Red Wolves & White Knights

by Peter Kysel

  “I would be prepared to stay in Prague, but only if I had total independence. Ownership of IBD would give me that. I will make them an offer, take a holiday, and then decide.” “Let’s have another chat when you get back from your hol­iday. In the meantime, I expect you to come to our garden party,” said the ambassador. I finished my glass and left.

  #

  Queen’s Birthday Party

  “I didn’t know that spies were invited to this party!” a strong female voice called out from a terrace of the British embassy in Prague. On 11th June 1994 a large gathering of diplomats and other assorted guests, filled the garden to celebrate the Queen’s official birthday. Irena Edwards had arrived late, as usual, and stood on the terrace, waving her arms.

  Several hundred diplomats stopped chatting and turned their gaze towards her. Was Irena shouting at them? No, by this time she was pointing at a tall, handsome man, stand­ing near the castle wall. There was a perceptible sigh of relief, as the guests resumed their conversations. Mr Hronek was suddenly alone, as Irena pushed though the throng towards him and kissed him.

  I was chatting to Carol Jardine, an old friend from London, whom Pavel, Jan and I had originally met at our Hampstead tennis club. Carol had developed an interest in Czech affairs and after the Velvet Revolution ran business training pro­grammes with Hronek in the region. I turned to Carol, who was watching Irena open-mouthed.

  “Your friend certainly knows how to make an entrance,” I commented, but Carol was annoyed. Creating a dramatic entrance was Irena’s party trick, plus she had a crush on Mr Hronek, the handsome diplomat and StB agent.

  “What a bitch. She knew that I wanted to leave the party with Hronek tonight.” But it was not to be. We watched Hronek easing his way back through the crowd towards the exit, without acknowledging us. Carol sighed and turned to me, changing the subject.

  “You know I have always admired Alexander Dubček. Can you introduce me to him?” I did not have much respect for Dubček but did not bother to explain this to Carol. The former first secretary of the KSČ, from the Prague Spring of 1968, was standing nearby. I steered Carol over to him.

  “Mr Dubček,” I said in Czech,

  “I’d like to introduce Ms Jardine, from Scotland, who is a great admirer of yours.” Dubček extended his hand.

  “I am very pleased to meet you Mrs Jardine,” he said in Slovak, adding modestly,

  “You are probably my only admirer here tonight.” I ended up translating Carol’s gushing comments for the next few minutes, when Shirley Temple, the US ambassador to Prague, joined us, tapping me on the arm.

  “I see a skilled interpreter,” she motioned to me

  “Would you mind helping me to talk to Mr Dubček too?” Suddenly, I had acquired a new role, interpreting for various English-speaking diplomats and Alexander Dubček. We were soon surrounded by a reasonably large group, when Dubček winked at Carol.

  “It looks as though I was wrong. I do still have some admirers. Cheers, Ms Jardine.” Carol was moved, a little drunk and couldn’t resist Alexander. She hugged and kissed him in response to the diplomats’ toast and we moved on. Carol found another handsome diplomat to chat up and I joined Irena.

  “Did you have to cause a commotion when most people were innocently enjoying the Queen’s official birthday?”

  “You talk rubbish. I shouted so quietly, that hardly anyone heard. Get me another glass of champagne,” responded Irena in her forthright manner

  “You upset Carol by scaring Hronek off,” I said handing her a glass

  “She snogged Hronek under the statue of Jan Nepomucký on Charles’s Bridge last night. That woman has no shame. I was right there, and I told her not to. He is married, with two children and he is a spy.” She thought further and added,

  “You know, I realised that Hronek had to be a spy when he drank Carol under the table.”

  Chapter 14

  Intimidation

  In June I had a call from the chairman to meet him. Dr Salzman sat in his large wood panelled corner office on the first floor overlooking the National Bank. As I was ushered in, I reminded myself that Dr Salzmann was sitting in the office of the former communist party general secretary, prime minister and president, Klement Gottwald.

  This office gives off negative vibes. How can Salzman not feel them?

  When I entered, Richard Salzman was reading a magazine. He pointed to an empty chair and tossed the magazine on the desk. It was open at an article about a foreigner drown­ing in the Vltava river. I wondered briefly about the signif­icance. After a few preliminary niceties about the results of IBD, Dr Salzman, pointed a finger at me and with a sudden harshness in his voice snarled,

  “We have been watching you Mr supreme director. We have informers. Nothing you do escapes us.” I looked up with alarm but wasn’t unduly surprised. This room must have seen scenes like this so many times under Comrade Gottwald in the 1950s.

  Why is Salzman using communist tactics of intimidation? Who is this Dr Salzman, behind his avuncular mask and signature bow tie? Is he a man of steel like Stalin, who will do me per­sonal harm? Or is he a man of clay, like Gottwald, who merely obeyed the orders of his Soviet mentors? What’s this outburst about? I responded steadily, addressing Dr Salzman politely by his formal title.

  “Mr general director, I have nothing to hide. I do not under­stand your comments. Please explain.”

  “Our people have been reporting on you. I am warning you,” repeated Salzman, raising his voice and getting red in the face.

