Active Financial Measures: The Unseen Threat to Democracy

Russia's invasion of Ukraine and subsequent sanctions placed on affiliated Russian oligarchs have exposed just how deeply dirty money has infiltrated Western societies. For decades, money linked to those who have profited from corrupt regimes has been invested in property, donated to cultural institutions and political parties, and used to pay the fees of Western lawyers, accountants and PR firms to cleanse the reputations of their clients. Money spent in this way undermines democracy, as it corrodes the integrity of our societies by influencing policy and weakening institutions, and also poses a strategic risk to our national security, as recognised by the UK’s Integrated Review and the US Strategy on Countering Corruption.

The invasion of Ukraine and the Joe Biden administration’s Summit for Democracy brings the need to combat these ‘active financial measures’ used by corrupt actors into sharp focus. Hence, the third meeting of RUSI’s Taskforce on a Transatlantic Response to Illicit Finance (TARIF) discussed the impact of active financial measures on our democracies and why a coordinated response based on closing loopholes, empowering the private sector and advancing information sharing is needed now.

Active Financial Measures

Borrowing from the Cold War term ‘active measures’ – used to describe the form of political warfare that utilises disinformation, deception, destabilisation and subversion – the authors have coined the term ‘active financial measures’ to similarly describe the strategic use of financial tools or resources to advance a state’s interests, which are deployed by states or individuals associated with (or who have profited from) corrupt or kleptocratic regimes in order to gain a foothold in democratic societies.

These active financial measures can take many forms. For instance, legal professionals accept fees to pursue libel cases against journalists and authors in an attempt to restrict free speech and the exposure of illicit activity. The recent ‘concerted attack’ on British author Catherine Belton for claims made in her book Putin's People provides a good example of such attempts. Similar action taken against Tom Burgis' Kleptopia, which was dismissed by the courts last month, further underscores the extent to which vexatious lawsuits are used in this way.

Western PR companies, too, can be used to advance the interests of authoritarian governments: donations to cultural, scientific and educational institutions, as well as political expenditure and investments in public infrastructure, help launder reputations and gain prestige or legitimacy by association. Recent events have also exposed how Western trust and company services providers can be used to restructure wealth and ownership in anticipation of sanctions, diluting their impact.

Buoyed by loopholes, lax standards, or an absence of regulatory oversight, these and other active financial measures can overwhelm finite public resources for investigating the source of funds of such individuals and lend them, and their backers, an air of exceptionalism which reduces the will of public officials to investigate cases in the first place.

The importance of uncovering and rooting out these active financial measures is clear. But after years of turning a blind eye to dirty money and allowing it to become embedded in democratic societies, how can this be achieved?

Close the Loopholes

US and UK agencies should work together to map – and then close – the full ‘threat landscape’ of vulnerabilities to active financial measures. Early judicial review to assess the merits and public interest of cases taken against journalists and civil society groups is critical. For example, building on the UK’s recent review of libel laws, both countries should assess how their courts and lawyers can be abused by malign actors to extend censorship or political persecution. New York State’s ‘Libel Terrorism Protection Act’ is a useful example of proactive free speech protection that could be replicated or expanded on the other side of the Atlantic. Additionally, while the priority is to extend (and in the UK, strengthen) anti-money laundering reporting to lawyers and other professional services, immediate steps should also be taken to increase support for whistleblowing by conscientious individuals, in line with the recent US Treasury-launched Kleptocracy Asset Recovery Rewards Program and the current UK House of Lords debate on whistleblower supervision.

Strategic risks inherent in cultural, educational and media donations must be recognised. Both the US and UK governments should ensure that these areas are covered by anti-money laundering regulation. Meanwhile, campaign finance laws, especially for corporate and non-profit donations in the US, should also be revised to limit the potential for dark money to exert a malign influence.

Private Sector Partnership

Policymakers must also leverage the private sector as a strategic partner in combating active financial measures. This means establishing a term which encapsulates finance that undermines democracy (the authors propose the use of ‘active financial measures’), to allow the private sector to implement controls within their compliance architectures to combat this threat.

While many professional services firms have anti-bribery and corruption policies, they look only narrowly at conduct of and towards clients, rather than the bigger questions of who these clients are, their connections and whether their work undermines our democracies. To expand policies to protect democratic values, firms should consider how combating active financial measures can be incorporated into their environmental, social and governance objectives.

Lastly, the private sector can also be an active partner for governments in investigating and seizing assets associated with malign actors. To achieve this, the US and UK should review legislation governing recovery of criminal proceeds by, for instance, considering their civil asset recovery frameworks to remove barriers to private sector litigation in order to increase asset recovery (and return) and reduce pressure on public prosecutors.

Enhanced Information Sharing

The US and UK must radically rethink information sharing at the domestic and international level, recognising the geopolitical dimensions of active financial measures and influence. Both countries should increase internal collaboration between the intelligence community and other agencies, as outlined by the US Strategy on Countering Corruption, including dedicated mapping of kleptocratic networks. This information must be shared with the private sector, along with information on offshore shell companies controlled by such actors.

Internationally, the US and UK should pioneer the world’s first cross-border information sharing partnership for tactical information on active financial measures, and they should take leading roles in recently announced initiatives that incorporate partner countries, such as the Russian Elites, Proxies and Oligarchs Task Force and the Russia-Related Illicit Finance and Sanctions Financial Intelligence Unit Working Group.

Action Now

The Russian invasion of Ukraine has shown that we can no longer take a naïve, business-as-usual attitude to the money and professional firms that open the doors of our democracies to foreign influence. To root out the illicit finance used by these actors, the US, the UK and partner countries must take coordinated action to expose and disrupt this money. RUSI’s TARIF has proposed how this must be done: first, fix domestic weaknesses; second, strengthen the international response to illicit finance; and third, expose and combat ‘active financial measures’ that corrode democracy.

Such an approach will require rethinking the transatlantic response to illicit finance. This will require not only deep working-level bilateral collaboration between the US and UK, but also the development of a response that is truly transatlantic, that involves NATO partners and the EU, and which embraces third countries that are home to major financial centres and subject to the threat of illicit financial flows.

Finally, while all eyes are on Russia, it is crucial to keep in mind the bigger picture and anticipate active financial measures used by other kleptocrats and authoritarian regimes. The urgent steps proposed by RUSI’s TARIF are needed not only to strengthen responses to immediate threats, but also to build resilience against the use of active financial measures in the future.

Sarah Manney is an intern at RUSI.

The views expressed in this Commentary are the author’s, and do not represent those of RUSI or any other institution.

Have an idea for a Commentary you’d like to write for us? Send a short pitch to commentaries@rusi.org and we’ll get back to you if it fits into our research interests. Full guidelines for contributors can be found here.