Democracy in crisis

By Christopher Steele

Thirty years after the fall of the Berlin Wall, our hopes for a better world founded on democratic values have not materialised. We must recognise the current crisis in our democracy before we begin the fight back.

By Christopher Steele

Thirty years after the fall of the Berlin Wall, our hopes for a better world founded on democratic values have not materialised. We must recognise the current crisis in our democracy before we begin the fight back.

We were pretty euphoric in the West in the early 1990s and had every reason to be, especially those of us working in government. The fall of the Berlin Wall in 1989 was shortly followed by the break-up of the Warsaw Pact and the dissolution of the Soviet Union, which I witnessed first-hand when serving in the British Embassy in Moscow.

Structures of repression disbanded

In Poland, Hungary, Czechoslovakia, Romania and Bulgaria the security services and structures of repression that existed under communism were disbanded. Elsewhere in the world democratic values were winning. In China we saw the Tiananmen Square protests, in South Africa the repeal of legislated apartheid had begun and in South America, Brazil and Argentina returned to democracy.

Western models were enthusiastically copied. In Moscow, we renegotiated the very substantial Soviet foreign debt to allow the new Russian Federation to reform its repressive totalitarian system. Eastern Europe similarly benefited from debt relief and technical assistance. Some critics, however, accused the West of being small minded and insufficiently ambitious in addressing the changes in these emerging markets. No-one disputed that the US was emerging as a hyperpower.

Democratic values challenged

But even back then there were warning signs. In the Russian Federation the security apparatus was never truly reformed; operatives did not disappear but instead adapted to the new circumstances. President Putin was himself part of that process. Perhaps the clearest warning sign, however, was the civil war in Yugoslavia, fuelled by racism and nationalism, which challenged the ideology of Western democracies and contained some of the seeds of what was to come.

Challenges to democratic values were allowed to develop unchecked. The successful repression in China happened before our very eyes, while Russia and its surrounding countries developed into chaotic, mafia-type states where the return of authoritarianism would carry a certain appeal to the people.

A different landscape

Move forward 30 years and we see a completely different landscape, which I would characterise as a crisis in our democracy. Over the past five years in particular we have seen the rise of populist, nationalist, and often corrupt political leaders, even in solid Western democracies. The popularity of Viktor Orbán in Hungary and Jaroslaw Kaczynski in Poland illustrates the extent to which progress has been pushed back. In France, it is astonishing that Rassemblement National (formerly Front National) is now the main opposition party when you consider its values. Similarly, Brazil’s President Bolsonaro, a far-right former army captain dubbed the ‘Tropical Trump’, is a controversial figure who has praised the country’s former dictatorship.

These populist strongmen appeal to what they term as ‘the victims of globalisation’ or to what former President Obama termed ‘the politics of fear and resentment’. Tony Blair, the former British Prime Minister, made the bold assertion 15 years ago that democracies going forward would not be divided between Left and Right, but rather would be split between those advocating open societies and economies and those advocating closed societies and economies. As events have unfolded, we can see he was right: after a strong period of globalisation in the first decade of this century, we have seen in recent years a much clearer trend towards protectionism, populism and nationalism.

We are witnessing the lauding of an authoritarian style of leadership by presidents such as Putin, Erdogan and Trump who focus on interests (often their own) rather than values, frequently bypassing the checks and balances of legislatures and the court. In America, the apologist attitude of the Republican party to ‘the Russian threat’ illustrates how far they have entirely abandoned their traditionally strong agenda on national security. It is astonishing that core national security has become a partisan issue in America.

Institutions called into question

Politicians come and go, but institutions are there for the duration and the threat to these is much more serious. The US Department of Justice, which previously commanded a huge amount of respect internationally, has been politicised and could now be mistaken for the personal law firm of Donald Trump.

Dishonesty and lies in government seem to go unsanctioned. In the UK, the controversy in the Supreme Court over the decision to prorogue parliament last year has called into question our own institutions, as does the government’s apparent intention to renege on its own EU withdrawal agreement, consequently breaking international law. Thus, Western democracies are now emulating the traits of authoritarian powers.

Scales of Justice

The corruption of our institutions was aptly illustrated by the treasure trove of US Treasury Suspicious Activity Reports leaked by the International Consortium of Investigative Journalists (ICIJ), which contained a litany of large-scale corruption and money laundering, particularly coming though the UK and its dependent territories. One stark example is the case of leading Russian organised crime figure Mogilievich who was able to bring $200 million on shore into the UK economy through a very thin financial cover vehicle.

