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CORRUPTION: A DANGER TO DEMOCRACY IN

EUROPE AND EURASIA

HEARING

BEFORE THE

SUBCOMMITTEE ON EUROPE, EURASIA, AND 

EMERGING THREATS

OF THE

COMMITTEE ON FOREIGN AFFAIRS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTEENTH CONGRESS

SECOND SESSION

DECEMBER 7, 2016

Serial No. 114–240

Printed for the use of the Committee on Foreign Affairs

(

Available via the World Wide Web: http://www.foreignaffairs.house.gov/ or

http://www.gpo.gov/fdsys/

(II)

COMMITTEE ON FOREIGN AFFAIRS 

EDWARD R. ROYCE, California, Chairman 

CHRISTOPHER H. SMITH, New Jersey 

ILEANA ROS-LEHTINEN, Florida 

DANA ROHRABACHER, California 

STEVE CHABOT, Ohio 

JOE WILSON, South Carolina 

MICHAEL T. MCCAUL, Texas 

TED POE, Texas 

MATT SALMON, Arizona 

DARRELL E. ISSA, California 

TOM MARINO, Pennsylvania 

JEFF DUNCAN, South Carolina 

MO BROOKS, Alabama 

PAUL COOK, California 

RANDY K. WEBER SR., Texas 

SCOTT PERRY, Pennsylvania 

RON DESANTIS, Florida 

MARK MEADOWS, North Carolina 

TED S. YOHO, Florida 

CURT CLAWSON, Florida 

SCOTT DESJARLAIS, Tennessee 

REID J. RIBBLE, Wisconsin 

DAVID A. TROTT, Michigan 

LEE M. ZELDIN, New York 

DANIEL DONOVAN, New York 

ELIOT L. ENGEL, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

ALBIO SIRES, New Jersey 

GERALD E. CONNOLLY, Virginia 

THEODORE E. DEUTCH, Florida 

BRIAN HIGGINS, New York 

KAREN BASS, California 

WILLIAM KEATING, Massachusetts 

DAVID CICILLINE, Rhode Island 

ALAN GRAYSON, Florida 

AMI BERA, California 

ALAN S. LOWENTHAL, California 

GRACE MENG, New York 

LOIS FRANKEL, Florida 

TULSI GABBARD, Hawaii 

JOAQUIN CASTRO, Texas 

ROBIN L. KELLY, Illinois 

BRENDAN F. BOYLE, Pennsylvania

AMY PORTER, Chief of Staff THOMAS SHEEHY, Staff Director

JASON STEINBAUM, Democratic Staff Director 

SUBCOMMITTEE ON EUROPE, EURASIA, AND EMERGING THREATS

DANA ROHRABACHER, California, Chairman 

TED POE, Texas 

TOM MARINO, Pennsylvania 

MO BROOKS, Alabama 

PAUL COOK, California 

RANDY K. WEBER SR., Texas 

REID J. RIBBLE, Wisconsin 

DAVID A. TROTT, Michigan 

GREGORY W. MEEKS, New York 

ALBIO SIRES, New Jersey 

THEODORE E. DEUTCH, Florida 

WILLIAM KEATING, Massachusetts 

LOIS FRANKEL, Florida 

TULSI GABBARD, Hawaii 

(III)

C O N T E N T S 

Page

WITNESSES 

Mr. Charles Davidson, executive director, Kleptocracy Initiative, Hudson Institute .................................................................................................................... 5

Mr. Ivan Vejvoda, senior vice president for programs, The German Marshall 

Fund of the United States ................................................................................... 10

Mr. Sergei Kolesnikov (former co-founder of Petromed Holding) ........................ 23

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Mr. Charles Davidson: Prepared statement .......................................................... 7

Mr. Ivan Vejvoda: Prepared statement .................................................................. 12

Mr. Sergei Kolesnikov: Prepared statement .......................................................... 25

APPENDIX 

Hearing notice .......................................................................................................... 48

Hearing minutes ...................................................................................................... 49

The Honorable Gerald E. Connolly, a Representative in Congress from the 

Commonwealth of Virginia: Prepared statement .............................................. 50

(1)

CORRUPTION: A DANGER TO DEMOCRACY IN 

EUROPE AND EURASIA 

WEDNESDAY, DECEMBER 7, 2016

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON EUROPE, EURASIA, AND EMERGING THREATS,

COMMITTEE ON FOREIGN AFFAIRS,

Washington, DC. 

The subcommittee met, pursuant to notice, at 10:05 a.m., in room 

2172, Rayburn House Office Building, Hon. Dana Rohrabacher 

(chairman of the subcommittee) presiding. 

Mr. ROHRABACHER. I hereby call this hearing of the Europe, Eurasia, and Emerging Threats Subcommittee into order. This will be 

the final subcommittee event of the year, and I must say it has 

been a pleasure to chair this subcommittee and to serve with my 

friend and colleague and ranking member, Mr. Meeks. 

Mr. Meeks, thank you so much. We have had a good 2 years together here. We will see what happens next time around. No one 

knows. I very much look forward to continued collaboration one 

way or the other in the new Congress. 

So with that said, for this hearing we are focusing on corruption 

in Europe and Eurasia. This issue has not been really the recipient 

of much attention. It certainly hasn’t received the attention it deserves. Both globally and in particular countries this committee 

oversees it seems that this issue just hasn’t really been touched on. 

It is like maybe some sort of a hot stove. 

But the corruption, we have to recognize, has been a major factor 

since the end of the cold war in the former Soviet states. These 

countries have worked with various degrees of success to privatize 

their own state-owned industries and build various institutions 

that allow for democracy and prosperity. 

In short, for them corruption has been a common stumbling block 

to progress, as it is also, as we recognize, in Third World countries, 

whether or not it is petty corruption, perhaps by a police officer 

who is looking to give you a ticket or, at a grander level of corruption, where private interests actually capture control of large 

chunks of state assets. It hampers reforms, corruption holds back 

economic growth, and in far too many cases it also impoverishes 

low-income populations in countries that could be doing much better for their entire population. 

Now, when government institutions serve private interests, enriching oligarchs and enriching politicians instead of addressing the 

needs of its people, that undermines the faith in government and 

the rule of law, it undermines the basic stability and any chance 

2

for prosperity, at least any chance for ordinary people to live in 

prosperity in these countries. 

Hence, if we understand the general aim of U.S. policy as promoting prosperous, peaceful, and pluralistic countries, fighting corruption should be at the center of that effort. Unfortunately, it is 

not, and perhaps because there are powerful Western accomplices 

to these crimes of corruption in developing countries. 

While we should call out and hold accountable corrupt officials, 

it is important to understand that in some places corruption is the 

rule, not the exception. I would like to cite a recent survey released 

by Transparency International that found that one in three people 

living in Europe and Central Asia believe corruption to be one of 

the largest problems of their country. 

Policymakers in the United States and Europe need to think 

about broad and systematic approaches to this challenge. For example, Western banks, are they complicit in money laundering for 

corrupt officials? Does that make them an accomplice to the theft 

of resources that should serve the poorest and most vulnerable people of the world, but instead those resources are being utilized and 

the profit from it are going to large financial institutions in cooperation with local gangsters and thugs in those countries? 

What about us? Could we do more to ensure that corrupt officials 

can’t store their ill-gotten gains in Western banks or use it to buy 

property or businesses in our country? 

This is too much for today, it is too much for just today, but it 

will be the subject for an investigative hearing or investigative 

hearings in the years ahead, whether I am here or not. 

I am looking forward to a discussion today of these things with 

our witnesses, and I look forward to their testimonies. And without 

objection, their written statements will be made part of the record. 

And I will turn to my ranking member, Mr. Gregory Meeks. 

Mr. MEEKS. I want to thank you, Mr. Chairman, for calling this 

timely hearing—our last. I guess, this will be our last of the 114th 

Congress——

Mr. ROHRABACHER. That is why it was timely. 

Mr. MEEKS [continuing]. To discuss the role of corruption and 

eroding democracy in Europe. And I do appreciate your cooperation 

in working together over the last couple—last 4 years actually—

and to work more on Europe together. My intentions are to stay 

here, you know, we will be in the next Congress—unless you, of 

course, have other plans. 

Mr. ROHRABACHER. We will see. Don’t count on it. 

Mr. MEEKS. So hopefully we will do this again. 

The fight against corruption is a civic duty, and I am against corruption here in the United States just as much as I am against corruption in Ukraine, France, and Russia, or anywhere on the planet. 

I think we can all agree on that. And corruption is often ill-defined, 

ambiguous, and sometimes woven in with cultural norms. 

Yet, while it take many forms, we know that it has costs. When 

bad actors in the public sector use political power to enrich themselves, there are consequences. The state is less effective and citizens less trusting of its political leaders. 

They do not act alone. Government officials who steal public 

money often use legal loopholes to launder their loot abroad in real 

3

estate or offshore accounts. This is done by employing willing 

enablers, lawyers or business partners, who take the money while 

looking the other way. 

Now, I have found it important when speaking of corruption in 

Europe that I can’t avoid mentioning particularly the role of the 

Russian Government and Russia itself in exporting corruption 

abroad. The Russian Government has successfully muddied the waters in the media and politics with its dirty money in neighboring 

countries looking to reform, notably Ukraine, Moldova, and Montenegro. This is very troubling. 