  Under Comrade Gottwald, forty years ago, I would have already been arrested following such accusations.

  “Who are these people and what have they reported?” I asked evenly.

  “We know that you don’t have a high opinion of the execu­tive committee members, as bankers.” I suppressed a grin. After this massive outburst, his charge sounded extremely petty.

  Salzman’s informers are not wrong. I don’t respect KB’s Exco, called by the bank’s own staff the clique of five commies. Except that I have never expressed these opinions.

  “Mr general director, that’s not very convincing. I was dis­patched to Prague by the British Foreign Office. You cannot believe that an English banker would be as crass as to den­igrate the bank executives to his subordinates.” I knew that Salzman had a quaint, Agatha Christie impression of an English gentleman. He seemed confused. Salzman checked his notes and made his most memorable outburst.

  “I am warning you. If we hear any more, not even the Queen of England will save you!” I wondered are we being recorded? Is he acting for the cameras in this office? It was bizarre. I imagined his Exco crouching in the adjoining room, listen­ing to this ridiculous conversation. Despite his age I decided to patronise him.

  “Mr general director, you have been misinformed. I assure you I haven’t made any disparaging remarks about you.”

  “Remember, who isn’t with us, is against us!” He responded with another communist slogan but was begin­ning to calm down. I left his office and went down the stairs, to the ground floor and out of the building. I strolled along the street, avoiding other pedestrians and passing traffic. They suddenly appeared to me to be harbouring hos­tile intentions. I took Salzman’s threat seriously.

  Personal accidents can easily occur. The Czechs traditionally used to drown undesirables in the Vltava. They also had a quaint tradition of defenestrating people. Modern personal accidents included failing car breaks, spontaneous car explo­sions and disappearances.

  I reached Vrchlického Park and sat on my favourite bench. It was a quiet, warm morning, with no people around. I was perplexed.

  Four years earlier I was Salzman’s mentor on the financial markets. His Exco needs me. Why has he turned on me with such odd accusations? The meeting was probably recorded, but why?”

  After a while, things began to fall into place. There was a message in his warning and in his intimidation. A thought occurred to me, which began to clarify the encounter. By
referring to us, he was referring to his network of red wolves at the KB. Salzman didn’t feel, that he needed to explain. The magazine article on his desk was another warning. It indi­cated that his red wolves wouldn’t hesitate to eliminate their adversaries.

  After another pause, I recollected several offers of personal business deals that I had turned down over the previous year. Was he offering me, in a roundabout way, the chance to join their network?

  I realised that I had made myself unpopular by insisting on transparency in the combined Exco meetings. The com­mercial division hated my questions about bad loans. They felt vulnerable. Maybe Salzman wants to stop me from reporting them. IKS is another possible reason for the showdown. It’s under my control, but its management hates our rules. KB controls, about a tenth of the country’s economy, directly and through its privatisation funds. By enforcing transparency in share dealing we were preventing their frauds.

  As I got up from the park bench, my final thought was. Zdeněk Čapek is due to present his report on IKS. I’ ll make a final push to tighten up controls before I leave the bank in August.

  Our persistence in enforcing controls had positive results. As we forced these controls on IKS and carried out sales of our significant holdings to the multinationals, the priva­tised companies remained viable and prospered. IKS funds, were among the few in the country, which had not been ‘tunnelled’ by their managers. Small investors remained protected.

  #

  More Pressure

  On my return to the office, I called Čapek for the debrief on IKS. His report was damming. IBD intercepted several attempts at front-running dealings in shares held by the privatisation funds. The beneficiaries were to be either IKS fund managers, or outsiders linked to the red wolves’ net­works. We replaced the individuals involved. I sent my own report to Exco, with Čapek’s findings attached. A week later Čapek came to see me again. This time he was quite excited.

  “I’ve had a call from the head of the commercial division. He congratulated me on my report and offered me a posi­tion. He has asked me to control any fraudulent lending. I was wrong in thinking that top management ignores illegal activities. They want the bank to be clean. I am going to accept the promotion. I hope you don’t mind. It’s an important role and an exciting challenge.” I was taken aback by Čapek’s decision but accepted it.

  Michael telephoned from Moscow.

  “There has been an assassination attempt on Borby. His car was blown up and his chauffeur was killed. Borby escaped with minor injuries. The media described it as a war between criminal gangs, but it’s probably much more complex. Borby is now entrenched with President Yeltsin’s family.”

  “What a relief that you are no longer with him! Have you told your parents? Are you in danger?”

  “Yes, I have. I am fine. Russian privatisation is going ahead, using the money accumulated in Jersey. The econ­omy is in trouble. Capital has to be raised quickly by privatisation. The government can’t afford to pay salaries. Soldiers, teachers, doctors and civil servants have to be paid, or the country will fall apart.”

  “Are you going back to the UK?”

  “No. I’m safe. I love all the excitement here.” When I replaced the receiver, I wondered briefly about my safety in the bank’s car.

  I must remember to check the brakes and to look under the floor panels before every trip.

  #

  Job Offer in London

  I had met Kevin Pakenham, the managing director of John Govett & Co, a few times over the years in the City of London. Kevin was a tall, bespectacled, balding man with a kind face, charming manners and a passion for both finance and golf. In the summer of 1994, Kevin came to my office at KB.

