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Raiffeisen’s Russia Scandal – Part I

Last week I blogged about the news of an investigation by Austrian prosecutors into an alleged money laundering operation between the Vienna-based Raiffeisen Zentralbank (RZB) and Diskont Bank in Russia, an entity which had its license revoked by the Central Banker Andrei Kozlov, who was murdered just two weeks later. So far, the Austrian prosecutors are saying that they have not received the full cooperation of the Russian authorities, and that there are indications that the Kozlov murder could have involved official corruption. Raiffeisen says that the money laundering allegations are baseless, and that this news broke as an part of a “targeted attack” on RZB during Vladimir Putin’s visit to Austria. This is not the first time RZB’s enthusiasm for all things Russia has landed it in the hot seat – the bank is also involved in a probe by the US Justice Department for its questionable role in managing (as a trustee) half of a Swiss-based joint-venture with Gazprom called RosUkrEnergo, which corruption watchdogs say is just a fraudulent shell company created to siphon rents from the Turkmen-Ukraine gas trade. Below is an exclusive translation of the article that started the whole RZB-Diskont affair, published in the Russian magazine New Times on May 21 (Issue 15, page 6). Tomorrow we will post a translation of the second article which appeared the following week.

Officials are taking money away to the West On 23 May president of Russia Vladimir Putin will arrive with an official visit in Austria. A surprise may await him there: according to the data of The New Times, Interpol is investigating, while the Austrian police is ready to open a criminal case, in which, as they assert, key figures of his administration are involved. By Natalia Morar In this same time in Moscow the Russian Procuracy-General is going to adopt a decision on the closing or writing off as “insignificant” of criminal case No. 248089, initiated by the MVD of the RF based on the fact of the removal beyond the border of the money of big Russian officials on the eve of the presidential elections of the year 2008. The reckoning in the “insignificant” case is in the billions of dollars. Figuring in it among others are five banks from the top ten largest banks of Russia and the Austrian «Raiffeisen». There are already victims in this case, too: investigators assume that a victim became deputy head of the Central Bank of Russia Andrey Kozlov, killed on 13 September 2006. — The case of «DISKONT» — As The New Times’s sources in the MVD have reported, having agreed to provide information exclusively on conditions of anonymity, what is being spoken of is criminal case No. 248089, initiated 8 September 2006 on the basis of the results of a check of the Department of economic security of the MVD of Russia “in relation to unestablished persons form the number of employees of MBK «DISKONT» (OOO)1 with respect to indicators of the crimes prescribed by Art. 173 and item «а» of part 3 of Art. 174 of the CC RF [Criminal Code of the Russian Federation—Trans.]. What is being spoken of in the Articles is about the creation of dummy firms without the intent to implement entrepreneurial activities (Art. 174) and the laundering of monetary funds or other property acquired by other persons in a criminal way (Art. 174). According to the data of the MVD, uncovered in the process of the examination was a unitary scheme for taking out the money of officials, close to the oil companies controlled by the Kremlin and lieutenant-general Alexander Bortnikov, deputy director of the FSB and head of the Department of economic security of the FSB. Bortnikov is known for his close relations with deputy head of the administration of the president Igor Sechin and Vladimir Putin’s assistant Viktor Ivanov (The New Times wrote about this in detail in No. 1 of 12 February 2007 within the framework of a probe into the case of the killing of Alexander Litvinenko). As the sources of The New Times declare, Bortnikov supposedly oversaw the outflow of the money of various commercial structures engaged in the sale of electronics in Russia. The criminal case was initiated with respect to a concrete episode. Thus, during the course of only one day, 29 August 2006, money in a sum of around 1.595 bln rubles, or $60 mln, was transferred all at once from the accounts of 27 banks of the city of Moscow to the bank «DISKONT».2 The money went to the address of two firms — a certain OOO «Solange» and OOO «Saturn-M», supposedly created by unestablished persons from the number of employees of the bank «DISKONT» itself and registered to dummy persons. During the course of the 29 August working day the money received on the accounts of these firms was transferred to the accounts of three foreign companies: «Ennerdale investments limited», «Ideco engineering limited» and «Fontana invest inc. Limited». The companies were registered on Cyprus and the British Virgin islands, while the accounts were located in the Austrian Raiffeisen Zentralbank Oesterreich AG. The monetary operations with the Austrian bank for that day were not reflected in the internal accounting