Underflow

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?

To be continued ...