The road to autocracy runs through New York and London
The hidden rule of law pitfalls in tech bro financial and crypto deregulatory fantasies
While discussions of declining rule of law globally have focused on state institutions, relatively fewer have examined its nexus with private sector finance, investment, corruption, and autocracy. One notable exception is Anne Applebaum’s 2024 book Autocracy Inc.
In this important book, Applebaum dissects the myriad intersections and interdependence of autocracies with the financial sector. Autocracies today may differ in substantive political goals—Russia, North Korea, and Iran no doubt make strange bedfellows—yet their rulers share an ability and desire to enable self-enrichment for themselves, other authoritarians, and their enablers. Illicit finance is a critical component to the power of authoritarian governments.
Hiding in plain sight
The role of OECD-based professional service providers and financial intermediaries particularly in the US and UK in enabling the corruption and financial fraud of these autocratic regimes has been well documented by among others Brooke Harrington (Offshore: Stealth Wealth and the New Colonialism), Oliver Bullough (Butler to the World: How Britain Helps the World’s Worst People Launder Money, Commit Crimes, and Get Away with Anything), and Casey Michel (American Kleptocracy: How the US Created the World’s Greatest Money Laundering Scheme in History).
Applebaum’s research draws the connection between the legal, accounting, and financial professions and the rise and persistence of authoritarian governments.
The legal and regulatory architecture created in the process of capitalist development in the West is well analyzed in the institutional economics field. Yet these institutional structures—readers will recall Katherina Pistor’s notion of the “code of capital”—are also crucial enablers of fraud and corruption by autocratic government officials.
Who is the owner here?
Central to this issue are the gaping loopholes that enable actors to use asset ownership structures such as trusts and shell companies to conceal their identities. In many jurisdictions, the ultimate “beneficial owner” of an asset can be hidden from public view, which is very convenient if one wishes to obscure ill-gotten sums.
Spurred by initiatives of the Financial Action Task Force, the main international body charged with curtailing money laundering, the OECD has begun taking steps to require states to make disclosure of beneficial ownership information mandatory. Although there has been some noteworthy progress, the organization’s own assessments have found that progress on reforming beneficial ownership laws is non-existent or weak in at least half of the participating states.
The responsibility of the US and UK legal systems in enabling the crimes of autocratic regimes is undeniable not only because of documented accounts of professional service providers and politicians’ facilitating organized crime and corruption. It is also due to the recognized dominance of both jurisdictions and their elite legal services providers in defining international financial and commercial law practice. Braithwaite and Drahos’ seminal book Global Business Regulation found that US and UK company law and large firm practices had hegemonic influence on shaping global business law practice. Whether transactions are undertaken in East Asia, Latin America, or the Middle East, international financial transactions today rely on UK and US law and depend on those legal systems for their effectiveness.
Widening the loopholes
A growing conduit for illicit finance among the states profiled in Autocracy Inc. is cryptocurrency. Cybercriminals and organized crime have used Bitcoin and similar crypto assets to extort ransom payments, circumvent export control laws, and launder stolen assets and corrupt gains.
Yet evidence from the incoming US administration suggests that under the pretext of promoting innovation they are preparing to dismantle the already weak regulation of cryptocurrency, thereby opening the floodgates to its use in money laundering and financial crime. Amid the fanfare of enthusiasm for deregulating crypto among the tech bros, one sees nary a word about controlling illicit finance.
Expanding our definition of rule of law
Applebaum’s insights about the role of the finance sector in undermining the rule of law requires us to expand our conception of what rule of law means. It is not only about judges, checks and balances in government structure, good constitutions, and human rights. Today, financial sector regulation and commercial law reform must be central.
As Applebaum rightly notes, OECD governments have the power to eliminate immediately the major legal loopholes that facilitate fraud and corruption by authoritarians. Laissez-faire approaches to business regulation will only reinforce and advance autocracy globally. If democratic governments are serious about defending the rule of law internationally, then it is essential to reform the domestic legal systems that enable these crimes and abuses.