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Kleptocracy at the Polls

Kleptocracy at the Polls

With pivotal elections looming, Europe is finally waking up to the threat of dirty money.

Thibault Muzergues, Eguiar Lizundia

At long last, Europe is waking up to the menace of kleptocracy. The war on Ukraine by Vladimir Putin’s mafia state and a series of high-profile corruption scandals on the continent have finally convinced European elites of the fundamental threat to democratic governance, national security, and economic prosperity posed by foreign kleptocratic actors. With elections in the European Parliament and several EU countries set to be held this year, time is of the essence in strengthening Europe’s capacity to resist this kind of malign influence. 

Kleptocracy is not just a problem for the countries being plundered by corrupt regimes and their cronies. For the countries that play host to kleptocratic investment, the influx of dirty money distorts the economic environment, interferes with the political process, and undermines institutions. Ironically, it is Europe’s commitment to openness and the rule of law that has attracted kleptocrats from countries such as Russia and the Gulf States—providing an investment-friendly environment with privacy protections, residency benefits, and high returns, none of which is guaranteed in their own countries. Locations ranging from the United Kingdom to Latvia to Malta have become key destinations for the ill-gotten gains accrued by kleptocrats and their acolytes since the 1990s. 

Initially, such inflows of foreign investment were seen as the inevitable consequence of an integrated global financial system. But illegal money flows soon brought a new set of problems to these host countries. Skyrocketing real estate prices have forced working- and middle-class residents out of cities like London, where scores of buildings purchased by kleptocrats for eye-watering sums stand empty. Investigative journalists are often driven to self-censor or drop stories thanks to the weaponization of libel laws by corrupt figures. 

Additionally, by injecting large sums of money into domestic politics—including electoral campaigns, lobbying, and other reputation-laundering activities—kleptocrats have progressively weakened democratic safeguards and legal protections in their host countries. In perhaps the most tragic example of this phenomenon, Maltese journalist Daphne Caruana Galizia was assassinated after enduring a long campaign of harassment in response to her investigations into alleged transnational corruption involving government officials and Azerbaijani political elites

For too long, such developments attracted rote condemnation but did not yield any real action. The 2022 invasion of Ukraine changed everything. Putin’s war galvanized Europe and its democratic allies to impose an unprecedented sanctions regime on Putin and his cronies. At the national level, most destination countries have moved to eliminate the so-called “golden” passports, restrict the availability of investor visas, and set up public registries requiring transparency of corporate ownership before the EU Court of Justice ruling struck the last of these down on privacy grounds.

Further, EU institutions are moving ahead with a new anti-money laundering package that would establish an EU-wide anti-money laundering authority (AMLA) with wide coordination powers. The anti-corruption directive presented last year by the EU Commission to the European Council and Parliament also strengthens the framework to fight against kleptocratic inroads by criminalizing additional offenses and harmonizing penalties across the EU.

While welcome, these efforts are not enough to inoculate Europe against kleptocratic influence. Many European law enforcement capabilities are poorly resourced to cope with this complex problem, particularly in smaller countries that initially welcomed this kind of foreign investment. Even when the resources are there, coordination between national jurisdictions remains a challenge, leading some anti-corruption experts and civic activists to advocate for the creation of a “European FBI.” Although AMLA will allow for greater coordination, its powers will not be sufficient to fill the national gaps. To make a meaningful impact in the near term, AMLA will have to staff up quickly and fully deploy its supervision and oversight functions.

Within the EU, competing jurisdictions and legal systems in a single monetary area have made kleptocrats’ lives easier by multiplying the opportunities to launder dirty money and use it to corrupt entire social and political ecosystems. Europe’s decentralized nature requires ever stronger alignment among European institutions, both within and outside the EU. 

EU members and their partners should devise a multilevel response capable of grappling with these challenges. Ongoing anti-kleptocracy efforts should be deepened and expanded to all European nations, including a full ban on golden passports; strict limits on investment visas; an end to banking anonymity for major cash transactions, particularly in sensitive sectors such as real estate; and compliance with standards for transparency of corporate ownership. AMLA should be empowered to conduct investigations on its own without needing to go through national authorities if those remain impotent or uncooperative.

The EU can take other steps to help. It should strengthen campaign finance regulations for EU elections, banning all foreign, non-EU contributions to political parties and foundations. And it should standardize and expand ethics and conflict of interest rules for public officials, including recently retired ones. This includes establishing comprehensive codes of conduct, travel prohibitions, and “cooling off” periods for parliamentarians and their aides wishing to work in sensitive industries or lobby for non-EU clients.

Finally, as the EU looks to adapt its legal framework to better fight corruption, it should adopt an EU-wide legal definition of strategic corruption, transnational kleptocracy, and their predicate crimes, following the model of Italian anti-mafia legislation. This would represent an important first step in combatting a phenomenon that has so far proven nebulous and difficult to pin down in law: Kleptocrats rarely steal in Europe, but they use their European base to hide stolen money. 

Giving a legal definition to the phenomenon may sound like a very basic step, but Italy’s experience battling the mafia is instructive. Once a practice is defined and criminalized, it becomes easier to crack down on enablers of illegal behavior (such as the lawyers and accountants who facilitate kleptocratic activities), and makes it far more difficult for criminals to operate with impunity. 

With Europe’s security and democratic institutions under attack and millions of European citizens headed to the polls later this year, it is crucial that policymakers forge ahead with robust measures to combat kleptocratic influence on the continent. It is past time to consign the stereotype of dictators’ cronies stashing their cash in the West to the dustbin of history. 

 Thibault Muzergues and Eguiar Lizundia are senior advisors at the International Republican Institute, and authors of the new IRI report Fighting Strategic Corruption and Transnational Kleptocracy in Europe: Lessons Learned from Selected Cases.

Image: Signage placed along a village street indicating a polling station. (Unsplash: Designfactory)

AuthoritarianismDemocracyEconomicsEuropeEastern EuropePolitical PhilosophyTechnologyRussiaUkraineUnited States