Latent Hazard

by Piers Venmore-Rowland

  ‘Now for the scary bit,’ said John looking at his notes. ‘To quote Mario, “In a crazier world, the PhD dissertations of Tufayl, Talal and Furud when put together could be viewed as an instruction kit for building a financial bomb . . .’

  Kate, who had been listening quietly and intently, suddenly sat up and took notice. ‘Explain, please.’

  ‘Rafi knows more about these things than I do,’ said Jeremy. ‘If I read out the titles, perhaps Rafi can explain? Sheikh Tufayl started his on: “Sovereign credit ratings and public sector debt”, but amended it after his mid-stage viva to: “The impact of energy shortages on the financial markets”. Basel Talal’s thesis was on “The identification of business failure and contagion in finance, insurance and banking sectors using multifactor models”. He looked mainly at the reasons why these businesses got into financial trouble and the ripple effects that this could cause.’ John looked at Rafi. ‘Does that make sense?’

  Rafi nodded.

  ‘Jameel Furud’s thesis,’ John continued hesitantly, reading carefully from his notes, ‘was on “The risks of derivative products in destabilised financial markets”. It wasn’t an analytical piece of work, but looked at the limitations of the regulatory framework and the shortcomings of the value-at-risk models used by financial institutions.’ John paused and looked at Rafi to check that what he was saying made sense.

  Rafi nodded again.

  ‘Jameel’s thesis considered whether it was possible for a significant number of small items to go below their risk management radar screen, with the consequence that if the markets took a plunge one or more might become insolvent. It considered the associated problem of contagion.’

  ‘I agree with Mario,’ said Rafi, ‘that if one puts the three theses together – energy shortages, with business failure and large losses in the derivative markets – it makes for a very volatile and potentially dangerous cocktail.’

  Emma and Kate looked concerned.

  ‘Do have something to eat,’ said Jeremy to John. ‘I’ll do Miti.’

  John smiled and tucked into his food.

  ‘Miti Lakhani’s thesis was on “Identifying drivers of economic prosperity in developing countries”.’

  Wisps of ideas were swirling around inside Rafi’s head. They didn’t paint a reassuring picture. The Bishopsgate bombing was only a distraction. Jameel and his associates were after a far larger target.

  Sensing Rafi was deep in thought, Kate stepped in. ‘Thank you both. That was an extremely useful synopsis! You did well to find Mario. We’re fortunate that he took such a keen interest in the group.’

  ‘All thanks to Jameel’s fling with his girlfriend,’ said Emma.

  Kate looked re-energised. ‘I reckon you’ve found us our ringleaders. I’m uncertain where Miti fits in, though. Thank you both. Any questions?’

  ‘I have one,’ said Emma. ‘Where’s the vice chancellor now?’

  ‘I’ve arranged for him to spend a few days enjoying the hospitality of MI5, as we couldn’t trust him to keep his mouth shut,’ said Jeremy. ‘His PA overheard John and I talking. We let her think that we have charged him for molesting one of his daughter’s underage friends. You should have seen his face when the squad car arrived to take him away. Serves him right!’

  ‘I have one big problem,’ said Kate. ‘I worry that this is all too circumstantial. Are we going in the right direction, given the starting point of the Bishopsgate bombing? Shouldn’t we be looking at other scenarios? Though I’ll be damned if I know what they might be.’

  John looked at her in a reassuring way. ‘Kate, by all means keep an open mind and if another scenario comes along, use my team downstairs to work on it. But for now, you must run with what you’ve got.’

  ‘Emma and Rafi, keep researching the companies,’ instructed Kate. ‘John, Jeremy and I will focus on the individuals involved. Let’s touch base in an hour’s time.’

  Emma pushed her chair across to Rafi’s desk. ‘Can we go back a step? Could you remind me who the owners of Prima Terra are?’

  ‘The directors and senior staff own around 10% of the shares,’ replied Rafi. ‘Then there are three shareholdings of 7.5% each held by private Swiss banks who passed some of their funds under management to Prima Terra, leaving a stake of 67.5% held via another large Swiss bank. Until now I hadn’t given much thought as to who controlled this majority shareholding. I would now put good money on Mario being right and it being owned by the sheikh!’

