[Senate Hearing 114-740]
[From the U.S. Government Publishing Office]
S. Hrg. 114-740
CORRUPTION, VIOLENT EXTREMISM,
KLEPTOCRACY, AND THE DANGERS
OF FAILING GOVERNANCE
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HEARING
BEFORE THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
JUNE 30, 2016
__________
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COMMITTEE ON FOREIGN RELATIONS
BOB CORKER, Tennessee, Chairman
JAMES E. RISCH, Idaho BENJAMIN L. CARDIN, Maryland
MARCO RUBIO, Florida BARBARA BOXER, California
RON JOHNSON, Wisconsin ROBERT MENENDEZ, New Jersey
JEFF FLAKE, Arizona JEANNE SHAHEEN, New Hampshire
CORY GARDNER, Colorado CHRISTOPHER A. COONS, Delaware
DAVID PERDUE, Georgia TOM UDALL, New Mexico
JOHNNY ISAKSON, Georgia CHRISTOPHER MURPHY, Connecticut
RAND PAUL, Kentucky TIM KAINE, Virginia
JOHN BARRASSO, Wyoming EDWARD J. MARKEY, Massachusetts
Todd Womack, Staff Director
Jessica Lewis, Democratic Staff Director
John Dutton, Chief Clerk
(ii)
C O N T E N T S
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Page
Corker, Hon. Bob, U.S. Senator From Tennessee.................... 1
Cardin, Hon. Benjamin L., U.S. Senator From Maryland............. 2
Hon. Gayle Smith, Administrator, U.S. Agency for International
Development, Washington, DC.................................... 5
Prepared statement........................................... 7
Responses of Gayle Smith to Questions for the Record
Submitted by Senator Rubio................................. 55
Hon. Tomasz P. Malinowski, Assistant Secretary, Bureau of
Democracy, Human Rights, and Labor, U.S. Department of State,
Washington, DC................................................. 13
Prepared statement........................................... 15
Responses of Tom Malinowski to Questions for the Record
Submitted by Senator Rubio................................. 57
Carl Gershman, President, The National Endowment for Democracy,
Washington, DC................................................. 35
Prepared statement........................................... 36
Sarah Chayes, Senior Associate, Democracy and Rule of Law
Program, Carnegie Endowment for International Peace,
Washington, DC................................................. 40
Prepared statement........................................... 42
Responses of Sarah Chayes to Questions for the Record
Submitted by Senator Rubio................................. 59
Additional Material Submitted for the Record
Statement Submitted by the U.S. Department of Justice............ 52
(iii)
CORRUPTION, VIOLENT EXTREMISM,
KLEPTOCRACY, AND THE DANGERS
OF FAILING GOVERNANCE
----------
THURSDAY, JUNE 30, 2016
U.S. Senate,
Committee on Foreign Relations,
Washington, DC.
The committee met, pursuant to notice, at 10:32 a.m. in
Room SD-419, Dirksen Senate Office Building, Hon. Bob Corker,
chairman of the committee, presiding.
Present: Senators Corker, Rubio, Perdue, Cardin, and
Menendez.
OPENING STATEMENT OF HON. BOB CORKER,
U.S. SENATOR FROM TENNESSEE
The Chairman. The Foreign Relations Committee will come to
order.
We thank our outstanding witnesses for being with us today.
There will be probably fewer people here today. I think you
all know voting ended yesterday and a lot of people headed out
to do other things. But I do want to thank Senator Cardin and
Senator Menendez for being here.
And I want to thank Senator Cardin for his continued push
in regard to this particular topic, and certainly the two of
you for the way you have championed making sure we do
everything we can to rid our world of corruption.
We will consider the huge challenge of corruption and the
extent to which widespread and pervasive public breach of trust
internationally can undermine our most important national
interests.
Our witness today will point out that corruption goes far
beyond the loss of foreign aid dollars and foreign corrupt
practices such as bribery and places our businesses at a
competitive disadvantage.
Public corruption can undermine our most important
interests in security and stability. Our witnesses today will
argue there is a direct connection between the abuse of
authority and the breakdown in governance.
In some cases, widespread abuses can stoke the fires of
populism against corrupt governments, increasing the chances of
instability or even violence. In the most extreme cases, we
risk seeing important countries fall prey to predatory
officials determined to enrich themselves at the cost of their
citizens' welfare. Such states, when coupled a government
monopoly on power, can present extraordinary national security
risk to the United States.
If we want to fight corruption effectively and institute
norms of government accountability, we have to develop smart
strategies that allow us to target efforts at multiple levels
of government and the population at large. We must be firm but
fair, recognizing that cultivating a culture of public
integrity may, in many countries, take a very, very long time.
The challenge for us is to help governments make progress on
reducing corruption while still continuing to work with them on
a range of issues important to us.
And with that, I will turn it over to our distinguished
ranking member and friend, Ben Cardin.
STATEMENT OF HON. BENJAMIN L. CARDIN,
U.S. SENATOR FROM MARYLAND
Senator Cardin. Well, Mr. Chairman, first of all, thank you
for your extraordinary leadership of this committee to deal
with good governance and corruption issues. We were together
today at the State Department on the release of the 2016
Trafficking in Persons Report. There is no stronger advocate
for a strong U.S. position on stopping modern day slavery than
our chairman, Senator Corker. And we thank you.
And as I will point out during this hearing, trafficking in
persons is horrible, 20 million victims. But it is fueled by
corruption, people making a lot of corrupt money off of
trafficking in persons. So it is very much related to the
hearing we have today.
And I have really looked forward to this hearing for many
reasons. Two of those reasons are that our first witnesses on
the panel, Gayle Smith, our Administrator of the USAID, does an
incredible job and has had a critical career, and Tom
Malinowski, the Assistant Secretary for Democracy, Human
Rights, and Labor, our inside person at the State Department on
these issues--we appreciate very much both of your leadership
on dealing with corruption.
There is a growing recognition in the United States and
around the world of the threat that corruption presents to
international security and stability. We have all seen the
headlines about corruption and feel like it is pervasive from
scandals in places such as Brazil and Malaysia to doping of
Russian athletes and their subsequent ban from the Summer
Olympics, to the Panama Papers. What is certainly becoming
clear is that where there is a high level of corruption, we
find fragile states are states suffering from internal or
external conflicts, places such as Afghanistan and Pakistan,
Iraq, Syria, Somalia, Nigeria, and Sudan. Corruption and the
dysfunction that follows it fuels violent extremism. Corruption
becomes a deeply held grievance that mutates into a basis for
revolutions that spin out of control.
Just 2 weeks ago, we heard in this committee how corruption
feeds the fire of criminal networks and transnational crime.
Corruption pushes young people towards violence and extremism
because they lose faith in the institutions that are supposed
to protect and serve them. They lose faith in the compact
between government and the people, and terrorist groups use
corruption to recruit followers in their hateful crimes.
The human cost of corruption is substantial. Here are just
two examples.
First, this morning, the State Department released its
annual TIP Report, as I pointed out. Corruption is a constant
companion to modern day slavery and the suffering that it
brings. We have also seen this in the refugees and migrant
crisis where thousands have lost their lives in the
Mediterranean, victims of trafficking networks and corrupt
government officials who facilitate illicit business.
And make no mistake about it. Corruption is a very big
business. One news report estimates that traffickers made
between $5 billion to $6 billion in 2015 alone in brining
approximately 1 million refugees and migrants to Europe.
Corruption also damages our foreign assistance efforts.
This is U.S. taxpayer dollars that we are using that we have a
responsibility to make sure is used most effectively. Our
development efforts are undermined when people decide that
siphoning off money makes more sense than using it for its
intended purpose. In our work training security forces and
police, corruption drains the will of good people to serve
their country, robs forces of necessary equipment, and
undermines the very effort to build capable institutions that
can protect and serve.
It is also costing us. According to one estimate, between
2003 and 2012, the international community has lost $6.6
trillion to illicit outflows of money that was intended to do
good, not harm.
As I indicated several times, it just operates just
opposite of what we are trying to do. So if we are using our
taxpayer dollars and that is fueling corruption, that is
accomplishing the exact opposite purpose for why we have
development assistance and security assistance.
We need a larger sum of our efforts to be put into good
governance and to deal with these issues so that we can
effectively deal with the other missions which development
assistance and security assistance is aimed to do.
I want to make it clear that the United States has been
doing a lot of good work on anti-corruption. The Department for
Democracy, Human Rights, and Labor has focused on governance
programs to build civil society capacity, which I believe is
essential and using open government partnership as a tool to
monitor commitments by countries to fight corruption. USAID is
implementing programs to embed a culture of accountability and
international standards to limit the opportunities for
corruption to thrive.
But the problem of corruption is growing, not shrinking. We
must meet the scale of the problem with greater resolve and
commitment. To do that, I believe we should focus on four
things, and let me just mention them very quickly, Mr.
Chairman.
First, we must institutionalize the fight against
corruption as a national security priority. Yes, corruption is
part of the State Department's annual human rights report, but
it is just a small portion of it. Ensuring that bureaus and our
missions overseas prioritize corruption in their struggle,
planning is essential.
Second, we need a whole government effort, and let us be
better coordinated. Right now, we work across multiple agencies
and multiple offices on corruption. There is much information
on best practices that needs to be shared.
Third, we need to find ways to fund anti-corruption work.
We need resources. Corruption is a big business and big money.
We should look at ways that we can use seized assets or ill-
gotten proceeds to build civil society capacity to fight
corruption and make it easier to transfer these assets to the
appropriate effort.
And fourth, we must improve our oversight of foreign and
security assistance and promote transparency. Yesterday, the
Senate passed the Foreign Assistance Transparency and
Accountability Act, which was sponsored by Senator Rubio and
myself. Mr. Chairman, thank you for your help not only in
getting it out of the committee, but getting it through the
process. This bill will shine a light on foreign aid and ensure
that U.S. foreign assistance programs are measured adequately
and appropriately. It also empowers civil societies in
recipient countries to combat corruption.
And secondly, through the Cardin-Lugar provisions of the
Dodd-Frank Act, section 1504, I have pushed for greater revenue
transparency in extractive sectors because we know that secrecy
breeds corruption. After 6 long years, the SEC finally has
issued its regulation, and it is a strong regulation. After we
acted 6 years ago, a lot of other countries have passed what we
consider to be the right standard for extractive industries to
show where their contracts are so you can trace the money. We
now regain our leadership through this regulation on
transparency.
We want, as you know, the resources of a nation not to be a
curse but to help bring them out of poverty. We want our
development assistance to be a help to a country and not fuel
corruption.
These are two great successes, the transparency bill and
the SEC regulations, and we hope that we can build on that.
So let me be clear-eyed. The fight against corruption is
long and difficult, and I know that we have to stay committed
to this end. I am very much encouraged by the efforts I see of
my colleagues.
And I do look forward to hearing from our witnesses.
The Chairman. Thank you. Thank you very much for those
comments.
We have two panels today, and our first witness today is
the Honorable Gayle Smith, Administrator for the U.S. Agency
for International Development. I am glad she has assumed this
role and believe that her preexisting relationship with the
White House is something that greatly benefits USAID. And we
are looking forward to your testimony.
Our second witness on the panel today is the Honorable Tom
Malinowski, Assistant Secretary for the Bureau of Democracy,
Human Rights, and Labor at the State Department. I first met
Tom over an adult beverage in Munich when he was on the
outside, and I look forward to having one when he is finished
with this job to tell me the differences between being on the
outside and on the inside. [Laughter.]
The Chairman. But today, we look forward to his testimony.
And with that, if you could summarize your comments in
about 5 minutes or so, and without objection, your written
comments will be entered into the record. But if you would
begin, Gayle, we would appreciate it. Again, thank you for
being here.
STATEMENT OF HON. GAYLE SMITH, ADMINISTRATOR, U.S. AGENCY FOR
INTERNATIONAL DEVELOPMENT, WASHINGTON, D.C.
Ms. Smith. Thank you and I will be brief.
Thank you, Chairman Corker and Senator Cardin and members
of the committee, for the opportunity to discuss USAID's work
to combat corruption across the globe.
I also want to thank you for your continued leadership and
ongoing commitment to elevate this issue and advance
accountability and transparency, and I would fully concur that
it has been a very good week.
As you know, corruption tears at the fabric of society and
hinders inclusive economic growth and democratic governance. It
also poses major security risks to the United States, often
enabling radicalization and fueling political instability and
conflict.
At AID, we measure the effects of corruption in dollars
lost, missed opportunities for inclusive economic growth and
development, the erosion of public confidence in government,
and rising insecurity.
As risks and threats posed by corruption continue to
increase, however, we are also seeing some small but important
new windows of opportunity emerge, including an increased
citizens' demand for accountability and transparency, the
growing commitment of some political leaders, and an emerging
global consensus embodied in many places but also in the
sustainable development goals that effective governance and
strong institutions are required to sustain development
outcomes.
Building on decades of U.S. leadership, President Obama has
made fighting corruption a national security priority. With a
diverse array of agencies engaged in anti-corruption work, each
with comparative advantage and different missions, authorities,
and tools, the United States is able to attack corruption from
every angle, including through building and enforcing the rule
of law, enhancing the disclosure, detection, and prevention of
corrupt practices, developing capacity in institutions, and
engaging civil society, foreign governments, and multilateral
institutions as partners.
For USAID, global anti-corruption efforts also include the
promotion of human rights, participatory democracy, transparent
governance, the role for a vibrant civil society, and economic
empowerment.
As the United States' lead development agency with programs
in more than 100 countries worldwide, USAID's primary role
within the U.S. strategy is to empower citizens, embed norms
and standards, and build accountable and transparent
institutions. Where we can enlist governments and their
citizens as able and willing partners, we are increasing the
scale and impact of anti-corruption efforts in the countries,
regions, and sectors in which we operate. We do this in four
ways: first, advancing accountability; second, improving open,
effective, and democratic governance; third, strengthening
adherence to international norms and standards; and fourth,
leading multilateral efforts to tackle corruption.
From a development perspective, accountability is most
effectively sustained when a vibrant civil society has the
rights, capacity, and tools to hold governments, businesses,
and citizens to account. Through our support for civil society,
USAID and our partners enhance the capacity of citizen
watchdogs to oversee local public spending, promote community
development, reconstruction, and monitor the delivery of
services.
A recent example where USAID and the State Department are
supporting civil society is in the case of support for
investigative journalists, including for the organized crime
and corruption reporting project which has recently helped
expose the scope and nature of corruption around the world.
As we support citizens who are demanding change and help
build their capacity to hold their governments accountable, we
must also support governments as they work to strengthen their
institutions and develop more effective and efficient systems
with built-in transparency.
For example, we helped Honduras establish the country's
first legal assistance and anti-corruption complaint center,
and our support for tax and custom reform in Georgia helped
decrease business expectations of corruption by tax officials
by more than 80 percent.
USAID also has an important role to play in developing and
embedding the international norms and standards that
incentivize anti-corruption actions. Through the Extractive
Industries Transparency initiative, USAID has helped strengthen
a powerful and visible platform to increase revenue
transparency and accountability in the natural resources
sector.
USAID also helps emerging democracies meet their
obligations under a number of international standards for
transparency, including the U.N. Convention Against Corruption,
EITI, and the SDGs.
Additionally, USAID forges partnerships with other donors,
multilateral agencies, and civil society organizations to help
leverage and sustain local initiatives and to help enable the
sharing of best practices and replication. The 70-country
strong Open Government Partnership has been effective in
engaging the interest of governments in greater transparency
and a role for civil society to hold them accountable. And
USAID supports efforts to help countries become eligible and
assists member countries with their national action plans.
The last thing I want to touch on is how we are working to
safeguard USAID's own investments. We continually look for new
opportunities to improve our monitoring approaches and have
developed tools like the Public Financial Management Risk
Assessment Framework to assess the capabilities of partner
governments and other recipients to properly administer funds.
Even with the smart steps we have taken and careful measures we
put in place, we remain vigilant because of access constraints
and other difficulties in the places we work.
We are committed to working closely with Congress to
prevent corruption and other misuses of taxpayer dollars and
equally committed to taking swift action upon learning of any
such abuse.
Thank you again for this opportunity. We share with you
your diagnosis and analysis of the problem and hope we can work
together to expand on the areas where we are having success and
redouble our efforts in those areas that need more attention.
Thank you.
[Ms. Smith's prepared statement follows:]
Prepared Statement of Gayle E. Smith
Chairman Corker, Ranking Member Cardin, and distinguished members
of the Committee: thank you for inviting me here to discuss the United
States Agency for International Development's work to combat corruption
across the globe. I want to thank you for shining a light on this
important topic, and for your continued leadership and ongoing
commitment to root out corruption and advance accountability and
transparency.
Corruption takes on many forms, from the bribery of public
officials to collusion in public procurement to the wholesale theft of
government assets. Although its different forms may cause varying
degrees of harm, corruption as a whole tears at the fabric of society
and hinders inclusive economic growth and democratic governance.
Additionally, corruption poses major security risks to the United
States, often enabling radicalization and violent extremism and fueling
political instability and conflict. That is why President Obama views
corruption as a fundamental obstacle to peace, prosperity, and human
rights, and our Administration has sought to elevate anti-corruption
efforts across our foreign policy and development agendas.
As the United States' lead development agency, USAID plays a
critical role in the U.S. Government's strategy to stem the tide of
corruption and hold to account all those who exploit the public trust
for private gain. Our work takes us to every corner of the world, where
we have seen firsthand the devastating impacts corruption can have on
people, communities, and countries. But, encouragingly, we are also
seeing new and promising trends on which to build.
Bolstered by the strong model of transparency and accountability
the United States has constructed here at home, the fight against
corruption has become increasingly central to our international
development policy and strategy. As we continue to work with our
partners to foster sustained and inclusive economic growth and promote
open, effective, and democratic governance around the world, we are
integrating anti-corruption efforts into the way the Agency does
business--across borders and across sectors.
the many costs of corruption
For the countries where USAID works, the costs of corruption are
significant and lasting. In some severe cases of systemic corruption,
we have seen substantial portions of country budgets lost to waste,
fraud, and abuse, stalling and in some cases halting development
progress altogether. In total, according to the United Nations,
corruption, bribery, theft, and tax evasion cost developing countries
approximately $1.26 trillion each year.
But the losses caused by corruption are not measured in dollars
alone. We can also see the effects of corruption in missed
opportunities for economic growth and development. Corruption lowers
the confidence of the private sector in developing economies, hampering
prospects for investment that can catalyze growth. Corruption siphons
away scarce resources from public investments in much-needed social
services and the productive sectors which fuel economic growth. It is
worth noting that these opportunity costs are felt most acutely by the
world's poor, who depend on those services and stand to benefit the
most from economic empowerment. Women, too, disproportionately suffer
the impacts of corruption.
The costs of corruption are also evident in the eroding public
confidence in government. Poor governance and corruption alienates
publics in democracies and entrenched authoritarian regimes alike, as
they see that a few people benefit from their connections while larger
numbers of people are left out.
Additionally, systemic corruption fuels rising insecurity and
enables dangerous transnational threats. The more corrupt an
environment is, the easier it is for violent extremists to establish
themselves as an alternative to ruling elites perceived to be immoral
and unaccountable. Endemic corruption can also provide extremist groups
with the enabling environment they need to access financial systems and
align with criminal and other illicit networks.
emerging opportunities to tackle corruption
Even as risks and threats posed by corruption continue to increase,
we are seeing new windows of opportunity emerge. First, all across the
world, there is growing popular demand for increased accountability and
transparency from governments. It was a call to end corruption that
helped spur the Tunisian revolution in 2010, and that same call drove
hundreds of thousands of Ukrainians to the Maidan three years later.
More recently the release of the Panama Papers turned the world's
attention to illicit financial activity by the wealthy and well-
connected on every continent, spurring massive protests and the Prime
Minister's resignation in Iceland and sparking outrage and debate from
North America to Asia.
In Guatemala last year, where impunity once reigned, people took to
the streets and spurred the legal and orderly removal of the sitting
President and Vice President. All over the world, civil society has
intensified its demands for honest government and seeks to remove
corrupt leaders from office through elections, impeachment,
prosecutions, or civil protest. Second, we are seeing more--though
still insufficient--top-down interest in reform, as leaders are
increasingly demonstrating a willingness to put political capital in
the fight against corruption. Some governments have shown they have the
political will to build the institutions required to reduce and prevent
corruption, increase transparency of public revenues and finances, and
enhance accountability for budgeting and delivery of services. For
example, Senegal passed a sweeping transparency law in 2012, and the
Tunisian Minister of Finance is working directly with USAID to root out
corruption in tax and customs collections. The leaders of Nigeria and
Afghanistan--two countries historically plagued by severe corruption--
have each made significant commitments to combat corruption and have
followed up with concrete actions. In Nigeria, where corruption in the
oil sector is especially pervasive, President Buhari's administration
has undertaken a series of reforms aimed at reducing graft and
improving transparency, including a restructuring of the state-owned
Nigerian National Petroleum Corporation.
And in Afghanistan, President Ghani is personally invested in the
fight against corruption. Along with Chief Executive Officer Abdullah
and senior ministers, he established and chairs the National
Procurement Commission, which meets weekly. His government has created
a new High Council on Good Governance, Corruption, and Justice to
coordinate anti-corruption efforts throughout the government and is
also working to implement recommendations made by the Afghanistan
Independent Joint Anti-Corruption Monitoring and Evaluation Committee
(MEC). At the invitation of the Afghan Ministry of Public Health, the
MEC recently completed a comprehensive anticorruption assessment, and
the recommendations of that public report are under review for
implementation. Other ministries have volunteered for similar
corruption assessments.
In recent months, I have met with the leaders of Ukraine, Albania,
Georgia, and Guatemala. In each of these meetings, these leaders raised
corruption as a major concern, and asked for support in dealing with
specific aspects of the challenge, ranging from technical assistance on
customs reform to experts on transparent financial management. This
kind of engagement is a necessary first step on the long road to ending
corruption.
Finally, a global consensus is now emerging that transparency and
accountability are pre-requisites for achieving sustained and inclusive
development progress. It was not long ago that the United States was
one of few governments consistently championing transparency and
accountability, but that is no longer the case. This new global
consensus is embodied in the Sustainable Development Goals (SDGs),
which world leaders from 193 countries endorsed in September 2015. In
part due to the hard work and engagement of the U.S. Government, the
goals explicitly recognize--through Goal 16--that corruption and
related challenges hinder growth and progress. Importantly, the SDGs
are more than just aspirational; they include targets against which
governments--and their citizens--can measure progress. And growing
multilateral partnerships like the Open Government Partnership are
helping countries meet Goal 16 targets and pursue other governance
reforms.
