AN ACT OF GOD OR THE BANK HEIST OF THE CENTURY?

 

"Russia is the biggest mafia state in the world, the super power of crime that is devouring the state from top to bottom." Boris Yeltsin President of Russia

THE DIARY OF
THE CRISIS

 

 

 

JULY 1993

“Many of our banks are controlled by criminal gangs”, says Gennady Chebotarev, head of the Russian Interior Ministry's organized crime unit...

A prominent St.Petersburg banker has been murdered... The latest victim was Boris Semonovich Yakubovich, St.Petersburg manager for Inkombank, one of Russia's fastest growing commercial banks... Police think banking has become a target for Russia's crime syndicates. Many of our banks are controlled by criminal gangs, [says] Gennady Chebotarev, head of the Russian Interior Ministry's organized crime unit... This would mirror an earlier murder in Moscow, when the vice-chairman of Techkombank, Vladimir Rovensky, was gunned down on his doorstep by what police say was probably a professional hitman." (The Independent, 7/7/93, "Second Russian Bank Chief Killed" by Andrew Higgins)

JANUARY 1994

"Russia and the newly independent republics are major money laundering areas". Quoting Inkombank's deputy chairman, Zdrayevsky explaining that Inkombank does not ask for sources of money deposited with it and because "it's almost impossible to trace the money, whether it's legal or not". (Global Finance ("Laundering Dirty Money in Russia", January 1994, by Michelle Celarier)

MARCH 1994

Editorial by the Moscow News quoting senior officials of the Russian Central Bank and the Security Ministry, as admitting to being impotent in stopping the proliferation of organized crime in the Russian banking industry. ("Many of Russia's 2,048 banks are linked to the country's deadly mafia", March 12, 1994)

MAY 1994

Report on money laundering in the former USSR appearing in a three volume edition of Oceana Publications, Inc. (May 1994), examines, the money laundering in the former USSR. "... today Russia (and the newly independent republics) is a major money laundering area". "... big proportion of the banks were linked to the Russian mafia and other criminal gangs, and were involved in money laundering"

MAY 1994

Report by NBC (anchor, Tin Russert (May 1994)), showing that more than $40 billion dollars were flown out of Russia, through large number of Russian banks, controlled by mafia.

AUGUST 1994

Cyprus has become a primary money laundering center for the Russian mafia. (Independent "Moscow's Mafia Finds an Island in the Sun", August 3, 1994) 

SEPTEMBER 1994

A top Russian law enforcement official, Major Alexander Gromov, told a September 19, 1994 Conference of the Financial Crimes Enforcement Network (FINCEN) that "almost all Russian banks are corrupt."

OCTOBER 1994

BLACK TUESDAY Russia's currency collapsed on October 11, Tuesday, losing 27% of its value. In trading on Moscow's main currency exchange, the ruble fell a record 850 rubles to close at 3,926 rubles to the dollar. That follows a 6% drop on Monday. "It's mob behavior," said a Western economic analyst. "It's a stampede."

NOVEMBER 1994

Report by the United Nations Secretariat

"... one may certainly say that the monetary system of the country [Russia] is so imperfect, and amounts of illicit money flying abroad are so tremendous, that Russian financial system has become hostage of mafia". The UN report explains that the major Russian and international crime syndicates exploiting the imperfections of embryo-stage banking legislation in Russia moved in and acquired control of virtually all private financial institutions in Russia.

NOVEMBER 1994

Inkombank's involvement in market fixing resulting in the collapse of the Russian currency market October of 1994, known as "Russian Black Tuesday" (The Russian Daily Publication 11/8/94)

DECEMBER 1994

On December 2, Nikolai Likhachev, chairman of one of the largest Russian banks "Rosselkhozbank", which acts as a guarantor for the Russian Government, was murdered, shot through his head. As reported at the press conference in the Moscow office of the Ministry of Internal Security held on 12/14/94, in 1994 there were 60 serious mob attacks on banks in Moscow alone, three times higher than in 1993. (Commersant-Daily 12/15/94)

DECEMBER 1994

CIA report revealing that more than half of Russia's 25 largest commercial banks are linked to Russian organized crime groups or involved in illicit financial activities. (Washington Times 12/3/94, "Most of Russia's biggest banks linked to mob, CIA report says" by Bill Gertz.) Quotes CIA director R. James Woolsey, as explaining that the Russian crime groups were about to form "a criminal politburo" that would be a powerful and resourceful international syndicate.

DECEMBER 1994

The level of fraud linked to Visa cards in Russia is 4-5 times higher than in other regions of the world [says] Mr. Allen Doskar, regional representative of Visa, in an interview with ITAR-TASS. (Russian Daily, 12/23/94 "Russia is a European Leader of Fake Visa Cards")

DECEMBER 1994

Russian crime groups are spreading all over the world and are now "well-entrenched" in 29 countries outside the former Soviet Union, including Cyprus, Germany, the USA, England and others. The main reason Russian criminals went abroad is to launder the billions of dollars they made from crime at home. The Central bank of Russia estimates that more than $40 billion dollars (same number!) have been deposited in offshore accounts in Cyprus set up by Russian firms. (The Wall Street Journal, 12/22/94, "Russian Organized Crime Goes Global" by Neela Banerjee.)

