[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
CORRUPTION: A DANGER TO DEMOCRACY IN EUROPE AND EURASIA
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON EUROPE, EURASIA, AND EMERGING THREATS
OF THE
COMMITTEE ON FOREIGN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
DECEMBER 7, 2016
__________
Serial No. 114-240
__________
Printed for the use of the Committee on Foreign Affairs
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COMMITTEE ON FOREIGN AFFAIRS
EDWARD R. ROYCE, California, Chairman
CHRISTOPHER H. SMITH, New Jersey ELIOT L. ENGEL, New York
ILEANA ROS-LEHTINEN, Florida BRAD SHERMAN, California
DANA ROHRABACHER, California GREGORY W. MEEKS, New York
STEVE CHABOT, Ohio ALBIO SIRES, New Jersey
JOE WILSON, South Carolina GERALD E. CONNOLLY, Virginia
MICHAEL T. McCAUL, Texas THEODORE E. DEUTCH, Florida
TED POE, Texas BRIAN HIGGINS, New York
MATT SALMON, Arizona KAREN BASS, California
DARRELL E. ISSA, California WILLIAM KEATING, Massachusetts
TOM MARINO, Pennsylvania DAVID CICILLINE, Rhode Island
JEFF DUNCAN, South Carolina ALAN GRAYSON, Florida
MO BROOKS, Alabama AMI BERA, California
PAUL COOK, California ALAN S. LOWENTHAL, California
RANDY K. WEBER SR., Texas GRACE MENG, New York
SCOTT PERRY, Pennsylvania LOIS FRANKEL, Florida
RON DeSANTIS, Florida TULSI GABBARD, Hawaii
MARK MEADOWS, North Carolina JOAQUIN CASTRO, Texas
TED S. YOHO, Florida ROBIN L. KELLY, Illinois
CURT CLAWSON, Florida BRENDAN F. BOYLE, Pennsylvania
SCOTT DesJARLAIS, Tennessee
REID J. RIBBLE, Wisconsin
DAVID A. TROTT, Michigan
LEE M. ZELDIN, New York
DANIEL DONOVAN, New York
Amy Porter, Chief of Staff Thomas Sheehy, Staff Director
Jason Steinbaum, Democratic Staff Director
------
Subcommittee on Europe, Eurasia, and Emerging Threats
DANA ROHRABACHER, California, Chairman
TED POE, Texas GREGORY W. MEEKS, New York
TOM MARINO, Pennsylvania ALBIO SIRES, New Jersey
MO BROOKS, Alabama THEODORE E. DEUTCH, Florida
PAUL COOK, California WILLIAM KEATING, Massachusetts
RANDY K. WEBER SR., Texas LOIS FRANKEL, Florida
REID J. RIBBLE, Wisconsin TULSI GABBARD, Hawaii
DAVID A. TROTT, Michigan
C O N T E N T S
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Page
WITNESSES
Mr. Charles Davidson, executive director, Kleptocracy Initiative,
Hudson Institute............................................... 5
Mr. Ivan Vejvoda, senior vice president for programs, The German
Marshall Fund of the United States............................. 10
Mr. Sergei Kolesnikov (former co-founder of Petromed Holding).... 23
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Mr. Charles Davidson: Prepared statement......................... 7
Mr. Ivan Vejvoda: Prepared statement............................. 12
Mr. Sergei Kolesnikov: Prepared statement........................ 25
APPENDIX
Hearing notice................................................... 48
Hearing minutes.................................................. 49
The Honorable Gerald E. Connolly, a Representative in Congress
from the Commonwealth of Virginia: Prepared statement.......... 50
CORRUPTION: A DANGER TO DEMOCRACY IN EUROPE AND EURASIA
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WEDNESDAY, DECEMBER 7, 2016
House of Representatives,
Subcommittee on Europe, Eurasia, and Emerging Threats,
Committee on Foreign Affairs,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:05 a.m., in
room 2172, Rayburn House Office Building, Hon. Dana Rohrabacher
(chairman of the subcommittee) presiding.
Mr. Rohrabacher. I hereby call this hearing of the Europe,
Eurasia, and Emerging Threats Subcommittee into order. This
will be the final subcommittee event of the year, and I must
say it has been a pleasure to chair this subcommittee and to
serve with my friend and colleague and ranking member, Mr.
Meeks.
Mr. Meeks, thank you so much. We have had a good 2 years
together here. We will see what happens next time around. No
one knows. I very much look forward to continued collaboration
one way or the other in the new Congress.
So with that said, for this hearing we are focusing on
corruption in Europe and Eurasia. This issue has not been
really the recipient of much attention. It certainly hasn't
received the attention it deserves. Both globally and in
particular countries this committee oversees it seems that this
issue just hasn't really been touched on. It is like maybe some
sort of a hot stove.
But the corruption, we have to recognize, has been a major
factor since the end of the cold war in the former Soviet
states. These countries have worked with various degrees of
success to privatize their own state-owned industries and build
various institutions that allow for democracy and prosperity.
In short, for them corruption has been a common stumbling
block to progress, as it is also, as we recognize, in Third
World countries, whether or not it is petty corruption, perhaps
by a police officer who is looking to give you a ticket or, at
a grander level of corruption, where private interests actually
capture control of large chunks of state assets. It hampers
reforms, corruption holds back economic growth, and in far too
many cases it also impoverishes low-income populations in
countries that could be doing much better for their entire
population.
Now, when government institutions serve private interests,
enriching oligarchs and enriching politicians instead of
addressing the needs of its people, that undermines the faith
in government and the rule of law, it undermines the basic
stability and any chance for prosperity, at least any chance
for ordinary people to live in prosperity in these countries.
Hence, if we understand the general aim of U.S. policy as
promoting prosperous, peaceful, and pluralistic countries,
fighting corruption should be at the center of that effort.
Unfortunately, it is not, and perhaps because there are
powerful Western accomplices to these crimes of corruption in
developing countries.
While we should call out and hold accountable corrupt
officials, it is important to understand that in some places
corruption is the rule, not the exception. I would like to cite
a recent survey released by Transparency International that
found that one in three people living in Europe and Central
Asia believe corruption to be one of the largest problems of
their country.
Policymakers in the United States and Europe need to think
about broad and systematic approaches to this challenge. For
example, Western banks, are they complicit in money laundering
for corrupt officials? Does that make them an accomplice to the
theft of resources that should serve the poorest and most
vulnerable people of the world, but instead those resources are
being utilized and the profit from it are going to large
financial institutions in cooperation with local gangsters and
thugs in those countries?
What about us? Could we do more to ensure that corrupt
officials can't store their ill-gotten gains in Western banks
or use it to buy property or businesses in our country?
This is too much for today, it is too much for just today,
but it will be the subject for an investigative hearing or
investigative hearings in the years ahead, whether I am here or
not.
I am looking forward to a discussion today of these things
with our witnesses, and I look forward to their testimonies.
And without objection, their written statements will be made
part of the record.
And I will turn to my ranking member, Mr. Gregory Meeks.
Mr. Meeks. I want to thank you, Mr. Chairman, for calling
this timely hearing--our last. I guess, this will be our last
of the 114th Congress----
Mr. Rohrabacher. That is why it was timely.
Mr. Meeks [continuing]. To discuss the role of corruption
and eroding democracy in Europe. And I do appreciate your
cooperation in working together over the last couple--last 4
years actually--and to work more on Europe together. My
intentions are to stay here, you know, we will be in the next
Congress--unless you, of course, have other plans.
Mr. Rohrabacher. We will see. Don't count on it.
Mr. Meeks. So hopefully we will do this again.
The fight against corruption is a civic duty, and I am
against corruption here in the United States just as much as I
am against corruption in Ukraine, France, and Russia, or
anywhere on the planet. I think we can all agree on that. And
corruption is often ill-defined, ambiguous, and sometimes woven
in with cultural norms.
Yet, while it take many forms, we know that it has costs.
When bad actors in the public sector use political power to
enrich themselves, there are consequences. The state is less
effective and citizens less trusting of its political leaders.
They do not act alone. Government officials who steal
public money often use legal loopholes to launder their loot
abroad in real estate or offshore accounts. This is done by
employing willing enablers, lawyers or business partners, who
take the money while looking the other way.
Now, I have found it important when speaking of corruption
in Europe that I can't avoid mentioning particularly the role
of the Russian Government and Russia itself in exporting
corruption abroad. The Russian Government has successfully
muddied the waters in the media and politics with its dirty
money in neighboring countries looking to reform, notably
Ukraine, Moldova, and Montenegro. This is very troubling.
Furthermore, the Russian taxpayer rubles have found
sanctuary here in the United States and across Europe, giving
us more reason for concern. And while Ukraine struggles to
reform and create ambitious, transparent systems for the
benefit of its people, we see Russian businesses and
politicians with significant influence in trying to make us
think that Ukraine can never reform.
