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Dark Money Is Making Waves Across the Free Market

Cross-border trade and investment increase prosperity and reduce the risk of war. Right? Not really. Far from preventing conflict, economic activity can be part of it. Hostile foreign states use money as a weapon, to buy clandestine political influence, in the overt creation of useful business and financial relationships and even to weaken adversaries’ economies.

Finland, for example, normally tries to keep its ties with Russia business-like and business-friendly. But this weekend hundreds of officials from different Finnish security agencies
raided premises owned by the Airiston Helmi real estate company, even briefly imposing a no-fly zone over part of the south-western coastal archipelago. The secretive Russian-linked firm has been attracting journalistic interest for years because of its mysterious construction and other activities. Oddities include the purchase of former Finnish naval vessels. Now the authorities seem to have lost patience with what hawkish Finns suspect was a front for Russian military intelligence. Three suspects have been detained.

Across the sea in Estonia, Russian money is making waves too. In what is being called the largest
money-laundering scandal in financial history, the Tallinn branch of Danske Bank over a nine-year period laundered €200bn ($235bn) on behalf of thousands of highly suspicious non-resident clients. The bank’s Estonian staff had been sounding the alarm for five years. But nobody in the senior management had time for inconvenient questions. The head of Dansk Bank has resigned. More heads will roll.

The biggest questions are in
London, where a company central to the investigation, Lantana Trade LLP, is registered. The British authorities say that they are now getting tough on dirty money flows. I have been covering these stories for decades. I will believe in the crackdown when I see bankers, lawyers, and accountants changing their pinstriped suits for the stripy garments worn in prisons.

As Oliver Bullough’s brilliant new book,
Moneyland, makes clear, offshore money flows from anonymous sources are not the romantic by-product of buccaneering frontier capitalism. They are the way in which kleptocrats and mafia bosses, the worst people in the world, disguise the proceeds of their crimes, and—all too often—buy respectability and protection in the jurisdictions where they should be most at risk.

It was a similar if less dramatic story at the Three Seas Forum in Bucharest last week. The countries between the Baltic Sea, the Black Sea and the Adriatic were discussing infrastructure projects and regional economic development. That sounds uncontentious. But it is not. China, through the 16+1 beauty-contest format, is using politically loaded infrastructure projects to try to win friends and influence people in the smaller and poorer eastern half of the continent. I argued that the countries of the region should set their own rules for dealing with China. These might include insisting on public tendering, the use of local rather than Chinese labor and contractors, and clarity about the finances. If China’s intentions are indeed as benign as the Beijing authorities and their cheerleaders claim, these conditions should make no difference.

I went on to Odesa, discussing energy at the Ukraine Financial Forum. Energy is a perfect example of a business which is not just a business. The energy industries always attract monopolistic, rent-seeking behavior. Unrestricted import of cheap pipeline gas ensures that diversification of supply (for example by building LNG terminals) is never economic. Nor is it worthwhile to develop indigenous gas resources. Governments therefore need to intervene robustly to protect consumers and national security.

The utter collapse of communism in 1991, led many to assume that free markets were not just better, but provided the right answers always and everywhere. Think again.

 

Europe's Edge is an online journal covering crucial topics in the transatlantic policy debate. All opinions are those of the author and do not necessarily represent the position or views of the institutions they represent or the Center for European Policy Analysis. 

Photo: Romi Lado

Edward Lucas
25 September 2018

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