Financial secrecy isn’t what it used to be. The release on 3 October of the Pandora Papers – around 12 million leaked documents that detail countless international money laundering and tax avoidance schemes – was surprising but bleakly familiar. Coordinated by a network of journalists in 117 countries, the publication of the papers follows a drumbeat of similar revelations in recent years, including the Panama Papers in 2016, the Paradise Papers in 2017, and the FinCen Files in 2020. Now, as then, media outlets and civil society groups are trying to hold governments to account for failing to clean up the financial system. Once again, they have dragged into the light a rabble of national leaders, powerbrokers, crime lords, and celebrities.
For many who take an interest in these issues, the Pandora Papers are not just a source of frustration and weariness (although they are that) but also another reason to condemn the technical flaws in Western countries’ defences against corruption. In the United Kingdom, one can point to the government’s refusal to adequately resource Companies House or to allocate parliamentary time to important transparency bills – which could suggest complicity with large-scale money laundering through shell companies and the property market. In the United States, the standouts include a lack of public access to records of the beneficial ownership of firms – even under innovative new legislation – and the legal darkness that surrounds financial products such as South Dakota trusts. In the European Union, it has become easier to make the case that the bloc’s anti-money laundering directives (as opposed to regulations, which would be legally binding) and official list of tax havens are more about political theatre than the enforcement of the rule of law.
Nonetheless, in some European countries, politics may be compensating for the inadequacies of policy. Czech Prime Minister Andrej Babis, whose use of offshore firms to buy property appears in the Pandora Papers, just narrowly lost an election that, prior to the release of the documents, he was widely expected to win. As political scientist Jiri Pehe puts it, Babis “definitely lost some voters because of this scandal”. The papers also reveal that Ukrainian President Volodymyr Zelensky, who ran for office on a commitment to anticorruption and transparency, has at least one thing in common with his predecessor, Petro Poroshenko: close ties to an opaque network of offshore companies. It is unclear whether these ties will affect Zelensky should he choose to run in Ukraine’s 2024 presidential election, but they should make it harder for him to convince voters that he has governed as he said he would.
Some of Europe’s more ethically flexible leaders will no doubt wonder what this latest data leak could mean for their careers. The Panama Papers, for instance, brought down the prime minister of Iceland. And journalists have only just begun to sift through the vast quantities of data in the Pandora Papers.
Since the publication of the Panama Papers half a decade ago, the inequities of the financial system have remained as damaging as ever. Yet voters’ shifting attitudes towards corruption and financial crime should provide some cause for hope. As I argued in a recent ECFR policy paper, public disillusionment with government corruption has become a powerful force in Western politics. Donald Trump tried – and ultimately failed – to use this disillusionment to refashion the US presidency in his own image. But his successor, Joe Biden, is engaged in the opposite task: attempting to bolster democratic norms and institutions by establishing the fight against corruption as a core national security interest. Europe can learn much from Biden’s approach.
American policymakers are probably right to prioritise the technical side of the fight. As policy analyst Josh Rudolph shows, Washington will need to regulate enablers of financial crime if it is to succeed in “what could become the most sweeping policy initiative against corruption and kleptocracy in U.S. history”. Such enablers include the 14 company service providers that are the sources of the Pandora Papers. Firms of this ilk pose a particularly daunting challenge to leaders who are accustomed to thinking about foreign policy purely in terms of relationships between states. To follow Biden’s arguments about ‘strategic corruption’, one needs to understand how kleptocrats across the world use pliable Western companies and legal systems to achieve their political aims.
However, in a democracy, long-term campaigns against persistent threats can be just as reliant on voters’ support as on laws, capabilities, and technical acumen. As the NATO withdrawal from Afghanistan indicates, it is hard to sustain such campaigns once the public lose interest.
Given these considerations, it matters a great deal that around 60 per cent of EU citizens view government corruption as a big problem. European political parties should develop this popular frustration with graft into the kind of broad-based anticorruption constituency that is rare in the West. There could be a significant number of votes up for grabs – especially at a time of widespread concern about cronyism in public contracting related to the pandemic.
This appears to be the idea behind two initiatives recently announced in the UK, where 45 per cent of voters view most politicians as corrupt. Shadow foreign secretary Lisa Nandy has proposed a task force to tackle “dirty money and ill-gotten gains”. And journalist Edward Lucas is campaigning on similar principles for an electoral district that contains the City of London – the capital’s financial heart. Seeming to echo Biden, Nandy describes “the fight against corruption as a key plank of defending our national interest”.
Such an approach creates opportunities to gain political leverage over the UK’s ruling Conservative Party. The Conservative government is reportedly calling on financial regulators to enable “the optimisation of competitive advantage for the UK” – ideologically charged nonsense of the type that has contributed to many a money laundering scandal. By exchanging institutional oversight for corporate boosterism, the government would cut against its claim in the 2021 Integrated Review of Security, Defence, Development and Foreign Policy that “we will continue to ensure that the openness of our economy … is an advantage by protecting ourselves and our allies from corruption”.
As British officials have pointed out, London is one of the world’s leading destinations for money laundered out of former Soviet states. This observation sits uneasily with Prime Minister Boris Johnson’s decisions to delay and otherwise undermine a 2019 Intelligence and Security Committee report on the Kremlin’s influence on British politics, and to nominate the son of an affluent former KGB officer to a peerage in the House of Lords. So do the alleged links between two major Conservative Party donors and, alternately, the Kremlin and one of Europe’s biggest corruption scandals. In light of all this, the government appears to have an interest in maintaining the status quo in the financial system and the legal order on which it is based: those two donors – Lubov Chernukhin and Mohamed Amersi – feature in the Pandora Papers.
It would be easy to collapse into cynicism about the documents’ political effects. After all, much of the activity they depict is perfectly legal – as is much of that in the Panama Papers and similar sets of revelations. European political parties could simply acquiesce to the dysfunction of the financial system, allowing it to continue to provide impunity to the wealthy and powerful – and to funnel money of dubious origin into campaign funds. But, if parties do so based on a conviction that the public do not care about such issues, this could become a self-fulfilling prophecy. In the extreme, it could create similarities with the political environment in authoritarian states, in which leaders try to pacify citizens by convincing them that politics is inherently corrupt: the world is a dark and dangerous place where everyone steals, so why attempt to challenge the status quo?
While initiatives such as a task force on illicit finance are unlikely to change voters’ attitudes by themselves, they could be an important part of a long-term campaign to hold the government to account for its unwillingness to address popular concerns about corruption. In the case of the UK, there has been significant media coverage of the “chumocracy” – a politer term for political patronage – that appears to increasingly encroach upon public life. Judging by the scandal over MPs’ expenses that upended British politics more than a decade ago, citizens will use the ballot box to show they care about money corroding democracy.
The European Council on Foreign Relations does not take collective positions. ECFR publications only represent the views of their individual authors.