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How Albania became a pyramid scheme The nation was scammed to the brink of civil war

When the people finally accepted that they'd been scammed, they rioted. Credit: Gilles BASSIGNAC/Gamma-Rapho via Getty Images

When the people finally accepted that they'd been scammed, they rioted. Credit: Gilles BASSIGNAC/Gamma-Rapho via Getty Images


January 4, 2022   6 mins

In early 1997, a tiny, semi-literate Roma former shoe factory worker, Maksude Kadena, went to the balcony of her shabby Communist-era apartment in Tirana, the capital of Albania. Beneath her stood hundreds of people who had invested in her company, Sude, which had been offering big rewards: 5-10% returns per month. But suddenly the interest payments had dried up, investors were being prevented from retrieving their capital. And so here they were — baying for her.

In her hand, Kadena held a megaphone. Now, she put it to her lips.

“My game is over,” she told the crowd below. “It was a pyramid game. My company is bankrupt. And you shouldn’t ask for the money.”

There was a moment of stunned silence. In that half a second, the wave of one of history’s stranger financial manias finally broke, tipping Albania towards civil war, and levelling the hopes of a generation. “We didn’t even take the eggs from our chickens to cook for our children,” was how a guard standing outside an Albanian university put it to me, in November of this year. “We just sell them and put the money into the schemes. But what happened after that? Tragedy.”

It was, in short, the Ponzi that ate a country. I had come to Albania to make a documentary for BBC Radio 4, trying to figure out how an entire country fell prey to a con. At their peak, the many different Albanian schemes, of which Sude was but one, had liabilities of £700 million — in a country whose GDP was only £2.1 billion. Was there something about this small disc of the Western Balkans that had made it so vulnerable to contagion? What happened in Albania is easy to dismiss: long locked to the bottom of Europe’s economic league tables, it’s the ultimate far-off land of which we know little. But the story of how it escaped from brutal Communism, wide-eyed and optimistic, only to collapse under brutal Capitalism is one that has the air of a fable.

After all, it wasn’t just farmers and peasants who committed financial suicide. Up the social scale, the middle classes would sometimes sell their homes, move into rented accommodation, then put the house money into investments. In Tirana, I met a lawyer, Lazer Sokoli, who only managed to convince his brother not to sell his family home by threatening never to speak to him again. Months later, he was at dinner with the same brother and his brother’s friend, when a TV in a corner of the restaurant broadcast news of riots, as investors clamoured to retrieve their cash. “The whole place went silent. Not only had my brother’s friend sold his house but also his sister’s. He went crazy … it turned out he’d lost everything. He is now in Germany, working hard to make ends meet and trying to repay his sister little by little.”

How did an entire country fall prey to a con job? In 1945, Albania had become a hermit kingdom, under the grip of a tyrannical yet curiously uncharismatic dictator, Enver Hoxha. The borders were sealed. “I worked at a customs house,” Drago Kalimi, a former schoolteacher, told me. “Even when we welcome tourists in from Greece, we had to be accompanied by soldiers.” When, in 1992, the country emerged blinking into democracy, ordinary Albanians knew almost nothing of the outside world.

It’s perhaps understandable that they were naively optimistic when they elected as their first President, Sali Berisha, a tub-thumping former cardiologist. Berisha’s policy platform, as the analyst Remzi Lana put it to me, was: “everything in Communism, but with a minus sign in front of it.” From the stoniest socialism, Albania would attempt to take on the most free market of all capitalism.

At first, it worked. While the likes of nearby Bulgaria struggled to maintain a sluggish, hybrid economic system, Albania grew at more than 8% a year from 1993 to 1995. Some of that growth was real. But it gave plenty of cover for the pyramid schemes that were the nation’s undoing, which aimed to blend in. One, Vefa, actually had many genuine assets: they owned a chain of supermarkets, and petrol stations. Their name was on recognisable, everyday goods. It was natural to assume that they were legitimate, even if the rewards they offered were outsized.

“A cousin of mine was a broker for people looking to invest in these pyramid schemes,” explains the CEO of Tirana Business University, Artan Hoxha (no relation). “She was advising people to put some money in scheme A, some in Scheme B. Some in Scheme C. One has high interest but is not so secure; the other has low interest but is more sound. In her mind she was building a balanced portfolio. She didn’t know they were all the same shit!”

