a very good 
    And until next year, then, this committee is adjourned.
    [Whereupon, at 12:02 p.m., the subcommittee was adjourned.]



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