Cornucopia

by John Kinsella

  The Yuan Dynasty was the first to introduced fiat money: the chao, but in course of the following centuries China was plagued by inflation and successive economic crises. That is until silver, demanded by the Chinese in exchange for manufactured goods, was imported from the Americas by the Spanish, who had established a trading base at Manila in the Philippines in 1571.

  Imperial Spain and Chinese traders opened a new Silk Road, a trans-Pacific sea link, and in doing so finally realised the dream of Christopher Columbus. The precious metal flowed eastward from the greatest silver mine ever discovered by man, before or after, at Potosi in Bolivia. Silver was shipped in the form of ingots that Europeans called tael.

  Over the course of nearly three centuries convoys of Spanish galleons sailed from Acapulco, crossing the Pacific, to Manila loaded with silver coin, used to pay for porcelain, silk, spices, tea and lacquer-ware. These goods were unloaded in Mexico and either shipped to Spain’s colonies in the New World, or Panama where they crossed the isthmus on El Camino Real, to Nombre de Diós, and then on to Spain and the rest of Europe.

  In the eighteenth century Spanish real de a ocho, the silver pieces of eight of Treasure Island, also called Carolus dollars, became a universal currency, just as the twentieth century American dollar, and began to be used as medium of exchange in China.

  During the Napoleonic Wars, Spain, occupied by France, was cut off from its colonies in the New World which refused to recognise Joseph Bonaparte, appointed King of Spain and the Indies by his brother Napoleon. The colonies refusal to recognise Joseph ignited the flame of independence, which led to the long decline and disintegration of Spain’s empire. However, Spanish and South American silver dollars continued to circulate in China until the twentieth century.

  Plans to expanded the modern transpacific Silk Road, by building a new canal across Nicaragua, had been launched by the Chinese billionaire Wang Jing in Hong Kong, making it the talk of the former colony’s business community, attracting the interest of prospective investors and bankers including INI Hong Kong.

  The story had been one of those eye-catching headlines that announced vast projects on financial pages in the press, or in National Geographical and popular science style articles. It was touted as the greatest construction project in human history, but for ecologists it posed a risk for the natural environment‒rare frogs according to Kennedy‒ recalling the history of China’s Three Gorges Dam, or going further back, the Aswan Dam and the Temple of Abu Simbel.

  The new canal, a forty billion dollar project, would be nearly three hundred kilometres long, from Punta Gorda on the Caribbean, across Lake Nicaragua, to the mouth of the River Brito on the Pacific coast. The Hong Kong based firm, the Hong Kong Nicaragua Canal Development Investment Co, had been granted a fifty year concession to build the waterway by the Nicaraguan government.

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  panish Galleons

  A couple of days before Christmas, standing at the side of Daniel Ortega, President of Nicaragua, in Managua’s main square, Wang Jing formally launched work on the canal. The contract gave sovereignty to China over the future canal, its two ports, locks and other works after the completion in the same manner as Panama had done so for its canal that had seen American sovereignty over the Canal Zone for three quarters of a century; formally ended by Jimmy Carter.

  Wang declared the Grand Interoceanic Canal would open up a twenty first century maritime Silk Road, leading to a brighter and happier future for the people of Nicaragua. The forty two year old billionaire, who had made his fortune in telecoms, a self-declared Chinese patriot, informed the world financing was under way and details would be announced in due time.

  Many saw Wang as a tool of the Chinese government, a surreptitious extension of Chinese power. CEO of Xinwei, a leading Chinese telecom group with its headquarters in Beijing, Wang also headed the HKND Group, a private infrastructure development firm, based in Hong Kong and registered in the Cayman Islands.

  Wang’s access to national leaders, including President Xi Jinping, Premier Li Keqiang and Zhang Dejiang the National People’s Congress Standing Committee Chairman, gave serious credibility to the idea that the Chinese government was behind the project, which in the tradition of Chinese drama hid its intentions in a complex play of charades and actors.

  Wang’s career was atypical. Bizarrely he had started out as a student in traditional Chinese medicine in Beijing, but before graduating he dropped out and left for Hong Kong where he studied business and later founded an investment consultancy.