It is not only a morally troubling situation, it is also a
national security question. It is one thing to look away when
another country's government robs its own people; it is another
to allow that government to use its citizens' money to corrupt
and meddle in our democratic, rule-of-law-based society.
This is the one reason I will continue to demand--I will
continue to demand--here in the United States that President-
elect Trump release his tax returns and completely divest from
his international companies. The American people have a right
to know who our President may be beholden to.
Now, fortunately for some of us, there are brave
investigative journalists, lawyers, and activists who have shed
light on the kleptocracy in the Kremlin and the way the Russian
people are worse off because of it. Because Russia did not
successfully reform after the fall of the Soviet Union and yet
is home to vast amounts of natural resources, it is ripe
territory for corruption at the highest levels.
One of those brave men is here with us today. And I want to
thank Mr. Kolesnikov for your bravery and work for the Russian
people. I look forward to hearing your testimony and your
firsthand knowledge of what drives the highest levels of
Russian Government.
I want to let you know that there is a reason why we should
focus on Russia here today. It is because we believe that
Russia is an important country, a potential partner. Russia can
be better, can reform, and can be democratic and can be free.
As a senior member of the Financial Services Committee, I
am also deeply interested in how we can safeguard our financial
institutions from corruption. It is that vulnerability to
foreign and malign influences that worries me. What laws should
we consider to amend beneficial ownership, for example? What
are the risks today to American sovereignty in these areas?
So, again, I want to thank you and all of our witnesses.
And I look forward to working with my colleagues and to keep
America and our allies safe from the unvirtuous spiral of
corruption. And I yield back.
Mr. Rohrabacher. We have been joined by two of our other
colleagues. Do either of our other colleagues have an opening
statement?
Mr. Connolly, you are welcome to. You are not on the
committee, but you are welcome to have an opening statement.
Mr. Connolly. Thank you, Mr. Chairman.
And I want to associate myself with the remarks just made
by my good friend from New York. And I also salute the bravery
of our guest witness here today. Thank you for participating.
And I would ask unanimous consent my full statement be
entered into the record at this time.
Mr. Rohrabacher. Without objection.
Mr. Connolly. I thank the chair, and I thank my good friend
Mr. Meeks.
Mr. Rohrabacher. And Mr. Weber has decided not to have an
opening statement; although, I am sure he would like to comment
on how the Democratic candidates deserve to be investigated in
our last election in their financial dealings as well. But I
won't put words into his mouth, but I thought somebody needed
to make that point.
So with that said, I would like to welcome the witnesses.
And if we could, if you could summarize your testimony in 5-
minute segments, and then we will get into the questions and
answers. And what I will do is I will introduce all of you and
then we will start with Mr. Davidson after this introduction.
So we have Charles Davidson, who is the executive director
of Kleptocracy Initiative at the Hudson Institute, as well as
being the publisher of the American Interest magazine. The
Kleptocracy Initiative and its stated goal is to conduct
original research into the growing threat posed by democracies
by autocratic regimes structured as kleptocracies.
And I think it will be very fascinating to get into some
definitions, not only kleptocracy but exactly what is
corruption and what is not corruption. And looking forward to
your testimony.
And then we have also with us Ivan Vejvoda, who is a senior
vice president for programs at the German Marshall Fund here in
Washington. From 2010 to 2013 he was the executive director of
that organization's Balkan Trust for Democracy Program. Before
that, he was an adviser to the Serbian Government and a long-
time advocate of democracy in that region and honest
government.
And we have also with us today, and as we heard from Mr.
Meeks, a Russian-born businessman, Mr. Sergei Kolesnikov.
Is that right? Did I get it?
Mr. Kolesnikov. Kolesnikov.
Mr. Rohrabacher. Okay. And we are very happy to have you
with us today.
He is a Russian-born businessman who has traveled from
outside the United States to come here today to testify at this
hearing. In 2010, he left Russia and went to the press about
certain allegations of high-level corruption within the Russian
Government.
So today we are going to be focusing on corruption both in
theory and definitions of what is and what is taking place, but
also in specifics in terms of different examples of corruption
that are going on and how they impact--which is important--how
that corruption impacts the people of the countries which are
suffering from that corruption of their government.
So with that said, Mr. Davidson, you may begin your 5-
minute presentation.
STATEMENT OF MR. CHARLES DAVIDSON, EXECUTIVE DIRECTOR,
KLEPTOCRACY INITIATIVE, HUDSON INSTITUTE
Mr. Davidson. Mr. Chairman, Ranking Member Meeks, and
distinguished members of the subcommittee, I appreciate the
invitation to appear before you today. And I must say, these
opening statements were so impressive to me. I think that
Chairman Rohrabacher's statement perfectly summarizes the
overall issue. And I agree with everything that Mr. Meeks said.
So I will try to run through my statement very rapidly and
touch on this enabler issue which was brought up, and go to the
conclusions as to what we can do about this sort of thing. So I
am going to gloss over agreeing with you on these various
matters.
And in terms of what corruption does to societies in
undermining rule of law, subverting institutions, encouraging
cultures of lawlessness, how it impoverishes the citizens of
these countries, we all see this. I think it is worth reminding
ourselves again and again that the Maidan Revolution was really
about corruption. All those young people were talking about
corruption all the time. It was really the driver of that
revolution.
And in terms of the definitions and how all this evolved,
institutionalized corruption, when it becomes the norm and
consolidates its political power and we get actual state
capture, that is what we talk about at least in terms of being
kleptocracy. It is when corruption has really taken over the
state and we get the rule of thieves.
And obviously, these kleptocratic regimes have little
appetite for democracy. I think an important point, in
particular for our business community, is that these regimes
have very little taste for free-market competition, so little
taste that, in fact, corruption and exporting it is sort of an
existential issue for them. They can't compete in the free
market.
And we have, indeed, as was mentioned, been a partner in
this whole system. And the way that has worked--and we
published an article about this called, ``Stage Hands: How
Western Enablers Facilitate Kleptocracy''--well, first, you
have got to be able to loot the country, take it out of the
country and put it in a safe place. We provide that safe place.
Then, of course, there is a third stage where you hire public
relations people and you put your children in the right schools
and you become a full-fledged member of the West and become a
very respectable person.
And I think another thing we need to focus on more is the
issue of incentive. When we do this, when we provide this safe
haven, we are incentivizing corruption, and then we are further
incentivizing all the way to kleptocracy. And this is something
we really need to think about, and stop providing the punch
bowl, if you will.
The Ukrainian example we have already looked at.
We don't really talk enough about authoritarianism in all
of this. What we see now with the authoritarian threats is that
authoritarian regimes that have become very militarily
aggressive--and there are two I have in mind, which I barely
need to name. They both happen to be structured as
kleptocracies. Their elites are keeping their loot in the West,
in our banks and financial institutions, in our real estate.
And you would think we have a little bit of leverage over them,
perhaps more than we are using.
On this overall issue I mentioned, we published a paper
called ``The Kleptocracy Curse,'' which may be of interest,
which is almost an expansion of Chairman Rohrabacher's initial
statement, expands on all those points.
What can we do? I have 33 seconds to talk about that, and I
will go right to the issue of anonymous companies, shell
companies, whatever we want to call them. There are a few other
recommendations in the testimony, they all pale in the face of
the importance of the anonymous company question, in my opinion
and in the opinion of many people that I have spoken with in
law enforcement and the State Department, private
investigators, large private investigator firms. There seems to
be a real consensus that this is a huge part of the problem.
And I will leave it at that. Thank you very much.
[The prepared statement of Mr. Davidson follows:]
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----------
Mr. Rohrabacher. You may proceed.
STATEMENT OF MR. IVAN VEJVODA, SENIOR VICE PRESIDENT FOR
PROGRAMS, THE GERMAN MARSHALL FUND OF THE UNITED STATES
Mr. Vejvoda. Mr. Chairman, Ranking Member, members of the
committee, thank you very much for the invitation to testify
before you today on this important subject, as we have heard
both from the introductory statements and from my colleague
Charles Davidson.
Democratic transitions after 1989 confront the issue of the
fact that there was practically no democratic political culture
in the post-Communist space, in the space where one party ruled
there was no pluralism, and where human rights were unknown to
people. And so it had to begin with, as Hannah Arendt would put
it, giving people the right, to understand that they have a
right to have rights.
And so the legacy of the old, the inertia of the old
corrupt ways lives on as the democratic transition advances and
as the democratic political culture tries to find its roots.
And probably the best comparison is between Poland and Ukraine
that had the same level of economic development in 1990. We see
where Poland is today and we see what has happened to Ukraine,
complete differences in standards of living and the
institutional democratic culture, not that Poland is without
problems today, as we know.
