Kleptopia

How Dirty Money is Conquering the World

Tom Burgis

• Publisher: William Collins
• Year: 2020
• ISBN:
  9780008308360

‘When you pick this book up, you won’t be able to put it down’
Misha Glenny, author of McMafia

‘A powerful, appalling, and stunningly reported exposé … It reads like fiction, but unfortunately is all too true’
Jane Mayer, author of Dark Money

PART I

CRISIS

The secret of a great fortune with no apparent cause is a crime that has been forgotten because it was done properly

Honoré de Balzac, Old Goriot

1

The Thief

Kensington, January 2008

Moral courage, yes, but it was also mischief, a quality discernible in the creases at the corners of his eyes, that made Nigel Wilkins decide to steal the secrets of a Swiss bank. It was the year when everything changed, 2008, the end of the old days. Forty years he had worked in banking, though he had never really been a banker. Not the way the bankers themselves used the word, nor the way other people had lately started using it. For one thing, he was much too shy. He could shoot a look of granite through his spectacles. Yet behind it lay not simply the stifled arrogance of the cleverest man anyone who knew him had ever met, but also an unbearable awkwardness. No self-respecting master of the universe would be seen dead in one of Nigel’s frilly shirts. Nor would they yield to baldness as gamely as Nigel had, consigning the last of his once voluminous locks to a small cardboard box labelled ‘Nigel’s hair’ that he displayed on a shelf in his flat. They probably wouldn’t have thought about money as much as Nigel had. Thought about it, as opposed to just multiplying it. In his teens, Nigel had been enthralled by the Labour prime minister Harold Wilson, who terrified the establishment with his long Yorkshire vowels and his way of explaining in a straightforward way the meanings of money: who had it, how they got it and why the great many who lacked it might have a decent claim to a bigger share of it. Nigel had started investing his pocket money, as others experimented with a chemistry set or crueller ones held a magnifying glass over a slug. Mathematical ideas that made practical sense, that was what he liked. He thought about becoming an engineer but his temperament needed a discipline that had more room for disagreement and debate. He found economics: the art of telling money’s stories.

Nigel was freer than many in his world because, although he had made plenty of it and parted with little of it, money had no hold on him. The things that others were compelled to buy were for him an encumbrance: mobile phones, televisions. He preferred his old radio and the antediluvian three-piece suite a friend had given him. During the war, his father, Arthur Wilkins, had worked in a factory making armoured vehicles in Basingstoke, a humdrum town west of London. Afterwards, he became a Methodist lay preacher. Nigel Charles, his second and final child, was born on the hinge of the century, March 19, 1950, into a generation for whom frugality, after it ceased to be the only option, became either a penance for others’ greater sacrifices or a curse to be lifted with material excess. Nigel’s great treat would be a first-class ticket for a long train ride, mainly to savour the complimentary scrambled eggs. Perhaps a bit of cake later, after listening to an edifying talk. At his flat – four floors up in Kensington, a brisk walk from Buckingham Palace or the royal parks, less brisk when his chest gave him trouble – he would repair rather than replace. On the mantelpiece stood a photograph of him on a rare holiday, aboard a canal boat. The bookshelves were full of economics, finance, international law. Behind the Corporate Veil, Infectious Greed, What is Sarbanes-Oxley?. If these were the tools of his vocation, the Thomas Hardy novels were his solace. He turned to them so often that the titles on their cracked spines were scarcely legible. Jude the Obscure was his favourite. Perhaps he saw himself in Jude. Perhaps he felt the meaning of all those heavy books about the functioning of wealth when he reread the passage about the three children. They are found hanging beside a note that reads, ‘Done because we are too menny.’ Nigel had a single self-help volume, too: Overcoming Depression. It looked as though it had never been opened.

Nigel had been a quiet child. But with adulthood had emerged a distrust of authority that could approach contempt. For university, he had moved to the ideal place to indulge this antagonistic streak: Manchester, a city whose inhabitants made a joyful art of insubordination and were prepared to suffer for it. They spoke of the Peterloo massacre as if they remembered it. They took pride in the workers who had accepted destitution as the price of standing against the slave-owning Confederate suppliers of the cotton for their mills. It was Manchester that had engendered the Industrial Revolution and all that flowed from it, including the Labour Party, whose branch in Kensington, where the average income was the highest in the land, would have in Nigel an unwavering candidate in its quixotic campaigns to win control of the municipal council. His comrades noted his effectiveness as a needler of the powerful and called him the Exocet, a missile that is hard to detect until it detonates.

