Q&A: Journalist Casey Michel on How the U.S. Became the Center of Global 'Kleptocracy'
The author of a new book details how foreign leaders and the Trumps alike have benefited from America's participation in the "global race to the bottom" of financial secrecy.
Casey Michel is a journalist living in New York. He is the author of a new book, "American Kleptocracy: How the U.S. Created the World's Greatest Money Laundering Scheme in History." The book details how the United States became a haven for authoritarian leaders and oligarchs to hide their money and transform it into legitimate investments. His writings on offshoring, kleptocracy, and financial secrecy have appeared in Foreign Affairs, The Atlantic, The Washington Post, Vox, The New Republic, and POLITICO Magazine. He is a member of the advisory council for the Hudson Institute’s Kleptocracy Initiative, and has contributed research pertaining to offshoring, illicit finance, and foreign interference to the German Marshall Fund, the Human Rights Foundation, and others.
Michel and I spoke over Zoom before the Thanksgiving holiday. Our conversation follows, condensed and edited for clarity.
Luke Johnson: For readers, can you explain what is kleptocracy?
Casey Michel: Kleptocracy is a global, transnational, financial architecture that incentivizes the flow of dirty, illicit, or suspect wealth from autocratic or dictatorial regimes, oligarchic figures -- as well as their inner circles and their contacts -- into Western jurisdictions.
It is the multinational flow of illicit, suspect, or dirty money into financial secrecy jurisdictions, for the purpose of hiding that money, stripping that money of any identifying information, and transforming that money to legitimate, licit assets. They're using tools like shell companies, anonymous trusts, and then beyond that, anonymous real estate purchases or anonymous art purchases, or even anonymous investments and things like private equity and hedge funds to invest and transform that money.
LJ: Explain the difference between a regular company and an anonymous shell company.
CM: When you think of a regular company, you think of any of these basic building blocks of modern capitalism -- a legal entity that produces a product for sales that generates revenue, provides jobs, and has some element of transparency to it both financially, as well as in terms of personnel. It has certain individuals that are identifiable.
A shell company, and especially an anonymous shell company, flips that on its head. There are certain characteristics that it has in common with other companies. It exists as a legal entity itself. There are filings with state authorities that registered that company that show when it was created, the name of the company, and who was filing that paperwork for a company.
Anonymous shell companies don't produce anything. There is no product that you can point to as revenue generation. They are in existence only to cloak and anonymize. Those figures that are setting it up are using that shell company to then go out and purchase other assets, go out and open other accounts, or go out and create other investments. Their sole purpose is not revenue generation; their sole purpose is not the creation of wealth; or the creation of jobs. They can purchase real estate, they can set up trusts, they can be involved in other anonymous shell companies that create this kind of nesting doll of anonymity. We have to peel back layer after layer to get to any kind of identifying information. Often that identifying information isn't even there.
These are tools that are effective black boxes, for any kind of kleptocratic figure to be able to strip any identifying information from who that person is, or maybe where that money came from. Then, that [shell company] allows [for the] transformation of that money into something that is perfectly legal and acceptable to purchase or invest in. Anonymous shell companies are the building blocks of modern kleptocracy.
LJ: I'm sure people are familiar with the Cayman Islands being a haven of financial secrecy. But why did Delaware, South Dakota, Nevada and Wyoming become financial secrecy jurisdictions?
CM: They are smaller jurisdictions. They are jurisdictions that don't have much in the way of a natural resource or manufacturing base. They are, in many cases, jurisdictions that have fallen on economic hard times -- think of the American manufacturing sector or agricultural sector.
They are American states that realized they are relatively constrained in what they do economically, for revenue generation, and job creation. These are all jurisdictions that realized there was this growing demand for financial secrecy for illicit wealth, especially out of postcolonial and post-Soviet jurisdictions, those nominally transitioning democracies that all too rarely transitioned into democracy. Nonetheless, they provided incredible sources of wealth erupting in these geysers of illicit or suspect financial flows looking for a home.
If they [these states] don't do it, somebody else is going to do it -- the British Virgin Islands, Panama, or Switzerland. You have this domestic race to the bottom among the smaller jurisdictions taking place within a global race to the bottom.
LJ: You talk about a Ukrainian oligarch named Igor Kolomoisky in the book. Can you describe him briefly and explain why he is interested in investing in Cleveland.
CM: In terms of his public persona, he likes to portray himself as this jovial, happy-go-lucky businessman, who has been a successful investor in things like the steel and banking industries. In the aftermath of Ukraine's Euromaidan revolution, Kolomoisky was appointed as the governor of one of the Ukrainian regions that was on the front lines following the Russian invasion, the Dnipropetrovsk Oblast. As it was described, he built up a private militia of thousands, effectively serving not the Ukrainian state, but Kolomoisky himself. As far as I'm aware, this was the largest private militia, at least on the Ukrainian side, that would be ever seen.
Videos began to emerge of him berating reporters and others. This facade of him as a happy-go-lucky figure began to crumble. Simultaneously, new Ukrainian regulators, [were] looking into the bank that Kolomoisky was helping run, PrivatBank, which was the largest retail bank in Ukraine at the time. What regulators realized, as they were looking through, is there was a $5.5 billion hole, just missing.
“Trump is not the only American who has taken advantage of this kleptocratic transformation -- it just so happens that he was able to parlay that transformation into things like ‘The Apprentice’ and then eventually, the presidency of the United States of America.”