Furthermore, the Russian taxpayer rubles have found sanctuary 

here in the United States and across Europe, giving us more reason for concern. And while Ukraine struggles to reform and create 

ambitious, transparent systems for the benefit of its people, we see 

Russian businesses and politicians with significant influence in trying to make us think that Ukraine can never reform. 

It is not only a morally troubling situation, it is also a national 

security question. It is one thing to look away when another country’s government robs its own people; it is another to allow that 

government to use its citizens’ money to corrupt and meddle in our 

democratic, rule-of-law-based society. 

This is the one reason I will continue to demand—I will continue 

to demand—here in the United States that President-elect Trump 

release his tax returns and completely divest from his international 

companies. The American people have a right to know who our 

President may be beholden to. 

Now, fortunately for some of us, there are brave investigative 

journalists, lawyers, and activists who have shed light on the 

kleptocracy in the Kremlin and the way the Russian people are 

worse off because of it. Because Russia did not successfully reform 

after the fall of the Soviet Union and yet is home to vast amounts 

of natural resources, it is ripe territory for corruption at the highest levels. 

One of those brave men is here with us today. And I want to 

thank Mr. Kolesnikov for your bravery and work for the Russian 

people. I look forward to hearing your testimony and your firsthand 

knowledge of what drives the highest levels of Russian Government. 

I want to let you know that there is a reason why we should 

focus on Russia here today. It is because we believe that Russia is 

an important country, a potential partner. Russia can be better, 

can reform, and can be democratic and can be free. 

As a senior member of the Financial Services Committee, I am 

also deeply interested in how we can safeguard our financial institutions from corruption. It is that vulnerability to foreign and malign influences that worries me. What laws should we consider to 

amend beneficial ownership, for example? What are the risks today 

to American sovereignty in these areas? 

So, again, I want to thank you and all of our witnesses. And I 

look forward to working with my colleagues and to keep America 

and our allies safe from the unvirtuous spiral of corruption. And 

I yield back. 

4

Mr. ROHRABACHER. We have been joined by two of our other colleagues. Do either of our other colleagues have an opening statement? 

Mr. Connolly, you are welcome to. You are not on the committee, 

but you are welcome to have an opening statement. 

Mr. CONNOLLY. Thank you, Mr. Chairman. 

And I want to associate myself with the remarks just made by 

my good friend from New York. And I also salute the bravery of 

our guest witness here today. Thank you for participating. 

And I would ask unanimous consent my full statement be entered into the record at this time. 

Mr. ROHRABACHER. Without objection. 

Mr. CONNOLLY. I thank the chair, and I thank my good friend 

Mr. Meeks. 

Mr. ROHRABACHER. And Mr. Weber has decided not to have an 

opening statement; although, I am sure he would like to comment 

on how the Democratic candidates deserve to be investigated in our 

last election in their financial dealings as well. But I won’t put 

words into his mouth, but I thought somebody needed to make that 

point. 

So with that said, I would like to welcome the witnesses. And if 

we could, if you could summarize your testimony in 5-minute segments, and then we will get into the questions and answers. And 

what I will do is I will introduce all of you and then we will start 

with Mr. Davidson after this introduction. 

So we have Charles Davidson, who is the executive director of 

Kleptocracy Initiative at the Hudson Institute, as well as being the 

publisher of the American Interest magazine. The Kleptocracy Initiative and its stated goal is to conduct original research into the 

growing threat posed by democracies by autocratic regimes structured as kleptocracies. 

And I think it will be very fascinating to get into some definitions, not only kleptocracy but exactly what is corruption and what 

is not corruption. And looking forward to your testimony. 

And then we have also with us Ivan Vejvoda, who is a senior vice 

president for programs at the German Marshall Fund here in 

Washington. From 2010 to 2013 he was the executive director of 

that organization’s Balkan Trust for Democracy Program. Before 

that, he was an adviser to the Serbian Government and a long-time 

advocate of democracy in that region and honest government. 

And we have also with us today, and as we heard from Mr. 

Meeks, a Russian-born businessman, Mr. Sergei Kolesnikov. 

Is that right? Did I get it? 

Mr. KOLESNIKOV. Kolesnikov. 

Mr. ROHRABACHER. Okay. And we are very happy to have you 

with us today. 

He is a Russian-born businessman who has traveled from outside 

the United States to come here today to testify at this hearing. In 

2010, he left Russia and went to the press about certain allegations 

of high-level corruption within the Russian Government. 

So today we are going to be focusing on corruption both in theory 

and definitions of what is and what is taking place, but also in specifics in terms of different examples of corruption that are going on 

and how they impact—which is important—how that corruption 

5

impacts the people of the countries which are suffering from that 

corruption of their government. 

So with that said, Mr. Davidson, you may begin your 5-minute 

presentation. 

STATEMENT OF MR. CHARLES DAVIDSON, EXECUTIVE 

DIRECTOR, KLEPTOCRACY INITIATIVE, HUDSON INSTITUTE 

Mr. DAVIDSON. Mr. Chairman, Ranking Member Meeks, and distinguished members of the subcommittee, I appreciate the invitation to appear before you today. And I must say, these opening 

statements were so impressive to me. I think that Chairman 

Rohrabacher’s statement perfectly summarizes the overall issue. 

And I agree with everything that Mr. Meeks said. 

So I will try to run through my statement very rapidly and touch 

on this enabler issue which was brought up, and go to the conclusions as to what we can do about this sort of thing. So I am going 

to gloss over agreeing with you on these various matters. 

And in terms of what corruption does to societies in undermining 

rule of law, subverting institutions, encouraging cultures of lawlessness, how it impoverishes the citizens of these countries, we all 

see this. I think it is worth reminding ourselves again and again 

that the Maidan Revolution was really about corruption. All those 

young people were talking about corruption all the time. It was 

really the driver of that revolution. 

And in terms of the definitions and how all this evolved, institutionalized corruption, when it becomes the norm and consolidates 

its political power and we get actual state capture, that is what we 

talk about at least in terms of being kleptocracy. It is when corruption has really taken over the state and we get the rule of thieves. 

And obviously, these kleptocratic regimes have little appetite for 

democracy. I think an important point, in particular for our business community, is that these regimes have very little taste for 

free-market competition, so little taste that, in fact, corruption and 

exporting it is sort of an existential issue for them. They can’t compete in the free market. 

And we have, indeed, as was mentioned, been a partner in this 

whole system. And the way that has worked—and we published an 

article about this called, ‘‘Stage Hands: How Western Enablers Facilitate Kleptocracy’’—well, first, you have got to be able to loot the 

country, take it out of the country and put it in a safe place. We 

provide that safe place. Then, of course, there is a third stage 

where you hire public relations people and you put your children 

in the right schools and you become a full-fledged member of the 

West and become a very respectable person. 

And I think another thing we need to focus on more is the issue 

of incentive. When we do this, when we provide this safe haven, 

we are incentivizing corruption, and then we are further 

incentivizing all the way to kleptocracy. And this is something we 

really need to think about, and stop providing the punch bowl, if 

you will. 

The Ukrainian example we have already looked at. 

We don’t really talk enough about authoritarianism in all of this. 

What we see now with the authoritarian threats is that authoritarian regimes that have become very militarily aggressive—and 

6

there are two I have in mind, which I barely need to name. They 

both happen to be structured as kleptocracies. Their elites are 

keeping their loot in the West, in our banks and financial institutions, in our real estate. And you would think we have a little bit 

of leverage over them, perhaps more than we are using. 

On this overall issue I mentioned, we published a paper called 

‘‘The Kleptocracy Curse,’’ which may be of interest, which is almost 

an expansion of Chairman Rohrabacher’s initial statement, expands on all those points. 

What can we do? I have 33 seconds to talk about that, and I will 

go right to the issue of anonymous companies, shell companies, 

whatever we want to call them. There are a few other recommendations in the testimony, they all pale in the face of the importance of the anonymous company question, in my opinion and 

in the opinion of many people that I have spoken with in law enforcement and the State Department, private investigators, large 

private investigator firms. There seems to be a real consensus that 

this is a huge part of the problem. 

And I will leave it at that. Thank you very much. 

[The prepared statement of Mr. Davidson follows:]

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Mr. ROHRABACHER. You may proceed. 

STATEMENT OF MR. IVAN VEJVODA, SENIOR VICE PRESIDENT 

FOR PROGRAMS, THE GERMAN MARSHALL FUND OF THE 

UNITED STATES 

Mr. VEJVODA. Mr. Chairman, Ranking Member, members of the 

committee, thank you very much for the invitation to testify before 

you today on this important subject, as we have heard both from 

the introductory statements and from my colleague Charles Davidson. 

Democratic transitions after 1989 confront the issue of the fact 

that there was practically no democratic political culture in the 

post-Communist space, in the space where one party ruled there 

was no pluralism, and where human rights were unknown to people. And so it had to begin with, as Hannah Arendt would put it, 

giving people the right, to understand that they have a right to 

have rights. 