  “We should be expanding into the emerging European mar­kets, but we are hindered by the underperformance of our funds in Europe. What should we be doing differently?” he asked. We discussed the problems and by the time he left Kevin had offered me a job and a directorship.

  I was pleased with the offer, having learned from experience that investment business worked best in small, entrepre­neurial organisations. Hierarchical organisations inevitably underperformed. Flat organisational structures could be riskier but gave fund managers greater job satisfaction and the scope to deliver better performance.

  #

  Levoča

  My contract in Prague was coming to an end. I missed my family although I had tried to bring them over whenever possible. I realised that Tamara felt the same way, when I received a handmade card about our separation. It was heart breaking.

  Florisse and Tamara arrived in Prague in early August. We loaded the red BMW for a farewell touring holiday of my homeland. Our ultimate destination was to be Levoča, in Slovakia, where my uncle Karol had grown up. Levoča was a sleepy medieval town of 15,000 people. Our hotel rooms faced St. James’s church, with the ‘highest wooden altar in the world’, carved by master Pavel in 1520.

  Karol’s family had lived in master Pavel’s house for gener­ations until WW2. The building had now been converted into a museum. It was a strange experience to walk around my uncle’s former family home with other tourists. An exhi­bition in the former sitting room reminded us that 849 Jews were sent by the Slovak nationalists from Levoča to concen­tration camps. My uncle Karol was one of them.

  #

  Čapek’s funeral

  On our return, I found an invitation to the funeral of Zdeněk Čapek, who had died unexpectedly of a heart attack. When I enquired about the circumstances, I was assured that his death had been perfectly natural.

  I went to the funeral service in the Olšany crematorium and slipped into a pew near the exit. None of the KB’s red wolves were present. I was troubled. Čapek was a healthy, young and honest man. Was his death really natural? Or, was he punished for his principles? Jan Pokora arrived a few minutes after me and I nodded to him. He strolled pass my seat, dropping a folded piece of paper on the bench. It was an invitation to meet.

  Later that afternoon, I went to a cafe in Vinohrady. It was reassuringly empty, and I found Jan at a corner table, with a clear view of the room and the street outside. He seemed agitated and began talking quickly

  “A month ago, Čapek discovered evidence of corruption at the commercial division. He reported it internally and to the National Bank.

  “Give me examples”

  “I will give you three simple examples. The Austrian trading company, BCL, was granted large lines of revolving credits. Čapek found that BCL, owned by an Israeli, Alon Barak, was laundering money for the Russian criminal, Semion Mogilevich. The commercial division was lending billions to H-Systems, owned by Petr Smetka, to build affordable homes. Money was being diverted into his accounts abroad. No houses were ever built. Another 3 billion crowns were lent to Satrapa, a company owned by a former StB agent, František Chvalkovský. This money was also diverted abroad. Čapek gave me a copy of his report.” Jan passed me a folder. I read it quickly and returned it to him. Jan added,

  “Čapek’s report was suppressed.” The implications were alarming because the police had failed to investigate. The red wolves’ networks were ruthless. That image in the mag­azine of a foreigner, who had drowned in the Vltava, flashed through my mind and I shuddered.

  “Is there a hit list of people who expose sensitive transac­tions? But, whose hit list?” I asked slowly.

  “You know, I actually don’t care anymore. Citibank has headhunted me again. This time, they have offered me a job in New York. I can take my wife and kids with me. I prob­ably know too much,” said Jan, his eyes filling with tears. I wanted to reassure him, but words failed me. We just sat at the table, sipping our coffees in silence. We were powerless.

  “Will you be leaving Prague at the end of the month?” asked Jan after a pause.

  “I have made an offer to buy out IBD. If I succeed, I’ll need you. If I don’t succeed, I’ll return to London, to the family.”

  “Will you succeed?”

  “A Dutch
bank is prepared to finance the buyout, but they want co-ownership. I am putting my offer to KB. My family would need to move to Amsterdam permanently. We’ll have a decision to take within the next three weeks.”

  #

  Bid for the Bank

  The next day, I went to see Dr Richard Salzman. This time he was very charming and offered me a permanent position at the bank. I was amused, given his earlier outburst. In response, I made a counteroffer.

  “I have built up the investment banking business totally from scratch into a top player, but there is more that needs to be done. I would like to buy a majority stake in IBD from KB.” Dr Salzman looked at me over his glasses for a long time and then replied,

  “Interesting idea. It certainly has merit. I shall put it to our executive committee.”

  #

  Last Embassy Meeting

  Returning from our holiday, I had an appointment at the embassy. The ambassador met me in the garden. The coun­cillor Stuart Laing joined us and asked me to summarise my Czech experience.

  “The Czechs have done a great job of privatisation. It has been both fast and effective, but there remain a few out­standing issues. The privatisation of large companies into Czech ownership would be a mistake. These companies are not fit for the global markets and Czech owners would be tempted to strip the assets and run.” Laing interrupted me –

  “Can’t corruption be prevented?”

  “No, but it’s only a side effect. The market economy is largely in place.”