Laundering Cash, White Washing Reputations

Abstract

Kleptocracy and grand corruption are now under scrutiny as never before. With renewed global attention on these abuses, a relatively clear picture has emerged of the domestic political economies shaped by kleptocratic rule. Analysts have shown how state institutions are set up to allow elites and their families to systematically loot, while protecting these elites politically. In particular, this research has placed under the microscope the resource-rich countries that are vulnerable to kleptocratic state capture.Yet to understand the operations of today's jet-setting kleptocrats, one must look beyond the borders of the polities they despoil. Copious news items feature kleptocrats and their families purchasing luxurious penthouses and cars; attending international cultural galas and charitable initiatives; and enlisting Western agents, lawyers, spokespeople, and pillars of the establishment to whitewash their reputations. Watchdogs and policy makers are beginning to turn their attention to the wide range of kleptocratic activity that takes place in the West itself 1 -whether this entails Equatorial Guinea's vice-president standing trial in France for corruption, the former president of Uzbekistan's daughter facing investigations for money laundering in a half-dozen countries, or the Malaysian prime minister under suspicion in connection with the diversion of more than US$4.5 billion from his country's sovereign wealth fund into personal bank accounts around the world. Conceptual analysis explaining how these pieces fit together, however, remains scarce.Kleptocrats do not just transform their polities in order to system-

Corruption as Resource Transfer: An Interdisciplinary Synthesis

“…In her typology, Bussell (2015) calls it legislative corruption. It often happens in developing or transitional societies, but resourcerich countries are also vulnerable to kleptocratic state capture (Cooley, Heathershaw, and Sharman 2018;Hellman, Jones, and Kaufmann 2003). State capture refers to the process of capturing state regulatory authority.…”

“…Here the beneficiaries of the particularistic redistribution and the redistributors are both members of the same political elite. In the latter case, politicians use the state's power to channel public resources to private corporations, yet the same political actors benefit from the transactions by using hidden shell company structures and corruption brokers (Jancsics ; Mihalyi and Szelényi 2017; Cooley, Heathershaw, and Sharman ).…”

A review of money laundering literature: the state of research in key areas

“…They are also referred to as fictitious entities, sham companies, front companies and pass throughs or anonymous companies, and are often used for a wide range of illicit activities such as bribery, corruption, financial statement fraud, tax evasion, terrorist financing, money laundering, sanction evasion and cybercrimes (Findley et al, 2013, Hubbs, 2018. The literature, both professional and academic, available on shell companies has focused on its illicit uses (Cooley et al, 2018, Cowdock, 2017, Does de Willebois et al, 2011, Findley et al, 2013, Findley et al, 2015, Gup and Beekarry, 2009, Harding, 2016, Hubbs, 2018, Jancsics, 2017, Stack, 2015b, Stack, 2015c. Table VII summarises the key works with a focus on illicit uses of shell companies.…”

“…The intensive use of shell companies for illicit purposes by a wide range of users was highlighted in the report known as the Panama Papers by the International Consortium of Investigative Journalists (Harding, 2016, Obermayer et al, 2016. Similarly, Cooley et al (2018) detail various instances of the way shell companies have been used by kleptocrats to launder funds.…”

Deshelling the Shell Companies Using Benford’s Law: An Emerging Market Study

“…It is interesting to note that shell companies are usually listed on the stock exchange and are not illegal inherently. However, a large number of shell companies are deliberate financial arrangements created to promote start-ups or illegal activities such as tax evasion (Obermayer & Obermaier, 2016;Sharman, 2017), bankruptcy frauds, fake service schemes, market manipulation, money laundering for terrorist activities, and drug trafficking (Cooley et al, 2018). There are several instances where private firms go public via a reverse merger with the help of shell companies, therefore, avoiding the fundraising process (Floros & Sapp, 2011).…”