This global recognition has already translated into concrete
commitments. In the Common African Position on the Post-2015
Development Agenda, African leaders affirmed their support for
anticorruption efforts and committed to adopting new measures to fight
corruption and strengthen good governance. As another example of the
global consensus at work, in May 2016 leaders of more than 40
governments gathered in London to commit to deepen and widen the fight
against corruption through better coordination of government action,
including efforts to advance beneficial ownership transparency, to
increase revenue transparency in key sectors including energy, and to
share knowhow and data required to enforce laws against corruption and
money laundering and to recover stolen assets
There is no question that the development, democratic governance,
and security challenges posed by corruption have become more urgent and
complex. But with increased citizen demand, growing commitment from
leaders, and a shared global agenda, there is new and significant
momentum behind U.S. efforts to attack corruption from all angles.
u.s. leadership in the global fight against corruption
That is why--building on decades of U.S. leadership--President
Obama has made fighting corruption a national security priority. The
United States has been a leader in anti-corruption efforts since the
Foreign Corrupt Practices Act (FCPA)--the first ever law prohibiting
bribery of foreign officials--was enacted in 1977. Since then, U.S.
Government agencies have developed a comprehensive, whole-of-government
approach both to enforce the FCPA and other laws prohibiting corruption
and to initiate policies and programs to institute good governance
across the globe. In addition to USAID, those agencies include the
Department of State, the Department of Justice, the Securities and
Exchange Commission, the Department of the Treasury, the Department of
Commerce, the Millennium Challenge Corporation, the Overseas Private
Investment Corporation, the Trade and Development Agency, the United
States Trade Representative, and others.
Each agency makes up a vital component of a comprehensive agenda
that has helped make the United States the global standard-bearer in
countering corruption both at home and across the globe. For example,
the Treasury Department works to protect the U.S. financial system from
abuse by illicit actors, including corrupt individuals. And the
Department of Justice (DOJ) pursues corrupt foreign officials who
plunder state coffers for personal gain and then try to place those
funds within the U.S. financial system, while DOJ, the SEC, and their
law enforcement partners pursue bribe paying individuals and companies
over which the United States has jurisdiction.
The Overseas Private Investment Corporation and Trade and
Development Agency seek to provide financial and technical support to
countries that have consistently demonstrated progress in strengthening
good governance. The Millennium Challenge Corporation incentivizes
countries to demonstrate a positive track record and concrete plan to
reduce corruption in order to achieve eligibility. The Department of
Commerce, through commercial diplomacy and other initiatives abroad and
in numerous international fora, promotes transparency and anti-
corruption efforts in our trading partners in order to create a level
playing field for U.S. businesses.
By engaging such a diverse array of agencies in anti-corruption
work--each with different missions, authorities, and tools--the United
States is able to attack corruption from every angle, including through
building and enforcing the rule of law; enhancing the disclosure,
detection, and prevention of corrupt practices; and engaging civil
society, foreign governments, and multilateral institutions as
partners. For USAID, U.S. global anti-corruption efforts also include
the promotion of human rights, participatory democracy, accountable and
transparent governance, and economic empowerment.
how usaid tackles corruption
USAID's primary role within the U.S. strategy is to empower
citizens, embed norms and standards, and build accountable and
transparent institutions. With programs in more than 100 countries
worldwide, we are uniquely positioned on the front lines of the fight
against global corruption. By leveraging this position--as well as our
existing relationships with governments and civil society--we work to
address corruption at its roots. And, where we can enlist governments
and their citizens as able and willing partners, we are increasing the
scale and impact of anti-corruption efforts in the countries, regions,
and sectors in which we operate.
This is essential. Unless people, communities, and countries take
ownership of their challenges and their progress, development cannot be
sustainable or inclusive. The same is true for efforts to combat
corruption. Guided by this principle, USAID works to be a strategic and
effective partner of civil society and governments. We do this by: (1)
advancing accountability, (2) improving open, effective, and democratic
governance, (3) strengthening adherence to international norms and
standards, and (4) promoting multilateral efforts to tackle corruption.
Advancing accountability
The United States should hold governments, corporations,
organizations, and individuals to account through enforcement measures
and by other means. But from a development perspective, accountability
is most effectively sustained when a vibrant civil society has the
rights, capacity, and tools to hold governments, businesses, and
citizens to account. Through our support for civil society, USAID and
our partners enhance the capacity of citizen watchdogs to oversee local
public spending, promote community development and reconstruction, and
monitor the delivery of services. The civil society groups we support
also educate the public on their rights, and on the many different
tools available to them.
For example, in Pakistan, USAID's Citizens' Voice Project (CVP) is
supporting provincial governments to inform people about the Right to
Information Act, a new law that grants citizens access to information
previously withheld from the public. CVP has supported nearly 200 civil
society groups to amplify citizen voices and facilitate productive
engagement with the government. And in Paraguay, web-based programs
developed to improve citizen oversight of government data helped
unearth multiple cases of corruption. This exposure led to the firing
of 1,000 ghost employees in the Ministry of Education who had been
receiving salaries without actually working, and placed two members of
Congress and the Chancellor of the National University under criminal
investigation.
But the continuing backlash against civil society and closing of
political space in countries across the globe compromises the ability
of citizen groups to demand transparency and accountability. That's why
we have joined our partners in the U.S. Government, governments around
the world, the philanthropic community, and multilateral partners to
push back against these emerging restrictions and dangerous trends.
Through the President's Stand With Civil Society agenda, we work to
improve the policy environment for civil society organizations,
increase multilateral and diplomatic pressure against restrictive laws,
and develop innovative ways to support civil society where it is under
duress.
In some contexts, advancing accountability requires us to first
help expose the nature and scope of corruption. This has the dual
benefit of raising awareness among citizens and drawing the attention
of prosecutorial and investigative bodies. One way we do this is
through training investigative journalists and supporting high profile
and high-impact reporting on corruption. In Fiscal Year 2015, USAID
contributed approximately $30 million to support media development in
more than 25 countries. This relatively small amount of funding can
eventually pay significant dividends in terms of transparency, asset
recovery, and other law enforcement actions.
For example, USAID, along with the State Department, supported the
Organized Crime and Corruption Reporting Project (OCCRP), a network of
investigative journalists working across Europe and Eurasia. OCCRP's
reporting has resulted in the recovery of at least $600 million in
hidden assets by tax authorities, as well as more than $2.8 billion in
fines, seizures, and asset freezes. Additionally, 1,300 companies were
closed and 80 people arrested because of illegal activity exposed by
the group.
USAID also works to enhance accountability by improving the
auditing capacity within governments. In April 2016, we signed a
Memorandum of Understanding with the Government Accountability Office's
Center for Audit Excellence to collaborate on training and technical
assistance efforts to strengthen auditing organizations in developing
countries.
Going forward, USAID will continue to support citizens as they
expose corruption and hold their leaders accountable.
Improving open, effective, and democratic governance
Fighting corruption is also central to our core strategic goal of
supporting democracy, human rights, and governance. As we support
citizens who are demanding change, and help build their capacity to
hold their governments accountable, we must also support governments as
they work to strengthen their institutions and develop more efficient
and effective systems--with built-in transparency. Our work to
strengthen justice sectors offers a great example of this work. USAID
is a global leader in the promotion of the rule of law, with a long
history of joining with our interagency partners in supporting justice
system reforms in every region of the world. This support includes a
whole of government approach in developing training and professional
development opportunities for judges and prosecutors, empowering them
to take on corrupt officials and elites.
New technologies and innovations are accelerating our efforts. For
example, we are installing computer automation to track cases in all 74
of Jordan's courts to improve judicial efficiency, and in Honduras we
supported the establishment of the country's first Legal Assistance and
Anti-Corruption Complaint Center. In Fiscal Year 2015, the Center
tracked 65 formal corruption complaints, ultimately leading to 12
investigations.
Innovations and modernized systems are changing the way governments
operate in other sectors as well. In vulnerable environments, we are
leveraging programming in sectors like health and education to combat
corruption. In countries with high vulnerability to corruption, we
apply these innovative management systems in specific sectors like
health and education, both to counter corruption and improve the
delivery of services. To help governments collect revenues and budget
more cost-effectively, we have helped implement standards of
transparency and accountability for public financial management. And to
help governments save costs, we have made great strides helping reform
public procurement systems and institutionalize e-governance. These
systems reduce opportunity for corrupt activity by limiting face-to-
face interactions with public officials and automatically tracking all
transactions.
For example, in Albania, we are supporting efforts to develop One-
Stop Service Centers for all municipal transactions. These centers will
help local governments be more responsive, while limiting room for
corrupt practices. In some places, we are quickly seeing a sizable
impact from these new systems. Less than five months after Ukraine
introduced new electronic procurement software to cut down on
opportunities for corruption, an estimated $65 million has already been
saved.
In 2002, Georgia had one of the worst reputations in the former
Soviet Union for bribe-taking and corruption, with more than 4 out of 5
businesses reporting that they were expected to give gifts in meetings
with tax officials. After the Rose Revolution and subsequent 2004
elections, USAID partnered with the new government in support of a
major reorganization and other reforms of the tax and customs
departments. By 2008, only 8.4 percent of businesses continued to
complain about expectations of corruption by tax officials--an
astounding drop of more than 80 percent. And from 2002 to 2011, Georgia
increased tax revenue by about 12.6 percent of GDP.
Not only do improved systems save money and increase revenue, they
also offer an opportunity for governments to reinvest those savings in
the growth of their economies and in the well-being of their people.
This can occur in any sector. After USAID supported an analysis of the
central and individual hospital payroll systems in the Dominican
Republic, the Ministry of Public Health took action to clean the
payroll. In total, the Ministry eliminated more than 4,000 ghost
workers, leading to a savings of $9.5 million. And now, those savings
are being used to hire health care workers and increase access to
primary care across the country. The investments, along with the
elimination of user fees and increased membership in national health
insurance, are already paying off. One impoverished region witnessed a
500 percent increase in patient consultations over a one-year period.
As these kinds of successes continue to occur, more countries are
likely to replicate the results, which will be necessary to achieve the
scale we need. USAID will continue to build the evidence base for smart
governance reforms across all of the sectors in which we work, just as
we will continue to encourage the adoption of innovative systems and
technologies.
Strengthening adherence to international norms and standards
USAID also has an important role to play in developing and
embedding the international norms and standards that incentivize anti-
corruption action. U.S. leadership has been essential in establishing
and implementing the international legal frameworks that guide
corruption enforcement today, such as the UN Convention Against
Corruption (UNCAC) and the Organization for Economic Cooperation and
Development Anti-Bribery Convention.
USAID has helped to establish a powerful and visible platform to
strengthen international norms in the natural resources sector, a
sector ripe for corrupt activity in many countries. The Extractive
Industries Transparency Initiative (EITI) is a multi-stakeholder
initiative to increase revenue transparency and create a new standard
of accountability. With strong support from Congress, USAID has
contributed more than $26 million between Fiscal Year 2008 and Fiscal
Year 2015 to support country-led efforts to join or implement EITI.
By lifting up governments that are publishing key financial
information or audit results, we showcase how these actions foster
growth and make countries more attractive to foreign investment. In
Peru, for example, we helped bring together oil and mining companies,
government officials, and prominent civil society organizations to
foster a dialogue on the benefits of EITI membership. And in 2012, Peru
became the first country in Latin America to become EITI compliant.
USAID has helped emerging democracies meet their obligations under
a number of other international standards for transparency and
accountability, including UNCAC. Additionally, it is important that
jurisdictions effectively implement the Financial Action Task Force
global standards on anti-money laundering and countering the financing
of terrorism, which include standards for the disclosure of true
beneficial ownership of companies. Moving forward, every USAID mission
will outline plans to support country-level SDG implementation in its
five-year strategy, which includes support for meeting good governance
and anti-corruption targets like the significant reduction of illicit
finance by 2030.
We will continue to promote the adoption and adherence to the
international norms and standards that provide a guide for global
cooperation on combating corruption.
Promoting multilateral efforts to tackle corruption
Similarly, we will continue to bring the global community together
in the fight against corruption. In many of the countries where we
work, multilateral support and engagement is essential to help build
the capacity and incentivize the steps required to achieve scale in our
anti-corruption work. USAID forges partnerships with other donors,
multilateral agencies, and civil society organizations to help leverage
and sustain local initiatives and to help enable the sharing of best
practices and replication.
The Open Government Partnership (OGP)--a multilateral initiative
launched by the United States and seven other governments in 2011--is
the most prominent example of this approach. With 70 countries now
participating, OGP helps reform-minded officials and citizens promote
transparency, engage, and harness new technologies to fight corruption
and improve governance.
As a multilateral public platform, OGP has been effective in
engaging the interest of governments in greater transparency, but that
alone is not enough. That is why USAID supports efforts to help
countries become eligible for the OGP, and assists member countries
with the implementation of their National Action Plans. Once again, our
efforts here are bolstered by U.S. leadership at home. The United
States is also meeting its obligations under the OGP, including by
submitting our own National Action Plan for civil society scrutiny. In
addition to being good practice, this kind of leadership by example
also gives us more credibility on the international stage. More than a
dozen USAID missions plan to provide $14 million to support OGP in
Fiscal Year 2015 and $10 million in Fiscal Year 2016.
OGP is a dynamic example of the preventive, positive and scalable
USAID approach. Since its launch in 2011, it has grown quickly to
include 70 countries and more than 2,000 commitments to undertake
reforms jointly developed by government and citizens. Brazil, Croatia,
and Sierra Leone all passed Access to Information Laws--some of which
were stalled for years--in order to join the Partnership. Following the
UK Anti-Corruption Summit in May, Nigeria became the latest country to
join OGP and commit to fighting corruption at every level.
We have also supported multilateral engagement at the regional
level. This approach has shown promise in strengthening the
capabilities of internal government watchdogs, like inspectors general
and other auditors. For example, the U.S.-Africa Partnership on Illicit
Finance is designed to promote action to combat illicit finance in
Africa. Senegal has joined the United States in developing a national
action plan, and six other nations are writing their own.
And in the Middle East and North Africa, which has the least
transparent and open budget process in the world according to the 2015
Open Budget Survey, we are supporting several countries--including
Algeria, Egypt, Iraq, Morocco, and Tunisia--to implement international
standards and best practices for government audit and oversight. And
through the Effective Institutions Platform, we are helping support a
learning alliance of Latin American Supreme Audit Institutions, and
highlighting ways these institutions can strengthen their work to
target government corruption and financial mismanagement.
protecting taxpayer resources from corruption
The last thing I want to touch on is how we are working to
safeguard USAID investments from corruption. This is absolutely
essential.
We continually look for new opportunities to improve our monitoring
approach and attack the challenges from every angle. For example, in
Afghanistan, one of the most difficult places we work, USAID developed
a multi-tiered monitoring approach. The approach allows project
managers to gather and analyze data from multiple sources, triangulate
information to increase our confidence in the reporting, and use the
results to make programmatic decisions. In Syria, innovative tracking
mechanisms are used to ensure targeted beneficiaries receive
assistance; these include biometrics such as ID cards, fingerprints, or
iris scans; electronic distribution of transfers; distinct marking of
paper vouchers; regular in-person and unannounced visits to beneficiary
households, distribution sites, or vendor shops. And in some places
plagued by corruption, terrorism, violent extremism, and conflict--
where our investments face the greatest risks--we conduct vetting
programs to keep American funds out of the hands of bad actors.
We have also developed new tools to assess the capabilities of
partner governments and other recipients to properly administer funds.
One such tool is the Public Financial Management Risk Assessment
Framework, which has led to several decisions not to utilize host
government systems because of insufficient controls. Other practices
like fixed obligation grants can ensure that disbursements are only
made against agreed-upon results. Additionally, since 2012 Congress has
required the publication of annual reports on fiscal transparency of
governments that receive aid from the United States, ensuring that U.S.
taxpayer money is used appropriately. These reviews also serve to
sustain a dialogue with governments focused on improving their fiscal
performance.
Of course, USAID's Inspector General is also essential to
protecting taxpayer dollars and preventing fraud, waste, and abuse, and
I want to thank the Committee for confirming Ann Calveresi-Barr to
serve in this important role. USAID missions around the world greatly
appreciate oversight from the Office of the Inspector General, often
proactively requesting investigations.
The hard truth is that, even with the smart steps we have taken and
careful measures we have put in place, we are sometimes vulnerable.
USAID is called to serve in some of the most difficult environments
imaginable, where access constraints often hinder our ability to ensure
proper oversight of projects. Despite these constraints, we are
committed to working closely with Congress to prevent corruption and
other misuses of taxpayer dollars. And we are equally committed to
taking swift action upon learning of any such abuse.
conclusion
I want to thank you again for the opportunity to share with you the
important work USAID is doing, as part of a larger U.S. whole-of-
government strategy, to invest in the prevention and elimination of
corruption worldwide. Our experience demonstrates that the most
effective pathway to reaching scale is to help create compacts between
citizens and governments that enable countries to institutionalize good
governance, deliver social services efficiently and fairly and provide
wide access to economic opportunity. Our leaders, staff and
implementing partners will continue to prioritize and practice anti-
corruption no matter which sector they work in.
Going forward, we will continue to make progress in infusing anti-
corruption work into the bloodstream of the Agency, including through
mission-led country strategies, our broader democracy and governance
work, and through our sector-based programming in fields like global
health and education. Further integration into the way we do business
will be instrumental to implementing a comprehensive and successful
long-term anti-corruption strategy. USAID shares this Committee's deep
commitment to the values of transparency and accountability, and we
will continue to promote them through our work to advance human rights
and dignity around the world.
Thank you.
The Chairman. Thank you.
Mr. Malinowski.
STATEMENT OF HON. TOMASZ P. MALINOWSKI, ASSISTANT SECRETARY,
BUREAU OF DEMOCRACY, HUMAN RIGHTS, AND LABOR, U.S. DEPARTMENT
OF STATE, WASHINGTON, D.C.
Mr. Malinowski. Thank you, Chairman Corker, Senator Cardin.
Thank you for holding the hearing and for bringing increased
attention to this challenge.
Let me start with a brief story about an experience I had
on one of my first trips to Africa in this job.
I met a group of journalists who had fled a terror-ridden
country--I am not going to name it in order to protect them--
basically in fear for their lives. These guys were trained
professionals. They were integrating into the country where
they had taken refuge. And I asked them, so what is it like for
you here? And they said, you know, we are happy to be here. We
are happy to be safe, but every single one of us at some point
has been arrested by the local police. Each time, they said,
they had been held at the police station until a relative or
friend could come to pay a bribe to get them out. One of them
said the police station where we live, we do not actually call
it a police station. We call it the people market.
Now, seeing as they had fled terrorism and obviously were
on our side in this fight against terrorism, I asked them if
someone they thought was a terrorist moved into their
neighborhood, would they call the police. And they laughed. And
one man replied, well, of course not. If we did that, either
the police would come and arrest us again to get a bribe, or if
they arrested the terrorist, someone would bribe him out and
then he would come and kill us.
And so there I think in a nutshell is the connection
between this scourge and our interest in fighting violent
extremism around the world. No matter what else we do, we are
not going to defeat that problem where there is no trust
between governments and the communities where terrorists hide,
where the authorities are as likely to shake people down as
they are to protect them, where corruption hollows out security
forces, where it feeds terrorist propaganda that promises to
purify societies of this scourge.
And so fighting corruption is absolutely critical to our
security. As Administrator Smith said, it is critical to a
whole bunch of other important goals, including economic
development. I would argue it is central as well to our
promotion of human rights around the world, in part because
corruption is the central organizing principle of a lot of
dictatorships and--I think this is the interesting part--also
often their biggest political vulnerability because stealing is
in a sense the one crime that no dictator can ever justify and
the one issue that is most likely to rally public support
against them, as we have seen from Russia to Venezuela to many
other countries.
So for these reasons, the administration has said that
corruption has to be treated as a first order national security
priority.
The question is how do you effectively combat something
that is in many ways one of the oldest and deepest failures of
human nature. And I think we have to be honest. We have not
always been good at combating it, particularly when it exists
at high levels, particularly when it is committed by people
with great power, at least until those people have lost their
power.
But I think we have an emerging strategy that can work. It
begins by promoting greater transparency, which is something
that we do throughout the world through international
institutions like the G20, FATF, EITI. You mentioned the Dodd-
Frank rule, which was an advance in that work. Because of this
steady, slow, not dramatic work, it is much more likely today
that the dirty money kleptocrats try to hide will come into the
light.
Second, supporting civil society-led investigations.
Greater transparency leaves the evidence of corruption hiding
in plain sight, but someone still has to sort through the
gigabytes of information that governments, companies, and
financial institutions disclose to find it. And interestingly I
think the transnational networks of journalists, NGOs have some
advantages over government and law enforcement entities in
finding the initial pieces of evidence that lead us to those
crimes. And some of the work that we have mutually invested in
with NGOs, just a few million dollars, has helped to spark
seizures and settlements worth billions of dollars to our
treasury and to other law-abiding governments around the world.
Third, we have got to support the law enforcement
institutions because ultimately only they can prosecute the
crime. One of our roles at the State Department is providing
that kind of support with our colleagues in the Justice
Department to emerging democracies that are asking us for help,
Ukraine, Burma, Sri Lanka, Nigeria, and others. That is where
we need resources. And where governments like that lack the
will to act, that is where our own law enforcement agencies can
step in and act, and we have seen the Justice Department
through its new Anti-Kleptocracy Unit do some really remarkable
and impactful things.
Now, across this range of efforts, there is more that needs
to be done, and I will just mention a couple of things.
First, when I ask human rights activists around the world
how the United States can best help them, they often say
something like this. We know you do not control what happens in
Russia or the Congo, but you do control what happens in
America. So please, at the very least, do not let those who
profit from abuse of power in our country hide their money in
yours.
And yet, as you know, it is still possible for kleptocrats
to establish anonymously owned shell companies in the United
States. That is why we proposed legislation to require all
companies formed in the U.S. to identify their so-called
beneficial ownership, the actual human being who owns or
controls them, and to make that information more readily
available to law enforcement. There are few pieces of
legislation Congress can pass that will do more to advance the
fight against human rights abuses and corruption than this.
And we can provide more resources, particularly to the
civil society organizations that expose the crime before
anybody else does. At the London Summit on Anti-Corruption last
month, Secretary Kerry announced that we will establish a
global consortium to support the work of civil society and
investigative journalists to uncover corruption around the
world. We will be making an initial investment, but we hope
that other governments, as well as private foundations, will
contribute as well.
There is so much more we can talk about from using our visa
authorities to better scrutiny of security assistance, to law
enforcement cooperation mechanisms that we are trying to stand
up. The goal here is to do for the anti-corruption movement
what we did collectively for the human rights movement over the
last 30 or 40 years, making it at that level in terms of global
attention, that level in terms of how our foreign policy
advances it. We are not there yet, but we are getting there.
With your help, we will.
Thank you.
[Mr. Malinowski's prepared statement follows:]
Prepared Statement of Tom Malinowski
Chairman Corker, Ranking Member Cardin and members of the
Committee, thank you for this opportunity to testify on the corrosive
effects of corruption and kleptocracy and our efforts to combat them.