We have become addicted to the flow of wealth out of authoritarian countries, much of it based on hydrocarbons and other raw materials. Whilst there is a compulsory reporting system of suspicious activity in place, at least in the US, there does not appear to be any real legal deterrent to this type of activity. This is well understood by those engaged in it. Russia, China, Turkey and even Saudi Arabia see a green light to interfere in our system, to launder their money through it, and unashamedly pursue their own nationalist interests which go against our values as Western democracies.

Interference in our system can be seen by the extent to which Chinese and Russian state-owned companies and banks have managed to co-op swathes of our establishment. You may be surprised at the number of members of the House of Lords co-opted onto the Boards of these companies, which often pursue not only economic and commercial objectives but also hostile strategic and political ones.

Chinese investment in emerging markets

Chinese investment in emerging markets has rocketed in the past decade as part of the Belt and Road Initiative, an ambitious programme to create a new Silk Road of trade routes around the world in a bid to increase Chinese trade, economic growth and influence. Under this initiative, Cambodia has borrowed the equivalent of 30% of its GDP, Pakistan 11%. These were seen by the borrowing states as easy loans with few questions asked about the ability to repay and none of the rigour that would be applied at the IMF or the Asian Development Bank.

The sting comes in the tail, as Sri Lanka found when its government granted China an 85% stake in a 99-year lease on a major port in Hambantota after a decade of deepening debt ties. Critics worry that China could use this ‘investment’ or ‘debt-trap diplomacy’ to extract strategic concessions more widely.

The Asian Infrastructure Investment Bank, with an initial capital base of $100 billion, was clearly established by the Chinese as a competitor to the Asian Development Bank and the International Bank for Reconstruction and Development (a global development cooperative owned by 189 member countries). This will have a long-term strategic impact on Western influence and our ability to propagate our way of life and our values.

Media and science undermined

The survival of democracy requires politically educated citizens informed by reliable knowledge. Western democracies have always upheld standards of objectivity and reporting in their media, but the largely unregulated ‘news’ served up on social media has severely undermined this in real terms. Whilst recently social media has attempted to clean itself up, fake news and the activities of bots have had a huge impact on elections. In the past, elections were the apogee of democracy, the high point of debate and choice, but there is a deep worry that elections have become a point of vulnerability and that fringe media and unchecked abuse of Twitter are damaging our way of life and model of governance.

Most seriously of all, science itself is being undermined. We can see how anti-vaccine propaganda in social media is supported by countries like Russia and China in clandestine ways to sow divisions and weaken our society. The Covid-19 pandemic should not be a bipartisan issue and leaders should be guided purely by science, yet in the US there is a clear ideological divide on things as basic as wearing a mask. Again, countries like Russia and China are involved in stirring up doubts on how to manage the pandemic.

Reclaiming democratic values

Despite Trump losing the election, he continues to attack democratic values by refusing to concede. Thus, we are a long way from when I was first in government in the late 1980s and full of optimism that our way of life and our system were going to triumph and predominate going forward. At that time President Reagan spoke of America as a ‘shining city on a hill’; everyone aspired to that form of governance, its democracy, tolerance and open society.

I would argue that it is very difficult now to claim that we are in any way an inspiration to the rest of the world. I do not believe that anyone in emerging markets will be looking up to the West as a model to be emulated. It is a depressing thought, but true. We have to face up to this crisis in Western democracy before we can begin the fight to reclaim the values that we should stand for, and the institutional strengths that come from being democratic and representative of our population and our electorate.

Christopher Steele, Director & Joint Founder, Orbis Business Intelligence

A wake-up call for the property sector

By Christopher Steele

The property sector has been highlighted as an area of concern for both money laundering and the proceeds of crime. The time has come for real estate professionals to put in place good systems of due diligence to future-proof their business.

By Christopher Steele

The property sector has been highlighted as an area of concern for both money laundering and the proceeds of crime. The time has come for real estate professionals to put in place good systems of due diligence to future-proof their business.

With the US election on everyone’s mind, it is worth remembering that Donald Trump is a property guy. As the author of the Trump Dossier into his relationship with Russia, I more than anyone understand the risks he was prepared to take to get business done.

While I am not suggesting that Trump is reflective of the property sector, I would say that the property sector needs to learn from him and real estate professionals should take stock of the level of risk they are prepared to take in their own businesses.

