To tackle global kleptocracy, US must also look inward and clean house

Casey Wetherbee is a freelance journalist based in Buenos Aires, Argentina. He holds an M.A. in security studies from Georgetown University and previously worked as a corporate investigator specializing in international asset tracing investigations. You can follow him on Twitter/X at @caseywetherbee.

On June 3, 2021, the Biden Administration established the fight against corruption as a core national security interest, and later that year released the first U.S. Strategy on Countering Corruption. The strategy, coupled with an implementation plan released in September 2023, includes such pillars as curbing illicit finance, holding corrupt actors accountable, and strengthening multilateralism. In December 2023, the White House announced several accomplishments across these pillars, including financial sanctions and enforcement actions against corrupt actors, enhanced reporting requirements for beneficial ownership, and partnerships with multilateral and civil society organizations abroad.

While it is commendable to tackle corruption abroad, it is at least as much of a problem closer to home. Scholars and progressive policy makers alike have decried the emergence of an oligarchy that wields considerable political power in the United States, fomenting grotesque inequality and swaying foreign policy. Since the 1980s, corporate interests have unduly, yet often fully legally, exercised tremendous power in politics and public affairs. A series of Supreme Court decisions have also severely narrowed the ability of prosecutors to go after cases of corruption and bribery, weakening US credibility. This domestic context, coupled with the globalized nature of kleptocratic networks, requires policy makers to propose legislation that mitigates the ability of oligarchs, both within and outside the United States, from exercising outsized influence on US political affairs.

An ideological pursuit of deregulation, begun by the Carter administration and accelerated during the Reagan administration in the 1980s, spurred the rise of American oligarchy. The lobbying profession boomed and expanded, even as a general pro-business atmosphere made its work less necessary. As Sarah Chayes described in On Corruption in America, successive administrations appointed business leaders to top regulatory positions, allowing them to influence the policies that would (or would not) constrain their own industries. At the same time “soft money” began to enter politics in the late 1970s; since 1980, there has been a demonstrable correlative relationship between campaign contributions and political outcomes, and it is impossible to know how much of these funds are from foreign sources. These factors have resulted in a system by which kleptocrats can effectively pay to capture resources from the state, sustained by the “revolving door” between the public and private sectors and an electoral feedback loop fed by more and more money.

US credibility in terms of anti-corruption policy is hindered by a weak enforcement regime against corruption and bribery domestically. Several federal lawsuits have followed a pattern by which a public official commits an act that is clearly corrupt or fraudulent, such as the “Bridgegate” scandal; they are convicted for using their office for personal gain; the Supreme Court overturns the conviction, citing the vagueness of the laws as written. Indeed, gaps in federal corruption law require that prosecutors rely on federal mail and wire fraud statutes in order to target acts of corruption and bribery by public officials, despite those statutes not having been designed with that purpose. For example, the 2017 corruption trial of New Jersey Democrat Bob Menendez, which centered around lavish gifts he received from a Florida ophthalmologist later found guilty of Medicare fraud, resulted in a hung jury and all charges being dropped. This result largely drew from the Court’s 2016 decision in McDonnell v. Virginia, which had earlier been used to overturn the high-profile corruption cases of New York politicians Sheldon Silver and Dean Skelos.

In September 2023, the DOJ charged Menendez — then-Chairman of the Senate Foreign Relations Committee — in a bribery scheme involving cash, luxury vehicles, and gold bars provided on behalf of the Egyptian and Qatari governments. Even given the abundance of evidence of Menendez’s shady dealings, the burden of proof for federal prosecutors is considerable given the recent restrictions of terms such as “official act” and “honest services fraud” that will be used to prosecute him.