Nigel would joke – a half joke, it seemed to those who heard it – that he couldn’t say what he did for a job because it was secret. He had studied criminology as well as economics, but for most of his career had done nothing more cloak-and-dagger than economic research. Bankers would hire him to suggest what the next chapters of money’s stories might be and he would sketch the scenarios, projecting himself into the mind of the classical economist’s stock character, rational and law-abiding. Then he had taken a position in the enforcement division of the Financial Services Authority, the body that oversaw British banks. Here, he thought at first, he had finally found his natural habitat. Nigel was a stickler, the sort who never let you get things done the easy way. At the FSA, he had soon despaired of what he felt was a reluctance to go after financial crime.

Happily, at just that moment there appeared an opportunity for mischief, the sort that brought forth Nigel’s flat, tight-lipped smile. But Charlotte Martin was anxious. She knew Nigel better than anyone did. They had met through one of the campaigns Nigel conducted against those he perceived to abuse their power, in this case the landlords of London’s leaseholders. As far as Nigel was concerned, the landlords were using feudal rights to blackmail their tenants, Charlotte among them. He learned letting law inside out, and bombarded the property barons with their own subclauses and small print, marshalled in letter after excoriating letter. Charlotte was tall and slender. Her voice carried a hint of her Essex roots. She had a smile that emerged slowly to illuminate her whole face. They became a couple for a while, thereafter platonic soulmates. Even to her, Nigel was often inscrutable. She felt she was constantly trying to read him, to decipher him. But when he told her that he had taken a job as something called a ‘compliance officer’ at the London office of a Swiss bank, she was sure it would bring him no good. Swiss bankers would ‘push his buttons’, she warned him. Nigel was having none of it. This was his chance to get on the inside: he would be a watchdog in sheep’s clothing. Compliance officers had been around for a while but following a procession of corporate scandals – Enron, WorldCom and the rest – they became ubiquitous, the designated conscience of big business. In practice, what compliance officers at banks usually did was attempt to swathe the organisation in a veil of rectitude without restricting bankers’ moneymaking in any meaningful way. Nigel’s approach would be precisely the opposite. ‘I can force them to comply,’ he told Charlotte. His eagerness did nothing to put her at her ease. She told him again: don’t go to BSI. But he went and, for a while, no ill came of it.

That had been two years ago, back before everything changed. But Nigel could see what was coming now. Finance – making money from money – was collapsing, for the moment at least. Twenty-two days into 2008, the US Federal Reserve made emergency cuts to interest rates. On every surface of Nigel’s flat lay a clipping from the business pages or a lengthy proposal to constrain financiers. He had positioned one of the wheezy armchairs with its back to the large window, so that the clear light before dusk would stream over his shoulder as he sat down, opened a single bottle of ale – Old Speckled Hen, usually – and commenced the evening’s reading. Naturally, he understood the mortgage-backed securities and the credit default swaps. He grasped that the many would be sacrificed for the few. He knew that after the panic, the search for the past would begin, to discern the tale that could be traced from the wreckage of money. Plenty of people, some almost as clever as Nigel, had fathomed this much. But what Nigel started to realise as 2008 got going was that everyone would be digging for the past in the wrong place.

Nigel’s father used to say that anyone who did wrong would get what was coming to them. His son thought that principle needed some enforcing. In a battered old notebook with ‘1970s-style laptop’ on the cover, he recorded the suspicions he had formed as he shuffled daily to and from BSI’s office in the City of London. He had, he wrote, stumbled upon the world’s biggest fraud. And there was something else, something deeper – Nigel sensed it faintly, with a shiver – connected somehow to what was happening to money: far away, the screams of the tortured, the silence of the dead.

2

A Feast

Whitehall, February 2008

In February 2008, while it was just about still possible to pretend the crisis wasn’t happening, a tall, lean billionaire with a thin face and receding hair made his way to the Banqueting House on Whitehall. Around the corner, in Downing Street, the chancellor of the exchequer was nationalising a failed bank, Northern Rock. Here, as across the West, the bailout of the financial system had begun, a transfer of public wealth to private pockets that ranked in scale alongside the one that had made this and many other billionaires’ fortune the previous decade. Crisis was all around, but the chamber of rare beauty into which the oligarch now stepped was a place apart. It stood a half-hour walk along a bend in the Thames from the City, as it had since James I commanded from the architect Inigo Jones somewhere to indulge his love of masques, the lavish performances at which the royals could move among their subjects in disguise. James’s heir, Charles I, commissioned Rubens to paint for the ceiling nine panels in homage to the divine right of kings to rule with absolute power. In January 1649 those images were among the last things Charles saw when, wearing two shirts so as not to shiver in the winter chill, he was led through the feasting hall to the scaffold erected outside the building, condemned as a traitor by Parliament. Now the cherubs and the lions, the swirling triumph of the Virtues over the Vices, of Wisdom over Ignorance, looked down on places set for seven courses and a Kazakh string quartet playing their counterpoints and harmonies.

