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“What lingers for Trump may be what deals—on what terms—he did after the financial crisis of 2008 to borrow Russian money when others in the west apparently would not lend to him.” —Sir Richard Dearlove, former head of Britain’s MI6¹­

“To keep kompromat on enemies is a pleasure. To keep kompromat on friends is a must.” —Yulia Latynina, Russian writer and journalist²

A foreign power can exploit systemic vulnerabilities—such as gaps in money laundering regulations, lack of corporate transparency, and insufficient anti-corruption controls—to undermine democratic institutions and influence elections anywhere around the world, including in the United States. Corroding a system from within through corruption and financial leverage has been a central part of the Kremlin playbook in Europe and in post-Soviet states. The 2016 U.S. presidential election is a useful lens through which to analyze how such methods could be deployed in the United States. Given the Kremlin’s preference for then-candidate Donald Trump, as determined in the Director of National Intelligence (DNI) assessment, it is imperative to consider how Trump’s longstanding business ties with a bevy of figures from Russia and the former Soviet Union could have been exploited in the context of the campaign.

Since his rise to power nearly two decades ago, President Vladimir Putin has made a concerted effort to exercise control over Russia’s oligarchs, using their wealth and strategic enterprises to advance Russia’s national interests abroad. Over a similar period, Trump and the Trump Organization have become heavily intertwined with some of the same government-linked Russian business elites. There is evidence of vast amounts of Russian money tied up in Trump’s assets, money that has proven vital for Trump as he and his businesses have been shunned by conventional banks following multiple bankruptcies.³

Trump’s financial distress, coupled with his well-documented dubious approach to business partnerships, could have made him a compelling target for Russians seeking to influence the 2016 election. This report shows how otherwise prosaic business connections evolved during the presidential campaign and transition as figures representing the Kremlin’s interests sought to gauge the willingness of various Trump associates to work with them. Against the backdrop of Trump’s decades-long pursuit of deals in Russia and the former Soviet states—some still tethered to the Kremlin—the notion of collusion with Russia, while at first blush improbable, suddenly becomes far more plausible. The ease with which deliberate contacts and coordination between Russia and Trump associates could have occurred is readily apparent.

While Special Counsel Robert Mueller investigates the extent of the interactions between the Trump campaign and Russia, there are steps policymakers can take now to address some of the vulnerabilities that have exposed U.S. elections to foreign meddling. First, the legislative and executive branches should crack down on the use of shell corporations as a means to launder money or conceal the provenance of funds flowing into campaigns. Congress and the executive branch should also curb money laundering through domestic real estate, which is currently pervasive due to virtually absent regulations in this sector. Lastly, legislators must continue to shine a light on corruption and conflicts of interest, which weaken democratic systems from within and make them susceptible to adversaries. By recognizing the central role that illicit and furtive money plays in the undermining of democratic institutions, U.S. officials should treat money laundering and bribery as the foreign policy threats that they are.

This report is organized into the following four chapters.

Coopted oligarchy as extension of the Kremlin, in Russia and abroad

President Vladimir Putin has consolidated power over Russian oligarchs and business elites, thus turning any discussion of Russian wealth and business interests overseas into one of the Kremlin’s foreign policy. This section examines how Russia has leveraged economic and financial ties in its political influence campaigns in Europe, particularly the former Soviet bloc countries. Presented examples establish a framework through which to analyze influence campaigns in the United States, notably in the context of the 2016 presidential election and beyond.

Convergence of crises springs mutual benefits for Trump and Russia’s moneyed elite

This section shifts focus to Donald Trump’s historic business dealings and indebtedness to Russian business interests. It shows how a convergence of crises—for instance, Trump’s bankruptcies in the 1990s coinciding with Russia’s capital flight after the break-up of the Soviet Union—organically spurred mutually beneficial relationships and, over the course of many years, led to a deep interconnectedness. This section also assesses Trump’s pivot to licensing deals in the mid-2000s, which made him more accessible to cultivation by foreign actors. The licensing deals are also explored as a mode of reducing liability and skirting controversy, an evolved response to the increased scrutiny Trump’s partners and projects have drawn.

Business patterns lay bare mechanisms for potential compromise

This section delves into patterns of Trump’s opaque corporate operations, highlighting his seeming aversion to due diligence and an indifference to the sources of funds flowing into his projects. It also considers the possible implications of his disparagement of anti-bribery laws in the context of his deals in the corruption-prone former Soviet countries such as Azerbaijan, Georgia, and Kazakhstan. Notably, in recent years Russian security organs have relied on sophisticated means of leveraging compromising evidence of financial misdeeds—including allegations of money laundering and corruption—to achieve its aims.