  ‘Is Prima Terra valuable?’

  ‘Yep,’ replied Rafi. ‘I’d estimate it has a market value of £1.5 billion.’

  ‘If the sheikh is willing to jeopardise Prima Terra and lose an investment worth over £1 billion, I see what you meant when you said the stakes must be high. He must be confident of making an awful lot of money from whatever he is planning to do.’

  ‘As I see it,’ said Rafi, ‘the four companies in which Prima Terra and the unknown nominee name have holdings and the ten companies financed by the venture capital business are all too small to make the sort of returns they’ll need.’

  ‘I agree with Jeremy’s theory: terrorists like destroying things – they don’t build them up.’ Emma frowned for a moment.

  Rafi could almost see the cogs going round.

  She carried on with her appraisal. ‘I agree with your hypothesis: they make the market crash and make a fortune in the derivatives market. There must be enough dishonest international bankers out there who for a fee would provide a front for dodgy derivatives trading. And it would be practically impossible for the authorities to track down the profits,’ continued Emma, ‘let alone get them back again!’ She paused. ‘Talking about getting back, if we don’t want to upset my boss, we should get stuck into the accounts of the venture capital companies.’ She smiled. ‘Actually, she’s a bit of a softy, but don’t tell her I told you so.’

  Rafi looked at Emma; she was on cracking form. Working with her – or was it for her? – was fun.

  Collating the papers from Companies House took Emma and Rafi longer than expected. Finally the information on each of the ten companies was set out on the tables.

  ‘First, we need to prove that there’s a link between AGVC, Talal’s venture capital company, and the companies where Rainer Spencer and Mitchell are the company secretary. Let’s start with the shareholdings. We’ve got the accounts and annual returns – it should be straightforward,’ said Emma optimistically.

  Ten minutes later they compared notes.

  ‘Of the five companies I’ve looked at, three have the directors as the shareholders, and the other two – the property company, PREH, and AGVCFoF, the venture capital fund of funds – have pages of shareholders, including Prima Terra,’ said Emma.

  ‘My five companies just have the directors as the shareholders,’ commented Rafi.

  ‘So there’s no link,’ said Emma dejectedly.

  Rafi grinned. ‘Did you spot anything strange in the notes to the accounts?’

  She looked at him with a ‘What did I miss?’ expression.

  ‘Maybe my companies are different, but each has tucked away in the fine print a CULS.’

  ‘A Convertible Unsecured Loan Stock?’ said Emma. ‘Hold on, let me look again at my three where the directors are the main shareholders. She flicked back through the accounts. ‘You’re right, they’ve all got one. How did I miss it and you find it?’

  ‘Perhaps I’m a little more cynical than you. I have this theory; the smaller the font size in the notes to the accounts, the more important it is!’ said Rafi.

  ‘Remind me exactly what a convertible unsecured loan stock is,’ enquired Kate, who had overheard the conversation.

  Rafi smiled at her. ‘It’s debt which at some point in the future can be converted into new shares, or the investors can get their money back.’

  Kate nodded. ‘Thanks.’

  ‘However,’ continued Rafi, ‘while an investor holds a CULS their investment is in effect invisible, as they own de
bt and not equity, and can thus hide their ownership away from prying eyes. In the case of venture capital companies it’s a trick of the trade. It enables the loan stock investors to sit in the background, but with those running the company knowing that their venture capital funders can take control of the company at practically any time they wish.’

  Rafi got up, walked slowly over to Kate’s desk and picked up the printouts she’d received from the tax inspector for the companies with the convertibles. He scanned down the sheets listing the companies’ bank details. Three banked with the Royal Provident Bank, one of the large clearing banks. Excellent, he thought and made a note of the bank account details.

  ‘Emma, what are the redemption dates for your loan stocks?’ asked Rafi.

  ‘One is 31 December 2016, the next is 31 December 2018 and the last is 31 December 2015,’ she replied.

  ‘Excellent,’ said Rafi. ‘Just like mine – 31 December dates.’