The political winners of the Communist system--the
political losers as democratic transition happens become the
economic winners because they have all the inside information.
They have the network through the secret services. And
ultimately, as economic winners, they again become the
political winners because of the nexus between the oligarchic
structures and political parties.
One particularly difficult issue that is addressed is that
of political parties themselves, as they rise from nowhere
after the crumbling of the Communist system. And the problem
there is the financing of political parties. Where do these
parties find moneys to actually have a party structure
throughout a country?
And that means, of course, that they have to lean on
private business, and this is where a lot of the corrupt
practices between the politics and economics, to speak all too
gently, happens and where a lot of the corrupt practices. Of
course, in Western societies we know that there are also these
kinds of issues, but I would really like to highlight that
problem in addressing the issue of corruption.
I, unfortunately, coming from the former Yugoslavia and
Serbia, had to live through the worst of a criminalization of
society and the state of Serbia under sanctions that were
imposed in 1992. For a country under sanctions to survive, it
goes into full corrupt mode.
And so when we emerged from the Milosevic regime in 2000,
this was the state of affairs that we had to confront, how does
one start pushing back this criminalization that was pervasive
through the state. And of course it requires what other post-
Communist countries do, and that is to reinforce the structures
of democratic institutions, of structural reform, et cetera.
But that, as you know, requires support from the outside.
And the role that the United States, Canada, the European Union
member states, with their support through USAID, through
development agencies has been extremely important.
It, of course, behooves the citizens and governments in
each of these countries, whether we are talking about Ukraine,
Moldova, Serbia, Montenegro, Albania, Kosovo, to actually do
the work of reform. They need to be the stakeholders. They need
to sense the desire of citizens to have a society democratic
based on the rule of law and human rights.
And so that burden is principally on them, but it cannot be
done without the principle of solidarity that we have seen
delivered through these 25 and more years. And it requires in
terms of what is to be done a holistic approach, and some of it
we have already heard from Charles Davidson. So support to
journalists, investigative reporting, support to civil society
that pressures from below the governments to make them more
accountable and responsible. Customs are an extremely sensitive
point.
But the key and the backbone is judicial reform, a truly
independent judiciary where citizens feel that no one is above
the law and that everyone gets a fair trial. And we see the
difficulties in acquiring fully independent judiciaries.
And so I would urge that the continuing work of USAID with
the European Union in support of these democratic processes is
one of the backbones, as I said, along with the citizens
themselves and their elected officials pushing toward
strengthening the rule of law and creating further stability
for democratic political culture.
[The prepared statement of Mr. Vejvoda follows:]
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----------
Mr. Rohrabacher. My goodness, everybody is following the
rules and 5-minute rule.
Mr. Vejvoda. Rule of law.
Mr. Rohrabacher. Rule of law.
Sir, you may proceed.
STATEMENT OF MR. SERGEI KOLESNIKOV (FORMER CO-FOUNDER OF
PETROMED HOLDING)
Mr. Kolesnikov. Mr. Chairman, ladies and gentlemen, I am
speaking here not in the capacity of an academic or a
politician, but as a person who was directly impacted by a
system of the Russian corruption. Furthermore, I had a unique
chance to observe this system from within and made a conscious
choice not to become a part of it. I am not going to delve into
details of my case, since it was well described in the article
by Mr. David Ignatius of 2010, which is included in your
package.
I should add that once I realized that the whole scheme was
illegal and sent all the paperwork to then-President Medvedev,
my life was put under threat. And if not for a timely warning,
I would probably have ended up just like Sergei Magnitsky,
except you would have never heard my name. I love Russia. It is
my homeland. But because of my story, I was forced to leave it
and live abroad.
What I would like to speak about is my firsthand experience
of working closely with senior Russian officials and explain
why Russian corruption is much more dangerous for the world and
for the U.S. interests than corruption in Eastern and Central
Europe and other nations of the world.
Indeed, corruption is all-pervasive because it is a part of
the human nature. It exists in France, Great Britain, Germany,
and even the United States. However, as Aristotle and Hegel
pointed out, it is the category of measure which makes the key
difference between good and evil.
The scale of corruption which permeated all levels of
government, top down to the lowest ones, creates a perilous
precedent of the major nuclear power where the whole chain of
command over the weapons of mass destruction is a part of a
vertically organized criminal system. Corruption in Russia is
the cement which keeps the vertical of power together.
Investigation by Alexey Navalny's Fund Against Corruption,
many other journalists' investigations in Russia and abroad,
for example the Panama Papers, clearly demonstrated the
corruptness of the Russian Government officials on all levels
of power. Billions of dollars were discovered in the accounts
belonging to the friends of the President, relatives of the
members of the government, governors, and many other officials.
Recent broadly publicized arrests of Russian governors,
police, and military generals, and even that of the minister of
economy, is not an indication of an anticorruption campaign,
but of an internecine fight of clans for access to the budget.
Corruption causes bad management and inept economic
policies, which in turn creates social and economic instability
in the superpower with nuclear weapons. Steep decline of level
of life in Russia needs to be justified. The Russian Government
resorted to a time-tested method of distracting its population
by creating an image of an external enemy. And the enemy is the
United States and its Western allies.
Two days ago, an official spokesman for the Russian Defense
Ministry, General Konoshenkov, stated, to paraphrase, that the
blood of the Russian servicemen is on the hands of the United
States and its allies, who have created and are supporting the
terrorists.
Ladies and gentlemen, I am not a politician. In the last 5
years, I have built a successful business in Europe. The reason
for me accepting your invitation and speaking here is a desire
to see my children's, all children's future in a safe and
secure world, not imperiled by the actions of corrupt
government.
Thank you very much.
[The prepared statement of Mr. Kolesnikov follows:]
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----------
Mr. Rohrabacher. Well, thank you, all, for your testimony
today.
And I am going to let Mr. Meeks start off the questioning.
Why don't you go right ahead. Okay. Well, I will go ahead then.
Mr. Meeks. I don't interrupt the chair.
Mr. Rohrabacher. I will take my orders from the boss over
here. All right.
Well, let me ask our last witness here, when you talk about
corruption in Russia, what form does that take? See, we have
businessmen here who make money and then do whatever they want.
They are making millions of dollars. And yet we know that there
are millions of dollars coming out of Russia that are not
equated to our businessmen. They would base it on some corrupt
activity that they are involved in.
What is that corrupt activity that they are able to extract
the wealth and then take it and deposit it somewhere else?
The Interpreter. Mr. Kolesnikov is going to speak Russian,
and I am going to be interpreting for him if you don't mind.
Mr. Rohrabacher. That is fine.
[The following answers were delivered through an
interpreter.]
Mr. Kolesnikov. The main task of the Russian politicians
who run the country right now today is to stay in power as long
as they can. They perceive Russia as the source of their
wealth; however, they prefer to live, to reside abroad, in
Europe and the United States.
They are perfectly aware that their money, that their
wealth can be safely protected only in a democratic country
based on the rule of law. Therefore, they try, they do their
best to wire their money to democratic countries, being
perfectly aware that in Russia at any moment they can be taken.
Mr. Rohrabacher. We understand that, that that is, of
course, taken, and something I hope we need to deal with. He is
talking about corrupt officials sending money to the West. And
as I stated in the opening statement, we are going to have some
focused hearings on that, whether or not American banks and
Western banks and other institutions are actually accomplices
with a criminal activity that is basically extracting wealth
from developing countries.
The question I am asking is, you are saying that there are
a large number or a certain number of officials in Russia that
are engaged with corrupt activity. What is that activity that
gives them the money in order to put in the Western banks?
Mr. Kolesnikov. The main problem of Russia is that it is a
very wealthy country, and the main source of income, of
revenues, are the natural resources of Russia, as well the
factories and enterprises which were built by the whole Russian
nation.
After the Soviet Union collapsed, practically all the
properties and all the natural resources ended up in the hands
of a very small group of people. And in order to pump out the
money out of the country and wire to the West, you need to have
control, you need to control power. In any democratic country
where you have freedom of speech and free media and free
elections, it would not be possible, where you have courts and
when the rule of law--the law is above everything else.
Mr. Rohrabacher. Okay. Well, let me try another approach or
another thought here anyway.
When we are talking about Serbia, and you mentioned that
sanctions actually led to an expansion of corruption in Serbia,
so a sanctions approach to a country actually perhaps makes
things worse rather than makes things better. Is that correct?
Mr. Vejvoda. Chairman, thank you for that question.
Sanctions are a double-edged sword, and any diplomat who
has been engaged in this will say that. It is a kind of middle-
of-the-road measure. It is without going and attacking a
country for what it is doing. It doesn't want to leave that
country unsanctioned or unpenalized. And thus sanctions are
imposed.
