Uzbekistan’s Perfect Storm of Corruption
By Jeff Goldstein
The Panama Papers exposé focused the world’s attention on the corrosive effects of corruption. And although the problem afflicts societies of all stripes, the problem is worst in places marked by particular characteristics: authoritarian countries where political and economic power have merged, where officials are protected by law enforcement and security services, and where high-level decision making is opaque, courts are controlled, and crackdowns on independent voices are frequent.
A new report, Tackling Corruption in Uzbekistan, provides a comprehensive look at corruption in Central Asia’s most populous country, and the Western companies and institutions that enable and suffer from it. As the report details, under the rule of Uzbekistan’s authoritarian leader, Islam Karimov, “Corruption is used both for self-enrichment of elites and also as a means of maintaining political control through a hierarchical system of patron–client networks.”
The cotton sector is a prime example. Uzbekistan’s leadership has created a vertical monopoly of state-controlled cotton suppliers and processors, commanded farmers to meet annual production quotas, and set prices far below market levels, thereby levying a huge informal tax on cotton farmers.
Perhaps most egregiously, the government forcibly mobilizes more than a million citizens each fall to pick cotton for little or no compensation. It then banks the profit—nearly $1 billion each year—in an off-budget slush fund. And yet, both the World Bank and the Asian Development Bank have significant loans in place to improve irrigation systems, including on land that is farmed by forced labor.
The report also illustrates Uzbekistan’s corruption in the communications sector. Facing investigations by the U.S. Department of Justice and the Securities and Exchange Commission, the Dutch telecoms giant VimpelCom recently admitted paying more than $114 million in bribes to an unnamed Uzbek official, widely reported to be President Karimov’s flamboyant eldest daughter, Gulnara. VimpelCom agreed to pay nearly $800 million in fines and penalties to settle the case, the second largest settlement ever under the U.S. Foreign Corrupt Practices Act.
The United States is also seeking forfeiture of some $850 million in bank accounts in Switzerland, Ireland, Luxembourg, and Sweden that represent the proceeds from corrupt schemes related to the Uzbek telecoms sector. The Uzbek government has also put in a claim for this money, and a U.S. court recently paused proceedings to give the two governments time to negotiate an out-of-court settlement.
This negotiation is in line with existing international efforts to assure the recovery of corrupt assets. But as the report makes clear, this approach is problematic when one of the states in question is as corrupt as Uzbekistan. If the U.S. government agrees that the money should be returned to the Uzbek government, it will simply be fueling the same corrupt system that produced such massive bribery in the first place.
The true victim of this corruption was not the Uzbek state—it was the Uzbek people, who were saddled with exorbitantly high charges for cellphone usage thanks to a backroom deal. These are the same citizens who suffer under an agricultural scheme that diminishes the human rights and economic fortunes of cotton farmers while lining the pockets of the country’s most powerful.
Uzbekistan joined the UN Convention against Corruption in 2008, and claims to have pursued an anticorruption campaign for the past six years. Yet the country’s repressive system remains in place, protecting the influence and wealth of a corrupt elite.
The international community must push back against this repression firmly and in unison. By reforming the aspects of the global financial system that enable Uzbekistan’s rampant corruption, the world can improve the lives and futures of the Uzbek people.
Until August 2016, Jeff Goldstein was the senior policy advisor for Eurasia at the Open Society Foundations in Washington, D.C.