  ‘Why is that good?’ asked Emma.

  ‘Well, it gives us a likely date when the loan stocks make an interest payment. And most companies don’t have much going through their books at the end of December. If we can get access to the bank accounts, these interest payments should be easy to spot and we can then see who they were paid to.’

  ‘The venture capital company, AGVC, I bet,’ said Emma excitedly.

  ‘You’ve got it in one!’

  ‘Not having too much fun are we?’ enquired Kate. Rafi looked at her for a moment longer than he ought perhaps to have done. There was something in the way she looked back at him that he couldn’t place. It was as if she felt left out and was a little jealous of his enjoying working with Emma. He dismissed the thought.

  ‘Kate, you know your boss said he was there to help? Could he arrange access to the three bank accounts with Royal Provident Bank? Tomorrow seems too long a wait. If we can prove the link now, it’ll mean we can focus on what the companies do,’ asked Rafi.

  You’re saying if we prove that those three are linked to the venture capital company, then in all probability all of them are?’

  ‘Yes.’

  ‘It seems a bit remote,’ said Kate.

  Rafi shrugged his shoulders.

  ‘It’ll save time and . . .’

  ‘OK,’ cut in Kate. ‘You’ve the account details, etc.?’

  ‘Yes.’

  Kate, phoned the commissioner on his mobile. He had to call her back. She switched on the speakerphone as she picked up the returned call.

  ‘We’ve found a way of tying in three of the private companies with the venture capital company run by Jameel’s friend, Basel Talal. We could do with accessing their bank accounts at Royal Provident Bank to confirm their involvement – so we can see where the interest payments on the convertible unsecured loan stocks go.’

  ‘Your timing is something,’ said the commissioner. Kate waited for a rebuke. Her boss carried on, ‘As luck would have it, I just spotted the chairman of Royal Provident Bank sitting a couple of tables away from me. I’ll ask him to get one of his people to phone you asap.’

  Rafi looked at the clock on the wall – it was 9.05.p.m. He wished he could have his watch back. Kate left the room as if she was going on a mission. She returned with a young constable in tow.

  ‘Let me introduce Constable Peter Ashby to you. He recently joined our traffic division after having transferred from Essex because he wanted to see more of the action. You have a degree in business studies and were interviewed for Emma’s job, weren’t you?’

  ‘Yes, Ma’am.’

  ‘Unfortunately for him, he came up against a qualified accountant with a 1st from Imperial College,’ said Kate looking at Emma approvingly before she continued. ‘Peter, I was wondering if you might help us.’

  ‘I’d be glad to, Ma’am.’

  ‘Before we start I have to make something very clear: everything you see and do for us goes no further than these four walls. Understood?’ He nodded his head. ‘Do you have a mobile on you?’

  ‘Yes.’

  ‘Please give the number to Emma. She and Rafi will brief you. Yes, you thought Mr Khan was locked up. We are treating him as friendly – he is helping us with our enquiries. If you breathe a word to anyone that he’s here, your career in the force will be terminated prematurely and permanently, understood?’

  ‘Yes Ma’am.’

  Constable Ashby listened attentively as Emma and Rafi explained what he should look for at the bank. Emma gave him a sheet of paper with the three company names and their account details.

  ‘You could have a long evening. Can I get you a coffee while you’re waiting?’ asked Emma.

  ‘Yes, please,’ said Peter. ‘White, two sugars.’

  As Emma came back into the room, Kate’s phone rang. It was a manager from the head office of Royal Provident Bank.

  ‘Geoff Hasslet speaking, how might I be of assistance?’ he asked.

  Kate explained that she was using the powers under the new Terrorism Act to access information needed in connection with the Bishopsgate bombing. The manager replied that he had the chairman’s authority and would be happy to help any way he could.

  ‘I’m sending over Constable Peter Ashby. Thank you for your help at this late hour.’ Kate turned to Peter. ‘Off you go. If you get this right you won’t regret it.’

  He beamed.

  ‘Get yourself a driver – your partner would be fine. Any problems, let me know. Remember, not a word about Rafi to anyone!’ said Emma.