When a country is under sanctions, it is obliged to somehow
survive on the international market. And because there are
sanctions through banks, through training, it goes underground.
And there are ways in which people benefit from this, both
domestically and internationally, by breaking sanctions rules.
That means internally, domestically, that everything is
under control of the government. There is much less
transparency or none at all in some of these dealings. And that
particularly means energy imports, imports of foodstuffs. Then
the customs, of course, becomes complicit because they have to
let these things through without the people's right to taxation
on trade being accomplished, and that then further empowers
those and enriches those who are in power.
And so the reversal, once sanctions are lifted--and in the
case of Serbia, sanctions were lifted only after the fall of
Milosevic, it took about 10 years to do that--you then have to
do all the work that any other country does in instilling the
rule of law and strengthening the institutions.
Mr. Rohrabacher. So if there is a general problem with a
level of corruption in a society, for us to pick out an issue
that is important to us and to put sanctions on that government
in order to pressure them on a particular issue actually makes
things worse in the long run?
Mr. Vejvoda. Domestically, definitely. As I said, it
empowers the, quote/unquote, deg. ``elite'' or those
who are in power.
Mr. Rohrabacher. Well, I hope some of my colleagues are
taking that in too, because I would take this as a general
rule.
And would you like to comment on that, Mr. Davidson?
Mr. Davidson. Yeah. Sanctions aren't something that I have
thought about a great deal or that we have really covered in
our work at the Kleptocracy Initiative. But my impression, and
here I wander out of my train of expertise, but it seems to me
that, we take the sanctions on Russia, for instance, we are
thinking more short term about weakening the economy there and
dealing with a security threat as opposed to thinking of the
long-term health of the society.
Certainly, sanctions are not something that can go on
forever if there is going to be a healthy relationship, but in
the short term it can be a very effective parry.
Mr. Rohrabacher. Let me just note that in your testimony--
--
Mr. Vejvoda. Chairman, could I----
Mr. Rohrabacher. Oh, yeah, go ahead.
Mr. Vejvoda. I would just add a few words. I am sorry.
Having lived under full sanctions--and what I am going to
say is literal, that means that there were no Mickey Mouse
cartoons on TV anymore, there was no Coca-Cola, it was really
blanket--what happened was there was a learning curve where we
eventually advocated, those of us who were in civil society
fighting against the regime, was let's try and find something
that has come to be called smart sanctions or rather targeted
sanctions to individuals in the regime, to particular
companies, to banks, et cetera, and not to have those who are
actually working for democracy or freedom actually also be
subject to it.
And that is what happened. The European Union, the United
States then evolved in that regard. And that is how you then
got individuals who were targeted, as is in the case of Russia,
for example, or others.
Mr. Rohrabacher. Let's note that in Serbia we ended up with
violence and a war and mass killings that went on. In many
cases, and this is a rule of thumb which I didn't include in my
opening statement, is that if you take a look at some of the
conflict areas of the world and some of the things that are
going on, quite often, if you trace back what the root cause
is, that the corruption level in those societies reached a
point where large numbers of people were willing to commit acts
of violence and actually get involved with more fanatic
organizations, et cetera, like we saw in Serbia, where the
Serbian people, who now I think are exemplary and they are
doing as good a job as anybody else in Europe, they went along
with horrible crimes that were being committed by their
government.
So in the end, if you have corruption and it creates
uncertainty among ordinary people, it can lead to the type of
fanaticism that then leads to terrorism, aggression, et cetera,
et cetera, which may well be seen elsewhere.
One last point, and then I am going to let Mr. Meeks take
over here.
Mr. Davidson, you made a point that children of the crooks
and their families eventually, if someone is part of a criminal
syndicate in a country, eventually they have so much money that
they eventually become part of the elite cultural people of
that society. They are the prominent citizens after one or two
generations.
Let me just note that this doesn't happen in those
countries; that has happened in our country. How many people in
prominent families started out here as slavers? They sold
slaves, that despicable act that even where it was legal in the
South, they thought that was a despicable profession to be in.
But yet, people emerged. Bootleggers and people involved in
gangster families in our country have after one or two
generations become prominent citizens. And so what you are
saying is not something that we should be just pointing over
there; we have got to understand that that is a cycle that
happens here.
Today, what I am very concerned about is not the children
and not the prominent families in the future that this will
create, but instead how we have perhaps institutions in our
society that are respectable institutions that are being
utilized by especially foreign corrupt officials and gangsters
in other societies.
I mean, how many people are making real estate deals with
criminals now in our country? And those criminals may not well
be Americans. They may be Russians or they could be Chinese or
they could be any number of countries that come here to launder
their money, and yet we have our very respectable and prominent
citizens engaged in what would have to be an accomplice to a
crime.
So anyway, Mr. Meeks, you may proceed, and we will have a
second round of questions afterwards for everybody.
Mr. Meeks. Thank you, Mr. Chairman.
Very interesting. I want to thank the witnesses for their
testimony and I am going to try to go through everybody real
quickly.
Maybe I will start with you, Mr. Davidson, and just trying
to figure out, moving forward first, how are corruption and
populism related in Europe? And what examples can you provide
that would be helpful to monitor corruption in 2017 as we move
forward? Because a lot is going on in Europe right now,
politically and otherwise, and corruption could do something
that indeed could destroy the democratic countries, many of
whom are allies.
So I was wondering if you could just tell us what could be
helpful. How can we monitor what is going on in 2017 so that we
can be--it could be helpful as we deal with our allies over
here?
Mr. Davidson. Okay. That is a tough question. I will take a
shot at it.
I think if we look at populism in Europe, and we can relate
that to populism in our country too perhaps, but certainly when
you have corruption--well, let's take--Ukraine would be a sort
of exaggerated example of this. If people feel that the
political leadership is corrupt and that they can't trust their
leaders, they turn to populism, very simply. So I think that is
what we are seeing.
Mr. Meeks. Do you want to say, Mr. Vejvoda?
Mr. Vejvoda. Yeah, it is definitely not an easy question,
because what we see in populism is a kind of a perfect storm
where there has been resilience and patience on the number of
people who have been the losers of globalization.
And yet, it is strange, because if you take Germany, for
example, it is one of the countries where there is the lowest
level of unemployment, where they have high income in the
working class, and yet there is a populist movement because
there is a fear of migration, what it will do to the cultural
identity of Germans. And so the so-called--the party called
Alternatives for Germany, Alternative fur Deutschland, is
capitalizing on that fear.
I was in Berlin in January and then just last week. And in
January, members of the German Parliament told me: You must
understand that there is a sense of panic in this country with
this wave of migration that is coming in, that the government
has lost control, and that, simply, there will be a wave of
people in German cities.
Now, that has come under control, as you know, through the
agreement between the European Union and Turkey. But the
various segments of and reasons of why there is a populist
movement are not solely in that case linked to issues of
corruption. In Ukraine, it is definitely different, as was
mentioned.
So I think one needs to look at a country-by-country basis,
fully understand that there is something common in the
transatlantic arena as we watch these movements rise.
Mr. Meeks. And you said something, and I get concerned, I
think that Mr. Rohrabacher was probably right in certain things
here even in the United States, because I get concerned that we
may be turning into an oligarchy country, when you look at the
number of folks with money and the financing. I think one of
you mentioned the financing of political parties.
And I look at how our political parties, both sides are
financed now by the ultra-1 percent, et cetera. To me, those
are warning signs. So I don't to point a finger over there if
there is something similar happening here and how that leads to
whether it is populism or leads to a scenario where you have a
strong-armed person that becomes the head of state or something
of that nature.
And then at the same time you asked the question, Mr.
Davidson, what can we do? And you had a certain thing. So I
want to hear, what do you think we can do?
Mr. Vejvoda, you said that sanctions is not something that
works. I mean, from my perspective, it depends upon how,
because I look at then, what do you do if not sanctions? Is
there a special type of sanctions? Or what do you do?
I look at, from my perspective, not in Europe, but the
success that sanctions had in a place like South Africa to
bring down a regime that was full of apartheid and injustices,
et cetera.
So the question then is, what do you do? You can't sit by
and do nothing. What would you say we do?
Start with Mr. Davidson.
Mr. Davidson. Starting with me?
Well, I will mention some of the other points that are in
my testimony then. And just to underscore again the role of
what I like to call anonymous companies in terms of, if we just
think about Europe and the countries, the territory we have
been focusing on, and corrupt officials bringing money out of
those countries into the West, it is usually via the use of so-
called shell companies, anonymous companies. So the ownership
is concealed, and these are the vehicles used for purchasing
real estate to a great extent.
