[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

=======================================================================

                                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
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
       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\
---------------------------------------------------------------------------
    \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.


                               __________

                                  [all]