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07 March 22
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Could the scrutiny of Putin’s favored billionaires hastened by the war in Ukraine extend to the hidden money that subverts democracy in the United States?
To a degree that has startled experts in the opaque byways of international finance, the invasion of Ukraine has engendered a systematic campaign to sever Russia from the global banking system, and to sunder the Russian élite from their estates, vessels, and fortunes from the Caymans to Sardinia to Central Park. Since the Russian attack began on February 24th, the United States, the United Kingdom, and the European Union have expanded the list of Russian billionaires under sanctions to at least sixteen. In his State of the Union address, on March 1st, Joe Biden said bluntly, “We are coming for your ill-begotten gains.” The next day, the Justice Department detailed a new “KleptoCapture” task force, targeting Russian officials and well-connected élites. In the British capital—mockingly nicknamed Londongrad for the profusion of Russian fortunes—lawyers, bankers, and spin doctors are under pressure to stop helping oligarchs avoid scrutiny. Even Switzerland, which is so devoted to pecuniary secrecy that its journalists can be jailed for writing about financial leaks, has frozen Russian financial assets, including those of Putin, Foreign Minister Sergei Lavrov, and nearly four hundred others.
Brooke Harrington, a sociology professor at Dartmouth who studies tax havens and secret money flows, told me, “Things that I’ve spent the last fifteen years hearing were impossible have, in less than a week, become possible.” Harrington, who has criticized the rules and loopholes that shield wealth from taxes or public disclosure, likened the sudden moves to the fall of the Berlin Wall. She said, “When that wall came down, it didn’t affect just Berlin, or even Europe. It changed the way the world was organized. I don’t know if that’s the way it’s going to go this time, but it absolutely has the potential to be that kind of momentous shift.”
How momentous, exactly? The push to expose hidden flows of Russian money has renewed calls to illuminate darker corners of American finance and politics, as well—not only the vast sums that are secreted to tropical islands to avoid taxes but also the fortunes that exploit U.S. campaign-finance law to bankroll the manipulation of democracy, without fingerprints. In his State of the Union address, Biden asked Congress to pass the Disclose Act, which seeks to limit the role of dark money in elections, so that Americans “can know who is funding our elections,” as Biden put it. The bill’s sponsor, Senator Sheldon Whitehouse, of Rhode Island, told me, “The fact that all of this has blown up overseas, and we’re demanding all this transparency about foreign autocrats and kleptocrats, gives us a good argument for cleaning this up at home and for focussing public attention.”
Putin’s brutal, naked attack on a sovereign, democratic society has clarified the risk posed by illiberal forces around the world. But the broader assault on democracy has been building for years, orchestrated in obscure legal maneuvers and self-serving political projects that have sapped confidence in elected governments, eroded transparency, and fed public cynicism. “It’s the fossil-fuel industry’s dark money that is blocking Congress from passing climate-safety legislation,” Whitehouse said. “If ExxonMobil can hide its political spending behind dark-money fronts, then why can’t the Iranians? Why can’t Vladimir Putin? We need transparency.”
In recent years, a series of extraordinary leaks have alerted the public to hidden money flows that have helped to fuel the rise of far-right politics. In 2016, documents released by the International Consortium of Investigative Journalists, known as the Panama Papers exposed the inner workings of the Panama City-based law firm Mossack Fonseca, which had created more than two hundred thousand shell companies that allowed clients to assemble vast fortunes from opaque sources. Among the discoveries, Putin’s banks and proxies had helped to elevate far-right politicians across Europe. Marine Le Pen and her party, France’s National Front, were later found to have received millions of dollars from Russian sources, partly funnelled through Cyprus. Ahead of 2017 parliamentary elections in Germany, the Russian government reportedly funded the Alternative für Deutschland party— perhaps without the AfD’s knowledge—relying on middlemen to sell it gold at below-market prices.
Offshore fortunes made it hard to tell who was lavishing money on American politicians, too. In 2017, the I.C.I.J. published another leak, known as the Paradise Papers, that included records from nineteen tax havens, and exposed the financial engineering used by more than a dozen advisers, donors, and Cabinet members of President Donald Trump. His Commerce Secretary, Wilbur Ross, was found to have a stake in a shipping company registered in the Marshall Islands, which received millions of dollars a year from a Russian firm controlled by Putin’s son-in-law. (At the time, a Commerce Department spokesman said that Ross had never met the son-in-law and that he “recuses himself from any matters focused on transoceanic shipping vessels.”)
More to the point, the emerging details on hidden money flows have shown how they deeply disfigure democracy in other ways. In 2018, a group of European news organizations published the lesser-known CumEx Files, which exposed an intricate stock scheme that had cost European countries an estimated sixty-three billion dollars in taxes. A participant was quoted as saying, “Anyone who takes issue with the fact that there’ll be fewer kindergartens in Germany because of the trade we do is in the wrong place.” Freedom House, a Washington think tank, has described the use of tax havens and other hidden maneuvers as a “multifaceted threat to democratic governance.” The efforts to escape an ordinary obligation of citizenship, while sometimes legal, “hollow out public services, and they fuel populist resentment by magnifying the perception that the system is rigged in favor of wealthy elites,” the group declared. Over time, they “set a country on a path toward institutional breakdown or even state failure.”
In the United States, the threat to democracy posed by hidden sources of cash has taken on particular urgency since Trump tried to overturn his loss in the 2020 election. Since then, public records and investigations have revealed the role that American oligarchs have played in delegitimizing Biden’s victory, fuelling misinformation, and trying to rewrite state election laws. Richard Uihlein, an heir to the Schlitz beer fortune and the founder of the Uline shipping-supplies company, has donated millions to right-wing groups. Among them is the Conservative Partnership Institute, which lists as its senior legal fellow for election integrity the Trump campaign attorney Cleta Mitchell, a participant in the infamous phone call in which Trump pressured Georgia election officials to “find” enough votes for him to win the state. Julie Fancelli, an heir to the Publix supermarket fortune, who lives in the Tuscan countryside, is the largest known donor behind the pro-Trump rally on January 6th that preceded the riot at the Capitol. (In a statement to the Wall Street Journal, Fancelli said that she had “real concerns associated with election integrity, yet [she] would never support any violence, particularly the tragic and horrific events that unfolded on January 6th.”) In The New Yorker, Jane Mayer has tracked a web of nonprofits that promote conspiracy theories about purported voter fraud in ways that could help challenge the results of the 2022 midterms and the 2024 election.
The political effects of Putin’s war on Ukraine are rippling across the world and, potentially, into the workings of American politics. Harrington, the sociology professor, said, “The main shift that’s relevant here is not about whether it’s going to be illegal to do this stuff. It may be, but law is very slow” to change. The larger shift, in her view, concerns what social scientists call norms, the unwritten boundaries of what is considered socially and politically acceptable. Harrington recalled the 2016 Presidential debate in which Trump bragged that he was “smart” for avoiding income taxes. She said, “He wasn’t laughed off the stage. It didn’t end his political career. That, I think, is changing, and that may be a permanent normative change, where it is no longer O.K. to say, ‘I’m evading the law.’ ” She added, “That, to me, is much more important than what the law says, because there’s no fun in being an oligarch if you can’t be out and proud about looting your country.” Whether Harrington is right, and whether voters will punish élite corruption and have their votes fairly counted, could affect transparency, accountability, and democracy worldwide.
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