In London, it is quite dramatic. There is some unbelievable
number of expensive apartments and homes that are owned by
shell companies, and nobody knows who really owns them, except
we do, in some cases, because some of the really large ones,
you see people going in and out of them now and it is reported
on and stuff.
But this is the low-hanging fruit right now is the
anonymous shell company for corruption, very broadly, including
the United States. I mean, when you want to hide something you
are going to use an anonymous shell company.
The second thing I have in my testimony, Mr. Meeks, is a
little vague, one might say. But if we look at the offshore
financial system and all the secrecy we provide, anonymous
shell companies are one aspect of it, but there are all these
smaller things, the blocking and tackling that we could do. And
consulting experts at Treasury, at DOJ would be the way to go
with that to get into more detail on it, I would think.
And we have some very good things going on right now with
our law enforcement agencies. The FBI has this relatively new
group that started in January 2015, the international
anticorruption squad. And the original name for it had the word
``kleptocracy'' in there somewhere and now they have renamed
it. And they are doing some very good work. Because of the
power of our financial system and this almost trek that stuff
sometimes has to go through New York, we can reach quite far in
terms of taking anti-kleptocratic measures.
And I won't mention the last point in my testimony because
it is not really germane to your question, but the Global
Magnitsky Act, for instance, has a provision in there that
could give a lot of discretion to our government in terms of
going after people for human rights abuses or--I mean, we have
a lot of discretion there. So that is also something that could
be part of the toolkit.
Mr. Vejvoda. Thank you for your question, Congressman.
I didn't say that sanctions don't work. I said they are a
double-edged sword. They have an effect that one wants to reach
if one imposes sanctions, but they have a second face to them
which is the internal corruption of society and state. And so I
think it is finding that balance, and that is why I talked
about this search for smart sanctions, targeting individuals,
certain companies, et cetera.
In the case of Serbia, there was also this loose talk, as
we heard in Russia when sanctions were just imposed: Oh, this
will not have an effect, don't worry, we will be able to do it.
But they do. They do have economic effect, as you mentioned, in
South Africa; they were very effective in Cuba, as we know
also, for many years. So they definitely hit like a radiation,
maybe it is a scattershot that touches too many, has too many
effects.
So, yeah, I think one has to keep drilling down. And we
have a number of examples internationally of sanctions, and I
think much has been learned from the various examples that have
been mentioned.
I would also like to mention the case of Switzerland in
regards to what Charles Davidson was saying about the banking
secrecy in Switzerland and the pressure that the U.S.
Government put on for many years for that secrecy to be
revealed, because so many people from all over the world were
putting their assets and their finances into. And Switzerland
has had to come out and sign agreements on sharing information,
both with the U.S., of course, and the European Union.
And so I think that is an example of the way to go to
uncover the shell companies and, as one would say colloquially,
follow the money, but then see where the money is being held
and hidden and so that light is shed into those places where
these people actually find ways where the money is laundered,
where their assets are kept.
And Charles Davidson is right to mention London, which has
been mentioned so many times over these past several years as a
place where banks and institutions have profited.
And the agencies, the various agencies of the U.S.
Government, of course Treasury Department, are key through
their investigative roles in finding where actually the paths
and the dynamics in which this corrupt money finds its way on
the international arena.
And I would add that the international financial
institutions play a key role, whether it is the International
Monetary Fund, the World Bank, European Bank for Reconstruction
and Development, who approve, of course, loans, or the various
ways in which aid is given, but before that aid is given,
countries need to accede to certain conditions and comply with
certain conditions before money is sent.
Mr. Kolesnikov. I would like to point out that there is a
very simple and clear mechanism to fight corruption, which is
to provide the population with the truth, with the true
information.
In Russia, this doesn't exist today. The majority of
Russians consume their information from TV, and the TV channels
never, ever reveal any cases of serious corruption among the
government and the people close to the government. Instead, the
TV channels every day nails in the head of Russians the same
message, that our life gets worse, it is not our fault, it is
not because of us, it is because of the external enemy. And
today, they have chosen this enemy, which is the United States.
This is a very dangerous trend because many people in
Russia today sincerely believe that the United States and
European countries are true enemies of Russia.
Ten years ago or 5 years ago nobody could have even
fathomed the idea that there are going to be tank battles in
the center of Europe and 10,000 people are going to be killed
in fighting in Ukraine. However, it happened, and it happened
because the information channels created the picture of an
enemy.
Many Russians sincerely volunteered to go to Ukraine and
fight against Nazis, against fascism. We live today in a very
interesting new world where information wars are becoming no
less dangerous than real wars. You have two options. You can
kill a man or you can change his mentality, you can change his
consciousness, and the effect is going to be the same.
And referring to the sanctions, I should say, yes, the
sanctions have a great impact on Russia today. And my only
point is that any sanctions should have a very specific goal.
If they are vague and ambiguous, they are not clear.
Mr. Rohrabacher. Thank you very much.
Mr. Weber.
There will be a second round of questions.
Mr. Weber. Thank you, Mr. Chairman.
Mr. Vejvoda, you said political losses become economic
winners in the new economy because they have insider
information. So what you are seeing is a government, a country
in turmoil, where it is going down because of the corruption,
and yet the very ones who caused it to go down actually become
the economic winners in the new order, if you will. Fix that
for me.
Mr. Vejvoda. Fix that?
Mr. Weber. Uh-huh.
Mr. Vejvoda. Well, it is being fixed more or less
successfully, and has been fixed, for example, in the Baltic
countries. In Poland there are mixed results. And then you go
to scale, Moldova is probably at the other end in this region
of the world that I know best, which is Central and Eastern
Europe and southeastern Europe, the Balkans.
Mr. Weber. But what do you do, specifics, how do you
prevent that from happening?
Mr. Vejvoda. Well, the prevention, as I said, requires, to
put it simply, a holistic approach, it requires what the people
of Maidan did.
Mr. Weber. Holistic or ballistic?
Mr. Vejvoda. Holistic.
Mr. Weber. Okay. I missed that.
Mr. Vejvoda. We are not going ballistic here.
Society awakens to the fact that it has the freedom to
actually voice its desire to have an orderly society based on
democracy. That does not happen overnight. Rome was not built
in a day.
And we are seeing that even though many of us had illusions
that it would go quicker in some of our countries, it has taken
more time and there are twists and turns, as we see, for
example, in Hungary, where there has been a regression of
democracy over the past several years.
But, by and large, the countries that have come out of
communism have step by step moved and created democratic
institutions, instilled them with habits of the heart that are
a democratic political culture. And since democracy is not
given on a plate, it needs to be conquered every day.
And thus, people need to be vigilant to the fact that there
are those who want to take on more power and rich, because in
the end, many of these--at least the war in the former
Yugoslavia was about retaining power. And populism and
nationalist feelings were used for that power-retention
strategy, which took us down the hellhole of war from which we
recovered 10 years later, the different parts of Yugoslavia.
Mr. Weber. Yeah. Let me ask you this. I think you compared
and contrasted, was it Yugoslavia and Poland or was it
Ukraine----
Mr. Vejvoda. Ukraine and Poland.
Mr. Weber. Okay.
Mr. Vejvoda. That is an example, a comparison that so many
people, economists, political scientists, use today to show how
divergent these paths can be from an equal starting point.
Mr. Weber. So Poland, the process in Poland good, the
process in Ukraine bad?
Mr. Vejvoda. Yeah.
Mr. Weber. Why? What is the difference?
Mr. Vejvoda. Well, the difference was that there wasn't
this effort at structural democratic reform that Poland went
through beginning with 1990--or rather 1989--when they had
their first----
Mr. Weber. Is that because somebody stepped up to the plate
and took the lead on that?
Mr. Vejvoda. Absolutely. Leaders like Lech Walesa, who, as
you know, spoke here in front of the Congress, and others who
were determined, one, to return to Europe and correct the
division of Europe that happened, the embrace by the European
Union and the United States, the support that they got in these
efforts from agencies like USAID.
Mr. Weber. So what you are describing is a political will
married to individual courage.
Mr. Vejvoda. Absolutely. And that is what we did not see in
Ukraine. Even though there was an enormous hope after the
Orange Revolution when everyone hoped, Ukrainian citizens first
and foremost, that finally they had got the courageous leaders
backed by the political will of the people to do it, it is
mildly put to say that there was huge disappointment, because
these leaders of the Orange Revolution turned out to be
involved in the same corrupt activities.
Mr. Weber. All right. Well, thank you.
Let me move on. I know I am getting over my time. And so
let me go to Mr. Kolesnikov.
You have a successful business in Europe, true?
Mr. Kolesnikov. Yes.
Mr. Weber. Did you have one in Russia?
Mr. Kolesnikov. Yes.
Mr. Weber. Did you lose it?
Mr. Kolesnikov. Yes.
