.
O

ne would be forgiven for wondering what late pop star Michael Jackson and the world of money laundering, graft, and illicit finance have in common. The global sensation certainly had his demons and left behind a tortured estate, but a connection to an oil-rich West African state would not immediately spring to mind. Yet, in an auction house in Los Angeles, the “Thriller” singer’s estate entered this shadowy world as a woman tasked by the heir to Equatorial Guinea sought to buy as much memorabilia of the pop star as possible, including the famed bejeweled white glove—purchased for $275,000—all money that should have gone to the resource-rich, but ultimately poor country.

American Kleptocracy: How the U.S. Created the World's Greatest Money Laundering Scheme in History | Casey Michel | St. Martin’s Press | November 2021.

The story of how this came to be is just one of several penned by Casey Michel in his new book “American Kleptocracy: How the U.S. Created the World's Greatest Money Laundering Scheme in History”, which lifts the veil on how America became the destination of choice for much of the world’s ill-gotten gains. 

Michel’s book is a fast-paced, thrilling read that simplifies the complexities of money laundering and illicit finance for the lay reader. “American Kleptocracy” reads like a true crime podcast in book form, with each chapter being a new episode that I felt compelled to press “next” on. Michel brings together the worlds of high finance, politics, law enforcement, and even celebrities into a riveting read that conveys a powerful message—America is a prime destination for ill-gotten gains. One may think of Switzerland, the Cayman Islands, or some other exotic destination. In reality, it is Delaware, Nevada, and South Dakota where dirty money often looks to find a home. 

“American Kleptocracy” tells the story of money laundering and illicit finance through two parallel stories, both of which illustrate the complexity and dynamics of the challenge. One is the obvious, expected story of illicit finance—high flying, jet-setting kleptocrats—in this case Teodorin Obiang, the son of the president of Equatorial Guinea. The other is Ihor Kolomoisky, a Ukrainian oligarch who bought up aging steel mills and high-rise towers in beleaguered U.S. cities like Cleveland as a means to hide his own ill-gotten gains. 

Obiang’s story is typical of how we imagine money laundering—fleets of exotic cars, a $30 million mansion in Malibu, non-stop partying, and apparently for Obiang, a fixation on Jackson. Obiang, his father, and their extended network treated Equatorial Guinea like a personal piggy bank: extorting foreign companies operating in-country, stealing the proceeds of oil sales, and leaving the country’s citizens near the bottom of the development table. Rather than fund the country’s infrastructure and provide clean water or health care, Obiang used the country’s money to buy Jackson’s famed white glove and fly celebrities like Ludacris to his 50th birthday party. 

More subtle and arguably savvy as well, Kolomoisky used a network of proxies and fixers to identify aging properties in the Midwest and the Rust Belt. He would purchase these depreciating assets with little to no due diligence as a means of parking money he was stealing from his own financial institution PrivatBank, which in reality was little more than a glorified Ponzi scheme. While cities like Cleveland thought Kolomoisky’s purchases meant more jobs and tax revenues, Kolomoisky merely channeled his money through these cities, often driving the factories and the office buildings into the ground through poor management and failure to maintain the properties themselves. 

These stories would be riveting by themselves, but Michel brings their malfeasance home by showing how the United States became a destination of choice for kleptocrats everywhere. In pursuit of easy sources of revenue and to buoy beleaguered balance sheets, states like Delaware, South Dakota, and Nevada eschewed accountability and transparency with regulations allowing anonymous shell companies. By reducing due diligence and transparency requirements, these states rake in millions in fees and facilitate the transfer of wealth from public coffers to private individuals. While the purpose may not be to empower bad actors, these states seem willing to deal with the potential of some bad apples getting through as well as long as they could bring in fees. 

Efforts to combat money laundering and illicit finance failed to find traction until 9/11, when the US passed the USA PATRIOT Act. This act contained stringent “know your customer” and transparency requirements, but broad exceptions on things like real estate, art, private jets, and more did and continue to exist.  Ostensibly the exemptions are intended to allow the Department of the Treasury to study the impact of reporting requirements and other obligations on these industries. In practice, it merely keeps these loopholes open, allowing ill-gotten gains to flow through and into American markets. 

As Michel describes, the alarming nexus of illicit finance and American politics grew even more intertwined under the Trump Administration. The real estate magnate’s property empire thrived on expensive purchases of his buildings by anonymous buyers and shell corporations. This is to say nothing of Kolomoisky (who apparently delighted in feeding his pet sharks to intimidate potential opponents) and his role in Ukrainian politics, and his appearance in the investigation which led to the president’s first impeachment. 