  How he acquired Xinwei, or how much he paid for it, was shrouded in mystery. Founded in 1995, under the control of state-owned China Datang Corporation, Xinwei developed and marketed its products to Chinese state firms and private businesses. However, it was a loss maker until Wang took over in 2010.

  In the early nineties, when Wang left for Hong Kong, China was still a fledgling industrial power and Shenzhen, across the border from British Hong Kong, was one of Deng Xiaoping’s newly created Special Economic Zones. The young man had made a good move, which pointed to his good business sense.

  It was during Wang’s time in the colony, as Hong Kong then was, Tony Wu, a cousin of Lili’s, got to know him well. He remembered Wang, a fresh faced student newly arrived from Beijing, determined to set himself up in business and become rich. The two young men joined forces, Wang speaking Mandarin and Wu Cantonese, and together they were soon setting up companies and trading with the Mainland. It was a good North-South fit at a time when Hong Kong was much more developed than Beijing in business and finance. Wang was attracted by the legendary reputation of Cantonese as tough businessmen and Hong Kong, a powerhouse of business and finance, closely linked to London.

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  wo canals

  At Pat’s demand, Tony Wu fixed a meeting with the enigmatic entrepreneur in Hong Kong and before he left for Panama Kennedy met Wang. The HNKD Group office was located on the eighteenth floor at Two International Finance Center in Hong Kong Central District, just a short walk from INI’s offices in Jardine House. Wang and his staff enthusiastically described the scope of the vast project and HKND’s need of more than two thousand pieces of major construction equipment, four billion litres of diesel fuel, one billion litres of bunker fuel for the dredgers, four hundred thousand tons of explosives, and untold millions of tons of cement and steel. All of which would have to be imported into Nicaragua, requiring the construction of new ports and roads adapted for outsize machinery and equipment.

  Wang informed Kennedy the canal project was to be financed by a Chinese banking pool and invited INI Hong Kong to join them with a Memorandum of Understanding to participate once the Pacific Port section of the project had been completed. In addition they agreed INI Hong Kong would prepare a proposal for a stock market listing for the transoceanic canal company on the Hong Kong exchange.

  COUNTY WICKLOW – IRELAND

  Ten days at his family’s estate in County Wicklow had given Fitzwilliams time he needed to think. The weather was damp and misty, not too cold for January, typically Irish and perfect for walking. The tranquillity of his eighteenth century neo-Palladium home, overlooking Lake Liffey and the Wicklow Mountains in the distance, was the kind of break he needed to sooth his troubled mind, objectively analysing what had happened that fateful weekend in London.

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  he Fitzwilliams Estate – Co Wicklow

  On arrival, determined to cut his links to the outside world, Fitzwilliams had thrown his phones into a drawer and given orders he was under no circumstance to be disturbed by outside calls. Press and television were banished in an attempt to isolate himself and meditate like the early medieval Irish monks had at the nearby Glendalough monasteries, though the banker’s palatial home could not be compared to their bleak stone cells.

  Identifying the origins of the bank’s problems was not difficult: oil, Russia and the euro crisis, all of which was beyond his control. And the conjuncture of those events formed the sudden tempest th
at had engulfed the INI Banking Corporation.

  There was perhaps one exception: Russia. Of course he had no control over the decisions of Vladimir Putin, however, he had irremediably tied himself to Moscow’s fortunes through the links forged with Sergei Tarasov and his business empire - and that he put down to Kennedy.

  It was Kennedy’s who had got him into his present situation; a parvenu, he thought spitefully, forgetting how he had been happy to befriend him back in Boston, when they were young men starting out on their respective careers. He with JP Morgan and Kennedy with Arthur Andersen. Two young Irishmen abroad: Fitzwilliams, from a wealthy landed family; Kennedy, an ambitious Limerick lad from a working class background who had his eyes set on climbing the ladder of success. It was their first work experience and they had not been long in the New England city when they meet for the first time.

  At that precise moment they had little in common apart from celebrating Saint Patrick’s Day in Boston and the fact they were the only two sober Irishmen in the Bunratty Castle pub on Market Street. Over the course of their twelve months in Boston, they became good friends, but once returned to Ireland they drifted in different directions, meeting less frequently, as they embarked on their respective careers and lives in their very different worlds.

