-Caveat Lector-
August 03, 1999
THE ST. PETERSBURG TIMES
RUSSIA
ENGLISH
Audit: Central Bank Cooked Books, THE ST. PETERSBURG TIMES
Catherine Belton
RUSSIA WorldSources, Inc. 209 PENNSYLVANIA AVENUE, S.E., 2nd
Floor WASHINGTON, D.C. 20003 COPYRIGHT 1999 BY WORLDSOURCES,
INC., A JOINT VENTURE OF FDCH, INC. AND WORLD TIMES, INC. NO
PORTION OF THE MATERIALS CONTAINED HEREIN MAY BE USED IN ANY
MEDIA WITHOUT ATTRIBUTION TO WORLDSOURCES, INC.
MOSCOW - Just when it seemed there could be no new
allegations involving the Central Bank's tangled relationship
with the offshore FIMACO company, an audit performed by the
international accounting firm PricewaterhouseCoopers has reported
the Central Bank kept all FIMACO transactions recorded elsewhere.
In other words, the Central Bank - like so many other
Russian enterprises - kept double books.
The audit, demanded by the International Monetary Fund,
also offers the startling revelation that when it wasn't parking
the nation's hard currency reserves in an obscure company in the
Channel Islands, the bank loaned them to Russia's commercial
banks.
In 1994, the audit says, the Central Bank extended $300
million of its reserves as credit lines to commercial banks. The
audit did not say which banks were beneficiaries.
And the audit confirms the worst allegations: That the
Central Bank used both IMF loans and its own hard currency
reserves to speculate on the Russian treasury bill market,
earning profits that apparently have not been shared with the
government - and, again, have apparently been kept off the books.
The PricewaterhouseCoopers audit ``reveals the extent of
the Central Bank's cavalier attitude towards managing its
investments,'' said Ariel Cohen, the influential head of the
Washington-based Heritage Foundation in a telephone interview.
''It also raises questions about the care taken by the
IMF in releasing funds to Russia,'' he said. ``Congress will be
very interested in seeing a copy of the report.''
The U.S. House of Representatives has already raised a
storm about the possible misuse of taxpayers' money sent in loans
to Russia. They have demanded the report looking into FIMACO be
published.
FIMACO was first outed when then Prosecutor General Yury
Skuratov wrote a letter to parliament alleging that the Central
Bank ran more than $50 billion in the nation's reserves through
the Jersey island company over a period of years.
Current and former Central Bank officials subsequently
confirmed that allegation. They said FIMACO - a company based in
an offshore haven notorious for money laundering, and founded
with just $1,000 in start-up capital - was a necessary and useful
tool for managing Russia's wealth.
Central Bank officials say all of the reserves run
through FIMACO eventually came home. But they have little to say
about how the reserves were invested or what happened to profits
from such investments.
Central Bank officials have claimed that the
PricewaterhouseCoopers audit exonerates the FIMACO arrangement.
However, the so-far-unpublished audit - a copy of which was
obtained by The St. Petersburg Times on Friday - in fact confirms
many of the most damaging allegations hurled at the Central Bank
by critics like Skuratov and a crusading State Duma deputy,
Nikolai Gonchar.
Upon receiving the audit last week, IMF officials
lambasted the bank for falsifying information on the size of its
reserves by secretly channeling $1 billion in 1996 through
FIMACO. Despite this clear deception, the Fund still agreed to
release another $4.5 billion credit to Russia.
But while the Fund has dourly criticized the 1996
misreporting of reserves, it has said nothing about the other
serious allegations.
In 1996, the Central Bank funneled a total of $1.2
billion from its reserves - including money from IMF loans - into
the market for Russian treasury bills, or GKOs. The money went
into FIMACO and then back into Russia through Evrofinans, a
Russian-based firm part-owned by FIMACO and Eurobank, a Central
Bank subsidiary based in Paris that is the direct owner of
FIMACO.
Russia's agreement with the IMF prohibits the use of
reserves for investment in volatile short-term instruments like
GKOs.
''If the Central Bank played on the primary state
treasury bill market and invested its own hard currency reserves,
that is a clear breach of Central Bank ethics,'' said former
Central Bank deputy chairman Andrei Khandruyev in a telephone
interview. Khandruyev said he had not been aware of FIMACO during
his tenure at the bank.
PricewaterhouseCoopers notes that Russia began to
transfer funds from the IMF in 1993 through Evrofinans into the
secret off-shore FIMACO company. IMF funds were kept in FIMACO
from 1993 to 1997. They were also kept in Eurobank: The audit
reports that in 1996 Eurobank retained $450 million of these
funds to maintain its own liquidity.
Operations conducted with the funds were veiled in
secrecy. The authors of the PricewaterhouseCoopers report note on
several occasions that they were refused explanations or access
to accounts, and report that Eurobank officials obstructed the
investigation.
Even payment orders controlling the use of funds from the
IMF were not made available.
The PricewaterhouseCoopers audit singles out former
Central Bank deputy chair Sergei Alexashenko as signing an order
to purchase two Finance Ministry veksels in 1996 back from FIMACO
- the first worth $220 million in July and the second worth $956
million in October. It was unclear why the Central Bank would
have to buy anything from FIMACO, given that, in theory, it owns
FIMACO.
Staff reporter Igor Semenenko contributed to this report.
Copyright 1999 THE ST. PETERSBURG TIMES all rights reserved
as distributed by WorldSources, Inc.
AP-NY-08-03-99 0914EDT
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