This article is about the term for systematic corruption and thievery by the state or state-sanctioned corruption. For a state with ties to or aid from organized crime syndicates, see Mafia state
, "thief", κλέπτω kléptō
, "I steal", and -κρατία -kratía
from κράτος krátos
, "power, rule") is a government
leaders (kleptocrats) use political power
to appropriate the wealth of their nation, typically by embezzling
government funds at the expense of the wider population.
Detail from Corrupt Legislation
, painting by Elihu Vedder
Kleptocracy is different from plutocracy
(rule by the richest) and oligarchy
(rule by a small elite). In a kleptocracy, corrupt politicians enrich themselves secretly outside the rule of law
, through kickbacks
, and special favors, or they simply direct state funds to themselves and their associates
. Also, kleptocrats often export much of their profits to foreign nations in anticipation of losing power.
Kleptocracies are generally associated with dictatorships
, military juntas
, or other forms of autocratic
governments in which external oversight is impossible or does not exist. This lack of oversight can be caused or exacerbated by the ability of the kleptocratic officials to control both the supply of public funds and the means of disbursal for those funds.
Kleptocratic rulers often treat their country's treasury
as a source of personal wealth, spending funds on luxury goods
and extravagances as they see fit. Many kleptocratic rulers secretly transfer public funds into hidden personal numbered bank accounts
in foreign countries to provide for themselves if removed from power.
Kleptocracy is most common in developing countries and collapsing nations
whose economies are reliant on the trade of natural resources
. Developing nations' reliance on export incomes constitute a form of economic rent
and are easier to siphon off without causing the income to decrease. This leads to wealth accumulation for the elites and corruption may serve a beneficial purpose by generating more wealth for the state.
In a collapsing nation, reliance on imports from foreign countries becomes likely as the nation's internal resources become exhausted, thereby contractually obligating themselves to trading partners. This leads to kleptocracy as the elites make deals with foreign adversaries to keep the status quo for as long as possible.
A specific case of kleptocracy is Raubwirtschaft
, German for "plunder economy" or "rapine economy", where the whole economy of the state is based on robbery, looting and plundering the conquered territories. Such states are either in continuous warfare with their neighbours or they simply milk their subjects as long as they have any taxable assets. Arnold Toynbee
has claimed the Roman Empire
was a Raubwirtschaft.
Contemporary studies have identified 21st century kleptocracy as a global financial system
based on money laundering
(which the International Monetary Fund
has estimated comprises p2-5 percent of the global economy).
Kleptocrats engage in money laundering
to obscure the corrupt origins of their wealth and safeguard it from domestic threats such as economic instability and predatory kleptocratic rivals. They are then able to secure this wealth in assets and investments within more stable jurisdictions
, where it can then be stored for personal use, returned to the country of origin to support the kleptocrat's domestic activities, or deployed elsewhere to protect and project the regime's interests overseas.
Illicit funds are typically transferred out of a kleptocracy into Western
jurisdictions for money laundering and asset security. Since 2011, more than $1 trillion has left developing countries
annually in illicit financial outflows. A 2016 study found that $12 trillion had been siphoned out of Russia
, and developing economies.
Western professional services providers
are an essential part of the kleptocratic financial system, exploiting legal and financial loopholes in their own jurisdictions to facilitate transnational money laundering.
The kleptocratic financial system typically comprises four steps.
First, kleptocrats or those operating on their behalf create anonymous shell companies
to conceal the origins and ownership of the funds. Multiple interlocking networks of anonymous shell companies may be created and nominee directors
appointed to further conceal the kleptocrat as the ultimate beneficial owner
of the funds.
Second, a kleptocrat's funds are transferred into the Western financial system via accounts which are subject to weak or nonexistent anti-money laundering procedures
Third, financial transactions conducted by the kleptocrat in a Western country complete the integration of the funds. Once a kleptocrat has purchased an asset this can then be resold, providing a legally defensible origin of the funds. Research has shown the purchase of luxury real estate
to be a particularly favored method.
Fourth, kleptocrats may use their laundered funds to engage in reputation laundering, hiring public relations
firms to present a positive public image and lawyers
to suppress journalistic scrutiny of their political connections and origins of their wealth.
The United States
is international kleptocrats' favoured jurisdiction for laundering money.
In a 2011 forensic study of grand corruption cases, the World Bank
found the United States was the leading jurisdiction of incorporation for entities involved in money laundering schemes.
The Department of Treasury
estimates that $300 billion is laundered annually in the United States.
This kleptocratic financial system flourishes in the United States
for three reasons.
First, the absence of a beneficial ownership registry
means that it is the easiest country in the world in which to conceal the ownership of a company. The United States produces more than 2 million corporate entities a year, and 10 times more shell companies than 41 other countries identified as tax havens combined.
It currently takes more information to obtain a library card than to form a US company.
Second, some of the professions most at risk of being exploited for money laundering by kleptocrats are not required to perform due diligence on prospective customers, including incorporation agents, lawyers, and realtors.
A 2012 undercover study found that just 10 of 1,722 U.S. incorporation agents
refused to create an anonymous company for a suspicious customer; a 2016 investigation found that just one of 13 prominent New York law firms refused to provide advice for a suspicious customer.
The vast majority of foreign transactions take place in US dollars
. Trillions of US dollars are traded on the foreign exchange market daily making even large sums of laundered money a mere drop in the bucket.
, there are only around 1,200 money laundering convictions per year in the United States and money launderers face a less than five percent chance of conviction.Raymond Baker
estimates that law enforcement fails in 99.9% of cases to detect money laundering by kleptocrats and other financial criminals.
The effects of a kleptocratic regime or government on a nation are typically adverse in regards to the welfare of the state's economy
, political affairs, and civil rights
. Kleptocratic governance typically ruins prospects of foreign investment and drastically weakens the domestic market and cross-border trade. As kleptocracies often embezzle money from their citizens by misusing funds derived from tax payments
, or engage heavily in money laundering schemes, they tend to heavily degrade quality of life for citizens.
In addition, the money that kleptocrats steal is diverted from funds earmarked for public amenities such as the building of hospitals, schools, roads, parks – having further adverse effects on the quality of life of citizens.
The informal oligarchy that results from a kleptocratic elite subverts democracy (or any other political format).
According to the "Oxford English Dictionary
", the first use in English occurs in the publication "Indicator" of 1819: “Titular ornaments, common to Spanish kleptocracy.”
In early 2004, the German anti-corruption NGOTransparency International
released a list of self-enriching leaders in the two decades previous to the report.
They did not know if these were the most corrupt and noted "very little is known about the amounts actually embezzled". In order of amount allegedly stolen USD
, they were:
- Former Indonesian President Suharto ($15 billion – $35 billion)
- Former Philippine President Ferdinand Marcos ($5 billion – $10 billion)
- Former Zairian President Mobutu Sese Seko ($5 billion)
- Former Nigeria Head of State Sani Abacha ($2 billion – $5 billion)
- Former Yugoslav President Slobodan Milošević ($1 billion)
- Former Haitian President Jean-Claude Duvalier ("Baby Doc") ($300 million – $800 million)
- Former Peruvian President Alberto Fujimori ($600 million)
- Former Ukrainian Prime Minister Pavlo Lazarenko ($114 million – $200 million)
- Former Nicaraguan President Arnoldo Alemán ($100 million)
- Former Philippine President Joseph Estrada ($78 million - $80 million)
In modern times, several more people are added to this list (according to other sources):
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Last edited on 13 April 2021, at 04:54
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