Mr. Weber. But you took those business principles that you
learned in Russia and you applied them in Europe.
Mr. Kolesnikov. I brought with me my skills and my
experience, which is the crucial thing in business. If you
manage to build a business, successful business, in such a
difficult country like Russia, in a normal democratic country,
it is way easier than that.
Mr. Weber. Should that be incentive enough for someone to
have the political will and marry it to that individual courage
I talked about and make a better life, not just for them, but
for their kids and their grandkids and the rest of the country?
Mr. Kolesnikov. I can assure you that today the true
entrepreneurs in Russia, people who build a business with their
own hands and their brains, using their own skills and
experience, their biggest dream is to have democracy in Russia
where the courts are working properly and when the law is
observed.
Mr. Weber. Okay. Welcome to the American Dream.
Mr. Kolesnikov. You know that probably you are perfectly
aware that many Russian business people, scientists,
researchers, they actually found in the United States a second
home.
Mr. Weber. Well, it is what I like to say, all the smart
Russians over in Russia ain't over in Russia, they are over
here.
But let me end with this. How do you communicate to people
in Russia that that American Dream, democracy, capitalism, free
enterprise, is worth the risk and the price? When you do that,
you will have enough people that will rise up and take that
country.
Mr. Kolesnikov. You touched a very important issue, but
today there is a very simple situation. Those of us, those
people who would like to explain to Russians how it works and
why it is worth, they have no ability, no opportunity to say
that. In Russia, as I said earlier, the government, the corrupt
government controls all the TV channels, which from dusk to
dawn try to instill the same idea into the heads of Russian
people: It is not our fault that we have bad life, it is
enemies, external enemy. And the idea of the enemy is repeated
over and over in talk shows and all kinds of different TV
programs.
Mr. Weber. Who was it that said the pen is mightier than
the sword? Apparently he had never been in a sword fight.
Well, thank you for being here today. You have your work
cut out for you.
Mr. Kolesnikov. Thank you very much.
Mr. Rohrabacher. All right. Thank you all. And we are going
to have a second round of questions if anybody would like to
join us in that, and I will start that off.
Let me just note about the talk of sanctions and the idea
that aiming sanctions at specific corrupt and human rights-
abusing government officials is not a bad idea. I actually
voted against it, however, because--and we are talking about
the Magnitsky Act--because I happen to believe that naming it
the Magnitsky Act was wrong.
Because yet to prove--there are a lot of questions about
that particular case, and those questions need to be answered
before we compromise with our level of insistency on what we
insist on for what is truth or not and what is a true crime.
And the Magnitsky Act should not have been named that. And I am
the only one who voted against it. I know my ranking member and
I disagreed on this.
But in terms of actually sanctioning individual government
officials throughout the world who are engaged in some type of
torture or anti--well, doing things that we would not accept
here as acceptable, killing prisoners or committing acts of
torture, et cetera, the human rights abuses.
So with that said, I agree with that assessment. We should
be focusing on those individuals. And, again, however, I think
the Russians were mistreated in the Magnitsky case, because
that title of that bill is maybe suggesting that something was
done that has not been proven yet. So, anyway, that is just a
thought.
I think that we have to also note, we have oligarchs here.
We have oligarchs in the United States. Many of them happen to
be technology developers, okay, they came up with a new type of
technology, they earned billions of dollars on it. And whether
it is PayPal or whatever, or some type of new medical device or
whatever, they made their money honestly.
And the question is, however, in some countries, then, for
an oligarch to take the money and transfer it outside the
society is illegal, and that is where an oligarch becomes a
corrupt person, okay?
Is that what we are talking about here when we talk about
oligarch corruption? Because our oligarchs do that. Our
billionaires, multibillionaires, they take money out of the
country and put it in banks and different investments overseas
all the time. Maybe I will ask all of you on that question.
Let's start with Mr. Davidson. How does that add up? That
is not what we are talking about here, is it?
Mr. Davidson. No. Mr. Chairman, I think it is sort of a fun
question too in a way.
Mr. Rohrabacher. Yes, I like to have fun at these hearings.
Mr. Davidson. Yeah. No, fun is great. And I think it is a
very good question, because what is an oligarch, really? And we
sort of throw the term out there toward a lot of people.
If we were to try to--I am just going to take a shot, just
I am thinking aloud as to what an oligarch could be in the U.S.
context. And very often when we use it in the European context,
the territory that is our designated zone today, these are
people who have seized monopolies in most cases on a given
industry.
So if we wanted to translate that into the U.S., what we
would see with a lot of these technology entrepreneurs is
indeed, I mean, they haven't done anything wrong, they just
happen to have been so successful, they end up with a monopoly.
Mr. Rohrabacher. Right.
Mr. Davidson. And for that we have had antitrust in the
past, which, of course, is not--perhaps it has been enforced
more forcefully at times than it is right now, but it was used,
of course, by Teddy Roosevelt in a big way to revolutionize our
country, really. So was John D. Rockefeller an oligarch? I
mean, I guess by that definition you might say yes.
I detect a little bit of a notion in your question that
some of these technology oligarchs have become too powerful in
their given markets. If that is the case, it seems to me we do
have the antitrust laws and ways that we could look at that.
The problem we have, it seems to me, in the technology area
is that a lot of these technology verticals are kind of natural
monopolies. So I don't know how we would----
Mr. Rohrabacher. Well, there are some oligarchs that have--
you can receive great government subsidies for whatever
business practice they decided to go for. And did they impact
the legislative or the executive branch people who were making
the decision as to how much subsidy this or that would get?
There are very serious questions when we start pointing
fingers at other people. And as I say--look, I was designated
about 2 years ago as the poorest Member of Congress, okay?
Well, I am a happy man, and I am not someone who is resentful
that somebody else has more. Sometimes I think that we teach
people that we should resent them.
And let me just note, of the billionaires in this country,
Mr. Meeks, the vast majority supported your candidate for
President, not mine. They did an analysis of the billionaires,
and Hillary had a lot more than Trump, but Trump himself is a
billionaire.
So we can't just say because someone has a lot of money,
that they are an oligarch, which then says that they are evil
in some way. However, let me note that, and back to Russia.
And Russia had a problem in the beginning, and one of the
major problems was that money left that country and went into
European and American financial institutions.
We talk about England. Correct me if I am wrong, Mr.
Davidson, but if someone transfers some money from Russia or
from anywhere else into a bank in England, do they have that
same rule that they can loan out 10 times the amount of money
that they actually have on deposit?
So what have we done? We have enriched England or that bank
enormously by having that money going from Russia or wherever
else into that bank in England. And, of course, what the bank
in England provides is safe haven for people who want to get
away from paying taxes and having that wealth controlled by the
government in the country where they made that money.
This is problematic, and I really believe that many of the
situations that we have now that was described in Russia can be
traced back to, yes, when Russia should have been prospering
and it was going through this period, we ended up having the
wealth taken out, which actually made it 10 times more
difficult for them to have a stronger economy.
And then we know now also that sanctions directed at Russia
did not work, do not work in the long-run. Let me note that
there is a bank in--is it Sberbank, is that what they call it,
in Russia? Sberbank, when we visited Russia last and talked to
the various leaders in the banking community, they were saying
they followed every single rule that they were asked to follow,
and yet there are sanctions against them that have impacted
them in a negative way.
So targeting sanctions is very important if we expect those
people in these various countries to actually pay attention, to
be supportive, and to cut out the type of corruption that we
are talking about today.
So I guess I have had my say. You guys, maybe you want to
comment on some of the things I just said, and then we will
move on. Again, I voted against the Magnitsky Act, but only
because of the title. The idea of targeting individuals for
human rights abuses in those countries is a good idea. And when
and if they prove that case in terms of Magnitsky, then I will
change my position on that bill, but until then, I thought it
was a gratuitous slap at Russia.
And one last thought. I know I disagree with my colleagues
here, but, no, we have had many gratuitous slaps at Russia,
where things are just as bad over here, or over there, whether
we are talking about oligarchs or whatever, manipulating the
system and extracting wealth from the system. We have our
oligarchs here, and we have lots of things that we do here that
are being done over there and being labeled in a very hostile,
pejorative way, and by people who actually want to have bad
relations with Russia for whatever reason.
So with that said, and maybe each witness can have a minute
to refute everything I just said or to agree with it or
whatever. Mr. Davidson, do you want to start?
Mr. Davidson. Sure. No, I don't have anything to add to
that. I agree with most of it. And I agree no one has a
monopoly on virtue in general when we have looked at the
enabling role of the West in this whole problem, which is
central.
Now, you brought up also what happened in the 1990s in
Russia and the role that was played. I mean, there are some
very interesting things, we don't have time to get into that,
but that could be a whole hearing, of course, unto itself.
