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2 The Third way to win big - or
lose By John Helmer in Moscow
MOSCOW - The modern history of making
money the easy way - by taking it from people who
didn't know they had it, and couldn't notice when
it was gone - is founded on the most elegant of
the irreducible fractions, one-third.
According to a series of reports this
month by David Leigh and Rob Evans of The Guardian
in London, the influential Saudi Prince Bandar bin
Sultan has been on the receiving end of a
quarterly payment of 30 million pounds sterling
(US$60 million) every three
months
for at least 10 years. That totals about 1.2
billion pounds. This purports to be an arranging
fee for a series of arms purchases by the
government of Saudi Arabia from British arms
manufacturer BAE Systems. So far, the transaction
series has been worth about 43 billion pounds. The
money for Bandar was not characterized as
commission, but as quasi-official fees for
marketing services. In short, about 2.8% of deal
value.
The sums look enormous, and they
are. But the percentage is paltry. It hasn't
proved to be illegal in the United Kingdom
(bribery, fraud, perjury, racketeering,
money-laundering, etc), because the prime minister
put a stop to prosecution. The US government is
about to decide whether it wants to go further.
The Guardian also reports that
"accidentally released UK documents reveal that
the basic price of the planes was inflated by 32%,
to allow for an initial 600 million pounds in
commissions". That means the British got all the
deal value they thought they were entitled to; the
extra was actually paid out of the Saudi public
purse. The announced transaction price was a cover
for concealing the larceny from the Saudi man in
the street.
Someone in BAE may one day be
obliged to testify as to why 32% was selected, not
33% - one-third. It looks as if it was the
simplest way to accommodate the round figures that
Bandar, his pop and their mates demanded from
BAE's initial deal price. Possibly it was a
religious decision - to avoid the third, and
preserve the recipients' good fortune. For pious
Muslims revere the Third no less than Christians
and Jews - there are, for example, three holy
cities for pilgrimage, Mecca, Medina and
Jerusalem. Christians revere the Holy Trinity; and
Jews divide themselves into three tribes, led by
three patriarchs, chanting prayers three times a
day; and so on. King Solomon made the point for
all believers: "A three-ply cord is not easily
severed."
In Moscow, the Third is the
orthodox rule of business - it's the amount of
deal value in Russian asset transactions, which is
generated over real or fair value, to pay
arranging fees, intermediary fees and shares. For
example, when Roman Abramovich agreed in 2005 to
sell his interests in the source of his fortune,
Siberian Oil - the Sibneft oil company - to the
Russian state company Gazprom, the deal price of
$13 billion is understood to have included
one-third for distribution to related interests.
Allegations of personal corruption are rife, and
spill into the anti-Vladimir Putin Western media
from time to time.
But when in 2006
Abramovich's holding company bought a controlling
stake in the Evraz steel group, Russia's largest
steelmaker, for an undisclosed price, the deal is
understood to have been paid, in part, from the
Russian Third. And when and if the Kremlin orders
Abramovich to transfer that stake to a
state-controlled steelmaker such as Russpetsstal,
a division of the arms monopoly Rosoboronexport,
you can be certain that the valuation and deal
price will be arranged to allow one-third to be
creamed off and distributed to all sorts of people
on all sides of the deal.
It is necessary
to understand that in Moscow, as in Riyadh, the
taking and then sharing of the Third is not wrong.
More than that, it's that fraction that makes the
deal possible in the first place. It's therefore
normal business practice. Today, that is.
Russian asset history since 1991 is
testimony to what the outside powers celebrated as
the reform of all time, the destruction of Soviet
economic, political and military power. In the
case of natural resources underground, such as the
world's largest reserves of gas, or of oil,
nickel, platinum, etc, the assets were taken by a
handful of men whose names were on the A-list for
National Day celebrations at the British and US
embassies. Their take was not 33%, but 100%.
High-ranking government officials acquired
nicknames reflecting what was supposed to be their
shares in the process - "Pasha Mercedes" and
"Misha Two-Percent" are well known for doing
financially better than their monikers suggest.
Taking the assets back for the common good
of Russians has been President Vladimir Putin's
self-appointed task, and the one for which he is
justifiably popular. (It should be remembered that
the Russian Communist Party did not advocate doing
to the oligarchs what Putin did - until after he
had started.) It has been a difficult task. If
prosecuting the asset thieves according to Russian
law, and confiscating the assets, had been Putin's
only option and modus operandi, there would
not have been enough forensic accountants,
prosecutors, judges and jail space to sustain the
process.
And so it has happened that the
Third has been devised to make the return of
assets relatively quick and, from an
administrative point of view, relatively
non-disruptive of the revenue, profit and
investment-generating process, on which the
revival of the Russian state depends. This is
different from the Bandar Bang - that third is
paid by BAE to keep supplying a commodity the
Saudi state doesn't need, for a price its people
can't afford, for the enrichment of the ruling
family, whose corruption is the principal reason
they are obsessed with military security, and
incidentally, the principal reason that the man
named Osama bin Laden exists.
The Russian
Third is different. It pays the state's
administrators the premium that is needed to
ensure that they have a greater incentive to
return the assets than to allow the thieves to get
away
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