We are grateful to the Committee for bringing increased attention to
this challenge.
During one of my first visits to Africa in this job, I met a group
of refugees who had fled a terror-ridden country on account of
insecurity. They were trained professionals who had found work in their
host country and were grateful for refuge, but when I asked what their
new life was like, they noted treatment at the hands of the local
police as one of the key challenges they continued to face. They each
noted that they had been arrested at some point and held at the police
station until a relative or friend could pay a bribe to get them out.
One joked that they called the police station the ``people market.''
Seeing as how they had fled terrorism, I asked whether they would call
the police if someone they suspected of having terrorist links moved
into their neighborhood. The group laughed, and one man replied: ``Of
course not. If we did that, either the police would arrest us again to
get a bribe, or, if they arrested the terrorist, someone would bribe
him out, and then he'd come to kill us.''
Mr. Chairman, I have heard some version of this story again and
again in every corner of the world. I think it illustrates well the
connection on which you have asked us to focus today--between
corruption and violent extremism.
Success in the fight against violent extremism depends in part on
maintaining trust between governments and the communities where violent
extremists hide and seek recruits. It can come down to whether people
in those communities will call the police when they suspect trouble--to
offer information or to ask for help. Corruption destroys that trust.
When the authorities are as likely to shake people down as they are to
protect them, people sometimes end up fearing the authorities more than
the violent extremists. And some will be susceptible to terrorist
propaganda that promises to purify their societies of this scourge.
As Secretary Kerry has said, there is no greater cause of
disillusionment or surer way to alienate citizens from the state than
the ``sense that the system in rigged against them and that people in
positions of power are crooks who steal the future of their own
people.'' Terrorist groups from Nigeria to Iraq to Afghanistan have
exploited such grievances to build support through promises of well-
resourced, uncorrupt schools, hospitals, justice, security, and public
services. And when these groups threaten the people and state,
corruption inhibits the ability of the state to fight back. Where
military and police promotions, equipment, and loyalties are sold to
the highest bidder, security forces cannot fight effectively. When
procurement systems are exploited, weapons end up on the black market.
And when border guards can be bribed, terrorists travel freely along
with illicit arms flows and human trafficking.
Fighting corruption is thus critical to our security. It's equally
important to our shared prosperity. U.S. companies are disadvantaged by
corrupt markets abroad, where they lose contracts to competitors that
are willing to pay bribes. The World Bank estimates that approximately
$1 trillion is paid every year in bribes by the private sector alone,
enriching elites to the detriment of desperately needed public
investments, from education to healthcare to food security.
Fighting corruption is also central to our promotion of human
rights and democracy. I've long thought that corruption is the main
organizing principle of the authoritarian states responsible for most
human rights abuses, and most instability, in the world. The
opportunity to profit from graft is the reason why many dictators seek
and cling to power. Corruption gives them a means of purchasing
loyalty--and a means of enforcing it, since everyone addicted to these
ill-gotten gains has a stake in the regime's survival and anyone who
breaks ranks can be selectively prosecuted.
At the same time--and here is where the opportunity lies--
corruption can be an authoritarian government's greatest political
vulnerability. Such governments can sometimes manufacture excuses for
shooting demonstrators, arresting a critic, or censoring a newspaper
but no cultural, patriotic, or national security argument can justify
stealing. Anger over corruption helped inspire the uprisings of the
Arab Spring. It is one of the central grievances of the movement to
restore good governance to Venezuela. It is one reason why so many
Africans don't want their leaders to stay in power for life. It is the
cause around which the most effective opponents of Putinism in Russia
rally. Dictators see this, and they are becoming increasingly ruthless
in silencing those who tell the truth about corruption; some of the
human rights activists we work hardest to protect are those threatened
for reporting on bribery, kickbacks, and the movement of illicit funds
across borders. But it is becoming harder and harder to hide
corruption, and that is a ray of hope for those struggling for more
democratic governance around the world, at a moment when such hope is
greatly needed.
For all these reasons, the 2015 National Security Strategy included
corruption as a global concern and likewise through the QDDR and other
policies, Secretary Kerry has insisted that we treat corruption as a
first order national security priority. With our colleagues at the
White House, Treasury, Justice, and USAID, the State Department has
made a concerted push to combat corruption. Our comprehensive, whole-
of-government approach is committed to supporting government reformers
and civil society actors who hold leaders and institutions accountable
and to strengthening international norms against corruption. For
example by promoting Goal 16 of the Sustainable Development Goals; and
leading by example to further strengthen our own anti-corruption
efforts by putting forward wide-ranging commitments at the UK Anti-
Corruption Summit last month.
A Three-Pronged Approach
Over the last several years, independent civil society-led
investigations supported by the State Department's Bureau for
Democracy, Rights, and Labor (DRL) and USAID have steadily worked to
reveal instances of massive corruption involving foreign companies and
foreign officials in their communities, and to report on law
enforcement actions taken abroad against such officials and those who
would corrupt them. By exposing corrupt conduct at home, civil society
has provided important leads to domestic and foreign law enforcement
and increased the impact of successful criminal investigations. The
Justice Department--and, increasingly, other law enforcement
authorities around the world--have launched their own probes that have
resulted in billions of dollars in fines being levied against bribe
payers and millions of dollars in recoveries from foreign kleptocrats
for the benefit of the people harmed by the abuse of public office.
For just a few million dollars in U.S. support for civil society,
this approach represents a good return on investment and an important
element of a broader, effective strategy to combat grand corruption.
That strategy begins by promoting greater transparency globally and
domestically and supporting multilateral anti-corruption initiatives.
Law enforcement investigations like those I described have become more
successful in part because of reforms the United States has promoted
through the G-20, the United Nations Convention Against Corruption, the
Financial Action Task Force (FATF), the Extractive Industries
Transparency Initiative, and other institutions to increase the
transparency of banking transactions, company records, extractive
industry payments to governments, and the assets of public officials.
The Bureau for International Law and Narcotics' Anti-Corruption team is
at negotiating tables around the world to ensure these standards are
continuously strengthened. Greater transparency and accountability also
empowers civil society to expose corruption affecting their own
communities. In 2011, President Obama launched the Open Government
Partnership with seven world leaders to encourage governments in
partnership with civil society to advance transparency and
accountability through national action plans for reform. Seventy
countries now participate in the Partnership and are subject to
independent review every two years. In addition to implementing our own
action plan at home, the United States supports efforts to help other
countries join OGP and assists with the implementation of their action
plans. We are working to improve transparency in the extractive sectors
by supporting the Extractive Industries Transparency Initiative
globally and, under the leadership of the Department of the Interior,
within the United States through a multi-stakeholder group that brings
together companies, state and tribal governments, and civil society.
The SEC's issuance this week of a final rule implementing Section 1504
of the Dodd-Frank Wall Street Reform and Consumer Protection Act
strengthens our credibility on corruption and transparency
internationally.
Second, we need to support civil society-led investigations.
Greater transparency leaves evidence of corruption hiding in plain
sight, but someone still has to sort through the gigabytes of
information that governments, companies, and financial institutions
disclose each day to find it. Transnational networks of journalists and
non-governmental organizations like those that have recently reported
on notorious examples of kleptocracy can effectively advance this work
through a combination of local knowledge and relationships with
counterparts in other countries. Journalists and NGO networks are often
the first to uncover illicit activity because they can deploy
researchers in multiple countries at once, and because they tend to
have anonymous sources who provide them with information, key
documents, or road maps for how to obtain them. By exposing suspect
conduct, journalists and NGOs have sparked further investigation by law
enforcement authorities or enabled financial institutions to better
scrutinize the accounts of their clients.
Third, we need to support effective law enforcement. Ultimately,
corruption is a crime committed by powerful people accustomed to
impunity. While non-governmental networks can expose suspect activity,
only governments can prosecute it. Furthermore, civil society often
lacks the access to financial and other protected information available
to law enforcement.
Wherever possible, we should invest in the capacity of governments
with the will to be part of the solution, and this is a role that the
State Department in particular, working in coordination and in
conjunction with USAID and the Justice Department, can play. It is
especially important that we coordinate and provide such support
quickly to countries where reformers have come to power and have asked
our help to strengthen institutions or to bring corrupt actors to
justice and to recover their assets. A good example is Burma, where the
success of a historic democratic transition will depend in part on
whether the new government can get control of natural resource revenues
that in the past have disappeared from public accounts. We are ramping
up our support to the government and civil society to help. Kenya is
another: a key outcome of President Obama's visit there was a joint
commitment on good governance and anticorruption in which our two
countries promised to work together on everything from ethics training
to procurement reform to police accountability. A third is Nigeria,
where we are providing a variety of assistance to the government's
Economic and Financial Crimes Commission and working to deepen our
collaboration on asset recovery. We have many other opportunities to
engage such governments in 2016--for example in Sri Lanka, Tunisia,
Guatemala, Mozambique, and Burkina Faso.
And where governments lack the will to act, and funds connected to
illicit activities touch the U.S. financial system, our own law
enforcement institutions can play a key role. The Justice Department
established a Kleptocracy Unit in 2010, which has taken on cases
including the recovery of assets stolen by the late Nigerian Head of
State Sani Abacha and his associates, to funds misappropriated by the
Second Vice President of Equatorial Guinea Teodoro Nguema Obiang, and
corrupt monies tied to the former head of the Department of Health and
Social Security in Honduras. The Justice Department Fraud Section's
Foreign Corrupt Practices Act Unit criminally prosecutes those
individuals and companies over which the United States has jurisdiction
who pay bribes to foreign corrupt officials. And the FBI recently
established three International Corruption Squads to investigate and
prosecute such foreign corruption. They could do even more with greater
capacity and by strengthening legal authorities to combat kleptocracy.
Current Efforts
Across this range of efforts, there is more to be done.
For example, while we have done a great deal to promote financial
transparency around the world, we still have work to do at home. When I
ask human rights activists around the world how the United States can
best help them, they often say something like: ``We know you don't
control what happens in Russia or the Congo, but you do control what
happens in America. So please, at the very least, don't let those who
profit from abuse of power in our country to hide their money in
yours.''
And yet, as you know Mr. Chairman, it is still possible for
kleptocrats and those who seek to hide their wealth from around the
world, and criminals of every other sort, to establish anonymously
owned shell companies in the United States, and to use them to stash
their illicitly acquired wealth in banks all over the world. That's why
the Obama administration is proposing legislation to require all
companies formed in the United States to identify their ``beneficial
ownership''--the actual human beings who own or control them--to the
Department of the Treasury and make that information more readily
available to law enforcement. There are few pieces of legislation that
Congress can pass this year that will do more to advance the cause of
global human rights and anti-corruption, and I hope Congress will act.
The successes of the Department of Justice's Kleptocracy Asset
Recovery Initiative are mostly achieved through civil forfeiture
actions. Preserving and strengthening that authority will be
instrumental to the success of U.S. efforts to combat kleptocracy going
forward. U.S. law enforcement could be strengthened through additional
legislative steps to enhance the Department of Justice's ability to
prevent bad actors from concealing and laundering illegal proceeds of
transnational corruption and allow U.S. prosecutors to more effectively
pursue such cases.
We can also do more to support the civil society groups that
uncover evidence of corruption as more information about kleptocrats'
finances becomes available. Efforts supported by DRL at the State
Department have demonstrated the potential of this work. When a DRL-
USAID funded investigative media organization uncovered a $20 billion
money laundering operation that funneled money from Russia through
Moldovan courts to Latvia and the UK, a local investigation revealed
that a Latvian bank was the destination for many of these funds.
Latvian regulators asked the European Central Bank to revoke the bank's
license, and it did. In Central America, two journalists we supported
revealed the embezzlement of millions of dollars by the mayor of a
Guatemalan town. The story was quickly picked up by several media
organizations, eventually prompting an investigation that resulted in
the now former mayor's disqualification from the 2015 elections. In
Kyrgyzstan, when an investigative media story developed as part of a
DRL grant revealed $200,000 in funding embezzled by a local official,
the resulting outcry prompted local law enforcement to launch an
official investigation.
To build on this work, we announced at the UK Anti-Corruption
Summit that State would establish a Global Consortium with USAID
support to support the work of civil society and investigative
journalists to uncover corruption. We will be making an initial
investment in the Consortium, and hope that other governments as well
as private foundations will contribute as well.
Asset recovery, essential to our international commitment to return
stolen assets for the benefit of the people harmed by corruption, will
be strengthened by the United States commitment to cohost in 2017 the
first meeting of a Global Forum on Asset Recovery, a new mechanism to
work collaboratively on major asset recovery cases where there is
emergent need, modeled after the successful Ukraine and Arab Forums on
Asset Recovery. With an initial focus on Nigeria, Sri Lanka, Tunisia,
and Ukraine, this Forum will support law enforcement and civil society
efforts in these countries while also providing a key way to reinforce
the capacity of reform-minded governments with political will.
At the State Department, we can reinforce these efforts through
responsible, effective implementation of the visa restriction for
kleptocrats and by ensuring that U.S. foreign assistance discourages
rather than inadvertently fuels corruption. In London, the United
States committed to integrate anti-corruption intro training for
foreign security forces, ensure that our security assistance works to
improve governance, and better assesses risk of corruption throughout
our cooperation with foreign security forces. We are encouraged by the
strong support of allies at the Department of Defense on these efforts
and know there is more we can do.
Conclusion
Across all of these efforts, Congressional support will be vital to
strong and effective follow through. None of this will be easy. Recent
headlines have revealed the pervasiveness of global corruption and the
deep web of laws, practice, and systems that will need to change--much
bigger than any one law firm--to root it out. But this effort also
reflects the growing capacity and will of those who demand
accountability and expose the truth. We will not rid the world of
dishonesty and greed, but we can realistically hope to empower willing
reformers to set their countries on a new path, and to increase the
likelihood that kleptocracy is exposed and punished--not just years
after the fact but when the officials involved are still in power. And
if we can make powerful leaders think twice before accepting a bribe or
demanding a kickback or hiding their wealth in a shell company, if we
can enforce the law at the highest levels and disrupt illicit supply
chains, we strengthen our efforts to tackle the lower level corruption
of police officers and petty civil servants that bedevils ordinary
people, makes them more susceptible to violent extremism, and
undermines democratic governance and security in so many countries.
Just as, over the last half century, the human rights movement took
human rights from the periphery of international relations to a core
policy concern--to ensure global security and the protection of
universal values--our goal is to make anti-corruption a similar
international priority today.
Thank you for the opportunity to testify today and for your
partnership in the hard work ahead. I look forward to any questions.
The Chairman. Well, thank you very much for that testimony.
I appreciate the suggestion as to what we can do better here.
And along that line, Ben and I were over this morning, as
he mentioned, at the TIP release and saw the inspirational work
of people in other countries that risk their lives to help
other people relative to slavery. And I look at all the
things--I know in this political season, there is a lot of
discussion about how bad our country is, but our country does a
lot of great things around the world with very little resources
in most cases. You know, I think sometimes we do not talk
enough about that and what it means to other people who are
victims or have difficult circumstances for us to show that
leadership.
At the same time, to you, Administrator Smith, we have
begun to look a lot at what we do at USAID. I know we have not
had an authorization in years for lots of reasons. And it seems
like that we do an outstanding job in the health care area. It
is amazing what our Nation has done relatively to HIV and what
people collectively have done with malaria and tuberculosis. It
is pretty amazing. And it seems like we can do a lot on the
economic front with a different focus.
But a lot of people look at what we ourselves do as sort of
a holdover from the Cold War model where much of our foreign
aid is really about buying influence and we have not really
transitioned to a place that is more beneficial than it could
be.
Are there things that we could look at within our own aid
assistance to move away from, again, a Cold War model where we
are competing against the Soviet Union for influence? Is that
one of the issues that we have, that in essence, we still carry
out aid in that manner? And are we in some cases actually
allowing more corruption to take place in countries?
Ms. Smith. Thank you for that question, Senator.
There is always more that we can do. I would point to a few
things.
You rightly said at the beginning that we do a lot around
the world and we sometimes do not tell our story very well. I
actually think our story on this issue is one that we do not
tell as we might because one of the things that matters is the
standards that we uphold. So, for example, the recent SEC
ruling puts us in very good stead and gives us at USAID and
also the State Department a better foundation upon which to
stand.
We have found that in a number of countries--I met with
leaders recently of Guatemala, Ukraine, Georgia, and Albania.
All of them raised corruption and what they wanted to do and
had done about corruption, wanted to do with us about
corruption from the outset. I think in those cases, one of the
things that would be very helpful that we could do together is
elevate more frequently and more visibly the examples of
countries and/or leaders who are taking often bold and
courageous steps to fight corruption because it is often at
great political risk. Now, all of those countries face huge
challenges, may succeed, may fail, but I think giving them
visibility when they try.
Something that is helping us I think get over the hurdle
that you point to--and I think we are certainly further along
than we were during the Cold War. Two things I think for USAID.
One is identifying cases even in those countries where we
may have a major national security priority and a number of
interests at play where we can pull whatever thread we need to
pull to start to make progress on corruption. I am reasonably
optimistic about some of the threads we have been able to
identify recently, for example, in places like Afghanistan.
But the second is the work that we do on evaluation because
I think that is the work that tells us where we are making
progress and where we are not. We do 200 of those a year. We
publish them. I think that is the evidence base that can help
us from a policy perspective and a programming perspective be
frank about what we know about what is working and what is not
because that is part of what we got to grapple with.
The Chairman. Again, back to the essence of the question,
we dole out just lots of resources and programs that are just
redundant all around the world that are not really what you
would call--they are not breakthrough kinds of things. You
know, people expect it. They know it is going to come. Again,
as you know, I mean, I am a strong supporter of our engagement
around the world and am just so proud of what our Nation has
done to deal with HIV and what we are getting ready to do, I
hope, to deal with modern slavery. So please know I am a strong
supporter of those efforts.
But when I travel around the world, as all of us do, and I
look at these over and over and over programs that are having
no effect really and that these governments just expect that
these monies are going to come regardless of their actions, are
we really--just with the way we pass out monies in ways that--
with definitions that sound great, but are we really doing what
we should in the deliverance of aid to ensure that we are not
contributing more so to corruption in the countries? I know we
are evaluating. I know we are holding up heroes. But have we
ever looked at the way we are delivering aid to more fully
empower people within those countries that are doing the right
things versus many of the governments that we deal with that
are not?
Ms. Smith. I think that is a good question. I would point
to a couple things we are doing. I think having support from
you all up here on those would be helpful.
And one point I would make is that from the USAID side, we
provide very little money directly to governments, very, very
little money, and where we do provide money to a government as
in through a government's budget, it is for a project-specific,
time-defined period. And we report to Congress on those, and
there is a lot of work that goes in on the front end to assess
risk.
The other thing that we have been doing for a few years is
what we call selectivity and focus where we really look at our
programs around the world and using these evaluations to judge
in part what is not working. What are the things we have been
doing for 10, 12, 15 years that we just do because it is
automatic, and where and how do we stop those? There have been
more than 200 programs curtailed by AID over the last few
years, and there are many countries we are looking at where it
is our view that we should either scale back or pull out
altogether. So that is part of the regular process within USAID
right now, and it would be great to have support for our doing
that on a regular basis and for you to take a look at that and
see if you are in agreement of where we are making those
choices.
The Chairman. That would be good.
Listen, Senator Menendez I know has a time issue, and we
are glad to defer to him.
Senator Menendez. Thank you, Mr. Chairman, and I thank the
ranking member for his courtesy.
Thank you both for your work.
Let me ask you. With reference to Afghanistan, which is
constantly ranked one of the top three most corrupt countries
in the world behind North Korea and Somalia, on April 28th of
this year, the Senate passed the Afghanistan Accountability
Act. And I am proud to have worked with the chairman and the
ranking member to have been an author of it. It provides for
the President to offer technical and financial assistance to
the Government of Afghanistan and Afghan civil society. And
while it is early, I wonder how you can measure our progress in
addressing corruption in Afghanistan since we have committed so
many lives and national treasure to that country.
I understand that President Ghani has made a significant
commitment to addressing corruption, but he is only one person.
How would you assess the Afghan Government's commitment across
the board?
Ms. Smith. Thank you, Senator, and thank you also for your
work on this issue of accountability. We think it is critically
important not in the least because we are responsible for
taxpayer dollars, but it is also the thing that determines
whether we have the outcomes we are trying to achieve.
I would say it is too early to tell whether across the
board the government has institutionalized and internalized the
commitment that President Ghani has made.
But part of our job is to try to find ways to make these
things work. So let me tell you about a meeting I recently had
with Afghanistan's minister of health. He recently commissioned
an evaluation of the entire health sector through their
monitoring and evaluation committee that the president stood up
on corruption, to identify cases of corruption across the
health sector. As you might expect, it was a fairly damning
report that identified a huge amount of corruption across the
system from procurement to local officials, all the way
through. He is now--and we will work with him to do this--
putting together a plan to take on those gaps step by step by
step.
Now, is that enough to reverse the situation in Afghanistan
altogether or to take it from the corrupt side of the ledger
and put it in the non-corrupt side? No. It is an opportunity,
though--and this is something we have seen in development
across the board--to demonstrate what can be done such that
others have the incentive or in some cases the obligation and
the pressure from civil society to replicate.
So, again, it is small but we think it is not
insignificant. I think this will be a good measure of whether
the government is, in fact, internalizing the kind of
directives that President Ghani has put forward. And we are
happy to keep you informed of it as it unfolds.
Senator Menendez. I would be interested in knowing. I
understand that the Afghan Government has made efforts to
diminish, for example, corruption at border and customs posts.
Ms. Smith. Yes.
Senator Menendez. And that progress should be recognized
and commended at the same time that we are urging them to do
other things.
But I am wondering, Secretary Malinowski, whether--our
legislation suggested that individual Afghan Government
officials should be subject to visa bans and asset freezes in
the event they are found to be involved in the type of
corruption that we are talking about. Similar measures have
been taken in the cases of Russia and Hungary. Are those
efforts efforts that are warranted in this regard? We want to
see what President Ghani is doing in our assistance, as
Administrator Smith talked about in the health care, but when
there is a reticence to move, are we going to consider those
types of actions?
Mr. Malinowski. I think as a general rule we would agree
that you need a combination of capacity building for those who
are committed to being part of the solution, and there are many
people in Afghanistan who are passionately committed to this
because it is their country and they do not want their country
sold to the highest bidder, and I think President Ghani is the
first among them but a combination of that capacity building
and accountability.
We have, as you know, visa ban authority related to
corruption. The evidentiary standard, as I have learned in my 2
years in this job, is quite high, I would say appropriately
high when you are using those kinds of tools, as it is for
asset freezes, financial sanctions, and the things that
Treasury and DOJ do very effectively.
But there is certainly no reticence when it comes to using
those authorities. We have used them all over the world. When
we deny a visa or simply put someone on a watch list because
they have not applied yet, it is not something that people
generally know except for the person who may walk into an
embassy and apply for a visa and realize that there is a
problem.
