Switzerland had been a privileged shelter for the rich and wealthy, especially Russians and the like, who feared the unpredictability of their own governments, however, since Swiss banks had come under US scrutiny for tax evasion and money laundering, the rich had been forced to seek alternative safe havens to hide their money.
With Western sanctions, the pressure to seek alternative shelters where few questions also increased. One of them was Panama, which offered citizenship and passports in return for investment, an attractive destination for those oligarchs, businessmen and Mafiyosa, who forewarned of the problems confronting Cypriot banks had transferred their money to the Caribbean.
*
That Russian gas was sold to Europe at four times the going price in the US gave Tarasov and his partners a licence to print money. They together with INI raked in vast profits from the Russian companies they had invested in. There was, however, a catch: eighty-percent of Russian gas exports to Europe flowed through a network pipelines that criss-crossed the Ukraine, where the risk of conflict grew as relations with Moscow progressively deteriorated.
If gas supplies to Western Europe were cut, the EU would be deprived of a large and vital part of its energy, and the damage, at least in the short term, would be more painful than the effects of post-Lehman economic crisis, closer to that of the oil embargo of the early seventies during the Yom Kippur War, when the Organization of Arab Petroleum Exporting Countries came close to paralysing Western Europe’s economy.
INI, not wanting to put all its eggs in the same basket, had together with Gazprom, invested in the development of the newly discovered Aphrodite and Leviathan gas fields off the coast of Cyprus, a miraculous find with reserves worth hundreds of billions dollars. Regretfully, that would not happen overnight and Gazprom’s most immediate task was to combat accusations that Russian producers were manipulating prices in the European gas market.
*
Many rich Russians were drawn to London, as were the ultra rich wherever they came from. The City was the world’s most international of financial hubs, situated in a strategic time zone, in a capital filled with history and an exceptional cultural heritage, where the quality of life in a vibrant, multi-cultural society was appreciated by the newcomers.
From Gutherie Plimpton’s point of view, London was an extraordinary source of profit for its high class real estate business. The capital was the home to fifty odd billionaires and more than four thousand multi-millionaires whose wealth was counted in the tens of millions and that was without counting a vast number of comfortably wealthy individuals who owned prime residential property in and around London.
Jonathan Plimpton, the firm’s head and surviving partner of the two founders, published a confidential report each year distributed to a selected number of high worth individuals, identified as potential buyers of prime property. These were divided in two segments: first were the billionaires, some of whom were public figures possessing their own sources of information; the second were those significantly rich individuals whose wealth exceeded one hundred million dollars, the latter were more difficult to identify, much more discrete and generally unknown to the public.
In the not too distant past such high worth individuals were for the most part Americans and Europeans, but since the beginning of the new millennium large numbers of nouveaux-riches from Asia, the Middle East and South America had joined the club. Amongst them were the Chinese with fourteen thousand multi-millionaires, whose fortunes had been made mostly by their hard work over the course of a couple of short decades.
Plimpton’s had accumulated detailed information on a certain number of these high wealth individuals via INI’s investment arm, while the Russians were identified thanks to Tarasov’s services. However, the Chinese had remained elusive at least until Angus MacPherson came onboard and Pat Kennedy had opened a new path thanks to his connection with the Wu family.
Jonathan Plimpton’s relationship with Fitzwilliams went back to the Emerald Pool development in Dominica in 2006. Malcolm Smeaton had financed the project through the Irish Netherlands and Plimpton had managed the marketing. An attractive venture, that was until the real estate market was hit by the crisis that broke in early 2008, the climax of which was the Lehman Brothers collapse.
In the ensuing rout real estate developers dropped like flies and Plimpton was not spared. Unable to raise the cash necessary to ward off collapse he appealed to Fitzwilliams, who came up with a sizeable cash injection in exchange for a large minority interest in the real estate firm.
K
nightsbridge – London
Both gained from the new situation: Plimpton, a credible source of finance for his clients; and Fitzwilliams, a foot into the real estate market which he calculated would serve him well when the time came.
And come it did. Soon the rich were giving credence to the idea London’s streets were paved with gold, and they really were, for that happy band of course. It was a city where wealth, finance and politics joined together to create an extraordinary market for prime residential and commercial property.
London was a city that exuded wealth. It was built on plutonomy, where the rich, unscathed by the turbulence of the crisis, dominated the plebeian masses: their servitors. Where fortunes were accumulated almost overnight to the detriment of Britain’s hard hit middle classes. Amongst the happy winners was Britain’s former prime minister, Tony Blair, who according to some had simply collected his due for services rendered.
*
Over the course of what was an astonishingly brief period of time, the centre of gravity of the world’s economy had inexorably moved eastwards; it was nothing less than a seismic shift. What would happen to London and New York as cities like Moscow and Bangkok grew and prospered?