According to legal scholar Zephyr Teachout, these recent Supreme Court decisions “enshrined bribery into our politics.” Although they are certainly discouraging, they are not cause for despair. In 1987, McNally v. United States overturned the conviction of a Kentucky public official over an insurance kickback scheme. In response to this implicit direction by the Supreme Court to clarify the criminal statute, Congress added 18 U.S.C. § 1346, defining honest services fraud. Given the Court’s unwillingness to interpret the existing law broadly, the onus again lies with Congress to draft new statutes that align corruption law with the public’s general understanding of what is corrupt. This could include incorporating state-level definitions of official misconduct, which are often quite robust, into the text of the statute to alleviate federalism concerns. Policy makers at the state level should review and strengthen, if necessary, regulations regarding bribery and conflicts of interest.

Anti-corruption laws are useless if there is no political will or incentive to enforce them, and corrupt officials can sabotage the functions of their own institutions in order to serve kleptocratic interests. During the Trump administration, environmental enforcement actions by the EPA plummeted under the scandal-ridden leadership of Scott Pruitt, who appointed former lobbyists to high-level positions.

In order to counter the infiltration of oligarchic interests within US institutions, progressive policy makers should embrace legislation that promotes public integrity: tightening conflicts of interest by targeting stock ownership, closing loopholes by which corporate interests sabotage public interest actions, and regulating lobbying activities, which should include a ban on American lobbyists accepting money from foreign entities. From a national security standpoint, it is also important to include provisions regarding Defense officials and contractor transparency.

The Biden administration has made some strides reining in American oligarchy. This includes enabling the IRS to crack down on tax evasion, requiring real estate professionals to report suspicious activity, and mandating beneficial ownership reports to FinCEN as of January 2024 (although on March 1 the Alabama District Court ruled this provision unconstitutional and is pending appeal). Many of these recent actions target kleptocrats’ use of shell companies and trusts to launder money, a tactic that large multinational corporations also use to evade taxes. Shell companies, non-profit entities, and other facilitators of dark money in US elections must be priority targets for progressive policy makers, both by closing loopholes that Citizens United created and addressing the gap in FEC enforcement. Like with anti-corruption statutes, policy makers must also address campaign finance transparency at the local and state levels. These transparency measures must both eliminate mechanisms by which foreign kleptocrats contribute to US elections and shine a light on sources of dark money.

Ultimately, addressing the culture of individualism and greed that has afflicted US institutions for the last several decades will require profound normative changes. These legislative proposals, however, are an important starting point toward ending the power of kleptocracy within the United States, which will in turn allow it to more honestly help other democracies fight back against kleptocratic threats and corruption.

 

 

The Global South is fighting for a voice in global tax rules

Wouter van de Klippe is a freelance journalist and Public Policy graduate based in Europe. He’s particularly interested in organised labour, economic, social, and environmental justice, and social welfare states.

Since 1954, a “rich countries club” of the Global North have set the rules of the global tax system through the Organisation for Economic Co-operation and Development (OECD). Now, countries of the Global South are successfully fighting for more equal say.

On the 22nd of November, 2023, the Africa Group of the United Nations spearheaded an effort to take global tax rule setting away from the OECD and towards the UN. The UN has global representation, more transparent voting mechanisms, and more impactful accountability measures in case countries violate rules.

What died and let the OECD set tax policy?

Just after the second World War, the newly formed United Nations attempted to start setting global taxation rules determined by all member states. This effort collapsed, rather unspectacularly, in the summer of 1954 with the discontinuation of the fiscal committee of the UN.This left the OECD as the only multilateral organization setting global tax rules. The OECD only included a small number of rich states and its approach towards taxation represented these interests.

The OECD sets tax rules by providing frameworks that countries adopt within taxation agreements with other states. For example, the OECD publishes and updates a “model taxation guideline” that countries typically use when drafting their own taxation agreements. These guidelines provide advice on how to prevent companies from being taxed twice for the same profits, set rules on how to tax profits when companies sell to their own subsidiaries abroad, and more.

Under the OECD’s leadership, this tax system is one where tax evasion is rampant, double-taxation agreements benefit the richest of the world, and it took until  2021 to form an agreement on a global minimum corporate tax rate of 15% to prevent multinationals from fleeing taxes and plundering public funds.

