Underflow is a new work of serial fiction from The Browser. In it we shall meet money-launderers, bankers, headhunters, scientists, coders, central bankers, cryptocurrency tycoons, mobsters, oligarchs, murder victims, and innocent bystanders.
The principal figures in the early episodes of Underflow are Toomas Peters, an Estonian tech entrepreneur whose importance seems at first to lie in his wealth, but whose coding skills will prove far more crucial over time; and Lars Lipp, who is initially Peters's personal assistant, but who finds himself elevated almost by accident to a senior job in banking, where his particular skills are soon recognised by an international conspiracy of money-launderers.
All of the main characters and situations in Underflow are the product of the author's imagination. A few real people and places are referenced from time to time, but only for colour and context.
That said, the behaviour depicted in Underflow is real enough. Tens of billions of euros originating in Russia and Central Asia were laundered though Scandinavian banks in Estonia and Latvia in the 2010s, transiting the eurozone on their way to impenetrable tax havens. Much of the fictional drama in Underflow draws on the findings of an investigation into a decade of money-laundering at Swedbank conducted in 2019-2020 by the London law firm Clifford Chance. In his book Kleptopia, Tom Burgis gives an excellent account of the Russian and Central Asian corporate and criminal networks on whose behalf the Scandinavian banks were acting. — Robert Cottrell
Meet Mr Peters, who is checking into the Four Seasons Hotel in Boston with Mr Lipp, his personal assistant. Mr Peters has made a small fortune from the sale of a messaging app. He is considering a move into artificial intelligence. But on this particular evening he is putting the final touches to one of his many side-projects, an experiment in game theory which will succeed beyond his wildest expectations.
September 2008 — Boston, Massachussetts
MR PETERS stands a touch over six feet tall, has a marathon-runner's spare but confident frame, and is probably about thirty years old.
He sports three or four days' stubble beneath his mop of dark-brown hair. He wears jeans, a lumberjack shirt and trail boots. But for all his air of dishevelment, everything about him is clean, or new, or laundered. He seems indifferent to the grandeur of his surroundings, a hotel lobby tricked out to resemble a 1920s Beaux-Arts mansion. "Tech", thinks the hotel receptionist, whose name is Cornelia West, as she watches them approach. She pulls up the daily arrivals file on her computer and sees that she is, as always, right.
Trailing Mr Peters is a younger, shorter man, with the same casual-yet-purposeful air. This will be Lars Lipp, Mr Peters's personal assistant, who made the reservations. It is Lipp who now shows the IDs, fills in the forms, and confirms the necessary details.
Peters's sole contribution to the conversation is a practised half-joke. "It sounds like Tor-Mass", he says to Cornelia as she opens their passports. A moment later, bang on cue, Cornelia smiles. She has seen that Peters is explaining the pronunciation of his first name, Toomas.
The passports confirm the two men to be Toomas Peters and Lars Lipp, both Estonian nationals. Their bill will charge to a corporate Amex account. The hotel has annotated their reservation with a note saying that Peters is a company director and that Lipp is his personal assistant. Peters rates as a "four" on the hotel's VIP-scale. A "one" is a walk-in with a functioning credit card; a five is Bono or Bill Gates.
West sees an additional note appended to Peters's file which she reads to herself and then decides to read aloud to her guests:
"We are advised that Mr Peters prefers to avoid casual conversation and is of a generally reserved disposition. This reserve is characteristic of Estonians, and should not be mistaken for lack of appreciation or gratitude. Please refer all calls and callers to Mr Lipp."
Peters nods his approval. The note is one that Lipp drafted a few months back when people started recognising Peters in restaurants and hotel lobbies. Now it goes ahead of Peters to every place and event on his schedule.
With a polite smile and no further comment West gives Peters his key-card and his passport. When Peters gets up from his chair she follows him with her eyes just long enough to be sure that he knows where to find the elevator lobby.
She touches her lapel, murmurs the words "Mr Peters" into a pinhead microphone, then touches her lapel again. Catching Lipp's eye, she explains that she is alerting the butler on Peters's floor. Guests on VIP floors are usually escorted by a valet who introduces them to the floor butler on arrival.
Lipp, though by nature as laconic as Peters, has accustomed himself to small talk as part of his work. He reaches into his soft leather messenger bag and pulls out a copy of Wired magazine from three months earlier, a prop which he carries around with him for moments like this. On the cover of the magazine is a photograph of Peters captioned "Billion-Dollar Brain".
"He made a messaging platform called Lynxite", says Lipp, showing the cover to West. "Most people call it LX. Do you know it?"
West certainly does know LX. With LX and an internet connection you can make video calls to other LX users anywhere in the world at no cost. LX is the most-used program on most people's home computers, including her own. The LX tag-line, "Can you see me? Can you hear me?", has entered the language.
A couple of months ago, Lipp continues, Peters sold LX to Yazoo, the Internet search giant. The deal got a lot of notice, including the cover story from Wired. So now lots of people want face-time with Peters. They want to pitch investments to him, to ask him for money, to add him to the advisory boards of their start-ups. That is why Peters wants the hotel to shield him from callers. He doesn't have delusions of grandeur, he just wants privacy.
West nods sympathetically. The Four Seasons in Boston is well used to handling self-conscious tech billionaires. But she keeps that thought to herself. At a Four Seasons hotel, every guest should feel unique.
Secure in his suite on the 22nd floor, Peters lies down on his bed and sets the timer on his watch. He will spend one minute relaxing the muscles in his body, then five minutes thinking silently about a problem which has taxed him for the past year and to which, he thinks, he has found a solution.
The problem is commonly called the "byzantine generals" problem. In its classic form it posits a dozen or so generals encircling a besieged city. The generals can send despatches to one another. But since they do not fully control the intervening terrain, a despatch might be intercepted and falsified by the enemy.
At some point, a co-ordinated attack on the city will have to be launched. Is there any way that the generals, despite the insecurity of their communications, can confidently reach a consensus decision on the timing of the attack?
When coders and cryptographers discuss the problem on the Cypherpunk forum, to which Peters subscribes, most of the proposed solutions are technical in nature: checksum indicators, public-private encryption, and so on. Peters has hit on a different approach. He thinks that the problem can be solved well enough by a form of majority voting.
If, at pre-arranged intervals, each general in the field sends an identical despatch — "attack" or "do not attack" — to every other general, then each general will have an updated record of the majority view among the generals, which can be treated as binding on all of them. Even now, some of the despatches may have been falsified by the enemy, but the enemy's task will have been made as difficult as is logically possible.
This would be a disastrous way of co-ordinating action on a real battlefield, but Peters thinks it should work well enough in situations where the over-riding requirement is to have a final decision, even more than a true decision.
The use-case which Peters has in mind is that of finalising transactions in a digital currency which is traded anonymously on the internet. The answer, he thinks, is for a record of every transaction to be generated and circulated to all users of the currency, and for every transaction to be considered final once the record of it has been circulated to, and accepted by, a majority of computers on the network. A bad actor might try to reject or falsify a record, but the true record would have a head start, and the bad record could prevail only if the bad actor controlled a majority of the network.
Peters decides that his solution should work in practice. He goes over to his desk, opens his laptop and adds a few final lines of argument to the draft-paper which he plans to share with a select group of Cypherpunks.
He will circulate the paper under a pseudonym because he is not yet sure that his logic is bulletproof, and because he dislikes attention of any kind. With the help of a Japanese-Estonian dictionary he has invented a nom de plume which alludes to his byzantine-generals solution. In English, the name means "Smart Basic Relationship". In Japanese, it is Satoshi Nakamoto.
Peters spoofs the address field in his email client, then hits "send". The paper is called Bitcoin: A Peer-to-Peer Electronic Cash System.
In this episode: Toomas Peters, an Estonian Internet entrepreneur, has published a pseudonymous paper proposing a digital cash network called Bitcoin. Now he is meeting with American scientists and scholars to assess the viability of new research into neural networks and artificial intelligence.
September 2008 — Cambridge, Mass., and Princeton, N.J.
THE WIRED HEADLINE calling Toomas Peters a "billion-dollar brain" was an exaggeration, if a forgivable one. Yazoo had paid $750 million in stock for Peters's Lynxite video-calling platform, with an option for Peters to offload his stock for $600 million in cash to a Japanese bank which was underwriting the deal.
Peters took the cash and moved it promptly into Union Bank of Switzerland, a relatively safe haven while the world financial system was collapsing around his ears. Net of taxes he was a half-billionaire, safely encamped in the foothills of great wealth and deciding which high peak to scale next.
Bitcoin had been his side-project, more or less his hobby, but it might go somewhere, and he had almost finished writing the code. He would launch the first coins into the wild at the turn of the year. Would they get traction? He could see the arguments for and against. A private digital currency had vast potential utility but no intrinsic value. Well, he would keep the first million Bitcoins for himself, try to forget about them, and see what, if anything, they were worth after a decade or two. A pension pot.
Just now Peters was much more excited by the possibilities of artificial intelligence. His reading of the scientific and technical literature persuaded him that AI research had hit the buffers twenty years earlier mainly because the theoretical models developed by the machine-learning scientists had far outstripped the computing hardware available at the time.
His analysis had been confirmed for him by Henry Hutton, the doyen of AI, whom Peters had met a couple of days earlier at the University of Toronto. Hutton had published a landmark paper in the mid-1980s proposing a revolutionary architecture for AI using neural networks, which were algorithms designed to process data in the manner of human brain-cells.
Hutton's paper had been expected to lead in short order to new generations of AI platforms capable of outpacing human intelligence. In fact, said Hutton, nothing of the kind had happened. His theoretical breakthrough had been real enough, but he had not foreseen the quantities of computing power that would be needed in practice to train a neural network to make even a seemingly simple decision. Asking a 1980s mainframe to tell a cat from a dog was like asking a nematode worm to paint the Mona Lisa.