of the bank «DISKONT», while the turnover for the day was shown as zero. On 30 August 2006, «DISKONT» gave the Austrian «Raiffeisen» an instruction to transfer money from the enumerated companies to the accounts of 12 foreign banks. Already on the next day, 31 August, the Central bank revoked from«DISKONT» the banking license as of 1 September 2006. The reason for this became the failure by the bank to observe federal laws regulating banking activities, and the repeated violation during the course of one year of the demands prescribed by the 115th federal law «On counteracting the legalization (laundering) of incomes received in a criminal way, and the financing of terrorism». In all over the period of two summer months – from 30 June to 28 August 2006 – money in an overall sum in excess of 41 bln rubles, or more than $1.5 bln, was transferred to the three named foreign companies from the accounts of OOO «Solange» and OOO «Saturn-M» through «DISKONT». The money was transferred to the so-called OOOs from various Russian banks, and already from the three foreign companies at the instruction of the bank «DISKONT» it was transferred by the Austrian «Raiffeisen» to various foreign banks. — The “Diskont” scheme — The scheme for the mass taking out of money beyond the border, as they assert at the MVD, worked in the following manner. The main nodal elements were two banks – the Russian Moscow Commercial Bank «DISKONT» and the Austrian Raiffeisen Zentralbank Oesterreich AG. From more than 50 banks of Russia, money, as a rule, was transferred first to the accounts of 17 Russian firms, registered to dummy persons. Many of them were supposedly created with the assistance of the banking structures themselves. In the list of the banks clients of which implemented transfers of large sums to the accounts of these 17 firms are Gazprombank, Alfa-Bank, the International Bank of Development, Vneshtorgbank Ekaterinburg, Vneshtorgbank Belgorod, Vneshtorgbank Retail services, RAKB «Moskva», Sberbank of Russia (city of Moscow), Impexbank, Master-Bank, Nefteprombank, Transkapitalbank, the International Industrial Bank, Stroyprombank, Sotsinvestbank, bank «Senator», Rusbank, Lesprombank, Investsberbank, Sobinbank, the Moscow Credit Bank, Russlavbank, Runa-Bank, Grand Invest Bank and others. Sources close to the FSB have reported to The New Times that “a real hunt is going on for this list of banks, for each name of a bank, in order that it would disappear from the list, they are offering $150 thousand each, so you count for yourselves – the value of the list exceeds $15 mln.” The money received by the 17 firms was later transferred to the accounts of dummy Russian commercial companies, the so-called OOOs, founded by the bank «DISKONT» (among which are OOO «Solange» and OOO «Saturn-M»), and already from them – to the accounts of the three foreign offshores on Cyprus and the British Virgin islands. Standing out separately in this scheme, in the words of that same source, was a Russian “daughter” of a large European bank: “The bank did not make use of the services of the 17 dummy firms, but used its own. From them the money was redirected through «DISKONT» to the three foreign offshores, and from them already through the Austrian «Raiffeisen» – to other foreign banks.” As they assert at the MVD, the given scheme was in operation for about a year and a half. “The mass outflow of money of officials beyond the border began already in the years 2001—2002 concurrently with the sharp increase in prices for oil,” reports the source. “But this had never before borne such a centralized character, usually the money was taken away by various groupings individually. Mixed up in the scheme tied around the bank «DISKONT» and the Austrian «Raiffeisen», however, were practically all the big banking structures and roughly one and the same circle of officials.” — Golden guest-workers — Besides the moving out of money beyond the border through the bank «DISKONT», the conversion of large sums into cash within Russia was [also] implemented in a centralized manner. Participating in this were certain banks from the list mentioned. The scheme worked extremely smoothly, while used in it, as a rule, were guest-workers from countries of the CIS, as well as non-residents from the countries of the Baltic. “As a rule, the guest-worker was driven to one of the banks (from a list of more than 50 banks — The New Times) where a money transfer to a physical person had previously been implemented to his name at the instruction of the bank «DISKONT». Sums from several tens of thousands to a million and a half dollars could be withdrawn by the guest-worker at one time. They could cash up to several tens of millions of dollars in one work day in various banks using such a scheme. After this the money was taken away, while the guest-worker received his kopeks.” Thus, in only one of the banks figuring in the list, over a short period of time transfers were implemented to physical persons — non-residents and sums of 1.36 mln, 257 thsd., 566 thsd., 420 thsd. and 824 thsd. dollars turned into cash. According to the data of sources, one could accuse the banks of violation of the 115th federal law «On counteracting