MARCH 1995

Report on the CIA's findings regarding large Moscow banks links to Russian mafia (Washington Times "CIA sees organized crime tied to Russian Officials", March 6, 1995) Refers to Moscow "a Dodge City" of lawlessness"

Russian banks linked to organized crime, including Menatep, Inkombank and others, received hundreds of millions of dollars in US taxpayers’ funds. ___________________________

MARCH 1995

CIA report on Russian banks listed 10 of the largest 25 institutions as "linked to organized crime." The crime links range from influence over certain officers of the banks to outright control. Several of these banks, including Menatep, Inkombank, Unikombank and the Stolichny bank, received hundreds of millions of dollars in U.S. cash last year. (Newsday, March 29, 1995, “ Dollars Pour Into Russian Banks” by Knut Royce, Washington Bureau)

MAY 1995

"Comrade Criminal", a comprehensive study of Russian organized crime saturation in every sphere of Russian society by Stephen Handelman, a foremost expert on post-perestroika Russia (Yale University Press) -- referring to Russia as "the state hijacked by organized crime ... operating brazenly in the heart of Moscow of politicians amassing huge fortunes in bribes."

MAY 1995

"... enormous sums of mob money are moving abroad." Guy M. Dunn, a Russia analyst at Control Risks Group Limited in London, which advises Western businesses on security, suggests that most of 2,000 new commercial banks licensed in Moscow are fronts for money laundering. General Chebotarev, the First Deputy of Russian Security Ministry's Organized Crime department, thinks "some $40 billion has been moved abroad since 1992 and continues at $1 billion a month." (the New York Times "Russia's New Dictatorship of Crime", May 5, 1995, by Steven Erlanger)

JUNE 1995

Russian illegal banking activities in Cyprus (New York Times "Cyprus shores Wash Dirty Money", June 5, 1995)

Report on the killings of members of the Russian Parliament and bankers amid the mob's takeover of the Russian banking sector; (The New York Times "Images of Lawlessness Twist Russian Reality", June, 6, 1995, by Steven Erlanger)

back to the top

JANUARY 1996

"... the more savvy Russian hoods have hired sophisticated money managers and international lawyers to move their dirty money" A broad perspective of the threat to Western economies by the organized crime takeover of Russian banks and mentioning Inkombank as mob-linked bank. (Cover page report by New York Magazine "The Money Plane" January 22, 1996)

APRIL 1996

A letter from the Russian Ministry of Justice dated April 22, 1996 is sent to the Bank of New York, informing BONY of various improprieties uncovered by the CBR audit of Inkombank and requesting BONY’s cooperation in further investigation. The letter signed by a former Russian Deputy Minister of Justice, Vladimir Postyshev states, addressed to the then BONY CEO, J. Carter Bacot states:

        “As you may be aware, at this time the Central Bank of Russia is in the process of conducting an audit of Inkombank (pursuant to Order No.23-0-4p of January 9, 1996, and Article 74 of the Federal Statute "On the Central Bank of the Russian Federation" (Bank of Russia)”. In order to complete the gathering and analysis of the information, the audit has been extended by the Special Order of the Central Bank of the Russian Federation of March 1, 1996. However, the preliminary findings appear to confirm that Inkombank may have violated a number of federal civil and penal statutes, as well as the Presidential Decrees and the Instructions of the Central Bank of Russia, the statutes proscribing the securities fraud, tax evasion, illegal capital flight and others.
        Unfortunately the management of Inkombank has been less than cooperative with the CBR auditors which effectively precluded the auditors from obtaining necessary data respecting the movement of funds on the hard currency accounts, of Inkombank’s depositors and creditors, especially in the US. As your esteemed institution is Inkombank’s primary correspondent bank in the US, you possess the documentation which is most needed in the current probe. Before escalating this matter to your attention we attempted to contact Ms. Natasha Gurfinkel, your senior Vice President in charge of Eastern European Division, and also BONY’s President, Mr. Thomas Renyi. Regrettably, we have not obtained the desired cooperation from your colleagues and we are now compelled to seek your personal intervention.”

APRIL 1996

By letter dated April 23, 1996, senior vice-president of the Bank of New York, Natasha Gurfinkel-Kagalovsky forwards a letter to the Federal Reserve Board Chairman Alan Greenspan, lobbying to expedite approval of Inkombank's license to operate in New York. "Needless to say [Inkombank] is a very important and profitable relationship to [BNY]". Gurfinkel explained that she personally knows Inkombank "very well" and paid tribute to Inkombank's management as being "best prepared to deal with international transactions on western standards" and having the "capacity and vision" to lead democratically based financial system in Russia. On the same day, identical letter went to Mr. William M. Ryback, Associate Director of the Division of Banking Supervision and Regulation of the Federal Reserve Board. 

JULY 1996

“Inkombank became widely targeted as the bank most likely to fail...”

The president of Inkombank,Russia's fifth largest bank, yesterday blamed "vengeful" government officials and "dishonest" rivals for rumours that the institution was on the brink of bankruptcy... ... Inkombank became widely targeted as the bank most likely to fail after Kommersant, the leading Russian business daily, published a leaked report by central bank inspectors in which the regulators warned of substantial liquidity problems. The story was picked up by ORT, Russia's biggest television network, which broadcast the tale of Inkombank's financial vows to millions of Russian homes. (Financial Times, July 19, 1996 “Depositors quit rumour-hit Russian Bank”, by Chrystia Freeland.)