And so the legacy of the old, the inertia of the old corrupt ways 

lives on as the democratic transition advances and as the democratic political culture tries to find its roots. And probably the best 

comparison is between Poland and Ukraine that had the same level 

of economic development in 1990. We see where Poland is today 

and we see what has happened to Ukraine, complete differences in 

standards of living and the institutional democratic culture, not 

that Poland is without problems today, as we know. 

The political winners of the Communist system—the political losers as democratic transition happens become the economic winners 

because they have all the inside information. They have the network through the secret services. And ultimately, as economic winners, they again become the political winners because of the nexus 

between the oligarchic structures and political parties. 

One particularly difficult issue that is addressed is that of political parties themselves, as they rise from nowhere after the crumbling of the Communist system. And the problem there is the financing of political parties. Where do these parties find moneys to 

actually have a party structure throughout a country? 

And that means, of course, that they have to lean on private 

business, and this is where a lot of the corrupt practices between 

the politics and economics, to speak all too gently, happens and 

where a lot of the corrupt practices. Of course, in Western societies 

we know that there are also these kinds of issues, but I would really like to highlight that problem in addressing the issue of corruption. 

I, unfortunately, coming from the former Yugoslavia and Serbia, 

had to live through the worst of a criminalization of society and the 

state of Serbia under sanctions that were imposed in 1992. For a 

country under sanctions to survive, it goes into full corrupt mode. 

And so when we emerged from the Milosevic regime in 2000, this 

was the state of affairs that we had to confront, how does one start 

pushing back this criminalization that was pervasive through the 

state. And of course it requires what other post-Communist countries do, and that is to reinforce the structures of democratic institutions, of structural reform, et cetera. 

11

But that, as you know, requires support from the outside. And 

the role that the United States, Canada, the European Union member states, with their support through USAID, through development agencies has been extremely important. 

It, of course, behooves the citizens and governments in each of 

these countries, whether we are talking about Ukraine, Moldova, 

Serbia, Montenegro, Albania, Kosovo, to actually do the work of reform. They need to be the stakeholders. They need to sense the desire of citizens to have a society democratic based on the rule of 

law and human rights. 

And so that burden is principally on them, but it cannot be done 

without the principle of solidarity that we have seen delivered 

through these 25 and more years. And it requires in terms of what 

is to be done a holistic approach, and some of it we have already 

heard from Charles Davidson. So support to journalists, investigative reporting, support to civil society that pressures from below 

the governments to make them more accountable and responsible. 

Customs are an extremely sensitive point. 

But the key and the backbone is judicial reform, a truly independent judiciary where citizens feel that no one is above the law 

and that everyone gets a fair trial. And we see the difficulties in 

acquiring fully independent judiciaries. 

And so I would urge that the continuing work of USAID with the 

European Union in support of these democratic processes is one of 

the backbones, as I said, along with the citizens themselves and 

their elected officials pushing toward strengthening the rule of law 

and creating further stability for democratic political culture. 

[The prepared statement of Mr. Vejvoda follows:]

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Mr. ROHRABACHER. My goodness, everybody is following the rules 

and 5-minute rule. 

Mr. VEJVODA. Rule of law. 

Mr. ROHRABACHER. Rule of law. 

Sir, you may proceed. 

STATEMENT OF MR. SERGEI KOLESNIKOV (FORMER COFOUNDER OF PETROMED HOLDING) 

Mr. KOLESNIKOV. Mr. Chairman, ladies and gentlemen, I am 

speaking here not in the capacity of an academic or a politician, 

but as a person who was directly impacted by a system of the Russian corruption. Furthermore, I had a unique chance to observe 

this system from within and made a conscious choice not to become 

a part of it. I am not going to delve into details of my case, since 

it was well described in the article by Mr. David Ignatius of 2010, 

which is included in your package. 

I should add that once I realized that the whole scheme was illegal and sent all the paperwork to then-President Medvedev, my life 

was put under threat. And if not for a timely warning, I would 

probably have ended up just like Sergei Magnitsky, except you 

would have never heard my name. I love Russia. It is my homeland. But because of my story, I was forced to leave it and live 

abroad. 

What I would like to speak about is my firsthand experience of 

working closely with senior Russian officials and explain why Russian corruption is much more dangerous for the world and for the 

U.S. interests than corruption in Eastern and Central Europe and 

other nations of the world. 

Indeed, corruption is all-pervasive because it is a part of the 

human nature. It exists in France, Great Britain, Germany, and 

even the United States. However, as Aristotle and Hegel pointed 

out, it is the category of measure which makes the key difference 

between good and evil. 

The scale of corruption which permeated all levels of government, top down to the lowest ones, creates a perilous precedent of 

the major nuclear power where the whole chain of command over 

the weapons of mass destruction is a part of a vertically organized 

criminal system. Corruption in Russia is the cement which keeps 

the vertical of power together. 

Investigation by Alexey Navalny’s Fund Against Corruption, 

many other journalists’ investigations in Russia and abroad, for example the Panama Papers, clearly demonstrated the corruptness of 

the Russian Government officials on all levels of power. Billions of 

dollars were discovered in the accounts belonging to the friends of 

the President, relatives of the members of the government, governors, and many other officials. 

Recent broadly publicized arrests of Russian governors, police, 

and military generals, and even that of the minister of economy, 

is not an indication of an anticorruption campaign, but of an internecine fight of clans for access to the budget. 

Corruption causes bad management and inept economic policies, 

which in turn creates social and economic instability in the superpower with nuclear weapons. Steep decline of level of life in Russia 

needs to be justified. The Russian Government resorted to a timeVerDate 0ct 09 2002 10:03 Jan 10, 2017 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 F:\WORK\_EEET\120716\22866 SHIRL
24

tested method of distracting its population by creating an image of 

an external enemy. And the enemy is the United States and its 

Western allies. 

Two days ago, an official spokesman for the Russian Defense 

Ministry, General Konoshenkov, stated, to paraphrase, that the 

blood of the Russian servicemen is on the hands of the United 

States and its allies, who have created and are supporting the terrorists. 

Ladies and gentlemen, I am not a politician. In the last 5 years, 

I have built a successful business in Europe. The reason for me accepting your invitation and speaking here is a desire to see my 

children’s, all children’s future in a safe and secure world, not imperiled by the actions of corrupt government. 

Thank you very much. 

[The prepared statement of Mr. Kolesnikov follows:]

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Mr. ROHRABACHER. Well, thank you, all, for your testimony 

today. 

And I am going to let Mr. Meeks start off the questioning. Why 

don’t you go right ahead. Okay. Well, I will go ahead then. 

Mr. MEEKS. I don’t interrupt the chair. 

Mr. ROHRABACHER. I will take my orders from the boss over here. 

All right. 

Well, let me ask our last witness here, when you talk about corruption in Russia, what form does that take? See, we have businessmen here who make money and then do whatever they want. 

They are making millions of dollars. And yet we know that there 

are millions of dollars coming out of Russia that are not equated 

to our businessmen. They would base it on some corrupt activity 

that they are involved in. 

What is that corrupt activity that they are able to extract the 

wealth and then take it and deposit it somewhere else? 

The INTERPRETER. Mr. Kolesnikov is going to speak Russian, and 

I am going to be interpreting for him if you don’t mind. 

Mr. ROHRABACHER. That is fine. 

[The following answers were delivered through an interpreter.] 

Mr. KOLESNIKOV. The main task of the Russian politicians who 

run the country right now today is to stay in power as long as they 

can. They perceive Russia as the source of their wealth; however, 

they prefer to live, to reside abroad, in Europe and the United 

States. 

They are perfectly aware that their money, that their wealth can 

be safely protected only in a democratic country based on the rule 

of law. Therefore, they try, they do their best to wire their money 

to democratic countries, being perfectly aware that in Russia at 

any moment they can be taken. 

Mr. ROHRABACHER. We understand that, that that is, of course, 

taken, and something I hope we need to deal with. He is talking 

about corrupt officials sending money to the West. And as I stated 

in the opening statement, we are going to have some focused hearings on that, whether or not American banks and Western banks 

and other institutions are actually accomplices with a criminal activity that is basically extracting wealth from developing countries. 

The question I am asking is, you are saying that there are a 

large number or a certain number of officials in Russia that are engaged with corrupt activity. What is that activity that gives them 

the money in order to put in the Western banks? 

Mr. KOLESNIKOV. The main problem of Russia is that it is a very 

wealthy country, and the main source of income, of revenues, are 

the natural resources of Russia, as well the factories and enterprises which were built by the whole Russian nation. 

After the Soviet Union collapsed, practically all the properties 

and all the natural resources ended up in the hands of a very small 

group of people. And in order to pump out the money out of the 

country and wire to the West, you need to have control, you need 

to control power. In any democratic country where you have freedom of speech and free media and free elections, it would not be 

possible, where you have courts and when the rule of law—the law 

is above everything else. 

28

Mr. ROHRABACHER. Okay. Well, let me try another approach or 

another thought here anyway. 

When we are talking about Serbia, and you mentioned that sanctions actually led to an expansion of corruption in Serbia, so a 

sanctions approach to a country actually perhaps makes things 

worse rather than makes things better. Is that correct? 

Mr. VEJVODA. Chairman, thank you for that question. 