  In 1999, by a coincidence of fate, Kennedy found himself engaged in an unlikely Cuban venture, a tourist complex cum theme park, at the instigation Fitzwilliams’ uncle, David Castlemain, the then head of the family bank. The project collapsed when Castlemain was lost with his yacht, the Marie Gallant, in a hurricane off the coast of Cuba and he was succeeded by his nephew, Michael Fitzwilliams.

  Kennedy had barely untangled himself from the venture when he found himself naively drawn into a bank scam and miraculously escaped prison. However, in the ensuing trial, he had protected the good name of Castlemain earning Fitzwilliams gratitude and once the scandal blew over they renewed their friendship.

  Pat Kennedy’s business relations with European investors in Ireland fostered the Irish Union Bank’s association with an Amsterdam Bank, the Nederlandsche Nassau Bank, and their fusion in 2008, forming INB, earning him a non-voting place on the board of the new entity as business development director.

  In 2010, Kennedy, now a full director of INB, engineered a joint venture with Sergei Tarasov, a Russian banker and businessman. Together with Tarasov’s InterBank, the INI Banking Corporation was formed. The new Anglo-Russian holding, based in the City of London, extended loans and financial services to the booming Russian oil and gas industry for exploration, production, pipelines, refining and other ventures. It was a rock solid business; the demand for oil and gas would never fall, neither would the price of fossil energy resources. The same went for the other commodity sectors they invested in: nickel, copper, aluminium, fertilizers and timber.

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  The international demand for energy and the price of oil was of course beyond Fitzwilliams’ control. Even Vladimir Putin had not foreseen the convergence of events that were to lead to a crisis that would soon escape his control.

  Since the fall of the Soviet Union, the world had dramatically changed: China had become its workshop and its economy had grown to five times that of Russia’s, which was almost entirely dependent on its energy exports.

  With the collapse of oil and commodities things had started to unravel. Too many things happened at once and too quickly. INI had got in too deep with too many highly leveraged loans to the Russia’s energy industry.

  The risks he had been told were low, oil and gas prices were riding high, Russia was booming. Peak oil was just around the corner. The world was running out of those commodities. The loans looked good: six, seven even eight percent interest on bonds with twice yearly coupons.

  His outrageously paid analysts had calculated the risk on Russian bonds was low for the industry. They were not of course investment-grade bonds, such as treasuries, the yields of which were much lower. The only trouble was his quants hadn’t built fuckin Putin and fuckin Saudi Arabia into their equation, not only that, they had written off North American shale oil as a fuckin pipe dream, which even if they got oil out of the ground the impact on markets would at best be fuckin marginal.

  The loans to Yakutneft and Polar and East Siberian oil fields, in Russia’s vast, almost empty, Far Eastern Federal District, where production costs were sixty, seventy and even eighty dollars a barrel, had been in retrospective dangerously risky. Already Vostokneft had appealed to Moscow for aide. As the price of Urals crude, a mix of Urals heavy and high-grade oils Western Siberia light oil, fell, default on certain loans loomed, bonds were downgraded to junk status, the cost of insuring against default exploded.

  Then, the Black Swan, which by definition nobody could have imagined, appeared: Vladimir Putin seized the Crimea and Russia’s oil giants were hit by sanctions. Gazprom, Rosneft and Yakutneft were facing huge revenue losses, in addition they were shut out of long-term financing. Arrogant rhetoric suddenly looked hollow and the assumption that oil prices would continue to rise forever was shown do be nothing less than wishful thinking by ingenuous managers devoid of geopolitical experience.

  All this left INI holding a lot of near to worthless paper, which went a considerable way to explaining Fitzwilliams’ hapless fate. Up to that point he had mistakenly placed his faith in the idea that Tarasov and his Russian friends could save the bank if anything went wrong and the last thing he had imagined was Russia going bust.

  John Francis had spoken of the risks, a voice in the wilderness, and he as CEO had chosen to ignore his words of caution.