What was alleged by Ukrainian investigators and since by the Department of Justice is that Kolomoisky and his colleagues had effectively set up the greatest Ponzi scheme in Ukrainian history. They had transformed this massive bank in Ukraine into one gigantic scam that was profiting Kolomoisky and his inner circle. It was a very convoluted and complicated scheme. Kolomoisky and his colleagues were taking new deposits, moving those new deposits into offshore accounts in places like Cyprus, eventually, in places like Delaware, and using those funds to secretly purchase a number of real estate assets by going to places like Cleveland, Ohio, or small towns in the American Midwest and Rust Belt, say that they were using this money to bring back jobs, bring revitalization to the local economies, return these economies to the mid 20th century heyday. Kolomoisky himself wasn't doing this--he had a handful of Americans that were helping--it has all been alleged by the Department of Justice. What they would then do is use those assets on paper to make it seem like the initial deposits or loans were being repaid. It goes on and on. It's kind of like a nautilus. It builds and builds on itself spirals out and out. At some point, it just so happened to end at that $5.5 billion hole.
The reason why they were going into some of these jurisdictions in the US, as has been alleged, and certainly some of the conversations I've had with others, is that they appear to be looking where regulators, American authorities, and journalists would never suspect. We think of Manhattan, Malibu, or Miami -- we don't think of Ohio, West Virginia, or Kentucky.
There was a quote from one of the city councilmen in Cleveland, who said it was like bringing water to a very thirsty man. Especially in the aftermath of the Great Recession, there were no other investors coming through. There was no reason for them to look at the actual sources of the money. We're talking about economic lifelines for entire communities that were promised that these jobs will be brought back. These are new investments that never happened. What happened instead is that by all appearances, Kolomoisky and his team didn't care one bit for the actual revitalization. These mills have been falling apart, these commercial real estate buildings in Cleveland have been degrading, what was described as a gaping hole left in the middle of downtown now, and whatever workers were there have been largely laid off.
LJ: He's eventually sanctioned by the Biden administration. Is that effective? Are sanctions an effective tool for curtailing the worst excesses of kleptocracy?
CM: He's now officially banned from the United States. The Department of Justice still has cases regarding these assets, which are ongoing.
The specific targeted sanctions programs are a wonderfully effective tool, in terms of upending some of these specific kleptocratic networks. (We're not talking about broad sanctions regimes like North Korea or Iran.)
Yes, they prevent them from enjoying everything Manhattan, London, or Paris has to offer. But beyond that -- this came through in the Pandora papers last month -- some of these guys scrambled to reorient their finances. Sanctions do shred apart some of these kleptocratic networks. These figures are using Western enablers, Western accounts, Western investments, Western financial networks. We have not gotten enough information about what Kolomoisky's internal financial response has been. There are certainly still questions regarding the relationship between [Ukrainian] President [Volodymyr] Zelensky, and Kolomoisky himself, because Zelensky rose to prominence from a television show as an actor on Kolomoisky’s television network. But the U.S. sanction was a very clear indicator that there's at least an awareness in the Biden administration about the realities and the threats of these kleptocratic networks.
LJ: I think a lot of people will think of the Trumps and their business and real estate empire. Do they use any of these financial mechanisms that post-Soviet and postcolonial leaders use?
CM: Oh, absolutely, they do. Trump himself has been tied personally to hundreds of Delaware shell companies. How many more he's been tied to in Delaware or in other jurisdictions is anyone's guess. It is still a remarkable thing to think about that, as the frontrunner for the 2024 GOP nomination, there's still so little we know about the underpinnings of his own economic rise.
The key differentiating factor is that the Trumps are not attempting to launder their wealth. What their business has comprised for decades, is providing the kinds of financial secrecy, anonymization, and offshoring tools that those kleptocratic figures need. We see this, especially in luxury real estate. The explosion of the American luxury real estate sector over the last 20 or 30 years has been predicated to a degree on financial inflows of illicit wealth. Much of that has to do with the kinds of anonymity that are still allowed.
The Trump Organization, just like any other American luxury real estate company, has worked with whoever they want, for however much they want, without asking any questions whatsoever. We know that [before 2016] there was at least $1.5 billion in sales from Trump properties, from buyers that matched money laundering profiles. By far, [Trump is] not the only American who has taken advantage of this kleptocratic transformation -- it just so happens that he was able to parlay that transformation into things like "The Apprentice" and then eventually, the presidency of the United States of America.
As I argue in the book, there are few figures that encompass this transformation of the U.S. into the providing of kleptocratic services and anonymization. There are few figures that have benefited as much financially as Trump, and I would even argue that no one's benefited more in general, given his rise to the presidency and his continued stature in the Republican Party.
LJ: What's on the anti-kleptocracy agenda? If you had your druthers, what would you want to see policy-wise try to ameliorate this problem?
CM:This year has seen more momentum, more creativity, and more excitement, certainly than we've seen in the U.S. in the past two decades, and maybe even ever.
We have the creation in Congress of this counter-kleptocracy caucus, it's a bipartisan caucus that has become this kind of brain trust, for all these different ways to resolve all these loopholes to bring suspect wealth into the U.S.
The biggest one that they have introduced so far was called the ENABLERS Act. They [kleptocratic figures] need Americans to help them -- American professionals, American lawyers, real estate agents, accountants, luxury goods providers, private equity, hedge fund managers, etc. They need trust providers in South Dakota, Americans to set up the paperwork, and to make sure that everything is legally above board. All of these American nationals have no due diligence requirements whatsoever. The bill would create basic due diligence requirements.
[There has been] the passage of the Corporate Transparency Act, effectively banning American anonymous shell companies, the introduction of the ENABLERS Act, and the Biden administration elevating corruption into a formal national security threat on par with terrorism and nuclear war. You have expanding sanctions regimes targeting the specific kleptocratic figures. There is going to be more coming from the executive branch in the coming months in terms of revealing the depths of just how damaging and widespread these kleptocratic networks have been in the U.S. It feels like kleptocracy is having a moment.