the legalization (laundering) of incomes received in a criminal way, and the financing of terrorism». According to article 7 of this law, a bank is obligated to submit all information about operations exceeding a sum of 600 thsd. Rubles (around $23 thsd. — The New Times) to the Federal Service for Financial Monitoring not later than the work day following the day of the fulfillment of an operation. As a source declares, information about all transfers from the bank «DISKONT» for concrete physical persons to other Russian banks was submitted backdated with a large time lag. According to the data of the MVD, Russian banks participating in the transfer of money beyond the border, and in the cashing of funds through the bank «DISKONT», supposedly received “up to 10% of the overall sum” for each operation executed. — First victims — As has become known to The New Times, already in March 2006 in the department of the Central bank of Russia responsible for bank licensing and until September 2006 headed by deputy chair Alexey Kozlov, an analytical document had been prepared on the possible laundering of funds through foreign banks by a whole series of Russian commercial organizations, as well as physical persons. The information voiced in the report was taken for examination by the Department of economic security of the MVD. Already in July of 2006, Andrey Kozlov was speaking in narrow circles about three foreign companies through which the main flow of “laundry” goes beyond the border. Towards the end of August, the overall scheme of the flow of money through the bank «DISKONT» and the three foreign offshores with accounts in the Austrian «Raiffeisen» had been established, and on 31 August the deputy chair of the CB personally insisted on the revocation of the license from the bank «DISKONT». 8 days later based on the results of the examination of the Department of economic security of the MVD and with the direct assistance of Kozlov criminal case No. 248089 was initiated in relation to unestablished persons form the number of employees of the bank «DISKONT». In another 5 days, on 13 September 2006, an attempt was committed on the deputy chair of the Central bank, when he was coming out of a sports complex on the street Oleny Val in Moscow. His driver died from wounds received on the spot, while Kozlov himself died the next morning in the hospital. — The procuracy “gets down to business” — The criminal case initiated based on the fact of the killing of Andrey Kozlov was transferred to the administration for probing particularly important cases of the Procuracy-General of the RF. Soon representatives of the agency officially declared that the investigation does not have any doubts that “the killing of the deputy head of the Centrobank is associated with his professional activities”. Already in October of 2006, it was announced about the apprehension of the executors of the killing – three citizens of Ukraine, who had come to Moscow from Luhansk. A bit later, in November, the intermediaries in the organization of the attempt were apprehended. At the beginning of December 2006, procurator-general Yuri Chaika declared at a press conference in Moscow: “It can be spoken about how the criminal case has been solved”. A month later, on 11 January 2007, the main suspect in the organization of the killing was apprehended in Moscow – the banker Alexey Frenkel. However, The New Times’s interlocutors in the MVD, the State Duma and in the banking community are convinced that “Frenkel has nothing to do with the killing; he was apprehended for one and only one reason — he knew the scheme of the laundering of the ‘black’ money in sufficient detail, as in general did many in the banking sector, but in so doing he was not distinguished by particular reticence.” From sources of The New Times close to the Procuracy-General, it became known that the bank «DISKONT» did not figure in the case about the killing of Andrey Kozlov at any one of the stages. No declarations about a possible connection between criminal case No. 248089 initiated on 8 September under the immediate assistance of the deputy chair of the Centrobank and the DES of the MVD and the killing committed five days later after the initiation of the case were voiced. — “Don’t talk, Frenkel” — It was already understood about how Frenkel is not going to stay silent after his apprehension, when it became known about how already in December 2006 we was intending to openly appear in the mass information media with accusations of corruption addressed at the leadership of the Central bank and a critique of its policy with respect to the revocation of licenses. Finding their way to Russian newspapers were the so-called three letters of Frenkel, in which the scheme for turning large sums into cash by various banks and moving “gray” funds out beyond the border through offshores is described in detail. As Alexey Frenkel’s lawyer Igor Trunov declared, he does not remember that his client had ever mentioned the bank «DISKONT» in his talks. Alexey Mamontov, president of the Moscow International Currency Association, who passed on the first letter of the apprehended banker to the mass information media, added in confirmation of the