SEPTEMBER 1996

The life paths of a Byelorussian prostitute and a Russian banker crossed on the other side of the ocean, in America. Had they not, Janna Boulakh would still be soliciting clients on Brighton Beach and Inkombank's First Vice-President, Alexei Kouznetsov would be spending all of his time thinking of his bank's prosperity. Today both can say "We've made it!" The "sweet couple" has the world at their whim, from extravagant villas to lavish limousines. This opulence is founded upon the moneys of Inkombank's clients, even though the clients themselves are not exactly aware of that. (In Bed with a Banker MK Daily September 25, 1996, by: Olga Kedrin)

MARCH 1997

"... behind the hired killers stand the private interests of the confectionery factory Babayevskaya and Inkombank" ITAR-TASS ___________________________

Funeral of Vera Kompasova, the general manager of the of the chocolate factory here turned into a mass public manifestation. Ms. Kompasova was shot five times point blank on the eve of the March the Eighth Day which caused a turbulent resonance in this city. Those participating in the meeting adopted a petition to Boris Yeltsin and Victor Chernomyrdin, which declares that "this murder of a woman, a leader of the working men and women, struggling to survive and to build a normal human life for themselves is an act of defiance of the president and the government." Petition emphasizes that behind the hired killers stand the private interests of the confectionery factory "Babayevskaya" and Inkombank. Vera Kompasova, elected general manager of the plant in the end of last year was a leader of the movement of the plant workers resisting the sale of the controlling interest of the Moscow plant. The city's police chief, Stanislav Jukovsky said that the murder investigation is conducted by the operatives of the regional organized crime task force, office of the prosecutor and the Federal Security Service. (ITAR-TASS “KILLED ON THE EVE OF MARCH THE 8TH DAY” March 10, 1997)

MAY 1997

Pending in the Federal Court of the United States in the stage of pre-trial discovery is civil matter No. 95 ___ , a lawsuit of Foreign Investors Portfolio Management, Inc. (FIPM) against the Russian bank, Inkombank. FIPM, which represents the interests of three Western firms, the shareholders of Inkombank, accuses the latter of unlawful conduct described as fraud. ( How Inkombank Duped American Investors.  Russia Bulletin. May 30, 1997 By Natalia Vdovina)

JUNE 1997

Intercon has recently obtained documents from legal offices representing the rights of aggrieved shareholders of Inkombank, one of Russia's largest commercial banks. The documents allege that the management of Inkombank has been engaged in massive fraud and embezzlement against shareholders, creditors, and various Western companies, as well as being involved in drug trafficking. (Inkombank Duping US Companies?
Thursday, June 5, 1997, Intercon International.) 

JUNE 1997

By letter dated June 19, 1997, Hoverwood Limited informed BNY of Inkombank's fraudulent submissions to the Federal Reserve Board as well as the similarly fraudulent submissions to the SEC in connection with BNY/Inkombank joint ADR program. In its follow up letter on June 20, 1997, Hoverwood annexed the June 5, 1997, report by the Intercon's Daily Report on Russia", titled "Inkombank Duping US Companies?" Intercon's report described Inkombank's management's links to the execution murders of Vera Kompasova (general manager of a Russian confectionery plant, resisting Inkombank's hostile takeover), and Lubov Tarasova (a senior auditor of the Central Bank of Russia, who was subpoenaed to testify against Inkombank in judicial proceedings.) Intercon also reported Inkombank's management's involvement in "large scale drug trafficking" activity, and its money laundering through the US banks;

        By letter dated June 30, 1997, a prominent Moscow lawyer, Boris Kuznetsov, copied BNY its letter to Senator Alfonse D'Amato describing Inkombank's fraudulent submissions to the US Securities and Exchange Commissions, the US Federal Reserve Board. Mr. Kuznetsov further provided BNY with the copy of the "Summary of Findings" of the Central Bank of Russia ("CBR"), pursuant to its surprise audit of Inkombank, showing that CBR uncovered Inkombank's numerous frauds and violations of the Russian and international banking laws. Mr. Kuznetsov also annexed a copy of Inkombank's "Statement in Response" to CBR's scandalous findings, blaming Inkombank's misdeeds on "world-wide Jewish conspiracy against the Russian economy."

JUNE 1997

“...concrete persons who broke the law must be punished” says Yeltsyn, as the Procurator General of Russia reopened the criminal probe into Inkombank's market manipulation in the “Black Tuesday” scandal. _________________________

Procurator General's Office overruled the decision of the Department of Investigations of the Federal Security Service to drop criminal prosecution in connection with the so-called "Black Tuesday". To remind, the name was used to refer to the catastrophic fall of the Russian Ruble (by 845 points) on the Moscow International Currency Exchange, on October 11, 1994. Investigators of the Federal Security Service were of the opinion that they exhausted their means of searching for the culprits. The Procurator General disagreed and insisted on the prosecution of the officials who knew of the forthcoming market collapse and did nothing to stop it.

According to the Procurator General the Black Tuesday enriched by tens of millions of dollars the commercial banks which were prepared for this event at the expense of the thousands of small investors. Following the Black Tuesday, President of Russia fired the Chairman of the Central Bank of Russia, Gerashchenko and the Finance Minister Dubinin. President referred to this matter as an "attempt at financial coup." The Security Council, having considered the report of the State Investigative Committee, characterized the events of the Black Tuesday as an emergency, posing threat to national security. Criminal investigation into this sabotage initiated by the Office of the Procurator General was unsuccessful. Investigators sought to prove the conspiracy amongst the banks, Inkombank, Neftekhimbank, Rosmestbank, Imperial Bank and Slaviansky Bank, who were the most active traders on that infamous day. The bankers vigorously denied their involvement. As a result the scandalous matter was hushed "for lack of evidence." This outcome was unacceptable to the President of Russia, who at the National Security Council conference took the stance and ordered that the concrete persons who broke the law must be punished. The Procurator General viewed the President's statement as a directive and reopened the criminal prosecution. (“Corruption in the Russian Banking Sector. Investigation into Inkombank's Market Manipulations Reopens” Commersant Daily, June 20, 1997)

back to the top

OCTOBER 1997

House Foreign Relations Committee Hearings on International Organized Crime, October 10, 1997