“American Kleptocracy” joins a number of recent books that have highlighted the complexities and effects of kleptocratic activity the world over. Catherine Belton’s “Putin’s People” shined an uncomfortable light on Russia’s use and misuse of the global financial system for oligarchic largesse and the Kremlin’s geopolitical interests. It clearly struck a nerve as Belton herself and her publisher were aggressively sued in London’s courts—a clear example of the reputational laundering Michel highlights in a later chapter. Tom Burgis’ “Kleptopia” is, perhaps, the international counterpart to Michel’s book covering similar examples of graft and the systemic enablers of graft the world over. 

An unexpected take away from this body of work is the recognition that, in the words of the Helsinki Commission’s Paul Massaro, “our post-Cold War expectations have happened in reverse: corruption has come West rather than democracy going East.” Indeed, the democratic expansion of the post-Cold War world has stalled and appears to be retreating in earnest, a process being grossly enabled by the West’s willingness to accept dirty money, launder it through any number of means, and provide apparent legitimacy to the kleptocrats themselves. 

The national security and foreign policy implications of this are innumerable, and it is here that Michel’s book falls short. “American Kleptocracy” is, naturally, a very American-facing book, detailing how the United States became a kleptocrats paradise, but he does not detail the effects this has on America’s ability to act globally until the very end of the book, and even then, only in passing. 

Washington’s ability to constrain Russia’s activity is hamstrung by the ineffectiveness of sanctions; oligarchs can simply move their money through any number of tax havens and enjoy it abroad. The State Department’s capacity to limit the civil wars of Africa is limited by the free flow of arms which relies on money laundering and illicit finance to sustain itself. The Chinese Communist Party’s use of opaque financial structures and multiple layers of obfuscation allow it a free hand to finance favorable interest groups and media coverage. Indeed, disinformation is funded in no small part by either dirty money or money that uses clean channels for dirty ends. 

“American Kleptocracy” is an alarming book, both in how thrilling and enjoyable it is (the corrupting influence of dirty money shouldn’t be this enjoyable), but also what it says about the country right now. Kleptocracy is a truly insidious threat to countries the world over, but for democracies in particular. If Washington does not get a handle on how illicit funds enter the country, it will be ill equipped to truly handle some of the most pressing global challenges and geopolitical threats.

About
Joshua Huminski
:
Joshua C. Huminski is Director of the Mike Rogers Center for Intelligence & Global Affairs at the Center for the Study of the Presidency & Congress. He can be found on Twitter @joshuachuminski.
The views presented in this article are the author’s own and do not necessarily represent the views of any other organization.

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Land of the Free, Home of the Money Launderers

Image via Adobe Stock.

January 8, 2022

Casey Michel's "American Kleptocracy" explores how and why the United States became a premier center for money laundering among kleptocrats the world over—as well as what that means for our governance and security, writes Joshua Huminski in his latest book review.

O

ne would be forgiven for wondering what late pop star Michael Jackson and the world of money laundering, graft, and illicit finance have in common. The global sensation certainly had his demons and left behind a tortured estate, but a connection to an oil-rich West African state would not immediately spring to mind. Yet, in an auction house in Los Angeles, the “Thriller” singer’s estate entered this shadowy world as a woman tasked by the heir to Equatorial Guinea sought to buy as much memorabilia of the pop star as possible, including the famed bejeweled white glove—purchased for $275,000—all money that should have gone to the resource-rich, but ultimately poor country.

American Kleptocracy: How the U.S. Created the World's Greatest Money Laundering Scheme in History | Casey Michel | St. Martin’s Press | November 2021.

The story of how this came to be is just one of several penned by Casey Michel in his new book “American Kleptocracy: How the U.S. Created the World's Greatest Money Laundering Scheme in History”, which lifts the veil on how America became the destination of choice for much of the world’s ill-gotten gains. 

Michel’s book is a fast-paced, thrilling read that simplifies the complexities of money laundering and illicit finance for the lay reader. “American Kleptocracy” reads like a true crime podcast in book form, with each chapter being a new episode that I felt compelled to press “next” on. Michel brings together the worlds of high finance, politics, law enforcement, and even celebrities into a riveting read that conveys a powerful message—America is a prime destination for ill-gotten gains. One may think of Switzerland, the Cayman Islands, or some other exotic destination. In reality, it is Delaware, Nevada, and South Dakota where dirty money often looks to find a home. 

“American Kleptocracy” tells the story of money laundering and illicit finance through two parallel stories, both of which illustrate the complexity and dynamics of the challenge. One is the obvious, expected story of illicit finance—high flying, jet-setting kleptocrats—in this case Teodorin Obiang, the son of the president of Equatorial Guinea. The other is Ihor Kolomoisky, a Ukrainian oligarch who bought up aging steel mills and high-rise towers in beleaguered U.S. cities like Cleveland as a means to hide his own ill-gotten gains. 