words of the lawyer: “This bank did not figure in the letters of Frenkel. Furtermore, I have never heard anything at all about «DISKONT».” Igor Trunov notes: “The published letters are but a part of a large text written much earlier. It was never published in its entirety. What would end up in the mass information media was decided at the discretion of several persons, the names of whom I can not name, and little has remained of the initial text. As concerns the names of the banks a huge quantity of them figured there.” Whether or not the scheme voiced by the banker has anything whatsoever in common with the «DISKONT» scheme is not know so far, however in both cases what is being spoken about is a large number of Russian banks. — Why Raiffeisen? — Raiffeisen Zentralbank Oesterreich AG, apparently, was selected not by chance. As sources in the MVD have reported, this is associated first and foremost with the fact that the main flow of money for the construction of the North-European gas pipeline (NEGP) along the bed of the Baltic sea from Russia (Vyborg) to Germany (Greifswald) is going through the Austrian «Raiffeisen». “Under the cover of this money, the money of a whole series of high Russian officials and commercial structures controlled by the Department of economic security of the FSB is being taken out”, noted the source. Construction of the NEGP began in December 2005 and according to pans will continue until the year 2010. The main operator of the project became the company Nord Stream, 51% of the shares in which belong to «Gazprom» and 24.5% each to the German companies BASF AG and E.ON AG. President of the Institute of national strategy Stanislav Belkovsky in an interview with The New Times asserts that the money for the construction of the North-European gas pipeline are coming “among others through the Austrian «Raiffeisen» as well. “According to my data, this bank belongs to our fellow citizens for a really long time – mister Kovalchuk and the companies, they have already bought out part of the shares of the bank. It is precisely with this that such close and warm relations are associated”, continued Belkovsky. The volume of the sums going for the construction of the gas pipeline is assessed, as general director of «Gazprom export» Alexander Medvedev officially declared in April 2006, at $10.5 bln. It is curious, however, that the initially voiced sum of the construction was around $5 bln. “To explain with economic reasons why the cost of the project has literally in four months increased more than two times is impossible”, asserts president of the Institute of energy policy Vladimir Milov. “One kilometer of gas pipe in the world costs from $600 thsd. to $1.5 mln, while during the construction of the NEGP already now the cost of one kilometer is running up to $2.5 mln.” Does this mean that $1 mln from each kilometer of pipe is going for kickbacks? — Soon the case will kick the bucket — As has become known to The New Times from sources in the Procuracy-General, in the next few days the question of “writing off the case (about the bank «DISKONT» — The New Times) as insignificant” and its transfer for consideration “to one of the territorial subdivisions of the GUVD of Moscow or the Moscow procuracy” is supposed to be examined within the walls of the agency. The task is to put a lid on the case once and for all. Concurrently with this, as lawyer of the banker Alexey Frenkel Igor Trunov declared, thoroughly unexpectedly on 17 May in the Procuracy-General they reported to him that the investigation with respect to the case of his client has been completed and would be handed over to the court during the course of the next week. All attempts by the lawyer to declare a petition on the conducting of a supplementary expert assessment were met with refusal. — Mop-ups ahead — According to information had by The New Times, a series of loud dismissals of a series of Russian officials of various levels who were accessories in corruption affairs is supposed to take place in the most immediate future. As sources in the MVD reported, “under the cover of corruption mop-ups, dismissals of people engaged in the case with respect to «DISKONT» from the very beginning may begin at the agency. The aim – to reduce to a minimum the circle of persons knowing about the schemes for taking money out through the indicated bank. Thus, according to our information, one of the heads of the criminal investigation unit of the Department of economic security of the MVD may be dismissed in the nearest future. — Greetings from Austria — As they reported to The New Times in the press service of the president of Russia, on 23 and 24 May Vladimir Putin will call on Austria with an official visit. The Russian president may be asked questions about the so-called case about «DISKONT». According to information had by the magazine, the Austrian police has already become interested in the involvement of Raiffeisen Zentralbank Oesterreich AG in the story with the Russian bank. Did the president of Russia know about the mass removal of the funds of high officials through the Russian «DISKONT» and the Austrian «Raiffeisen»? — about this we, most likely, will found out very soon indeed.