Don’t ask, don’t tell

There is a perfect storm brewing – the challenging business environment from the last few years of Brexit and Covid-19 alongside the avalanche of foreign “investment” coming into the UK makes it tempting to adopt a “don’t ask, don’t tell” approach to getting deals over the line.

I would like to state at the outset that I am very much in favour of an open, liberalised, international economy. My belief that this has to be matched by tough due diligence regulation, which is likely to be strengthened in the UK, is coupled by concern for international reputational damage that is undoubtedly going to impact companies that hide their head in the sand.

ISC Russia report

It is a fact that the property sector has been highlighted as an area of concern for both money laundering and the proceeds of crime. Many of these issues were highlighted in the Intelligence and Security Committee Report recently published on Russia, which I contributed to. You are already under scrutiny.

London is very much at the heart of the globalised economy. There is a fundamental tension, which politicians have been reluctant to address head-on, between the need to attract investment and the need to protect our integrity and our institutions from corruption. Effective legislation to guarantee transparency around foreign agents is essential for safeguarding our institutions from investors acting in bad faith.

Identifying bad actors

Change is coming. It is very likely that a registration requirement for foreign agents is imminent in the UK, fashioned on the US Foreign Agent Registration Act, or the Australian equivalent. Such an act would extend beyond the current, narrow lobbying act and should have at least some element of criminal sanction without stifling business; companies will need to prepare for it and be aware of its implications going forward.

Anyone operating in super-prime property should be keeping a close eye on unexplained wealth orders, introduced some years ago to aid government authorities in uncovering how assets were acquired. Individuals subject to UWOs must explain how the relevant property was obtained and demonstrate the origin of the income (whether lawful or potentially unlawful) used in obtaining the relevant assets. The effectiveness of the nascent UWO regime is still to be ascertained.

Earlier this year, the National Crime Agency lost a legal challenge to three UWOs that targeted three London properties valued at £80m owned by the daughter and grandson of Kazakhstan’s autocratic former president, Nursultan Nazarbayev.

Leading change effectively

Banks at present are required to comply with ‘know your customer’ requirements. In other words, verify their identities, confirm they’re not on any prohibited list, and asses their risk factors. This should and will be extended to the property sector. A proposal under consideration relevant to the property sector is whether property should be allowed to be bought, sold or rented legally in the UK using offshore entities, where the ultimate beneficial owner is not clearly identified.

From a business point of view, it is not all bad news if you take decisive action and have in place good systems of due diligence in transactions and deals early on in the business relationship. The Magnitskiy Act movement sees a trend to move away from sanctions against whole countries which are regarded as ineffective, towards identifying leadership and individual bad actors.

Learn from the lessons of Trump. We will all benefit from identifying the bad actors before you do the deal.

Christopher Steele, Director & Joint Founder, Orbis Business Intelligence

The Post-Covid World

With Covid-19 unfolding as a human tragedy all over the world, it has been harder to focus on the wider impacts. But even if we are still living in a strange world of quarantines, Zoom calls and social distancing, the major impact of Covid-19 is proving to be geopolitical rather than medical.

The impact of Covid-19 is more geopolitical than medical

With Covid-19 unfolding as a human tragedy all over the world, it has been harder to focus on the wider impacts. But even if we are still living in a strange world of quarantines, Zoom calls and social distancing, the major impact of Covid-19 is proving to be geopolitical rather than medical.

Fundamental change in relations with China

Relations with China have changed fundamentally. Britain is reviewing its decision to include the Chinese firm Huawei in its 5G network and considering granting right of settlement to nearly 3 million Hong Kongers, two policies that would have seemed an impossibility in February.

President Trump’s hardline approach to China had previously looked like excessive provocation; now countries all over the world are seeking to reduce their dependence both on Chinese manufacturing and on its inward investment. Even with a President Biden in place, there is never going to be a return to ‘business as usual’ with China.

Russia after Putin?

In Russia, President Putin, who in mid-March was effectively declared president for life by Russia’s highest court, now finds himself with the lowest popularity rating he has seen in 15 years. Beset by a collapsing oil price and a population unimpressed with this response to the virus, the possibility of a Russia after Vladimir Putin seems thinkable, if not immediately plausible.

The oil price, in long-term decline since 2014, collapsed amid an ill-timed price war between Saudi Arabia and Russia. The virus has had a huge impact on demand; whilst prices have made a recovery from the lows seen in early April, the movement of people, goods and commodities around the world may never return to the highs seen before Covid-19. Entire industries, from commercial property to hospitality, appear to have lost a significant part of their reason for existence.