With hindsight, said Hutton ruefully, his celebrated paper had indeed marked a turning-point for AI, but a turning-point in the wrong direction. It had marked the point at which capital and talent deserted AI for the new technologies of the Internet. Almost alone, Hutton had continued his work on neural networks for the following 20 years, developing newer and better training models while knowing that he might never live to see them exploited.
In Cambridge, his next stop after Toronto, Peters met with a professor of jurisprudence at Harvard Law School, a trustee of Boston Theological Institute, a professor of neuroscience at Harvard Medical School, and a behavioural psychologist at MIT.
His questions for all of these experts were speculative and verged at times on the philosophical: What might happen in society if machines did start thinking and communicating like people? How would public opinion react? How would law-courts assign property-rights in content generated by AI, and liability for damage and injury caused by AI? Might moralists and theologists contend that intelligence implied consciousness and that intelligent machines were thus entitled to "human" rights? Might AIs get out of control and turn against humanity, as they often did in science fiction?
From Cambridge Peters went on to Princeton, where he and his assistant, Lars Lipp, were guests of Holbert Rijtkraft, the director of the Institute for Advanced Studies. Rijtkraft, a mathematical physicist, chaired an informal seminar, sponsored by Peters, to discuss whether machines could ever think like people. The seminar concluded that no conclusion was possible because nobody knew how people thought.
Afterwards Rijtkraft hosted a dinner for Peters and Lipp, to which he also invited Anetha Houlay, director of scientific development at the Institute.
The window of Rijtkraft's private dining-room looked out on to a manicured lawn the size of a small bowling green, with a bench at one side.
"That", said Rijtkraft, "is the most valuable piece of real estate in America".
Peters gave him a quizzical look.
"Einstein and Gödel used to sit on that bench each day, after their morning walk", said Houlay, taking over the story. "Einstein used to say that the only reason he still came into his office was so that he could go for his walk with Gödel. When Einstein died in 1955 Gödel was heartbroken. To console him, his admirers on the faculty formed a trust to maintain the lawn, and the bench, in Einstein's memory."
"This being Princeton", continued Rijtkraft, "the faculty members didn't just give cash; a couple of them contributed patents. One of the patents was for a data-compression algorithm which, by the early 1970s, was being used to transmit just about every radio and television signal in the Western world. This piece of grass became a billionaire in its own right. More than one director has ordered a study of whether the Institute could build a lab on the lawn which could then be funded from the lawn's endowment. But the trustees have always voted against, on the grounds that paving over the lawn would be more or less the opposite of what the trust was created to achieve."
"I wonder what Gödel would have said if he'd been in our seminar today", said Peters. "None of the concepts would have been new to him. He probably even ran into McCullock and Pitts here in Cambridge, is that right?"
"Very possibly", said Rijtkraft. "They overlapped here and at MIT for the best part of thirty years. But Gödel became more and more reclusive as he got older. His social circle after the war was pretty much limited to Albert Einstein and Oskar Morgenstern — which was not a bad social circle by any means. He was invited to the Macy Conferences in the forties and fifties which laid the foundations of all subsequent work in artificial intelligence, but he didn't go. He didn't even reply to the invitations, according to his secretary's diaries, which we still have in the archives."
"I understand from Holbert", said Houlay, nodding towards Rijtkraft — "that you are considering taking forward the work of the Macy Conferences, Mr Peters."
"Toomas, please", Peters replied. "Yes, I am convinced that we can scale up neural networks to levels of complexity comparable with that of the human brain, and beyond. Thanks to the Internet, such networks can have all of the information in the world at their disposal for decision-making. I don't want to get into the question of whether they will be truly intelligent, or aware, or whatever. It will be enough that they can do much of what the human brain does far more efficiently. They will supplement our human capacity to do almost anything."
Peters and Lipp flew back to Estonia on a NetJet from Teterboro. In the course of the eight-hour journey Peters shared with Lipp the main elements of his thinking.
There would be no great ethical obstacles to commercialising even high-performing artificial intelligence, said Peters. Biology and religion both insisted that life required organic matter. No priest or professor would claim personhood for a box of arithmetic.
In legal terms, intellectual-property law was already AI-friendly. If you wrote an algorithm, then that algorithm was your private property, and so was the output from that algorithm, even if the output walked and talked like a human being. That said, AI would create new edge-cases around "fair use" and "transformation", to the extent that AIs created content from the materials on which they were trained.
The big risk concerned timing. Peters had come away from his American trip persuaded that the time was almost ripe for achieving the sort of AI outcomes anticipated in the 1980s. Computing power was almost as cheap and plentiful as it needed to be for neural networks to start out-performing human brains. Moore's Law predicted that the tipping-point would be reached in a couple of years. AI would become viable. But if Peters held off his investment until that tipping-point arrived, somebody else would get in ahead of him.
Lipp played devil's advocate, doing his best to demolish or at least dent Peters's logic, but he failed. He was forced to agree that the technical problems were soluble in principle and that the possibilities were immense.
By the time their plane reached Tallinn, Peters was committed.
THE BROWSER: Caroline Crampton, Editor-In-Chief; Jodi Ettenberg, Editor-At-Large; Dan Feyer, Crossword Editor; Uri Bram, CEO & Publisher; Sylvia Bishop, Assistant Publisher; Al Breach, Founding Director; Robert Cottrell, Founding Editor.
Elsewhere on The Browser, and of possible interest to Browser subscribers: Letters To The Editor, where you will find constructive comment from fellow-subscribers; The Reader, our commonplace book of clippings and quotations; Notes, our occasional blog. You can always Give The Browser, surely the finest possible gift for discerning friends and family.
In this episode: Lars Lipp meets Pavel Gudichev, managing partner of Vantor, an oil-trading firm with close links to the Kremlin. Gudichev quizzes Lars in several languages, then offers him a job running Vantor's new Tallinn office. Lipp will soon be handling billions of dollars in cash and commodities for some of Russia's most powerful figures. What could possibly go wrong?
THREE DAYS after the headhunter's approach, Lars Lipp was invited to meet Pavel Gudichev at the Hansa Center, five minutes' walk from Livonia Bank's headquarters, where he was directed to a third-floor office in the name of Talcow Capital Partners.
The woman who greeted him introduced herself as Stasia. She took his coat and led him down a corridor to a door which she opened without knocking. They entered an airy room elegantly if minimally furnished with charcoal-grey carpeting, a grey velvet sofa, and a glass-topped steel-framed desk. Behind the bare desk was a high-backed chair; beneath it was a brown leather briefcase; curled up beside the briefcase was a black Persian cat.
A man was standing at the window. He gestured Lipp towards the sofa, took his place behind the desk, and waited for Stasia to leave the room. This was Gudichev.
Lipp guessed Gudichev to be in his early fifties. Grey hair cut short and a bristling grey moustache. Military bearing. Expensive-looking navy-blue suit with a white shirt and deep red silk tie. A hard, lined face; the mouth was smiling but the eyes were not. Like an army officer from Tolstoy, thought Lipp.
"Guten Tag, Herr Lipp", said Gudichev, looking directly into Lipp's eyes. Gravelly voice. "Ich hoffe, Sie sind nicht allergisch gegen Katzen."
This use of German took Lipp by surprise. He had some command of the language, but not enough for serious conversation.
"Guten Tag, Herr Gudichev", he replied. "Ich mag Katzen sehr. Wie heißt Ihre Katze?"
"Begemot".
Begemot was the vodka-drinking, chess-playing, shapeshifting cat in Bulgakov's Master And Margarita. Somewhere inside Gudichev was a sense of humour.
Gudichev, meanwhile, was appraising his guest, and, apparently, liking what he saw. Lipp was wearing his standard business dress of close-cut dark suit and open-collared white shirt. His black loafers were polished, his brown hair was crew-cut, he had two days of stubble, and he was sporting his serious black spectacles from Oliver Peoples. The lenses were of plain glass, but Lipp liked to think that the glasses, along with the stubble, gave his face a touch more character.
Gudichev switched from German into brisk, formal Russian, a language which Lipp spoke well: "You look the part, Mr Lipp. That matters to me. We have a saying in Russia: If you find it difficult to smile, do not open a shop."
Gudichev then spoke a few words in what Lipp recognised as Swedish. Lipp apologised, in English, for having no Swedish. "You will forgive me my little tests, Mr Lipp", replied Gudichev in lightly-accented English. "The only way to tell if a person is at ease in another language is to hear him speak it. Do you agree? My friend Magnusson insists that if he is expected to speak English and Russian all of the time, then the rest of us must make an effort to learn Swedish. As I have done."
"My theory is always to enjoy life", continued Gudichev, still in English, "but the practice is against it. So, as much as I am enjoying our conversation now, I fear we must do a little work. I propose to ask you some questions, if you are agreeable. A sort of entrance exam."
Lipp was indeed agreeable. The first question came in Russian:
"сколько будет одна тысяча тридцать пять, умноженная на шесть целых четыре десятых?" Gudichev was asking him to multiply 1,035 by 6.4.
"шесть тысяч шестьсот двадцать четыре", Lipp replied almost without hesitation. Six thousand six hundred and twenty-four. Not for nothing had Lipp finished first in the Estonian Mathematics Olympiad in his final year of high school.
"What can you tell me about the first of those numbers?".
"It was the closing price of gold yesterday. Per ounce, in US dollars."
"Who is the president of Paraguay?"
"Fernando Lugo."
"Give me an example of a heterogeneous first-order nonlinear ordinary differential equation."
"du over dx equals u squared plus four."
