Absolute Risk (10 page)

Vice President Cooper Wallace scowled, looking past his wife sitting across from him in front of the inglenook fireplace in their official residence at the Naval Observatory.

“It was what?” Wallace said into his cell phone. “Arson? A billion-dollar arson?”

“That’s what the RAID people on the ground in Chengdu are reporting,” Chief of Staff Paul Nichols told Wallace. “It withstood the quake, but the story they’re hearing is that a mob broke through the perimeter fence. The guards were no match. They were posted there only to prevent thefts from the construction site, not to stop a rebellion.”

“What about the Spectrum distribution center?”

“Still standing. Looted, but still standing.”

Wallace pushed himself to his feet. “The Chinese government will have to pay RAID and Spectrum back every single dollar—”

“Yuan. And I don’t think that’s going to happen. You may even want to think twice about asking for it.”

“Why the devil not?”

“Because what Tiananmen Square was to political protest, Chengdu will be to economic protest, except worse. The turmoil in the city is starting to spread to other towns and villages in the earthquake zone.”

“What about the army?”

“It looks like they learned their lesson in 1989 and are staying out of it—for now.”

Nichols found himself once again looking for a way to dissuade Wallace from a course that would make a fool either out of himself or out of the president.

“It only confirms what you’ve been saying all along,” Nichols finally said, suppressing what he was afraid might sound like a patronizing tone. “Neither RAID nor Spectrum should’ve gone in there. Let them learn their lesson by eating their losses.”

Wallace paused and stared down at the morning’s
Washington Times
lying on the coffee table. His eyes fell on a profile of the marketing director of the Arizona Camelback mega-church. He then recited, more to himself than to Nichols,
“Moses took the calf they had made and burnt it; he ground it to powder, sprinkled it on water, and made the Israelites drink it.”

“You’re right,” Wallace said to Nichols. “Let them choke on it. I warned them. If they’d spent as much time reading the Bible as they did spreadsheets and profit projections and financial models, they wouldn’t be in this mess.”

“I also think we should call the folks at the Baptist Missionary Convention and tell them not to send any kids over there. The mobs haven’t turned on foreigners yet, but they will as soon as they connect the dots.”

“Connect the dots … What do you mean, connect the dots?”

Nichols cringed. Wallace was the leading Republican contender for the presidency, but he sometimes displayed a provincial naïveté.

“Corruption, Mr. Vice President. The RAID facility didn’t cost a billion dollars, it cost three-quarters of a billion, the rest was used to pay bribes from Beijing to Chengdu. And one of the things those payments bought was the right to pollute the countryside and poison the people. Right now the mobs are more focused on the corrupt officials who are responsible for the school and hospital collapses and the undrinkable water and the birth defects and rampant cancers, but in the Chinese way, it’s only a matter of time before they take revenge against the barbarian invaders.”

“If it wasn’t the mob, then who burned down RAID? Environmental terrorists? Falun Gong? The ghost of Chiang Kai-shek? Who?”

“We don’t know yet, and perhaps we never will. Whoever did it used the chaos that followed the earthquake to disguise who they were, otherwise they would’ve announced something on the Internet.”

“We need to lean on the CIA. What are they for, if not to find out who’s attacking American economic interests? If it happened to a Chinese factory in Nigeria you bet your ass the Chinese intelligence service would be on it.”

“I’ll make a call and see what resources they can put into it,” Nichols said, “but I wouldn’t count on getting definitive results very soon. They’re stretched pretty thin.”

“Then maybe what I need to propose as part of my presidential campaign is that we establish a financial security agency, modeled on the NSA.”

“Not a bad idea. Just make sure you figure out a way to control it better than anyone has been able to control the CIA.”

“Don’t worry, that’ll be on my agenda. For now, lean on them as hard as you can. If you’re not getting anywhere, then send the director to me and I’ll take care of it.”

F
inding out whether Relative Growth is a Ponzi scheme is worth the risk,” Gage told Abrams before catching a flight to Boston. “The consequences of not learning the truth could be devastating. If it means locating Hani Ibrahim in order to do it, then let’s give it a try.”

Gage had decided not to tell Abrams that Tony Gilbert was the person that Strubb claimed had hired him. He’d diverted Abrams’s attention away from the television by suggesting that he travel up to Boston to try to retrace Hennessy’s steps from when he first began investigating Ibrahim and try to discover what he learned about the professor and his connection to Relative Growth.

Abrams had finally agreed and gave Gage a debit card that drew on a Federal Reserve bank account to cover his expenses. In order to disguise the trail back to Abrams, Gage decided to use his own and replenish it with the Fed card once the work was done.

