Tom Keatinge is the founding director of the Center for Financial Crime and Security Studies at the Royal United Services Institute.
Western democracies have, for decades now, been open to finance and investment, seeking to capitalize on the benefits they bring. Gone are the capital controls that used to raise financial borders between allies, as finance brings investment, economic growth and employment opportunities.
But there’s another dimension to these financial flows that are willingly welcomed by Western countries, a dimension that was almost entirely ignored until the democratic world was forced to pay attention by Russia’s war of aggression on Ukraine — illicit finance.
The European Union has begun grappling with some of the criminal finance that has washed across the Continent, introducing successive anti-money laundering directives, adopting action plans and debating the future location of the bloc’s Anti-Money Laundering Authority. However, less obvious forms of dirty money — so-called “active financial measures” — have been undermining Europe’s political institutions, buying influence via the sponsorship of cultural and sporting events, and even seeking to sway the outcome of elections.
Put simply, after more than a decade of focus on strengthening systems and responses to criminal finance — a job that’s far from complete — Western democracies must fight to protect themselves from the influence of malign financial flows, strategic corruption and the broad weaponization of finance by adversary countries.
Consider the recent revelation by the United States State Department, alleging that Russia has covertly spent over $300 million along these lines since 2014. It has attempted to influence politicians in at least 24 countries across four continents, and targeted the heart of the EU by using Brussels “as a hub for foundations and other fronts that back far-right candidates,” taking advantage of Europe’s poor record in implementing financial crime standards.
In her State of the Union address, European Commission President Ursula von der Leyen underlined this critical vulnerability toward such financial influence. She called on member countries not to “lose sight of the way foreign autocrats are targeting” the EU, especially noting the funding provided to research and academic institutes with the aim of undermining European values, as well as calling out foreign agents trying to abuse the bloc’s political systems and the shady companies and foundations abusing public money.
So, what’s to be done?
Before anything else, the years-long process to reform and secure the EU’s defenses against criminal finance must be accelerated and prioritized.
The response to scandals — such as the money-laundering case that engulfed Danske Bank — has been glacial. Moreover, the continued delays to strengthening and coordinating supervision and the introduction of transparent company registers present opportunities for criminals and hostile states to exploit.
Next, the EU must ensure that the threat posed by malign finance and economic influence is addressed alongside other “hybrid” warfare tools, like disinformation.
Finance is a thread that runs through many of the “gray zone” threats the EU is facing. In its Strategic Concepts 2022 document, NATO noted the use of economic coercion by authoritarian actors that challenge the alliance’s interests, and the United Kingdom’s Integrated Review of defense and security policy likewise draws attention to malign actors testing “the line between peace and war.”
Additionally, the EU and its member countries must consciously recognize their existing systems for combating illicit finance are unlikely to be effective at identifying it. The current systems seek to identify the proceeds of crime, not money destined to undermine democracy — and this needs to change.
Effective implementation of the EU’s sanctions against Russia is also critical here.
Since its further invasion of Ukraine in February, a blizzard of sanctions has been placed on Russia, including on oligarchs and others deemed to support or benefit from Moscow. While it’s highly unlikely these individuals will change President Vladimir Putin’s war calculus, the sanctions do shine a light on them — and their associates — who have connections with the Kremlin and, in many cases, already have money in the EU. Sanctioning these individuals should help to identify and freeze their assets, removing the possibility of their use for malign, anti-democratic activity.
Therefore, ensuring there are necessary staff and legal powers for sanctions enforcement, and that the private sector is fully aware of all its legal obligations is key. Failing to do so will not only undermine the objectives of sanctions, it will also leave opportunities for this money to be used to support anti-Western activity.
Lastly, the EU and the community of Western democracies need to pay much more attention to the source of political donations. Too often, politicians are willing to take donations from dubious — albeit “legal” — sources. However, both individual politicians and political parties should consider not only the source of a donation but also the intention. And those that take money from entities seeking to undermine democracy ought to lose their right to stand for power.
The West’s open societies have been hard fought for decades, but in recent years, complacency and naivety have allowed adversaries to buy their way into a wide range of positions of influence. A response to these active financial measures is long overdue, and leaders must recognize both the criminal and security dimension of illicit finance.