"I have been told that it is impossible for a foreigner to learn the Estonian language. To speak it fluently you have to be born here. Is that right, do you think?"
"Up to a point. The grammar is complex. Our nouns have fourteen cases. I do not see why that should be a barrier to learning in principle. I believe that the autistic savant Daniel Tammett was able to acquire conversational Estonian in a matter of eight or ten weeks. But however well a foreigner learns the rules of grammar they will never pass for an Estonian among Estonians, because they will never get the pronunciation quite right — unless perhaps they are Finnish. I believe that we have 37 vowel sounds, of which 28 are uniquely Estonian."
While Lipp was talking about Estonian philology an expression of genuine interest flickered briefly across Gudichev's face. A few seconds of silence ensued. Then Gudichev spoke again, in Russian:
"I am favourably impressed by our encounter. I had already obtained extensive information about your present and past employment before approaching you. I do not wish to waste your time or my own. I propose to offer you a position as chief executive of Talcow Capital Partners. Talcow Capital Partners is a wholly-owned subsidiary of Vantor, which is a Swiss-registered trading company owned by myself and Bror Magnusson. Initially, you will be responsible for our treasury function. I assume that you have familiarised yourself with the activities of Vantor. If you accept this offer, you will report to me. Do you accept?"
"In principle, yes."
"A judicious reply. Stasia will acquaint you with the concrete modalities. I have prepared a draft contract for you, anticipating that we would reach an understanding, which I hope we have now done."
Lipp said that he would read the contract with interest.
"On a separate matter", said Markov. "We will want to commit to a principal banking relationship in Estonia. Is Bank Livonia an efficient and trustworthy institution, in your experience?"
"In my experience, Bank Livonia is always trustworthy and usually efficient."
"Better that than the other way round", said Gudichev with a smile.
Stasia came back into the room. Gudichev must have summoned her by some invisible means. The meeting was at its end.
Whereas Gudichev's office had been large and pristine, with light flooding in from a picture-window overlooking Tallinn's passenger port, Stasia's office was half the size, windowless, cluttered, and furnished from Ikea. They sat at a small table and spoke English.
"I am Mr Gudichev's personal assistant and private secretary", said Stasia. "He likes you. That is evident. When he likes people he decides things very quickly. Did you like him?"
"I enjoyed his interviewing style. Quite unusual. Is he easy to work with?"
"He is demanding in a rational way", said Stasia. "He requires intelligence and discretion. Apparently you have satisfied him in those respects. When we were leaving his office just now he asked me whether you had made any attempt to draw me into conversation about himself, his business, or myself. I said that you had not. He approved of this."
Stasia then pushed a sheet paper towards Lars, and waited while he read it. It was a term sheet, one page long.
It said that he, Lars Lipp, of Tallinn, Estonia, would work solely and exclusively for Talcow Capital Partners, as chief executive officer, at a salary of €20,000 euros per month. He would report to Pavel Gudichev, managing partner of Vantor SA, the parent company of Talcow Capital Partners.
Lipp would observe absolute confidentiality with respect to his employment. He would communicate no information about its nature or content to any third party. He or Vantor could terminate the contract at any time, but the obligation of confidentiality was binding in perpetuity.
Gudichev had signed the contract at the bottom left.
"This is not a standard contract of employment", Lars said, more as an observation than a complaint. "I doubt that it counts as a contract at all. In legal terms."
"The essentials are all there", replied Stasia. "We have made this agreement in two copies. One for you and one for Mr Gudichev. In case of disagreement we shall discuss. But the point is to avoid disagreement."
Lars thought for perhaps ten seconds. In effect, he would be entering into a personal agreement with Gudichev, which Gudichev could void any time. But that was the reality of the situation in any case. Anything more would be window-dressing. The prospect was intriguing. And the money was good. He signed both copies.
In this episode: Estonian banker Lars Lipp has been hired to run Talcow Capital Partners, an offshoot of Vantor, a Russian-controlled commodity-trading company with close ties to the Kremlin. On his first day at work Lipp finds a briefcase full of cash awaiting him as welcome gift, and learns that his new employer's offices are riddled with concealed microphones. He wonders quite what he is getting into.
THE TALCOW OFFICE consisted of four main rooms and a kitchen. The largest room, facing towards the passenger port, was reserved for Pavel Gudichev, the boss, when he happened to be in town, which happened roughly once a fortnight. The smallest room, closest to the entrance and the kitchen, belonged to Stasia, Gudichev's personal assistant. To the right of Gudichev's room were two vacant rooms, side by side. Lars took the room directly adjoining Gudichev's.
When he arrived for his first full day of work, Stasia showed Lars around the office and told him what he needed to know. There was no wi-fi network; Gudichev never used a computer. Since Lars would need to use a computer, obviously, a Mac Pro was waiting on his desk, connected by cable to an Internet router. The Mac Pro was locked to the table with a discreet steel wire.
A new iPhone 4 also awaited Lars, registered to a Bulgarian telecoms company which was owned, Stasia explained, by another associate company of Vantor. Lars could retain his own mobile phone if he wished, but he must never, ever, use it for anything that touched even indirectly on his work, and he would do far better, in her view, to dispose of it — which she could do on his behalf — and so avoid any possible misunderstanding.
His salary was to be paid into an account which Stasia had already opened for him with a bank in Cyprus. The account was in the name of Infrabeg Ltd, a company registered in the Channel Islands; and the beneficial owner of Infrabeg Ltd was, apparently, Lars himself — if not now, then as soon as he had given his proxy to one of Vantor's lawyers in Lichtenstein.
Also waiting on Lars's desk were a debit card and a credit card linked to Infrabeg's Cypriot bank account. The credit card was unconditionally guaranteed by one of Vantor's Swiss banks, meaning that Lars had more or less unlimited credit if his situation ever required it.
There was a connecting door between Lars's room and Gudichev's room which was lockable from Gudichev's side only. There was also, said Stasia, a system of microphones throughout the premises, linked to monitoring and recording devices in her own room. She showed Lars a button behind a curtain in his office which he could use to switch his own room's microphone on and off.
When the microphones were on, said Stasia, and they generally were, then everything said in any room could be recorded, and she herself could listen in. For example, if Lars had been wondering how Stasia had known exactly when his first meeting with Gudichev was coming to an end, then this was how. And if it bothered Lars to be overheard, Stasia seemed to imply, then Lars would soon get over it.
Lars thought privately that this was a strange arrangement; but perhaps it was not so very different in principle from Bank Livonia's practice of recording land-line telephone calls "for training purposes", so it was not something to which he would object now, but, rather, something which he would discuss with Gudichev as they got to know one another better. He might even come to approve of it.
Then came the matter of Gudichev's welcoming gift, which Stasia presented to him: An attaché case in soft brown leather, filled with bricks of brand-new twenty-euro notes. "One hunded thousand euros", said Stasia. "Mr Gudichev wishes you to have a good first impression of coming to work for him. He is certain that you will not spend this money in a way that might draw attention to yourself. Preferably you will not spend it at all. You will keep it somewhere safe and feel a degree of independence. This is not something which happens every day, by the way, only at significant turning-points."
If Lipp had had any doubts about what he was getting into, this briefcase full of cash clarified things. Evidently, old habits died hard. Gudichev was working for, or working with — or perhaps they were working for him — people who might have been described ten or fifteen years ago as gangs or mafias. In the chaos of the 1990s the best-organised and most far-sighted of these gangs and mafias had seized and consolidated control of Russia's biggest industrial plants, and oilfields, and mineral resources — the jewels of the old Soviet economy. By the end of the decade they had refashioned themselves into legal business entities; they had learned to conduct themselves in outwardly conventional ways; and — unless you happened to have a particularly serious argument with them — they preferred to settle their disagreements through the courts. They functioned to varying degrees as partners and instruments of the Russian State.
A critic might say — and this was, philosophically at least, Lipp's own view — that these newly appointed owners of Russia's mineral wealth were profiting arbitrarily from resources which ought to have been the common property of the Russian people.
But then again, the economic system which awarded these resources to Russia's robber-barons was not one which the robber-barons had devised themselves. It was one which had been urged upon Russia by economists from Harvard University and the International Monetary Fund after the collapse of the Soviet Union. These Western advisers and experts had argued that only an immediate and wholesale privatisation of Russia's state assets would make the collapse of the communist system irreversible. They had also claimed that it was immaterial to whom these privatised assets were first allocated, or at what price, because, in a free-market economy, market forces would eventually ensure that every productive asset found its optimal owner, the person who could make best use of it. This theory was called the Coase Theorem, and had won a Nobel Prize for its inventor, Ronald Coase.
Lipp himself did not subscribe entirely to this theory of events. But he had thought a lot before deciding to join Vantor, and he believed that he could defend his decision against all obvious criticisms, at least in his own mind. His arguments were these: First: The Russian economy was consolidating. Russia had joined the G8. Perhaps the Coase Theorem was correct. Second: If Vantor did not exist to capture half of Russia's oil exports, some other company would exist in its place. Third: Working at Vantor, he would learn a lot about the world, which he could put to good use. Fourth: If there was a dark side to Vantor, then the risks of working there would be higher than average, but so, evidently, were the rewards. Fifth: He could leave Vantor any time that he wanted.
And in any case, as Balzac had once said, behind every great fortune there was a great crime. Were Russia's robber-barons really so very different from the Rhodeses and Rockefellers of the 19th and early-20th centuries? Yet Britain had ennobled Cecil Rhodes, and America had appointed a Rockefeller as vice-president.
True, there must be plenty of things that he did not yet know about Vantor, including things that he might not like. But they would be details, Lipp thought, not fundamentals. On this last point he was very wrong.