Mr. Rohrabacher. Well, we do have, for example, take the
reason why we call it the Magnitsky Act. And the case, that I
believe is yet to be settled, is based on an American who went
to Russia, made billions of dollars off the economic turmoil,
and then left the country and was able to take his money out of
the country. And Magnitsky was his accountant. And the question
is, is whether or not he paid the $250 million in taxes that
were due from the billions of dollars that he had earned in
that chaotic situation in Russia.
Now, that is the heart of that case. Did the jailers of Mr.
Magnitsky kill him because they were being afraid that he would
finger them for that $250 million that they had some way
managed to change the bookkeeping that they were able to keep
or was he roughed up and maybe killed because he wouldn't say
where that $250 million owed to the Russian government was?
That is the whole crux of the matter, and it is yet to be
determined which of those stories.
But with that said, again, targeting corrupt officials,
targeting human rights abusers specifically is a good thing as
far as I am concerned.
Yes, sir.
Mr. Davidson. May I just comment on that, Mr. Chairman?
Well, the whole story surrounding Magnitsky and all is a very
good read. Bill Browder's book, ``Red Notice,'' is at least as
good as any of the John le Carre. So quite a story. And it is
incredibly intricate and complicated also, which sort of can be
obfuscating in terms of how one approaches the issue.
But I thought it was very interesting the way you support
the principles of the bill and all of that. And I think it was
silly--it was a mistake to call it the Magnitsky Act, because
it makes it sound too personal, as though it is some vendetta
or something like that, when in fact it is a general principle
for which there has been huge support in the Congress and the
Senate.
Mr. Rohrabacher. And it was a specific slap at Russia,
which would make people think maybe this is just Russian
situation of human rights abuses, and it was not. It was aimed
at a general thing.
Anyway, I just wanted to make sure I am on the record as to
why I voted against that particular situation. I don't think
gratuitously slapping Russia around is going to make things
better.
Sir.
Mr. Vejvoda. Mr. Chairman, thank you very much. Just,
obviously, no one has the monopoly on virtue, but I think as
democracy and capitalism evolved, there was an understanding
that there is a need to put boundaries to wealth, respecting
the full freedom of entrepreneurship, and that is what has made
the West writ large successful, because of that freedom of
speech, of enterprise, of association.
And so when one speaks of oligarchs or simply wealthy
people in the United States or Europe, it is the fact that they
have to pay taxes. And obviously some of them try to avoid it
by going to shell companies or sending their money abroad.
Mr. Rohrabacher. Or giving campaign donations and making
regulations that eliminate their tax liability or getting a
large subsidy from the government.
Mr. Vejvoda. Yeah. Well, Citizens United, as you know, is a
contentious question here: Is money good in politics or bad? In
Europe, there are limits, as you know, and parties get money
from the Parliament and private money is not involved. So that
is a whole very big and, I think, important issue for the type
of polity and political framework that we all have.
But I think the key thing here is really, again, the rule
of law. And I think if, as Mr. Kolesnikov said, people who have
money would rather have the rule of law where they can keep the
money in their own national bank rather than have to have it
somewhere else, I think it is that fear or threat of
racketeering.
There are countries where people are very successful
business people, and then the government, because of the lack
of the rule of law or authoritarian structure, simply say,
``Well, okay, you have made this money now; now we take over,''
and you are lucky if you save your life, and go do business
elsewhere. So I think that is really the major difference
between these authoritarian countries and the others where
there is a democratic system based on the rule of law.
Mr. Kolesnikov. If we are going to be referring to the
Magnitsky law, I believe that this is a more powerful tool than
a bunch of nuclear submarines which the United States has in
the world oceans, because this is the first specific language
which says that if a government official steals money or
violates human rights, he or she could be punished. It is not
assured that he is going to be punished, but can be punished.
Mr. Rohrabacher. Absolutely right.
Mr. Kolesnikov. The Magnitsky case is not that difficult.
The taxes were paid, but then the taxes were stolen from the
national budget by investigators, by people who put Magnitsky
in jail.
Mr. Rohrabacher. That is the charge, and there are two
different points of view on that. But that certainly is what
the other side to that is saying.
Mr. Kolesnikov. I agree that the business which Mr. Browder
made his billions in Russia was not pretty, but he did it in a
legal way, and he did pay his taxes, and then he removed his
money out of Russia, probably because he sensed some kind of
threat that he might not be able to take this money.
Again, I am not saying that I find Mr. Browder's business
in Russia pretty, but we should make it very clear, was it
legal or illegal?
Mr. Rohrabacher. By the way, again, I am not suggesting Mr.
Browder is guilty or innocent. I am saying that what you are
saying now has not been proven one way or the other, and thus,
to put his name on the bill that holds public officials
accountable for human rights abuses and name it that under this
Russian case was a gratuitous slap at Russia before that case
has actually determined whether or not the truth--where the
truth lies.
So I am very happy to have you express that opinion. There
are other opinions as well that perhaps the opposite is true
from what you said. That is what we need to find out.
But still it is the principle of the case, which is--which
we all agree on, you agree on, we agree on--hold specific
officials accountable rather than making some generalized
attack on a particular country.
Mr. Kolesnikov. Well, the name of this act, after all, is
just a name. What counts is the essence. Eventually you can
change the title any time.
Mr. Rohrabacher. Well, we might. We might do that someday.
Well, thank you very much for being with us today.
And, Mr. Meeks, you have the final words here.
Mr. Meeks. Thank you, Mr. Chairman.
Let me just ask--where do I want to start? I am going to
start with Mr. Kolesnikov. Did you ever experience any
intimidation either before you released your information or
after, or now any in your regular walk of life?
Mr. Kolesnikov. The reason why I left Russia was
specifically because I was alerted that the false accusations
were going to be trumped up against me. The drugs were supposed
to be placed in my car, I was supposed to be arrested for
possession of drugs, put in jail, and then you can easily
figure out what could happen to me in jail. And the reason why
it should have had happened was because I rejected to work in
this illegal framework where I was suggested to take part.
After I sent the documents to--all the paperwork to
President Medvedev and they became public, I got many threats.
But there is only so much you can do about it. It was my civic
duty, it was the position of a citizen and patriot of my
country, and I do not regret what I did.
Mr. Meeks. Were you ever an associate of President Putin's?
Mr. Kolesnikov. Yes.
Mr. Meeks. Could you tell us how or if he had any
involvement in any of this or how he rationalized this?
Mr. Kolesnikov. The Petromed case is quite in detail
described on my Web site and the articles written about my
case, and anybody who is--because there are too many details,
anybody can check and see it. It is going to take about 15, 20
minutes for me to provide all the details about the case, which
I am afraid is going to be too long for this venue. And Mr.
Ignatius in his article set out most crucial elements of this
case. If you have any specific questions, I am ready to answer.
Mr. Meeks. Thank you, and we will. And I would love to come
back and have a further dialogue. I know we are running out of
time. I just wanted to ask Mr. Davidson and Mr. Vejvoda a
couple of ending questions also, because it has been a great
hearing, and I am listening and learning, et cetera.
The question that comes into my mind now is, given what we
have heard, is what does success even look like in the fight
against corruption? What would you say? Can you give me an
example, what does success look like? How can we make a
determination if we are being successful?
And I add that on, for example, we currently have sanctions
against Russia. Is that successful? Is it not? Should we alter
it? What do you think it looks like?
Mr. Vejvoda. Thank you, Congressman Meeks, for those
questions. Specifically on that last one, I think, having lived
in a country that was under sanctions, they take time and they
drill and they work and they cause pain to the economy, because
you are not fully open. Of course, a country like Russia can
impose countersanctions, which a small country like Serbia
could not, and so there is pain in certain parts of the
European economy. But as open, democratic, capitalist
societies, they find easier ways in which they can reorient
their trade.
So, yeah, I mean, the answer is yes, I think they are
effective. As we said at the beginning, or I said, they are a
double-edged sword. They have diverse effect. And as diplomats
will say, this is a kind of middle-of-the-road measure when you
don't want to go to war and on the other hand you don't want to
do anything. It is something in between.
What is the measure of success? I think, as we all agree,
there is corruption in every society, even the most democratic.
I guess in a Sweden or wherever, you will find examples. I
remember the case of former Chancellor Helmut Kohl, the unifier
of Germany in the beginning of the 1990s, he was caught with
his hand in the party slush fund of the Christian Democratic
Union. That was quite a well-known case. I think of Enron here
in the U.S. or things like that. There are things that spring
forward.
But I think the measure is really how high or low the level
of corruption is. I don't think one can eliminate it. There is
something in human nature where people will try and skew the
rules. You have British parliamentarians who have abused the
moneys they have used. I don't want to mention any names here,
but some of them have actually gone to jail. Your colleagues in
Westminster simply paid out of what was supposed to be for
their staffers for a house aid or their garden or some home
improvement. So that shows that even if you live in a
democratic country, you are not immune to that.