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How Albania became a pyramid scheme

By Peter Franklin

No one was offering Albanians sound advice. The nation now technically had a free press. But as the schemes grew in stature, they began paying for ads on the newly-emerged private TV stations, and in the new newspapers. The media bosses knew which side their bread was buttered; soon enough, the press began to speak only favourably of the schemes. “This was before the internet,” was a refrain I heard more than once. “We didn’t know. We just couldn’t check.” For ordinary people, rather than becoming the proving ground for truth and debate, the mass media had almost immediately succumbed to fake news.

Democracy, too, failed them. The scheme bosses were well connected. They mixed with the new political elite, and called in favours to keep the state’s eyes elsewhere. Of course, the ballot box should have been the ultimate check: governments that crash the economy don’t last long. But all the short-term incentives were to ignore the problem. In fact, in the middle of dealing with a disputed election, President Berisha actually sent ministers onto TV to all but guarantee that the schemes were safe. They grew even bigger.

After Sude had collapsed, the government did intervene in two schemes, sending in the liquidators and managing to recoup between 40 and 60% of the capital. But here, a curious kind of human psychology took hold. Instead of gratitude, the public mood hardened. Investors chose to blame state meddling for destroying otherwise perfectly decent companies. People were unwilling to come to terms with the true size of the lie they’d been sold.

But soon enough, for Artan’s cousin, Lazer’s brother, and millions of others, there would be no more excuses, nowhere left to hide. In the chaos that followed the schemes’ unravelling, the nation’s armouries were raided. 700,000 guns evaporated into a total population of 3.5 million. For months, every night the crackle of shots could be heard in the big cities as new owners took their toys for a spin. In the southern town of Gjirokaster, a middle-class couple who had lost the moderate sum of $5000 in the schemes told me how they’d padded the walls of their house with books, to absorb stray bullets. Night after night, the husband slept in their photographic studio, with the gun he too had taken from an armoury, standing sentry against looters.

The arc of the fable was now complete. In five years, Albania had gone from optimism and trust, to total disaster. Individual greed was supposed to power markets, but — un-tempered by oversight, checks and balances, a strong civic culture — it ended in beggar-thy-neighbour. Nineties Albania is perhaps an apt laboratory experiment in what happens when you leave things to themselves.

Added to it was its close relative: status anxiety. Many of the middle-class families I spoke to only got into the schemes late in the day. Partly, this was because they were more suspicious. But in the final phase of the mania, in mid-1996, many signed up because they felt they were missing out on what their peers had. “People didn’t ask questions. They had heard rumours that maybe the reason there was money was that it was being laundered,” Artan told me. “Most people were never concerned about where the money had come from. Just so long as they got their return.”

And for every investor who was genuinely naive, another was operating on the long-tested theory that there are always greater fools out there. Just as surely as anyone on the Lehman Brothers securities desk in 2008, they realised the schemes were doomed, but aimed to get out just before the whole house came tumbling down. Some succeeded. While thousands lost their homes in the crash, hundreds ended up with their own house and some other poor schmuck’s.

The mayor of Tirana tells me he still has people on his housing lists who lost their homes in ‘97. But in the past decade, Albania has quietly prospered. Today, the massive brutalist pyramid in downtown Tirana, originally designed as Enver Hoxha’s mausoleum, is being rebuilt as a coding academy, one sign of a building boom that has swept the capital. Increasingly, this is a land of Vodafone and Visa, well on its way to homogenisation within the EU empire.

Albanians seem to have survived by living in an eternal present. The country did not prosecute many of the crimes of Communism in the ‘90s, nor did it hold Truth and Reconciliation hearings. The maximum penalty for fraud — any fraud — was five years. Most of those who built the Albanian pyramids have long since done their time, if they were caught in the first place. In fact, many are now to be found in the swankiest restaurants of Tirana, rolling in and out of their SUVs.  “They say to me, ‘Arben how are you?’,” laughs the former finance minister, Arben Malaj.

But justice has seldom been high on the agenda in this part of the world. “Justice…” says Remzi Lani, “in general, it’s a kind of joke story in Eastern Europe.” With a weary Balkan fatalism, people have simply picked themselves up and moved on.

 

You can listen to The Great Pyramids Of Albania on BBC Sounds.


Gavin Haynes is a journalist and former editor-at-large at Vice.

@gavhaynes

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Andrea X
Andrea X
2 years ago

I didn’t know any of that. Thanks for telling their story.