In this episode: Over an informal dinner with bankers in Tallinn, the Kremlin-connected Russian billionaire Pavel Gudichev shares his plan to make Estonia the new hub of his commodity-trading business. The bankers take the bait. Within days, Gudichev is a valued client of Bank Livonia, Estonia's leading bank. The decision is one from which the European banking system will never quite recover.
"To your health", explained Kalne. "An Estonian toast. Or, if you prefer, za zdorovye."
Gudichev raised his glass and clinked it against Kalne's glass. "Terviseks", he repeated, with a disconcerting accuracy that probably only Lars Lipp noticed.
Kalne had succeeded Lipp as head of private banking at Bank Livonia, when Lipp left the bank to work for Gudichev. Sitting next to Kalne was Kaja Andele, Kalne's senior account officer. Lipp had arranged the dinner at Gudichev's request and had chosen a private room in the cellars of the Gloria Restaurant in the Old Town of Tallinn — not so much for the food, which was fussy and French, but for the medieval walls, which were ten feet thick.
Everything was going as planned. Lipp had introduced Gudichev as a prospective private client — at which Kalne affected a pleasant surprise, although in fact Lipp had briefed him the previous day about who Gudichev was, how much prospective business Gudichev represented, what Kalne should say if he wanted some of that business, and how Gudichev would probably respond.
Kalne replied that the bank would be delighted to welcome Mr Gudichev as a client, they were at his service, nothing could please them more, and of course there would be certain formalities and certain liquidity requirements, but those would be a matter of moments, perhaps Ms Andele might call on Mr Gudichev at his office the following day to deal with the practicalities. Gudichev smiled and nodded approvingly.
"And might Mr Gudichev by any chance be planning to move any of his business interests to Estonia?", Kalne continued. "If so might Bank Livonia also be of service to him in that regard?"
Gudichev replied that he was indeed favourably impressed with the business climate in Estonia, and that, since Mr Kalne had been so kind as to ask, and although this was not meant as public information, he was intending to locate a new office in Tallinn which would engage in the trading of metals and minerals, and it was to oversee the development of this business, together with various treasury functions, for which he had hired Mr Lipp.
Over time the new business would be trading on quite a large scale, said Gudichev. It would require accounts with several international banks. And whereas he had, obviously, the highest regard for Bank Livonia — at this point he raised his glass as if in a toast — he was not aware that Bank Livonia had any very significant international profile, nor any particular track record in the commodities sector, where speed and scale were essential factors. Was he in error here?
Lipp had rehearsed this exact point with Kalne the previous day, so Kalne was prompt to reply that Estonia might be a relatively small country, but Livonia was a full-service European bank, a flexible and fast-growing bank. He was highly confident that his colleagues in the corporate banking division could not only provide Mr Gudichev's companies with all necessary banking services, but that they would do so with the personal attention that an Estonian bank would naturally extend to a customer who had shown confidence in Estonia as Mr Gudichev had done. Could Mr Gudichev expand just a little more on his plans, so that Mr Kalne would be able to brief his colleagues more precisely?
Gudichev held Kalne's eyes, then began to speak in his gravelly, affectless voice, as though he were reciting a memorised text.
His group, Vantor, acted for corporations in the Russian Federation that exported oil, he said. Now it proposed to act for corporations in the Russian Federation which exported other commodities, such as coal and base metals, perhaps also gold. This was not always easy. For one thing, business in Russia was largely a matter of very personal connections. For another, the Russian economy was still in the process of normalising. Corporations and business were still suspicious of Russian banks and even of the Russian government. They wanted to hold their capital overseas, in foreign banks, wherever possible. This was an acquired instinct arising from historical experience which would take time to correct. The Vantor Group therefore assisted them in this. But Vantor always observed and respected Russian law within Russia, just as it observed and respected the laws of every other jurisdiction within which it operated, notably Switzerland.
Indeed — and here a certain animation entered Gudichev's voice, as though he had concluded his prepared remarks and was voicing thoughts which were only now occurring to him — he could see that one advantage of a banking relationship with Bank Livonia would be that Bank Livonia could then ensure, as a matter of course, that Vantor was in perfect conformity with Estonian laws and regulations. The reputation of the Russian business community had not been especially high in the Baltic countries, one had to admit as much, continued Gudichev with an wry smile, so if Vantor was to develop its business in Estonia then it would do well to have as its partner an Estonian bank of impeccable judgement and reputation whose word would be sufficient to silence any doubts in any quarters about who Vantor was and what it was doing.
"We are not generally in the business of silencing people", said Kalne indulgently, "but there again such a thing is rarely necessary. Estonians prefer silence as their natural condition. Sometimes we have to talk, and even then we leave long spaces between our words. There is a joke about Estonians: An Estonian extrovert is someone who looks at your shoes while he is talking to you".
For a moment, unable to help themselves, all four of them looked at Gudichev's shoes, which were brown and gleaming. Then Gudichev caught Kalne's eye again and resumed talking. This, Lipp knew, was the important bit.
"As our trading business in Tallinn grows, and as we relocate to Tallinn certain treasury-management functions from our Swiss office", said Gudichev, "we will necessarily hold quite large cash balances. We would like to maximise the returns that we achieve on those balances, both for ourselves and for our clients, and this will be Mr Lipp's function. His demands may be quite" — Gudichev paused for a long moment before settling on his word — "sophisticated".
"How large might those quite large cash balances be — if I may ask?", said Kalne.
Gudichev took a pen from his pocket, wrote something on his napkin, and gave the napkin to Kalne, who blinked, but, to his credit, showed no other reaction.
"I see your point", said Kalne. "You have my complete attention. Formally speaking, my responsibility extends only to private clients, but I will speak directly with our head of corporate banking tomorrow morning, who will doubtless want to consult with our chief operating officer. May I suggest that Ms Andele will liaise with Mr Lipp and we can open the appropriate accounts with all possible speed."
"You are very kind", said Gudichev. "Mr Lipp will supply you with the necessary information."
Rather than waiting for Kaja Andele to attempt a personal call on Gudichev, Lipp went to Andele's office in Bank Livonia at nine the following morning. They had known one another quite well as colleagues, if not as friends, from Lipp's own time at the bank.
"What was the number on the napkin?", asked Andele.
"As an order of magnitude, probably somewhere in the nine figures", said Lipp. "Distributed around various institutions of course. I'm encouraging him to do some of that business with you, but how much business will depend on results."
"Klaas is already with Sirel in corporate banking", said Andele. "He called her last night and asked her to get in early. They're going to roll out the red carpet for you. First we will open a private-banking account for Gudichev, so then we know him as a customer. After that we will open an account for the company. What facilities we will extend to the company is, strictly speaking, a matter for corporate, but corporate will liaise closely with me, and, no doubt, with you."
All good, said Lipp, opening his attache case and pulling out the papers needed to open Gudichev's private account. The main ones were a power of attorney from Gudichev; a declaration by an Estonian notary confirming a residential address for Gudichev in Moscow; and Gudichev's Russian passport, containing an Estonian entry visa valid for ten years.
Lipp kept in reserve attestations showing that Gudichev had registered with the Estonian tax authorities, that he had no known criminal convictions, that he was not on any known stop-lists, that he was not a director of any companies within the European Union; and that he held neither high political office nor ambassadorial rank.
Gudichev would make a first deposit of €500,000, said Lipp. The money would be transferred from Bank Lugano in Switzerland where Gudichev also maintained an account. Source of funds available on request.
Andele busied herself on her computer for two minutes. "The account is open", she said. "He should move some funds into it within a week. Actually he has up to a month, but better sooner than later."
"The transfer will arrive within three days", said Lipp, noting down the details of Gudichev's new account while Andele photocopied Gudichev's documents. "Now, if I want to get the documentation moving for a corporate account, is Juta Johanna still Sirel's deputy in corporate banking?"
Juta Johanna was indeed still deputy head of corporate banking. So, two days later, when Gudichev's transfer from Bank Lugano to Bank Livonia had been received, and by which time Gudichev was back in Moscow, Lars went to see Johanna, another former colleague, whom he remembered as a stickler for compliance.
Lipp told Johanna exactly what Gudichev had told Kalne over dinner, which was easily done, since it was Lipp himself who had drafted not only Kalne's questions, but also Gudichev's answers. Lipp explained that the Vantor was a Swiss-registered trading house owned by Gudichev and a Swedish national. Vantor acted as an intermediary for Russian oil exporters. It would soon be developing a trading and treasury-management function in Tallinn through a new associated company registered in Estonia that was controlled by Gudichev and managed by Lipp himself. The new Estonian company, called Talcow Capital Partners, had no foreseeable need to raise capital or issue debt, but it would be conducting significant transactions with international customers. It would also be holding large cash balances which it would want to invest actively in various international financial markets.
Johanna replied that her boss, Sirel, had already cleared the relationship, and had also briefed the bank's COO. But for any large corporate account she needed to see an audited set of financial accounts every twelve months, starting — for a new company — eighteen months after the opening of the account.
Lipp replied that he, as chief executive of Talcow Capital Partners, would personally guarantee the timely filing of accounts. And, in the mean time, if she had any questions about the company or about particular transactions, then of course she could call him directly.
Lipp left on her desk a file containing notarised photocopies of Gudichev's identity documents and of his own identity documents, together with registration documents for Vantor in Switzerland and Talcow Capital Partners in Estonia. The account for Talcow Capital Partners was opened the next day with Gudichev and Lipp as signatories. This was the beginning of the end for Bank Livonia.
Elsewhere on The Browser, and of possible interest to Browser subscribers: Letters To The Editor, where you will find constructive comment from fellow-subscribers; The Reader, our commonplace book of clippings and quotations; Notes, our occasional blog. You can always Give The Browser, surely the finest possible gift for discerning friends and family.
