The Great Moscow Bank Shakedown
Comment of the Day

December 10 2019

Commentary by Eoin Treacy

The Great Moscow Bank Shakedown

This is an interesting article by Anna Baraulina, Evgenia Pismennaya and Irina Reznik for Bloomberg. Here is a section:

Cherkalin’s case highlights the economic footprint of the security apparatus forged during Vladimir Putin’s 20 years in power. While it doesn’t show up in official statistics or reports, the reach of the FSB and other law enforcement agencies extends across the business landscape, distorting markets and sapping investment. The vast sums of money at stake go a long way toward explaining why Putin hasn’t followed through on years of pledges to rein in the appetites of his powerful security underlings. “They’ve become one of the key elements of the economy,” says Oleg Vyugin, a former senior official at the Bank of Russia and the Ministry of Finance. “Unfortunately, they’re an element that’s an obstacle to its normal development.”

For years the banking sector was a gold mine for the security services, combining huge, often-illicit flows of cash with plenty of leeway for officials to either turn the screws or look the other way. The numbers are big even by oil-rich Russian standards. Regulators—including the central bank—say managers stole some 7 trillion rubles ($110 billion) in assets from their banks in the past decade, and the central bank has spent more than 5 trillion rubles on bailouts or to pay off depositors at those that didn’t survive, according to Fitch Ratings. Bankers fleeing the country as their institutions failed have become such a problem that Bank of Russia Governor Elvira Nabiullina asked Putin for the power to stop them at the border. He hasn’t granted it.

Eoin Treacy's view

This is a well written, engaging informative piece providing facts and figures relating to the corruption of Russia’s regulatory infrastructure by the security forces. It provides a testament to how low standards of governance in Russia are and how important it is for companies to be on the winning side of an internal divisions that arise.

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