The oligarch’s name was Alexander Machkevitch. His many, many friends called him Sasha. For all his wealth, Sasha retained something of the academic he used to be, albeit one with a gaudily expensive wardrobe. Perhaps it was the spectacles, or the precise thatch of his moustache. When he spoke English, it was with what an undiscerning Westerner would hear as the standard Thick Russian Accent. Sasha did hold Russian nationality, and had spent stints of the tumultuous nineties in Moscow, but he was in fact Kyrgyz. His mother had been a distinguished prosecutor back when Kyrgyzstan was a province on the Asian fringe of the Soviet empire. Young Sasha had been bright. He developed a mastery of language and secured a position at the university in Bishkek teaching philology. A life of obscure lecturing lay ahead of him. Then capitalism happened. Suddenly, there was a new thing to be: a businessman. Not just any businessman: Sasha wanted to be a superstar businessman. He would liken himself to the author trying to write a bestseller. He wanted money because he felt the power it would bring him.

It was three years since Sasha’s name had first appeared on the Forbes list. Next to it, his ‘net worth’, as they called it: $1 billion. He was, along with Bill Gross, Martha Stewart, Michael Milken, Wilbur Ross and sixty-six others, the joint 620th richest person in the world. That was a triumph, for sure. And now, a greater one: here he was among the money kings, in the flesh, welcoming luminary after luminary to the Banqueting House. Ivan Glasenberg was there. He ran Glencore, a commodities trading house based in Switzerland, and probably exerted more influence over the flow of the global economy’s raw ingredients than any man living. Beny Steinmetz, a diamond baron from Israel, had shown up too. Sasha liked precious stones: he wore shoes encrusted with them.

But Sasha, like the monarchs in whose place he now sat, knew, as they had learned, that even apparently boundless power is never absolute. He and his two partners, both fellow Central Asian billionaires, were known collectively in the City as ‘the Trio’. They drew their fortunes from the wondrous rocks beneath an expanse of steppe and mountain ten times the size of the United Kingdom. Kazakhstan was a land of nomads and horsemen (and, to its proud rulers’ intense vexation, Borat). Neither Sasha Machkevitch nor his partners had been born there, yet they were said to control as much as 40 per cent of the economy. What a bounty it was that had passed from the Soviet state to those, like Sasha, with the skill to learn the language of capitalism in a few short years. There was uranium, more of it than anywhere on Earth except Australia, where the stocks had long ago been divvied up. To the west, under the Caspian Sea, there was oil, measureless caverns of it. As long as humanity wanted electricity, be it from splitting atoms or burning hydrocarbons, Kazakhstan would have buyers. Likewise for copper to make the wires to carry the charge to keep civilisation’s lights on. The biggest buyer, these days, lay next door: China. Then there was the chromium, the iron, the bauxite, the zinc. China needed those too, as did anyone who wished to make anything that flew or shone or lasted.

The blessings were abundant. Abundant, and one man’s to bestow.

Nursultan Nazarbayev had been Soviet Kazakhstan’s last Communist Party boss, and then, without interruption to his rule, independent Kazakhstan’s first capitalist leader. Loyalty was all he demanded. That and a share of the booty commensurate with his position as father of the nation. Gaining and retaining Nazarbayev’s favour was a delicate undertaking. His daughter’s erstwhile husband, a chubby and peculiar former intelligence officer called Rakhat Aliyev but known as Sugar, had recently fled to Europe. One of the secret documents Sugar claimed to have swiped before he departed was a psychological portrait of the president prepared by the KNB, the Kazakh successor to the Soviet KGB. ‘He has a tendency to classify people according to groups, “his” group and the “others”. Those who agree with and accept his opinions and stick to the rules are in “his” group. Anyone who does not accept his opinion is one of the “others” and thus an enemy … If the enemy does not surrender, he must be destroyed.’