In this episode: Bitcoin inventor Toomas Peters has finished his PhD thesis and has launched his new side-project, called Cicada_3301. He is wondering what to do next when he receives an email from his old friend Lars Lipp proposing that they work together on a new protocol allowing large sums of money to be transferred instantly between international banks on behalf of Russian oligarchs.
AFTER ASPIKE to thirty dollars at the end of 2011, the price of Bitcoin was hovering around five dollars in early 2012, making Toomas Peters's holding of the first million Bitcoins worth around five million dollars; which was not a bad return on an asset whose value had been zero when Peters launched Bitcoin just three years earlier.
True, daily trading volumes were still so small that the price would probably crash right back down to zero if Peters tried to liquidate his million Bitcoins all at once; nor could his capital gains from Bitcoin compare with his capital gains from Lynxite, the Internet platform which he had coded in 2003 and sold for half a billion dollars in 2008. But he sensed that the traction was there, and perhaps the critical mass was almost there, for Bitcoin to grow by further orders of magnitude — when the stars were in alignment. He would hold on to his Bitcoins for the time being.
His PhD thesis was, thought Peters, ready for submission, although he had been working seriously on it for less than a year. In it, he discussed what might happen if an instance of artificial intelligence was instructed to rewrite its own source-code. He had sold an early draft of the thesis to a start-up in Silicon Valley called NepoAI, which had subsequently invited him to join its advisory board; and just lately he had been using NepoAI's algorithms and computing power to generate complex logical puzzles which he had been posting to the Internet with the eventual aim of creating a sort of LinkedIn for people with IQs of 150-plus. For this project he was using the pseudonym Cicada_3301, which had once been the home telephone number of Jorge Luis Borges.
But still, Peters needed a next big thing; and possibly here it was, he thought, as he read an email newly arrived in his inbox from his one-time personal assistant, Lars Lipp. The two kept up with one another, so Peters knew that Lipp had taken a job with Bank Livonia after the failure of Peter's AI company, EstonAI, and also that Lipp had left the bank just a few months ago to run a start-up in Tallinn for an unnamed Russian billionaire.
Now, apparently, Lipp had a business proposition. His email read as follows:
T — I need your genius for speed and scale. My principals will be moving sums of $10-100 million through the European banking system. Seems to me such transfers could be done in seconds, but in practice banks can take hours or even days to process payments owing to manual verification. Could you/we design an online interface or app enabling the sender of funds (rather than the bank) to create and encode the data needed to route a transfer through one or a succession of banks to the designated recipient, such that the bank(s) will execute the transfer automatically and instantaneously on receipt of the sender's instruction, without human interference and resulting delay? We can trial the protocol with Bank Livonia, then generalise it to all banks — L
Peters thought for a moment. He would need to know much more about how Swift and other clearing systems worked. But if one conceptualised a bank transfer as a sort of one-time cryptocurrency, then the problem was readily soluble in principle.
Every bank transfer took the form of an encoded message containing the identity of the sender, an instruction to debit the stated amount from the sender's account, a reference number for the transaction, the identity of the recipient, and the number of the recipient's account.
There was no logical reason why such a message should not be created by the sender rather than the bank. The crucial elements were that the sender should not be able to specify any account other than their own from which the debit should be made; that the message should be securely encrypted; and that the sender must assume the entire transaction-risk as the price of bypassing the bank's controls.
Peters's reply to Lipp went as follows:
L — Yes. You catch me at a good time. I've pretty much got the thesis done, I'd like to get back to Estonia for a while, and I'd be interested in doing something that could scale across the whole banking sector. How about I block in three months, starting June 1, and you find me a neighbouring office, and we see how this goes — T
It was, in fact, Pavel Gudichev, Lipp's boss, who had raised the question of speeding up bank transfers, and Lipp had grasped his point at once. Already, to test their systems, they had sold two cargoes of Russian cement to a Serbian buyer, and, each time, the payments had taken two days to clear in each direction.
In Gudichev's view, if you could contract to sell ten thousand tons of cement instantly, why could you not receive payment instantly? "We ourselves do the risk assessment", Gudichev had said. "We trust the supplier to deliver and we trust the buyer to pay. What does the bank contribute by sitting on our money? How can we improve on this?"
When Gudichev was next in Tallinn, two days after Lipp's email exchange with Peters, Lipp explained his planned solution as follows:
"I have shared your question with my former colleague, Toomas Peters. He is also interested in the question, and he has the skills to address it. He is willing to commit three months of his time, starting in June, to creating a protocol which will allow corporate customers such as ourselves to specify and encode transfer requests in such a way that transfers can be executed automatically and instantaneously by participating banks. I myself will make a presentation to Bank Livonia suggesting that by adopting this innovation they will obtain a significant advantage over rival banks, first in Estonia and then in the whole of Europe, and I will propose that Talcow Capital Partners act as first user, test user, for the protocol. We will have to assume the risks of failure in our own transfers, and we will have to indemnify the bank against any associated risks or costs."
Gudichev said, simply: "Do it".
Lipp was surprised that Gudichev asked no questions. If their roles had been reversed Lipp would have been asking for more information about Peters, for the scope of any possible indemnity, for a schematic account of how the protocol would work, and for the likelihood that Bank Livonia would agree to give it a try.
Gudichev's apparent equanimity suggested either that he knew the answers already, or that he was indifferent to the risks, or simply that he trusted Lipp. Perhaps it was a mixture of these things.
Later that same evening Gudichev made a telephone call to a particular person in St Petersburg, using a particular telephone which Gudichev carried for such moments. The call was brief, a few words on either side:
Gudichev: The boy is doing well. We are where we want to be. We have opened the bank accounts. We have made the first trades. When I told the boy that we needed to find a way of moving our money without the banks' interfering, he understood the logic. He has a plan to do this using his friend Peters, just as you foresaw. This will happen in June. It will take three months, he says.
The Person: All good. Peters is the one we need. You have managed the boy perfectly. He is behaving well. No indiscretions so far. He may have a future. The Big House will be pleased.
If Lipp had overheard this brief telephone call, what might he have thought?
He would have bristled, certainly, at being called "the boy".
He would have been shocked to discover that Peters was in some way known to Gudichev's interlocutor, and that he himself had been recruited, at least to some extent, as a means of recruiting Peters. He would have wondered what the "Big House" was, though he might have guessed.
But even then he could have reconciled these revelations with his own understanding of what was really going on — namely, that he had been hired to assist Gudichev and a network of oligarchs in exporting billions of dollars' worth of commodities from Russia while creaming off huge commissions and evading taxes.
The opportunity to work with Peters in devising a protocol that might radically improve the efficiency of the European banking system now appeared to Lipp as an unforeseen bonus which might well, if it could be commercialised, profit him and Peters still more. The notion that they might be assisting in something altogether more sinister had not yet occurred to him.
Elsewhere on The Browser, and of possible interest to Browser subscribers: Letters To The Editor, where you will find constructive comment from fellow-subscribers; The Reader, our commonplace book of clippings and quotations; Notes, our occasional blog. You can always Give The Browser, surely the finest possible gift for discerning friends and family.
In this episode: Cryptocurrency pioneer Toomas Peters and former banker Lars Lipp propose a banking app enabling users to execute instant international bank transfers. They see it as a great commercial opportunity; so does Bank Livonia, where Lipp used to work. Lipp's current boss, Russian billionaire Pavel Gudichev, marvels that even the smartest people can be fooled, if handled correctly.
June 2012 — Tallinn, Estonia
"SO YOU ARE proposing that we give the customers the keys to the bank?"
This question came from Helmut Kirov, Bank Livonia's chief operating officer, one of six executives from the bank who were attending the presentation by Toomas Peters and Lars Lipp.
Peters and Lipp had agreed that Peters would handle purely technical questions, Lipp any other questions. Lipp responded:
"We are proposing that Bank Livonia allow certain preferred customers greater agency in particular transactions with the bank, always under the bank's ultimate control. Specifically, we are talking about international transfers of relatively large sums of money.
"In the case of such a transfer, it goes without saying that the customer knows to which account they are sending the money. They know how much money they wish to send. They know which account is to be debited because it is their own account.
"Even so, the customer must go to the bank, or more commonly to the bank's website, or to a dedicated terminal; they must complete a form requesting the transfer; the bank will review the request, turn it into a coded message, and send the message to the recipient's bank, via the Swift clearing system. The recipient bank will then act on the message with whatever degree of urgency, or lack of it, that it deems approriate.
"As a customer of Bank Livonia I can tell you that time taken to complete such a transfer can often be quite frustrating — and the opacity of the process only makes this worse. Why can an entire day elapse, sometimes more, between my account being debited and the recipient's account being credited?
"We are proposing a new protocol which will allow the sender to encode the entirety of a transfer request including an executable instruction to debit the customer's bank account and an executable instruction to credit the recipient's account. Initially the messages would probably be sent via the Swift clearing-house, but in due course they might be sent directly. There would some cost-savings for the banks involved, more importantly there would be immense gains in speed and satisfaction for the customer. I, as a corporate customer, would certainly change my bank to get access to such a service.
"I can imagine your most pressing question: Can this be done securely? Yes it can. Banks around the world rely upon secure encryption for almost all of their operations. Every international transfer is encrypted securely. Therefore a transfer originated by a customer can be just as secure as a transfer originated by a bank. It can use the same encryption. Or better."
Next to speak, after Kirov had nodded his satisfaction, was Sigrid Kesta, Bank Livonia's chief technology officer:
"On purely technical level, I am persuaded that something of this kind might be feasible. I can also say, without exaggeration, that Mr Peters is a legend here in Estonia. The fact that he will build the app is a major factor. So Mr Peters, if I may ask: Are you confident that you can write an application which requires no new coding on the bank's side, no changes in our core operating systems?"
