Looking back into the past often conjures up feelings of surprise. Surprise at how quickly time passes, surprise at opportunities missed, surprise at fears which never materialised and surprise at the crusader expressions which have become a part of our lives. Take “The Axis of Evil”. We’ve all heard that expression.
A close friend of mine who happens to be an investment banker in Mumbai once swore to me that the phrase, as we know it in the political sense, was in fact born in India.
“It all started with a graduate student at the Indian Institute of Technology (IIT) in Bombay,” he said with a magical head wobble.
India, the cradle of so many things…
Story has it that a young engineering student, Benoy, had written a thesis arguing the inherent shortcomings of three celebrated mathematical models. The paper, or more appropriately diatribe, was titled ‘The Axis of Evil’.
One day, while on a flight over to the U.S. to interview for a fellowship at Harvard’s Mathematics Department he was bumped up to first class due to an overbooking and was seated next to the US President’s speechwriter, John.
When the plane hit cruising altitude Benoy took out his thesis to do some revision and started scribbling some notes. A couple of hours later he was fast asleep and an involuntary arm movement pushed his paper onto the floor. The fall caught the speechwriter’s attention who, in turn, reached down to pick up the paper but paused upon seeing the title of the paper. Interesting, he thought to himself. John placed the paper beside Benoy.
After a while, Benoy woke up and headed to toilet. He returned to his seat with droplets of water still scattered around his face and neck.
John leaned over. “Hello, my name is John.”
John is amused by the precision of the timeframe. “Of course.”
Benoy got the attention of a stewardess and asked for some water, which he promptly received. He guzzled the full of glass water in two sips and turned over to John.
“Thirst is crazy, isn’t it?” said Benoy.
“I suppose it can be. So, why the title?”
“Perfect,” John mumbled to himself.
John turned around and stared into space while Benoy carried on speaking about this thesis. But the former was no longer listening.
A few minutes later, John took out a document from his briefcase and went on to strike out the word “hatred” from a section of his document containing the phrase “Axis of hatred.” It became “Axis of evil.”
I found my friend’s story very amusing. Yet, what springs to mind whenever I hear the expression “The Axis of Evil” is not the mile high story or images of an American President uttering those words while delivering a State of the Union Address. What I think of is the notion of loopholes.
And the practice of identifying loopholes is an exercise bankers specialise in. It is both a science and an art.
Keep it coming
It was late summer of my first year at the bank and senior management started sending signals to the head of our team to step up efforts in the ‘War on Poor Revenues’. We weren’t extracting enough fees from emerging markets clients.
One the things I learned very early on at the bank is that you can always suck out more fees. Irrespective of how fantastic a year you had the year before. And God be my witness you’re constantly reminded of it by the revenue hobbits that run around the floor with charts and diagrams highlighting how much was made from whom, according to product (e.g. loans, M&A, etc.) in different jurisdictions. If an investment bank was a fantasy world, think of these creatures as Gollum from Lord of the Rings.
Those days I spent part of my time working with sub-Saharan African corporates.
A note hit my inbox. It’s from the desk’s assistant. Room 888 down the hall was booked for us at 1pm. The purpose of the meeting was already known to me: we were to propose that a publicly-listed telecommunications powerhouse in sub-Saharan Africa access the international capital markets. It would be my first time dealing with this company so there was a little excitement. Just a little.
I entered the meeting room to find three people seated: my Managing Director (MD); a senior member of the legal team who covers all the sexy, questionable jurisdictions like the one we’re about to deal with; and a compliance officer.
I sat down and took a quick look at both individuals. The compliance officer looked bland, like yogurt. The legal person had a striking countenance. He was the undeniable product of a posh private school. His right eyebrow being the most remarkable feature in his appearance. It peaked like a volcano while the left one was flatline. I zoned in on him and for some strange reason found myself imagining what his grandfather must have been like. Eton College graduate, surely. Real ugly with a handlebar moustache. Left England to make his fortune in the ‘Colonies.’ Referred to the natives as savages and boasted about having one of them once whipped for failing to properly polish his boots before a polo match. “On the Queen’s birthday, no less!” he’d say. Of course, he recounts this in the evening at the Officers’ Club while having a gin & tonic on a verandah standing upright with one hand behind his back.
While my MD is giving background info on the client to the others, I notice and pick up the company’s previous annual report. I flip through the first few pages and then comes across a word which activates the breaks: Iran. Hold up.
I waited for the right moment to interrupt. “These guys do significant business in Iran,” I said.
“That’s the purpose of this meeting,” said my MD.
Interesting. My curiosity was piqued. There was a political angle to this and when you’re in an emerging markets team you see a lot of that. It explained why there was always at least one compliance officer at our little get-togethers.
Everyone knew, US companies, as well as those with strong links to the US, were barred from doing business with Iran. Consequently, a link to the Middle Eastern country was seen as a red flag, a no-go, a non-starter.
Ahem, my dear boy
The lawyer addressed the matter. “Doing business with Iran, as you probably know, isn’t the issue generally. Plenty of companies whose governments forbid it still do business with Iranians. Including those of our offspring, America. Even institutions affiliated with die-hard anti-Iranian, neo-con US politicians.”
“Like the US Vice President’s former company,” added the MD.
“Precisely,” said the lawyer. “A fine example. Did that stop the company from doing business with Iran? No. They were doing business with Iran and other sanctioned countries left, right and centre. You use loopholes my dear boy,” he said referring to me. “So long as you have an overseas based subsidiary run by non Americans then you’re sorted. It can even be an empty office on some tropical island.” The lawyer momentarily paused to take a sip from his tea mug. “I must say, this is a fine Earl Grey tea.”
The rest of us waited for him to resume.
“Going back to the matter at hand, you dont get in the way of business because you can’t get in the way of money.”
“True,” said the MD. “Because we’re a large financial institutions, how we go about these type of cases has to be carefully considered.”
The lawyer continued. “Importantly, we’re not doing business with the Iranians directly. It’s our dear client in Africa who is. Getting around the problem, however, shouldn’t be an issue. First, we need to know how much of the group’s revenues comes from Iran. That percentage is very important. And then…”
During that meeting I learned a very important fact about the law. The stronger your legal team, the more easily you an tightrope around fine legal lines.