  ‘Kate! Emma!’ Rafi called across. ‘Come and see what I’ve got!’

  Rafi had moved on to look at the Security Protection and Defence Company – SPAD – and was reading through the notes at the back of the accounts.

  ‘You know what the cheeky buggers have done?’

  ‘No, but I feel sure you’re going to tell us,’ said Kate.

  ‘Well, tucked away in the fine print of the accounts is a sentence stating that an exchange rate of £1 to EEK24.1 was used. The EEK is the Estonian currency: the Kroon. The company therefore has some kind of business activity in Estonia. I think we should ask the Estonian security services whether they can tell us what this company does over there,’ suggested Rafi.

  ‘Good idea,’ said Kate. ‘We’ve had one favour from Giles this evening; time to level the score and get one from David. Jot down what you’ve got on the company and check to see if any of the directors has an Estonian-looking name.’

  Emma piped up. ‘There was an Estonian on the board of directors, but he resigned nearly two years ago, so he isn’t in the current annual returns and accounts. He gives a Tallinn address. His name is Pinja Koit.’

  ‘Thanks, Emma,’ said Kate.

  Something was nagging Rafi. He’d seen a reference to Estonia somewhere else. But where? He flicked through his papers and there it was: AEIEA – the African Estonian Import/Export Agency.

  Kate added the company to her list, picked up the phone and rang David at the charity dinner.

  ‘Can you speak?’

  ‘Sort of. What can I do to help?’

  ‘How do I find a police or security services contact that we can trust in Tallinn, Estonia? There’s some digging around that we need done and quickly,’ said Kate.

  ‘That’s a good one,’ came the reply. The speakerphone went quiet for a moment.

  ‘If you go to my office . . . You know where the keys to my filing cabinet are, don’t you?’

  ‘Yes.’

  ‘Go to the second drawer down; near the back is a folder marked EU Money Laundering and Illegal Trade Conference, Amsterdam. If you pull out the folder you’ll find a business card stapled to a sheet of paper – Colonel Hendrik Matlik. Give him a ring and say that you’re working with me and that you could do with some help. On first impressions he comes across as very severe, but underneath he’s a huge teddy bear. He’s a real five-star compatriot, very proud of his country joining the EU and determined to keep organised crime out. The colonel is one of their top dogs in
their Security Police. Oh yes, and remember to send my love to his daughter, Kristina. She must be at university now. Also ask him to ring you back on a secure line – he’ll appreciate that! Good luck.’

  A couple of minutes later, Kate had in front of her a conference folder. She opened it and found the business card – Colonel Hendrik Matlik, Kaitsepolitseiamet. On the reverse was the English translation: Estonian Security Police. There was a direct line number. Excellent!

  It was 9.40 p.m. in the UK and 10.40 p.m. in Tallinn. As Kate dialled the number, she wondered whether there would be anyone in the office this late in the evening.

  ‘Halloo, tere õhtust.’ Kate raised her eyebrows.

  ‘Do you speak English?’

  ‘Of course.’ Kate breathed a sigh of relief.

  ‘Could I please speak to Colonel Hendrik Matlik?’

  ‘Do you know what time it is?’ came the reply.

  ‘Yes, I’m sorry, but it’s important that I speak to him.’

  ‘Can I say who is calling?’

  ‘Detective Inspector Kate Adams, a colleague of Chief Superintendent David Pryke, City of London Police.’

  ‘Thank you.’

  The phone went silent. The wait seemed to go on for ages. Then a deep voice came on the line.

  ‘Hello, Matlik here.’

  ‘Good evening,’ said Kate, ‘my boss, David Pryke, suggested I called you as he believes you might be able to help us. Oh, and he sends his kind regards to Kristina.’

  ‘Is it essential that I should help . . . Now?’

  ‘Yes, please,’ replied Kate. ‘We’re investigating the Bishopsgate police station bombing and a follow-up terrorist attack.’

  ‘I read of that atrocity; please pass my condolences to David,’ said the colonel.

  ‘If you’d ring me back on a secure line I’d appreciate it,’ requested Kate.