MOSCOW - A prominent Russian anti-corruption campaigner and opposition leader on Monday, Sept. 10, accused Kremlin-controlled banking giant VTB of a "pattern of mismanagement and questionable practices", a charge the bank strongly denied.
The allegations were contained in a report co-published by
Alexei Navalny’s Foundation for Fighting Corruption and the
Henry Jackson Society, a British-based think-tank.
The report’s authors said their findings “should raise
serious concerns about the viability of the financial
institution for investors”.
Navalny’s critique of VTB is likely to embarrass the Kremlin
and help the opposition firebrand keep his own profile high.
He was instrumental in circulating alleged evidence of fraud
that benefited President Vladimir Putin’s party in a December
2011 parliamentary election and has a track record of trying to
expose problems inside government-linked companies.
VTB strongly criticised the report, saying it was “full of
deceitful, biased and insubstantial accusations prepared by
“The corruption should be searched for directly in the
Foundation for Fighting Corruption and the Russia Studies Centre
at the Henry Jackson Society,” VTB said.
While VTB is 75.5 percent owned by the Russian government,
it also has a large base of international shareholders, having
done an IPO on the London Stock Exchange in 2007 and a $3.3
billion secondary public offering last year.
The 20-page report cited six episodes in VTB’s recent
history, which it said raised questions about the bank’s risk
management practices, as well as its commitment to shareholders.
“First of all, this report ought to raise serious concerns
regarding VTB’s commitment to prioritising shareholder value,”
the report said.
“It is also crucial that international banking regulators
take a closer look at VTB’s activities and judge for themselves
whether the bank is fit to continue doing business in their
The report cited anonymous “VTB insiders” it said had
alleged that VTB exploits looser regulations in Russia “by
offloading riskier debts from its European subsidiaries to its
Moscow parent company, thereby sidestepping European Union
The six main episodes highlighted in the report included
VTB’s high-profile takeover of Bank of Moscow in 2011.
VTB has previously faced criticism from investors and
analysts for its decision to acquire the municipal lender, which
was revealed to have a gaping hole in its balance sheet caused
by allegedly fraudulent lending to companies linked to its
Bank of Moscow ultimately required a $14 billion bail-out
from the Russian government, the largest bank rescue in Russian
“…It remains unclear how VTB managed to miss such a major
accounting discrepancy that almost immediately rendered its
multi-billion dollar investment worthless,” the report stated.
It also highlighted VTB’s litigation in London to try to
recover a $225 million loan made in 2007 to finance the purchase
of farms owned by dairy company Nutritek, by a company linked to
Russian financier Konstantin Malofeev of Marshall Capital
Partners, citing London court documents that indicate the farms’
value had been inflated more than six times.
Another case, also now the subject of litigation in London,
involved VTB’s attempts to try to recover $1.5 billion in loans
to companies linked to Fyodor Khoroshilov, a former top manager
of oil company Sibneft.
“If one accepts VTB’s version of events, it simply means
that the bank was duped out of hundreds of millions of dollars
by failing to ask basic questions,” said the report.
“If Khoroshilov’s story is true, it would mean that not only
did VTB and its subsidiaries squander $1.5 billion, but some
managers engaged in potentially criminal activity.”
The report also repeated previous allegations made by
Navalny, who first rose to public prominence by using his
popular blog to expose allegedly dubious practices at major
state-owned companies, including VTB.
In 2009, he claimed that in a 2007 deal, a VTB subsidiary
overpaid $160 million for drilling equipment imported from a
Earlier this year he also questioned a 2009 deal in which
VTB sold shares in one of its Cypriot subsidiaries, Russian
Commercial Bank, to a private company owned by key VTB managers,
alleging that the shares were sold at an excessively low price.
The report also questioned a buy-back of VTB shares from
retail investors in February this year, at double the market
price, done on Putin’s orders in advance of his election to the
presidency in March.
“The buy back made clear that the Kremlin views VTB as an
enterprise that can be used to fix political problems,” the
report stated, which “should give potential institutional
investors pause before investing in VTB.”
But Navalny himself is also facing accusations.
In July, Navalny was charged with organising a criminal
group that stole 10,000 cubic metres of wood worth more than 16
million roubles ($500,000) when he was advising a regional
Navalny has denied these charges, characterising them as
political intimidation by the Kremlin.