For Tom Barton it was a no-brainer: very few rich would want to pass their lives in such cities; business was one thing, but security and comfort came first. Few were attracted by the sweltering heat of South East Asia, or the glacial winters of Moscow, not to speak of insecurity: be it financial, political or criminal related. London, Paris or New York would be hard to beat, perhaps Berlin or Vienna, but the idea of Beijing or Hong Kong was illusory, for the Chinese it was fine, but the past had shown the British Empire’s administrators or creators of wealth rarely ended their days surrounded by the thronging crowds of Asia, unless by an untimely sickly or bloody end.
Barton did not believe rich foreigners would swarm to Stockholm or Oslo, though Zurich held a certain charm, as for Toronto or Tokyo they attracted specific kinds of people: in search of a new life in the case of the former, or very specific business opportunities for the latter. As for Beijing, Shanghai or Singapore, over the long term they were for Chinese, as Moscow was for Russians. To his mind it would remain so unless there some dramatic and unforeseen event occurred.
A safe haven was above all a place where the nouveaux-riches could be assured of the safety of their recently acquired wealth, and very naturally, their own well-being and that of their families. London offered all that and more; barring a revolution nothing was about to change there.
There was of course another advantage: the English language, a national treasure, the magic key to global communication. With whom could one speak Chinese, who would want to learn Arabic, Russian or even the language of Goethe? Some learnt French, a culturally desirable language, but it was not the language of business or finance, though Paris, Monaco and certain towns like Biarritz and Monte-Carlo - an hour’s flight from London, offered highly desirable life styles and places of residence for the rich. Others liked the idea of owning a Bordeaux wine producing château and why not a place in the French Alps for skiing?
*
Plimpton saw a steady influx of Chinese and Russian buyers interested in acquiring properties that could provide a home for their children pursuing their education in the UK, a pied-à-terre, an investment, or a refuge in the case things went wrong at home. The latter was driven by a growing feeling of angst with the
fall in Chinese residential property values and the sudden deflation of the stock market bubble. Russians were more familiar with angst than the Chinese, after the desolate period of Soviet decline and disintegration, and the more recent turbulence and uncertainty of transition, which still loomed large in their collective memory.
But the Chinese experience had been equally dramatic. As Stalin imposed his satanic rule in Soviet Russia, Mao’s Revolutionary Red Army fought their way to victory. The older generation of Chinese, like Lao Wu, had grown up under Mao and suffered the worst of his catastrophic experiments. His grandparents had witnessed the fall of the Qing Dynasty and the birth of the Chinese Republic. His parents, the Japanese occupation and civil war. As to Wu himself, he was born as Mao celebrated victory and the Communist Revolution triumphed.
Who, during the hunger of the Great Leap Forward and the madness Cultural Revolution, could have ever imagined the emergence of modern capitalist China?
The changes that had ushered in the twenty first century should have sent Mao spinning in his stone mausoleum as China became a hive of capitalism, where even the very modest dreamed of wealth and fortune, in a society where the Great Helmsman’s granddaughter was ranked amongst China’s very rich: her personal wealth estimated at eight hundred million dollars.
So much for the dreams of Communism.
A century of revolution, war, occupation and tyranny had left its mark on the souls of Russians and Chinese alike. It would, however, have been a mistake to think that the Chinese or other foreigners who bought almost half of London’s prime properties were billionaires, far from it, most were relatively modest buyers - compared to the very rich. They sought a safe investment in residential property: a hedge in the case things took a turn for the worst in their home country; a turn of the screw, as often often happened … and with depressing regularity.
What was certain, cities such as London, Paris or New York would remain the most attractive places to invest for the foreseeable near future. Cities like Singapore were perhaps fine, but such were not global cities, perhaps interesting for a short term of expatriation, or for those who found living in a permanently air-conditioned environment appealing. Tom Barton, who had made the experience in Bangkok six or seven years earlier, was not one of them.
FLASHPOINT
R
ussian troops in Sevastopol
Fitzwilliams fears were soon transformed into reality. March 18, Putin’s troops marched into Sevastopol. Until that moment Russia and Russians had been basking in a glow of national pride: the Sochi Winter Olympics. The lucky ones had been oblivious to the pending crisis as they headed for ski slopes or tropical beaches, at home workers enjoyed full employment, banks loaned money for homes and automobiles, and industries were investing. However, Russia’s economy had already been slowing down, though the signs were not yet visible as Urals oil still hovered at around one hundred and twenty dollars a barrel.
At what precise moment had things come undone? The story was summed up in Der Spiegel, in a report dated November 14, ‘How the EU Lost Russia over Ukraine’:
Brussels, Office of the Enlargement Commissioner
Oct. 17, 2013
Ukraine was facing insolvency while, at the same time, Russia was busy heaping pressure on Kiev. Although Russian sanctions had long since indicated otherwise, Berlin and Brussels were not taking Ukrainian concerns, and the country’s fear of Russia, seriously. The Ukrainians, they seemed to think, were simply interested in driving up the price for their ultimate signature.
Shortly after his visit to the IMF, Arbuzov headed for Brussels to present Enlargement Commissioner Füle with the numbers calculated by the German advisory group. He believed that the numbers spoke for themselves, but Füle didn’t take them seriously. "Did you also request calculations," he asked smugly, ‘about what would happen to the Ukrainian economy in the case of a meteorite strike?’
