Red Wolves & White Knights

by Peter Kysel

  “Michael, this country is extremely dangerous. The people are hungry. The streets are full of beggars. Please don’t mention your background to anyone. You could easily be blackmailed. Don’t trust anyone in Russia, especially not your boss, or your girlfriends.” I thought a bit more and added

  “Your family history is fascinating, but it’s putting huge emotional pressure on you. If you need to talk about your impressions, don’t do it here. Spend time with your parents. They will appreciate it. Take a holiday and talk to them. You have to think of your own safety.” Michael became pensive as we continued our walk. We stopped in front of the main entrance to a large palace

  “A holiday is a good idea. I do need time to absorb my family stories and to relax. There is a reason why I have brought you here.” Michael pointed at the building.

  “This the Yusupov Palace. Prince Felix shot and killed Rasputin here in December 1916. The lover of my great-grandmother, grand duke Dimitri Pavlovich, gave Felix his revolver to do the job.” I gulped Michael came up with some amazing stories.

  “So, was Dimitri Pavlovich already Natasha’s lover?”

  “Yes. He was also in the palace when prince Felix mur­dered Rasputin.” Michael looked at his watch.

  “I have to dash. I’m catching a plane to Moscow with my boss. Incidentally, I call him Borby, it’s a bit of a cover, just in case someone is listening.”

  I embraced him.

  “Be careful. I’m sorry that you won’t be at my presentation, but I look forward to seeing you in London.”

  “Let’s do that. I’ll call you” said Michael and he was gone.

  I continued along the embankment to the Mariinsky Theatre, before turning towards the Neva River and return­ing to my hotel. I checked my room. Disappointingly it didn’t have any secret access to the street. I felt this was a city of ears and one should avoid sensitive conversation. What was said here was bound to be repeated in Moscow. St Petersburg had a reputation for being the Russian capital of duplicity.

  #

  Impressionists

  The next day, I decided to visit the Hermitage on the Palace Embankment. A cold wind was blowing from the river.

  “At least it’s not raining,” I thought, as I left the hotel, warmly dressed in a sheepskin coat and usanka (fur hat).

  “I’ll walk along the Nevsky Prospect and on to the Dvortsovaya Embankment to the Hermitage.” I reached the gallery late in the afternoon, just as the weather was deteriorating. I was glad to step inside, out of the cold rain and sleet.

  The entrance hall, on the ground floor, was in semi-dark­ness. The female guards, babushki, wrapped up in long coats and scarves, were sitting huddled together around a small stove, cooking soup, with their faces partially lit by the flickering flames. The soup smelled of cabbage. In the early nineties it was the prevailing smell in Russia. It hit travellers as soon as they arrived at the airport and stayed with them until they left.

  The flames of the stove, just visible through the glass door, was the only cheerful sight in these gloomy surroundings. I hesitated before entering until the wind slammed the large door behind me, so I set off towards the ticket office which had a sign in Russian, saying, “Tickets one hundred rou­bles for Russians and ten thousand roubles for foreigners”. I asked in my best Russian for a ticket and paid my hundred roubles. The babushki, who were more interested in their cabbage soup, just waved me through.

  As I climbed the marble stairs, I noticed that there were no other visitors. On the lower floors I found thousands of dull portraits of the aristocracy and paintings of the coun­tryside in the social realist style. They bored me, so I walked quickly through the rooms until I reached the French Impressionists on the top floor.

  The enormous gallery was divided by large screens. There were hundreds of paintings, dimply lit by a few overhead chandeliers. I had to get quite close to the pictures to see them because of the bad light. The museum was very cold, there was no central heating. The babushki, who normally guarded every section of the gallery, were all gathered around the stove in the entrance hall.

