Kleptocracy

In a kleptocracy, public institutions are captured by a ruling group. Resources such as oil revenue, mining rights, aid and public contracts are diverted through rigged tenders, inflated budgets, state-owned companies and outright seizure. Courts, the press and audit bodies are weakened so the theft goes unchecked. Because the money is stolen from a country but spent abroad, the financial system is central to it: proceeds move through shell companies, trusts, property, art and private banks in other countries. Banks meet the issue through politically exposed person controls and source-of-wealth checks. Governments respond with asset recovery proceedings, targeted sanctions and unexplained wealth laws. The term is stronger than corruption in general, since it describes the nature of a whole regime and not isolated acts. Asset recovery cases against such regimes can run for years, because the proceeds sit in several countries at once.

In a bank's private banking unit, one client is a relative of a head of state. He buys expensive property in several countries using funds from a company that holds a state oil concession. Compliance finds that the company's declared earnings cannot explain the sums, and press reports link the family to diverted revenue. The bank exits the relationship, files a report and freezes the funds on the authorities' request.