Sanctions are a double-edged sword, and any diplomat who has 

been engaged in this will say that. It is a kind of middle-of-the-road 

measure. It is without going and attacking a country for what it 

is doing. It doesn’t want to leave that country unsanctioned or 

unpenalized. And thus sanctions are imposed. 

When a country is under sanctions, it is obliged to somehow survive on the international market. And because there are sanctions 

through banks, through training, it goes underground. And there 

are ways in which people benefit from this, both domestically and 

internationally, by breaking sanctions rules. 

That means internally, domestically, that everything is under 

control of the government. There is much less transparency or none 

at all in some of these dealings. And that particularly means energy imports, imports of foodstuffs. Then the customs, of course, becomes complicit because they have to let these things through without the people’s right to taxation on trade being accomplished, and 

that then further empowers those and enriches those who are in 

power. 

And so the reversal, once sanctions are lifted—and in the case 

of Serbia, sanctions were lifted only after the fall of Milosevic, it 

took about 10 years to do that—you then have to do all the work 

that any other country does in instilling the rule of law and 

strengthening the institutions. 

Mr. ROHRABACHER. So if there is a general problem with a level 

of corruption in a society, for us to pick out an issue that is important to us and to put sanctions on that government in order to 

pressure them on a particular issue actually makes things worse 

in the long run? 

Mr. VEJVODA. Domestically, definitely. As I said, it empowers the 

‘‘elite’’ or those who are in power. 

Mr. ROHRABACHER. Well, I hope some of my colleagues are taking 

that in too, because I would take this as a general rule. 

And would you like to comment on that, Mr. Davidson? 

Mr. DAVIDSON. Yeah. Sanctions aren’t something that I have 

thought about a great deal or that we have really covered in our 

work at the Kleptocracy Initiative. But my impression, and here I 

wander out of my train of expertise, but it seems to me that, we 

take the sanctions on Russia, for instance, we are thinking more 

short term about weakening the economy there and dealing with 

a security threat as opposed to thinking of the long-term health of 

the society. 

Certainly, sanctions are not something that can go on forever if 

there is going to be a healthy relationship, but in the short term 

it can be a very effective parry. 

Mr. ROHRABACHER. Let me just note that in your testimony——

Mr. VEJVODA. Chairman, could I——

Mr. ROHRABACHER. Oh, yeah, go ahead. 

29

Mr. VEJVODA. I would just add a few words. I am sorry. 

Having lived under full sanctions—and what I am going to say 

is literal, that means that there were no Mickey Mouse cartoons on 

TV anymore, there was no Coca-Cola, it was really blanket—what 

happened was there was a learning curve where we eventually advocated, those of us who were in civil society fighting against the 

regime, was let’s try and find something that has come to be called 

smart sanctions or rather targeted sanctions to individuals in the 

regime, to particular companies, to banks, et cetera, and not to 

have those who are actually working for democracy or freedom actually also be subject to it. 

And that is what happened. The European Union, the United 

States then evolved in that regard. And that is how you then got 

individuals who were targeted, as is in the case of Russia, for example, or others. 

Mr. ROHRABACHER. Let’s note that in Serbia we ended up with 

violence and a war and mass killings that went on. In many cases, 

and this is a rule of thumb which I didn’t include in my opening 

statement, is that if you take a look at some of the conflict areas 

of the world and some of the things that are going on, quite often, 

if you trace back what the root cause is, that the corruption level 

in those societies reached a point where large numbers of people 

were willing to commit acts of violence and actually get involved 

with more fanatic organizations, et cetera, like we saw in Serbia, 

where the Serbian people, who now I think are exemplary and they 

are doing as good a job as anybody else in Europe, they went along 

with horrible crimes that were being committed by their government. 

So in the end, if you have corruption and it creates uncertainty 

among ordinary people, it can lead to the type of fanaticism that 

then leads to terrorism, aggression, et cetera, et cetera, which may 

well be seen elsewhere. 

One last point, and then I am going to let Mr. Meeks take over 

here. 

Mr. Davidson, you made a point that children of the crooks and 

their families eventually, if someone is part of a criminal syndicate 

in a country, eventually they have so much money that they eventually become part of the elite cultural people of that society. They 

are the prominent citizens after one or two generations. 

Let me just note that this doesn’t happen in those countries; that 

has happened in our country. How many people in prominent families started out here as slavers? They sold slaves, that despicable 

act that even where it was legal in the South, they thought that 

was a despicable profession to be in. But yet, people emerged. Bootleggers and people involved in gangster families in our country 

have after one or two generations become prominent citizens. And 

so what you are saying is not something that we should be just 

pointing over there; we have got to understand that that is a cycle 

that happens here. 

Today, what I am very concerned about is not the children and 

not the prominent families in the future that this will create, but 

instead how we have perhaps institutions in our society that are 

respectable institutions that are being utilized by especially foreign 

corrupt officials and gangsters in other societies. 

30

I mean, how many people are making real estate deals with 

criminals now in our country? And those criminals may not well be 

Americans. They may be Russians or they could be Chinese or they 

could be any number of countries that come here to launder their 

money, and yet we have our very respectable and prominent citizens engaged in what would have to be an accomplice to a crime. 

So anyway, Mr. Meeks, you may proceed, and we will have a second round of questions afterwards for everybody. 

Mr. MEEKS. Thank you, Mr. Chairman. 

Very interesting. I want to thank the witnesses for their testimony and I am going to try to go through everybody real quickly. 

Maybe I will start with you, Mr. Davidson, and just trying to figure out, moving forward first, how are corruption and populism related in Europe? And what examples can you provide that would 

be helpful to monitor corruption in 2017 as we move forward? Because a lot is going on in Europe right now, politically and otherwise, and corruption could do something that indeed could destroy 

the democratic countries, many of whom are allies. 

So I was wondering if you could just tell us what could be helpful. How can we monitor what is going on in 2017 so that we can 

be—it could be helpful as we deal with our allies over here? 

Mr. DAVIDSON. Okay. That is a tough question. I will take a shot 

at it. 

I think if we look at populism in Europe, and we can relate that 

to populism in our country too perhaps, but certainly when you 

have corruption—well, let’s take—Ukraine would be a sort of exaggerated example of this. If people feel that the political leadership 

is corrupt and that they can’t trust their leaders, they turn to populism, very simply. So I think that is what we are seeing. 

Mr. MEEKS. Do you want to say, Mr. Vejvoda? 

Mr. VEJVODA. Yeah, it is definitely not an easy question, because 

what we see in populism is a kind of a perfect storm where there 

has been resilience and patience on the number of people who have 

been the losers of globalization. 

And yet, it is strange, because if you take Germany, for example, 

it is one of the countries where there is the lowest level of unemployment, where they have high income in the working class, and 

yet there is a populist movement because there is a fear of migration, what it will do to the cultural identity of Germans. And so the 

so-called—the party called Alternatives for Germany, Alternative 

fur Deutschland, is capitalizing on that fear. 

I was in Berlin in January and then just last week. And in January, members of the German Parliament told me: You must understand that there is a sense of panic in this country with this wave 

of migration that is coming in, that the government has lost control, and that, simply, there will be a wave of people in German 

cities. 

Now, that has come under control, as you know, through the 

agreement between the European Union and Turkey. But the various segments of and reasons of why there is a populist movement 

are not solely in that case linked to issues of corruption. In 

Ukraine, it is definitely different, as was mentioned. 

31

So I think one needs to look at a country-by-country basis, fully 

understand that there is something common in the transatlantic 

arena as we watch these movements rise. 

Mr. MEEKS. And you said something, and I get concerned, I think 

that Mr. Rohrabacher was probably right in certain things here 

even in the United States, because I get concerned that we may be 

turning into an oligarchy country, when you look at the number of 

folks with money and the financing. I think one of you mentioned 

the financing of political parties. 

And I look at how our political parties, both sides are financed 

now by the ultra-1 percent, et cetera. To me, those are warning 

signs. So I don’t to point a finger over there if there is something 

similar happening here and how that leads to whether it is populism or leads to a scenario where you have a strong-armed person 

that becomes the head of state or something of that nature. 

And then at the same time you asked the question, Mr. Davidson, what can we do? And you had a certain thing. So I want to 

hear, what do you think we can do? 

Mr. Vejvoda, you said that sanctions is not something that 

works. I mean, from my perspective, it depends upon how, because 

I look at then, what do you do if not sanctions? Is there a special 

type of sanctions? Or what do you do? 

I look at, from my perspective, not in Europe, but the success 

that sanctions had in a place like South Africa to bring down a regime that was full of apartheid and injustices, et cetera. 

So the question then is, what do you do? You can’t sit by and do 

nothing. What would you say we do? 

Start with Mr. Davidson. 

Mr. DAVIDSON. Starting with me? 

Well, I will mention some of the other points that are in my testimony then. And just to underscore again the role of what I like to 

call anonymous companies in terms of, if we just think about Europe and the countries, the territory we have been focusing on, and 

corrupt officials bringing money out of those countries into the 

West, it is usually via the use of so-called shell companies, anonymous companies. So the ownership is concealed, and these are the 

vehicles used for purchasing real estate to a great extent. 