  I was admiring ‘The Smoker’, a painting by Cezanne, when I noticed that my right coat sleeve was wet. I looked around and saw a large window with a broken pane. On the outside wall was a downpipe. A section of it, by the window, was missing. Water from the roof was pouring down the pipe. Every so often a gust of wind whooshed the water through the broken windowpane into the gallery and on to the paintings. I looked around to draw someone’s attention, but I was alone. Outside was the Palace square where, according to Soviet mythology, Bolshevik sailors stormed the Winter Palace at the start of the Great October revolution. The square was completely empty. It was almost dark and only a few streetlamps glinted in the rain.

  I returned to the picture, which was splashed with rainwa­ter. I held it by the frame. A thought occurred to me.

  These pictures in the Hermitage were stolen from their original owners by the Bolsheviks. It would be natural justice if I stole them back from the Soviet thieves and tried to restore them to their rightful owners. I could throw a few of them out of the broken window, run outside and pick them up in the empty Palace Square below. I could hail a taxi to drive me to Narva in Estonia a couple of hours away and vanish for ever with the Impressionist paintings. Alternatively, I could buy the taxi for a few hundred dollars and drive to Virojoki in Finland. Nobody would notice or care. Russians just want to survive.

  I was jolted from my deliberations. I had a meeting to go to. With one last look at the pictures I turned and walked slowly back down the stairs and into the entrance hall. The babushki had all gone home.

  The Grand Hotel Europa was a five-minute walk away. I went into the bar and ordered a gin and tonic. I was meeting a friend for dinner. She was also in St Petersburg on business, as a con­ference organiser. Over dinner I told her about my experience in the Hermitage and joked, “Diana, would you join me in committing the burglary of the century?” she laughed.

  “Are you crazy? My husband would kill me if I did anything like that. He’s a respectable M&S executive, you know. But it would be fun.” I liked adventurous English women.

  At that point I excused myself and went to the gents. I was followed inside by a man who tapped my shoulder and hissed.

  “Send Diana to her room and stay in the bar.” I looked at him. He flashed the old Soviet KGB badge of the sword and shield.

  “Can you show me your Russian ministry of security (MBR) card?” The man fumbled in his pockets, distracted, but produced one. I sighed. He appeared to be a genuine secret policeman. Back in the dining room, after Diana had gone to her room, I sat down with the man.

  “Do you have microphones under the tables?” He ignored the question and issued his instructions.

  “Take Diana to the Mariinsky Theatre to see Swan Lake tomorrow night. You’ll receive your tickets in the morning. Another visit to the Hermitage is out of the question.”

  I was listening, not clear what this conversation was about. He asked me, I thought, bizarrely,

  “What would you do with the paintings in Latvia, or in Finland?” He seemed to have taken my story seriously, so I decided to play along.

  “I would use them as collateral for loans from Estonian or Latvian banks. If each of those Impressionist paintings is worth $70 million or more, imagine how much one could raise from twenty paintings. This is an entirely hypothetical calculation, of course.” The man stiffened,

  “We decide what is hypothetical” then suddenly, he changed the subject.

  “I almost forgot. Andrei sends you his greetings. He mentioned that you two met a couple of years ago.”

  “Where is he?” I asked, not having heard from Viktor Gerashchenko, Andrei, or anyone else from Gosbank since their delegation came to London.

  “They are involved in privatisation. We know how to find you, angliyskiy bankir.” I thought, I would prefer if they did not, but asked instead,

  “So, you work with him?” The man
shuffled uncomfortably. “Not directly. This is a St Petersburg project.” As he looked at his notes it occurred to me that his interest wasn’t hypo­thetical. He returned to our previous topic.

  “Have you heard of Parex Bank, or Trasta Komercbanka?” They were two Latvian banks, built on Russian clientele, who were known for money laundering.

  “Yes, they hold large Russian deposits, some of which will be illegal. You’ll know more about that.” I was keen to keep the conversation more light-hearted.

  “I would also give one or two of the paintings to the fam­ilies of their former owners or sell them to private investors.” I noticed that the MBR man was captivated.