Berlin, Foreign Ministry
Oct. 17, 2013
Ukraine’s ambassador in Brussels, Konstantin Yeliseyev, embarked on a ‘special mission’ through the EU to what the Ukrainians referred to among themselves as "the problematic capitals." Given the acute situation, he wanted to persuade the Europeans to abandon their demands for Tymoshenko’s release.
Yeliseyev’s tour took him to The Hague, Copenhagen, Rome, Madrid, Paris and London. But his final and most challenging stop was Berlin. First, Yeliseyev met with Merkel’s foreign policy advisor Christoph Heusgen before heading to the Foreign Ministry for a meeting with State Secretary Emily Haber.
Haber in particular demonstrated little enthusiasm for a compromise. When the ambassador sought to explain the Ukrainian position, Haber interrupted him saying: ‘Your Excellency, we are familiar with all of your arguments,’ adding that it was not necessary to discuss them for as long as Tymoshenko remained behind bars. Yeliseyev pleaded with Haber to abandon her focus on Tymoshenko, but to no avail.
The closer the summit approached, the greater the EU pressure became on the Germans to cease focusing so much attention on the case of Yulia Tymoshenko. The Poles in particular insisted that the issue could not be allowed to torpedo the association agreement. Behind closed doors, President Bronisaw Komorowski said: ‘Never again do we want to have a common border with Russia.’ And Germany began to revisit its position as a result, but it was much too late.
Merkel has often been praised for her pragmatism, particularly when it comes to foreign policy. The chancellor’s ability to reduce a political problem to its single soluble element and then to focus all her energies on that element is considered to be one of her great strengths. But her pragmatism reached its limits in this case. Focusing too intently on the trees blinds one to the forest, and that proved to be Merkel’s decisive error. As Berlin continued to focus its efforts on Tymoshenko, it failed to recognize the real danger: The Russian Federation’s power play.
Moscow, Military Airport
Nov. 9, 2013
It doesn’t happen often that Vladimir Putin attends a meeting at a site other than the Kremlin or his residence on the outskirts of Moscow. But on that Saturday evening in October, he unexpectedly agreed to a confidential tête-à-tête at the military airport not far from the Russian capital. His interlocutor? Viktor Yanukovych.
It was the second conversation between the two presidents within the space of just a few weeks, with the first having taken place on Oct. 27 in the Black Sea resort of Sochi.
Putin had nothing but disdain for Yanukovych, loathing the Ukrainian leader’s constant wavering. In the past, he had often left Yanukovych waiting for hours like a supplicant and the Kremlin was convinced of Yanukovych’s unreliability. Though the man from eastern Ukraine was much less pro-European than his predecessor, he had continued to stubbornly resist requests from Moscow.
Ever since Putin came to realize that Yanukovych was in fact considering signing the EU association agreement, he had been regularly sending Sergey Glazyev to Ukraine to lay out the possible Russian response. Glazyev, Putin’s advisor on economic integration in the post-Soviet regions, had been born in Ukraine. But he dutifully issued Russian threats to eliminate benefits and spoke at length of the potentially negative consequences for Ukraine. ‘The association agreement is suicide for Ukraine,’ he said. In October, Glazyev visited Yanukovych three times, on one occasion bringing along a Russian translation of the thousand-page draft association agreement because the EU had only sent an English version of it to Kiev.
During Putin’s meetings with Yanukovych in Sochi and Moscow, Putin promised subsidies and economic benefits worth around $12 billion annually, including discounted prices for oil and natural gas. Conversely, he also threatened to launch a trade war that would drive an already fragile Ukrainian economy to ruin. Experts in Brussels also believe that he may have told Yanukovych what Moscow knew about his dealings with the EU. In Russian, such information is known as ‘Kompromat’, a word that comes out of KGB jargon and refers to compromising details known about a leadin
g figure.
Following these meetings, Yanukovych’s mood changed markedly. He became quieter and ceased holding the endless monologues for which he had become notorious. ‘Viktor, what’s wrong,’ his Brussels partners would ask. But he evaded such questions, instead speaking in insinuations and innuendos. He proved unwilling to say much about the Russians.
Berlin, the Bundestag Federal Parliament
Nov. 18, 2013
Ten days prior to her trip to Vilnius, Merkel delivered a government statement focused on the approaching summit. ‘The countries must decide themselves on their future direction,’ Merkel said, adding that she had ‘raised this issue many times’ with Vladimir Putin. But reality looked different, with Kiev having long since ceased to be able to make decisions independently of Moscow. Merkel, though, continued to focus on the symbolism of Tymoshenko case and on ‘democracy, the rule of law and civil liberties.’
Washington DC, IMF Headquarters
Nov. 19, 2013
The IMF finally got around to composing a reply to Arbuzov, Ukraine’s first deputy prime minister, in response to the Ukrainian proposal that Arbuzov had delivered a month earlier.
It was written by Reza Moghadam, a native of western Iran who had been with the IMF for 21 years. The director of IMF’s European Department, Moghadam had plenty of experience with countries that believed they could engage in marketplace-style bartering with the IMF.
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