In London, it is quite dramatic. There is some unbelievable number of expensive apartments and homes that are owned by shell 

companies, and nobody knows who really owns them, except we do, 

in some cases, because some of the really large ones, you see people 

going in and out of them now and it is reported on and stuff. 

But this is the low-hanging fruit right now is the anonymous 

shell company for corruption, very broadly, including the United 

States. I mean, when you want to hide something you are going to 

use an anonymous shell company. 

The second thing I have in my testimony, Mr. Meeks, is a little 

vague, one might say. But if we look at the offshore financial system and all the secrecy we provide, anonymous shell companies are 

one aspect of it, but there are all these smaller things, the blocking 

and tackling that we could do. And consulting experts at Treasury, 

at DOJ would be the way to go with that to get into more detail 

on it, I would think. 

32

And we have some very good things going on right now with our 

law enforcement agencies. The FBI has this relatively new group 

that started in January 2015, the international anticorruption 

squad. And the original name for it had the word ‘‘kleptocracy’’ in 

there somewhere and now they have renamed it. And they are 

doing some very good work. Because of the power of our financial 

system and this almost trek that stuff sometimes has to go through 

New York, we can reach quite far in terms of taking antikleptocratic measures. 

And I won’t mention the last point in my testimony because it 

is not really germane to your question, but the Global Magnitsky 

Act, for instance, has a provision in there that could give a lot of 

discretion to our government in terms of going after people for 

human rights abuses or—I mean, we have a lot of discretion there. 

So that is also something that could be part of the toolkit. 

Mr. VEJVODA. Thank you for your question, Congressman. 

I didn’t say that sanctions don’t work. I said they are a doubleedged sword. They have an effect that one wants to reach if one 

imposes sanctions, but they have a second face to them which is 

the internal corruption of society and state. And so I think it is 

finding that balance, and that is why I talked about this search for 

smart sanctions, targeting individuals, certain companies, et 

cetera. 

In the case of Serbia, there was also this loose talk, as we heard 

in Russia when sanctions were just imposed: Oh, this will not have 

an effect, don’t worry, we will be able to do it. But they do. They 

do have economic effect, as you mentioned, in South Africa; they 

were very effective in Cuba, as we know also, for many years. So 

they definitely hit like a radiation, maybe it is a scattershot that 

touches too many, has too many effects. 

So, yeah, I think one has to keep drilling down. And we have a 

number of examples internationally of sanctions, and I think much 

has been learned from the various examples that have been mentioned. 

I would also like to mention the case of Switzerland in regards 

to what Charles Davidson was saying about the banking secrecy in 

Switzerland and the pressure that the U.S. Government put on for 

many years for that secrecy to be revealed, because so many people 

from all over the world were putting their assets and their finances 

into. And Switzerland has had to come out and sign agreements on 

sharing information, both with the U.S., of course, and the European Union. 

And so I think that is an example of the way to go to uncover 

the shell companies and, as one would say colloquially, follow the 

money, but then see where the money is being held and hidden and 

so that light is shed into those places where these people actually 

find ways where the money is laundered, where their assets are 

kept. 

And Charles Davidson is right to mention London, which has 

been mentioned so many times over these past several years as a 

place where banks and institutions have profited. 

And the agencies, the various agencies of the U.S. Government, 

of course Treasury Department, are key through their investigative 

33

roles in finding where actually the paths and the dynamics in 

which this corrupt money finds its way on the international arena. 

And I would add that the international financial institutions play 

a key role, whether it is the International Monetary Fund, the 

World Bank, European Bank for Reconstruction and Development, 

who approve, of course, loans, or the various ways in which aid is 

given, but before that aid is given, countries need to accede to certain conditions and comply with certain conditions before money is 

sent. 

Mr. KOLESNIKOV. I would like to point out that there is a very 

simple and clear mechanism to fight corruption, which is to provide 

the population with the truth, with the true information. 

In Russia, this doesn’t exist today. The majority of Russians consume their information from TV, and the TV channels never, ever 

reveal any cases of serious corruption among the government and 

the people close to the government. Instead, the TV channels every 

day nails in the head of Russians the same message, that our life 

gets worse, it is not our fault, it is not because of us, it is because 

of the external enemy. And today, they have chosen this enemy, 

which is the United States. 

This is a very dangerous trend because many people in Russia 

today sincerely believe that the United States and European countries are true enemies of Russia. 

Ten years ago or 5 years ago nobody could have even fathomed 

the idea that there are going to be tank battles in the center of Europe and 10,000 people are going to be killed in fighting in 

Ukraine. However, it happened, and it happened because the information channels created the picture of an enemy. 

Many Russians sincerely volunteered to go to Ukraine and fight 

against Nazis, against fascism. We live today in a very interesting 

new world where information wars are becoming no less dangerous 

than real wars. You have two options. You can kill a man or you 

can change his mentality, you can change his consciousness, and 

the effect is going to be the same. 

And referring to the sanctions, I should say, yes, the sanctions 

have a great impact on Russia today. And my only point is that 

any sanctions should have a very specific goal. If they are vague 

and ambiguous, they are not clear. 

Mr. ROHRABACHER. Thank you very much. 

Mr. Weber. 

There will be a second round of questions. 

Mr. WEBER. Thank you, Mr. Chairman. 

Mr. Vejvoda, you said political losses become economic winners 

in the new economy because they have insider information. So 

what you are seeing is a government, a country in turmoil, where 

it is going down because of the corruption, and yet the very ones 

who caused it to go down actually become the economic winners in 

the new order, if you will. Fix that for me. 

Mr. VEJVODA. Fix that? 

Mr. WEBER. Uh-huh. 

Mr. VEJVODA. Well, it is being fixed more or less successfully, 

and has been fixed, for example, in the Baltic countries. In Poland 

there are mixed results. And then you go to scale, Moldova is probably at the other end in this region of the world that I know best, 

34

which is Central and Eastern Europe and southeastern Europe, the 

Balkans. 

Mr. WEBER. But what do you do, specifics, how do you prevent 

that from happening? 

Mr. VEJVODA. Well, the prevention, as I said, requires, to put it 

simply, a holistic approach, it requires what the people of Maidan 

did. 

Mr. WEBER. Holistic or ballistic? 

Mr. VEJVODA. Holistic. 

Mr. WEBER. Okay. I missed that. 

Mr. VEJVODA. We are not going ballistic here. 

Society awakens to the fact that it has the freedom to actually 

voice its desire to have an orderly society based on democracy. That 

does not happen overnight. Rome was not built in a day. 

And we are seeing that even though many of us had illusions 

that it would go quicker in some of our countries, it has taken more 

time and there are twists and turns, as we see, for example, in 

Hungary, where there has been a regression of democracy over the 

past several years. 

But, by and large, the countries that have come out of communism have step by step moved and created democratic institutions, instilled them with habits of the heart that are a democratic 

political culture. And since democracy is not given on a plate, it 

needs to be conquered every day. 

And thus, people need to be vigilant to the fact that there are 

those who want to take on more power and rich, because in the 

end, many of these—at least the war in the former Yugoslavia was 

about retaining power. And populism and nationalist feelings were 

used for that power-retention strategy, which took us down the 

hellhole of war from which we recovered 10 years later, the different parts of Yugoslavia. 

Mr. WEBER. Yeah. Let me ask you this. I think you compared 

and contrasted, was it Yugoslavia and Poland or was it 

Ukraine——

Mr. VEJVODA. Ukraine and Poland. 

Mr. WEBER. Okay. 

Mr. VEJVODA. That is an example, a comparison that so many 

people, economists, political scientists, use today to show how divergent these paths can be from an equal starting point. 

Mr. WEBER. So Poland, the process in Poland good, the process 

in Ukraine bad? 

Mr. VEJVODA. Yeah. 

Mr. WEBER. Why? What is the difference? 

Mr. VEJVODA. Well, the difference was that there wasn’t this effort at structural democratic reform that Poland went through beginning with 1990—or rather 1989—when they had their first——

Mr. WEBER. Is that because somebody stepped up to the plate 

and took the lead on that? 

Mr. VEJVODA. Absolutely. Leaders like Lech Walesa, who, as you 

know, spoke here in front of the Congress, and others who were determined, one, to return to Europe and correct the division of Europe that happened, the embrace by the European Union and the 

United States, the support that they got in these efforts from agencies like USAID. 

35

Mr. WEBER. So what you are describing is a political will married 

to individual courage. 

Mr. VEJVODA. Absolutely. And that is what we did not see in 

Ukraine. Even though there was an enormous hope after the Orange Revolution when everyone hoped, Ukrainian citizens first and 

foremost, that finally they had got the courageous leaders backed 

by the political will of the people to do it, it is mildly put to say 

that there was huge disappointment, because these leaders of the 

Orange Revolution turned out to be involved in the same corrupt 

activities. 

Mr. WEBER. All right. Well, thank you. 

Let me move on. I know I am getting over my time. And so let 

me go to Mr. Kolesnikov. 

You have a successful business in Europe, true? 

Mr. KOLESNIKOV. Yes. 

Mr. WEBER. Did you have one in Russia? 

Mr. KOLESNIKOV. Yes. 

Mr. WEBER. Did you lose it? 

Mr. KOLESNIKOV. Yes. 

Mr. WEBER. But you took those business principles that you 

learned in Russia and you applied them in Europe. 