Competence over charisma

Politically, it is painfully obvious where governments have failed their populations. The US, UK and Brazil have all seen significant falls in their leaders’ approval ratings, reflecting the three countries with the highest death tolls. Populations can be expected to prioritise competence over charisma in future elections.

The first major electoral test of this new world comes at the end of June with the Polish Presidential election, where the government has struggled to keep a lid on the virus infection rate. Whilst the incumbent, right-wing populist Andrzej Duda, looks likely to prevail in a second round, his polling lead has fallen in spite of a structure that gives the incumbent numerous advantages.

President Trump, facing a polling slide and nationwide protests over police brutality, will play to his base, doubling down on American isolationism. His early-June decision to withdraw troops from Germany is his way of emphasising the ‘America First’ message at the same time as telling Europe that it’s time they dealt with their own defence. But this, and Trump’s attempt to invite Putin to the G7 summit, sends a powerful signal to Vladimir Putin that Trump’s America is not going to make life difficult for Russia.

Strategies to mitigate geopolitical uncertainty

What does all this mean for the business community? More than ever, geopolitical uncertainty impacts every aspect of business. To mitigate these risks, specific strategies, tailored to the realities of particular countries, industries and operating assumptions will need to be built to ensure success in a chaotic world.

Putin’s Parade: a distraction, but for how long?

We are supposed to believe that the threat of COVID-19 in Moscow and the rest of Russia is over, yet President Putin seems to be exhibiting insecurities prior to the upcoming vote on constitutional changes designed to keep him in power for another 12 years.

We are supposed to believe that the threat of COVID-19 in Moscow and the rest of Russia is over, yet President Putin seems to be exhibiting insecurities prior to the upcoming vote on constitutional changes designed to keep him in power for another 12 years.

Low ratings ahead of the constitutional vote

His ratings hit historical lows as Russia has been plagued by a severe outbreak and tried to cover it up. As his citizens have suffered economic hardships and a well-reported lack of medical supplies and resources, Putin has kept himself isolated for the last three months firmly outside of Moscow – the city worst hit by the virus.

Putin’s reputation, image, and ratings are low, perhaps too low to secure a fair (or perhaps more accurately, a believable) win in the constitutional vote on 1 July. Consequently, in what is widely thought to be a move to improve his ratings, Putin has confirmed the delayed May Day Victory Parades will take place on 24 June to commemorate the end of The Great Patriotic War (Russia’s name for World War II).

Parade to promote Russian strength and unity

Sold as a means of honouring fallen comrades, this is in truth, for lack of a better phrase, Putin’s Parade. He has spent the last two decades of his rule making it an event every year – giving it a festival atmosphere; parading Russia’s military units and hardware; projecting strength and promoting a sense of greater Russianness and unity.

It is less an opportunity to peacock to his enemies, and more for Putin to remind Russians what he has achieved in their name, or sought to achieve, whilst in power. Military might and prowess, and the presence of carefully shielded veterans – reportedly being housed in isolation in nearby sanatoriums to ensure healthy attendance – is meant to serve as a distraction from the economic hardships the country and most of its citizens are facing.

Brief distraction from future struggles

No matter the success on the day, and it will be a success despite Moscow’s mayor Sergei Sobyanin encouraging Muscovites not to attend and despite the lack of foreign dignitaries including French President Emmanuel Macron, it will only provide a brief distraction from the future struggle Putin and Russians face. It may be just enough to boost morale and Putin’s ego ahead of the vote, but it will not solve the greater problems the country is facing.

Oil’s jump up to $42 a barrel (the minimum for Russia to balance its budget) does not look likely to last in the long run. Unemployment is up by at least 30% and living standards are down. The long-term impact on public health is not yet understood, and likely won’t be for a long time given the lack of trust in the official statistics.

Further, as the world has collectively suffered with the pandemic and reduced imports of fossil fuels and other natural resources, the core powerhouse of Russia’s economy has nosedived. In 2014, Russia faced economic hardship and although it worked somewhat to reduced reliance on fossil fuel exports, critics and economists widely noted back then it was not enough.

This has come back to bite Putin and the Kremlin. The question now, is how will they manage this and the potential political and economic fallout?

ISIS will welcome Soleimani’s death

With ‘World War Three’ and ‘Franz Ferdinand’ trending on Twitter, social media appears to have made up its mind about the assassination of Iranian Revolutionary Guards Corps (IRGC) major general Qassim Soleimani via a US airstrike.