Obiang’s story is typical of how we imagine money laundering—fleets of exotic cars, a $30 million mansion in Malibu, non-stop partying, and apparently for Obiang, a fixation on Jackson. Obiang, his father, and their extended network treated Equatorial Guinea like a personal piggy bank: extorting foreign companies operating in-country, stealing the proceeds of oil sales, and leaving the country’s citizens near the bottom of the development table. Rather than fund the country’s infrastructure and provide clean water or health care, Obiang used the country’s money to buy Jackson’s famed white glove and fly celebrities like Ludacris to his 50th birthday party. 

More subtle and arguably savvy as well, Kolomoisky used a network of proxies and fixers to identify aging properties in the Midwest and the Rust Belt. He would purchase these depreciating assets with little to no due diligence as a means of parking money he was stealing from his own financial institution PrivatBank, which in reality was little more than a glorified Ponzi scheme. While cities like Cleveland thought Kolomoisky’s purchases meant more jobs and tax revenues, Kolomoisky merely channeled his money through these cities, often driving the factories and the office buildings into the ground through poor management and failure to maintain the properties themselves. 

These stories would be riveting by themselves, but Michel brings their malfeasance home by showing how the United States became a destination of choice for kleptocrats everywhere. In pursuit of easy sources of revenue and to buoy beleaguered balance sheets, states like Delaware, South Dakota, and Nevada eschewed accountability and transparency with regulations allowing anonymous shell companies. By reducing due diligence and transparency requirements, these states rake in millions in fees and facilitate the transfer of wealth from public coffers to private individuals. While the purpose may not be to empower bad actors, these states seem willing to deal with the potential of some bad apples getting through as well as long as they could bring in fees. 

Efforts to combat money laundering and illicit finance failed to find traction until 9/11, when the US passed the USA PATRIOT Act. This act contained stringent “know your customer” and transparency requirements, but broad exceptions on things like real estate, art, private jets, and more did and continue to exist.  Ostensibly the exemptions are intended to allow the Department of the Treasury to study the impact of reporting requirements and other obligations on these industries. In practice, it merely keeps these loopholes open, allowing ill-gotten gains to flow through and into American markets. 

As Michel describes, the alarming nexus of illicit finance and American politics grew even more intertwined under the Trump Administration. The real estate magnate’s property empire thrived on expensive purchases of his buildings by anonymous buyers and shell corporations. This is to say nothing of Kolomoisky (who apparently delighted in feeding his pet sharks to intimidate potential opponents) and his role in Ukrainian politics, and his appearance in the investigation which led to the president’s first impeachment. 

“American Kleptocracy” joins a number of recent books that have highlighted the complexities and effects of kleptocratic activity the world over. Catherine Belton’s “Putin’s People” shined an uncomfortable light on Russia’s use and misuse of the global financial system for oligarchic largesse and the Kremlin’s geopolitical interests. It clearly struck a nerve as Belton herself and her publisher were aggressively sued in London’s courts—a clear example of the reputational laundering Michel highlights in a later chapter. Tom Burgis’ “Kleptopia” is, perhaps, the international counterpart to Michel’s book covering similar examples of graft and the systemic enablers of graft the world over. 

An unexpected take away from this body of work is the recognition that, in the words of the Helsinki Commission’s Paul Massaro, “our post-Cold War expectations have happened in reverse: corruption has come West rather than democracy going East.” Indeed, the democratic expansion of the post-Cold War world has stalled and appears to be retreating in earnest, a process being grossly enabled by the West’s willingness to accept dirty money, launder it through any number of means, and provide apparent legitimacy to the kleptocrats themselves. 

The national security and foreign policy implications of this are innumerable, and it is here that Michel’s book falls short. “American Kleptocracy” is, naturally, a very American-facing book, detailing how the United States became a kleptocrats paradise, but he does not detail the effects this has on America’s ability to act globally until the very end of the book, and even then, only in passing. 

Washington’s ability to constrain Russia’s activity is hamstrung by the ineffectiveness of sanctions; oligarchs can simply move their money through any number of tax havens and enjoy it abroad. The State Department’s capacity to limit the civil wars of Africa is limited by the free flow of arms which relies on money laundering and illicit finance to sustain itself. The Chinese Communist Party’s use of opaque financial structures and multiple layers of obfuscation allow it a free hand to finance favorable interest groups and media coverage. Indeed, disinformation is funded in no small part by either dirty money or money that uses clean channels for dirty ends. 

“American Kleptocracy” is an alarming book, both in how thrilling and enjoyable it is (the corrupting influence of dirty money shouldn’t be this enjoyable), but also what it says about the country right now. Kleptocracy is a truly insidious threat to countries the world over, but for democracies in particular. If Washington does not get a handle on how illicit funds enter the country, it will be ill equipped to truly handle some of the most pressing global challenges and geopolitical threats.

About
Joshua Huminski
:
Joshua C. Huminski is Director of the Mike Rogers Center for Intelligence & Global Affairs at the Center for the Study of the Presidency & Congress. He can be found on Twitter @joshuachuminski.
The views presented in this article are the author’s own and do not necessarily represent the views of any other organization.