Recommendations

The recommendations urge policymakers and law enforcement to address acute regulatory gaps by deterring abuse of shell companies for purposes of obscuring sources of funds flowing into U.S. elections or the laundering of ill-gotten gains. Furthermore, proper anti-money laundering due diligence and reporting mechanism should be used to close the loophole of all-cash anonymous purchases of real estate. And in interdicting possible vectors of foreign influence beyond elections, legislators also need to ensure that office holders properly divest from their businesses, thereby checking potential conflicts of interests.

The collapsed boundary between the Russian state and private actors

When President Vladimir Putin consolidated power after the fall of the Soviet Union, he established a social contract of sorts, sanctioning the unbridled self-enrichment of Russia’s new class of wealthy business tycoons—known as oligarchs—in return for their unwavering loyalty to his administration.⁴ Among other things, this loyalty to Putin meant the oligarchs would not attempt to challenge him politically or otherwise act counter to the Kremlin’s strategic interests. It also meant the oligarchy would act on behalf of the state, thus erasing the boundary between the two. Journalist Joshua Yaffa aptly summarized the “de-fanging” of the oligarchs in a recent New Yorker piece: “In the nineties, a coterie of business figures built corporate empires that had little loyalty to the state. Under Putin, they were co-opted, marginalized, or strong-armed into obedience.”⁵

Those oligarchs who chose to flout this grand bargain with Putin were toppled and turned into a spectacle.⁶ Some, such as Vladimir Gusinsky and Boris Berezovsky, who dared to challenge Putin through their media empires, were forced into exile.⁷ Others, most prominently Mikhail Khodorkovsky, the owner of Yukos Oil Company, were jailed on charges such as tax evasion. Observers have commented on the political underpinnings of these charges.⁸ Arbitrary prosecution of financial crimes has become one of the state’s favored tools of suppression.⁹ In many instances, the state’s absorption of the oligarchs’ privately held assets followed imprisonment or exile. This was the case with Khodorkovsky’s Yukos oil assets, which the state-run oil company Rosneft assumed after he was jailed.¹⁰ More recently, Vladimir Yevtushenkov, another energy tycoon, lost his regional oil producer Bashneft to Rosneft under similar circumstances.¹¹

Following the Yeltsin-era privatization, the renationalization of companies under Putin has been an important mode of consolidating state power over strategic assets such as oil and gas producers, as well as major manufacturers and banks. State corporate giants, often built up through a series of hostile takeovers,¹² naturally are more pliant to the Kremlin’s will than private corporations. This designated breed of “national champions,” which Putin revived, are expected to not only make a profit, but also work for the good of the state.¹³

In September 2014, the Russian authorities accused Yevtushenkov of money laundering in connection with his 2009 purchase of Bashneft. After the charges were levied, Yevtushenkov was placed under house arrest and Bashneft was ultimately renationalized.¹⁴ Analysts at the time noted echoes of the Yukos affair and compared Yevtushenkov to Khodorkovsky by way of their shared experience with the reach of the state.¹⁵

However, there was a key difference between the two cases, which made those inside the patrimonial system even more apprehensive. Unlike Khodorkovsky, Yevtushenkov was not an opposition figure. As the Los Angeles Times observed in September 2014, “Yevtushenkov adhered to the ground rules set for the oligarchy by Putin that they steer clear of politics. If the Kremlin will target a captain of industry as compliant as Yevtushenkov, the implication is that no one is safe.”¹⁶ A decade after the Yukos affair, Yevtushenkov’s dismantling demonstrated that the Kremlin—which controls the Russian courts, law enforcement agencies, and state-owned giants such as Rosneft—can still bring down the most powerful of business tycoons overnight, even those toeing the party line.

At times, Putin’s assertion of power over Russia’s strategic business assets and the oligarchs who own them has veered toward utter theatrics. One of the most notable examples occurred in 2009, when, on national television, the Russian president cowed the aluminum magnate Oleg Deripaska. Deripaska, an otherwise fearsome oligarch, was submissive when Putin, cameras in tow, paid a visit to his factory and forced Deripaska to sign a document granting several concessions. In a made-for-television moment, Putin first provided Deripaska with a pen for signing, then snarled at him when, ostensibly overcome by anxiety, Deripaska forgot to return it. Trivial as this televised exchange may seem to an outside audience, it perfectly encapsulated the power dynamic between Putin and Russia’s oligarchs and symbolically reaffirmed their social contract. This episode became an anchor of Putin’s political brand and his legitimacy with the Russian people.¹⁷

