What is Kleptocracy?

A kleptocracy refers to a state or a government exploiting the country’s resources through corruption and using power to exploit the country’s wealth for personal gains.

PEPs in Kleptocracy

Individuals who hold prominent public positions, such as heads of state, government officials, or military leaders, are called Politically Exposed Persons (PEPs).

PEPs often exploit their power and influence to engage in corrupt activities, including facilitating money laundering.

The elevated status of such personalities provides them access to financial institutions and legal loopholes, making it easier to hide illicit wealth in offshore accounts or invest in foreign assets.

Suggested Article: Top 3 High-Profile Cases of PEP Corruption Involving Aliases

RCAs in Kleptocracy

Relatives and Close Associates (RCAs) are also a further form of PEPs that play a significant role in kleptocratic systems by acting as beneficiaries of the illegal wealth captured by PEPs.

This procedure may also include holding assets, creating shell companies, or managing offshore accounts on behalf of the PEPs. Such platforms allow them to evade detection.

Effective PEP screening is essential for detecting and monitoring RCAs who may facilitate illicit activities on behalf of PEPs.

How Do Kleptocrats Launder Money?

Kleptocrats use complex international networks because of their power and influence to loot money out of the country.

Some common forms include:

Offshore Concealment

Using the complex network of offshore accounts and shell companies to conceal their wealth as regulatory frameworks and cooperation among countries often lag behind the system that kleptocrats use to launder money.

Legal Manipulation

The use of Lawyers and accountants to create a complex legal and financial structure combined with global connections and PR agents to improve their image, thus laundering both money and their reputation.

Tax Haven Complexity

Opening offshore accounts in tax havens and creating layers of ownership and no tax disclosure requirements for shell companies make it extremely difficult to trace and recover the laundered money.

Real Estate Money Laundering

By converting the illicit funds through a complex shell company into luxury real estate, kleptocrats create a tangible asset that is mostly less monitored than other financial activities in most jurisdictions.

Suggested Read: Dubai Real Estate, A Growing Spot Of Money Laundering By PEPs & RCAs?

Weak AML Controls

In many countries, there is weak AML control and a lack of cooperation among international organizations to detect and prevent money laundering. This creates opportunities for the Kleptocrats to benefit from this financial and legal system.

What Are Common Kleptocracy Examples?

Some of the kleptocracy examples are as follows:

Putin Kleptocracy

Vladimir Putin of Russia is an example of a kleptocrat who has held both prime minister and president slots in Russia and has allegations that his inner circle has accumulated wealth through state enterprises and offshore accounts.

Equatorial Embezzlement

Teodoro Obiang Nguema Mbasogo, president of Equatorial Guinea, has embezzled money from the country’s oil revenues.

Mobutu Looting

Mobutu Sese Seko, former president of the Republic of Congo has a fortune worth billions of dollars primarily by looting the country’s financial reserves.

Abacha Plunder

Sani Abacha ruled Nigeria under martial law and embezzled around $5 Billion through looting from the public treasury and hiding money with the help of complex international networks.

Marcos Theft

Ferdinand Marcos, a former Philippine dictator stole around 10$ billion from the country with the help of different shell companies and offshore accounts.

Suharto Corruption

Suharto, an authoritarian leader who ruled Indonesia for around 3 decades, looted around 30$ billion from the country in his tenure.

Conclusion

Kleptocracy is a global phenomenon a lot of countries are involved with. So, the people and organizations associated with these kleptocracies are more prone to money laundering and financial crimes.