Consider the oil giant Shell. In 2022, Shell announced that it made an astounding $39.9 billion in profits. These profits were distributed all over the world across various tax havens, meaning that it paid a 0% effective tax rate in the Bahamas (on $570 million profits), 3% in Singapore (on $937 million profits), and 7% in the Netherlands (on $2.2 billion profits). Miraculously, Shell was able to squeeze these millions of dollars of profit out of the Bahamas despite it having no ‘real’ economic activity in the country whatsoever.

This is on the verge of a major transformation being led by the Global South.

Tax and Amend

After a drawn-out fight where the US, the UK, and the countries of the EU bitterly resisted the convention, countries representing the vast majority of the world’s population voted on November 22nd, 2023, in favor of the new UN-led convention. In the end, 125 countries voted in favor with 48 votes against.

Ahead of the vote, Dr. Chila Milambo, permanent representative of Zambia at the UN, said that the convention “is not merely a political document, but a beacon of hope for developing countries that have long sought a voice in shaping international tax norms.”

According to the Tax Justice Network, the countries that voted against the resolution are responsible for 75% of global tax evasion and only represent around 15% of the global population. All told, an estimated $480 billion in tax revenue is lost each year as a result of evasion – money that could otherwise be spent on public schooling, transportation, health systems, and much needed programs for the just transition.

While the total amount of money lost to tax evasion is significantly smaller in lower-income countries, the total share of public budgets that they lose is much higher. On average, lower-income countries lose about $47 billion each year – representing almost half of their annual budgets for public health.

The scale of tax abuse is so great under the current system that currently, African countries lose more through tax abuses than the total amount of foreign development aid per year.

The OECD itself recognized that it was failing to prevent tax abuse so in 2016 it created a special framework that now includes over 140 countries with the goal to establish new tax rules. This is called the OECD/G20 inclusive framework and was heralded by some as a much needed step towards global inclusivity in taxation.

Critics have argued that it hasn’t meaningfully challenged the skewed nature of global rule setting. The Tax Justice Network argues that the OECD’s lack of transparency, bias towards OECD member states. The fact that its key members are the same countries responsible for tax abuses mean that it is unsuitable to be the body determining how global tax rules are set.

The fight for a seat at the table

For decades, the dominant narrative of tax evasion was that poor administrative infrastructures facilitated corruption within low-income nations, squarely placing the blame on the countries suffering the most from the evasion. Through years of lobbying, campaigning, and organizing, Global South-led coalitions of civil society organizations and political leaders fought for recognition that tax abuses were inherent to the current system, and that meaningful change was needed. The reality was clear – a tax system that was built by the richest countries of the world would never provide justice to the Global South.

In 2015, the G77 group of developing countries tabled an earlier motion to legislate taxes at the UN in a meeting at Addis Ababa. Then, amidst heavy lobbying by countries of the OECD, the resolution tabled at the summit in Addis Ababa was rejected.

At the time, the slogan supporting the change was “if you’re not at the table, you’re on the menu”. If the talks at Addis Ababa represented a failed effort to establish more equitable tax rules, the passing of the resolution at the UN last year, nearly a decade later, shows the resolve and durability of solidarity movements of the Global South.

The proposed UN tax convention represents yet another instance of powerful Global South solidarity, such as what we have seen in the Global South’s rallying support for South Africa’s genocide case against Israel, and the near-unanimous Global South support for the COVID vaccine patent waiver at the peak of the pandemic.

A just and solidaire foreign policy is out there – in this case at least, it’s just not the Global North leading it.

While debate still needs to take place on what exactly the tax convention will consist of, it represents a success in forcing a more inclusive and democratic future for setting the rules of taxation. The Global South has shown that international solidarity can force meaningful changes in a regime built against their interests. With the UN becoming the leading institution for tax reform, the majority of the world’s population will finally have representation at the taxation rule table.

Full view of the UNGA hall