In recent years, the Kremlin’s loyalty test has shifted from the passive requirement that oligarchs stay out of politics to demanding a more active engagement in advancing of the Kremlin’s interests at home and abroad. In November 2014, mere months after the first of the U.S. Treasury’s Ukraine-related sanctions against Russia were unveiled, Putin signed the so-called de-offshorization law, which requires wealthy Russian elites to disclose their offshore holdings, even in financial secrecy havens such as Cyprus and the Cayman Islands.²⁰ The law aimed to increase tax revenues in anticipation of a sustained economic recession, which the sanctions only worsened.²¹ It also meant to “force Russians to do their patriotic duty by investing in their homeland,” as Reuters put it, countering the endemic capital flight.²²

For some wealthy elites, the de-offshorization law became a motive to shed their Russian tax residency status, creating a population of semi-exiled oligarchs. For others, such as Roman Abramovich, the high-profile owner of the Chelsea Football Club professional soccer team, the law provided an opportunity to reaffirm their loyalty to the regime. Despite appearing to spend most of his time in London, Abramovich has retained his Russian residency status for tax purposes, a decision the Russian-language version of Forbes²³ cited in July 2016 as an example of his patriotism.²⁴

Another underexplored consequence of the de-offshorization law is that it gives the Russian state greater insight into the previously hidden foreign business networks and assets of its business and political elites. The law may not have done away with the veil of shell companies that the wealthy use to hide their assets, but it made the veil more sheer. This transparency is critical, especially when considering how overseas commercial networks can be activated to facilitate foreign policy objectives.

Western sanctions and Russia’s ongoing economic struggles²⁵ have tested the loyalty of the oligarchs to the Kremlin. Increasingly isolated from the global markets, tycoons such as the Rotenberg brothers and Gennady Timchenko²⁶ have had to turn their investments inward.²⁷ Moreover, some have taken on major endeavors for the good of the state, but at a loss to their pockets.²⁸ For example, Arkady Rotenberg, Putin’s former judo partner, has been engaged in building a bridge that connects Russia with Crimea, the Ukrainian territory Russia annexed in 2014.²⁹ Putin reportedly considers the bridge Russia’s most important undertaking since the construction of the Sochi 2014 Winter Olympics infrastructure.³⁰ However, the bridge is not expected to be profitable. After other contractors turned down the project, Rotenberg acquiesced.³¹ In taking on the bridge project, Rotenberg—who, following Russia’s invasion of Crimea, was sanctioned by the United States and the European Union—both demonstrated his loyalty to Putin and took a symbolic stand against the West.³²

These examples illustrate how Putin has cultivated a patronage system with respect to the Russian oligarchy and business elites, relying on a combination of rewards and punishments. He has taken a similar approach with the “siloviki”—Russia’s “strongmen” who lead the country’s federal military and security apparatuses—winning their loyalty by selectively empowering his subordinates and parceling out economic privileges.³³ For those who stray from the prescribed course, there has been no shortage of punishments, which often take the form of selective enforcement of Russia’s anti-bribery, anti-monopoly, tax, and criminal laws, and consequent asset stripping.

The same method of coopting has been applied to politicians in Russia, as the recent cases of the former Komi Republic Governor Vyacheslav Gaizer³⁴ and the former Minister of the Economy Aleksey Ulyukayev³⁵ illustrate. Both men were accused of corruption and other financial crimes. Ulyukayev was recently sentenced to prison; Gaizer’s case is ongoing.³⁶ It is critical to view corruption as a binary that can both reward and punish. Corruption provides for illicit favors, which in turn engender debt and compromising evidence of having engaged in such an activity.

The established system of patrimonialism relies heavily on a sense of indebtedness as a means of subjugating the Russian business elites to the state’s wishes. The remainder of this report will continue to build on that theme and show how Russia’s oligarchy and corporate actors have been activated abroad as tools of Russian foreign policy.

Historical precedent and Russia’s recent ventures in Europe and its “near abroad”

The idea that the Kremlin would funnel money to, or otherwise support, a foreign influence campaign is by no means novel. As Marshall Goldman describes in his book, The Piratization of Russia: Russian Reform Goes Awry, the Kremlin has been pursuing this strategy since the days of the Soviet Union. Goldman writes:

Beyond espionage and facilitating and financing foreign trade, the Soviet overseas network of businesses and banks had yet a third task. Soviet multinational banks and corporations were also charged with funding the national communist parties around the globe. This involved diverting funds from their ostensible purpose: in other words, money laundering.³⁷