"Yes", said Peters. "I may have some questions about optimising the code for the particular use of Bank Livonia once we are approaching a beta version, but our intention is to create an application which can be adopted and integrated by any bank anywhere. Bank Livonia will have a first-mover advantage, but the ultimate aim will be to establish this protocol as an industry standard."
"To control an industry standard would confer a great deal of market power", said Kirov. "Who would own the intellectual property?"
To this, Lipp responded:
"A newly incorporated company will own the intellectual property and the rights to all fees and royalties. The company will be owned one-third by Mr Peters, one-third by my company, Talcow Capital Partners, and one-third by Bank Livonia. But Bank Livonia's shares will be non-voting shares. This will make our product more acceptable to banks who are otherwise your rivals. And for some time at least we will offer new shares to each additional bank that joins our network, diluting our own shareholdings."
Kirov did the summing-up. "Obviously we will need a great deal more technical discussion. For the moment let me confirm my understanding of the general principles. You will create the product, as specified in this presentation, at your own expense. Talcow Capital Partners will partner with Bank Livonia in testing and proving the product. Talcow Capital Partners will unconditionally guarantee Bank Livonia against any loss or damage which might arise during those trials. Bank Livonia will have one-third ownership of the product. But it will not have voting powers, and its interest may be diluted over time."
"Exactly so on all points", said Lipp.
"In which case, we shall aim to give a you a decision directly", said Kirov. "Thank you for a most intriguing presentation."
Two days later Bank Livonia accepted the proposal, subject to conditions and clarifications which amounted to little more than boilerplate. While Lipp was finalising the contract, Peters was getting down to work in his temporary home at the Radisson Hotel, just across the street from Talcow Capital Partners.
The more Peters thought about it, the more he foresaw the inevitable disappearance of Swift, the international clearing-house founded fifty years earlier by European banks. Nowadays, any clearing-house was a risk in itself. Hack it and you hacked the whole network. Direct transactions using hash-based encryption and blockchain architecture were not only faster and cheaper, they were also more secure.
That was endgame, but to reach the endgame you had to make the right opening moves. First, they would get Bank Livonia on board. Then, they would get other banks on board, lots of banks, one by one. Then they would change the game.
The key feature of the new app would be its capacity to debit the user's bank account directly via the bank's own operating system. For this to be allowed, there would have to be absolute certainty that no customer could debit any account other than their own.
Peters knew that this could be accomplished using public-key cryptography. He knew that his code could be future-proofed against foreseeable advances in computing power. But he also knew that he would have to persuade others that the app was bullet-proof, which might be the hardest task of all.
No doubt Peters would have seen the situation somewhat differently if he had been in a position to overhear a short telephone conversation later that same evening between Lars Lipp's boss in Moscow, Pavel Gudichev, and a certain person in St Petersburg. But then he might not have lived to tell the tale.
The conversation went like this:
Gudichev: The Estonian bank is on board. Time horizon: Three months. We produce an app that moves big money, they test it, we make the tests work, and then they launch it.
Person: Let me know what resources you need. Unbelievable, isn't it? If anybody came to me and offered to fiddle around in my bank accounts they'd get one on the snout.
Gudichev: We all have our skill-sets.
Person: Is all well with the boy?
Gudichev: He sees only a great business opportunity. And not the same one that we see.
What Gudichev saw was a back-door into the international banking system, being built for him by a person uniquely qualified to do the job, and with the active assistance of a European bank of impeccable reputation. The Big House would be pleased.
Elsewhere on The Browser, and of possible interest to Browser subscribers: Letters To The Editor, where you will find constructive comment from fellow-subscribers; The Reader, our commonplace book of clippings and quotations; Notes, our occasional blog. You can always Give The Browser, surely the finest possible gift for discerning friends and family.
In this episode: Money is pouring into the bank accounts of Talcow Capital Partners — and out again, thanks to an automated banking app devised by CEO Lars Lipp and coded by cryptocurrency pioneer Toomas Peters. According to Lipp and his Russian boss, Pavel Gudichev, Talcow Capital's commodity-trading business is booming. But only Gudichev knows what their real business is.
November-December 2012 — Tallinn, Estonia
THE SOFT LAUNCH of their new banking app was a quiet triumph for Lars Lipp and Toomas Peters. After thousands of trial transactions during three months of beta-testing, the first live transactions went perfectly smoothly.
Thanks to the new app, which Lipp had christened "Chiasso" (as an acronym for "Client Has Instant Authorisation to Send Sums Overseas"), customers of Bank Livonia could transfer money to other banks around the world without any action on Bank Livonia's part. Chiasso sent payment orders to Bank Livonia which were executed automatically by the bank's own computers.
This was made possible by the magic — or, rather, the mathematics — of public-key cryptography. Peters built Chiasso using "hashes" — encrypted versions — of commands which Bank Livonia's computers could recognise, decrypt, and validate. But the hashes in themselves were worthless. The original commands were unknown to Peters. The bank's security was unimpaired.
It would be an uphill struggle now to persuade Swift, the international banking clearing-house, that Chiasso was secure. But getting Swift on board had become less urgent after Denmark's Dansflur Bank, which had branches around the world, had agreed to trial the system.
Dansflur's involvement had been Lipp's initiative, of which Bank Livonia had quickly seen the logic. Lipp pointed out to Dansflur that, since Dansflur had a large international network while Bank Livonia had none, the banks' interests were complementary, and if Dansflur were to become the recipient bank for payments via Chiasso, then it would also become a principal international bank for Talcow Capital Partners and perhaps for the whole of Vantor, Gudichev's oil-trading business. Dansflur promptly opened accounts for Talcow Capital Partners at its international branches, forty in all.
Lipp's Russian boss, Pavel Gudichev, spent the early part of November in Tallinn. He conferred intensively with Lipp, charmed and congratulated Peters, and paid several visits to Bank Livonia and to Dansflur Bank.
Gudichev explained to the two sets of bankers that Talcow Capital Partners' commodity-trading business had been growing rapidly, and would grow even more rapidly now that it had solid relations with Russian producers and exporters. He named three large mining and smelting companies quoted on the London and New York stock exchanges.
Already, he noted, the Tallinn office, under Lipp's management, was settling contracts worth tens of millions of euros each week for physical cargoes of coal, copper and aluminium exported from Russia.
There were days on which Talcow Capital Partners' liquid balances with Bank Livonia and Dansflur Bank approached one hundred million euros. Were the banks confident, asked Gudichev, that they had the structures in place to handle such business?
"Most certainly", said Bank Livonia's chief operating officer, Helmut Kirov. "Most certainly", said Enrik Enrikson, Dansflur Bank's regional CEO for the Baltic countries. "Then we have a green light for growth", said Gudichev.
In the course of the next four weeks the value of contracts for purchases of physical commodities settled through Talcow Capital Partners increased to an average of one hundred million euros per day. Talcow Capital Partners' cash balances with Bank Livonia and with Dansflur Bank increased to one billion euros at each bank. Kirov and Enrikson were, to be fair, not only gratified, but also a little perturbed. Two billion euros was ten per cent of Estonia's annual GDP.
Kirov and Enrikson talked separately with Lipp. To each of them Lipp gave the same reassurance. This was what happened when you did a good job, when you had the right contacts, when you had the confidence of Russia's biggest commodity producers. They gave you their business. Would Estonia prefer that the business went elsewhere?
"Of course not", said Kirov, who knew that Bank Livonia's profits in 2012 would be twice those of 2011, thanks largely to Gudichev. "Of course not", said Enrikson, whose numbers in Estonia were the wonder of his bosses in Copenhagen.
"Excellent", said Lipp. "And please allow me to give you a heads-up that there will be another step-change in our business — upwards, of course — no more than one or two weeks from now. We are about to start buying and selling derivatives. We should have been doing that from day one" — he smiled disarmingly — "but it has taken me a few months to learn the ropes".
Two weeks later, the frequency of transactions in Talcow Capital Partners' bank accounts exploded overnight. Programmes on Lipp's computers, written for him by Peters, began executing thousands of orders per day on financial markets in Europe and America. The transfers were routed through the Chiasso app; there was no way that Bank Livonia could have handled such a volume of business by conventional means.
For Lipp, the move into derivatives was something for which he had long been impatient. By managing his company's cash balances actively in the derivatives markets he hoped to generate returns far exceeding the trivial interest that was paid by the banks, and eventually to be entrusted with Vantor's far larger balances.
For Peters, automated derivatives trading was a chance to compare two sorts of intelligence: human intelligence and artificial intelligence.
His human intelligence came from Cicada_3301, a network of high-IQ outliers which he had assembled by seeding the Internet with dizzying logical puzzles. A hundred or so had stayed the course. Now, under the guise of another extended puzzle, he was feeding them with sequences of numbers and asking them which number came next. The numbers were daily changes in commodity prices.
Peters's artificial intelligence came from NepoAI, the Silicon Valley start-up to which he was an adviser. He was sending the same streams of numbers to neural networks which he had configured on NepoAI's instances, and asking them the same question: What number comes next?
The master-programme which Peters had written for Lipp made one-third of its trades based on Cicada's predictions, one-third on NepoAI's predictions, and one-third on Lipp's intuitions. A few days into the experiment the Cicada network was ahead.
Everybody, in other words, was perfectly happy. Even Gudichev was happy. The plan which he had been painstakingly executing was about to enter what he thought of as its "kinetic" phase.
