Magnitsky Sanctions Have a Major Political Corruption Loophole
(Bloomberg Opinion) -- Australia is joining the list of countries refusing to provide a home to the proceeds of foreign political graft. If the changes are to do any good, it’s going to have to take a harder look at the corruption in its own backyard, too.
The country will introduce laws this year to impose Magnitsky-style sanctions on the perpetrators of overseas human rights abuses, corruption and other activities, Foreign Minister Marise Payne said in a statement Thursday.
Such measures, named after Russian auditor Sergei Magnitsky who died in police custody in 2009 after revealing links between officials and organized crime, are a departure from the traditional sanctions model. Instead of imposing broad-based economic penalties on the entire country, they target foreign officials where it hurts most, by preventing them from travelling and acquiring assets in the sorts of stable democracies where kleptocrats like to stash their stolen wealth.
The model for international sanctions is badly in need of an overhaul. There’s very little evidence that the traditional sort are any good at changing the policies of designated countries. Still, most of the democracies such as the U.S., U.K., Canada and Australia joining the Magnitsky movement have a gaping loophole in their own political systems that abusers will become increasingly adept at using. Unless that’s closed up, the new sanctions regime will be as ineffective as the old one.
The core problem is that political parties in rich democracies and corrupt officials in emerging economies make good business partners. Kleptocrats need somewhere to put the money that they’ve embezzled from their own people, and the prospect of a welcoming haven abroad if they fall out with the ruling elite at home. Political parties, meanwhile, need ample supplies of funds, ideally from sources who won’t interfere too much with the most visible elements of their policy platform.
In Australia, this has been an issue for years. The country introduced foreign influence laws in 2018 — designed to prevent other states meddling in the domestic political process, as opposed to Magnitsky’s measures against activities committed overseas. The first person charged under the legislation was a former candidate for the ruling Liberal party. A donor with ties to the assistant treasurer is also currently fighting a deportation order made on the basis of allegations he’d acted on behalf of the Chinese government. Similar claims have led in recent years to the resignation of a lawmaker for the opposition Labor party and a police raid on the office of another Labor lawmaker in New South Wales state. All those accused of foreign influence have denied any wrongdoing.
The benefit of Magnitsky laws is that they raise the cost of kleptocracy, by increasing the risk that perpetrators will be unable to move their cash and residency to a more secure location in London, Sydney, Toronto or New York. The problem is that this very fact also inflates the value of corrupting the host country’s political system. The best way to ensure you can still live the life of an exiled oligarch is to buy your way into the government’s good graces. Across the developed world, there’s no shortage of foreign-born billionaires who’ve made their fortunes in shady ways and been showered with honors and high-level connections after making a few well-placed philanthropic and political donations.
Even where there’s no such quid pro quo, Magnitsky laws controlled by government ministers are likely to be selectively applied against geopolitical enemies, rather than used as an impartial check on corruption. Russian oligarchs haven’t fallen under the microscope in recent years because of their questionable business dealings in the 1990s, but because of the more recent deterioration of political relations between Moscow and western democracies. Abuses by friendly governments will tend to get winked at, as the U.K.’s parliament heard this year in relation to British construction executive Ryan Cornelius, who’s been jailed in Dubai since 2008 in Magnitsky-style circumstances.
It’s not impossible to clean up this process. Governments in rich countries first need to implement strong anti-corruption laws and rules to increase the transparency of political fundraising. While elected officials should rightly have the final decision on where to implement sanctions, the designation of individuals for any Magnitsky-style regime should also be initiated publicly by an independent body, so that governments have to justify who they choose to exclude.
Sanctions against corruption are only going to work if they’re enforced against every nation without fear or favor. If rich countries hope to do that effectively, they’re going to have to set their own houses in order first.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.
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