In the weeks since Russia invaded Ukraine, the United States, Europe, and nations around the world have responded with a wide array of economic sanctions, some targeting Russian oligarchs perceived to be close to President Vladimir Putin. The coalition hopes that by seizing the assets of the billionaire businessmen, many of whom lead important Russian institutions and companies and may be a crucial source of support for Putin, the Russian president could face substantial pushback on his plans.
To better understand the connection between global corruption and sanctions, Harvard Law Today talked with Matthew Stephenson ’03, the Eli Goldston Professor of Law and an expert on anticorruption law and legislation. Stephenson, who focuses his scholarship on anticorruption reform from an international and comparative perspective, also runs the Global Anticorruption Blog, which is devoted to promoting analysis and discussion of the problem of corruption around the world. During the ongoing crisis in Ukraine, the blog and its related podcast KickBack have highlighted content and interviews with experts shedding light on how corruption relates to the ongoing crisis.
In an interview with Harvard Law Today, Stephenson explains the myriad ways corruption may play a role in the current conflict — including its origin.
Harvard Law Today: What role do you think corruption has played in this conflict?
Matthew Stephenson: I am neither a Russia expert nor a Ukraine expert, but some of the experts that I’ve spoken to have suggested that corruption and anticorruption have played more of a role in the emergence of the current conflict than some observers tend to appreciate. There are two related arguments here. One is that Russia launched this war in Ukraine in part as a kind of classic “Wag the Dog” diversionary tactic to take attention off of the failings of the Putin regime, and, in particular, growing resentment over extreme wealth inequality, much of which is due to corruption. This is not implausible. There’s a long history of governments in trouble trying to deflect attention with foreign wars.
The other argument that I’ve heard from some Ukraine experts concerns developments in Ukraine. President Zelenskyy, who has been an extraordinary wartime leader in a way that many people would never have expected, ran for president on an anticorruption platform. Now, I would say that my Ukrainian anticorruption activist friends gave him mixed reviews in terms of the progress that he was making on the corruption problem, but overall his administration did seem to be pushing ahead with meaningful anticorruption and good government reforms. Some experts I’ve spoken to have argued that this progress was threatening to Putin and the people around him. In other words, while the idea that Ukraine presented some kind of military threat to Russia is not terribly plausible, the changes in Ukraine could be a kind of political or cultural threat to the Putin regime, because it shows another path is possible.
Now, is that enough to promote an invasion by itself? Probably not. But it may be an important part of the larger story — and it’s especially notable, in this regard, that apparently Russia has indicated an interest in reinstalling former Ukranian president and Putin crony Viktor Yanukovych, who was outrageously corrupt. Ukraine’s admittedly halting and uneven good government reforms might have played a role in the increasing tensions between Ukraine and Russia, and the increasing bellicosity of the Putin regime. I wouldn’t go so far as to say this is the reason for the current war, but it is probably more relevant to the Putin regime’s antipathy toward the current Ukrainian government than concerns about NATO expansion, which I think have been greatly overblown, or concerns about alleged persecution of Russian speakers in eastern Ukraine.
HLT: The international community is scrambling to deter President Vladimir Putin with targeted sanctions against Kremlin-linked individuals and businesses — many of whom are suspected of large-scale corruption. Who are these oligarchs and what is their relationship with Putin?
Stephenson: I don’t consider myself an expert on the intricacies of Russian politics. That’s important because we sometimes speak about “the oligarchs” as if it’s one relatively homogenous group of people with one kind of relationship to Putin and the regime. And we sometimes refer to the oligarchs and the Russian political elite as if they were synonymous. But my understanding, based on having had the opportunity to speak with people who are more knowledgeable than I am, is that it’s much more complicated.
There is a set of extremely wealthy Russian businessmen, who we typically refer to as the oligarchs, who have varying degrees of closeness to Putin and his administration. It’s an internally diverse group, but basically, these are people who the government has allowed to become more obscenely wealthy than they already were, because they were willing to lend their support to the regime, or at the very least not oppose it. We learned some years back from the experience of some of these oligarchs who decided they were going to try to take on Putin and were crushed, jailed, etc, that it’s very dangerous to try to use your economic position to challenge Putin politically. And so, the people that remain are basically people who are either supportive of, or at least acquiesce to, Putin’s leadership. A lot of them have extraordinary wealth that comes from corrupt sources.