Mr. KOLESNIKOV. I brought with me my skills and my experience, which is the crucial thing in business. If you manage to build 

a business, successful business, in such a difficult country like Russia, in a normal democratic country, it is way easier than that. 

Mr. WEBER. Should that be incentive enough for someone to have 

the political will and marry it to that individual courage I talked 

about and make a better life, not just for them, but for their kids 

and their grandkids and the rest of the country? 

Mr. KOLESNIKOV. I can assure you that today the true entrepreneurs in Russia, people who build a business with their own 

hands and their brains, using their own skills and experience, their 

biggest dream is to have democracy in Russia where the courts are 

working properly and when the law is observed. 

Mr. WEBER. Okay. Welcome to the American Dream. 

Mr. KOLESNIKOV. You know that probably you are perfectly 

aware that many Russian business people, scientists, researchers, 

they actually found in the United States a second home. 

Mr. WEBER. Well, it is what I like to say, all the smart Russians 

over in Russia ain’t over in Russia, they are over here. 

But let me end with this. How do you communicate to people in 

Russia that that American Dream, democracy, capitalism, free enterprise, is worth the risk and the price? When you do that, you 

will have enough people that will rise up and take that country. 

Mr. KOLESNIKOV. You touched a very important issue, but today 

there is a very simple situation. Those of us, those people who 

would like to explain to Russians how it works and why it is worth, 

they have no ability, no opportunity to say that. In Russia, as I 

said earlier, the government, the corrupt government controls all 

the TV channels, which from dusk to dawn try to instill the same 

idea into the heads of Russian people: It is not our fault that we 

have bad life, it is enemies, external enemy. And the idea of the 

enemy is repeated over and over in talk shows and all kinds of different TV programs. 

36

Mr. WEBER. Who was it that said the pen is mightier than the 

sword? Apparently he had never been in a sword fight. 

Well, thank you for being here today. You have your work cut 

out for you. 

Mr. KOLESNIKOV. Thank you very much. 

Mr. ROHRABACHER. All right. Thank you all. And we are going 

to have a second round of questions if anybody would like to join 

us in that, and I will start that off. 

Let me just note about the talk of sanctions and the idea that 

aiming sanctions at specific corrupt and human rights-abusing government officials is not a bad idea. I actually voted against it, however, because—and we are talking about the Magnitsky Act—because I happen to believe that naming it the Magnitsky Act was 

wrong. 

Because yet to prove—there are a lot of questions about that particular case, and those questions need to be answered before we 

compromise with our level of insistency on what we insist on for 

what is truth or not and what is a true crime. And the Magnitsky 

Act should not have been named that. And I am the only one who 

voted against it. I know my ranking member and I disagreed on 

this. 

But in terms of actually sanctioning individual government officials throughout the world who are engaged in some type of torture 

or anti—well, doing things that we would not accept here as acceptable, killing prisoners or committing acts of torture, et cetera, 

the human rights abuses. 

So with that said, I agree with that assessment. We should be 

focusing on those individuals. And, again, however, I think the 

Russians were mistreated in the Magnitsky case, because that title 

of that bill is maybe suggesting that something was done that has 

not been proven yet. So, anyway, that is just a thought. 

I think that we have to also note, we have oligarchs here. We 

have oligarchs in the United States. Many of them happen to be 

technology developers, okay, they came up with a new type of technology, they earned billions of dollars on it. And whether it is 

PayPal or whatever, or some type of new medical device or whatever, they made their money honestly. 

And the question is, however, in some countries, then, for an oligarch to take the money and transfer it outside the society is illegal, and that is where an oligarch becomes a corrupt person, okay? 

Is that what we are talking about here when we talk about oligarch corruption? Because our oligarchs do that. Our billionaires, 

multibillionaires, they take money out of the country and put it in 

banks and different investments overseas all the time. Maybe I will 

ask all of you on that question. 

Let’s start with Mr. Davidson. How does that add up? That is not 

what we are talking about here, is it? 

Mr. DAVIDSON. No. Mr. Chairman, I think it is sort of a fun question too in a way. 

Mr. ROHRABACHER. Yes, I like to have fun at these hearings. 

Mr. DAVIDSON. Yeah. No, fun is great. And I think it is a very 

good question, because what is an oligarch, really? And we sort of 

throw the term out there toward a lot of people. 

37

If we were to try to—I am just going to take a shot, just I am 

thinking aloud as to what an oligarch could be in the U.S. context. 

And very often when we use it in the European context, the territory that is our designated zone today, these are people who have 

seized monopolies in most cases on a given industry. 

So if we wanted to translate that into the U.S., what we would 

see with a lot of these technology entrepreneurs is indeed, I mean, 

they haven’t done anything wrong, they just happen to have been 

so successful, they end up with a monopoly. 

Mr. ROHRABACHER. Right. 

Mr. DAVIDSON. And for that we have had antitrust in the past, 

which, of course, is not—perhaps it has been enforced more forcefully at times than it is right now, but it was used, of course, by 

Teddy Roosevelt in a big way to revolutionize our country, really. 

So was John D. Rockefeller an oligarch? I mean, I guess by that 

definition you might say yes. 

I detect a little bit of a notion in your question that some of these 

technology oligarchs have become too powerful in their given markets. If that is the case, it seems to me we do have the antitrust 

laws and ways that we could look at that. 

The problem we have, it seems to me, in the technology area is 

that a lot of these technology verticals are kind of natural monopolies. So I don’t know how we would——

Mr. ROHRABACHER. Well, there are some oligarchs that have—

you can receive great government subsidies for whatever business 

practice they decided to go for. And did they impact the legislative 

or the executive branch people who were making the decision as to 

how much subsidy this or that would get? 

There are very serious questions when we start pointing fingers 

at other people. And as I say—look, I was designated about 2 years 

ago as the poorest Member of Congress, okay? Well, I am a happy 

man, and I am not someone who is resentful that somebody else 

has more. Sometimes I think that we teach people that we should 

resent them. 

And let me just note, of the billionaires in this country, Mr. 

Meeks, the vast majority supported your candidate for President, 

not mine. They did an analysis of the billionaires, and Hillary had 

a lot more than Trump, but Trump himself is a billionaire. 

So we can’t just say because someone has a lot of money, that 

they are an oligarch, which then says that they are evil in some 

way. However, let me note that, and back to Russia. 

And Russia had a problem in the beginning, and one of the major 

problems was that money left that country and went into European 

and American financial institutions. 

We talk about England. Correct me if I am wrong, Mr. Davidson, 

but if someone transfers some money from Russia or from anywhere else into a bank in England, do they have that same rule 

that they can loan out 10 times the amount of money that they actually have on deposit? 

So what have we done? We have enriched England or that bank 

enormously by having that money going from Russia or wherever 

else into that bank in England. And, of course, what the bank in 

England provides is safe haven for people who want to get away 

38

from paying taxes and having that wealth controlled by the government in the country where they made that money. 

This is problematic, and I really believe that many of the situations that we have now that was described in Russia can be traced 

back to, yes, when Russia should have been prospering and it was 

going through this period, we ended up having the wealth taken 

out, which actually made it 10 times more difficult for them to 

have a stronger economy. 

And then we know now also that sanctions directed at Russia did 

not work, do not work in the long-run. Let me note that there is 

a bank in—is it Sberbank, is that what they call it, in Russia? 

Sberbank, when we visited Russia last and talked to the various 

leaders in the banking community, they were saying they followed 

every single rule that they were asked to follow, and yet there are 

sanctions against them that have impacted them in a negative 

way. 

So targeting sanctions is very important if we expect those people in these various countries to actually pay attention, to be supportive, and to cut out the type of corruption that we are talking 

about today. 

So I guess I have had my say. You guys, maybe you want to comment on some of the things I just said, and then we will move on. 

Again, I voted against the Magnitsky Act, but only because of the 

title. The idea of targeting individuals for human rights abuses in 

those countries is a good idea. And when and if they prove that 

case in terms of Magnitsky, then I will change my position on that 

bill, but until then, I thought it was a gratuitous slap at Russia. 

And one last thought. I know I disagree with my colleagues here, 

but, no, we have had many gratuitous slaps at Russia, where 

things are just as bad over here, or over there, whether we are 

talking about oligarchs or whatever, manipulating the system and 

extracting wealth from the system. We have our oligarchs here, 

and we have lots of things that we do here that are being done over 

there and being labeled in a very hostile, pejorative way, and by 

people who actually want to have bad relations with Russia for 

whatever reason. 

So with that said, and maybe each witness can have a minute 

to refute everything I just said or to agree with it or whatever. Mr. 

Davidson, do you want to start? 

Mr. DAVIDSON. Sure. No, I don’t have anything to add to that. 

I agree with most of it. And I agree no one has a monopoly on virtue in general when we have looked at the enabling role of the 

West in this whole problem, which is central. 

Now, you brought up also what happened in the 1990s in Russia 

and the role that was played. I mean, there are some very interesting things, we don’t have time to get into that, but that could 

be a whole hearing, of course, unto itself. 