Even when the Russian banking sector was in its infancy under communism, the relevant operatives knew how to obscure their money’s provenance through labyrinthine networks of offshore accounts. In the decades since, money launderers and financial obfuscators have honed their craft using anonymous shell companies, nominee accounts, offshore secrecy havens, and creative transaction structuring.³⁸ For example, where so-called mirror trades were once a preferred means of moving money out of Russia and into the global financial system, launderers now reportedly favor illicit reinsurance contracts and falsified court judgments.³⁹ They also exploit weak regulatory environments in the post-Soviet space—what Russia has termed the “near abroad”—particularly in the Baltics and Moldova, to covertly place and layer funds.⁴⁰

The financial element of the Kremlin’s active measures continues to enable it to penetrate domestic European elections. It has clandestinely supported favored candidates through a fostered “opaque network of patronage across the region that it uses to influence and direct decision-making,” according to “The Kremlin Playbook,” a 2016 study by the Center for Strategic and International Studies (CSIS).⁴⁴ The study argues that the Kremlin has manipulated its deep economic and financial ties with its trade partners, particularly its neighbors in Central and Eastern Europe and the Caucasus,⁴⁵ to penetrate and corrupt local governments. “Corruption is the lubricant on which this system operates, concentrating on the exploitation of state resources to further Russia’s networks of influence,” the report posits.⁴⁶

On a geopolitical scale, Russia has used state-owned conglomerates such as Gazprom and Rosneft as tools of foreign policy. For example, the country threatened to cut off Ukraine’s gas supply amid conflict on multiple occasions.⁴⁷ In countries such as Bulgaria and Hungary, Russia has also used its multinationals to allocate choice contracts to individuals it could then manipulate in local politics. As David Szakonyi, a political scientist focusing on eastern Europe, describes in his paper on privatization and nationalization in post-Soviet regions, “often these ‘national champions’ are an important part of foreign and domestic policy through their ability to make large foreign investments, use contracts and prices to apply international pressure, and conduct trade with embargoed or sanctioned states.”⁴⁸ Similarly, Russia’s government-owned banking giants, such as Vnesheconombank (VEB) and Vneshtorgbank (VTB), have further incentivized local targets for influence through favorable loans.⁴⁹

Financial incentives are especially effective in countries reeling economically. Regional instability caused by various factors—including residual effects of the break-up of the Soviet Union, the global financial crisis, and deficient rule of law—has contributed to the weakening of these countries’ institutions and economic malaise. The CSIS study found that numerous local government officials associated with pro-Russian political parties, politicians, businessmen, and nongovernmental organizations have been involved in a series of bribery and public procurement scandals that have penetrated all levels of government. Simply put, financial distress undermines a system’s defenses, making it easier for outside agents to infiltrate and corrupt. Today, it is critical to look for the relevant symptoms beyond Russia’s neighbors in Europe.

Identifying a corruptible target in the United States

European and post-Soviet states case studies demonstrate that a vulnerable, corruptible agent can be a key element to Russia’s influence campaigns. In the eyes of the Kremlin, Donald Trump would have represented a perfect target for corrupting, well before the 2016 presidential campaign.

Before he ran for president, Trump was a conspicuous business mogul, constantly flirting with bankruptcy and financial collapse.⁵⁰ Shunned by traditional Western lenders, he made frequent overtures to Russian money and accepted injections of cash from Kremlin-linked figures, such as Dmitry Rybolovlev.⁵¹ He repeatedly disparaged anti-bribery laws and regulations,⁵² eschewed transparency through use of shell companies and impervious corporate jurisdictions,⁵³ and embraced unsavory business partners.⁵⁴ With a pivot to international licensing deals in the mid-2000s, Trump grew increasingly accessible and more exposed to tampering and potential compromise.

Taken together, Trump’s dubious business practices may have served as a signal flare to the Kremlin that Trump was a prime candidate for Russia to cultivate as part of its larger geopolitical strategy.⁵⁵ Any such cultivation would have matured when the conspicuous mogul became a contender for the presidency of the United States and proceeded to run his campaign in the same way he had run his opaque business empire: in a haphazard manner, with little vetting of those executing the work.

The myth of a successful businessman

Trump spent the 1990s and 2000s mired in bankruptcy,⁵⁶ litigation, and debt.⁵⁷ In several instances Trump’s financial crises converged with those of Russia and its moneyed elite. These convergences resulted in mutually beneficial relationships, both circumstantial and deliberate, that Russia could exploit decades down the line. With the subjugation of its oligarchy, the line between private and public wealth in Russia is often blurry. Thus, it is critical to evaluate Russian money in Trump’s real estate in parallel to the Kremlin’s strategy.

The times of financial distress and the resultant symbiosis, examined chronologically below, cover three main periods: Trump’s bankruptcies in the 1990s, which coinci