WASHINGTON – When Anders Åslund worked as an economic adviser to the Russian Federation in the early 1990s, he witnessed government corruption as a pyramid, with a small amount of illicit behavior at the top and a lot at the bottom. Today, according to Åslund, that pyramid is inverted, with the widest sources occupying the very top.
“It has become an atomic mushroom,” Åslund told the Helsinki Commission on Thursday, adding that Russian President Vladimir Putin has been driving the trend in plain sight.
As an example, Åslund pointed to 2007, when Putin dissolved six state-controlled companies into two state corporations, privatizing assets of more than $1 billion. Non-governmental organizations controlled by Putin soon came into ownership of that money.
He also said that this level of corruption cannot happen without the help of the West and described how tens of billions of dollars a year is funneled from Russia to American companies. The system starts with Putin’s cronies – people like Ardetin Chenko, Arkady Rotenberg, Yuri Kovalchuk and Bank Rossiya – “not KGB people” but close friends of Putin who have landed on U.S. sanctions lists. This group of people, according to Åslund, has been taking between $10 billion and $20 billion in state money each year since 2006, or about $100 billion to $200 billion.
These illicit funds, according to Åslund, exit the region through Cyprus, passing through accounts in the Caribbean and eventually London and New York. Åslund said that individuals in Nevada, Wyoming and South Dakota also are involved. This money doesn’t pass through banks, he said, but well-known law firms, which protect these dealings through attorney-client privilege. This results, Åslund said, in about $40 billion of Kremlin black cash funneling through U.S. firms.
Åslund described how Putin’s kleptocracy is enabled by four major players: state power, state corporations, cronies and U.S. firms. Åslund, who advised the Russian government from 1990 to 1994, said that Congress needs to focus on blocking these anonymous, American limited-liability companies and remove protections for these illegal transfers of money.
Brian Whitmore, senior Russia analyst at Radio Free Europe, described Putin’s kleptocracy as the new red scare.
“Corruption is the new communism,” he said. “The Kremlin’s black cash is the new red menace.”
Communism, despite its faults, Whitmore continued, attempted to appeal to human ideals and aspirations, although in practice it worked against those ideals. Corruption, which he described as a tool for statecraft, appeals to one of the most base human instincts – greed – meaning that the new kleptocracy is in step with the nature of some of the world’s worst individuals.
“Which means the new red menace is potentially more dangerous and insidious than the old one,” he said, calling Putin’s corruption a national security threat of the highest order.
Ilya Zaslavskiy, a researcher at Free Russia Foundation who fled Russia because of threats to his life, said that the West has been so negligent and appeasing to the Russian Federation’s system of corruption for the past 18 years that it’s not going away any time soon. The best case scenario, he said, is to contain the kleptocracy. He said the western public needs to be more aware of the blatant examples of Russian corruption spreading. In cities like London, he said, people are starting to realize they are being squeezed out by Russian kleptocrats who buy up all the real estate, raising the cost of living to unsustainable levels. Oligarchy is no longer a relevant term, he said, as the kleptocratic cronies have taken over.
Daniel Fried, a former sanctions policy advisor to the Obama administration and assistant secretary of State for Europe under President George W. Bush, said that one day Putin’s regime will collapse. But the U.S. needs to draw a harder line if that’s ever going to happen, he said, while calling on journalists and the Financial Crimes Enforcement Network to expose Russia.
“When you pull on a Russian thread, you never know what will come out the other end,” he said.
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