Mr. ROHRABACHER. Well, we do have, for example, take the reason why we call it the Magnitsky Act. And the case, that I believe 

is yet to be settled, is based on an American who went to Russia, 

made billions of dollars off the economic turmoil, and then left the 

country and was able to take his money out of the country. And 

Magnitsky was his accountant. And the question is, is whether or 

not he paid the $250 million in taxes that were due from the bilVerDate 0ct 09 2002 10:03 Jan 10, 2017 Jkt 000000 PO 00000 Frm 00042 Fmt 6633 Sfmt 6633 F:\WORK\_EEET\120716\22866 SHIRL
39

lions of dollars that he had earned in that chaotic situation in Russia. 

Now, that is the heart of that case. Did the jailers of Mr. 

Magnitsky kill him because they were being afraid that he would 

finger them for that $250 million that they had some way managed 

to change the bookkeeping that they were able to keep or was he 

roughed up and maybe killed because he wouldn’t say where that 

$250 million owed to the Russian government was? That is the 

whole crux of the matter, and it is yet to be determined which of 

those stories. 

But with that said, again, targeting corrupt officials, targeting 

human rights abusers specifically is a good thing as far as I am 

concerned. 

Yes, sir. 

Mr. DAVIDSON. May I just comment on that, Mr. Chairman? 

Well, the whole story surrounding Magnitsky and all is a very good 

read. Bill Browder’s book, ‘‘Red Notice,’’ is at least as good as any 

of the John le Carre. So quite a story. And it is incredibly intricate 

and complicated also, which sort of can be obfuscating in terms of 

how one approaches the issue. 

But I thought it was very interesting the way you support the 

principles of the bill and all of that. And I think it was silly—it was 

a mistake to call it the Magnitsky Act, because it makes it sound 

too personal, as though it is some vendetta or something like that, 

when in fact it is a general principle for which there has been huge 

support in the Congress and the Senate. 

Mr. ROHRABACHER. And it was a specific slap at Russia, which 

would make people think maybe this is just Russian situation of 

human rights abuses, and it was not. It was aimed at a general 

thing. 

Anyway, I just wanted to make sure I am on the record as to 

why I voted against that particular situation. I don’t think gratuitously slapping Russia around is going to make things better. 

Sir. 

Mr. VEJVODA. Mr. Chairman, thank you very much. Just, obviously, no one has the monopoly on virtue, but I think as democracy 

and capitalism evolved, there was an understanding that there is 

a need to put boundaries to wealth, respecting the full freedom of 

entrepreneurship, and that is what has made the West writ large 

successful, because of that freedom of speech, of enterprise, of association. 

And so when one speaks of oligarchs or simply wealthy people in 

the United States or Europe, it is the fact that they have to pay 

taxes. And obviously some of them try to avoid it by going to shell 

companies or sending their money abroad. 

Mr. ROHRABACHER. Or giving campaign donations and making 

regulations that eliminate their tax liability or getting a large subsidy from the government. 

Mr. VEJVODA. Yeah. Well, Citizens United, as you know, is a contentious question here: Is money good in politics or bad? In Europe, 

there are limits, as you know, and parties get money from the Parliament and private money is not involved. So that is a whole very 

big and, I think, important issue for the type of polity and political 

framework that we all have. 

40

But I think the key thing here is really, again, the rule of law. 

And I think if, as Mr. Kolesnikov said, people who have money 

would rather have the rule of law where they can keep the money 

in their own national bank rather than have to have it somewhere 

else, I think it is that fear or threat of racketeering. 

There are countries where people are very successful business 

people, and then the government, because of the lack of the rule 

of law or authoritarian structure, simply say, ‘‘Well, okay, you have 

made this money now; now we take over,’’ and you are lucky if you 

save your life, and go do business elsewhere. So I think that is 

really the major difference between these authoritarian countries 

and the others where there is a democratic system based on the 

rule of law. 

Mr. KOLESNIKOV. If we are going to be referring to the 

Magnitsky law, I believe that this is a more powerful tool than a 

bunch of nuclear submarines which the United States has in the 

world oceans, because this is the first specific language which says 

that if a government official steals money or violates human rights, 

he or she could be punished. It is not assured that he is going to 

be punished, but can be punished. 

Mr. ROHRABACHER. Absolutely right. 

Mr. KOLESNIKOV. The Magnitsky case is not that difficult. The 

taxes were paid, but then the taxes were stolen from the national 

budget by investigators, by people who put Magnitsky in jail. 

Mr. ROHRABACHER. That is the charge, and there are two different points of view on that. But that certainly is what the other 

side to that is saying. 

Mr. KOLESNIKOV. I agree that the business which Mr. Browder 

made his billions in Russia was not pretty, but he did it in a legal 

way, and he did pay his taxes, and then he removed his money out 

of Russia, probably because he sensed some kind of threat that he 

might not be able to take this money. 

Again, I am not saying that I find Mr. Browder’s business in 

Russia pretty, but we should make it very clear, was it legal or illegal? 

Mr. ROHRABACHER. By the way, again, I am not suggesting Mr. 

Browder is guilty or innocent. I am saying that what you are saying now has not been proven one way or the other, and thus, to 

put his name on the bill that holds public officials accountable for 

human rights abuses and name it that under this Russian case was 

a gratuitous slap at Russia before that case has actually determined whether or not the truth—where the truth lies. 

So I am very happy to have you express that opinion. There are 

other opinions as well that perhaps the opposite is true from what 

you said. That is what we need to find out. 

But still it is the principle of the case, which is—which we all 

agree on, you agree on, we agree on—hold specific officials accountable rather than making some generalized attack on a particular 

country. 

Mr. KOLESNIKOV. Well, the name of this act, after all, is just a 

name. What counts is the essence. Eventually you can change the 

title any time. 

Mr. ROHRABACHER. Well, we might. We might do that someday. 

Well, thank you very much for being with us today. 

41

And, Mr. Meeks, you have the final words here. 

Mr. MEEKS. Thank you, Mr. Chairman. 

Let me just ask—where do I want to start? I am going to start 

with Mr. Kolesnikov. Did you ever experience any intimidation either before you released your information or after, or now any in 

your regular walk of life? 

Mr. KOLESNIKOV. The reason why I left Russia was specifically 

because I was alerted that the false accusations were going to be 

trumped up against me. The drugs were supposed to be placed in 

my car, I was supposed to be arrested for possession of drugs, put 

in jail, and then you can easily figure out what could happen to me 

in jail. And the reason why it should have had happened was because I rejected to work in this illegal framework where I was suggested to take part. 

After I sent the documents to—all the paperwork to President 

Medvedev and they became public, I got many threats. But there 

is only so much you can do about it. It was my civic duty, it was 

the position of a citizen and patriot of my country, and I do not regret what I did. 

Mr. MEEKS. Were you ever an associate of President Putin’s? 

Mr. KOLESNIKOV. Yes. 

Mr. MEEKS. Could you tell us how or if he had any involvement 

in any of this or how he rationalized this? 

Mr. KOLESNIKOV. The Petromed case is quite in detail described 

on my Web site and the articles written about my case, and anybody who is—because there are too many details, anybody can 

check and see it. It is going to take about 15, 20 minutes for me 

to provide all the details about the case, which I am afraid is going 

to be too long for this venue. And Mr. Ignatius in his article set 

out most crucial elements of this case. If you have any specific 

questions, I am ready to answer. 

Mr. MEEKS. Thank you, and we will. And I would love to come 

back and have a further dialogue. I know we are running out of 

time. I just wanted to ask Mr. Davidson and Mr. Vejvoda a couple 

of ending questions also, because it has been a great hearing, and 

I am listening and learning, et cetera. 

The question that comes into my mind now is, given what we 

have heard, is what does success even look like in the fight against 

corruption? What would you say? Can you give me an example, 

what does success look like? How can we make a determination if 

we are being successful? 

And I add that on, for example, we currently have sanctions 

against Russia. Is that successful? Is it not? Should we alter it? 

What do you think it looks like? 

Mr. VEJVODA. Thank you, Congressman Meeks, for those questions. Specifically on that last one, I think, having lived in a country that was under sanctions, they take time and they drill and 

they work and they cause pain to the economy, because you are not 

fully open. Of course, a country like Russia can impose 

countersanctions, which a small country like Serbia could not, and 

so there is pain in certain parts of the European economy. But as 

open, democratic, capitalist societies, they find easier ways in 

which they can reorient their trade. 

42

So, yeah, I mean, the answer is yes, I think they are effective. 

As we said at the beginning, or I said, they are a double-edged 

sword. They have diverse effect. And as diplomats will say, this is 

a kind of middle-of-the-road measure when you don’t want to go to 

war and on the other hand you don’t want to do anything. It is 

something in between. 

What is the measure of success? I think, as we all agree, there 

is corruption in every society, even the most democratic. I guess in 

a Sweden or wherever, you will find examples. I remember the case 

of former Chancellor Helmut Kohl, the unifier of Germany in the 

beginning of the 1990s, he was caught with his hand in the party 

slush fund of the Christian Democratic Union. That was quite a 

well-known case. I think of Enron here in the U.S. or things like 

that. There are things that spring forward. 