One day in early December Gudichev called, as he did from time to time, a certain person in St Petersburg, using a certain phone which he reserved for that purpose. Even so, they used code-words for third parties because, in the end, who ever could be sure. "Office A" was Bank Livonia. "Margarita" was Gudichev's personal assistant. "Next door" was Geneva. "The new place" was Tallinn. "The boy" was Lipp. "Bimbo" was a criminal authority so terrifying in reputation and physique that even Gudichev's interlocutor in St Petersburg, who was no slouch in either of those departments himself, was an angel by comparison. As to what "The Big House" was, you can doubtless guess.
Gudichev: We are ready to go. You can tell Bimbo now. Use Office A. We've got at least two weeks before Office A reacts.
Person: Where will you be?
Gudichev: Next door. Margarita will be in the new place.
Person: I will have eyes on the boy. What about the Big House?
Gudichev: Mine. I've briefed the relevant person.
One might say that in the next two weeks all hell broke loose, which it did, but nobody noticed. Using the Chiasso app, a total of two billion euros was sent from Bank Livonia to thirty separate branches of Dansflur Bank, from where the money was transferred to banks in Jersey, Monaco, Cyprus, the Netherlands, London, Andorra, New York, South Dakota, the Cayman Islands and Bermuda. The largest transfers went first to Dansflur's largest branches. Lipp had taken the precaution of warning the senior account officer at each Dansflur branch to expect activity in the Talcow Capital Partners account over the coming fortnight, and to each he gave a plausible business reason.
It was Bank Livonia's chief economist in Estonia who first raised an eyebrow; not because he had any idea what was going on inside his own bank, but because he had been looking at the Estonian Central Bank's daily figures for flows of funds within the banking system. These were bland enough as tables of numbers, but if you charted them, you saw spikes with no obvious relation to the real economy. He raised the point, for information purposes only, at a morning meeting for senior staff, chaired by Helmut Kirov.
"I will ask the Central Bank for clarification", said the economist.
"Perhaps you and I could have a private word", said Kirov to the economist when the meeting was over.
Kirov became, at that exact moment, the first outsider to guess what Gudichev had been doing.
Elsewhere on The Browser, and of possible interest to Browser subscribers: Letters To The Editor, where you will find constructive comment from fellow-subscribers; The Reader, our commonplace book of clippings and quotations; Notes, our occasional blog. You can always Give The Browser, surely the finest possible gift for discerning friends and family.
In this episode: We overhear a conversation in St Petersburg between Bimbo, a Russian mafia boss, and Griff, a long-time friend of former KGB officer Pavel Gudichev. We begin to understand why Gudichev has founded a commodity-trading company in Estonia. Evidently, its current purpose is to launder money for Bimbo, among others. But is that enough to explain the Kremlin's keen interest?
December 2012 — St Petersburg
BIMBO WAS FAT MAN of sixty with dyed-black hair, tattoos down his arms, and a cigarette permanently jutting from the side of this mouth. Once he had been an Olympic wrestler. Now he was a slob and he knew it, but he was a slob in a Brioni suit.
He was sitting in a restaurant in St Petersburg which had been closed ("private party") for the duration of his visit. The restaurant was called The Captain's Table. The man sitting across from him was the restaurant's owner, known to his close friends as "Griff" — from the Russian word for "vulture", which was a fair summary of Griff's appearance from the neck up.
We have overheard Griff two or three times in this story, talking on the telephone with Pavel Gudichev. Gudichev had served with the KGB in Petersburg in the early 1990s, when Griff was rising through the ranks of the Tambovskaya, which was then the city's biggest organised-crime outfit. They had a lot of history in common.
Griff was eighteen when a Soviet court sentenced him to ten years' imprisonment for robbery with violence. He served all ten and rather enjoyed them. While in prison he joined the Tambovskaya, acquired a ferocious horde of tattoos, killed three people with his bare hands, read Dostoevsky, played football, and learned to cook. When he came out in 1991 the Tambovskaya gave him a job as a bouncer at a nightclub on Nevsky Prospect, then put him in charge of the club bar, then promoted him to manager of the club with his own crew.
In mafia terms Griff was a "made man". But he had never become a capo, an avtoritet. In this he deferred to Bimbo, his companion that afternoon, who ran the business affairs of the Kubanskaya, the largest criminal gang in Moscow and in all of Russia ("excluding", as Bimbo sometimes joked, "the Russian government").
The Kubanskaya, like all big Russian gangs, had two main "verticals".
The "business" vertical, under Bimbo, acquired and ran the Kubanskaya's corporate assets, which over the years had come to include an oil company in Siberia, three large mining companies, two aluminium smelters, a chain of distilleries, a property portfolio, a supermarket chain, five casinos, and a shipping line.
The other vertical, "human problems", was head by Pasha The Punisher. Nobody ever used Pasha's given name, nor even knew it, save for Bimbo and a very few others. If Bimbo offered to take over your company, and you declined his offer, then you met Pasha. If you worked for Bimbo, and you stole from him, then sooner or later you met Pasha. If you worked for Bimbo, and another gang started giving you trouble, then you told them: "We are with Pasha". If they persisted, which they rarely did, then they met Pasha.
Pasha was no philistine or fool. His grandfather had been a member of the Soviet Academy Of Sciences. His father had been a member of the Writers' Union. But Pasha's formative years had been spent with the Soviet Army in Afghanistan. From there he returned with a range of appetites which were frowned upon in most walks of civilian life, and which sometimes taxed even the patience of his brothers in the Kubanskaya.
Nor, for that matter, was Bimbo any slouch. He had a post-graduate degree in mathematics and had taught for three years at Moscow State University before transferring his attentions to the delights of private enterprise in the early years of Mikhail Gorbachev.
Bimbo had persuaded the owner of a small bar in the Arbat to let him run a nightly poker game with friends from the university and then with any regulars who cared to buy in. He paid his percentages to the bar owner, and to the Kubanskaya, which "protected" the bar. He explained to his new Kubanskaya friends that they could probably make use of a mind like his. Within a year he was keeping the Kubanskaya's books, managing the Kubanskaya's money, and identifying the companies which the Kubanskaya would acquired for pennies on the dollar during the privatisations of the Yeltsin years.
If this had been all that Bimbo had done, then he might, like Boris Berezovsky, have become a public figure, an "oligarch", in the Yeltsin years. But Bimbo had also done things from which even Berezovsky had recoiled. He had sold nuclear warheads to Chinese middlemen from the ex-Soviet stockpile. He had co-founded the cartel which had monopolised Russia's imports of cocaine since the early 1990s and which still did so. He was better off in the shadows.
He drank tea, looked expectantly at Griff, and waited. Griff looked again around the empty room, leaned forward, and spoke just loudly enough to be heard against the background music:
"The Estonian option is active. Nobody knows anything. The banks understand that Gudichev has a trading business and a financial business. They're dizzy with the amount of money he's been running through their books. They're using this gadget of his that makes international transfers without the bank having to lift a finger. Basically, we can send anything anywhere."
— "What if they catch on?"
"The very-worst-case scenario is that the banks close our accounts, after giving us enough notice to empty them. Under no circumstances will they willingly blow the whistle. The last thing they want is a reputation for confiscating their customers' money, or for shopping their customers to the police. Gudichev thinks we're fine unless something very fundamental changes. We're giving the banks terrific business, we're letting them set their own commissions, they're making huge profits out of us, and we are giving them a story that they can believe in for as long as it suits them to go on believing in it. So, no recourse, no real downside."
— "And Gudichev's commission?"
"Half a percentage point. He's put a lot of money into this."
Gudichev had indeed put a lot of money into "this", the Estonian project, although, to be fair, none of the money was his own. By drawing on the cashflows of Vantor, which was his oil-trading business in Switzerland, and with quite a lot of technical help from the Russian security service, the FSB, Gudichev had created what was by all appearances a thriving commodity-trading business in Tallinn.
And, occasionally, Gudichev's Estonian company, Talcow Capital Partners, did indeed trade a commodity or two, if not remotely on the scale that it claimed. Now and again, when a buyer in Jersey settled via Talcow with a seller in Monaco for a train-load of copper for collection or delivery from Kazakhstan, then a train-load of copper did indeed move from Kazakhstan to Kaliningrad, or from Kaliningrad to Shanghai. But not very often.
The most difficult time for Gudichev was when he wanted to show balances of a billion dollars at both Bank Livonia and Dansflur Bank in Estonia. For this he had to borrow money from the Russian Central Bank, which in turn required authorisation from the Kremlin ("The Big House", in Gudichev's and Griff's code). Since this was a project of national interest, the authorisation was granted.
From Gudichev's point of view, everything was now going as well as it possibly could. But he had to accept, in simple logic, that any chain of actors and events, however robust, must have a weakest link. In this chain the weakest link was Lars Lipp, the Estonian banker whom Gudichev had hired to run Talcow Capital Partners.
Lipp was irreplaceable. And, as Gudichev had been taught in his KGB training, in an operation of national importance, no asset could be irreplaceable.
But this was not a KGB project. Gudichev was inclined to let Lipp run. At some point Lipp might even be brought inside the tent. Or not. The immediate aim was to make Bimbo happy, which meant laundering as many billion dollars and euros as Bimbo thought it useful to launder. Eventually Lipp might realise what he was doing. But even then, all, being well, Lipp would not know why he was doing it.
To Gudichev, the important thing was to know your enemies. As a general rule your worst enemies were your former friends when things went badly. If Gudichev lost large quantities of Bimbo's money then Bimbo might (literally) have Gudichev flayed alive, and the Big House would prefer not to know the details.
By comparison with Bimbo, Gudichev had nothing to fear from the European monetary authorities, or anybody else outside Russia. He would launder Bimbo's billions, and Bimbo's friends' billions, and then he would see.
Elsewhere on The Browser, and of possible interest to Browser subscribers: Letters To The Editor, where you will find constructive comment from fellow-subscribers; The Reader, our commonplace book of clippings and quotations; Notes, our occasional blog. You can always Give The Browser, surely the finest possible gift for discerning friends and family.
