The Fund: A speculative, but possible, scenario of financial terrorism

HT Narea imagines the global economy falling prey to an unscrupulous financier with links to terrorist organisations. Are the markets sufficiently regulated to prevent such an attack?

In HT Narea's thriller about economic terrorism, institutions such as the New York Stock Exchange are vulnerable to attack. Richard Drew / AP Photo

What's the biggest terrorist threat currently facing the world following the death of Osama bin Laden? A takeover of Pakistan's nuclear arsenal, perhaps? Or maybe, a series of "dirty" bombs dropped in strategic locations around the world? No, the real terror (and power) lies with money.

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At least, that's the thesis of

The Fund

, a new thriller written by HT Narea, who is a veteran Wall Street investment banker and a first-time novelist. And while the book includes its fair share of bombs, Narea's main focus is on a complex financial scheme that uses Arab oil money, hedge funds, offshore tax havens and derivatives to bring down Wall Street, the United States and the dollar. Whoever controls the flow of cash, he asserts, controls the cost of living, geopolitics, terrorist payrolls and pretty much everything else in modern life.

The book's villain is Nebibi Hasehm, an attractive and unscrupulous financier who was raised in Italy by impoverished Egyptian-immigrant parents and educated at Insead, the international business school. Improbably, he sets up a Gibraltar-based, Sharia-compliant $30 billion private equity fund through an unlikely alliance involving Al Qa'eda, Cuba, Venezuela and Basque separatists. Naturally, the amoral financial hangers-on who populate this book - including investment bankers, lawyers and other hedge fund managers - are only too happy to help him. Among other things, they assist him in the purchase of an overpriced 49 per cent stake in another hedge fund, Royal Lane Advisors.

Hasehm carefully chooses Royal Lane Advisors because it is dancing on a very shaky high wire. Although it has many solid assets, Royal Lane also owns some $2 trillion (yes, trillion) worth of derivatives, meaning that their value depends on the strength of the underlying assets from which the derivatives are derived, which in turn relies on certain economic assumptions.

As Hasehm puts it to his colleagues, Royal Lane's manager is "betting his future on the continued recovery of corporates, low oil prices and a strong dollar". Multiplying the risk, most of those deals are backed by one gigantic bank.

Thus, if a set of unexpected catastrophes were to occur at once - if, say, the stock market crashed, the dollar fell, and oil prices shot up - Royal Lane would collapse, and Hasehm's fund would have the right to buy the remaining 51 per cent, including the solid assets, dirt-cheap. Plus, the gigantic bank would be reduced to ruins.

So what might cause this type of scenario? Maybe a bomb at the New York Stock Exchange, another near the Federal Reserve building in Manhattan, a third in a major oil-shipping channel. It just so happens that Hasehm's $30 billion has been financing and organising exactly those kind of activities. Indeed, an explosion is also planned in Granada, Spain, at the spot where the Moors' European caliphate ended in 1492. Of course, the repercussions wouldn't stop with one hedge fund and one bank. As the ensuing panic fed on itself, Opec would dump the dollar, more banks would crash, China would blackmail the United States, and much, much more.

Such a scenario may sound far-fetched - close to the ultimate in conspiracy theories - and, certainly, it's easy to poke fun at

The Fund

. The writing is clichéd and terribly clumsy: "She fought hard not to release the tears," writes Narea. "Her eyes began to glisten like two precious cut stones ... she could see resoluteness in his eyes and knew that he had reached a point of no return."

The narrative too is frequently interrupted with long expositions allowing Narea to show off his knowledge of medieval history, Iraqi corruption and other titbits. And the characters have barely one dimension apiece, let alone three.

Kate Molares, for instance, the book's heroine and a US defence intelligence operative, is beyond perfect - loyal, smart, brave, athletic, bilingual, naturally thin, conveniently blessed with friends in just the right places and a dual Venezuelan-US citizenship, and beautiful enough to tempt even a hardened terrorist. The most complex character in all of this is undoubtedly Hasehm, who is devoted to the Islamic cause yet only marginally devout.

The Fund

's thesis is harder to mock. There is no disputing the power of money, especially when it is wrapped up in a complex and secretive network. Furthermore, hedge funds like Royal Lane have operated beyond the purview of most regulators for many years. They are held by a few wealthy private individuals and are not publicly traded.

As for mass financial terror, take your pick: within the last two decades we've lived through the 1994 peso crisis, the 1997-1998 Asian debt crisis, the 1998 Russian financial crisis, the collapse of the hedge fund Long Term Capital Management, the tech bubble, global recession, and now multiple debt cliffhangers in Europe. Most recently, a group of home mortgages managed to upend the world's biggest economy and bring down two long-established, world-famous investment banks, assorted commercial banks, and two American quasi-governmental agencies.

It's true that none of the financial crises were caused by Islamic terrorists. But it's also true that there are gazillions of petrodollars sloshing around and available for investing - and some of that money comes from countries that would be delighted to find investments that knowingly thwart western interests.

Furthermore, jihadists like Najibullah Zazi (who pleaded guilty to plotting to bomb the New York City subway in 2009) and David Headley (who pleaded guilty to helping to organise the bombings in Mumbai in 2008) managed to mingle unnoticed in mainstream society. If they can go to community college and drive an airport shuttle bus, why not enrol in a cathedral of capitalism like Insead?

To bolster his arguments, Narea cites a 2009 report by a subcontractor to the US defence department, entitled Economic Warfare: Risks and Responses, that warns of "the risk of financial terror and/or economic warfare." Among the feared "attacks" is "a speculative run-up in oil price ... filling the coffers of sovereign wealth funds, especially those that follow Shariah-compliant finance". Presumably, too, Narea's long experience at JP Morgan Chase and elsewhere has given him some insight into the weaknesses of the global financial network.

So could

The Fund

actually happen? Probably. Would that hedge fund be able to find western partners, advisers, bankers and lawyers to fudge the laws, arrange investments regardless of price, and establish headquarters in offshore tax havens? Undoubtedly. Could everything on a global-political scale go exactly right, including far-flung bomb plots, political alliances and oddball scientific research? Probably not.

What

The Fund

proves most of all, though, is the need for tough, rigorously enforced financial regulation.

In the United States, last year's Dodd-Frank Wall Street Reform and Consumer Protection Act and the 2002 Sarbanes-Oxley Act are a start, as are the international Basel III bank capital accords, but the first one is being eroded by a Republican suspicion of government, and the last is too weak.

No legislation, of course, can outlaw panic. However, good laws can require financial institutions to be more open and give regulators the tools to investigate suspicious players.

And perhaps those mechanisms can plug a few holes through which terrorists trained at business school might otherwise infiltrate.

Fran Hawthorne is an award-winning US-based author and journalist, specialising in finance and health care.