Russia Wiped Off the Books
// The United States moves against Russian banks
Barriers
American banks have begun a new wave of closures of correspondent accounts of Russian banks due to the need for monitoring payments for money laundering. As a result, the majority of Russian banks will be forced to work only through Russian state banks abroad.
Last week, several Russian banks informed Kommersant that large American banks had closed their correspondent accounts. The newspaper has information that, in the last two months, several dozen Russian banks were refused cooperation in the United States, among them the Interregional Investment Bank, Project Financing Bank and East Bridge Bank. Most of the banks that experienced refusal are not acknowledging the fact publicly out of concern for their reputations. American banks are also refusing to comment officially. Some bankers are more willing to talk, however.
Deputy chairman of the board of the Interregional Investment Bank Marat Iskhakov told Kommersant yesterday that “Deutsche Bank Trust Company Americas closed our correspondent account on July 1. They warned us of it in advance in writing. The reason for the refusal of service they cited was the economic inexpediency of servicing our account. In fact, we have many accounts, but the accounting cost is high, so the reason may be related to economics. We will probably work through large Russian banks.”
The owner of another bank in the same situation, who wished to remain unidentified, said that the problem with account closures became aggravated about two months ago. “We simply received notification through SWIFT [Society for Worldwide Interbank Financial Telecommunication, a supplier of secure messaging services and interface software to wholesale financial entities] from our American counteragent of the closure of our correspondent account. And ours is not the only case. Mainly smaller banks suffered this time,” he said. Bankers say that Deutsche Bank Trust Company Americas made the most severe cuts of Russian banks.
Kommersant has information that that American subsidiary of the German Deutsche Bank closed the correspondent account of East Bridge Bank. “At one time, Bank Trust cooperated very freely with Russian banks. It seems to have changes after its merger with Deutsche Bank,” Sergey Troshin, head of the finance agency department of the International Moscow Bank, told Kommersant. “I can note that Deutsche Bank Trust Company Americas is paying more attention than other banks to monitoring. We have many monitoring enquiries from it.”
The cost of maintaining rises noticeably with that level of monitoring. Thus, the Americans' reference to the economic inexpedience of maintaining the small (by their standards) Russian accounts in those circumstances seems justified. The real question is why those accounts were subjected to such unwavering attention. “American banks are actively closing the corresponding accounts of their Russian colleagues. This process has been going on since April. One of the stimuli for this wave was the scandal in the UN over the Oil for Food Program, in which many Russian companies were involved,” Sergey Korepanov, chairman of the board of the Russian Mortgage Bank said. “The Americans themselves say the requirements of orderliness are much higher for Russian banks than, for example, Middle Eastern ones.”
“”The requirements for correspondent banks in the United States are very high now. Literally every transaction has to be justified and confirmed and proven not to be related to money laundering,” Kommersant was told at a Russian bank abroad. “Last year, the Federal Reserve Board raised the verification requirements for American banks performing operations with correspondent accounts abroad,” vice president of Orgresbank Vadim Serebrennikov said. “Now all American banks demand more detailed and timely information in operations with their counteragents as part of due diligence.”
Alexander Murychev, president of the Russia Association of Regional Banks said that, between spring 2004 and spring 2005, the American correspondent accounts of about 300 Russian banks had been closed. “Large banks preserved their positions,” he said. “Small credit organizations are the main ones to suffer. When Russian banks were more transparent, there were no problems, but as soon as they began to work according to international standards, additional requirements were set and problems arose.”
This is not the first wave of distrust of American banks toward their Russian colleagues. In May of last year, ABN Amro closed the correspondent accounts of all banks in the CIS. Even earlier, the Bank of New York closed the majority of its Russian accounts. Last November, the United Bank of California informed its Russian correspondent banks that it was severing all business ties with Russia and eliminating their accounts. About 300 Russian banks were forced to look for new partners in the U.S. At that time, the wave was attributed to the distrust of American officials for the Russian banking business, which makes heavy use of offshore schemes. However, president of the Moscow International Currency Association Alexey Mamontov thinks that “the closing of accounts and other actions were initiated by the Reserve Bank and law enforcement.”
“The stockholders of American banks read newspapers too, and they can see in translations of Russian articles that a banking license is revoked practically every week in this country for money laundering,” Mamontov said. “Opening and maintaining a correspondent account produces income but, in large banks, it is so tiny that the image losses to foreign banks may be much more considerable.” Korepanov echoed his opinion, saying, “American banks are afraid of the regulators and so prefer to close an account than to have problems with it since that business is insignificant in volume for the Americans.”
Large Russian and European banks stand to win from the situation as the smaller Russian banking structures are forced to turn to them for servicing. That is already happening. “Banks are contacting us more often,” International Moscow Bank's Troshin told Kommersant yesterday. “I can't say that they are breaking down the door, but we have a very thorough selection system for correspondent accounts. Nonetheless, the growth is noticeable. We now have over 350 banks, which is twice as many as three months ago.”
The Austrian Raiffeisen Bank, and German Dresdner Bank and Ost-West Handelsbank AG have also noted an influx of Russian banks. The Project Financing Bank is a fresh example, which has posted a notice on its Internet site that it will no longer work with its main correspondent dollar account with Deutsche Bank Trust Company America after September 1. According to the notice, its dollar operations will then be performed through Ost-West Handelsbank of Frankfurt-am-Main. The Project Financing Bank refused to comment on the change yesterday. Ost-West Handelsbank, 51.62 percent of which belongs to he Central Bank of Russia, is one of the Russian banks abroad that had a monopoly on correspondent accounts at the dawn of the business age in Russia. It is possible that its leading position will be restored.
Murychev notes that “there is a similar mood in several large European banks to follow the American line in regard to banks in Russia and the CIS… So far, no actions have been taken. In October of this year, we plan to hold a seminar-conference with our colleagues from European banks, where we want to come to an understanding with them.” If the Europeans follow the American lead, small Russian banks will have no choice. The list of large Russian banks working in the West is small. The leaders are Vneshekonombank of the USSR and Vneshtorgbank, and all Russian banks abroad are to join the latter's system by the end of the year.
Kommersant will continue to follow the developments in the situation.
by
Elena Kovaleva, Evgenia Dmitrieva, Elena Kiseleva
All the Article in Russian as of Aug. 22, 2005
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