How NATO can help beat back corruption in Ukraine
Ever since the NATO summit took place in Vilnius last week, I’ve been trying to work out what to think about the Anglo-American suggestions that Ukrainians should show more “gratitude” for what Western countries are doing for them. There was the predictable social media cycle — hot take, response, annoyance, political capital taken, explanation, general confusion — but none of that helped me understand why the remarks intrigued me so much in the first place.
For the last two decades, Ukraine’s relationship with NATO has been fraught. Back in 2002, Leonid Kuchma, Ukraine’s president at the time, gate-crashed the NATO summit. He did this despite being disinvited in light of the allegations that he had overseen the decapitation of journalist Giorgiy Gongadze (may he rest in peace) and smuggled weapons to Iraq. Kuchma’s surprise appearance forced the presidents’ places to be alphabetically arranged in French — rather than the more-standard English — to avoid the awkward sight of him sitting next to the leaders of the United Kingdom and United States. In 2008, Ukrainian President Viktor Yushchenko attended another NATO summit, still riven by post-Iraq War splits, winning a promise that his country could join the alliance but with no suggestions as to when.
Thanks to these humiliating-for-Ukraine episodes, I was surprised when — at an advisory council meeting for the Anti-Corruption Action Center, Ukraine’s most influential NGO, back in 2019 — the founders said they would be pushing for Ukrainian membership in NATO as part of their mission to advance political integrity in Ukraine. I am a member of the council, and I wasn’t alone in worrying that the policy might distract from the center’s core mission and cost it the support of NATO’s many skeptics.
Back then, it was still possible to see Ukraine’s two wars — the domestic one against corruption and the external one against Russia — as separate. Since February 2022, however, all such arguments are meaningless. Tackling bribe-taking is as much a part of winning the war as mine clearance, and defeating Russia is as crucial to a healthy political culture as sacking crooked judges.
And this has made me realize how very prescient Daria Kaleniuk, Vitaly Shabunin and their AntAC colleagues were in arguing for NATO membership at that meeting four years ago. You cannot tackle Ukrainian corruption without confronting the Western enablers who have helped oligarchs and politicians loot Ukraine and stash the proceeds in Britain, France, California and elsewhere. It is simply too easy to use Cypriot shell companies to manipulate state contracts and receive bribes and too difficult for under-resourced investigators in Kyiv to find the evidence to prosecute the guilty. The only way to crack down on corruption is to stop its Western enablers, and the only way to stop its Western enablers is to persuade Western politicians to do so. Which has proved all but impossible to date.
So what’s NATO got to do with it?
If Ukraine were to join NATO, its security would be aligned with that of the NATO countries where kleptocratic wealth tends to end up, like the U.K., the U.S., France and Spain, as well as the NATO countries through which kleptocratic wealth passes, like Turkey, Germany, the Baltic states and the Netherlands. These states would therefore gain a security imperative to prevent Russia-aligned oligarchs from destroying Ukraine’s political stability, which would give tackling corruption far more urgency than it has ever had before. It shouldn’t, but it would.
The intriguing aspect of the recent comments by British Defense Secretary Ben Wallace and U.S. National Security Advisor Jake Sullivan — suggesting that Ukrainians should show more “gratitude” to their Western helpers — is that these apparently throwaway remarks perfectly encapsulated the West’s failure to understand our own role in immiserating Ukraine. Even these two men, who know more than almost anyone about Ukraine’s security needs, failed to appreciate the crucial role the West has played in the looting of Ukraine, which has in turn undermined its security, since 1991. If everyone understood the true situation, they’d know that the question of Ukrainian gratitude shouldn’t come into it: It is us who owe Ukraine.
I understand that NATO membership is not an antidote to domestic corruption (see the horrors of this year’s Turkish earthquake) or to authoritarian governments (see grim political developments in Hungary and Poland), but it is notable that there are no properties belonging to oligarchs from NATO member states on our London kleptocracy tours. NATO membership seems to prevent citizens from one member state from stoking kleptocracy in another too enthusiastically.
And that is something that, for its long-term prosperity, Ukraine needs almost as much as it needs 155mm artillery shells for its short-term victory.
Ukraine’s NATO membership is not just crucial to helping protect its territorial integrity and binding it to the Western family of nations but also to preventing the kind of grand corruption that kept it tied to Russia for so long. It’s up to everyone who cares about tackling oligarchy, and tackling the causes of oligarchy, to make the case for Ukraine to join NATO as soon as possible. And it’s in our own interests too: Only a non-corrupt Ukraine can truly defend Europe’s eastern border.
- “An army plagued with corruption, such as soldiers accepting bribes, governments misusing military expenditure, and officials making decisions influenced by personal gain, will not be able to win a war — and it will not be able to deliver on deterrence. It will be perceived as an enemy that can be easily defeated,” Transparency International’s Ara Marcen Naval wrote.
It’s not easy, but the first step to defeating corruption — just like the first step to winning a war — is for politicians to commit to it.
However, if you want to see an example of the gap that exists between a country’s politicians saying they want to get serious about kleptocracy and their country actually getting serious, have a look at this document, prepared for a hearing of the U.S. House of Representatives’ Subcommittee on National Security, Illicit Finance, and International Financial Institutions. Submitted by Jim Richards, a spectacularly knowledgeable anti-money laundering professional, as evidence for the members of Congress who are looking into the Corporate Transparency Act, it voyages deep into the weird, fractal world of implementing this landmark piece of legislation, first adopted in 2020.
