Kleptocracy

Contents

The term kleptocracy is derived from two Greek words:

κλέπτης (kléptēs) which means “thief”
κράτος (krátos) which means “power, rule”

In a typical kleptocracy, those in power (the kleptocrats) use their political power to take assets from those they govern to enrich themselves way beyond the enrichment that comes with lawfully earning a salary and similar payments for ones work. This can for instance take place through corruption (bribes, kick-backs, special favours), embezzlement, misappropriation of government funds, and outright appropriation of assets belonging to individuals, corporations, etcetera.

A traditional democracy where individuals and organizations are forced to pay taxes and those taxes are used to pay for public services and similar is not considered a kleptocracy. A kleptocracy is typically characterized by the lack of rule-of-law for the kleptocrats and a strong presence of human rights violations.

Many different types of governments can turn into kleptocracies, although historically, non-democracies seem to come with a higher risk. This includes dictatorships, oligarchies, military juntas, and more.

Corrupt Legislation

Examples

Impacts of a kleptocratic regime

The effects of a kleptocractic regime are typically highly negative for the welfare of the state. Among other things, it has a tendency to:

Weaken the domestic economy
Diminish the prospects of foreign investment
Weaken cross-border trade
Divert tax money or foreign aid earmarked for things such as hospitals, schools, roads, into the pockets of those in charge.
Give contracts for public investments (e.g. construction work, road work) and similar to companies with ties to those in charge, which often have a detrimental impact on quality.

Kleptocrats often export much of their ill-gotten gains abroad, which further weakens the domestic economy.

Is raubwirtschaft the same as kleptocracy?

Raubwirtschaft, a term borrowed from the German language, denotes a “plunder economy” where the economy of a state is based on the plundering of other countries and/or conquered and subjugated territories. It is thus not a kleptocracy is the normal sense of the word.

Moving stolen assets out of a kleptocracy

In a kleptocracy or society with strong kleptocratic tendencies, it is common for the kleptocrats to move much of their resources abroad in order to safeguard them, to be able to enjoy them abroad, and to create savings that can be used after loosing ones position in the kleptocracy.

A commonly utilized step-by-step method to laundry stolen money:

The kleptocrat has anonymous shell companies created. A series or network of interlocking shell companies can be formed to make the concealment even better. During this step, it is common to appoint directors that work as figureheads and help conceal who is actually in charge of and benefit from the shell companies.
Money is transferred to one or more shell companies in the network.
From the shell companies, the kleptocrat uses accounts that are subject to weak (or no) anti-money laundering rules and procedures to transfer money into the international financial system.
The transferred money is used to buy legitimate assets abroad, preferably assets that also provide a reasonably believable story about where the money spent by the kleptocrat comes from. Assets can also be bought, re-sold and the money mingled with other money to obscure the origin of the stolen money. Buying real estate is a popular choice during stage four. Real estate can be kept and generate a continuous seemingly legitimate income, and it can also be used as collateral for mortgage loans. Another option is to sell the real estate again, sometimes in a complicated network where new stolen money is used to buy an asset already owned by the thief.

It should be noted that some kleptocrats also engage is “reputation laundering”, by

Using stolen money to hire lawyers to suppress journalistic scrutiny regarding the origin of the wealth.
Using stolen money to pay for PR firms and similar that help create a positive public image of the kleptocrat.
Donating or investing stolen money in ways that boost positive reputation and builds useful connections, e.g. buying expensive art and lending it to museums or investing in popular sports team and sponsoring sports events.

Suharto – a famous example of immense presidential embezzlement

One famous example of a kleptocrat is the Indonesian President Suharto (1921-2008) who ruled Indonesia from the fall of Sukarno in 1967 to his own resignation in 1998. During that period, he somehow amassed a US$38 billion net worth.

Suharto was born to Javanese Muslim parents when Indonesia was still a Dutch colony named Dutch East Indies. During World War II, the Dutch East Indies was occupied by Japan and Suharto served in the Japanese-organized Indonesian security forces. Following the Japanese surrender in 1945, Indonesian nationalists declared independence. During Indonesia’s independence struggle, Suharto joined the newly formed Indonesian Army. By the time full Indonesian independence was achieved, Suharto had rose to the rank of Major general.

The first president of Indonesia was Sukarno. In late September and early October 1965, an attempted coup against him was “countered” by Suharto-led troops. According to Indonesian Army, the attempted coup was backed by the Communist Party of Indonesia. Therefore, the army launched an anti-communist purge, which ended in Suharto replacing Sukarno and becoming the second president of Indonesia.

Suharto was appointed acting president in 1967 and elected president in 1968. Under this “New Order” program, he built a highly centralized and military-dominated government. During the Cold War era, he had strong support from the West due to his clear and successful anti-communist stance. He was also recognized for the strong economic growth that occurred in Indonesia under his presidency, the significant industrialisation of the country and the improved levels of educational attainment. After the crumbling of the East bloc, voices criticising Suharto gained more traction even in the West, and his regime was now described as highly authoritarian and plagued by widespread corruption. Following the 1997 Asian financial crisis, Suharto resigned in May 1998.

According to the German NGO Transparency International, Suharto embezzled US$15-35 billion during his presidency.

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