Senator Menendez. But it is a powerful message when it is
appropriately used, and that message spreads as we say in
Spanish radio bemba, which means, you know, radio lips. It
spreads really quick in terms of the consequences and that we
are serious about it. I do not suggest that we use it carte
blanche, but when it is appropriate, if you use it, I think it
has a ripple effect along the way.
May I have one last question, if I may?
Mr. Gershman, who is on the next panel--and I have a great
deal of respect for him and the work that they do--has in is
testimony something that I just think we should call attention
to because I did not even really think about it. In a sense, I
know it, but I really did not think about it. He calls it the
problem of Western enablers, basically entities in the West
that ultimately help take those entities in the world, those
individuals in the world who ultimately use the ill-gotten
gains in a way and cleanse it so that they can become
philanthropists to get, in his own remarks, photographed
alongside celebrated international figures and media stars.
I am wondering--and this may be not a State Department
issue. It may be a different dimension, Mr. Chairman, of our
work here. But I am wondering what we do--and the ranking
member--to think about how we can create some type of effort to
suggest that if you knowingly engage in the practice of helping
people cleanse their ill-gotten gains, it may not be through
the banking system, although the banking system may be one of
them, one of the most powerful elements of it, but in other
ways as well that there is some type of action to be considered
because if you cannot cleanse your money and you are stuck
where you are and you want to really get out or you want to
protect your money somewhere else and have access to what it
means and it gets closed down, it is another element I think
globally of trying to pursue it. So I just think it is a
tremendous part of Mr. Gershman's testimony that struck me, and
I just wanted to bring it up as food for thought.
The Chairman. I do not want to condemn everybody that is in
this program by any stretch, but that is one of the concerns I
have had about the EB-5 program, candidly, you know, where
people are buying the ability to live here in our country with
large sums of money. I would say the vast majority of people
who do so are probably fine people, but my guess is there are a
whole lot of folks that are not in that category and we are
actually encouraging that. I appreciate the legislation you
suggested a minute ago.
Senator Menendez. And how we vet, whether for that program
or others, is a real concern. I share your interest.
Thank you.
The Chairman. Did you want to say something?
Ms. Smith. Just two quick things on this. I think you are
right that other agencies and departments are very focused on
this, including Treasury and Justice, because they have been
scrutinizing things like high-end real estate and other things
that people are able to do to use ill-gotten gains to establish
themselves here or elsewhere.
I would just make a brief plug for something else which is
related to this but I think would help, which we started
working on several years ago and Secretary Kerry announced that
the U.S. and the U.K. will convene a global forum on asset
recovery because part of the challenge here is that we know
that these kleptocrats steal billions of dollars. It is hard to
then get a hold of that money and reinvest it in development or
anything else. We have tried to streamline our procedures and
those of other countries so it is easier for citizens to track
down those assets, but I think this is an area where the U.S.
can continue to lead. It does not entirely solve the problem
you point to, but it does send a signal that we are better and
better at and will come after your assets, which is a good
disincentive.
Senator Menendez. Thank you, Mr. Chairman.
The Chairman. Senator Perdue?
Senator Perdue. Thank you.
And thank you both for being here.
I just want to thank the ranking member and the chairman
for having this meeting. I think a lot of people look at the
title of this and say, well, okay, it is another hearing. This
is a profound hearing in my view because of the situation we
are in the world. I would like to put a little perspective on
that.
Right now, in 1992 to 2000 under President Clinton, the
State Department spent about $20 billion running itself, and it
was very consistent, $20 billion a year. Under President Bush,
we averaged about $30 billion, and that includes USAID. In the
last 7 years, we have spent $54 billion. Of that, $34 billion
has been pretty routinely spent on foreign aid. And when I look
at that and look at the comparative balance of what we have
been borrowing in the last 7 years, compare that with the
percentage that is discretionary--this comes out of our
discretionary budget. These are dollars we argue about every
year. About 30 percent of what we spend is discretionary. But
we are borrowing 35 percent, which means that every dollar that
we spend, the discretionary, including USAID money, is
technically borrowed money. And let me say that again, Mr.
Chairman. Technically every dime we spend on defense, every
dime we spend on foreign aid, and a lot of what we spend on
domestic programs is borrowed. Therefore, it behooves us to be
very, very careful about how we invest this money.
That does not mean that we are not all very, very strong
supporters of the impact of our foreign aid. We have reduced
through the Marshall Plan, foreign aid, and a lot of other
things, globalization and our own economy--we have reduced
poverty in the rest of the world dramatically in the last 50
years, while our poverty since 1965 remains pretty much
unchanged.
So I think this puts in perspective why this is so--this
anti-corruption issue is so important and how we spend our
money here is so important.
I am an advocate that we actually need to spend more. I
think we could avoid wars and all that. You have heard me talk
about that. But I love the leverage impact of what you guys are
already doing with Power Africa and others where we get private
money to partner with public money and actually get great
economic returns.
However, people like General Kelly, the former combat
commander of SOUTHCOM, whose primary responsibility was to
interdict drugs coming in the United States, says because of
limited resources, he can only really interdict about 20
percent of what they actually see and can measure. So this is
the comparison of priorities.
And I know that what you do, Ms. Smith, since you have been
there--you have only been there a little while--is to focus on
priorities. You have talked to me about that. I have heard you
talk publicly about that. I would love to have you talk about
that relative to the issues here.
But let me put one last point of perspective. We spend
about $34 billion in foreign aid. There are only about 75 of
the world's largest companies whose revenue is bigger than
that. So if you think about it, Delta Airlines, a pretty big
outfit--Delta Airlines in my home State, if you took all of
their revenues, it would equate pretty much to what we spend in
foreign aid. That puts it in perspective. But I would love to
know of that, what percentage do we think is being siphoned off
through corrupt practices in places that we are trying to help.
And we know that there is some percentage. And what percentage
are we spending of the $34 billion toward anti-corruption
efforts? Those are two questions.
And then I guess the other is the chairman mentioned
redundant. I know you have a heart about this. Programs that
are similar, programs that are redundant--give us an idea. You
have only been on the ground a little while. Tell us your early
opinion about that as well, if you do not mind.
Ms. Smith. About redundancy.
Senator Perdue. Redundancy.
Ms. Smith. Thank you, Senator. Let me say a couple things.
In terms of where this fits in priorities, I would say it
is a very high priority, the whole issue of anti-corruption.
The way that is manifested is actually quite interesting I
think. AID did a study looking at 300 anti-corruption programs
between 2008 and 2013 to determine their effectiveness. And
what was concluded--and I think it is right--was that we would
have greater impact if we integrate this as much as possible
into everything we do as opposed to just having a little subset
of anti-corruption programs over here.
So the way we actually spend our money--we have some
resources that go to dedicated anti-corruption programs. It may
be supporting a commission of integrity, training, specific
support for civil society on that. But our other resources, for
example, that I think are having a huge impact--one, as both
Tom and I have talked about, is ongoing support for civil
society, which enables it not only to incrementally and
incidentally take on corruption, but in the big picture if you
look at Guatemala or Ukraine, the changes in public citizens'
demands in those countries had a lot to do with the strength of
civil society over time.
Senator Perdue. What rough percentage, just directionally,
would you say that we are spending in this anti-corruption
effort?
Ms. Smith. If it is specific anti-corruption, it is in the
range of $70 million to $80 million. But let me give you
another example, Ukraine, where it has been a huge concern of
all of us. We have helped Ukraine put in place an electronic
procurement system, not the most sexy development bumper
sticker we can put out there, but the impact of that is huge
because it reduces the number of people in a transaction. It
makes the information transparent and available to everybody to
look at the entire system, and it has a huge impact on the
ability of people to exploit the system. We do not count those
dollars as corruption dollars. They are part of the broader
Ukraine package. So I am hesitant to say it is this much money
in a given case, the work we have done on customs and border
control and training and that kind of issue.
I think in terms of what is siphoned off, let me state a
couple things at the outset. We are constantly looking at where
we are vulnerable. One of the things I am very pleased about is
the committee, at about the same time you confirmed me, you
confirmed a new inspector general who has been enormously
effective and we work very closely with. We frequently ask her
and her team to look into things and give us recommendations on
how we improve.
I have made very clear that that is something we got to do
on a regular basis because we are never going to get to the
point where I can say we have no vulnerabilities, nothing is
being siphoned off. We have got to constantly work at that.
I am impressed with the measures USAID has put in place
over the last several years, whether it is the upfront risk
assessments, the training that we are now doing for our people,
the training that we have started and intend to expand for our
implementers on anti-corruption and programming and project
design. I think we have got a number of safeguards. We face the
biggest challenge in places where we have got ongoing crisis or
conflict, large sums of money, and security conditions mean
that we do not have the kind of physical access we might have
in some other cases. So we are doubling down on those.
But I would say--and I have known this agency for a long
time, as you and I have discussed--it is a long stronger and a
lot better on this than it was a few years ago. But I would
also say we have got to do that on an iterative, constant basis
to make sure we are checking for loopholes and vulnerabilities
wherever they may be.
Senator Perdue. Thank you.
The Chairman. Mr. Malinowski?
Mr. Malinowski. Thanks.
I would add that embedded in the excellent question that
you asked and Administrator Smith's answer is the insight that
the small amounts of money that we do spend on anti-corruption,
if it is well spent, saves a lot of money.
Let me give you another example, a country many of us have
followed and been interested in for a long time and that is
Burma. For 25 years, through various means, we were trying to
promote a democratic transition in that country supporting Aung
San Suu Kyi and the brave democrats who were fighting for their
liberation of their country. And this year, she becomes the
leader of the country after a free election. And her first duty
is to now try to deliver for her people economic dividends,
making their lives better. And obviously, we want to help.
Now, how can we do that? One way would be to find billions
of dollars of foreign assistance, channel it in there through
the World Bank and through our own budget. We do not have that.
But it also happens to turn out that this is a wealthy
country. They have got immense natural resources, and they have
been siphoning off billions every single year, particularly in
this case from jade mining, which is one of their most
lucrative natural resource industries, literally billions of
dollars a year through corruption and mismanagement, all of
that empowering the old forces, the military, the kind of
military crony complex that used to run the country.
So actually just helping them get budgetary transparency,
just helping them figure out where the money is going, helping
civil society in Burma, as you mentioned, track this stuff and
uncover the corruption that still exists, which we can do for
much less money, can have an enormous dividend for that country
and for our interests. And so replicating that across the board
is what we are trying to be about.
Senator Perdue. Thank you.
Thank you, Mr. Chairman.
The Chairman. If I could before turning to Senator Cardin.
This comes out of the QDDR at the State Department, just to put
an exclamation point on this last conversation. This is
worldwide. The annual cost to end world hunger is $30 billion.
Official development assistance around the world--around the
world--is $134 billion. Annual investment needed to achieve
universal mobile broadband service around the world,
connectivity everywhere, $168 billion. I am going to skip over
to the total number--the total amount of bribes paid, $1
trillion. $1 trillion. The total cost of corruption, $2.6
trillion worldwide.
And so when we look at those areas where we can make a
difference, whether it is ending modern slavery or dealing with
HIV or dealing with other things, this certainly is an area,
certainly difficult to deal with worldwide--and I know you are
all working on it on a daily basis--but where a huge impact
could take place.
With that, Senator Cardin.
Senator Cardin. Well, Mr. Chairman, thank you for bringing
up those dollars.
And, Senator Perdue, you are right on target with the
question, and I very much respect the answers that we have
received. But if you look at the total resources being devoted
here directly, it is extremely small, and indirectly it is
still very small. The dollars that we put into specific
missions, whether it be hunger or health, are very, very
important. Do not get me wrong. But they overshadow all the
other funds that are available within development assistance to
help other countries. And if you look at the basic programs
that have existed for a long time, not the new commitments we
made within the last decade, it has not grown at all. So we are
being outmatched when you look at what is at stake on the other
side of the criminal elements in order to be able to continue
their investments.
Secretary Malinowski, I very much appreciated the way you
connected the dots. We all understand that it is difficult to
get communities to cooperate with law enforcement to deal with
extremists in their community. It is difficult under ideal
circumstances. It is difficult in America. But when you add the
corruption of the local police officer, it is impossible. So it
does fuel terrorism. And thank you for connecting the dots
there.
I certainly support the administration's efforts for
disclosure on shell corporations. I think it is totally
consistent with what Congress did on Magnitsky. We want to deny
these corrupt officials the ability to hide their resources in
the United States. That is where they want to hide them. And
disclosure on the shell companies would help.
So I want to sort of use one of the procedures we use in
order to make progress, and that is we try to promote best
practices. Take what has worked and invest in that again. In
trafficking in persons, we know what has worked. We had a lot
of programs to deal with human trafficking, but we spotlighted
one in the Trafficking in Persons Report that was passed by
Congress so that we could have a common bible on
accountability, on mission in each specific country, and it
would not only help the U.S. direct efforts but would help the
civil societies in the world effort to combat human
trafficking.
And then a second issue that Senator Corker brought to our
attention that is now working through our process--it was his
leadership--to engage civil society is by putting legislation
in that allowed us to leverage our dollars to get more civil
participation in trafficking.
So in both cases, I think we could do much better on
corruption. So we are looking at legislation that would do a
trafficking in persons-type report for corruption so that we
could have a common barometer globally of what we expect
countries to put in place to deal with corruption, that they
have the anti-corruption laws, that they have prosecutors, that
they have the resources put out, those types of issues, and
then evaluating these countries so that we can try to make the
same type of progress that we have made in trafficking.
And then the second point, as I mentioned, about Senator
Corker's bill that is making its way through the Congress that
would allow us to leverage our dollars to get civil societies
greater opportunity to make advancements on fighting
corruption.
So do I get your endorsement on these two bills?
[Laughter.]
Mr. Malinowski. Thank you for that.
And I think both of us have acknowledged that we are not
doing enough yet. I think we are proud of what we are doing. We
are not yet where we need to be. And there are definitely areas
where both greater resources, greater authorities, and in some
cases greater direction from the Congress would be helpful. And
so I can sincerely say we welcome legislation and we want to
make with you to make sure that it is going to be, in fact,
helpful.
Senator Cardin. But rather than reinventing the wheel, why
do we not just take the model that was used in trafficking?
Mr. Malinowski. And you and I have discussed this, and I
tried to be honest in talking about what I think are our
strengths and our weaknesses as an institution. And I think as
I have suggested, it is easier for us to go to a foreign
government, to sit with the foreign leader, look them in the
eye, and evaluate their efforts on trafficking than it is to
grade them as the United States on their own criminality, which
is what corruption is. I am not saying it should not be done. I
am just saying it is a slightly different matter to look a
foreign leader in the face and say you are accepting bribes or
you are not doing enough to root out criminality from your own
institution.
I will tell you what we do do and probably could do better
is in the whole range of reporting that we already do on anti-
corruption--we looked at this. We have a whole bunch of reports
that touch on different pieces of this. We have got the human
rights report, which my bureau puts out, which now includes
reporting on corruption. We have got the IAGGA report, the
International Anti-Corruption and Good Governance report which
our INL Bureau puts out only a handful of countries, which is I
think the closest to what you are looking for.
We could, I think, conceivably consolidate a lot of that
reporting into a single transparent, online, public platform
where we would also take in reporting and evaluations from the
World Bank, from other international institutions so that it is
all in one place. I actually think it is more effective if we
build in international indicators because then it is not just
the United States telling other countries what their grade is,
which is sometimes useful but sometimes leads to problems.
So I think we can get there. We can work on something here
that will achieve the purpose that I think you are looking for.
Senator Cardin. I absolutely will follow up on everything
you just said. I would just point out in rebuttal for one
moment Ukraine is a country that is challenged on corruption.
We have said that publicly. Our government has said that
publicly. And the Ukrainians have accepted our analysis. It is
not condemning their leaders for being corrupt. It is a country
that has corruption in its core. Many of the Central American
countries, which are democracies, have real huge corruption
issues with extortion and drug trafficking. We know that. So I
am not so sure if a country is on a path to try to deal with
it, they are not helped by the analysis that we could give to
bolster their need to make the type of changes that their
country needs.
Mr. Malinowski. And I will agree with that. And we do. And
we do put out assessments, as you just noted. And we put them
out in a way that is not consolidated, as I have conceded, and
I think that is something that we can work on together.
Senator Cardin. Thank you.
The Chairman. Go ahead, Gayle.
Ms. Smith. Just a couple things. I would agree with what
has been said. I think we can look at ways to pull some of
these reports together, but also using the international
monitoring that is done, there are a lot of countries that care
what their transparency international rating is, and I think we
should take advantage of that rather than potentially replicate
that. I do not think that is what you are suggesting.
But if I could just say something about--you talked about
what works and what would we actually look at and just offer a
couple thoughts on that because we look a lot at that in terms
of how we measure the success we are making.
One is obviously transparency and whether a country
publishes its budget. The civil society role in this--it has to
do with their civil society law, the ability of civil society
to avail itself of a freedom of information act and otherwise
organize.
This issue of systems and institutions--it is not something
we typically look at, but you referred in your opening comments
I believe to customs and border controls, procurement systems.
That is the architecture of a state, and that is the machinery
through which criminals operate, corrupt officials operate, and
terrorists operate.
But I also think we should measure progress because one of
the things we have learned across the board in development is
that we are getting a lot of traction where countries are
mimicking success that they see elsewhere. So if we can
highlight cases where we are seeing more progress, I think that
would be useful.
And finally, Senator Corker, I think your points are
absolutely on board when you look at the numbers. And I often
think of looking at the resources that could be regained by
success against corruption is development financing. And I
think that is how we should frame it, that this is potential
financing for development. But I would not put anti-corruption
and health in two different baskets. I will just give you a
brief example.
In the Dominican Republic, as part of our health work on
strengthening their health system, we did a review with them of
their payroll system. 3,900 ghost workers were identified. They
were summarily eliminated. They did not exist in the first
place. It is a savings of $9 million a year that they are
reinvesting in the health sector.
So we have got tangible examples of this being development
financing, but I think also of our ability in sectors where the
headline may be global health to again do that systems scrub to
make sure we are fighting corruption even in those areas.
The Chairman. Thank you.
Senator Rubio?
Senator Rubio. Thank you.
Secretary Malinowski, we have on numerous occasions passed
different tools now available to the administration. For
example, the Venezuela Defense of Human Rights and Civil
Society Act that we are trying to get reauthorized gives the
administration the power to punish human rights abusers and
those involved in corruption.
So in Venezuela, the principal henchmen backing the
autocratic Maduro regime, according to multiple published
sources--everybody knows it. It is one of those things
everybody knows--are cocaine smugglers. They are money
launderers. For example, Diosdado Cabello, one of the leaders
in the majority party--I guess the minority party now, but
Maduro's party--Tarek El Aissami. And there are just dozens of
security officials and political leaders who are being
investigated for this, not to mention dozens more of Venezuelan
officials who have looted state-run enterprises, manipulated
currency for their own pocketbook, and stealing from the people
of this country while people are roaming the streets looking
for food.
Why have Cabello or El Aissami or any of these other thugs
not--why have these top-notch, high level people not been
sanctioned?
Mr. Malinowski. First of all, I agree with your assessment,
and I agree that in many cases, even if we are looking at
Venezuela as a human rights challenge or a democracy challenge,
that coming at it from the standpoint of anti-corruption is
both the right thing to do and a very effective thing to do
because, as I mentioned in my opening statement, stealing is
the one thing you cannot justify in any political context no
matter what your propaganda or ideology or support base. Nobody
can justify it.
And so we have imposed sanctions on a number, as you know,
of Venezuelan officials. In terms of visa bans, I think we are
up to about 62 Venezuelans. Most of this we do not name because
of the way in which our visa ban authorities are structured.
But I can tell you that from my standpoint, having looked at
who is responsible for some of the things that you just
mentioned, we have captured virtually everybody against whom we
have decent evidence of corruption, human rights abuses,
including at a very high level. In fact, just yesterday I
signed out a few more. So we should be----
Senator Rubio. Well, again, I just think these two
individuals, Cabello, who is the biggest thief among all of
them, and Tarek El Aissami in particular, are people that we
should be focused on. It is not even a mystery. They do not
even seem to hide it. It is just shocking to me that we have
not taken it because we have done this against other people in
other parts of the world, and we have named them and the world
knows. There are people in the Maduro regime who are spending
their weekends in Miami spending the money they are stealing
from the Venezuelan people while people in Venezuela, a rich
country by the way, are like rummaging through garbage in the
streets every day for basic goods. It makes no sense to me.
Then you have got the right-hand man of the president of El
Salvador, Jose Luis Merino. This guy is a top-notch, world-
class money launderer, arms smuggler for the FARC, millions of
dollars of laundering for the FARC as well as corrupt
Venezuelan officials. Why is this guy not sanctioned?
Mr. Malinowski. That one I will have to take back, Senator.
Senator Rubio. Okay.
What about the FARC? You are familiar with them. This is a
group that profits from cocaine smuggling, earning probably
close to a billion dollars annually according to Colombian
authorities and informed sources. What is our status with them
vis-a-vis sanctioning them?
Mr. Malinowski. Well, as far as I recall, they are on the
FTO list, and they have been sanctioned over the years.
Senator Rubio. Economically, not just named as a terrorist
organization. Are we actively targeting their monies as they
move them across territory and borders?
Mr. Malinowski. I believe that over the years as a named
foreign terrorist organization that we have done so, yes.
Senator Rubio. And that will not be impacted by the peace
deal? Has there been any discussion between the Colombian
Government and ours about easing any of that as a result of
this peace agreement the president of Colombia has just signed
and the FARC?
Mr. Malinowski. We support peace in Colombia, but I think
we have been clear that in terms of our law enforcement and
other equities, that that remains.
Senator Rubio. Ms. Smith, the United States has already
invested upwards of--I do not know the exact--billions of
dollars, let us say, in Haiti, and most Americans understand
the humanitarian nature of our response and agree with that.
However, I do not think it is fair to expect the American
taxpayer is going to continue to help fund elections that are
overthrown because the parties are dissatisfied with the
outcome. So let us have another one because we do not like who
won.
So can you give us an assessment of what the current
programs are in Haiti? And at this point, are they eligible to
continue to receive U.S. tax dollars after what we have seen
now over the last year and a half?
Ms. Smith. Thank you, Senator. And one thing that we will
do is get you a comprehensive summary of all the programs.
Again, as I mentioned earlier, the vast bulk of our
assistance does not go directly to governments, so that in a
country like Haiti, part of what we are trying to do is work
with independent associations, civil society to do the
painstaking slow work of enabling them to, again, hold
governments accountable, hold up their own.
I will say to you that I think Haiti is one of the greatest
development challenges we face. There is no way to cast it as
otherwise. The institutions are extremely weak. Violence and
crime, as you know, are on the increase. We are doing our best
in some sectors to get some gains in health, food security, and
so on. I think governance remains the biggest challenge. We
will get you a summary of the programs.