  “Hypothetically, I would also tell the babuski that the paintings needed to be restored. I would replace them on the Hermitage walls with decent copies.” The former KGB and its current successor MBR, were the ‘state within the state’ and I sensed they needed money. It wasn’t surprising that the idea of removing impressionist pictures from the Heritage appealed to them. The man was much friendlier by the time we parted.

  The following morning the hotel receptionist handed me two tickets for Swan Lake, with a note that the Sadko restaurant in Ulitsa Glinki, close to the theatre, was also booked in my name for supper. I called Diana.

  “I decided to call off our robbery. They are restoring the Impressionist paintings in the gallery. But I have got a couple of tickets for Swan Lake at the Mariinsky theatre tonight, would you like to join me?”

  “I am relieved that we are not going to rob the Hermitage and I don’t have to divorce my husband. Today’s plan is better. I am struggling with the Russian language. You must teach me some. What’s Swan Lake in Russian?”

  “Lebedinoye Ozero and Peter is pronounced Pyotr, as in Tchaikovsky.” She repeated the Russian words and added,

  “That’s decided then. Na zdorovoe, Pyotr,” she experi­mented, delighted.

  “I have also found a typical Russian restaurant near the theatre for supper.”

  “Perfect. I have brought a fur coat, which I haven’t been able to wear in England for years. I also bought a fabulous fur hat in the Dollar shop at the airport, to go with the coat. I am so looking forward to walking around Petersburg, looking like a Russian princess. Cheers.”

  We spent an enchanting evening at the Russian ballet and avoided the subject of the French Impressionists. During the next few days, I concentrated on presentations and business visits to industrial factories in and around the city, which were due to be sold by the state to private investors.

  Factories were neglected, dirty places of work, full of ancient machinery. Factories had Siemens’ metal presses dating from before WW1. Machines made more than eighty years ago, were still being used. In a foundry, we had to jump out of the way of pouring metal. It was clear that the safety of the proletariat was not a priority in the Soviet Union. With every company visit, my opinion of Russian industry took another dive. The rest of the trip to St Petersburg was uneventful. The MBR ignored me and I returned to London unharmed, but with a few tins of caviar for the family and a growing realisation that the KGB and the mayor of St Petersburg had colluded to remove paintings from the Hermitage. My hypothetical idea had turned to reality. The MBR decided what was hypothetical.

  I remembered another incident, three decades earlier. I was arrested at the age of sixteen in Prague, for making a feeble joke about chewing gum on a crowded tram. The chewing gum was a capitalist product, banned in Czechoslovakia. The StB agent who arrested me said,

  “Don’t tell me that you have made a joke. We decide what is a joke”.

  Chapter 11

  Privatisation Goes Ahead, but I Drift

  Viktor Kožený was the first high profile Czech entrepre­neur. He basked in the prime minister’s approval and inspired others.

  Will these entrepreneurs be the guardians of privatised assets for their clients? Or, will they get rich by robbing their clients? Will they be the vultures that my father warned me about two years ago? Will the government protect six million new shareholders against fraud?

  Voucher privatisation was bound to be profitable for inves­tors. Companies were auctioned at less than 10% of their subsequent market valuations.

  In May 1992, I was having lunch at the hotel Paris in the centre of Prague with my old friend Pavel. A young man came over to our table and introduced himself as Viktor Kožený. He was a twenty-seven-year old Czech, medium height and overweight with unruly ginger hair, but exuding confidence. He knew that I was at Lloyds Merchant Bank and wanted to establish contact. Viktor spoke good English.

  “We almost became colleagues in London. I was a mer­chant banker at Robert Fleming,” he announced when we met. I had never heard of him and automatically assumed that his claim was a lie. At first glance I felt dismissive. If you were a banker in London, I would know you. You could have been at best, a back office messenger. Now, you are bigging yourself up here. I did not bother to expose Viktor by asking him about his former colleagues in London. However, during our chat, I changed my view. Viktor exuded infectious optimism and ambition to create a pri­vatisation fund. He intended to call it Harvard Capital & Consulting, believing that an American sounding name would impress the Czechs.