So I would simply say that the lower the level of
corruption, the more successful we are in actually tackling it.
And, again, it is something like democracy itself. One needs to
work at it every day to have the agencies of government, to
have the supervisors of the supervisors at customs posts, the
various agencies, to oversee whether things are being done
appropriately. And, of course, the taxation system that needs
to oversee the fact is everyone actually paying their fair
deal, and I would say more for those who are wealthier
disproportionately than at the other end, but the law is equal
for everyone.
Mr. Meeks. Mr. Davidson.
Mr. Davidson. What would success look like? Well, certainly
less corruption, and that we all agree to, but it also means on
a sustained basis. So it is not something where we can sort of
parachute in for a bit and, well, any number of means to
improve things for a bit in one country, and then get out, and
things fall apart. We have tried to do that in a few cases, not
in Europe, but elsewhere, of course, and it is a dramatic
failure and costs us a ton of money.
But I think success really is about changing the global
financial system in terms of secrecy and providing a safe haven
for corrupt people with political power when there has been
state capture in particular.
Now, one of the effects, if we push the money back into the
country, at a minimum things will be better. So the resources,
instead of the $150 million house in London, you will have that
$150 million in the country. People can argue over it. It will
get invested somehow. Even if it is buying Rolls-Royces,
whoever is servicing those Rolls-Royces in the garage down the
street will have a job at least, as opposed to starving.
So I think we need to force the money back into these
countries by cleaning up our own act and ceasing to shelter the
assets.
Mr. Meeks. I think my last, because I talked a lot about
Russia, but I also wanted to just ask a question quickly about
Ukraine.
Vice President Biden described corruption as eating Ukraine
like a cancer; eating Ukraine like a cancer. How is the
Government of Ukraine, if you have any ideas, working to fight
this cancer? And what do you think are the stumbling blocks to
it being successful?
Mr. Vejvoda. If I may start. I was in Ukraine just at the
beginning of November when they voted in the electronic
government, e-government element on procurements. And this is
one of the key--one of many measures that needs to be
implemented in many places, because it simply makes the
procurement process, governmental procurement process
transparent. And people can follow on the Web sites, rather
than in dark rooms, where deals are made and deals are made
much more difficult, if not impossible, if you have an e-
procurement system.
The other thing that has been positive is that Ukrainian
officials have had to declare their assets, all of them. And
the punishments or penalties if they do not that were pretty
high, and so everyone declared their assets. Now, the surprise
was that many parliamentarians declared that they had 10
apartments or 10 cars or whatever, and so the Ukrainian people
suddenly were a bit in shock and awe because their
representatives suddenly, they realized, had made money in ways
that are not appropriate.
So as in any country, I would say that Ukraine is doing a
lot to clean up their act, to put it colloquially, but on the
other hand, the old habits are not going away so quickly. And
the various levels of corruption, and I think Vice President
Biden rightly spoke in those terms about a cancer, and it is a
battle royal that is going on for, to put it poetically, the
soul of Ukraine, while they are at war, while they are in a
situation where a part of their territory has been taken by
Russia, contrary to all international law, and where there is
the conflict in the east where Russia is involved in various
ways. So it is like reforming, you know, repairing a ship in a
high storm.
But, again, this is really a test case where, with the
support of the United States, of the European Union, and the
European Union is putting equally a lot of money into Ukraine
and their reforms, and I would say that this needs to be
pursued, even though there are these difficulties that everyone
perceives, and keep the feet to the fire of the elected
Ukrainian officials to pursue these efforts.
There will be setbacks, but if the vector is recognizably
in the good direction, I think we should, as the West, support
this country that wants--and, again, the Maidan was a clear
signal that the people of Ukraine do want to change.
I would add to what Charles Davidson said, that it was
about corruption, which it absolutely was, but it was also
about the fact that the Ukrainians thought that their
government was taking them to the European Union. The day that
Yanukovych, former President Yanukovych, decided not to sign
that next step to the European Union, that is when Maidan
started.
So it was a coincidence of two things. If we feel, as the
people of Ukraine, that you are taking us to Europe, however
slowly you are moving, we are okay, and we know that you are
corrupt and we will clean this up. But the day that Yanukovych,
said, no, we are not going to Europe, that is when all the
European flags came onto the Maidan. So I think it is important
to understand those two things.
Mr. Davidson. Well, regarding Ukraine, I think the
institutionalized corruption at the top seems daunting, and we
don't seem to have seen much progress lately with that. And I
avoided using the ``K'' word there. I will leave it at
institutionalized corruption.
I would go back to what Congressman Weber said earlier in
terms of Ukraine. And in terms of their leadership, I think
they need political will and individual courage.
Mr. Meeks. Thank you.
Mr. Kolesnikov. I should say that I see eye to eye with Mr.
Vejvoda. I completely agree. And I have been to Ukraine three
times this year, and I have very close relations with my
Ukrainian business partners.
The key difference between Ukraine and Russia is, number
one, there is true real freedom of speech in Ukraine, they have
true real elections in Ukraine, and they have real civil
society in Ukraine, which took shape now and which does not
want to live in a corrupt society.
I spoke to many Ukrainians on the street, and they are
completely different than Russians because they freely express
their opinions. They openly admit that, yes, we have corrupt
government officials, yes, we have corrupt legislators, we are
perfectly aware of it, but we can change the situation and we
will change the situation. That is the biggest difference.
Mr. Rohrabacher. Well, I would like to thank all of our
witnesses. Just a couple thoughts. And let me just note, I was
there during the Orange Revolution. I actually camped out in
Maidan in the tents they had there. It was cold, I might add.
And let me just note that Cathy Chumachenko, who worked
with me in the Reagan White House, turned out to be first lady,
and she and her husband, who came into power after that, the
Orange Revolution, as has been indicated in the testimony,
their administration was so corrupt that the people of Ukraine
ended up voting for Yanukovych in the next election.
And Yanukovych, I might add, was democratically elected,
OSCE verified it. However, he didn't leave office in a
democratic election. He left office because there was a violent
revolution that started in Maidan right after he decided to go
with the European Union. And there are discussions about
whether the European Union was indeed interfering with what was
going on.
But let me just say this, that had Yanukovych not been
overthrown or not been kicked out with violent demonstrations
in the Maidan, that he would have been kicked out in the next
election. There is no doubt. He was corrupt and he was doing
things that the public didn't like, and the very next election
he would have been kicked out. And had they waited to kick him
out rather than overthrow him 2 years earlier than the free
election demanded, I do not believe that any of this horror
story that we faced in the last couple years in Ukraine would
have happened. You would have had a peaceful transfer of power,
which is what they should have had.
Yanukovych deserved to be removed by his people, because he
was as corrupt as the people who he replaced, who were as
corrupt as the people they replaced. And I am not sure how that
bodes well in the future for Ukraine, because the information I
am getting now is that the current government is also deeply
engaged in corrupt practices and the sending of large amounts
of money to European banks.
So with that said, let's pray that that problem will some
way be relieved from the poor suffering Ukrainians, who I don't
know any other people in the 20th century and now into this
century that have suffered more than the Ukrainian people,
between World War I, World War II, the Soviet occupation, and
now these horrible things. Let's hope that we can try to find a
peaceful answer and get the Russians out of their country and
return to some sort of democratic rule and rule of law.
Just one or two other thoughts, and that is the shell
companies, this was a very good tipoff today, that to solve the
problem we have got to make sure that you can't have companies
that nobody knows who runs the companies begin to control and
own assets. We need to know who controls various assets and
various amounts of wealth in a society. Shell companies are
something I was not aware of being a problem. Thank you very
much for that tipoff today.
Also, again, I think that we need to make sure that we
examine our own banking system and financial system here so
that it does not encourage corrupt practices in other
countries. We have given foreign aid to countries in Africa,
for example, where the African dictator ends up being
overthrown, and then we find out all the money that we gave has
gone overseas to some European or otherwise bank.
And then, of course, by the way, the banks don't ever give
the money up. What do the banks do with the money once some
petty dictator gangster in the Third World has given them $1
billion in deposits? What do they do with it? They envelop it
into their own system. They are the ones who end up with the
loot.
Well, there will be future hearings on this issue, and we
need to work on that before we start pointing fingers at
everybody else right now, because we have some things we can do
to help the situation become better.
So with that said, I really have enjoyed this hearing. I
hope you did too.
And thank you, Mr. Meeks. I think we have had a very good
discussion.
And until next year, then, this committee is adjourned.
[Whereupon, at 12:02 p.m., the subcommittee was adjourned.]
A P P E N D I X
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