‘World War Three’ isn’t about to happen. But Iraq will become more violent again.

With ‘World War Three’ and ‘Franz Ferdinand’ trending on Twitter, social media appears to have made up its mind about the assassination of Iranian Revolutionary Guards Corps (IRGC) major general Qassim Soleimani via a US airstrike.

Soleimani personified Iran’s rising influence in Lebanon, Syria, Iraq, Yemen, the Gulf and further afield. As commander of the IRGC, Soleimani was able to control a series of proxy forces from the Mediterranean to Afghanistan. Soleimani was the man who rescued Bashar Al-Assad when Syria’s regime looked vulnerable to rebels. But he was also a senior military official of an important regional power, not a fugitive terrorist. His assassination, coupled with that of several senior Iraqi Shi’a militia commanders, will not go unavenged.

No interest in conventional conflict

However, Iran’s response will not signal the start of World War Three. Literally the only point of agreement between Iran and the US is that neither side wants a war with one another. Specifically, President Donald Trump has been crystal clear that his policy is to minimise US military engagements overseas, pulling most of his troops out of the Middle East and questioning the value of military alliances. Trump has no interest in invading a country, changing its leadership or administering territory.

Luckily for Trump, Iran has no interest in a conventional war either: thanks in part to Obama’s nuclear deal (the one that Trump has done everything to kill off) Iran has no nuclear weapons and is in no position to confront the US in a conventional conflict. Just as Trump is happy ordering airstrikes and special forces raids, Iran’s greatest strength is in its ability to act asymmetrically, drawing on the very proxies and militias that Soleimani helped establish. In a strange way, this conflict suits both sides.

Iran’s response to airstrike

Except of course it doesn’t: Iran has been goading the United States for months, with its rocket attacks on US bases, the assault on the US Embassy in Baghdad, the attacks on Saudi Arabia’s oil installation. But it’s safe to assume that losing Soleimani in an airstrike was never part of the plan.

We don’t yet know what Iran’s response will be. They have in the past used a wide range of options from rocket attacks by militias to mass casualty suicide terrorism. Iranian proxies have bombed a Jewish centre in Buenos Aires and an expat housing complex in Saudi Arabia. They have attempted assassinations in European capitals and maintain an advanced cyber capability. For Iran, all of its global capabilities will be on the table and we should avoid thinking that one single event or operation will encapsulate their retaliation.

A new cycle in Iraq

For the US, things also might not be going entirely to plan, assuming that Trump has a plan. Yes, he has ‘decapitated’ the overseas operations arm of the IRGC and taken out the leadership of one of Iraq’s most dangerous Shi’a militias. But it is likely that US troops will be forced to leave Iraq by a vote in Iraq’s parliament that is convening for an emergency session on 5 January. As much as Trump disdains having his forces deployed overseas, US troops have been undertaking important counter terrorism roles in Iraq supporting the ongoing fight against Islamic State. The death of Soleimani is good news for the Islamic State.

With the US out of the picture in Iraq, a new cycle will begin there: Iraq’s government will emphasise its connections with Iran and empower the Shi’a militias to employ violence against ordinary Iraqis protesting against the corruption and incompetence of its government.

Already, Moqtada Al-Sadr, an Iraqi Shi’a nationalist politician ordinarily seen as opposed both to Iranian and US interference, has announced the reactivation of his ‘Mahdi Army’ as part of the ‘patriotic Iraqi resistance’. Between 2011 and 2014, most foreign troops left Iraq and its government entered an increasingly sectarian, violent and corrupt trend, resulting in the rise of the Islamic State which seized Mosul in June 2014.

Iraq’s future

History may not repeat itself. A new feature of Iraq is mass protests against its current political leadership. These protesters are also protesting against Iranian influence and that of the Shi’a militias. The Iraqi government’s response has been shockingly violent: since October, over 500 protesters have been shot dead by security forces, including by snipers from Shi’a militias. This has echoes of the early days of Syria’s civil war: disorganised protests met with excessive force, leading to a spiral of violence, repression and chaos.

Is this Iraq’s future? We have no way of knowing. But it seems likely that Trump is not very interesting in knowing the answer. Soleimani’s killing does not appear to be part of a considered US strategy, nor does Trump’s decision to allow Turkey to attack Syria’s Kurds, or his claim that US troops were seizing Syria’s oilfields. A strategy, and a plan, are things that Iraq and the wider region sorely needs.