The storm that had swept through New York confronted Gage as he drove his rental car from Boston’s Logan Airport toward Back Bay. And by the time he’d reached the Harvard Bridge, he was once again in the midst of a blizzard and in the hands of his GPS. It got him to Memorial Drive along the Charles River and to the front of the Sloan School of Management where Hani Ibrahim had his office when he was on the faculty of MIT during the five years before his arrest.

Professor Goldie Goldstein looked up from behind her desk in the Institute for Islamic Finance when Gage’s knuckles rapped on her open door. She blinked and smiled, and then made a show of rubbing her eyes.

“I must be dreaming. For a second I thought you were Graham Gage, but he doesn’t have that much gray hair.”

Gage smiled back. “He does now.”

Goldie came from behind her desk. Gage met her halfway and gave her a hug. She glanced toward the hallway as they separated.

“No Faith?”

Goldie knew Faith even better than she did Gage. They’d worked together on the Agunah Project to help Orthodox Jewish women reclaim their right to remarry after having been abandoned by husbands who had refused to divorce them. Faith had raised money to help Goldie’s successful attempt to get legislation passed in her home country of Israel.

“She’s in China.”

“Anywhere near—”

“West of Chengdu. But she’s okay. She’s waiting until things settle down before she comes home.”

Goldie took Gage’s coat, then directed him to one of the two chairs facing her desk and then sat in the other.

“You should’ve called ahead,” Goldie said. “My grandson is in town so tonight I’m making noodle kugel with raisins, and tzimmes with potatoes and pineapple.”

“I was just passing through, so I—”

She flashed her palms at him. “Don’t lie to an old lady. You’re up to some kind of cloak-and-dagger and you figured that a busybody like me would know something.”

Gage smiled and shrugged.

“And you want to use me as cover or maybe to help you aim the blade.”

“Was that a question?” Gage asked. Goldie nodded.

“Then how about I’ll answer with someone’s name and you tell me if I’ve come to the right place.”

“Shoot.”

“Hani Ibrahim.”

Goldie jerked to the side as if dodging a blow. “Sheesh. I didn’t see that coming.”

“I’m trying to find out what he was up to.”

“You and everyone else who worked with him, or even brushed his shoulder. Terrorist financing wasn’t something anyone expected would show up on his résumé. No one even thought he had an interest in offshore transactions. His head was always in a dimension of the universe that was invisible to the rest of us.”

She reached over to her bookshelf and pulled out an academic journal from her collection and opened it to the table of contents.

“This is that last paper he published.”

Gage read the article title, “String Theory and the Structure of Financial Entanglement,” and then asked, “And that means …”

“It was part of his effort to apply the latest and greatest from the world of physics to financial modeling. Quantum mechanics and all that. The problem was that he painted himself into a corner.” Goldie grinned. “Only portfolio managers had a use for it, but only physicists could understand the math.”

She gestured toward the floors above.

“Even the Newtonian Efficient Market Nobel Prize winners upstairs couldn’t make much sense out of it, but then again, they had a vested interest in pretending they didn’t. The implication of Ibrahim’s work was that everything they’d built their careers on was an intellectual fraud.”

She lowered her hand and spread her arms.

“There was much joy in the corridors of Sloan Hall when he was led out of here in handcuffs.”

She leaned in toward Gage and whispered, “He was right though. What they do up there is
dreck,
complete and utter bullshit. Intellectual compost.”

Gage sniffed the air. “I don’t smell it.”

“That’s because hot air rises. You’re safe down here. Islamic finance has no need for derivatives, no matter how stringed and entangled. Sharia law requires hard cash.”

“I’m thinking that if Ibrahim was an Islamic radical,” Gage said, “whatever financial gimmick he used had to be something that Muslims would be comfortable investing in.”

“You mean separate from whether or not they knew the money would end up in the hands of terrorists.” Goldie frowned. “Unless they knew the whole thing was a sham from the beginning. After all, jihadist ends can be used to justify nonjihadist means.”

“Except I don’t think that any of the investors were charged with terrorist financing,” Gage said. “I suspect they thought that it was a legitimate investment, or at least made a convincing argument to the prosecutor that they thought it was legitimate.”

Goldie nodded, and then said, “And you want sly little me to explain to you what the argument was.”

Gage smiled to himself. Goldie always seemed to know how to finish his thoughts, the same way Faith did. When they had dinner together, they’d all speak in half sentences.

“I don’t know what he did,” Goldie said, “if by that you mean the terrorism part—but I have an idea about how he did it.” She grinned. “And that’s exactly why you came knocking on my door.”

“Don’t make it look so easy to guess my motives,” Gage said. “It’ll damage my self-confidence.”

“I doubt it.”

Goldie clapped her hands, then rubbed them together.