But these oligarchs are not necessarily the people on whom Putin most depends to stay in power, at least not in the short to medium term. The network keeping Putin in power are the people in the security services, Putin’s old buddies from the KGB, the military, and also wealthy people within Russia including in sectors like the defense and security. These aren’t necessarily the people we’ve heard of, but they may be more important to Putin in terms of him keeping his grip on power.
HLT: What impact, if any, will sanctions against Russian oligarchs have on Putin’s actions?
Stephenson: I think the optimistic idea that some of us might have had is that if you crack down on these Russian billionaires, they’ll be able to go to Putin and get him in a room and say, ‘You got to knock this off’ — while I would like to believe that story is true, the experts on Russian politics that I’ve talked to have suggested to me that it’s probably not true, in the short term. We might like to believe there’s kind of a mutual dependency between Putin and the oligarchs — where the oligarchs depend on Putin, but Putin also depends on the support of the oligarchs — but my understanding is that the dependency runs more in one direction: the oligarchs need Putin more than he needs them. So there’s not very much the so-called oligarchs, the ones whose yachts and private planes are being targeted, can do, in the short term, to change Putin’s mind or change the regime. We have seen some of the oligarchs making noises about being opposed to war, generally, but not coming out strongly against what the administration is doing.
The longer term may be a different story. In the medium- to longer term, there is the possibility that this could have an impact. If enough people are really taking enough of a hit, and it becomes difficult for the Russian state to compensate them, directly or indirectly, this might start to weaken Putin’s grip on power, and might start to lead to more pressure for reform.
Unfortunately, I don’t think this is going to happen fast enough to help the Ukrainians on the battlefield. I’m not a military expert, any more than I’m a Russian politics expert, but my impression is that while we can expect that the sanctions, and Russia’s isolation from the global economy, will eventually have a significant political impact. But the idea that within a few weeks or months the oligarchs will turn on Putin and then Putin will either fall or have to change his policy, I think that’s overly optimistic.
HLT: In a recent blog post, you highlight the role of corruption in the Russian defense sector. What impact could corruption in the military have on the war in Ukraine?
Stephenson: Right now, we don’t really know whether corruption in the Russian military and defense sector is having a meaningful impact on the effectiveness of Russia’s armed forces on the battlefield. With the fog of war, all the news that’s coming out of Ukraine is uncertain. But there have been some preliminary reports that are suggestive of the possibility that some of the logistical and operational difficulties that the Russian forces are encountering are partially the consequence of widespread corruption in the Russian military and defense sector. I don’t know if that’s true, but it strikes me as plausible, given that there’s a lot of evidence from many countries around the world that widespread corruption in the defense sector can undermine military effectiveness quite significantly. It’s also been well documented that corruption in the Russian defense sector has been widespread for many, many years. So it would actually surprise me if corruption hadn’t had any adverse effects on Russian military effectiveness. What we really don’t know is whether those effects are large enough to be consequential with respect to what’s happening right now on the battlefield.
HLT: The U.S. Treasury and Western allies have initiated unprecedented and expansive sanctions against Russia. What additional tools are available for U.S. and European countries?
Stephenson: United States law gives the administration pretty broad discretion to impose sanctions on individuals on grounds of national security. I believe that’s the principal sanctions program that’s being deployed in this case. The list of targeted individuals will probably expand. The sanctions list is already pretty long, and it’s going to get longer, as I think it should. Regardless of whether these sanctions will have a short-term effect on Russian policy, we should be trying to staunch the flow of dirty money into the West and Western institutions.
Speaking of which, anticorruption activists, human rights activists, and others have been calling for more aggressive action against the flow of dirty money from Russia and elsewhere into Western economies for years. And to be fair, it’s not like the West had done nothing. A lot of wealthy Russians were already on the U.S. sanctions list, following the murder of Sergei Magnitsky and the passage of the Magnitsky Act, and following previous Russian military aggression against Ukraine, especially the annexation of Crimea. But this most recent invasion seems to have prompted much more attention to the larger problem of Western dependence on often dirty Russian money.