  “Come and see my operation,” Viktor suggested and added,

  “We should do business together.”

  The next day I went to his warehouse at Žižkov, a work­ing-class district in Prague. There were hundreds of men sitting at trestle tables, processing voucher books.

  “These are former StB agents who lost their jobs after the Velvet Revolution,” whispered Boris Vostrý, Harvard’s gen­eral manager. He had recruited them, and he knew, having been one of them himself.

  Viktor turned out to be a marketing genius. He turned the voucher privatisation in Czechoslovakia from a potential failure into a red-hot investment proposition for the whole nation. While the big banks marketed their privatisation funds with lacklustre results, Viktor triumphed over them by using TV commercials, proclaiming,

  “Give your voucher book (which cost one thousand crowns) to Harvard. In a year we will pay you ten thousand crowns.” This galvanised 6 million people to buy voucher books from the government. Vouchers could be used to bid for shares in privatised companies or exchanged for shares in privatisation funds. Viktor’s Harvard privatisation fund attracted over 600,000 investors.

  #

  Globalise

  Tomáš Ježek, the Czech minister responsible for privatisa­tion and for the national property fund, arranged to see me. We met on neutral ground at the Intercontinental Hotel in Prague for coffee. I congratulated Ježek for launching the privatisation programme. He began,

  “I needed to see you for some clarification. You are suggest­ing that strategic companies should be sold to multination­als. Why? I understand your concerns about the danger of corruption if we keep companies under local management. But do you have any positive reasons for selling our compa­nies to foreigners?” I nodded and he went on,

  “Ok, give me some examples. What was done in Britain?”

  “Britain in the seventies had a weak economy. It was a patri­otic country undermined by its social class divisions. It was called clubtocracy. Top jobs were handed out to members of the privileged class. Industrial relations and productivity were in bad shape. The best example was the famous car manufacturing sector, which local management brought to its knees.”

  “What was the solution?”

  “The car industry was taken over by foreign multinationals. Its new owners ignored clubtocracy and selected managers on their merit. Strikes ceased, productivity improved, and the industry became successful again.”

  “How do Czech managers compare with the British ones?”

  “They are much worse. They need to be replaced before they bankrupt their firms. Realistically, this can only happen under foreign ownership.”

  “I am getting the picture. Give me another example.”

  “The UK finan
cial markets were opened up to foreign com­petition in the 1980s. British owners sold out. The foreign owners made large investments and appointed professional managers. The City of London was turned from a backwa­ter of the economy, into a massive money-making machine and a world beater.”

  “I see similarities. In Britain they selected managers, because they belonged to the right club, and here because they belonged to the Party. In both cases, they were picked regardless of their ability.”

  “Quite.”

  “We have sold Skoda to Volkswagen. I hope we have made the right decision.”

  “You won’t regret it.”

  “Can you summarise your arguments in general terms?”

  “The British economy in the seventies was labelled ‘the sick man of Europe’. When we joined the EEC, the government implemented policies favouring direct foreign investment. The pay-off was quick. The economy picked up in the large European market as new owners brought in a large amount of new capital. These investments made Britain competitive and created jobs. The electorate approved and the politi­cians were re-elected.” Tomas scribbled a few notes.

  “That’s good. I’ll use your arguments. You really should join us and help with our privatisation.” Tomas Ježek rose, waved for his driver to take him to a government meeting at Strakova akademie, on the opposite embankment. I ordered another coffee and reflected.

  Ježek used to be a red wolf. He joined the Party under Soviet occupation in 1969 and worked at the Prognostics Institute under Komárek. Since the Velvet Revolution, he has embraced reforms. He’s joined the good guys in draining the economic swamp. It was encouraging.

  Ježek could be proud of his decision. In 1991 Skoda manu­factured 172,000 of cars of appalling quality. The company now manufactures more that 1 million cars and is glob­ally competitive. Skoda’s productivity has increased four­fold under VW ownership and the quality of its cars ranks amongst the world’s best.