“This is what I think he was up to. Back then, Muslim businesspeople in the U.S. were looking for an offshore tax avoidance structure that was consistent with Sharia law. That means that they’re not allowed to make money on interest. It limits the kinds of investments they can make. But—”

Goldie rubbed her hands together again.

“But what if they could surrender ownership of the assets for a while, let those assets earn whatever money they’re going to earn—and by any means they’re going to earn it—and then have the assets returned to them? ”

Gage worked out the implications of the theory himself: It was the perfect way for someone to finance a terrorist organization without being held criminally responsible. The money was out of their legal control while the crime was being committed and then whatever hadn’t been spent was returned to them afterward.

“I think that Ibrahim realized that the perfect vehicle is what’s called a hybrid company,” Goldie said. “It’s also called a Manx trust—not after the cat, after the island. The Isle of Man. Since the U.S. taxpayer has no control over the company—none, zip, nada—he’s not even a shareholder—he doesn’t have to report to the IRS any profits he makes until the company is closed down and the assets are returned to him.”

“And if they put the money in the hands of an expert in Sharia law,” Gage said, “they could even ensure that the profits won’t be tainted.”

Goldie smiled and nodded. “Exactly. A Muslim tax dodge.”

“And a terrorism financing gimmick.”

Goldie shrugged. “Why not? The boss who runs it can be anywhere that has an Internet connection. Pakistan. Saudi Arabia. Sudan. He just e-mails orders to whoever manages the company’s money on the Isle of Man.” Goldie spread her hands. “So what if the boss gets indicted in the States, the U.S. will never get him.”

“And the investors in the U.S. can claim they didn’t know what was going on.” Gage then realized that the plan came with a built in criminal defense. “And you have two branches of the government working against each other. The IRS saying the American investors don’t control the company and the Justice Department claiming they do. No way a jury would convict them. And even if it did, an appeals court would have to overturn the verdict.”

Goldie squinted up at the ceiling for a moment, then asked, “Would that apply to whoever suggested the structure in the first place? Like Ibrahim?”

“As you said, why not? Ibrahim could also claim he didn’t know what the structure would really be used for—and I suspect that’s why the U.S. Attorney couldn’t pursue the case.”

Goldie raised her hands as if trying to restrain his movement down a path.

“That’s only if I’m right about what he was up to,” she said.

“But you think you’re right.”

“It’s a little like reading tea leaves, but I’ll tell you why I think I am.”

Goldie then leaned toward him as though to pass on some gossip.

“I gave a seminar at the Harvard Law Islamic Finance Project eleven years ago. It was right after I got hired to run our center. I spotted Ibrahim walking in near the tail end of my presentation—have you ever seen him?”

Gage shook his head.

“Very distinctive guy. About five-five, solid build, mustache. Looks like a character out of
Casablanca
or
The Maltese Falcon.”
She flashed a smile. “You sort of expect him to appear in black and white and wearing a fez.”

Goldie reached again to the bookshelf and withdrew a Sloan School of Management brochure dated ten years earlier. She opened it toward the middle, then turned it toward him and pointed at a portrait.

“That’s him,” she said.

“Can I keep this?”

Goldie nodded, then said, “I think he must’ve showed up to meet somebody who was attending the seminar. He looks at me, or maybe just my name plate on the table, and gives me a funny look. The kind I usually get from Muslim men, like ‘What’s a Jewish girl doing in a place like this?’ Then he sits down in the back row. A couple of minutes later, I’m talking about the problems of control and taxation and how to deal with profits versus capital gains, and I spot him taking notes.

“After he got arrested, the FBI came by and interviewed everybody. The two who talked to me asked questions about Islamic finance and about the prohibition against making money on interest and about offshore structures. They didn’t use the phrase ‘hybrid company,’ but they described the structure and asked about all the different places in the world where one could establish one. I later heard rumors that Ibrahim’s gimmick was connected to the Isle of Man. And back in those days, that was the main reason people set up there.”

“But not anymore?”

“Nope. After the Ibrahim story broke, the IRS changed the rules. All the U.S. lawyers in the offshore tax planning business were pissed. They’d been making a hundred grand off of every hybrid they set up, tens of millions of dollars a year for a dozen years.”

“A cash cow.”

“Without the overhead of running a dairy. And there wasn’t a one of them who wouldn’t have jumped at the chance to put a bullet in Ibrahim’s head.”

“Or already has?”

Goldie raised her eyebrows. “That crossed my mind. Maybe it wasn’t a lawyer who pulled the trigger, but somebody had to have. Ibrahim was a guy who needed, if not to be seen, to be heard. He needed to be recognized as a genius.”

“So you don’t understand his silence.”

She shrugged. “Nobody does, but then again, dead men don’t do much talking.”