"Organized crime groups, particularly in Russia, now have an almost chock hold on the country's vast natural resources, as well as their banks and media. Russia has been described recently by the press as a cryptocracy from top to bottom, a semi-criminal state..." Benjamin Gillman, Chairman of House Foreign Relations Committee (in the opening statement of the Hearings on International Organized Crime)

"... the link between the Colombian drug cartels and the Russia mafia is palpable. The mafia provides weapons and ammunition for the emerging smaller drug cartels who stepped up to replace the enormous Medehin and Cally cartels that were destroyed by General Serano's courageous Colombian national police... but this international enemy, the Russia mafia, is as deadly a threat as there could be and it comes from within as well as without their country." Rep. Henry Hyde.

  "Russian organized crime presents the greatest long-term threat to the security of the United States... The United States is presented with a well-organized, well-funded, sophisticated and brutal conspiracy." FBI Director Louis Freeh

   "... the majority of [the Russian/ banks are controlled by organized crime... alliances between the Colombian drug cartels ... and Russian organized crime groups ... and particularly some documented in recent DEA cases between Russian organized crime and South American groups are growing and... [are] very dangerous" FBI Director Freeh.

JULY 1998

For the past three years Doudkin, who was named amongst defendants in the proceedings in US Federal Court, despondently avoided participation in this litigation. According to an Inkombank source, who understandably requested to remain incognito, Inkom's bosses were not too eager to expose their shame, allowing Doudkin to remain silent. No longer - this is a do or die situation - for Doudkin that is. He must now officially deny all that he ever said, signed, did or was. An alternative? Doudkin knows the alternative too well, the source says - this is a testimonial with a rope around one's neck - he says what he must or forever holds his peace ... in a better world. (Testimonial With a Rope Around one's Neck. Inkombank's Ex-Boss Strikes the Deal of his Life MT~Wire,   July 6, 1998 by Emily Topol)

AUGUST 1998

At the beginning of the crisis Central Bank attempted to implement strict measures. SBS-Agro and Inkom[bank] were granted the stabilization credits. In order to avoid [misuse of stabilization credits for] speculative purchase of dollars, the C[entral] B[ank] permitted the purchases of hard currency only to fulfill prior orders of [banks’] clients... Moreover, [required was] that the banks would not sell [previously purchased] dollars until the situation stabilizes. The reality: on Thursday and Friday morning, banks were all sold out of dollars. [Simultaneously] the currency exchange places, where hard currency was still available, the dollar/ruble exchange rate increased sharply. MK Daily, 08/18/98

AUGUST 1998

Western investors ... shocked by the moratorium ... calculated to rescue Russian banks from an enormous financial squeeze at the expense of foreign lenders. ___________________________

Though most of the headlines this week have focused on Russia's devaluation of the ruble, Western investors were far more shocked by the moratorium, which appeared calculated to rescue Russian banks from an enormous financial squeeze at the expense of foreign lenders. Beyond costing money, the move angered Western institutions because it was the first instance of the Government of President Boris N. Yeltsin being willing to break standard financial contracts in midstream... ... One provision of the moratorium would have frozen payments on "forward currency contracts." At issue was more than $10 billion worth of currency agreements that foreign lenders had bought from Russian banks to insure themselves against a devaluation of the ruble. The currency contracts allowed foreign investors to buy tens of billions of rubles' worth of Russian bonds, known as GKO's and OFZ's. These bonds have paid sky-high interest rates but are paid in rubles. Dan McGovern, head of Merrill Lynch's research on emerging-markets debt, said this week that Russian banks would face a huge squeeze in October. That is when about $5 billion worth of currency contracts are scheduled to come due, which means the Russian banks would have to buy billions of rubles at prices that could be far above market value. The New York Times, August 20, 1998 (“Russia is Caught in a Financial Quandary” by Edmund L. Andrews.)

SEPTEMBER 1998

The Central Bank of the Russian Federation has placed Inkombank under the management of the temporary administration to be appointed by the CB starting September 4. Inkombank's president, Vladimir Vinogradov, thinks that CB "was premature" to appoint an outside administration because "the bank continues its operations and a program of restructurization is already drafted which the bank's management is prepared to present to the CB's board of directors."(MK Daily, 09/07/98.)

SEPTEMBER 1998

Gerashchenko, now 61 and chairman of Mezhdunarodny Moskovsky Bank, took over as chairman of the Russian central bank in 1992 but was fired two years later after the rouble lost about 30 percent of its value in one day -- "Black Tuesday."(Reuters, Sept. 11, 1998 “Controversial bank chief returns to Russia”.)

"He has masterminded the rules of the current banking system," said Sergei Kolmakov, an analyst at the Fond Politika, a think tank linked to the Kremlin. "All these guys -- the big bankers and oligarchs -- made their money under the supervision of Gerashchenko." (Bloomberg, “Russia's Gerashchenko Unfairly Labeled: Bloomberg Profile”)

SEPTEMBER 1998

Of course, investors have also taken big hits. Long-Term Capital Management, the $2.3 billion hedge fund managed by former Salomon Brothers Inc. Vice-Chairman John Meriwether, lost 44% of assets in August. At least four hedge funds heavily invested in Russia have filed for Chapter 11 bankruptcy protection, according to Nicola Meaden, president of TASS Management Ltd., which tracks the industry in London. Three of those, with $180 million to $200 million in capital, were managed by McGinnis Advisors in San Antonio. "We were not aware that we had this kind of [default] risk because it is unprecedented," says Dana F. McGinnis, the company's president. (Business Week, “For Emerging Markets, 'Pure Carnage' and for market makers, a major shakeup seems almost certain.”)