But in terms of eligibility, I think there are a couple
questions we need to think about. One, again we are very
careful about cases where we provide government-to-government
money. It is a tiny percentage of our budget. And I think Haiti
is one where it would not make a great deal of sense.
But the second is we face the challenge as USAID and I
think as the United States of sometimes not having the luxury
of saying, well, this is just too hard. We are not getting any
traction, so we should get out. I think we know what the
consequences are in a country like Haiti if we are not present
and if we disengage.
But I will also confess to you it is an uphill struggle and
a constant struggle to try to get progress.
Senator Rubio. The way I probably should have stated the
question is the biggest complaint we get when we interact with
them is that they want us to coordinate more of our aid through
the government, even if it is not government-to-government.
They want us to use their locally based organizations, the
people that they pick.
And I guess my point is I am as sympathetic as anyone in
the Senate about what is happening in Haiti and the plight and
situation that they are facing. I also have, at this point,
very low confidence, perhaps no confidence that the people they
are telling us we should be working through are the right
people, given the history both electorally and otherwise. We
are sympathetic there. Believe me, I care deeply about what is
happening there.
But what I have seen out of the political class in Haiti I
should say for close to 80 years, but certainly over the last
few, is unacceptable. And I will hope that as we continue to
look for ways to continue to engage there, that what you are
saying here is in fact the direction we are on that we continue
to be on.
I will say it point blank. I have zero confidence that if
the Haitian Government tells us we want you to work through
this group versus that group, that there is not some deep
element of corruption or even political influence at play.
I am out of time, but we also saw as well Senator
Grassley's report about the lack of gains that the Red Cross
made in Haiti. And we are also deeply concerned about that.
Obviously, that is not necessarily taxpayer dollars. But that
is the sort of challenge we face there and continue to face
there because it is a place where even if you want to help,
oftentimes it becomes impossible because someone needs to get
paid off just to make it possible.
But I just wanted to lay out the point. This is not a
forever proposition here. There has to be some progress there
or I cannot justify to taxpayers, no matter how deeply moved I
am about the circumstances there, that we are going to continue
to pour money into a black hole where the money does not come
out in a positive way.
Ms. Smith. And if I may, Senator. I am in agreement that I
cannot justify it either if we are pouring dollar after dollar
without getting returns.
I think there are some places where again it is slow, but
we can get traction.
But I think you also raise a very important point because
on the one hand, from a development perspective, we want to
strengthen government institutions and enable them to operate
and not set up parallel structures. There are cases--and I
think Haiti is a valid one--where if we are supporting
structures or certainly being told--and we do not generally
respond well to governments that tell us that you must fund
this or that. That is something we make our own judgment of.
But there are cases where we cannot do that, and this is one
where we would be happy to continue the dialogue and work with
you on it because I think we share a concern about Haiti, but
also a concern about the challenges that you point out.
The Chairman. Thank you.
We thank you both for being here. I think there have been a
number of good points that have come out today.
I hope that over the course of the next several months we
can engage in a way to more productively deal with this. You
know, corruption has such a wide range of application. In
Russia, I mean, whole government systems are created that are
dependent upon corruption. In China, where we think some
corruption is being addressed, it is difficult to tell whether
it is really addressing corruption or just weeding out
rivalries so that the leadership is in a much stronger
position. And then there is the petty corruption that leads to
revolutions where people are, on a daily basis, harassed by law
enforcement officials, having to pay to get health care. So it
is wide range.
We understand in some cases we have more leverage and more
ability to make change like we do in Ukraine right now where
they want to move away from the Soviet model into a different
era, and we are assisting them. And we have a little bit more
leverage and working relationship there.
But, look, there is a lot more that we can do. It is at a
huge cost in every regard to societies around the world, and we
look forward to working closely with you to do more to try to
overcome what we know is happening in so many places.
We thank you for your service. We have another panel that
is coming up, and so we kindly dismiss you. [Laughter.]
The Chairman. I hope you have a very nice lunch and we look
forward to seeing you again.
Ms. Smith. But, Senator, just for the record, I think both
of us would welcome the opportunity to work with you and
members of the committee on additional things we might be able
to do, some of which have been discussed this morning.
The Chairman. For what it is worth, I think there is total
unanimity around this issue, Republicans and Democrats, and I
do think there is a period of time when a lot of other things
may not be happening because of the season that we are in. But
this is one I think where we might collectively do some things
that would be very positive.
Ms. Smith. Let us seize the moment.
The Chairman. Okay, good.
Mr. Malinowski. Perhaps we could discuss it over an adult
beverage. [Laughter.]
The Chairman. I want to hear how it is on the inside over
an adult beverage when your term is over.
Ms. Smith. But I never got an adult beverage.
Mr. Malinowski. I tell you what that is later. [Laughter.]
The Chairman. Our first witness is Mr. Carl Gershman,
President of the National Endowment for Democracy. Mr. Gershman
has done some important work on the nature and threat of
kleptocracies and the threat of them to our national security.
Our second witness is Ms. Sarah Chayes, Senior Associate,
Democracy and Rule of Law Program at the Carnegie Endowment for
International Peace. I understand Ms. Chayes has firsthand
experience in the challenges of corruption, having served as a
special advisor to ISAF Commanders McKiernan and McChrystal on
implementing anti-corruption strategies in Afghanistan.
We thank you both for sharing your knowledge and expertise
with us, and if you could provide your testimony in the order I
just introduced you, without objection, your entire written
statement will be entered into the record. If you could
summarize--I do know that Ben is going to step back in just one
moment. But we thank you both for being here. And, Carl, if you
would begin, we would appreciate it.
STATEMENT OF CARL GERSHMAN, PRESIDENT, THE NATIONAL ENDOWMENT
FOR DEMOCRACY, WASHINGTON, D.C.
Mr. Gershman. Thank you very much, Senator. I want you to
know that I greatly appreciate this opportunity to testify on
kleptocracy and the threat it poses to democracy and the rule
of law. And I especially want to thank you for the leadership
you have shown on this issue.
I want to also thank Senator Cardin for his leadership,
especially on the passage of the Magnitsky Act, which in my
view is the most important piece of human rights legislation in
the last generation. And I applaud his efforts to globalize the
application of the Magnitsky standards and mechanisms.
The scourge of corruption is generally viewed as a symptom
of the larger problem of the failure of judicial, media, and
other institutions of accountability in new or developing
democracies.
In kleptocracies, which is the term used to designate
government by thieves, corruption is the heart of the problem
and the lifeblood of the system. Karen Dawisha, the author of
``Putin's Kleptocracy'' and one of the foremost experts on this
issue, makes the observation that ``in kleptocracies risk is
nationalized and rewards are privatized.'' Participation in the
spoils of kleptocracies is organized and controlled by top
political elites who raid state treasuries with immunity and
impunity.
Whistleblowers, investigative journalists, and others who
seek to expose corrupt practices themselves become targets of
law enforcement and are treated as enemies of the state. By
denying space for moderate political voices that could offer
possible alternatives to existing policies and leaders,
kleptocracies open the way for extremists. The Azerbaijani
scholar and former Reagan-Fascell fellow at NED, Altay
Goyushov, observes that by repressing peaceful activists and
reformers in Azerbaijan, the kleptocratic regime in Baku
``argues that it is taking steps to ensure stability, but they
have it exactly wrong. By eliminating moderate voices in
society, Azerbaijan's leaders set the stage for an anti-Western
environment that will serve as a breeding ground for extremists
who pose a grave threat to both the region and to the West.''
Unlike ordinary corruption, which has generally been
considered a problem that corrodes developing democracies from
within, kleptocracies project their corrupt practices beyond
their national borders with an ever-increasing impact felt in
new and established democracies alike. Kleptocracy is thus both
a pillar of modern authoritarianism and a serious global
threat.
Parasitic at home, kleptocratic regimes use global
financial institutions to launder, invest, and protect their
stolen funds, which they then use to increase their domination
at home and to purchase influence abroad, all the while
expanding their holdings and leverage in the West by buying
extravagantly priced properties in the major global capitals.
The purchase of such multi-million dollar properties, the
arrangement of opaque, offshore financial instruments, and the
laundering of a kleptocrat's public image cannot happen without
the assistance of professional enablers--this is the issue that
Senator Menendez referred to before--in the established
democracies, people who are critical links in the process of
securely embedding kleptocrats and their ill-gotten gains in
our lawful systems.
As the journalist, Oliver Bullough, has observed ``what
Western enablers do is in a sense more egregious than what
foreign kleptocrats do because in the West we have a genuine
institutionalized rule of law while kleptocrats operate in
systems where no real rules exist.'' These enablers both
besmirch our own democracy and damage the prospect for
democracy in foreign countries ``even as Western governments,''
as Bullough says, ``lecture those same countries about civil
society and the rule of law.''
A crucial element necessary for combating modern
kleptocracy will be to bring the professional intermediaries in
the West, the enablers, out of the shadows and into the
sunlight.
The NED, with the support from Congress, is now devoting
special attention to the issue of kleptocracy as part of an
integrated strategic approach to a number of fundamental and
interrelated challenges that include the crackdown on civil
society, the rise of extremist movements, the failure of
governance in many new democracies, the assault on democratic
norms in the international system, and the weaponization of
information by Russia and other autocracies.
Ending the symbiotic relationship between kleptocrats and
the international financial system will be a critical dimension
of our efforts. In this regard, it will be important to support
activists and investigative journalists who are working within
kleptocratic countries to fight state theft and to help them
connect with international actors who are trying to monitor the
flow of illicit capital and block its investment in the
international system.
Greater cooperation among people fighting kleptocracy at
different levels might also help efforts to alert publics in
the democratic countries to the serious security risks they
face if hostile autocracies are allowed to exploit their
institutions and legal protections to aggrandize their own
power. Building a new partnership between the activists
fighting for the rule of law in kleptocratic countries and
potential allies in the established democracies will help
protect our own interests and security and advance the cause of
democracy at a moment when it is in peril around the world.
Thank you, Mr. Chairman.
[Mr. Gershman's prepared statement follows:]
Prepared Statement of Carl Gershman
Mr. Chairman, thank you for the opportunity to testify before the
Committee on the topic of corruption and kleptocracy. The Committee's
strong voice on the corrosive impact of corruption is exceptionally
important. I also want to thank you for your critical efforts to draw
attention to the pervasive problem of government corruption and its
implications for democratic governance and political stability.
Senator Cardin, I also would like to commend you for your
leadership on the Sergei Magnitsky Act and the Global Magnitsky bill.
The impact of the Sergei Magnitsky Act in spotlighting human rights
abuses in Russia is visible in the tenacious--and brazen--efforts the
Russian government has put into discrediting Sergei Magnitsky
posthumously. A controversial film that was shown earlier this month in
Washington--one that that a Washington Post editorial referred to as
``agitprop''--offers a manipulated and evidently dishonest depiction of
Sergei Magnitsky. This cynical effort, and others like it, aim to
remove Magnitsky's name from your pending legislation. Why? Because the
Magnitsky case and the sanctions that have been imposed on key human
rights abusers as a result of the act passed in his name put a sorely-
needed spotlight on Russia's dangerous kleptocratic regime. The
Magnitsky Act holds such abusers to account in ways that beleaguered
Russian institutions cannot, given the thorough removal of checks on
power by the Putin regime.
It is important to stress at the outset that corruption is a
pervasive problem in many societies and has the effect of undermining
public confidence government institutions. The scourge of corruption is
typically viewed as a symptom of a larger institutional problem. All
countries, to one degree or another, suffer from corruption. Systems in
which independent media, civil society, courts, and political
opposition are weak or marginalized are particularly vulnerable because
they do not possess the needed accountability and transparency to
prevent corrupt practices from taking root. In kleptocracies, however,
the challenge is much more acute.
In kleptocratic settings, corruption is at the heart of the problem
and not chiefly a symptom of it. Karen Dawisha, the author of Putin's
Kleptocracy and one of the foremost experts on this issue, makes the
observation that ``in kleptocracies risk is nationalized and rewards
are privatized.'' Participation in the spoils of kleptocracies is
organized and controlled by top political elites, who raid state
resources with immunity and impunity.
In kleptocracies, the instruments of the state are directed to
shielding and enabling the corrupt activities of dominant power
holders. Corruption is the lifeblood of these systems, like the one in
present day Russia, and the glue for regime survival. Therefore, in
kleptocratic systems where the stakes for power are all or nothing,
whistleblowers who seek to expose corrupt practices themselves
routinely become targets of law enforcement; investigative journalists
and oppositionists become enemies of the state; and independent
businesses are brought to heel in order to preserve the kleptocratic
order.
It needs to be emphasized that in the era of globalization,
kleptocracy represents an exceedingly dangerous threat to democracy
internationally. Corruption has generally been considered a problem
that corrodes developing democracies from within. Well-resourced
kleptocracies differ in that they project their sophisticated corrupt
practices beyond national borders with an ever-increasing impact felt
in new and established democracies alike. Kleptocracy has emerged a
serious global threat. Parasitic at home, abroad kleptocratic regimes
by their nature seek to exploit the vulnerabilities in the institutions
of individual democratic states, as well as regional and global rules-
based institutions. They use global financial institutions to invest
and protect their money, and with their stolen resources, they buy
influence in the democracies and neutralize political opposition.
Kleptocracy has become a crucial pillar of the international resurgence
of authoritarian countries.
For these reasons, and with support from the Congress, the National
Endowment for Democracy is devoting special attention to the issue of
kleptocracy as part of a dedicated, strategic response to a number of
fundamental and inter-related challenges that characterize different
aspects of the present crisis of democracy.
In addition to kleptocracy, NED will be focusing strategic
attention on five key problems: the systematic assault by authoritarian
regimes on international democratic norms and values; the failure of
transition and effective governance in many countries where autocrats
have fallen; the rise of Islamist and other forms of religious and
sectarian extremism; the closing of civic space in scores of countries;
and an information offensive by Russia and other authoritarian regimes
that is influencing opinion and undermining the integrity of the
information space in many regions.
While aspects of these problems have long been common to systems of
absolute power, together they represent a more formidable and
integrated threat to democracy than anything the world has experienced
since the end of the Cold War. NED will continue to fund programs that
support democracy efforts in specific countries, but it is also
fashioning a new approach that consists of effective transnational
responses to key strategic challenges. In doing so, it will be able to
build on its record over more than three decades of addressing critical
challenges to democracy, and to leverage the experience and expertise
of its core institutes and many dedicated partners around the world.
combating modern kleptocracy
Returning to the principal subject of today's hearing, I would like
to reemphasize the serious threat posed by modern kleptocracy.
Until now, NED has supported anti-corruption, transparency, and
accountability projects, but has not focused on the transnational
impact and phenomenon of modern kleptocracies and their negative impact
on democratic, norms, values, and institutions in democratic and
democratizing countries.
I will stress several key points relating to the challenge posed by
kleptocracy:
Kleptocracy is a global threat. The taking of money out of corrupt
countries by kleptocrats is a long-standing practice--think of Mobutu
Sese Seko's Zaire and Ferdinand Marcos' Philippines--but in the present
hyper-globalized era the scale and sophistication of this activity
presents new and serious challenges to democracy. In this sense, and as
the Panama Papers so vividly reveal, modern kleptocracy thrives by
crossing borders, in the process projecting a wider, corrosive threat
to democracy and its institutions.
Kleptocracy is a key pillar of the global authoritarian resurgence
that is visible in so many critical spheres. This includes in regional
and international organizations, activities such as election monitoring
and the autocrats' treatment of civil society, as well as the
projection of propaganda through lavishly funded international media
enterprises, such as the Russian government's RT. Simply put, these
regimes are reshaping the rules of the game.
The challenge presented by regimes in Moscow, Beijing, and
elsewhere is being taken to an entirely new level by virtue of their
projection of illiberal values and standards beyond their own national
borders. Just a decade ago, few political observers could even have
imagined such a development. It's especially troubling that this growth
in authoritarian ambition is taking place at a time when malaise seems
to grip the world's leading democracies.
Kleptocracy Subverts Democracy. Kleptocrats exploit the benefits of
globalization to enrich themselves, hollow out their own countries'
institutions, and subvert the democracies. Given these particular
features, kleptocracy should be understood as an especially acute
subset of corrupt systems. The issue of kleptocracy is an important one
for activists who are working for democracy in countries ruled by
hybrid and autocratic governments. Such activists are on the frontlines
in the struggle against resurgent authoritarianism where regimes are
tightening political controls and closing civic space. The activists
who took to the Maidan in Ukraine sought to extract their country from
the kleptocratic grip of former President Viktor Yanukovych.
Deeply entrenched corruption has been an extraordinary challenge
since Ukraine achieved its independence a quarter century ago. But in
the four years that he was in power, Yanukovych took the country's
corruption to new heights, enabling the theft of a vast amount of
Ukraine's public wealth. As the analyst Anders Aslund notes, nearly $40
billion was estimated to have been stolen from the state while
Yanukovych was in power. This massive corruption funneled wealth
primarily to the president, his relatives, and a limited circle of
businessmen around the president. This systematic corruption has
ravaged Ukraine and has been central to its population's determination
to chart a more democratically accountable course.
As journalist Oliver Bullough observes: ``In 1991, Ukraine's GDP
was about two-thirds of Poland's GDP; now it is less than one
quarter.'' He notes that state corruption on such a scale has ruined
Ukraine, ``dooming a generation of Ukrainians to poor education, unsafe
streets and blighted careers.'' The responsibility for such massive
theft does not lie with unscrupulous Ukrainians alone, however. There
would not be corruption on such a vast and sophisticated scale without
offshore centers like Panama. ``If you steal money, you need somewhere
to launder it; otherwise it is useless.'' This raises the important
issue of Western enablers, a subject which I will return to shortly.
Azerbaijan has descended into an ever more repressive and
kleptocratic form of governance. Journalists who seek to report on the
extraordinary corruption of the country's ruling elite end up in jail,
or worse. Courageous Khadija Ismailiyova, who produced detailed
investigative reporting linking the family of Azerbaijani President
Ilham Aliyev to massive corrupt enterprises, was sent to prison on
patently trumped up charges. She was released last month. As Gerald
Knaus points out in a July 2015 Journal of Democracy issue titled
``Europe and Azerbaijan: The End of Shame,'' Azerbaijan's kleptocracy
has a profound and corrosive effect within but also beyond the
country's borders. Knaus explains in painful detail the ways in which
the authorities in Azerbaijan ``captured'' the Council of Europe and in
the process managed to neuter its human rights work.
In Angola, as journalists such as Rafael Marques de Morais have
observed, the country's political elite has taken control of virtually
all of the country's public wealth. Here, too, the Angolan kleptocrats
do not simply deprive their own country of critically needed resources
for improving health, education, and infrastructure, but use this
wealth beyond national borders to acquire an influential hand in media
and financial institutions inside EU member state Portugal. Russia's
kleptocracy has managed similar feats in Latvia, also an EU member
state.
The fact that these authoritarian regimes are also kleptocratic
makes the challenge facing democracy activists in such countries even
more difficult. This is because the kleptocrats have been able to
establish an objective alliance with banks and other institutions that
make up the global financial system. These institutions readily receive
the stolen funds after they have been laundered through various
offshore structures. With these assets safely invested and protected
within the global system, the kleptocrats can then use the stolen funds
to increase their domination at home and to purchase influence abroad,
all the while expanding their holdings and leverage in the West and
buying extravagantly priced properties in London, New York, Miami, and
other global capitals.
The problem of Western enablers. The purchase of multimillion
dollar properties, the arrangement of opaque offshore financial
instruments, and the laundering of a kleptocrat's public image, do not
happen by accident or on its own. Professional intermediaries in the
established democracies are critical links for venal kleptocrats who
seek to move ill-gotten gains from authoritarian systems into the
democracies, where they can enjoy the rule of law. As journalist
Bullough observes, ``only with the help of Western enablers can a
foreign kleptocrat transform the ownership of a questionable fortune,
earned in an unstable country where jail is often one court decision
away, into a respected philanthropist'' who can be photographed
alongside celebrated international figures and media stars.
Anne Applebaum has noted the irony that while the rule of law
prevails in Britain, ``over the past couple of decades, London's
accountants and lawyers have helped launder billions of dollars of
stolen money through the British Virgin Islands, among other British
overseas territories.'' Their complicity in kleptocracy has corroded
the legal integrity of the British system. As Bullough notes, ``what
Western enablers do is in a sense more egregious than what foreign
kleptocrats do, because in the West we have a genuine,
institutionalized rule of law, while kleptocrats operate in systems
where no real rules exist. The result is that Western enablers
effectively undermine democracy in foreign countries, even as Western
governments lecture those same countries about civil society and the
rule of law.'' A crucial element necessary for combating modern
kleptocracy will be bringing the professional intermediaries in the
West--the enablers--out of the shadows and into the sunlight.
Kleptocracy is an engine for extremism. Kleptocratic governments by
their nature extinguish or prevent the emergence of institutions that
can hold them accountable, leading to governance arrangements that
feature unchecked power and impunity. This is the modus operandi of
``rule by thieves.'' Critically, kleptocratic regimes deny space for
moderate political voices that could offer possible alternatives to
existing policies and leaders. In the kleptocracies of Eurasia and the
Middle East, for instance, this kind of harsh political
marginalization, where virtually all moderate voices are targeted,
opens the way for extremists. Azerbaijani scholar Altay Goyushov
observes that by repressing peaceful activists and reformers in
Azerbaijan, the kleptocratic regime in Baku ``argues that it is taking
steps to ensure stability. They have this exactly wrong. By eliminating
moderate voices in society, Azerbaijan's leaders set the stage for
anti-Western environment that will serve as a breeding ground for
extremists, who pose a grave security threat to both the region and the
West.''
responding to the challenge
Because kleptocracy is a global challenge it requires a response
that takes the transnational nature of this problem into account. To
this end, NED is at the beginning stages of an effort to analyze the
scope and key elements of this problem, while deepening linkages among
existing country-level anti-kleptocracy initiatives and those working
at the regional or international level. We will look to expand and
strengthen existing anti-corruption efforts that address key components
of kleptocratic systems and support efforts by civil society and
journalists to challenge regimes, leaders and institutions that are
perpetuating kleptocracy.
Ending the symbiotic relationship between kleptocrats and the
international financial system will be a critical dimension of our
efforts. In this regard, it will be important to support activists and
investigative journalists who are working within kleptocratic countries
to fight state theft and to help them connect with international actors
who are trying to monitor the flow of illicit capital and block its
investment in the international financial system. We must identify how
grassroots activists and such international actors can find more
effective ways of working with and supporting each other. Through such
cooperation, we hope that the activists will find new allies and
outlets for their investigative reports, while the international actors
will gain useful contact with indigenous groups whose knowledge of the
way funds are stolen might contribute to the development of laws and
strategies to block the receipt of these funds by the global banking
system.
