Strategic Corruption: Why Democratic Decline Is a Security Threat

Abstract

Globalisation has opened Western economies to influence and investment by authoritarian states like Russia and China. States with strong legal and democratic institutions are able to defend against them by applying the rule of law, investigating corruption, and limiting the extent to which elected and appointed officials can work for authoritarian governments after they leave office. However, countries that have begun to weaken or dismantle democratic institutions also undermine checks and balances against this foreign-authoritarian, or ‘strategic’ corruption opening up a new vector for authoritarian influence in the EU. This paper suggests ways EU institutions can be strengthened to mitigate this risk and argues these should be organised specifically as measures against authoritarian influence rather than foreign influence per se. 

Across Europe, national populist movements such as Fidesz in Hungary and Law and Justice in Poland have degraded democratic institutions in the countries they rule and put the fundamental rights of EU citizens in danger. They undermine the judiciary, seize control of the media, and intimidate civil society and businesses. It is becoming clear, however, that the threat they pose is not limited to their own citizens, or even EU citizens more broadly, but has begun to affect the national security of Europe as a whole. 

Their weakening of domestic restraints on the abuse of power has opened up a gap in our political and institutional defences that hostile authoritarian states, including China and Russia, have been all too eager to exploit through ‘strategic corruption’. Moreover, these defensive initiatives, when presented as attempts to resist foreign interference, have often backfired. This framing plays into the hands of nationalist leaders, enabling them to evade EU institutions and member states’ attempts to defend fundamental rights and democratic institutions from internal attack and external subversion alike. 

Strategic corruption differs from ordinary corruption in that it does not necessarily try to make money but aims to influence the target state’s foreign policy to serve the interests of the corrupting power. It creates relationships of financial dependency between a foreign authoritarian state and individual politicians or officials in a democracy. They break the law, deviate from publicly announced policy of relevance to the foreign state, or, at their most insidious, advance policies in the interests of the corrupting state at the expense of the interests or values of the country they ostensibly work for or the people they represent. 

If the practice is hardly new (covert subsidies to other monarchs were a staple of diplomacy as far back as the Renaissance), the manner in which dictatorships such as China and Russia were given access to the international financial and economic system, giving them access to to Western markets governed by the rule of law and anti-corruption legislation without requiring reciprocal regulations to be enforced on their economies and political systems, has caused it to proliferate. And unlike in the Renaissance, when covert subsidies were widely interchanged, modern democracies both lack the means and have often denied themselves the legal instruments required to penetrate Chinese and Russian politics in the way they penetrate ours. Unlike, for instance, Gazprom, our businesses are supposed to operate independently of government,¹ and our government budgets are public, which makes the establishment of slush funds for covert influence difficult. While Western intelligence services maintain activities that are necessarily shielded from detailed public scrutiny, they are subject to oversight and limited in scale compared with the moneys available to the Russian and Chinese intelligence apparatuses. (See Belton, 2020)  Moreover, the smaller front organisations our intelligence services may operate must do business in the closed environment of dictatorships, with their employees at risk of brutal retaliation and certain torture if their activity is exposed. 

This asymmetry has enabled the Russian and Chinese states to make broad inroads into the Western elite. A former chancellor of Germany served on the board of Gazprom. A former prime minister of Italy, US diplomats believed, received kickbacks on energy contracts with Russia (Evans, Harding, & Hooper, 2010) and was even praised for his ‘corruption’ in the obituary written for him by the officialist Russian Valdai Club think tank (Barabanov, 2023) under the heading ‘Russia’s Friend’ (though it must be admitted Silvio Berlusconi was also engaged in large amounts of personal, non-strategic corruption). A former contender for the French presidency, known for his Russian links, chose to serve on the board of the Russian state-owned company Zarubezhneft.² A former British prime minister allowed a Chinese company to win a nuclear power plant construction contract and, after leaving office, tried to set up a fund that would invest Chinese money in British infrastructure projects (this did not stop David Cameron from returning to politics as foreign secretary). In the United States, it is not only Donald Trump who received money from foreign dictatorships; Democratic Senator Robert Menendez has been indicted for receiving bribes from the Egyptian government. 

While the Russian practice of subversion and corruption may be the most well-developed,³ Moscow is hardly the only country whose opaque public finances allow it to deploy this instrument. What has changed recently is the weakening, within certain EU Member States, of the instruments designed to defend against all corruption, both foreign and domestic. 

What is corruption? 