J Bryant
J Bryant
2 years ago
Reply to  Andrea X

Yeah, great article about a truly ‘unheard’ subject.

Ethniciodo Rodenydo
Ethniciodo Rodenydo
2 years ago
Reply to  J Bryant

I thought it was about the current global economy

Ian Stewart
Ian Stewart
2 years ago
Reply to  Andrea X

Bit surprised at the ending regarding justice – I thought Albanian culture tended towards long held grudges and ‘natural’ justice.

Ferrusian Gambit
Ferrusian Gambit
2 years ago

Apposite story given the fate of Elizabeth Holmes today.
Something similar to this story happened in other ex-Communist countries. It isn’t really hard to see why – free markets do require a well functioning legal system, busniess transparency (in the accounting sense) and clear property rights enforced by the state, otherwise they get swamped by rent seekers, gangsterism and conmen. But the 1990s were a strange time.
Unfortunately finance and corporate governance in recent years has moved farther and farther away from transparency, partly driven by the long term corrosive effect of petrodollars, partly driven by a more to off-radar investments, and partly supercharged by low interest rates since 2008 driving out normal investment flows that could end up a house of cards as much as the South Sea Bubble, Tulipmania, Mississipi plan, railway crashes of the 19th century, the fake Florida houses in the 20th century. The trigger for this will be when people finally realise Tesla’s valulation is a rope of sand.

Last edited 2 years ago by Ferrusian Gambit
Ethniciodo Rodenydo
Ethniciodo Rodenydo
2 years ago

I was thinking of Tesla when writing by earlier comment and EM disposing of his stock

Julie Blinde
Julie Blinde
2 years ago

Quite.
“Car company becomes bigger than Toyota and Volkswagen combined using a technology 130 years old”

Oh please

David Bell
David Bell
2 years ago

Musk was legally obliged to sell his stock.

Edit Szegedi
Edit Szegedi
2 years ago

In Romania there was between 1992-1994 a pyramid scheme called Caritas (not the Catholic one), backed by politicians and the Orthodox clergy.

jonathan carter-meggs
jonathan carter-meggs
2 years ago

An investment strategy is to invest a little of what you can afford, often and regularly, into well respected profitable companies so that, in the long run, you have accumulated excess wealth. Gambling is to put all of your cash into a get rich quick scheme, close your eyes cross your fingers and hope. There are more gambles out there than good investments. The poor should stick to the first and the rich with excess wealth can indulge in the latter.

Roger Inkpen
Roger Inkpen
2 years ago

Sound advice. But 1990s Albania was a desperately poor country recovering from decades of brutal socialism.
If you had a few thousand dollars, wouldn’t you feel rich?

Last edited 2 years ago by Roger Inkpen
Jon Redman
Jon Redman
2 years ago

the government did intervene in two schemes…But here, a curious kind of human psychology took hold. Instead of gratitude, the public mood hardened. Investors chose to blame state meddling for destroying otherwise perfectly decent companies.

Exactly the same phenomenon was observable when a similar scheme went bust in the UK. A fraudster called Kevin Foster ran a Ponzi scheme that was enthusiastically promoted on websites like MoneySavingExpert by suckers who’d fallen for it. When the FSA and police broke it up and jailed him the suckers were enraged that this had happened, exactly as described here. Some were no doubt genuine honest mugs but a good few were enraged that the Ponzi scheme had been stopped before they got paid.

Ian Stewart
Ian Stewart
2 years ago
Reply to  Jon Redman

Are you sure about this, I didn’t think Money Saving Expert promoted any financial products. You might find them coming after you and Unherd if you’ve not got evidence for this.

David Bell
David Bell
2 years ago

Criminal racketeering is a flourishing industry in Albania and one that is exported throughout Europe. I was astonished at the many British number plates on the roads when I drove through the country 10 years ago. A local explained that the cars were stolen in the UK and driven down to Albania for sale.

Last edited 2 years ago by David Bell
alden rodwell
alden rodwell
2 years ago
Reply to  David Bell

In Albania a couple of years ago I saw that half the vehicles on the road are Mercs. Even mountain peasants have an old Merc to pull the wooden hay cart up the steeper hills that might kill the donkey. Mind you often the wings were missing and the tyres bald. Now where did all those cars come from? That country is poor in a way that you will find difficult associating with mainland Europe. Lovely place though. Go there before they concrete it all over.