SEPTEMBER 1998

Russia's two biggest private banks [Inkombank and SBS-Agro] have shaken off attempts by the Central Bank to take control of their management and force them to pay off their debts. ___________________________

Russia's two biggest private banks have shaken off attempts by the Central Bank to take control of their management and force them to pay off their debts.

As a result, Inkombank and SBS-Agro, which have stopped paying out an estimated $1.5 billion of deposits that belong to a total of 5.5 million individual depositors, are operating without direct Central Bank supervision.

Analysts say the Central Bank has lacked the political clout to overthrow the banks because they are controlled by two of Russia's most powerful "oligarchs." Both SBS-Agro's Alexander Smolensky and Inkombank's Vladimir Vinogradov are key Kremlin power brokers. (The Moscow Times, Tuesday, September 15, 1998 “Big Banks Shrug Off Regulators” By Yevgenia Borisova)

back to the top

SEPTEMBER 1998

Lehman claimed in documents filed in the Royal Court of Justice in London that Inkombank defaulted on an $87 million payment due on Sept. 11... Inkombank is Russia's second-largest private bank by assets; Unexim bank is fourth-largest...

...Inkombank said that Lehman's action "can hardly be considered a rational way out of the present situation. Lehman Brothers is trying to use force to get ahead of other creditors and to be the first seizing everything it can."...

... Inkombank said it would be "much more rational to solve questions of recovering debts on a multilateral basis... taking into consideration the interests of all creditors." (Bloomberg “Lehman Seizes Accounts of Russia's Unexim, Inkombank”)

Foreign banks also are pursuing compensation from Russian banks that have failed to meet their obligations. Lehman Brothers has obtained a court order to seize the assets held in U.K. banks of Inkombank, Russia' second-largest bank. Lehman also is one of the banks on the foreign bond holders' committee that is negotiating with the government. Central Bank chairman Viktor Gerashchenko criticized some Western banks' attempts to negotiate better terms.

"There are Western banks which show rational understanding of the situation and there are banks which are just greedy and this greed may leave to them getting nothing," Gerashchenko said at a briefing... ... The government also has imposed a 90-day moratorium on most debt payments by Russian banks and companies to foreign lenders, to help avert a string of bankruptcies. Since then, banks have defaulted on loan and currency forward payments, leading investors abroad to begin lawsuits to confiscate Russian bank assets. (“Russia to Unveil New Debt Swap; Investors Seek Delay, Sept. 24 (Bloomberg))

SEPTEMBER 1998

"There is concern among western banks that a great deal of assets belonging to insolvent banks are being transferred out of the country. In other climates this would [be] known as fraud," Hainesworth [Thomson Bankwatch analyst Richard Hainsworth] said. (Reuters, Sept. 25, 1998 “Russia central bank attacks payment crisis second time” by Karl Emerick Hanuska)

SEPTEMBER 1998

One western banker, criticizing the Russian government's defence of a 90-day moratorium, which has prevented creditors from winding up insolvent banks, said: "Everything that has happened today has significantly raised the temperature." Lehman's action is a test case and could just be the first of many.

"So long as the Russian banks continue to stonewall their foreign creditors with the collusion of the government then you can expect cases like this to continue to be introduced. (Financial Times, Sept. 25, 1998 "RUSSIA: Court freezes $113m in two banks” by John Thornhill in Moscow and Clay Harris in London)

OCTOBER 1998

"These people (should) be brought to justice, to be tried in court," [Luzhkov] told an investment conference in London..." _____________________________

Credit Agricole Indosuez, the investment banking unit of Credit Agricole, France's biggest bank, is suing Russian bank, Inkombank for more than $11 million, over disputed currency derivative contracts. London, Oct. 21 (Bloomberg)

Powerful Moscow Mayor Yuri Luzhkov on Wednesday compared Russia's partial debt default to the collapse of an illegal pyramid scheme, and said those responsible should be put on trial.Mentioning no names, Luzhkov likened government debt to the organizers of fraudulent pyramid investment schemes in which millions of Russians have lost their savings. "These people (should) be brought to justice, to be tried in court," he told an investment conference in London... ...Luzhkov said interest rates of up to 200 percent on the government's short-term GKO Treasury bills and OFZ bonds before Russia effectively defaulted on them in August were no different from the massive returns promised in pyramid schemes. (Reuters, October 21 “Try builders of Russia debt "pyramid," mayor says” by Gill Tudor, London.

OCTOBER 1998

Inkombank President Vladimir Vinogradov, who headed what was Russia's third largest bank before the crisis, resigned Tuesday, becoming the first of the so-called oligarchs to give up his throne.

An Inkombank spokesman attributed the resignation to "personal reasons,"

and said Vinogradov will not take up another post within the bank. Analysts said the resignation does not clarify what will happen to the flailing financial institution, which has been teetering on the edge of bankruptcy since August and only last week asked to be nationalized by the Central Bank. "It is significant that he resigned, but not in terms of consequence," said Margot Jacobs, an analyst with

United Financial Group. "He is the first Russian bank president and the first oligarch to step down."