The CTA was initially backed by both parties, the Trump and Biden White Houses, the U.S. Chamber of Commerce and many many others as a crucial step toward insulating the economy from dirty money. Nevertheless, Richards predicts that the implementation of the law will be delayed, beyond its proposed start date of January 2024, because of the difficulties in getting it through the machinery of state.
- “With less than six months to go before the promised launch date of FinCEN’s Beneficial Ownership Information (BOI) database, FinCEN has yet to publish a final rule on how that database will be accessed, it has yet to provide guidance to the fifty states’ secretaries of state on whether and how they will support the efforts of their 35 million state-created entities that will need to submit BOI, it has yet to publish a proposed rule — let alone a final rule — on how financial institutions will use this new BOI, and it hasn’t finished building and testing the actual database. Other than that, everything is on schedule and ready to go,” Richards notes with irony so heavy you’d need a forklift to pick it up.
There is much to criticize here but, as Richard says, the worst thing is FinCEN’s failure to keep the rest of us informed about what’s going on. This is a very important piece of legislation, which will finally bring U.S. corporate transparency into the 21st century, give law enforcement agencies the ability to see behind the country’s appallingly opaque shell companies and deprive criminals of one of the most secure hiding places for dirty assets. It must be done, and it must be done right, as this separate report for the subcommittee from Transparency International makes clear.
FinCEN officials regularly (and rightly) complain about the underfunding of their agency, which has barely two-thirds of the personnel of its Australian counterpart, AUSTRAC, even though it serves an economy 10 times the size. Despite the many tasks being put before it, FinCEN looks likely to get 12.7% less money next year rather than the extra resources that it needs.
However, as Richard states, FinCEN is perversely responding to this lack of resources by producing rules and regulations so complex “only a New York lawyer can figure (them) out.” Underscoring the complexity, Richards’ critique alone is 41 densely-typed pages long, and it lays out a bewildering list of rules, notices, regulations and rulemakings still outstanding.
- “If the reason(s) why FinCEN is struggling to meet its mandate are resource constraints, it would be doing the opposite of what it is doing: It would be putting out two simple, incremental rules (and proposed rules), while acknowledging that it must keep things simple since it doesn’t have the resources to do any more than what Congress intended. And the complexities of the reporting rule and proposed reporting form, and the proposed access rule, make FinCEN’s resource situation even worse: complex reporting and access forms and rules mean they need even more detailed guidance and even more people manning the help line(s). They are compounding their resource issues,” Richards notes.
To which I would add: Complexity creates loopholes. It is far harder to find discrepancies in simple rules than in complex ones. Professional enablers love complexity, which only they can afford to understand. And complexity is not just expensive for FinCEN but for all the financial service companies that will need to abide by its rules. The more expensive implementation is, the less inclined private firms will be to comply fully. I hope there is someone in Congress sufficiently interested in this issue to push FinCEN into rethinking. Keep it simple please, people.
If you’d like to know what happens when you get it wrong, read this blog about long-overdue efforts to undo the catastrophic side effects of ill-thought-through reforms to the implementation of the U.K. companies law.
THE HAVES VS THE HAVE YACHTS
Back in March, I alerted you to a yacht-shaped bargain — the Alfa Nero, sitting unclaimed in Antigua and being auctioned off by the government. This particular 267-foot marine masterpiece was sanctioned by the U.S. a year ago in response to Russia’s full-scale invasion of Ukraine and had been gathering seaweed ever since, so the Antiguans decided to flog it off.
Google founder Eric Schmidt heard about the sale (perhaps from this newsletter — if so, hi Eric!) and bought the yacht for $67.6 million back in June. But now Yulia Guryeva-Motlokhov, the daughter of sanctioned Russian oligarch Andrey Guryev, has challenged the sale because she is apparently the sole beneficiary of the Guernsey-based trust that holds 100% of the shares of the British Virgin Islands-based company that owns the currently-Antigua-based yacht.
- “We would not be filing an appeal unless we had good and sound reasons to bring the appeal. We think the action of the government in taking possession of the yacht and selling the yacht is wrong on all levels,” said her attorney, Dr. David Dorsett.
The highest-risk months for hurricanes in Antigua are August, September and October, so — if the weather is particularly severe over the next little while — the delay in moving the yacht triggered by this legal challenge could prove very costly indeed. The last time I was in the British Virgin Islands, a couple of years had passed since Hurricane Irma but there were still drifts of smashed yachts in every cove. It doesn’t matter how much a yacht costs or how many helicopters it can land on its afterdeck: In a battle with a rock, there will only ever be one winner. There’s a metaphor in there somewhere.
WHAT I’VE BEEN READING
I was lucky to obtain an advanced copy of “A Death in Malta,” a book by Paul Caruana Galizia, an award-winning journalist and the son of Daphne Caruana Galizia, who was murdered in Malta in 2017. It is at once a tribute to his mother, whose own journalism infuriated the sleazy political elites of her homeland, a history of Malta and an account of the author’s and his brothers’ quest for justice. It’s touching and infuriating and urgent, and I recommend it to all of you.