While it is tempting for liberals to focus on the victims of populists’ divisive campaigns (be they non-governmental organisations (NGOs), the queer community, or migrants), smearing them as enemies is just a device to consolidate power.⁴ National populists’ plan for government is more important.⁵ They aim to replace constitutional checks and balances with a fake democracy where prosecutors ignore corruption by the government’s allies, the media are prevented from reaching beyond the government’s minority of opponents, independent-minded judges are demoted or sacked, and major businesses are brought under the control of the ruling elite. All this is done not by open oppression but by stifling political competition (Walshe, 2020) and applying formal rules unfairly (Sájo, 2021). 

Corruption at first brings to mind an official taking bribes or awarding a contract to their brother-in-law, but its scope is actually much wider. It is the misuse of political power by acting against the purpose or beyond the powers of the public office in question, and the main way liberal democracies protect against such abuse is by separating and dividing authority.  

Though no single EU Member State practises the full separation of powers developed in the United States, and the EU itself, though possessed of multiple institutions, departs from the US design in making the Commission, an unelected executive, the sole initiator of legislation (notwithstanding a convention that it takes other institutions’ wishes into account), the principle is fundamental to a liberal democratic society. To the classical theory we should also add that the three branches of government are not unitary bodies but are made of individual people whose roles and powers are also set down in law.⁶ 

National populists reject the very idea of these restraints, at least insofar as they apply to themselves and their movements: they believe their popular mandate at an election gives them unbounded power to rule. The administration and its agencies ought, they think, to become subject to immediate political direction. The law offers officials no protection from being forced to act corruptly because it is ignored or can be (and often is) changed on the government’s whim through a compliant parliament. ‘Independent’ boards often flourish in such regimes yet frequently do the executive’s bidding. Nor is the judiciary independent, or the prosecutorial system impartial. Justice is selective and advantageous to the politically loyal. 

Strategic corruption is when it happens in foreign affairs (Zelkow et al., 2020). 

Interference and foreign policy 

Viktor Orbán’s government has passed a new law to create a state institution to investigate and expose foreign involvement in Hungary’s politics. It was also caught taking out anti-immigrant YouTube ads in Poland during Poland’s election campaign (Szabolcs, 2023). Hypocrisy aside, this serves to illustrate the porous nature of today’s political and information environment. I chair Unhack Democracy, an NGO funded by, among others, US organisations that works on strengthening democracy in Hungary. We are not that bothered by Orbán’s new McCarthyite ‘defence of national sovereignty bill’. We’re proud to show Hungarian democrats that they’re not alone.  

In reality, all countries get involved in each other’s affairs all the time, and this is to be expected in an open society. The question is what should count as permissible interference. We need to make distinctions between legitimate and illegitimate international activity.  

Rather than making foreignness the criterion which plays into the hands of nationalists (however insincere they are in practice), the difference between acceptable and unacceptable foreign influence should be distinguished based on principles of good government and fundamental rights. The problem with strategic corruption is not that it is foreign, it is that it is corrupt. Firstly, it uses illegitimate means, creating relationships of financial dependence that distort the behaviour of government officials. Worse, it advances the interests of hostile, undemocratic regimes that want to do us harm. 

Strategic corruption should be opposed from a universal, not a national standpoint. Universal because good government principles (codified, for example, in the Fundamentals cluster of the EU’s enlargement methodology) and fundamental rights (codified in the EU Charter, but also in international human rights conventions) ought to apply everywhere. Our actions, and insofar as it is possible those of third countries, ought to reflect these principles; cross-border activity consistent with them should be permitted by foreign democratic states; and the EU and its Member States should be permitted to engage in such activity in all countries that have adopted international instruments such as the International Convention on Civil and Political Rights and the UN Convention Against Corruption. 

Universality, however, does not mean the principles are neutral. They require us to take action in favour of fundamental rights and against corruption and apply instruments to tackle abuses by our own Member States as well as in third countries. 

Thus, it should be perfectly reasonable for us to fund pro-democracy activity in Russia but forbid Russian-backed anti-democracy activity in the EU. We should have no problem with a democratic Russian state supporting activity genuinely aimed at improving human rights in Europe, but that is currently in rather short supply, and Russian democracy is a distant prospect. 

Recommendations: Protecting democracy in a porous world 

Erecting barriers against foreign political and economic activity, in general, reinforces national populism rather than protecting us against it. Instead, we need to mount a defence in depth by strengthening our institutions and limiting the ability of unscrupulous officials to act outside the law (or change the law to enable them to act outside what the law should be) and reinforcing the law to prevent the creation of ties of financial obligation to foreign states, or entities associated with foreign states.   