Greater cooperation among people fighting kleptocracy at different
levels might also help efforts to alert the publics in democratic
countries to the serious security risks they face by allowing hostile
autocracies to exploit their institutions and legal protections to
aggrandize their own power. Just as it is urgently important to end the
corrupting collaboration between the kleptocrats and their enablers, it
is equally important to build a new partnership between the activists
fighting for the rule of law in kleptocratic countries and potential
allies in the established democracies who are committed to the defense
of democratic values. Building such a partnership will help protect our
own interests and security and advance the cause of democracy at a
moment when it is in peril around the world.
Thank you, again, for the opportunity to contribute this testimony.
The Chairman. Thank you.
Ms. Chayes?
STATEMENT OF SARAH CHAYES, SENIOR ASSOCIATE, DEMOCRACY AND RULE
OF LAW PROGRAM, CARNEGIE ENDOWMENT FOR INTERNATIONAL PEACE,
WASHINGTON, D.C.
Ms. Chayes. Thank you very much, Chairman Corker. It is a
delight to see you again. Ranking Member Cardin, thank you both
for holding this hearing and for inviting me to participate.
I think the proceedings so far have done a pretty good job
illustrating the scope of the problem. I would just like to
dwell for a second on some of the immaterial aspects that are
at least as important as the financial aspects.
When a cop shakes you down at the side of the road, he does
not do it politely. There is a kind of scalding humiliation
that is part of this whole problem, the injustice that I think
we have talked about, the betrayal, when it is the very
government officials you would turn to for help who are
actually doing the abuses.
The second point--and I think this was raised by Carl in
the word ``kleptocracy''--we are not talking about just a
collection of nasty behaviors on the part of a certain number
of officials. This is the actually the operating system of
sophisticated networks that are successful at doing what they
are setting out to do, which is maximizing returns for network
members. Right? They are sophisticated and successful and
structured. If anything, they are more like an integrated
criminal organization than they are like a weak or fragile
government. And by that, I mean they are integrating across
into the private sector, as well as the public sector, into the
criminal sector, as we have just been hearing. And they are
vertically integrated. That cop shaking down the person on the
street is sending a part of the money upwards. So all of these
impacts on government function are deliberate. That means both
the bending of certain government functions to serve these
purposes and also the hollowing out. The ghost soldiers or
ghost health workers are in fact deliberate.
I would say about 62 countries in the world fall into this
category, and they are listed in my written testimony.
How does this relate to security? I think, Mr. Cardin, you
set that out just as well as I could, so I am going to skip
over except to emphasize a little bit the connection to violent
extremism. It is not just that somebody who might be against
violent extremism will not report to the police. It is that
when you are abused in this way, it becomes a really persuasive
argument for, for example, the head of what is now called Boko
Haram. Residents of Maiduguri told me--here is what they were
saying. They were saying that if only our government followed
God's law, this kind of thing would not be happening. That is
the argument.
So let us stop a minute. That means that a lot of U.S.
counterterrorism support, when it has the effect of reinforcing
such a government, is in fact counterproductive. It is a
really, I think, critical consideration here.
So what are we doing about it? I think we heard a lot to
that effect earlier. And it is true that more than at any other
time in the decade I have been working on this hard, we are
doing something. But I have to say as critical as they are or
the very critical transparency initiatives that are the focus
of most of the effort and which we heard Mr. Malinowski
discuss--I just do not think they are going to make much of a
dent, certainly not alone. And I will get into sort of why.
But secondly, frankly this issue is still offloaded onto
under-resourced and under-appreciated specialists in the
bureaucracies we have been talking about. It is a subset of INL
at the State Department. It is seen as not a great career
choice at State. I mean, I have just been talking to folks in
the last couple days. At USAID, which spends billions, as we
have been discussing, in corrupt environments, twice as many
officers are assigned to the important issue of LGBT rights as
are assigned to corruption. And--this is probably the most
important--the effect of the anti-corruption efforts or
demarches is overshadowed by the gigantic military and other
types of assistance projects that are delivered. This mismatch
is so great that from the perspective of a corrupt leader, the
U.S. is not even contradictory. It is clear. It is okay with
corruption. The lip service really is just a sop to you.
And so I think, again, Senator Corker, you showed the way.
The question is not so much what is the anti-corruption
programming. It is how are the flagship efforts like Power
Africa addressing the problem.
What can you do? I would actually suggest that rather than
the reporting requirements about what is a government doing to
fight corruption, which will often be a charade, you should be
requiring that for every budget request for a military and
civilian program greater than a certain level there be a
political economy analysis that actually susses out what is the
structure and functioning of the corrupt system in that country
and how is that programming going to mitigate those
possibilities.
I think I have just got two other things.
You should direct State to develop these analyses and put
them into the read-aheads on every DC and PC on the 62
countries I am talking about. Direct both of these agencies to
increase billets and frankly move some of--I know this is not
for you in this committee, but work to move some of the DOD
counterterrorism funding across to deal with some of these
issues. Training, finally, is really critical. It should be
mandatory in both of these agencies that officers do corruption
analysis training.
Thank you very much.
[Ms. Chayes's prepared statement follows.]
Prepared Statement of Sarah Chayes
I'd like to thank Chairman Corker for holding this important
hearing. Just calling it has already had the salutary impact of
challenging officials in the foreign policy and assistance communities
to think through the implications of corruption for their operations.
And my thanks also to Ranking Member Cardin for extending this
invitation for me to testify today.
There is a growing recognition of the impact of corruption on the
U.S. national interest. Signs of the rising awareness can be found in
recent official statements. ``From the Arab Spring to Latin America,''
wrote U.S. Secretary of State John Kerry in May, ``political turbulence
has made clear that governments are unwise to shrug off their citizens'
growing concerns about corruption. . . . It is long past time for the
international community to treat corruption with the seriousness and
attention it deserves.'' \1\
---------------------------------------------------------------------------
\1\ John Kerry, ``Time to Treat Corruption With the Seriousness It
Deserves,'' U.S. Department of State, May 12, 2016, accessed June 28,
2016 at http://www.state.gov/secretary/remarks/2016/05/257175.htm. See
also his remarks delivered at ``Against Corruption,'' a summit hosted
by British Prime Minister David Cameron on May 12, 2016, accessed June
28, 2016 at http://www.state.gov/secretary/remarks/2016/05/257130.htm
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And yet, given the consequences of the type of sophisticated and
systemic corruption that has taken widespread hold in the past quarter-
century, especially its impact on global stability and the legitimacy
of governments--and therefore on the U.S. national interest--the policy
approaches to the problem remain disproportionately weak.
The issue of corruption should be central to foreign and
international trade policy development and should inform the way U.S.
assistance--military as well as civilian--is shaped. Members of
Congress can provide important guidance to the executive branch to help
make that happen.
the scope of global corruption
Given the mesmerizing capacity of numbers to focus our imaginations
these big-data days, it is tempting to seek a dollar figure to quantify
the scale of corruption worldwide. By its nature, of course, that is a
fraught proposition, given the incentives for the corrupt to conceal
their deeds and the facilities the current globalized economy offers
them for doing so.
The non-profit organization Global Financial Integrity, for
example, uses strict methodologies to derive an estimate as to the
quantity of money illicitly departing developing countries annually.\2\
That number, however, leaves out cash transfers, whereas millions
certainly\3\ and doubtless billions of physical dollars are shipped
around by the criminal and the corrupt each year. It also mixes the
proceeds of corruption with the proceeds of other sorts of criminality
in its reckoning. And it misses all corruptly obtained money that is
spent within the countries where it was looted.\4\
---------------------------------------------------------------------------
\2\ Global Financial Integrity (GFI), ``Data by Country,'' accessed
June 27, 2016 at http://www.gfintegrity.org/issues/data-by-country/.
\3\ According to reporting by the Wall Street Journal in 2010, as
much as $10 million per day was leaving Afghanistanat that time, much
but hardly all of it declared. Matthew Rosenberg, ``Corruption
Suspected in Airlift of Billions in Cash from Kabul,'' Wall Street
Journal June 25, 2010. A U.S. intelligence professional told me that
millions of dollars in cash had been flown out of Nigeria in the wake
of the March 2015 election of Muhammadu Buhari as president.
\4\ See GFI's methodological note here: http://www.gfintegrity.org/
issues/illicit-financial-flows-analytical-methodologies-utilized-
global-financial-integrity/
---------------------------------------------------------------------------
But even if it were possible to arrive at a fair estimate of the
sum siphoned into the pockets of the corrupt each year, that would not
constitute an adequate measure of the scope of the problem. At least as
important as the monetary losses corruption inflicts on countries and
their populations is the damage of a less material order.
When a policeman or a doctor or a registrar of deeds demands a pay-
off, he or she doesn't do it politely. The shakedown is typically
accompanied by arrogant contempt. The victims--like that young Tunisian
who lit himself on fire in 2011, setting off the Arab Spring
revolutions--suffer scalding humiliation alongside the theft of their
scarce resources.
The injustice of the way the whole system functions compounds the
injury. It's not as though everyone is poor side-by-side. When people
have to walk past huge mansions with strings of electric lights burning
day and night while the power is cut off to their part of town, or when
they keep being forced to jump aside when a swish SUV splashes past
them on a pitted street, and when they know the money to buy these
things has been skimmed off of public works or development contracts--
or has been extorted from people like them--the sense of personal
injury grows. And with the expanding availability of information
through the electronic media, such juxtapositions are on increasing
display.
Especially galling to many victims of corruption is that the very
officials to whom they might turn to report the abuses are the primary
abusers themselves. As an indignant young Afghan man put it to me in
2009, referring to the police, ``They're supposed to be defending the
law, and they're the ones breaking it!''
Far from representing an accepted ``part of the culture,'' in other
words, as so many Westerners surmise, corruption is experienced as a
bitter betrayal by people I have interviewed in nearly a dozen
countries on three continents, corroding their respect for their public
institutions. They see their governments as a hostile force--against
which, of course, there is no recourse. They and other victims are left
either to suffer or rebel.
All too frequently, and contrary to conventional wisdom, corrupt
practices can't be summed up as the venal behavior of a certain number
of individuals. They represent a sophisticated set of operating
procedures employed by a successful, if sometimes loosely structured or
contentious, network. This is a final point to bear in mind when
considering the ``scope'' of the problem. The street-level foot
soldiers in these corruption syndicates--the cops or the clerks or the
customs officials who shake down ordinary people--are passing part of
their take up the line, just like rank-and-file members of the Mafia.
At the top, the syndicates typically bend parts of the government
apparatus to serve their purposes, be it the tax authority, the justice
sector, the legislature, or the ministry of energy and industry. Other
agencies may pose a threat, or command a fat budget that can be
pillaged. Such was the fate of the Iraqi and Nigerian militaries, both
of which collapsed when challenged in 2014. Their platoons were filled
with ghost soldiers who existed on paper only, their officers
collecting their pay. Officers had been selling materiel, leaving those
troops who did take the field disarmed before the enemy.\5\
---------------------------------------------------------------------------
\5\ See, for example, David Kirkpatrick, ``Graft Hobbles Iraq's
Military in Fighting ISIS,'' New York Times November 23, 2014, or Aryn
Baker, ``Nigeria's Military Quails When Faced with Boko Haram,'' Time
Magazine, February 10, 2015.
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Another way these networks pursue their self-enrichment goals is to
integrate across to the private sector. The principal companies in
industries most likely to benefit from government contracting or
concessions, such as construction or mining or energy, are owned by the
president's daughter or son-in-law or by retired generals. Network
members dominate regulated sectors, such as telecoms and banking. In
Azerbaijan, for example, the family of President Ilham Aliyev owns no
fewer than eleven banks.\6\
---------------------------------------------------------------------------
\6\ Organized Crime and Corruption Reporting Project, ``Azerbaijani
First Family Big on Banking'' June 11, 2015, accessed June 28, 2016 at
https://www.occrp.org/en/corruptistan/azerbaijan/2015/06/11/
azerbaijani-first-family-big-on-banking.html, For a full discussion of
the way kleptocratic elites structure their networks, see Sarah Chayes,
``The Structure of Corruption: A Systemic Analysis,'' Carnegie
Endowment for International Peace, expected July 1, 2016.
---------------------------------------------------------------------------
The structured nature of so many of these systems poses an added
problem of scope for policymakers. It means that remedies aimed at
individual corrupt actors and their facilitators are important but
insufficient. The challenge is one of policy alignment, for at least
minimal consistency across the disparate agencies of the U.S.
government, so as to send a legible message to corrupt networks and
truly affect their incentive structures.
Based on research I have been conducting over the past five years,
I estimate the number of countries that fall into this category of
widespread and systemic corruption at just over 60.\7\
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\7\ The countries are: Afghanistan, Algeria, Angola, Armenia,
Azerbaijan, Bahrain, Bangladesh, Brazil, Bulgaria, Burkina Faso,
Burundi, Cameroon, Chad, China, Colombia, Cote d'Ivoire, Egypt,
Equatorial Guinea, Eritrea, Ethiopia, Guatemala Guinea, Guinea-Bissau,
Guyana, Honduras, Iceland, India, Indonesia, Kazakhstan, Kenya,
Kyrgyzstan, Lebanon, Libya, Mali, Mexico, Moldova, Morocco, Nepal,
Niger, Nigeria, Pakistan, Paraguay, Philippines, Romania, Sierra Leone,
Slovenia, Somalia, South Africa, South Sudan, Sudan, Syria, Tajikistan,
Thailand, Tunisia, Turkey, Turkmenistan, Uganda, Ukraine, Uzbekistan,
Venezuela, Yemen, and Zimbabwe. This list was derived by Carnegie
Junior Fellow Julu Katticaran by aggregating the following indices: The
African Development Bank Country Policy and Institutional Assessments,
Afrobarometer, Asian Development Bank Country Policy and Institutional
Assessments, European Bank for Reconstruction and Development
Transition Report, Economist Intelligence Unit Riskwire and Democracy
Index, Freedom House, Global Integrity Index, Gallup World Poll,
International Budget Project Open Budget Index, Latinobarometro
Sustainability Index, Political Economic Risk Consultancy Corruption in
Asia Survey, Political Risk Services International Country Risk Guide,
Transparency International Corruption Perceptions Index and Global
Corruption Barometer Survey, U.S. State Department Trafficking in
People report, World Justice Project Rule of Law Index, plus my own
qualitative corroboration as to degree of structure.
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how corruption impacts national and international security
It's hard to miss the rising level of indignation at the kind of
systemic and often ostentatious corruption described above. In just the
past year, popular protests have broken out in Azerbaijan, Brazil,
Guatemala, Honduras, Iraq, Lebanon, Malaysia, Moldova, and Venezuela.
Two chiefs of state have fallen.
But not all the victims have been able to express their frustration
in such relatively civil ways. The revolutions of the Arab Spring and
Ukraine represent, at least in part, more determined variations on such
anti-corruption protests. In every country that erupted in 2011,
demonstrators denounced the corruption of detested ruling cliques, and
demanded legal accounting for corrupt officials and a return of looted
assets.
Those revolutions have degenerated into some of the chief security
challenges Washington is currently confronting: a lingering East-West
stand-off on the redrawn Ukrainian frontier, slaughter in Syria, the
implosion of Libya, Yemen and part of Iraq, and an expanding insurgency
in Egypt.
For, corruption fuels the scourge of terrorism too: it gives
credence to the arguments of militant religious extremists such as the
self-proclaimed Islamic State, and has helped them gain recruits or
submissiveness from Afghanistan and Iraq to Pakistan, Central Asia, the
Sahel, and West Africa. The pitch is a simple one, rooted in the
manifest moral deviance of the corrupt: ``They were saying the truth
about the violations committed by government agencies,'' residents of
Maiduguri, Nigeria told me during an outdoor conversation on November
21, 2015, explaining the early preaching of the extremist group Boko
Haram. ``They said, if our constitution were based on the Islamic
system, all these things wouldn't be happening; it would be a just and
fair society.''
It may seem a spurious argument, especially in light of the
behavior of extremist organizations when they gain power (including the
government of Iran). But it can be awfully persuasive to a young
Nigerian man whose sister has just been fondled by a professor as the
cost of matriculation. Indeed, a glance at Western history, including
our own, indicates that militant puritanical religion is a frequent
reaction to abusively corrupt governance.\8\
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\8\ For a complete discussion of how puritanical religion is often
a reaction to severe corruption, see Sarah Chayes, Thieves of State:
Why Corruption Threatens Global Security (New York: W.W. Norton, 2015).
---------------------------------------------------------------------------
The anger is not just directed against host-country governments,
either. When the United States is seen as intimately associated with
the corrupt practices, victims not unreasonably assume our country
explicitly approves them. ``The Afghan government is your face,'' a
member of my manufacturing cooperative in downtown Kandahar,
Afghanistan told me one day. ``If it's pretty or it's ugly, it's your
face.''
In light of this reality, counterterrorism partnerships that
reinforce abusively corrupt governments may be doing more harm than
good. They may lead to the radicalization of a dozen people for every
one that is killed, and excite anger against the U.S. patron as well as
the venal local client.
Other security challenges that are inflamed by corruption include
chronic outbreaks of violence due to rivalry among competing
kleptocratic networks (as in Somalia or the Democratic Republic of
Congo, for example) \9\ and the reinforcement of transnational
organized crime structures through their interpenetration with corrupt
governments in their home bases (as in Central America or the Balkans).
It would not be unreasonable to ascribe even some of the adventurism of
China and Russia to corruption, and an effort to distract a restive
population from its grievances via an appeal to nationalist feeling.
---------------------------------------------------------------------------
\9\ See Alex de Waal, The Real Politics of the Horn of Africa:
Money, Politics, and the Business of Power (New York: Polity, 2015).
Note de Waal uses the terminology of the marketplace, rather than
corruption, but the his description applies.
---------------------------------------------------------------------------
the effectiveness of current anti-corruption efforts
There is no question that corruption has attracted measurably
increased policy attention over the past year, not just in words but in
deed. Some 30 investigators have been added to the U.S. Department of
Justice's anti-kleptocracy unit; the State Department's regional
bureaus now feature an anti-corruption assignment; and the United
States is participating in several multinational law enforcement
initiatives aimed at information sharing and asset recovery.
Still, given the dimensions of the problem, the approaches adopted
to date have been sadly inadequate.
Corruption, first of all, is typically viewed as a functional
specialization, and a poorly rewarded one at that. It is subcontracted
to often marginal units within the State Department or USAID: the
Bureau of International Narcotics and Law Enforcement Affairs, for
example, where it counts, presumably, as a subset of law enforcement.
According to two young officials reflecting on the atmosphere within
the State Department over the past several months, the mention of
corruption is met with ``rolled eyes,'' in one bureau; elsewhere
interest in the topic is seen as a career-killer.
At USAID, an organization whose business model entails investing
millions of dollars per year into severely corrupt environments, a
comparison between the number of personnel assigned to LGBT rights,
clearly a vital issue touching fundamental human dignity, and the
number of people assigned to corruption might be instructive.
Where steps are being taken, moreover, they are scattershot.
Decisions to pursue kleptocracy investigations are made by front-line
investigators, on the sole basis of the quality of evidence that has
come to hand, not any deliberate strategy. The focus on beneficial
ownership or transparency initiatives carries with it the implication
that corruption is the work of disconnected individuals, who can be
taken on individually. Transparency becomes an end in itself, when too
often it fails to result in ultimate accountability. Support to civil
society groups is provided in blissful isolation from the
countervailing incentives that other aspects of U.S. engagement may be
providing to a corrupt leadership. Sometimes the contradiction puts
beleaguered activists or reformist government officials in impossible,
even life-threatening, situations.
Indeed, it is this disconnect that likely precludes current U.S.
anti-corruption programming from having any noticeable impact. When
Washington is providing millions of dollars in military and development
assistance, or when the CIA station chief is handing over a similar sum
per month to a corrupt leader in private meetings, as has been the case
in Afghanistan,\10\ a few hundred thousand dollars spent on capacity
building for the inspector general of police, for example, or to
support a civic group agitating for budget transparency, is almost
laughable. Indeed, viewed from the perspective of the corrupt leader,
U.S. policy is hardly even contradictory; it's clear: the United States
approves of his venal practices, and the occasional public scolding or
paltry anti-corruption programming must surely just be designed to
check a box or mollify Congress, rather than to convey any meaningful
message as to U.S. policy.
---------------------------------------------------------------------------
\10\ Matthew Rosenberg, ``With Bags of Cash, CIA Seeks Influence in
Afghanistan,'' New York Times, April 28, 2013.
---------------------------------------------------------------------------
It is in this light that the U.S. Congress should frame its
questions to the military and civilian assistance communities. It is
not so important to ask what is being spent on what programs designed
to curb corruption, but rather what steps are being taken to shape
flagship projects, such as Power Africa, or our military partnership
with Ethiopia, in such a way that their implementation and outcomes
don't inadvertently benefit the kleptocratic network.
recommendations
The Foreign Relations Committee can push Congress to help remedy
some of these deficiencies in approach by taking the following steps.
For every assistance package (USAID, INL, and State
Department-overseen military programming) of significant size,
require that a systemic political economy analysis, depicting
the structure of corrupt networks, the main revenue streams
they capture, and their key external enablers and facilitators
be completed and submitted to Congress alongside the funding
request.\11\
---------------------------------------------------------------------------
\11\ For a template for such an analysis, see Chayes ``Structure.''
Require that such a request include a strategy for
mitigating any reinforcement the programming might provide to
---------------------------------------------------------------------------
the corrupt governing system.
Require that budgets for projects that, due to some other
security or diplomatic imperative, are knowingly launched in
severely corrupt environments devote a greater than normal
proportion of the funds to monitoring and evaluation; require
that the RFP or project design include provisions for citizens'
oversight of project delivery, and suspension or cancellation
where misuse of funds is discovered. Improvement of governance
should be considered as an equally important goal of such
projects as their stated objectives.
Redirect some appropriations away from the already well-
resourced U.S. Department of Defense counterterrorism or
countering-violent-extremism programming toward civilian-led
activities that can help curb partner governments' corruption
and dissociate the United States from it.
Direct the U.S. Department of State and USAID to increase
the number of billets, including intelligence billets, for
personnel deeply versed in corruption and its implications for
the broad range of programming and diplomatic relations. (And
direct USAID to spend its allocated anti-corruption budget to
this effect, instead of passing it along to State.)
Direct the U.S. Department of State to develop mandatory
training on the implications of corruption, its structure and
functioning, and ways in which diplomatic relations, trade
promotion, and civilian and military assistance interact with
it, for all political, economy, and political-military
officers.
There are a variety of other actions Congress could take that lie
outside the purview of this Committee. I would be happy to elaborate as
appropriate.
Please accept my gratitude for the opportunity to contribute to
this deliberation.
The Chairman. Thank you very much. Thank you both for that
testimony.
Senator Cardin?
Senator Cardin. I also want to join the chairman in
thanking you for the testimony. And I agree with much of what
both of you have stated.