Indeed, before this most recent invasion of Ukraine, there was great concern that there wasn’t enough effort to take Russia and the threat Russia posed to international security seriously, precisely because so many people in the West were making so much money from Russian sources. And I think Putin probably thought this too — that the invasion would result in some sanctions from some countries, but they would be relatively weak, limited, and easily evaded or tolerated. But as it’s turned out, the number of people and institutions that have been sanctioned, and the fact that they’re being sanctioned by so many different countries — that is new. I think Putin crossed a line that he didn’t realize he was going to cross and turned the West against him with an extraordinary united front.
HLT: Last June, President Biden established the fight against corruption as a “core national security interest of the United States,” and in December, the White House published a “United States Strategy for Countering Corruption.” What are your observations of the strategy and has it in any way prepared the U.S. for this moment?
Stephenson: So, it wasn’t like this is the first time the U.S. government or a U.S. president had mentioned the importance of fighting corruption around the world. Plenty of previous administrations had talked about corruption in some form or another. But the Biden administration’s publication of an anticorruption strategy document was nevertheless significant. I believe this was the first time the White House had put out a comprehensive document like this, one that laid out the reasons why fighting corruption around the world was a key U.S. foreign policy and national security interest, and that outlined a comprehensive strategy for addressing that problem.
In terms of the content of the document — the particular policies and initiatives that it announces — there’s not much that’s new or terribly innovative. So I guess I would say that the document is mostly symbolic. But symbolism is important. It’s important because in government bureaucracies, when people are competing for time, attention, and resources, the people who want to put emphasis on corruption can point to this document — or they may not even need to point to it, because everyone knows it’s out there. The fact that this document essentially says that the White House thinks this is an important issue gives the people who want their agencies or divisions to prioritize anticorruption concerns a kind of clout. And the document is probably helpful internationally as well. It seems to me that one of the reasons for putting it out is to try to reclaim U.S. leadership in this field, which had taken a huge hit during the Trump administration.
HLT: While the focus today is on Russia, many U.S. allies, including Ukraine, are reported to suffer from significant levels of corruption. What more can be done in the fight against corruption?
Stephenson: I think the emphasis in the fight against corruption has been shifting somewhat over the last decade. The anticorruption movement started out focused mainly on things like embezzlement and bribery — the stereotypical suitcases full of cash and the like. That’s obviously still a central problem, but there has been increasing attention to what happens to those ill-gotten gains afterwards, and an increasing recognition that to effectively combat so-called grand corruption, you need to go after the money, especially when it’s not possible to go after the criminals directly.
So, there’s a lot of emphasis now on fighting money laundering. Money laundering is of course not just about corruption — it’s also about drug trafficking, arms dealing, human trafficking, and other crimes — but anticorruption activists and reformers rightly recognized that strengthening and improving the anti-money laundering system is essential to the fight against grand corruption. As part of that effort, there’s now more attention than there has been in the past on the so-called “enablers” — the bankers, accountants, real estate agents, and (I am ashamed to say) lawyers — who often play a key role in facilitating illicit financial flows and helping kleptocrats and oligarchs hide their assets.
As I suggested earlier in our conversation, I think the recent events in Ukraine, horrifying and tragic as they are, may actually have a positive political effect in spurring Western governments to crack down on dirty money and the enablers.
Another important development in this area concerns progress against the problem of anonymous companies. The United States finally, after nearly two decades of lobbying by advocacy groups, passed a statute called the Corporate Transparency Act, which will require the private companies and other legal entities to identify the real human beings who own or control them — the so-called “beneficial owners.” Right now, the U.S. Treasury Department’s Financial Crimes Enforcement Network is in the process of developing rules to implement the Corporate Transparency Act’s provisions, and those who work in this area are watching closely to see how aggressive those rules will be and what loopholes will remain.
So when you ask, ‘what more can be done to fight corruption,’ there are a lot of things — too many to list. Countries around the world need to strengthen their systems for auditing public programs. Existing antibribery laws need to be enforced more vigorously. The institutions responsible for implementing anticorruption policy and enforcing the relevant laws need more resources, and need to have adequate safeguards for their independence. The U.S. government should support these and other efforts. But at the global level, if I had to pick one area to focus on, it would be on addressing the role that people and institutions in affluent countries have played in enabling international flows of dirty money. I hope the spotlight that is now shining on all these Russian oligarchs and Kremlin allies who have property, bank accounts, and other assets in places like London, New York, and Paris will help to shift the politics of this issue in a productive direction.