In this episode: For twenty years Bimbo has run Russia's largest organised-crime syndicate. The Putin years have been good to him. But Bimbo fears that if Russia invades Ukraine, then the West will impose sanctions on Russia. Bimbo decides to get his money out of Russia. He will make use of a money-laundering operation in Estonia, run by an old Kremlin crony, Pavel Gudichev.
January 2013 — Moscow
LET US CALL Pavel Gudichev's business in Estonia by its proper name. It is money-laundering, though Gudichev has concealed this purpose among other activities that are sometimes real enough in their way.
Shipments of physical commodities are occasionally traded. Gudichev's CEO, Lars Lipp, plays with real money on the world's financial markets.
But these are distractions. Everything that Gudichev does is designed primarily to assist and conceal the movement of money from Russia to Estonia and from Estonia into the rest of the European Union, and from there, as a general rule, to anonymised tax-havens in the less-populated areas of globe.
And so what? Almost all of the flight capital leaving the former Soviet Union since 1990 has been laundered in one way or other, to evade the capital controls and reporting requirements of the Russian government and to evade scrutiny by other countries' police and tax authorities. To a first approximation all great wealth in Russia is unexplained wealth.
It would have been hard to explain in the 1990s, for example, why mid-ranking civil servants and policemen drawing official salaries of $5,000 per year were depositing millions of dollars in Panamanian banks and buying villas in Marbella; or how Bimbo and his friends in the Kubanskaya were banking hundreds of millions of dollars in (say) Cyprus each year while declaring no corresponding sources of taxable revenue in Russia or anywhere else.
And yet, experienced as Bimbo was in such matters, when he heard about what Gudichev had in mind, he still found Gudichev's project unusually interesting for at least three reasons. First, thanks to the Chiasso software which bypassed the banks, Gudichev's channel could handle thousands of transactions per day. Second, it was concealed within a trading-house, so it could handle high-value transactions. Third, it was a secret, at least for the time being. And timely.
For, even in Russia, secrets were hard to keep. Every transaction had its counterparty. Every bribe had its recipient. Over time, the circle of knowledge necessarily widened. And knowledge was power.
From the early 1990s to the early 2000s the balance of power had been in Bimbo's favour. The Kubanskaya knew everything and feared nobody. The Kubanskaya had its geographical territories, centred on Moscow, and its spheres of influence, including the including the oil industry. Anybody who approached a red line was bribed or frightened. Anybody who crossed a red line was punished. If the Kubanskaya ever needed to have the law on its side, it could mobilise a hundred or so parliamentary deputies whom it kept on retainer.
But the balance changed decisively 2003. That was when President Vladimir Putin arrested Mikhail Khodorkovsky, the owner of the Yukos oil group and the richest man in Russia.
Khodorkovsky was not, by Bimbo's standards, a crook. But Bimbo was willing to forgive him that. He was a macher. On the other hand, if Khodorkovsky was not a crook, then why arrest him as opposed to anybody else?
The message was clear enough, thought Bimbo. Putin was betting that, however parlous the state of the Russian government, the president still commanded more firepower than anybody else in Russia. If a president concentrated that firepower on actual and potential rivals and enemies, one by one, refusing their attempts at settlement, he would eventually extract far more from them than they would ever have offered him willingly.
And Putin was right, thought Bimbo. The army, the KGB, the GRU, the border guards, the police, they all still existed, they only needed to be moblised.
Bimbo remembered a supposedly true story about Boris Berezovsky from when Berezovsky was still a small-time car-dealer. A robber with a gun had surprised Berezovsky in his stairwell:
Robber: Your money, or your life.
[Silence. Ten seconds passes.]
Robber: For f—s sake, your money or your life.
Berezovsky: Shut up. I'm still thinking.
There you had the dialogue between Putin and Khodorkovsky in a nutshell. Except that, on this occasion, Khodorkovsky had not made a deal and walked away.
After reflecting on Khodorkovsky's arrest Bimbo decided that the Kubanskaya would henceforth pay tribute to Kremlin. One-third of revenues. The Kremlin would not have to ask. The Kubanskaya would simply give.
Bimbo's proposal, informally made, was warmly received. Bimbo was on the right side of history. He and Pasha became almost honorary members of the presidential administration. They had flashing blue lights for their cars and free access to the very heart of the Kremlin.
Pasha became a particular friend of Griff, the gangster from Petersburg who had been running the Kremlin kitchens and was now provisioning the Russian army. Griff had an idea to which Pasha quickly assented. The Kubanskaya's footsoldiers should form the core of a new militia which would undertake special operations overseas on the Kremlin's behalf and for their own profit. This was the birth of Wagner.
The decade which followed was a golden one for the Kubanskaya. The most valuable thing in Russia was Vladimir Putin's signature, in or out of office, and it was Bimbo's for the asking.
But towards the end of that golden decade, after Putin was re-elected president in 2012, there came a time when Bimbo began to worry.
Putin had stepped back from the Presidency in 2008 rather than rewriting the constitution, which limited him to two consecutive terms. His timing proved fortuitous: He was diagnosed a year later with prostate cancer. The news never got out. The Kremlin clinic declared him cured after radical surgery and radiotherapy, But by 2012 he was clearly a changed man.
According to Griff, who spoke to Pasha most days, Putin had never been the easiest of bosses. But now Putin was impossible: moody, irritable, depressed, unpredictable, paranoid. Some of that was down to the steroids he was still taking. But it wasn't just the steroids. The Kremlin's daily cocaine order, as Bimbo had good reason to know, was spiralling into the tens of grams.
According to Pasha, Griff was now one of only two people who saw Putin face-to-face every day. Other people, even Putin's chief of staff in the next office, mostly communicated with him in video calls. The other person who saw Putin every day was the deputy chief of staff, Vadim Spengler.
According to Griff, it was Spengler who was filling Putin with cocaine and with ideas that seemed plausible only to people who were full of cocaine. Spengler was urging Putin to annex Crimea, invade Ukraine, drop nuclear bombs on Nato. According to Spengler, Putin was already the greatest leader in Russian history. He had saved the country from disintegration. Peter the Great and Ivan the Terrible were dwarves by comparison. Now Putin should take his place on the world-historical stage by restoring the Russian Empire.
Bimbo found all of this, if not impossible to believe, then at least deeply unwelcome. He thought that perhaps he should send a car for Spengler after work one evening. In Bimbo's vernacular, "sending a car" meant sending a car to hit an inconvenient person at a very high speed. Bimbo was about to suggest something of the sort to Pasha, when Pasha let slip a piece of information which suggested that things had already gone too far: Wagner had sent a thousand soldiers to Crimea in civilian clothing. The Russian naval base at Sevastopol was keeping them fed and sheltered while they waited further orders from Spengler.
Bimbo read the newspapers from time to time and he knew what happened when a country (other than America) invaded another country. Western countries imposed sanctions. They started with financial sanctions. If Putin was possibly about to invade Crimea, or the whole of Ukraine, at Spengler's urging, then this would be a very good time to have as little money inside Russia as could possibly be arranged.
Putin's change of personality had come as something of a surprise to Bimbo, but it had been apparent rather earlier to Pavel Gudichev, who had been close to Putin since their KGB years in St Petersburg, and who had watched with concern Putin's psychological deterioration due to cancer, steroids, and cocaine.
A few months before Putin's re-election in 2012 Gudichev had decided that very large sums of money might soon be leaving Russia, and had started putting his money-laundering operation in place in Tallinn.
So when in 2013 Griff told Bimbo that a new laundromat was in place; that it was Gudichev's private initiative; that nobody else knew about it; and that Bimbo could move his own and anybody else's funds through there, so long as none of Bimbo's customers knew how the money was moving; then Bimbo suspected for a moment that somebody had been reading his thoughts. It was almost too convenient. So he would start with other people's money, and if that worked, his own money would follow.
As we know, Bimbo's money came from all sorts of places, legal and illegal: Drugs, gambling, human trafficking, mining, smelting, arms-trafficking, nightclubs, real estate, oil, gas, extortion, to name but a few. In all of these areas he had peers and rivals. He talked to these counterparts in the most oblique and confidential terms. He explained why, in his view, they might welcome an opportunity to move large sums of money out of Russia in such a way that nobody, not even — and perhaps especially — the Kremlin would know what they had done. For this service he would charge five percentage points of the sum transferred. Which, upon haggling, he reduced to three. Exceptionally two.
The first part of our story is almost complete. We have the people, the mechanism, the motive. The largest money-laundering operation in European history is under way. But where does it go from here? Who is fooling who?
Gudichev is fooling Lipp, if Lipp believes that Gudichev is trading commodities.
But Lipp may be fooling Gudichev, if Lipp has already guessed that Gudichev is laundering money (or, indeed, if Lipp has some quite separate project of his own).
Lipp may be fooling Toomas Peters, the cryptocurrency pioneer: We have no idea how Lipp explained Gudichev's business to Peters.
Peters may be fooling both Gudichev and Lipp, if Peters has built some back door into his Chiasso banking app.
Gudichev, Lipp, and/or Peters certainly believe that they are fooling their bankers to various possible degrees and in various possible combinations; but are the bankers really being fooled, or do they know perfectly well what is going on, and are happy to take their profits?
Are the bankers fooling their bosses and their regulators? Perhaps. There again, everybody has their price.
Many of these uncertainties may, and probably will, be revealed in the next episode.
But what about Griff and Bimbo?
Would you care to fool Bimbo, who runs the largest organised-crime-gang in Russia?
Would you care to fool Griff, who runs a private army and sees Putin every day?
There must be another level at which all of these interests can be reconciled. Can you see what it is?