One of Sasha’s partners had witnessed a display of Nazarbayev’s psyche. Patokh Chodiev, blue-blooded Uzbek and product of the prestigious Moscow school of international relations attended by the children of the communist elite, had served as a Soviet diplomat before switching to business. He made Nazarbayev’s acquaintance, growing so close to him that he was invited to accompany the first family on a holiday to the French Riviera in 1995. Their host was Behgjet Pacolli, a Kosovan businessman angling for Kazakh contracts. One day he arranged an outing to a restaurant near Monaco. When they arrived at Le Pirate, the party surveyed the establishment with mounting alarm. Wooden benches, beams thick with soot from the open fire, no crystal: this was not the manner in which a latter-day khan was accustomed to dining. Chodiev took a seat at the edge of the group, near the door. Waiters dressed as pirates laid out plates that reminded one guest of prison crockery. ‘Where the hell have you brought us?’ the president snarled at Pacolli. Pacolli paled. Nazarbayev seized a plate and smashed it to the ground. A dreadful silence. Nazarbayev grabbed another plate and flung it. ‘This is not what I call a vacation, dammit!’ he screamed. His wife, Sara, was close to tears. ‘Nursultan, Nursultan, calm down,’ she pleaded. ‘If you don’t like it here, we’ll go somewhere else. Stop it, please, and calm down.’ Nazarbayev would not be quieted. He hurled a wooden chair into the fire. By now the owner – in pirate captain outfit – was losing it. He too picked up a chair and slung it into the fire. Nazarbayev threw another, and the two of them continued to immolate the seating until, suddenly, their expressions changed. They started to laugh. Then Pacolli started to laugh. The three men laughed together. Delighted, they revealed to their bewildered audience that the whole thing had been a lark. The restaurant’s specialty was arranging such violent spectacles for the amusement of those in on the joke. All the khan’s jokes were funny, so the rest of the party at once joined in by shattering the remaining crockery.

Chodiev, Sasha and the other oligarchs of Kazakhstan understood that the president giveth and the president taketh away. One of their number, Mukhtar Ablyazov, had had the temerity to demand democratic reforms. His businesses had been confiscated and he had been sent to a prison camp. Sugar had furnished Nazarbayev with three grandchildren, descendants with which to build a dynasty. Not even that could save him when he challenged the boss. A former minister who joined the opposition was found dead. According to the official account, he had committed suicide by shooting himself three times.

For an oligarch seeking safety there was one option so bold that you might have thought it would be difficult. First, turn yourself into a corporation: one of the most powerful fictions in which Westerners chose to believe, endowed with privileges and protections, and yet blissfully easy to create. Second, add to that corporation the assets Nazarbayev had allowed you to acquire – mines, banks, whatever. Then sell a share of your corporation for Western money. It was the successful completion of precisely this gambit that Sasha, his partners and their hundreds of terribly important guests now gathered at the Banqueting House to celebrate. Sasha and his fellow founders of the Eurasian Natural Resources Corporation had sold a chunk of their shares to the public, who could then trade them on the London Stock Exchange. For the Kyrgyz philologist, the Uzbek diplomat and Alijan Ibragimov, the canny Uighur trader who was the third member of the Trio, here was a dream made reality. Better still, the shares were trading so well that ENRC was on its way to inclusion in the FTSE 100 list of the most valuable British companies. The money managers of endowments and pension funds would now as a matter of course invest in this formidable corporation, yoking their fortunes to Sasha’s.

Not that it had been cheap. Marrying into the City took a lot of ushers. Deutsche Bank, Credit Suisse, Rothschild, Morgan Stanley and ABN Amro: their bankers charged $118 million. On top of that were the lawyers at Jones Day and Cleary Gottlieb. Another $30 million to PwC, the auditors (‘professional services firms’, they called themselves these days). All the personages who agreed to sit on the board would cost hundreds of thousands too, year after year. You needed the names, though. ‘City grandees’, that was the shorthand in the business pages. They helped put everyone at their ease. There were two knights: Sir Paul Judge used to be director general of the Conservative Party, Sir Richard Sykes chairman of GlaxoSmithKline and rector of Imperial College. Ken Olisa had been high up at IBM. Roderick Thomson was a ‘venture capitalist’, a particularly favoured epithet. Gerhard Ammann had served as chief executive of the Swiss arm of Deloitte, like PwC one of the Big Four audit firms that rotated between every FTSE 100 corporation and the government departments that stood beside the Banqueting House.

They had earned their money, though. The vital thing was for Sasha and his partners to shape the story that was told about them. ‘The ...