Ms. Chayes, in regards to your recommendations on political
economy analysis, I think that would be very helpful, and we
will certainly take a look at that particular proposal.
Let me ask both of you. There are countries that have
serious corruption problems that are our strategic partners in
the war against terror. We provide foreign military assistance
to these countries. How would you urge us to use that
relationship where we are providing military assistance to
countries that have serious corruption issues? How should we
deal with that?
Mr. Gershman. Senator Cardin, first of all, while you were
out----
Senator Cardin. I heard you. Thank you very much for your
compliment.
Mr. Gershman. Yes. And I want you to know how deeply we
feel that because of the importance of the Magnitsky Act and
everything you have done on that.
My own feeling is that the research that has been done on
corruption and dealing with the problem of corruption
underlines the fact that building an enlightened citizenry with
collective action capacity is one of these most important
things that can be done in fighting corruption and kleptocracy.
And this can be done through strengthening civil society,
investigative journalists, and so forth. And where we have this
kind of a strategic relationship, I think it gives the United
States greater leverage in the relationship to keep the space
open for civil society to develop and for investigative
journalists to report. Obviously, we can use our own leverage
on those governments to try to influence their behavior, but I
think the most important thing we can do is to protect and open
the way for the society in those countries to emphasize
normative values, which is the most effective way ultimately to
combat corruption.
Ms. Chayes. On the political economy analysis, I can help
offline with what that might look like, what the components
might be.
I agree that civil society is really important, but I
sometimes feel like we are offloading all of the responsibility
onto often beleaguered and very fragile civil society
organizations. I mean, today I just had a conversation with
somebody working in the Pol-Mil Bureau in State, and this
person said literally she raises the word corruption,'' and
people roll their eyes. So it is not yet plugged into the
mainstream planning on this most critical issue.
We have watched billions of dollars go into deliberately
disabled militaries in Iraq, in Afghanistan, et cetera. I
think, number one, Pol-Mil needs to go through some of this
training. And the same goes for the Defense Department in CT.
Number two, in countries like this, our military assistance
should have as large a governance component as it does a
shooting component. In other words, part of the objective needs
to be to teach people in these militaries that how they treat
their populations is as important in dealing with terrorism as
how well they shoot terrorists.
Senator Cardin. Thank you.
Mr. Gershman, I did hear your compliment, and thank you
very much for that.
I want both of you to respond to the two largest countries
of concern, and that is Russia and China. We spent a lot of
time in Russia. The Magnitsky bill--we are looking at making
that global. It has passed the Senate but it has also passed
the House committee, and we are working on that. The amount of
corruption in both of those countries is alarming. What more
can the United States do to advance good governance and anti-
corruption issues in Russia and in China?
Mr. Gershman. Senator Cardin, that is obviously a very
tough question. These are two very, very difficult countries.
I note--and I did not really talk about China even in my
written testimony, but in the Panama Papers, it reveals that
the family members of eight senior Chinese communist officials
own companies abroad from China. So despite their anti-
corruption campaign, which is really internal politics, the
abuse is enormous.
And with Russia, it is such an unpredictable and in my view
unstable situation. And I think there is a tendency on the part
of people here to give up on internal forces in Russia, to say
that they have passed these laws and you cannot do anything. I
mean, they have declared us to be undesirable. But that has not
stopped us, and we are going forward. And there are people in
Russia who have enormous courage and are continuing, and you
never know what is going to happen. I believe that and I was
told by the U.S. Ambassador that Putin watches videos of
Qaddafi. He feels very, very insecure. So these are
unpredictable circumstances, and we cannot abandon the internal
forces, weak as they are right now, who offer an alternative to
this kind of system.
And I would say the same goes for China. The Xi regime
itself is feeling deeply insecure about its own power. There
were those incidents in March, as you may remember, where on a
regime website an open letter appeared calling upon Xi to
resign.
So these are unstable situations. And in those types of
situations, I do not think we should give up on the support for
people inside the system who want to have a system based upon
universal values, which is what they call what they want. They
believe in universal values. And so I think we have to defend
those universal values with much greater vigor than we have.
Senator Cardin. So, Ms. Chayes, I want you to respond, if
you could. It is interesting. In Russia, they have done
everything they can to shut down civil societies. In China, it
is a challenge for civil societies. We have little direct
leverage from the point of view of our resources. We do have
leverage in our relationship with China. Any suggestions?
Ms. Chayes. So I would look a little bit at the different
complexions of these two countries. I would actually take Xi at
his word and say, look, we recognize this priority that you
have given to anti-corruption. Here is what some of the
implications of that would be. And that means not just
corruption inside China. It also means who is China dealing
with and how elsewhere in the world, in particular in Africa
and in Central Asia. So that is sort of where I would go with
that, and that is a diplomatic challenge. But it means this
becomes one of the major issues for bilaterals with China.
With Russia, I think that it is important to start
looking--again, these networks, integrated transnational
networks. So let us take the banking system in Moldova, which
is a pretty important, if small, ally of ours. Well, the
banking system in Moldova is an external network member of
Russian organized kleptocratic networks. Right? So let us look
at how--other ways. I mean, again, Magnitsky is fantastic. But
what are some of the other ways that we can make that type of
activity more costly and painful?
Senator Cardin. Thank you both.
Mr. Chairman, I would ask unanimous consent that the
statement from the Department of Justice, which I understand we
recently received, be made part of our record.
The Chairman. Without objection.
[The prepared statement of Department of Justice is located
in the Additional Material Submitted for the Record section at
the end of this publication.]
The Chairman. You made a comment about Boko Haram. It was
an anecdotal statement, I know, by someone in Nigeria I assume.
So we do help other governments with anti-terrorism and we are
viewed as assisting governments then that are corrupt, and in
some ways it creates adverse feelings towards our own country.
Again, I know you do not know every opinion in the world
that exists, but here we are talking about China. We are
talking about Russia. We could talk about Venezuela. We could
talk about North Korea. We could talk about a lot of countries.
Generally speaking, how do you think people outside of our
own country view the United States as it relates to these types
of issues?
Ms. Chayes. I have spent a lot of time on the ground, and I
have to say we are not viewed very well. That is really back to
what I was saying about the disproportion between the type of
support that is provided highly to kleptocratic governments and
then the kind of anti-corruption maybe lip service that is
paid. You know, when you have got the United States
Government--and we have communicated about this issue in the
past. When the United States Government is providing suitcases
or bags of cash in private meetings to a highly corrupt
president, the people of that country quite naturally say, oh,
you want the corruption. You are in favor of the corruption.
The Chairman. And that public official talks about it
publicly.
Ms. Chayes. Correct, correct. That was an egregious
example, but I think it is happening all around the world.
And so I think at the moment United States credibility is
extremely weak on these issues. Extremely weak, to the point
that, as I said before, I think some of the efforts that we are
doing are so flimsy in comparison to the apparent support
provided to corrupt governments that it looks like plausible
deniability in a way. It looks, as I say, like a sop to you
Members of Congress. And so I think we have got a really long
way to go.
You know, just a couple of the examples that were given--
Honduras is one. I mean, there is no way that that can be
considered a government that is trying to improve on
corruption. Egypt is another. Egypt is a really big problem in
the whole terrorism context.
The Chairman. Mr. Gershman, any additional thoughts in that
regard?
Mr. Gershman. Well, Senator, in my testimony I used the
term the ``objective alliance'' to describe the relationship
between the kleptocrats and the financial system. You saw
evidence of this in the ``60 Minutes'' program about global
witness where somebody impersonating a corrupt figure in Africa
went to 14 New York law firms to get help in avoiding the law
really, and 13 of the 14 law firms were prepared to help him.
Only one said no. So there is a kind of hypocrisy there,
especially if we are at the same time preaching and promoting
democratic values.
So I think one thing that we could do is begin to address
this objective alliance--Senator Menendez was getting at it
when he focused attention on the issue I raised about the
enablers. And there it is a matter of transparency. It is a
matter of naming and shaming. It is a matter of figuring out
ways in which through law we can prevent the receipt of these
funds.
I mean, we support people in these countries, investigative
journalists, civil society activists, and so forth, who are
trying to prevent the theft of the money, but we have to do
more to prevent its receipt in our financial system, which is
preceded by a laundering process and then all the other things.
I think if we can be more consistent in our behavior by
breaking this link between the kleptocrats and our own system,
I think that would do some good.
The Chairman. Well, let us follow up a little bit on that.
I mean, we have U.S. national interests all over the world. It
seems to me that some of the countries we deal with have
cultures that are somewhat more like ours. Some of them are
very different. And we have to deal with the world as it
exists, not as we would wish for it to be. We hope to get it to
a different place through our involvement and leadership.
But let us go back to Afghanistan, which I think is just a
great example. I know Ms. Chayes has spent a lot of time there.
Afghanistan is a country, whether we like it or not, whose
culture is built, has been built on corruption for years at
almost every level.
And when we were referring, by the way, to public
officials, we were not referring to the current public
official, leader of the country, there who I do think is, to
the extent he can, genuinely trying to deal with the corruption
issue.
But, for instance, in Afghanistan, just to use that, lots
of U.S. dollars are flowing into there, lots of other
countries' dollars are flowing in there. If you went to zero
tolerance, as it relates to corruption, I think a fair analysis
would say that the government would likely fail pretty quickly
there. I am just being fair in my assessment. So how do we deal
with that? So here we are dealing within a country that we know
tremendous corruption takes place. I am sure we are being
viewed by the citizens there as enabling corruption, but
corruption is a way of life there, not that we are directly
involved in corruption necessarily today, but let us face it in
some ways have been for influence reasons.
How do we deal with that? The world is not exactly the way
we would wish for it to be, and we have some pretty big
national interests at stake.
Ms. Chayes. I think it really has to do with shaping the
broad range of our approaches. So it means you are not in a
position where it is either a blank check or cut off--or zero
tolerance. But you say, okay, we are now working in an
environment where this is a very significant aspect of how
things are done and a very significant aspect of our national
interests because it is driving people into the arms of the
enemy.
Therefore, in that case, if we are providing education
funding, for example, the number of schools is no longer the
only measure that we use. It is the number of schools and the
lack of shakedowns by teachers against students. Right? That
becomes equally important to the number of schools. And then
you do the political economy analysis, figure out, do network
analysis and figure out, wow, who are some of the really
critical individuals who may be, for example, a nexus between
the criminal world, the Taliban world, and the government.
There are individuals that were triple-hatted in those
networks. And you say these are the people who are priority for
some of the types of sanctioning that you gentlemen were
discussing earlier, for example, visa bans. It does not have to
be throw the guy in jail. There is a whole variety--at least do
not fly him around in our helicopters and begin, therefore, to
use the programming and the interactions that we are having as
a way of changing the incentive sub-structure operating on
them.
The Chairman. Mr. Gershman?
Mr. Gershman. Senator, when I was speaking earlier about
China, I mentioned that the people who are fighting against
corruption identify themselves with universal values, and this
is millions upon millions of people in China. The regime would
promote nationalism, saying we are different from the West.
This reminds me of the debate in the 1990s over Asian values
when Li Kuan Yew would promote that line saying democracy was
not consistent with Asian values, which are more top down and
do not emphasize the individual as much, and Kim Dae-jung came
back with very powerful and articulate arguments rooting these
universal values in Asian culture.
When we created the world movement for democracy in India,
a non-Western country, in 1999, Amartya Sen came to the meeting
and gave a talk where he talked about how the rootedness of
Indian culture in values having to do with individual rights
and the accountability of government officials.
So these are really universal values, and I think what is
going on today in the world is a struggle between people who
are affirming these values, which are not narrowly Western
values but are universal values embodied in the universal
declaration, and regimes that would like to use the argument of
traditional culture as being inconsistent with these values to
defend what they are doing.
And I do not think we should let them get away with it. I
think we should affirm our values as universal values and then
identify with and support the people in these countries and
cultures that want to progress and try to adapt their system to
the modern world which requires transparency and the rule of
law if these countries are going to develop economically
because it is in the interest of these countries to have the
rule of law, to have transparency, to observe these so-called
universal values. And I think we have allies there, and I do
not think we should assume that because of cultural
differences, somehow they are at the other side of the world
and we do not have anything in common with them.
The Chairman. I think that is a great assessment.
I would add that there is another tension at work here, and
that is the tension between expediency and going at it sort of
the long, hard way. I think that sometimes we allow certain
agencies within our government to operate, especially when we
have concerns about U.S. lives at stake and military operations
that may be underway. The expediency of enabling additional
corruption versus doing the work in a much more difficult way,
which by the way, could in fact, in fairness, cause additional
U.S. lives to be at greater risk in the short term, which is
obviously something that we do not want to see happen. So I
think we have numbers of tensions that exist around this issue.
You look like you want to say something.
Senator Cardin. I just really wanted to thank the
witnesses. The chairman can read me very well. I just really
want to thank the witnesses and thank the chairman, if I might,
for this hearing. It has been typical of Senator Corker's
leadership in this committee, if I can just take one moment.
This hearing is particularly important as we deal with
corruption and how we can come together with greater
administration action and perhaps legislative action to help.
This committee has taken on many tough issues in this
Congress. We have taken on oversight of important foreign
policy decisions. We have spoken out in many regions and in
many countries with resolutions from this committee that
clearly go on the record as to our concerns. We have been able
to give additional tools to the administration to deal with
human rights violations, to deal with corruption, and to deal
with nuclear proliferation. And we have done that without ever
having a partisan division in this committee. I do not think
any other committee in the Congress has the type of record that
we have in avoiding the pitfall of an election year politics.
And I agree with the chairman's assessment. We are going to
take a look at the corruption issue. We are going to take a
look at whether we can get additional tools done. We are going
to do it in a bipartisan manner, and we are going to do it
outside of the politics of this particular year. I just really
wanted to thank the chairman for calling this hearing and for
his leadership on these issues during the course of this
Congress.
The Chairman. Well, thank you, and I appreciate you and
your staff pressing for these types of hearings and this
hearing in particular. And thank our outstanding witnesses not
only for being here today but the advice and knowledge and
wisdom that you share with us in our offices from time to time.
If you would, we will have some written questions. I know a
number of members left because our voting schedule ended last
night. If you could respond fairly promptly, as you will, I
know. The record will be open until the close of business on
Monday. We thank you both for your leadership on this issue and
so many others.
And with that, the committee is adjourned.
[Whereupon, at 12:24 p.m., the hearing was adjourned.]
----------
Additional Material Submitted for the Record
Statement Submitted by the U.S. Department of Justice
introduction
The Department of Justice (the Department, DOJ) appreciates the
opportunity to submit this Statement for the Record as Congress
considers the important and complex topic of combatting international
corruption. The Department has a strong commitment to, and record of,
fighting overseas corruption, both through our own law enforcement
actions, and through building the capacity of our foreign law
enforcement partners to take actions to fight corruption themselves.
As explained below, however, DOJ does not currently receive direct
funding from Congress for our overseas capacity-building programs, and
receives only a fraction of the funding necessary to cover the
headquarters costs of administering those programs. Instead, DOJ must
apply to the State Department or other U.S. government funders to
receive foreign assistance funds for its capacity-building programs,
and must cover the majority of its headquarters costs by charging
overhead in its Interagency Agreements with the State Department. The
Senate Commerce, Justice, Science, and Related Agencies (CJS)
Appropriations Subcommittee has noted that it is ``concerned'' about
``the instability of budget and staffing challenges'' faced by DOJ's
overseas capacity-building programs under the current funding model.
The Administration is committed to seeking a solution to this problem,
to ensure that DOJ can continue to help other countries fight
international corruption, to the benefit of their citizens and our own.
doj's anti-corruption legislative proposals
In May 2016, DOJ put forth legislative proposals that, if enacted,
would strengthen our anti-corruption authorities and close the gaps in
U.S. law that are open to abuse by bad actors. Specifically, DOJ
proposed legislation that would increase transparency into the
beneficial ownership of companies formed in the United States and would
provide additional law enforcement tools to combat corruption and money
laundering. The legislation would enhance law enforcement's ability to
prevent bad actors from concealing and laundering illegal proceeds of
transnational corruption and would require reporting of beneficial
ownership of corporations, which would aid law enforcement in the
prevention and investigation of financial crimes.
doj's anti-corruption programs
DOJ's commitment to investigating and prosecuting international
corruption is reflected in a number of different programs, including:
Foreign Corrupt Practices Act (FCPA) Unit: DOJ's FCPA Unit consists
of a select group of approximately 30 prosecutors. The unit
works with the Federal Bureau of Investigation's (FBI)
International Corruption Unit and its three dedicated
International Corruption Squads, as well as other investigative
agencies, to investigate and prosecute individuals and
corporations that pay bribes to foreign officials in order to
obtain or retain business. The FCPA Unit routinely works with
its foreign law enforcement partners in corruption cases, in
countries such as Belgium, Brazil, Colombia, Cyprus, France,
Germany, Indonesia, Ireland, Italy, Latvia, Luxembourg, the
Netherlands, Norway, Panama, the Philippines, Saudi Arabia,
Singapore, Sweden, Switzerland, Taiwan, and the United Kingdom,
among others. Recent case resolutions include United States v.
Alstom S.A. et al. ($772,290,000 criminal penalty), United
States v. VimpelCom ($230 million criminal penalty and a global
penalty and disgorgement of $795 million with the Securities
and Exchange Commission (SEC) and Dutch Prosecution Service),
and United States v. Roberto Rincon et al. (guilty pleas of six
individuals who paid and received bribes).
Kleptocracy Initiative: DOJ's Kleptocracy Unit consists of
approximately 16 experienced and highly-trained prosecutors who
work with agents from the FBI, the Internal Revenue Service
(IRS), and the Department of Homeland Security (DHS), and with
U.S. Attorney's Offices around the country. The Unit
investigates and prosecutes acts of high-level foreign
corruption--such as bribery, embezzlement, and money
laundering--that affect the U.S. financial system. The Unit
also brings asset recovery actions to forfeit the proceeds of
foreign official corruption in which, as appropriate, the
proceeds are returned for the benefit of the citizens of the
foreign countries that were victimized by that corruption.
Recent successful cases include those leading to the recovery
of approximately $30 million in bribe proceeds paid to a former
President of the Republic of Korea, $30 million in embezzled
and extorted funds obtained by the Second Vice President of
Equatorial Guinea, and approximately $115 million in corruption
proceeds derived from illicit payments to senior officials of
the Government of Kazakhstan. Through these and other asset
recovery actions, the Kleptocracy Initiative has restrained
more than $1.8 billion worldwide, and will soon have returned
more than $150 million to victims of foreign corruption.
Prosecution of Fraud on U.S. International Assistance Programs:
DOJ's Fraud and Public Integrity Sections investigate and
prosecute individuals who embezzle, steal, or obtain by fraud
or bribery U.S. federal program funds, including foreign
assistance funds. Recent cases include: United States v. Lee,
et al. (U.S. military officers, military contractors, and
related co-conspirators convicted of participating in a scheme
involving the payment of over $1.27 million in bribes in
exchange for obtaining bottled water and other contracts at
Camp Arifjan in Kuwait); United States v. Kline (U.S. soldier
charged with soliciting gratuities from Afghan contractors
doing business with the U.S. military); and United States v.
Green (U.S. contractor charged with soliciting bribes from an
Afghan firm seeking contracts with the U.S. Agency for
International Development (USAID) relating to agricultural
development).
doj's international partnerships to fight corruption
DOJ cannot fight international corruption alone; it is essential
that we have strong and competent foreign counterparts, both to
cooperate in our investigations and prosecutions, and to investigate
and prosecute their own corruption cases. To achieve this end, DOJ has
pursued three strategies:
First, Build an International Consensus and Framework to Fight
Corruption
DOJ has taken the lead in working with the State Department to
develop multilateral organizations focused on fighting corruption,
including the Organization for Economic Co-operation and Development
(OECD) Working Group on Bribery; and, with the strong support of the
Senate Foreign Relations Committee, DOJ worked with the State
Department to create a key multilateral instrument--the UN Convention
Against Corruption--which establishes that the fight against corruption
is a universal goal, and which furthers that goal by setting out
agreed-upon offenses that must be criminalized as well as preventive
policies that should be followed.
Second, Build Effective Law Enforcement Cooperation Mechanisms
Again with the support of the Senate Foreign Relations Committee,
DOJ and the State Department have negotiated and entered into many
bilateral mutual legal assistance and extradition treaties that are
essential to international investigations and prosecutions of
corruption; DOJ has also vastly expanded the size of its Office of
International Affairs and established the Central Authorities
Initiative to help other countries improve their ability to cooperate
in international investigations.
Third, Build the Capacity of Foreign Counterparts to Investigate and
Prosecute Corruption
Corruption, left unchecked, can destabilize societies, leaving
them--and, by extension, the United States--vulnerable to transnational
organized crime and terrorism. Therefore, to protect both foreign
citizens and our own, it is critical that in addition to bringing our
prosecutions, we enhance the capability of foreign countries to fight
corruption within their societies. One of the most effective ways of
accomplishing this goal is through long-term capacity-building
partnerships between foreign and DOJ prosecutors and law enforcement
experts. DOJ has two offices dedicated to this task: the Office of
Overseas Prosecutorial Development Assistance and Training (OPDAT) and
the International Criminal Investigative Training Assistance Program
(ICITAP). OPDAT and ICITAP are funded principally via interagency
agreements with the State Department. By sending federal prosecutors
and law enforcement experts to reside and work with their foreign
counterparts for multi-year periods, OPDAT and ICITAP have achieved
remarkable results--including the creation of dedicated foreign anti-
corruption task forces--at very small cost to the United States. The
work that OPDAT and ICITAP have done in this area has frequently
resulted in increased credibility and public legitimacy of the foreign
government's criminal justice systems.
For example:
In Honduras, OPDAT Resident Legal Advisors recently worked with the
local prosecution services on several significant anti-
corruption cases, including the prosecution of a former judge
for receiving bribes in exchange for acquitting a notorious
drug dealer of murder charges, for which the judge was
ultimately sentenced to five and a half years' imprisonment;
and the seizure of millions of dollars in assets from a board
member of the Honduran Institute for Social Insurance who stole
over $350 million from the agency and who remains a fugitive;
In Montenegro, ICITAP advisors have provided training and
mentorship to the Organized Crime and Corruption Unit, as well
as to the Financial Investigations Unit within the Criminal
Police, including helping the Special Prosecutor seize over 20
million Euros in criminal assets that will be returned to the
government of Montenegro;
In Albania, OPDAT Resident Legal Advisors have provided case-based
mentoring to the Albanian Serious Crimes Prosecution Office
that has resulted in the arrests of two prosecutors and one
police officer in unrelated corruption cases centered around
the acceptance of bribes in exchange for providing favorable
dispositions to criminals in pending court matters;
In Indonesia, OPDAT Resident Legal Advisors have provided training
and case-based mentoring to the Attorney General's Office and
the Corruption Eradication Commission that resulted in the
conviction of a provincial governor, ten mayors, and a number
of other political figures for bribery. In addition, ICITAP
advisors provided analytical training to the Financial
Transaction Reports Analysis Center which enabled the Center to
conduct over 100 corruption, asset forfeiture, and fraud-
related financial investigations in recent years.