But I think the measure is really how high or low the level of 

corruption is. I don’t think one can eliminate it. There is something 

in human nature where people will try and skew the rules. You 

have British parliamentarians who have abused the moneys they 

have used. I don’t want to mention any names here, but some of 

them have actually gone to jail. Your colleagues in Westminster 

simply paid out of what was supposed to be for their staffers for 

a house aid or their garden or some home improvement. So that 

shows that even if you live in a democratic country, you are not immune to that. 

So I would simply say that the lower the level of corruption, the 

more successful we are in actually tackling it. And, again, it is 

something like democracy itself. One needs to work at it every day 

to have the agencies of government, to have the supervisors of the 

supervisors at customs posts, the various agencies, to oversee 

whether things are being done appropriately. And, of course, the 

taxation system that needs to oversee the fact is everyone actually 

paying their fair deal, and I would say more for those who are 

wealthier disproportionately than at the other end, but the law is 

equal for everyone. 

Mr. MEEKS. Mr. Davidson. 

Mr. DAVIDSON. What would success look like? Well, certainly less 

corruption, and that we all agree to, but it also means on a sustained basis. So it is not something where we can sort of parachute 

in for a bit and, well, any number of means to improve things for 

a bit in one country, and then get out, and things fall apart. We 

have tried to do that in a few cases, not in Europe, but elsewhere, 

of course, and it is a dramatic failure and costs us a ton of money. 

But I think success really is about changing the global financial 

system in terms of secrecy and providing a safe haven for corrupt 

people with political power when there has been state capture in 

particular. 

Now, one of the effects, if we push the money back into the country, at a minimum things will be better. So the resources, instead 

of the $150 million house in London, you will have that $150 million in the country. People can argue over it. It will get invested 

somehow. Even if it is buying Rolls-Royces, whoever is servicing 

those Rolls-Royces in the garage down the street will have a job at 

least, as opposed to starving. 

43

So I think we need to force the money back into these countries 

by cleaning up our own act and ceasing to shelter the assets. 

Mr. MEEKS. I think my last, because I talked a lot about Russia, 

but I also wanted to just ask a question quickly about Ukraine. 

Vice President Biden described corruption as eating Ukraine like 

a cancer; eating Ukraine like a cancer. How is the Government of 

Ukraine, if you have any ideas, working to fight this cancer? And 

what do you think are the stumbling blocks to it being successful? 

Mr. VEJVODA. If I may start. I was in Ukraine just at the beginning of November when they voted in the electronic government, 

e-government element on procurements. And this is one of the 

key—one of many measures that needs to be implemented in many 

places, because it simply makes the procurement process, governmental procurement process transparent. And people can follow on 

the Web sites, rather than in dark rooms, where deals are made 

and deals are made much more difficult, if not impossible, if you 

have an e-procurement system. 

The other thing that has been positive is that Ukrainian officials 

have had to declare their assets, all of them. And the punishments 

or penalties if they do not that were pretty high, and so everyone 

declared their assets. Now, the surprise was that many parliamentarians declared that they had 10 apartments or 10 cars or whatever, and so the Ukrainian people suddenly were a bit in shock and 

awe because their representatives suddenly, they realized, had 

made money in ways that are not appropriate. 

So as in any country, I would say that Ukraine is doing a lot to 

clean up their act, to put it colloquially, but on the other hand, the 

old habits are not going away so quickly. And the various levels of 

corruption, and I think Vice President Biden rightly spoke in those 

terms about a cancer, and it is a battle royal that is going on for, 

to put it poetically, the soul of Ukraine, while they are at war, 

while they are in a situation where a part of their territory has 

been taken by Russia, contrary to all international law, and where 

there is the conflict in the east where Russia is involved in various 

ways. So it is like reforming, you know, repairing a ship in a high 

storm. 

But, again, this is really a test case where, with the support of 

the United States, of the European Union, and the European Union 

is putting equally a lot of money into Ukraine and their reforms, 

and I would say that this needs to be pursued, even though there 

are these difficulties that everyone perceives, and keep the feet to 

the fire of the elected Ukrainian officials to pursue these efforts. 

There will be setbacks, but if the vector is recognizably in the 

good direction, I think we should, as the West, support this country 

that wants—and, again, the Maidan was a clear signal that the 

people of Ukraine do want to change. 

I would add to what Charles Davidson said, that it was about 

corruption, which it absolutely was, but it was also about the fact 

that the Ukrainians thought that their government was taking 

them to the European Union. The day that Yanukovych, former 

President Yanukovych, decided not to sign that next step to the 

European Union, that is when Maidan started. 

So it was a coincidence of two things. If we feel, as the people 

of Ukraine, that you are taking us to Europe, however slowly you 

44

are moving, we are okay, and we know that you are corrupt and 

we will clean this up. But the day that Yanukovych, said, no, we 

are not going to Europe, that is when all the European flags came 

onto the Maidan. So I think it is important to understand those 

two things. 

Mr. DAVIDSON. Well, regarding Ukraine, I think the institutionalized corruption at the top seems daunting, and we don’t seem to 

have seen much progress lately with that. And I avoided using the 

‘‘K’’ word there. I will leave it at institutionalized corruption. 

I would go back to what Congressman Weber said earlier in 

terms of Ukraine. And in terms of their leadership, I think they 

need political will and individual courage. 

Mr. MEEKS. Thank you. 

Mr. KOLESNIKOV. I should say that I see eye to eye with Mr. 

Vejvoda. I completely agree. And I have been to Ukraine three 

times this year, and I have very close relations with my Ukrainian 

business partners. 

The key difference between Ukraine and Russia is, number one, 

there is true real freedom of speech in Ukraine, they have true real 

elections in Ukraine, and they have real civil society in Ukraine, 

which took shape now and which does not want to live in a corrupt 

society. 

I spoke to many Ukrainians on the street, and they are completely different than Russians because they freely express their 

opinions. They openly admit that, yes, we have corrupt government 

officials, yes, we have corrupt legislators, we are perfectly aware of 

it, but we can change the situation and we will change the situation. That is the biggest difference. 

Mr. ROHRABACHER. Well, I would like to thank all of our witnesses. Just a couple thoughts. And let me just note, I was there 

during the Orange Revolution. I actually camped out in Maidan in 

the tents they had there. It was cold, I might add. 

And let me just note that Cathy Chumachenko, who worked with 

me in the Reagan White House, turned out to be first lady, and she 

and her husband, who came into power after that, the Orange Revolution, as has been indicated in the testimony, their administration was so corrupt that the people of Ukraine ended up voting for 

Yanukovych in the next election. 

And Yanukovych, I might add, was democratically elected, OSCE 

verified it. However, he didn’t leave office in a democratic election. 

He left office because there was a violent revolution that started 

in Maidan right after he decided to go with the European Union. 

And there are discussions about whether the European Union was 

indeed interfering with what was going on. 

But let me just say this, that had Yanukovych not been overthrown or not been kicked out with violent demonstrations in the 

Maidan, that he would have been kicked out in the next election. 

There is no doubt. He was corrupt and he was doing things that 

the public didn’t like, and the very next election he would have 

been kicked out. And had they waited to kick him out rather than 

overthrow him 2 years earlier than the free election demanded, I 

do not believe that any of this horror story that we faced in the 

last couple years in Ukraine would have happened. You would have 

45

had a peaceful transfer of power, which is what they should have 

had. 

Yanukovych deserved to be removed by his people, because he 

was as corrupt as the people who he replaced, who were as corrupt 

as the people they replaced. And I am not sure how that bodes well 

in the future for Ukraine, because the information I am getting 

now is that the current government is also deeply engaged in corrupt practices and the sending of large amounts of money to European banks. 

So with that said, let’s pray that that problem will some way be 

relieved from the poor suffering Ukrainians, who I don’t know any 

other people in the 20th century and now into this century that 

have suffered more than the Ukrainian people, between World War 

I, World War II, the Soviet occupation, and now these horrible 

things. Let’s hope that we can try to find a peaceful answer and 

get the Russians out of their country and return to some sort of 

democratic rule and rule of law. 

Just one or two other thoughts, and that is the shell companies, 

this was a very good tipoff today, that to solve the problem we have 

got to make sure that you can’t have companies that nobody knows 

who runs the companies begin to control and own assets. We need 

to know who controls various assets and various amounts of wealth 

in a society. Shell companies are something I was not aware of 

being a problem. Thank you very much for that tipoff today. 

Also, again, I think that we need to make sure that we examine 

our own banking system and financial system here so that it does 

not encourage corrupt practices in other countries. We have given 

foreign aid to countries in Africa, for example, where the African 

dictator ends up being overthrown, and then we find out all the 

money that we gave has gone overseas to some European or otherwise bank. 

And then, of course, by the way, the banks don’t ever give the 

money up. What do the banks do with the money once some petty 

dictator gangster in the Third World has given them $1 billion in 

deposits? What do they do with it? They envelop it into their own 

system. They are the ones who end up with the loot. 

Well, there will be future hearings on this issue, and we need to 

work on that before we start pointing fingers at everybody else 

right now, because we have some things we can do to help the situation become better. 

So with that said, I really have enjoyed this hearing. I hope you 

did too. 

And thank you, Mr. Meeks. I think we have had a very good discussion. 

And until next year, then, this committee is adjourned. 

[Whereupon, at 12:02 p.m., the subcommittee was adjourned.] 

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