Is There a Central Bank?

1998 > Russia

If the Russian Central Bank doesn’t play fair, who will??

From The Moscow Tribune, November 27, 1998


By John Helmer

A report just completed by Russia’s independent state auditor, the Accounting
Chamber, accuses the Central Bank of Russia, under its previous chairman,
Sergei Dubinin, of profiteering from its transactions with precious metals,
including gold, silver, platinum and palladium.

Profits from metal sales have not gone into government coffers, the Accounting
Chamber has reported. Instead, they have been spent on remuneration for Central
Bank officers, construction of housing for them, and a range of other perquisites
and benefits. A Russian press leak, before the audit was completed, revealed
that the Central Bank’s officers paid themselves huge salaries.

The latest disclosure confirms previous speculation that Central Bank officials
have profited personally from metal trading and swap deals in international
markets for several years. The Bank has persisted in these dealings, despite
recommendations from the state auditor to stop in 1996, and again in 1997.
The Accounting Chamber’s auditor, who conducted the investigation, also accused
the new Central Bank management, headed by Victor Gerashchenko, of aiming
to retain its metal profits and trading prerogatives, and block any legislative
change in the Bank’s procedures and accounting rules.

The latest details, provided by Accounting Chamber auditor, Eleonora Mitrofanova,
help explain the intensity of the competition between the Central Bank, the
Finance Ministry, the State Metals Fund (Gokhran), the state precious metals
trader, Almazjuvelirexport, and Norilsk Nickel, the mining company. This
competition was the main reason for a five-month delay this year in government
approval of exports of platinum group metals (pgm). That delay caused worldwide
shortages of platinum and palladium, and drove the metal prices to record

Mitrofanova’s revelation that Chairman Gerashchenko refuses to accept the
changes recommended by the Accounting Chamber reinforces the view among Russian
officials that the government will be unable to avoid another round of
internecine competition, causing delays for pgm exports in 1999. Sergei
Kyshtymov, the head of the Central Bank’s precious metals department, refused
comment, claiming the Bank had introduced new rules for contact with the

German Kuznetsov, head of Gokhran and deputy minister of finance, also refused
comment, cancelling a prior promise for an interview. Kuznetsov is currently
at war with Gerashchenko, who has called for the Central Bank to take over
the remaining precious metal and diamond stockpiles still managed by Kuznetsov’s
agency. Sergei Gorny, who heads the pgm trade for Almazjuvelirexport, avoided
responding to questions. His organization, which is nominally state owned
and under Finance Ministry control, has sought to preserve its right to exclusive
trading of Russian pgm abroad. The organization has been separately audited
by the Accounting Chamber, and accused of profiteering for its own benefit.

According to auditor Mitrofanova, detailed results of her investigation won’t
be released unless the Central Bank and the collegium of the Accounting Chamber
agree. “This will happen next month,” she said. “The [details] promise to
be quite interesting.” She blamed the unaccountability of the Central Bank,
and the lack of transparency in its accounts, on the current law on the Bank.
This, she said, allows Bank expenditure on houses and dachas for its officials
to be classified as “spending for field organizations.” “We are raising this
issue constantly,” Mitrofanova said. “From the point of view of the accounting
and pure commonsense, it shouldn’t be done like that, but according to the
law, this is exactly how it can be done.”

“As for the methods of accounting the prices for precious metals, yes, they
are being counted at the price at which they were purchased (at different
times), but are being sold at the current market prices. The margin goes
into profit of the Central Bank. We think, and this was indicated in our
reports on Central Bank audits in 1996 and 1997, that given the situation
in the country, the value of precious metals should be recalculated according
to some average market price for the year, or in some other way. The profit
on sales of precious metals should go directly into the budget.”

The Dubinin management of the Central Bank was often at loggerheads with
the Accounting Chamber, and tried to block the access of auditors to Bank
documents. Dubinin attacked the Chamber in correspondence with the then prime
Minister, Victor Chernomyrdin.

According to Mitrofanova, Gerashchenko isn’t behaving much better. “So far
the Central Bank doesn’t support our opinion,” she noted.

February 05, 1999 — Agence France Presse via Johnson’s Russia List

Criminal Probe Launched into Central Bank Dealings

MOSCOW: Prosecutors have launched a criminal probe into senior central bank
staff accused of illegal asset sales, living a luxury lifestyle on credit
cards at the state’s expense and questionable financial dealings. Top bank
managers also placed billions of dollars of Russia’s official foreign currency
reserves with an unknown offshore bank in Jersey, the Interfax news agency
quoted a prosecutor’s report as saying.

The document, handed to parliament by former prosecutor general Yury Skuratov
on the eve of his shock resignation Tuesday, catalogued a trail of abuse
of office and improper activities by senior Bank staff, Interfax said. Skuratov’s
dossier listed backdoor sales of Bank assets, including stakeholdings in
a range of financial institutions, and the sell off of official cars under
dubious circumstances, the news agency reported.

Prosecutors are now seeking the return of funds they say were improperly
placed with Jersey-based Financial Management Company (FMC), which Interfax
said had a registered share capital of just $1,000. According to Skuratov’s
report, over a five-year period the Jersey firm managed $37.3 billion; 9.98
billion German marks; 379.9 billion yen; 11.98 billion French francs and
662.5 million pounds.

FMC took a cash commission for its work, a move prosecutors believe was illegal,
Interfax said. Prosecutors are now seeking the return of those commissions
and Central Bank funds still held in FMC accounts.