  As Fitzwilliams’ wife, Alice, an internationally known Irish racehorse owner, a figure in the Irish Thoroughbred Association, drily put it, he had backed the wrong horse.

  Tarasov had been his downfall and Kennedy’s astucious move to Hong Kong had distanced him from Moscow in more ways than one, leaving Fitzwilliams exposed not only to the dangers of being too closely bound to Russia and its financial risks, but also his own physical well being.

  Putin’s links to the underworld had long been suspected by the FBI, more recently in connection with the murder of Alexander Litvinenko, who had been investigating the connections between the Russian leader and Semion Mogilevich, a Ukrainian Mafiya boss, and, the murder of Anna Politkovskaya, an outspoken critic of the Kremlin.

  Fitzwilliams’ question was how to distance himself from Tarasov, without being seen as a traitor, an idea his republican spirit found difficult to accommodate. Tarasov was a marked man, an enemy of the Kremlin, destroyed by those who coveting his influence and wealth, had poisoned their leader’s mind with accusations of disloyalty. Like other fallen members of the Kremlin’s inner sanctum Tarasov was accused of tax evasion and economic crimes. In Russia he was now considered a common criminal, facing a long term of harsh imprisonment, exile and possible death.

  For foreigners, like Michael Fitzwilliams, who fell foul of the Kremlin, different forms of coercion were employed. The FSB was well experienced in using blackmail, scandal, accidents, and if necessary murder to achieve the Kremlin’s evil ends.

  The fate of Mikhail Khodorkovsky, the Yukos tycoon who became Russia’s richest man, was an example to those who even thought of transgressing their prerogatives. He had defied Putin in the political arena and found himself accused of economic crimes and sentenced to nine years imprisonment in Siberia. It was a brutally effective means of inspiring the loyalty of others who owed their success to the goodwill of the regime.

  However, it was a two way road, the powerful businessmen that dominated Russian industry were needed by the Kremlin, just as medieval barons were needed by their kings, and like medieval barons oligarchs plotted and fought each other in their struggle for riches and favour.

  A year on from Sochi, Putin’s world was near collapse. What remained of the Winter Olympics was financially speaking a black hole. Oligarchs, who had been coerced into investing in the construction of sporting installations, hotels and infrastructure
for the glory of their leader, had seen their billions squandered and swindled by corrupt construction firms and officials. Facing vast losses, the Kremlin came to their succour, allowing them to unload their ruinous investments onto the state … in the form of poisoned gifts.

  Crony capitalism underpinned Putin’s system and in return the Kremlin protected its friends, the rich and powerful oligarch class, when the losses engendered by its unrestrained pride, a misplaced ode to national glory, became too burdensome to bear.

  The Kremlin could not take the risk of alienating its powerful barons just as Putin was embarking on another reckless adventure: sending his soldiers into the mud and chaos of the Donetsk Region, just a couple of hours drive from the soon to be forgotten Sochi extravaganza.

  What Tarasov most feared had finally come to be. Like other oligarchs, he had lived under the shadow of dispossession, and was helpless as his business empire’s assets were looted by Kremlin and its cohorts. The threat had been real and the tools at the disposal of his enemies numerous, commencing with accusations of tax evasion and fraud, which the Kremlin had so effectively deployed against those who refused to bend to its iron will.

  BEGINNINGS

  Tarasov, unlike his fellow oligarch Khodorkovsky, had no political ambitions. The former head of Yukos, after being released from his Siberian prison at the end of 2013, had headed for exile in Switzerland. His release and pardon by Vladimir Putin had been a gesture designed to placate the West in the run-up to the Sochi Winter Olympics, when the strongman moved to burnish his image in the eyes of the world.

  Exile was a long tradition for Russians fleeing tyranny, some chose Berlin or Switzerland, others London or Paris. For more than a century, the French capital had been home to waves of Russian émigrés, even though, Lenin, in exile, had called the city a foul hole. First came anti-czarist revolutionaries, then White Russians fleeing the Red revolution, followed by the victims of Stalin’s reign of terror, and finally those who fled the Evil Empire, as Ronald Reagan called it in the final phase of the Cold War.