In 2016, Congress appropriated an increase of $1.5 million for
OPDAT and ICITAP, bringing the current annual direct funding level to
$4.1 million. The 2017 President's Budget includes a request for an
additional $5 million in base resources for headquarters support. As
presently structured, most of the funding spent annually on OPDAT and
ICITAP headquarters and field operations (in excess of $100 million)
comes from Interagency Agreements with the State Department. Most
critically, there remains a requirement for appropriated base funding
to stabilize headquarters operations. The Senate CJS Subcommittee
restated again this year that it ``remains concerned about the
instability of budget and staffing challenges faced by [OPDAT] and
[ICITAP] under the current funding structure provided via the
Department of State.'' We appreciate Congress's support as the
Administration continues to implement and refine whole-of-government
security sector assistance programs and we continue to seek more direct
headquarters support funding for OPDAT and ICITAP so that they can
continue this critical anti-corruption work.
conclusion
The Department of Justice remains committed to fighting corruption
domestically and internationally through law enforcement action and by
providing capacity-building assistance to foreign governments. The
Department looks forward to working with the Congress to identify
additional funding to improve its anti-corruption programs and thanks
the Committee for its interest in these critical issues.
__________
Responses of Gayle Smith to Questions for the
Record Submitted by Senator Rubio
Question 1. USAID has indicated that congressional restrictions on
providing police assistance, particularly section 660 of the Foreign
Assistance Act of 1961, limit its ability to align its anti-corruption
prevention and education programming with enforcement efforts.
Has USAID updated its anti-corruption strategy since 2005?
To what extent does section 660 still present an obstacle
to whole-of-government anti-corruption programming?
Answer. Rather than update the 2005 anti-corruption strategy, USAID
has incorporated its strategic approach to anti-corruption efforts
within the broader strategy for Democracy, Human Rights and Governance
(DRG), which was approved in 2013. The Agency's DRG Strategy focuses
DRG programming around efforts proven to build more transparent and
accountable government institutions. The DRG strategy emphasizes the
need to integrate good governance elements into Agency efforts to
alleviate extreme poverty, promote food security, improve health,
education, and advance other development goals. It focuses efforts
primarily on preventive measures, including efforts to boost
transparency and effectiveness of public sector functions that are
vulnerable to corruption, including procurement, public spending and
investment, and public service delivery.
The new strategic approach also includes innovations such as
Political-Economy Analysis (PEA) and other tools that ensure USAID is
using a broad, critical lens to address corruption. Applied PEA is a
field-research methodology used to explore not simply what and how
things happen in development programming, but why things happen. It
results in specific programmatic recommendations for a Country
Development Cooperation Strategy (CDCS), project or activity design,
including suggestions for course correction during implementation, or
an evaluation. For example, USAID missions have used the Applied PEA
approach to delve deeper into the incentives and power dynamics in
sectors such as health and economic growth. The results have been used
to design new activities or adjust programming to better fit the local
context. These multilateral initiatives help support USAID's own
anticorruption efforts by leveraging funding from, and coordinating
activities with, other bilateral and multilateral donors and
international organizations working to combat corruption and promote
global standards for transparency and accountability.
In addition, USAID works at the multilateral level on
anticorruption efforts to promote global standards for transparency and
accountability, including the Extractive Industries Transparency
Initiative, the Open Government Partnership, and the Effective
Institutions Platform.
As a result of several changes in law, USAID can carry out a range
of anti-corruption programming with or through police and other law
enforcement forces notwithstanding Section 660 of the Foreign
Assistance Act or under specific statutory exceptions to that
restriction. As such, Section 660 presents little obstacle to USAID
anticorruption programming. USAID has embraced these changes and
actively engages law enforcement actors and institutions, as well as
tax and customs agencies in anti-corruption efforts. In Central America
and the Caribbean, for example, USAID programs include support for
community-based policing programs.
In addition, Agency policies, including the ``Assistance for
Civilian Policing'' policy, and practice guides, such as ``The Field
Guide for USAID Democracy and Governance Officers: Assistance to
Civilian Law Enforcement in Developing Countries,'' include guidance on
how to address corruption when providing assistance to law enforcement.
Question 2. With how critical each U.S. dollar spent abroad is,
what systems are currently in place to ensure our foreign aid is not
itself stolen by corrupt officials?
Answer. USAID is committed to accountability, transparency and
oversight of U.S. government funds and has a number of mechanisms for
ensuring funds are not lost to waste, fraud or abuse. The Agency relies
upon its financial systems and controls as well as internal and
independent audits to effectively manage, track and safeguard funds.
Prior to awarding funds, USAID Contracting/Agreements Officers make
a pre-award responsibility determination to confirm financial and
programmatic capacity to receive U.S. Government funding. They also
ensure that regulatory language from the Federal Acquisition Regulation
and Agency policy is included in each award. This regulatory language
enables oversight and performance monitoring.
During the implementation of an award, USAID personnel closely
monitor the contractor's or grantee's performance through a review of
quarterly reports, site visits, and other means to oversee program
performance. USAID personnel are trained to scrutinize all invoices
submitted by awardees prior to approval. If there appear to be
inconsistencies in the vouchers or concerns related to billed costs,
these issues are elevated for additional review. External program and
project evaluations of awards at various phases of implementation
constitute additional oversight tools with respect to program costs and
performance.
In the case of grant funds disbursed directly to host or partner
governments, USAID utilizes the Public Financial Management Risk
Assessment Framework (PFMRAF), a risk management process to identify,
mitigate and manage the fiduciary risks encountered when considering
direct assistance to foreign governments. It focuses on fiduciary risks
to which USG funds may be exposed when administered directly by the
public financial management systems of a country. This includes review
of national-level entities, such as the Ministry of Finance, as well as
sector-specific entities with whom we implement development activities,
such as the Ministry of Health. The PFMRAF is a rigorous process
designed to make sure that foreign assistance is not lost to waste,
fraud, or abuse--assessing not only the public financial management
environment of the partner country government, but also governance and
public accountability factors, including legal and regulatory matters,
as well as political will for non-corrupt, transparent, accountable,
and effective governance.
In addition, USAID's Office of Inspector General (OIG) provides
independent oversight of development programs around the world. The OIG
carries out audit and investigative activities in about 100 countries,
executing on this mission from offices in 12 locations, from Haiti to
the Philippines.
Question. In the Western Hemisphere we've had several instances of
private U.S. charitable contributions being wasted or exploited by
local officials. Does USAID or any other element of the U.S. government
work with private charitable entities to help them ensure that their
activities in other countries are not wasted or counterproductive?
Answer. USAID supports a number of efforts in Latin America and the
Caribbean that help ensure donor contributions are not wasted or
misused. For example, USAID missions in this region regularly
participate in donor roundtables to discuss the effective use of
resources, including how to avoid duplication of efforts or
mismanagement of funds. In Honduras, the USAID mission co-hosts an
annual meeting that includes the participation of charitable groups to
better coordinate the effective use of donor resources and promote long
term sustainable assistance strategies.
In addition, USAID supports the Private Voluntary Organization
(PVO) Registry, an online database of tax-exempt, nonprofits that have
been vetted against the eight conditions of registration set out in 22
CFR 203. This database is open to the public and provides an overview
of each registered organization's mission, expertise, geographic
presence, activities, budget, and contact information. Each year, data
provided by these PVOs are compiled and released as the Report of
Voluntary Agencies Engaged in Overseas Relief and Development. All
organizations meeting the definition of a PVO and looking to compete
for grant funding from USAID are encouraged to register. This helps to
streamline the review and approval of funding for some of USAID's NGO
partners.
In addition, the Agency's investments in improving transparency and
accountability and reducing fraud and corruption can help enhance the
impact of official development assistance and private U.S. charitable
contributions alike.
USAID exercises due diligence prior to awarding funds or partnering
with private, charitable organizations anywhere in the world, including
Latin America and the Caribbean. This includes ensuring that
organizations that receive USAID funds have proper systems in place to
manage and account for funds and any funds sub-granted or sub-
contracted to other organizations or companies. Once funds are awarded,
USAID closely monitors the use of those funds. External evaluations may
be conducted on awards at various phases of implementation. Should
allegations about the waste or misuse of our assistance arise, then
USAID's Office of the Inspector General will launch an investigation.
Investigations that lead to findings of fraud, waste or abuse of USAID
resources can result in the termination of awards and criminal
prosecution.
__________
Responses of Tom Malinowski to Questions for the
Record Submitted by Senator Rubio
Question. Why haven't individuals like Cabello, El-Aissami,
Merino, and the FARC been sanctioned? How much longer do we have to
wait to stop this abuse of our financial system?
Answer. The steps we have taken to restrict visa eligibility and
the sanctions we have imposed thus far through Executive Order 13692
have sent a clear message that the United States does not welcome money
or travel of those who are responsible for or complicit in serious
human rights violations and abuses, undermining democratic processes or
institutions, or public corruption in Venezuela.
In addition, the United States has designated the FARC and the
National Liberation Army of Colombia (ELN) for their terrorist and
other illicit activities under a variety of other authorities. For
example, the Secretary of State has designated both organizations as
Foreign Terrorist Organizations (FTO) pursuant to section 219 of the
Immigration and Nationality Act (INA) and as Specially Designated
Global Terrorist entities under Executive Order 13224. In addition, the
FARC has been designated under the Foreign Narcotics Kingpin Act. The
consequences of these designations include a general prohibition
against knowingly providing, or attempting or conspiring to provide,
material support or resources to, or engaging in transactions with,
these groups and the freezing of all property and interests in property
of these organizations that are in the United States, or come within
the United States or the control of U.S. persons. Moreover, as a
consequence of the FTO designation, individuals associated with these
organizations may be ineligible for a visa or are otherwise
inadmissible to the United States.
We will continue to monitor these issues closely and stand prepared
to take action against others as additional information that meets the
criteria for sanctions becomes available.
Question. Does the USG have a coordinated campaign and inter-
agency strategy for dealing with corruption and kleptocracy in foreign
nations?
Answer. Yes, the interagency works together to combat corruption
and kleptocracy to advance a set of policy goals and apply a range of
tools that complement and reinforce each other. These efforts are best
summarized as a three-pronged approach that we are working consistently
to strengthen: to build greater transparency globally, to support the
exposure of corruption at the highest levels through support for civil
society led investigations and advocacy, and to ensure strong law
enforcement. This is in addition to support provided by the Department
of State and USAID to build the capacity of reformers and strengthen
institutions through our democracy and governance work in countries
where there's strong political will.
Since adopting the Foreign Corrupt Practices Act (FCPA), the United
States has been a global leader in anti-corruption and, under this
Administration, U.S. government agencies have developed a
comprehensive, whole-of-government approach to enforce it. The
Department of State leads on efforts to implement the UN Convention
against Corruption (UNCAC) and other multilateral efforts to strengthen
international transparency standards and practice, to broaden
implementation of anti-bribery laws, and to promote responsible
business conduct, while the Department of Commerce promotes
transparency and anti-corruption efforts in our trading partners to
create a level playing field for U.S. businesses. The Department of
Treasury continues to press for strengthened beneficial ownership
standards for all companies formed in the United States.
The Department of State and USAID are also ramping up our support
for civil society led investigations that can uncover corruption across
borders, inform local advocacy, and drive action by law enforcement
through the development of a Global Anti-corruption Consortium. The
Department of Justice (DOJ) launched the Kleptocracy Asset Recovery
Initiative to pursue corrupt foreign officials who plunder state
coffers for personal gain and then try to place those funds within the
U.S. financial system, while the Department of Treasury enforces
sanctions against persons who engage in official corruption and take
advantage of the U.S. financial system. Meanwhile, the Millennium
Challenge Corporation (MCC) and the Overseas Private Investment
Corporation (OPIC) incentivize countries to demonstrate a positive
track record and concrete plan to reduce corruption in order to achieve
eligibility.
For the Department of State and USAID, global anti-corruption
efforts also entail the promotion of human rights, participatory
democracy, accountable and transparent governance, and economic
empowerment more broadly. As Secretary Kerry has stated, fighting
corruption must be treated as a first order national security priority,
and the Administration is committed to strengthening and building on
this range of efforts for the strongest possible impact.
Question. Does your bureau have an effective voice in these
interagency efforts to combat these problems?
Answer. The Bureau of Democracy, Human Rights, and Labor's (DRL)
Senior Advisor represents the bureau both within the Department and in
the interagency to ensure it has an effective voice in efforts to
combat corruption. Senior Department of State leadership is also
strongly engaged in these efforts, including Secretary Kerry, who
champions these efforts at the Cabinet-level and represented the U.S.
government at the Global Anti-Corruption Summit hosted by the United
Kingdom in May.
In addition, DRL leads U.S. government efforts on the Open
Government Partnership and regularly monitors and reports on corruption
issues globally in the annual Human Rights Report. Over the last
several years, DRL's Global Programs office has increasingly
prioritized support for civil society efforts to investigate and combat
corruption around the world including recent efforts to build a Global
Anti-corruption Consortium to support and scale this kind of work.
Question. How has the U.S. Government cooperated with foreign or
international agencies to track down and punish corrupt leaders? What
else can we do to enhance that inter-agency cooperation?
Answer. The Department of State leads much of the interagency
coordination on multilateral efforts to both prevent and combat
corruption globally. Our work with the G-20 Anticorruption Working
Group helps us to collectively lead by example, to strengthen
international anticorruption standards, coordinate donor support to
developing countries, and strengthen standards within the G-20. The G-
20 Denial of Entry Experts Network provides an opportunity for
immigration and visa authorities to share best practices to deny safe
haven to corrupt actors, while we work closely with our partners in the
G-7 to coordinate a range of anti-corruption efforts, particularly
since the Japanese presidency of the G-7 made anticorruption a
priority.
While the Department of Justice would need to advise on U.S. civil
or criminal actions against corrupt leaders, DRL works closely with the
Departments of Justice and Treasury to develop strong corruption-
related visa denial cases that reinforce the efforts of other agencies.
Additionally, partners in civil society organizations often expose
instances of corruption that can lead to investigations by law
enforcement.
Question. Can you talk about the link between corruption and
repressive regimes? Is it correct to say that corrupt regimes are more
likely to deprive their citizens of their fundamental rights? How do
our democracy and governance programs tackle this issue?
Answer. The Department of State often sees that repressive regimes
cannot retain power without corruption and that corrupt regimes cannot
remain in power without repression. At the same time, corruption
presents a repressive regime's greatest vulnerability--it can often be
a decisive factor in popular anger against the regime and ultimately
contribute to its downfall. Meanwhile, when law enforcement and other
government officials can be bought and sold, legal controls and
protections for all citizens are at risk and insecurity is heightened.
The Department of State and USAID democracy and governance programs
target the nexus between repression and corruption in a few ways. We
work not only to build government capacity but also strengthen
accountability by supporting civil society groups in exercising
oversight over budgets, demanding transparency, and joining in
participatory budgeting exercises. We support civil society-led
investigations that expose corruption and generate demands for
political change and action by law enforcement. We also support
reformers in countries demonstrating the political will to tackle
corruption. A good example of this is the work we do with our
interagency partners in supporting justice system reforms in many
different countries. This includes training and professional
development opportunities for judges and prosecutors, empowering them
to take on corrupt officials and elites.
Multilateral efforts offer an additional vehicle to elevate anti-
corruption and empower local reformers. Seventy countries now
participate in the Open Government Partnership (OGP), which helps
governments and citizens harness new tools and technologies to fight
corruption.
Question. Why hasn't the FARC or ELN been sanctioned?
Answer. The United States has designated the FARC and the National
Liberation Army of Colombia (ELN) for their terrorist and other illicit
activities under a variety of authorities. For example, the Secretary
of State has designated both organizations as Foreign Terrorist
Organizations (FTO) pursuant to Section 219 of the Immigration and
Nationality Act (INA) and as Specially Designated Global Terrorist
entities under Executive Order 13224. In addition, the FARC has been
designated under the Foreign Narcotics Kingpin Act. The consequences of
these designations include a general prohibition against knowingly
providing, or attempting or conspiring to provide, material support or
resources to, or engaging in transactions with, these groups and the
freezing of all property and interests in property of these
organizations that are in the United States, or come within the United
States or the control of U.S. persons. Moreover, as a consequence of
the FTO designation, individuals associated with these organizations
may be ineligible for a visa or are otherwise inadmissible to the
United States.
Question. How about other leaders of cartels or transnational
organized criminal elements?
Answer. U.S. law and policy imposes significant restrictions on
such individuals in terms of travel, use of the financial system, and
criminal and civil penalties.
__________
Responses of Sarah Chayes to Questions for the
Record Submitted by Senator Rubio
Question. What more can the U.S. Government be doing to help key
regional actors tackle their institutional corruption issues?
Answer. By ``regional,'' I assume Senator Rubio is referring to the
Americas, but my answer holds--if in a somewhat attenuated fashion--
elsewhere. The United States is the most important external influence
on most Latin American countries, and is therefore likely to have more
leverage there than in many other regions.
A distinction should be made between severely corrupt countries
that can be considered to have undergone at least some degree of an
anticorruption transition, or to be led by genuine reformers, and those
that are unrepentant kleptocracies. In this hemisphere, Brazil and
Guatemala are the most obvious examples of transitioning countries;
further afield, the category includes Nigeria, Tunisia, and Ukraine.
In these transitioning cases, the United States disposes of at
least some partners in the fight against corruption--but should beware
of the temptation to over--reward a government that may have only
partially transformed, thereby reinforcing residual or resilient
corruption networks. In Brazil and Guatemala, for example,
anticorruption partners reside primarily in the justice sector, and
cannot single-handedly effect the kind of institutional changes
required to prevent a new cast of corrupt actors from stepping into the
void left by the removal of heads of state--as clearly seems to be
happening in Brazil.
In these cases, collaboration and capacity-building within the
justice sector have already proven their worth. Strategic targeting of
U.S. Department of Justice kleptocracy initiative cases at officials
connected to those who have resigned could reinforce the message sent
by local judiciaries, and identify assets to seize and return--provided
care is taken to ensure the funds are invested to the benefit of the
people and their desired reforms, and do not fall into the hands of
officials who are just as corrupt as the former leadership.
Special attention should be devoted to banks and real estate agents
in Florida, Texas, and California. Their weak customer scrutiny has
allowed an influx of suspect money and helped inflate bubbles, thus
damaging the U.S. economy as well as facilitating and profiting from
corruption.
The most significant assistance the United States could provide in
Brazil and Guatemala would be to civil society activists and other
reformers, to help them think through a comprehensive program of legal
and institutional changes that could help profoundly alter the
political culture, deterring corruption upstream of its perpetration.
Such an agenda would be sweeping and ambitious, and should be focused
on the establishment of meaningful independence for different branches
and agencies of government, meaningful oversight of government
functions, and empowered citizen engagement in that oversight process.
It should not presume virtue on the part of the business community,
since too often, kleptocratic networks are integrated across public and
private (and criminal) sectors.
The whole gamut of U.S. engagement with these countries, including
diplomatic interactions and assistance, military as well as civilian,
should be reviewed with an eye toward how it can reinforce an incentive
structure that selects for public integrity and discourages corruption.
First, it should be carefully conditioned upon progress on and
adherence to the program above.
Second, in these cases and elsewhere, it is no longer acceptable
for the use of a lever as strategic as military assistance to be left
at the discretion of low-level program officers at the U.S. State
Department Bureau of Political-Military Affairs or one of innumerable
offices at the U.S. Department of Defense, who roll their eyes at the
word corruption. Such young officials rarely bother to find out whether
the unit their programs are supporting is the enforcement arm for a
kleptocratic network, or is being deliberately pillaged of salaries and
the equipment the United States provides.
The results in Iraq and Afghanistan have been instructive in recent
years: both countries' militaries have dramatically under-performed
given the resources and support they enjoyed; budgets have been looted;
billions of dollars of U.S. equipment has fallen into enemy hands; and
security has worsened, as has the level of government corruption. This
is hardly evidence for how to use U.S. resources effectively to further
national security objectives--much less anticorruption objectives.
Military assistance should no longer be treated as a party favor;
clear objectives should be set, and should include governance
objectives, and packages should be measured for effectiveness against
those goals. Program officers must be well-versed in these strategic
objectives. As part of this reform, anticorruption must be built into
program goals and design and selection of partner units and
individuals, for all U.S. military assistance provided to these
countries.
The same applies to civilian assistance. It's not quite enough to
say that USAID support doesn't go to governments. What contractors or
implementing partners are selected? Who are their beneficial owners?
Which private-sector actors are funded by U.S. supported development
banks? How much U.S. oversight exists for activities conducted with
U.S. provided or backed loans? Does the bare existence of a U.S.
assistance program serve an image-laundering function?
Third, diplomatic engagements related to corruption should not be
limited to ``lecturing,'' quickly countermanded by the character of
other interactions. Host-country officials should feel the difference
in the way they are treated if they are looting their public treasuries
or not.
Even the U.S. Department of Commerce has a role to play, in
carefully scrutinizing the sectors into which it recommends U.S.
investment. Some U.S. businesses might be considered external members
of Latin American corruption networks, given the degree of their
interpenetration with private sector strands of those networks, or
their reliance on a thoroughly corrupt supply chain.
Finally, the CIA must not be exempt from this framing.
In countries that remain unrepentant kleptocracies, such as
Venezuela or Honduras, there are not many actors to help. The effort
should emphasize the negative incentives discouraging corrupt behavior
listed above, and avoid capacity-building programs that provide image-
laundering for corrupt officials if they don't actually reinforce
corrupt practices or provide revenue streams that are captured by the
recipients.
For Brazil, Colombia, Guatemala, Guyana, Honduras, Mexico,
Paraguay, and Venezuela, as for the other 54 countries on the list
provided in my written testimony, Congress should require a political
economy analysis, along the lines sketched out in my recent paper, as
part of any assistance authorization above a certain size, together
with strategies for mitigating the likelihood that assistance will
reinforce existing corruption.
The approach recommended above would require an unprecedented
degree of collaboration across the U.S. interagency, and is, I grant,
ambitious. But the degree of siloing and internal contradiction that
currently exists effectively deprives the United States of a coherent
foreign policy.
A final note for reflection: with respect to any country in this
region, it is important to recognize the historical role of U.S.
policies and officials in actively corrupting their Latin American
partners or clients, in establishing an incentive structure that
rewarded officials who could be counted on to do the United States'
bidding, even at the expense of their own citizens, and in placing
these officials beyond the reach of local checks and balances. The
populations of these countries have long memories. They will not be
easily convinced of U.S. good faith. And corrupt officials will be able
to credibly brandish the specter of U.S. support--even if they don't
actually enjoy it--long into the future.
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[all]