“[But] Vinogradov's resignation does not make it any clearer what is going to happen to Inkombank now," she added. An analyst with Rating Information Center, a banking industry agency, said the move was an attempt to throw responsibility on the Central Bank for Inkombank's inevitable collapse. "Inkombank has no chance of surviving," he said. "Vinogradov now hopes blame will fall on the Central Bank for not saving it."

The Rating Information Center analyst said depositors probably would never be able to salvage their funds because most Inkombank property has been siphoned off, making seizure of real estate or vehicles unlikely. (The Moscow Times, October 28, 1998, “Inkombank President Steps Down” by Sujata Rao)

OCTOBER 1998

[Moscow Mayor] Yury Luzhkov said at the meeting of the Moscow government that measures should be taken to insure that "banks do not become the reservoirs where the taxpayers' money is uncontrollably lost." He voiced concern that "the state is unable to exert enough pressure on the banks". Moscow Federal Tax Police Service is filing criminal charges against Inkombank and Tori-bank, as reported by the mayor's office. (National News Service, Oct. 27, 1998 (Translated from Russian))

OCTOBER 1998

“Employees of [Inkom]bank headquarters in Moscow have been stealing everything from computers to expensive doorknobs...” _______________________________

Moscow tax authorities filed a suit against Inkombank for delaying payments of millions of rubles of citizens' tax payments to the city budget, reported Russian daily Kommersant. (Moscow, Oct. 29, (Bloomberg))

• "The only way to protect the interests of creditors and depositors and avoiding the full collapse of Inkombank's business as well as stripping of the bank's assets was to revoke its license and sell the bank's assets in a tender," a central bank statement said. Russian Central Bank Revokes Inkombank's Bank License, Moscow, Oct. 29, 1998

• The Central Bank said a series of Inkombank properties and assets would be impounded, and that it would now be placed under the Central Bank's administration.A liquidation committee will look a how to put up its assets for tender.Business: The Economy Russia's Inkombank Closes, BBC News, October 29, 1998

OCTOBER 1998

Moscow tax police opened a criminal investigation against Inkombank for diverting tax payments for its own use. _____________________________

The Central Bank declared Thursday that one of Russia's former banking giants, Inkombank, was unable to meet its obligations and revoked its license. The decision came a day after the Moscow tax police opened a criminal investigation against the bank for allegedly diverting tax payments for its own use. The bank's founder, Vladimir Vinogradov, resigned earlier this week, and a number of other top managers have left in recent weeks. (The Moscow Times, October 30, 1998, “Inkombank Has License Taken Away” by Yevgenia Borisova”

back to the top

NOVEMBER 1998

Western creditors prepare to initiate criminal prosecution of Vinogradov, Groshev and others responsible for dissipation of $1,5 billion during the two months. _______________________

INTERVIEW WITH: Ralph-Dieter Montag-Girmes, managing director of the company ARQ:

"Inkombank's management will be arrested abroad even sooner than here."

Ralph-Dieter Montag-Girmes was one of the foreign consultants of Inkombank. In August of this year he was retained to assess Inkombank's [financial] condition and to develop reorganization program. He confirms the theory that the Bank's assets were simply stolen. According to Mr. Montag-Girmes, over $1,5 billion was stolen from Inkombank in a matter of several months.

------------

Montag-Girmes: We worked with Inkombank for over two months and it
appeared to us that throughout this time Vinogradov, Groshev and other Inkombank's managers engaged in things other than the stated objective, namely, rescuing themselves. It was obvious that Inkombank had severe problems well before August 17 -- by the end of July Inkombank was bankrupt.

Kommersant-Money: That's when they started removing the banks's assets?

Montag-Girmes: Yes. As soon as they realized that there was no chance to save the Bank in a civilized way. There were, a few members of the board who were truly looking for ways to save the bank. But whoever they approached - we have information that they approached Vnesheconombank, circles close to Yuri Luzhkov, Egor Stroyev, other politicians and businessmen - the consensus were "Sorry, it is impossible."

Kommersant-Money: How exactly the assets were being stolen from Inkombank?

Montag-Girmes: There is one scheme for all banks. Its very simple. You start by using defaulted promissory notes. You buy a promissory note of such a bank for 10-20% of the face value, then, in accordance with the Commercial Code, you bring it to your bank's local branch and say: "I want to redeem this note." "Our man" in the branch does it for a suitable reward. If all promissory notes have been purchased or they become too expensive, you "buy" the money blocked in your account and instruct the bank to make a wire transfer from one account to another; it is possible to make such a transaction even in a "dead" bank. There is one more rather legal but immoral way of stealing money. If a taxpayer has an account in a bankrupt bank which still has a banking license he/she may instruct the bank to use the money (which in reality does not exist) as tax payments. This way the government will not collect and look to the bank for its money."

“Inkombank was pulling a swindle, in dealing with Western creditors and that’s putting it mildly” _______________________

Kommersant-Money: How much was stolen?

Montag-Girmes: More than $1,5 billion. Look here, as of August 17, the bank's credit portfolio was $2,9 billion; as of October 23, it was only $1 billion. In reality its worth was no more than $500 million because many loans won't ever be paid back. This is while Inkombank's liabilities are $350 million to individual depositors and $400 million to the government. Total - $750 million. Its assets are $500 million, a realistic worth of the credit portfolio. In addition, it may have $150 million of own funds. Total - $650 million. Hence, commercial clients will get nothing because they are in line next to individual clients and the government. So, the Central Bank was right to revoke Inkombank's license because Inkombank's liability was rising by $50-80 million per day."

Kommersant-Money: What is the attitude of Western creditors?