1. The first step is to make it harder for senior officials and politicians to receive money. A regulation should be passed to enable the Commission, in consultation with the Council, as these things are diplomatically sensitive, even though financial regulation is an exclusive Union competence, to draw up a list of high-risk countries. ‘Politically exposed persons’ (PEPs, as defined by EC/2015/847 on anti-money laundering) should be forbidden from entering into commercial or employment relationships with government-related entities in these countries, and senior public officials could be forbidden from dealing with them. The procurement directive (EC/2014/24) provides a useful definition of ‘government-related’ through its concept of ‘bodies subject to public law’. Because strategic corruption often takes place through ostensibly independent entities that are, in fact, controlled by a country’s political leadership, this should be accompanied by an ultimate beneficial ownership test. The initiative could be made stronger still by requiring PEPs to prove that entities related to high-risk countries were actually independent of state control. 

2. If more radical action is needed, the companies or individuals found to be sources of strategic corruption should have secondary sanctions applied to them in a manner similar to the restrictions applied to another national security threat, terrorist organisations. Banks should not be allowed to provide them services, and other entities should not be allowed to have commercial relationships with them. As this measure might have significant economic effects, particularly in the energy sector, care would need to be taken to apply this measure proportionately. 

3. Internal defences against democratic decline, which creates opportunities for strategic corruption, should also be strengthened. The EU has numerous tools to counter corruption but has often brought proceedings too slowly, thereby allowing national populist governments plenty of time to damage democracy in their countries. These governments, such as Orbán’s in Hungary,  are not averse to using political instruments, including vetoes on accession, the multiannual financial framework (MFF), and foreign policy, to deter the Commission from bringing infringement proceedings or seeking interim measures. While the Treaties give the Commission complete discretion in bringing such proceedings, making the establishment of a truly independent European body modelled on the German Verfassungsshutz impossible, an arms-length Rule of Law Enforcement Board could be set up within DGJUST. It could issue recommendations that the Commission would have to follow unless explicitly overturned by the College; overturning such recommendations would carry a political cost. 

4. The European Public Prosecutor’s office is new and is already struggling with its workload. It is a vital bulwark against strategic corruption, particularly in Member States with weaker judicial and investigative authorities. Its budget should be increased commensurate with the work. 

5. Corruption, strategic or not, is frequently exposed through investigative journalism, and countries with strong independent media, whether private or public service, are best placed to uncover malfeasance in office. Now that the European Media Freedom Act has been adopted, it must be implemented with urgency. 

6. Together with the media, civil society plays a vital role in analysing and investigating corruption and improving government transparency. Yet the EU’s Citizens Equality Rights and Values (CERV) programme is unsuited for civil society. Funding is project-based, but unlike funding for public works projects, organisations are not allowed to make a margin to defray administrative costs, cover project application risk finance depreciation, or build up reserves. Organisations in the sector struggle to maintain focus and are subject to the whims of foundations (such as the Open Society Foundation’s decision to withdraw from the EU). Moreover, the administrative burden is excessive, particularly for many of the smaller, more nimble civil society organisations of which this sector is composed. As well as allowing organisations to make a reasonable margin on their project bids, the right balance between accountability and efficiency should be achieved by using the comparatively straightforward Erasmus+ process for future rounds of civil society funding. 

References 

• Barabanov, O. (2023). ‘Russia’s Friend: Remembering Silvio Berlusconi’. Valdai Club Website, 13 June, https://valdaiclub.com/a/highlights/russia-s-friend-remembering-silvio-berlusconi/. 
• Belton, C. (2020). Putin’s People: How the KGB Took Back Russia and Then Took On the West. 2020. 
• Evans, R., Harding, L., & Hooper, J. (2010). ‘Wikileaks Cables: Berlusconi “Profited from Secret Deals” with Putin’. The Guardian, 2 December, https://www.theguardian.com/world/2010/dec/02/wikileaks-cables-berlusconi-putin. 
• Pappas, T, Populism and Liberal Democracy: A Comparative and Theoretical Analysis, Oxford, 2019. 
• Sájo, A. (2021). Ruling by Cheating. Cambridge: Cambridge University Press, 2021. 
• Szabolcs, P. (2023). Twitter, 13 November, https://twitter.com/panyiszabolcs/status/1723986693315768522?s=61&t=hs-ci7McB8t8wZ6Srg4VWQ. 
• Walshe, G. (2020). Political Monopoly: How Europe’s New Authoritarians Stifle Democracy and Get Away with It. Institute for Strategic Dialogue, 2020. 
• Zelikow, P,. Edelman, E., Harrison, K., and Gventer, C.W., The Rise of Strategic Corruption: How States Weaponize Graft, Foreign Affairs, July/August 2020.