Commerce
Commerce
Opaque financial flows from authoritarian influencers undermine the rule of law and democratic governance in recipient countries.
Overview
The extraordinary growth of international trade and investment is a defining feature of globalization. In this enabling environment, authoritarians wield state-owned and nominally private economic entities as political instruments. The state-capture systems mastered by oligarchs while building power and influence at home are being deployed abroad and used by authoritarian powers to gain a foothold in strategic markets such as energy, telecommunications, and banking.
Authoritarian “corrosive capital” is enabled by weak legal safeguards and limited accountability and transparency mechanisms. The openness of the international financial system also makes it difficult to identify linkages to authoritarian actors who can easily route funds through firms registered under beneficial ownership accounts in third-party countries.
Sharp Power Influence
Autocratic actors leverage capital to exaggerate governance gaps and influence economic, political, and social developments in recipient countries through multiple mechanisms :
- State-sponsored loans that mimic traditional development assistance
- Support for large-scale infrastructure projects that rope countries into long-term, lopsided economic relationships
- Foreign direct investment by nominally private firms that are ultimately linked to an authoritarian state-backed entity
- Restricted market access that induces foreign companies to tout authoritarian narratives and censor content deemed unfavorable
These efforts are not necessarily predicated on huge amounts of money but instead stem from strategically-focused agreements with well-connected elites in strategic sectors of open societies.
Corrosive capital hides amid layers of larger exchanges with authoritarian regimes, the majority of which may appear legitimate and can have a financial, political, or cultural character. As established democracies and their private sectors come to grips with the threat posed by strategic corruption, democracies with less developed institutional frameworks for preventing corruption and providing transparency are at an even greater risk.
The Kremlin’s ability to wield state-owned and nominally private economic entities as political instruments, swiftly and without visible deliberation, has allowed it to achieve outsized global influence.
Ruslan Stefanov and Martin Vladimirov
Deals in the Dark: Russian Corrosive Capital in Latin America
Democratic Responses
Civil society can help bolster the institutions and accountability mechanisms needed for a strong defense against authoritarian corrosive capital.
Norms and Standard Setting
- Private sector firms should adopt business strategies that prevent authoritarian actors from inducing the revision of public statements, the sanctioning of employees, the alteration of maps, and the like.
- Businesses should weigh the reputational risks associated with censoring content, especially when authoritarian demands conflict with the expectations of their consumers.
Cross-Sector Collaboration
- National security agencies, antitrust authorities, and financial market regulators should strengthen their capacity to investigate money-laundering activities in cooperation with civil society and whistleblowers.
- Civil society activists, think tank analysts, and investigative journalists can collaborate to follow financial flows and study negotiations, agreements, and transactions in local settings.
Education and Awareness
- Civil society-led efforts to expose domestic and foreign state-capture practices are an effective check on corrosive capital inflows linked to large-scale infrastructure projects or strategic mergers and acquisitions.
Commerce
The reporting and analysis catalogued in the Portal illustrates how authoritarian powers compromise the integrity of civic institutions in countries around the world through corrosive capital agreements and opaque investments.
Latest Resources
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Publication Date: July 27, 2022
How Tor Is Fighting—and Beating—Russian Censorship
Authoritarian Country: Russia
Affected Region: Europe, Ukraine, Eurasia, Russia
Author: Matt Burgess
Russia’s efforts to block Tor came in two flavors—the technical and the political—and extended beyond its own borders. In some areas of occupied Ukraine, internet connections were being rerouted through Russian networks, and that brought censorship and surveillance with it.
Publication Date: July 25, 2022
Aynne Kokas on the Intersection Between Surveillance Capitalism and Chinese Sharp Power
Authoritarian Country: China
Affected Region: Global
Consumers can be exploited by companies from any number of countries due to a lack of data privacy regulations. The risk of partnering with Chinese firms stands out, however, due to the government’s established framework that pressures firms into storing data in China and sharing it with regulators.
Publication Date: July 24, 2022
Revealed: Documents Show How Roblox Planned to Bend to Chinese Censorship
Authoritarian Country: China
Affected Region: North America, United States, Asia-Pacific, China
Author: Joseph Cox
In partnering with Chinese tech firm Tencent to launch a version of its game in China, video game developer Roblox had to comply with Chinese censorship laws—for example, maps created in the game had to recognize Beijing’s claim of self-ruled Taiwan —and host user data on local servers.
Source: Journal of Democracy
Publication Date: July 19, 2022
Combating Beijing’s Sharp Power: How Australia’s Civil Society Led the Way
Authoritarian Country: China
Affected Region: Asia-Pacific, Australia
Author: John Fitzgerald
Australian civil society was years ahead of the government and its agencies in exposing PRC surveillance and interference among local diaspora communities and in working to defend the rights of those belonging to these communities as equal citizens of Australia.
Source: Journal of Democracy
Publication Date: July 19, 2022
Combating Beijing’s Sharp Power: Taiwan’s Democracy Under Fire
Authoritarian Country: China
Affected Region: Asia-Pacific, Taiwan
Author: Ketty W. Chen
The Chinese Communist Party continues to launch influence operations against Taiwan, often using proxies to serve PRC aims. One factor working in Taiwan’s favor as it resists these efforts is the commitment of its robust and vibrant civil society to defending the island nation’s democracy.
Source: Journal of Democracy
Publication Date: July 19, 2022
Combating Beijing’s Sharp Power: Transparency Wins in Europe
Authoritarian Country: China
Affected Region: Europe, Czechia, North Macedonia, Lithuania, Hungary
Author: Martin Hála
Making friends among foreign political elites through united front work, “economic diplomacy,” corruption, and other means allows Beijing to repurpose coopted institutions for its own agenda, undermining democratic systems from within. It is the role of democratic civil society to expose these efforts.