Montag-Girmes: Inkombank was pulling a swindle, in dealing with Western creditors and that’s putting it mildly. Even after August 17, they were given faulty information. Inkombank kept saying that it was being rescued, nationalized etc. For that Inkombank's management should be held responsible, We are aware that Western creditors prepare to initiate criminal prosecution of Vinogradov, Groshev and others responsible for dissipation of $1,5 billion during the two months. Western law enforcement agencies have assembled a huge file showing the money being syphoned out of Russia in the amounts exceeding $20 billion after August 1. All money trails were looked at. In 3 to 4 weeks, which is necessary to prepare appropriate documents the process of freezing Inkombank's assets abroad will start."

Kommersant-Money "What do you think will happen to Inkombank management?"

“If they [Inkombank management] flee the country to pursue a "quite life" abroad they would probably be arrested [in the West] even faster than here.” Montag-Girmes ___________________________

Montag-Girmes: "If they flee the country to pursue a "quite life" abroad they would probably be arrested [in the West] even faster than here. If they remain in Russia ... well, there is Penal Code here as well."

The Weekly's comment.

If allegations of theft of Inkombank's are proven its former management may find themselves in a lot of trouble. As regards the bank itself, it's history now. Bank may appeal the decision to revoke its license in which case the management may steal the remaining

assets. However, it is much more likely that Inkombank will be adjudged bankrupt on demand of any of its creditors. It is also unclear, what basis would Inkombank use to appeal revocation of the license. In any event, for Inkombank's depositors, its bankruptcy is probably the best of all that's left, because as it stands now, the bank's assets still exceed the amount owed to individual depositors. They are first in line to get the money in the case of bankruptcy. Consequently, the depositors have two options: either to wait for the bank's bankruptcy and then appeal to a liquidation commission, or to accelerate the process of bankruptcy by filing the lawsuits on their own. (Kommersant-Money, November 1, 1998,“How Inkombank was Dying. Testimonies of eyewitnesses” <COVER STORY/"HOW INKOMBANK..."> <TRANSLATION FROM RUSSIAN>

NOVEMBER 1998

Western bankers are preparing to levy the property of the Russian debtors, said Sergey Dubinin, the former chairman of the Central Bank of Russia in an interview with the program Mirror. Dubinin says that this information became knwon to him during his personal contacts with foreign financiers. "If they find the hidden money, they will resort to harshest legal remedies against the owners of Russian firms and banks ... Soon many villas on Cote D'Azure may change ownership", -- said Dubinin. (National News Service, Nov. 2, 1998)

A liberal Russian lawmaker named top government ministers in request for an investigation into alleged government corruption... ...At a news conference Monday, Yavlinsky said corruption has become endemic "not only to members of the government, but also to the ...very system that operates there." (Associated Press “Russia Corruption Probe Requested” by Anna Dolgov, “Moscow, 11/02/98 )

NOVEMBER 1998

About 5,500 officials are under investigation for taking bribes this year in Russia, where economic troubles have created a breeding ground for corruption, the interior minister said today... ..."A poverty-stricken official is always prone to crime," Stepashin told reporters. (Associated Press “Russia Investigating Bribery” by Vladimir Isachenkov, Moscow, 11/03/98)

 

back to the top

NOVEMBER 1998

Russia's Inkombank was estimated to have notional outstanding forward foreign exchange contracts of $12-14 as of mid-August, according to a report from rating agency Fitch IBCA on Tuesday...
    ...Fitch IBCA said it had withdrawn Inkombank's CCC minus long-term, C short-term, E individual and 4T support ratings. Inkombank <IKMBy.BE> FX deals seen at $12-14 bln. London, Nov. 3 (Reuters)

NOVEMBER 1998

[Inkombank] said as of October 1 it owed $3,4 billion to creditors, not including obligations under rouble forward contracts, options and other instruments......Inkombank said its assets stood at around $2 billion. The bank, which has about 200,000 clients, owed the budget $750 million and foreign partners $839 million, it said.
        Fitch-IBCA said last week that Inkombank had on-balance sheet foreign liabilities of $600-$700 million. The rating agency gave the figures as it withdrew the bank's ratings. (Reuters, Moscow, Nov. 11)

NOVEMBER 1998

Some of Russia's biggest commercial banks, such as Tokobank and Inkombank, have already collapsed amid huge losses. But creditors have found it almost impossible to salvage any assets because of the opacity of Russian banks' accounts and the difficulties of enforcing contracts in local courts.
        They also allege that some Russian banks have used the cloak of the 90-day moratorium to strip their banks of remaining assets. "Nobody knows what is left," said one Moscow lawyer. Financial Times, Nov. 13, 1998, “Russia: Almost half of 1,500 banks face closure” by John Thornhill in Moscow and Jeremy Grant in London.

NOVEMBER 1998

A few banks, such as Bank Imperial and Inkombank, which had their licenses revoked by the central bank "are total dead ducks" and will default on all their debts, said Margot Jacobs, an analyst at United Financial Group. Inkombank has a $75 million loan due Nov. 26, while Bank Imperial owes $25 million on March 27."The best creditors can hope for is maybe something from the liquidation," she said. (Bloomberg “Russian Banks Asking Creditors to Restructure $1 billion in Debts” Moscow, Nov. 18)

NOVEMBER 1998

Russia's 1,550 commercial banks, most technically bankrupt, face a crucial deadline. On Nov. 17, the Russian government will lift the moratorium on debt repayments that it imposed on banks in August. The move will be the signal for European and U.S. creditors to launch a flurry of lawsuits to recoup up to $30 billion they are owed by the banks. And it will touch off a shakeup in Russia's peculiar, postcommunist banking system. Hundreds of banks are likely to go out of business or be swallowed up by rivals. From Inkombank, Russia's third-largest commercial bank, to regional institutions, banks were holding billions of dollars worth of Russian Treasury bills in August when the government defaulted...
    ... The banks have only themselves to blame. After the August debacle, the Central Bank gave them about $3,5 billion in credits. But much of the money was wasted as banks switched ruble credits into dollars and transferred them to hard-to-trace accounts abroad. (Business Week, Nov. 23, 1998 “ Doomsday for Russian Banks”)

The Central Bank of Cyprus revoked the license for Inkombank, formerly Russia's second-largest bank in terms of assets. Nicosia, Cyprus, Dec. 23 (Bloomberg)

NOVEMBER 1998

Moscow's State Tax Inspectorate has audited 660 Commercial banks and their affiliates and fined them 369 million rubles ($21) million) for tax violations. .... Inkombank... are among the banks that did not pay taxes. (Bloomberg “Moscow Tax Inspectors Audit, Fine Non-Paying Banks, Agency Says. Moscow, Nov. 25)

The European Bank for Reconstruction and Development (EBRD) has written off investments in Russian Tokobank and Inkombank, the EBRD's top Russian official said on Thursday... ...[EBRD Russian representative Neil] Parison said the EBRD had more or less washed its hands of its 1.65 percent of Inkombank but hoped to ring fence an EBRD credit fund for small businesses serviced by the bank...
        ..."All I think we would have done differently would be to seek to devote even more resources than we do into seeing what was going on..." (Reuters INTERVIEW: “EBRD writes off stakes in Russia Toko, Inkom.”Moscow, Nov. 25)

DECEMBER 1998

“...managers of Inkombank had stolen $1.5 billion in recent months through clever paper shuffling... Employees of [Inkom]bank headquarters in Moscow have been stealing everything from computers to expensive doorknobs...” (Ralph-Ditter Montag-Girmes) _________________________________

[Inkom]bank owes its 200,000 depositors about 500 million rubles ($25 million) plus over $300 million in hard currency. It also owes foreign creditors $830 million in loans and has a liability on forward contracts with foreign institutions totaling $1.2 billion. But the most likely outcome is for former managers and parties with inside information to cherry-pick the best assets, leaving foreign creditors and individual depositors to fight over the carcass. "If the Central Bank washes its hands of the situation and the owners and previous managers turn their backs, it will be a miracle if anything of value is left for those who put their trust in the bank and in the system it operated within," said Richard Hainsworth, Moscow representative of rating agency Thomson BankWatch.
        Chaos appears to be reigning in some of Inkombank's 118 branch offices nationwide. Employees of bank headquarters in Moscow have been stealing everything from computers to expensive doorknobs as liquidation looms, according to a banker close to Inkombank who wished to remain anonymous.
        The theft could run much deeper if allegations made by Inkombank insiders are true. The head of Inkombank's supervisory council, Vladimir Groshev, said at a news conference in early November that there had been an inadequate "system for opposing the withdrawal of assets from the bank." A consultant Inkombank hired in August to help draft a restructuring plan, Ralph-Dieter Montag-Girmes, managing director of consultancy ARQ Co., said in a recent issue of Dengi magazine that managers of Inkombank had stolen $1.5 billion in recent months through clever paper shuffling. The methods for stealing assets are the same at any bank, he said. Management buys up the bank's outstanding promissory notes, or veksels, for 10 to 20 percent of their nominal value and then pays off bank employees to pay the veksels in full, Montag-Girmes said. In a bank that still has a license, management can make off with clients' frozen tax payments to the federal government once the client has transferred responsibility for paying the tax to the bank, the consultant said. "He worked with Inkombank for more than two months and it seemed to us that during all that time Vinogradov, Groshev and other managers of Inkombank were engaged in completely different activities - specifically, in saving themselves," Montag-Girmes said.

“Many of the holdings are not owned directly by Inkombank but by “afiliated persons" most likely leading back to Vinogradov...” ________________________

Analysts have also speculated that management may be siphoning off the bank's industrial assets. Inkombank's ownership in food processing, metals and aerospace enterprises has been carefully structured to allow for easy stripping. Many of the holdings are not owned directly by Inkombank but by “afiliated persons" most likely leading back to Vinogradov, according to an informed source. (The Moscow Times, December 15, 1998; “Little But Bones Left in Inkombank's Carcass” By Jeanne Whalen.)

DECEMBER 1998

...some central bank officials might have used the crisis to fill their pockets...” __________________________

Russia's Interior Ministry said Tuesday that security forces were investigating alleged central bank losses running into the billions of dollars... ...The investigation started shortly after the government effectively devalued the currency and defaulted on some foreign debt on Aug. 17, amid suspicions that some central bank officials might have used the crisis to fill their pockets... ...[Interior Minister Sergei] Stepashin said investigators from his ministry, the Federal Security Service, the chief prosecutor's office and banking experts were conducting the operation.
        "We have encountered questions linked not only to August 17," Stepashin said. "We have picked up a much wider layer of bank records) starting from 1992.:... ...Earlier this year police arrested the head of the State Statistics Committee and a number of his deputies on charges of bribery and manipulating statistics in favor of certain firms...(Reuters, “Russia looks into alleged losses by central bank” by Andrei Khalip, Moscow, 12/29/98.)

back to the top

Russian fianancial crisis
main page