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Russian regulator pulls license of bank owned by former U.S. lawmaker dubbed ‘most corrupt’

Saturday, April 6, 2019   (0 Comments)
Posted by: Brian Monroe
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Svyato-Vvedensky Monastery in Ivanovo, Russia

By Brian Monroe
bmonroe@acfcs.org
April 6, 2019

A Russian regulator has revoked the license of a financial institution in Russia owned by a former member of Congress – the second time the lawmaker has had issues with banks and financial crime and compliance failures.  

Russia’s Central Bank Friday pulled the rug out from under the Commercial Bank of Ivanovo, an institution owned 80 percent by former Republican and North Carolina Representative Charles Taylor, for a host of anti-money laundering (AML) failings and falsely ballooning its capital to make its financial underpinnings look more secure than they actually were, according to a statement.

The regulator listed the bank’s many issues, including:

  • Failing on multiple occasions to comply with Bank of Russia regulations on countering money laundering and the financing of terrorism. The credit institution provided the regulator with incomplete and unreliable information, including on operations subject to mandatory control;
  • Systematically understating the amount of reserves to be set up and overstating the value of assets in order to improve its financial indicators and conceal its actual financial standing. The Bank of Russia will submit the information about these facts bearing signs of a criminal offence to law enforcement agencies. The Bank of Russia estimates that an adequate reflection of credit risks taken by CB Ivanovo and the value of its assets will lead to a significant, more than 30 percent, decrease in its capital and, consequently, to grounds to take measures to prevent the credit institution’s insolvency, which creates a real threat to interests of its creditors and depositors;
  • Performing ‘scheme’ operations to artificially maintain its capital to formally comply with the required ratios;
  • Violating federal banking laws and Bank of Russia regulations, making the regulator repeatedly apply supervisory measures over the last 12 months, including three impositions of restrictions on attracting household deposits.

The credit institution ranked 294th by assets in the Russian banking system, according to the central bank. CB Ivanovo’s key activity was providing corporate and retail loans.

That said, “low-quality loans accounted for more than” 70 percent of the loan portfolio. This activity was primarily financed by household deposits, about 90% of total funds raised by the bank.

Lawmaker linked to domestic bank fraud

former Republican and North Carolina Representative Charles Taylor

Apart from his business interests, Taylor gave voice to North Carolina’s 11th district from 1991 to 2007, hitting the ground running as part of a “Gang of Seven” with other political bigwigs that probed a House banking scam that upended the lower chamber in favor of a Republican majority.

He is also known as the architect for several exchange programs and internships for Russian students during Russia’s move away from Communist rule, an initiative that required him to fly to Russia several times on the taxpayer’s dime.

But now, those Russian connections have risen to the fore anew, potentially creating a business loss due to compliance failings. Even so, this isn’t the first time a bank owned by Taylor has run into financial crime foibles.

In the mid-2000s, Hayes Martin, at that time the president of Blue Ridge Savings Bank in Asheville, N.C., who was also Taylor's campaign treasurer, and Charles Cagle, a former district Republican chairman who had taken out fraudulent loans from the bank, were sentenced for conspiracy to commit bank fraud and conspiracy to commit money laundering.

Both stated publicly Taylor knew about the scheme.

It was those and other problems that in 2006 led the Citizens for Responsibility and Ethics in Washington to grant Taylor the ignoble title of one of the “20 most corrupt members of Congress,” though he has evaded any formal charges.

Russia on regulators’ radar around the globe

More recently, the connection between risk, Russia and money laundering has been making headlines with several Nordic and Baltic banks accused of laundering hundreds of billions of dollars for a cabal of corrupt top political officials, oligarchs, fraudsters and criminal groups.

Sweden’s largest bank in recent weeks has suffered two major leadership upheavals in a fractious spasm that saw its long running chairman quit just days after the institution ousted its chief executive related to a controversial and still-growing money laundering scandal.

In a short statement, Swedbank Chairman Lars Idermark stated he is leaving the institution he has chaired multiple times over the past decade as the mushrooming scandal would be a negative distraction from his current role as chief of forestry-oriented firm, Sodra.

The news comes on the heels of the bank first supporting, then abruptly firing CEO Birgitte Bonnesen last week, roughly an hour before a contentious annual meeting where shareholders leveled much of their fury against her for how she handled the rising money laundering accusations and a related outside consultant report watchdogs called cursory, shallow and deceptive.

The bank is still facing the possibility of billions of dollars in penalties and related remediation costs from domestic and foreign regulators, investigators and investors for broad financial crime compliance failures that allegedly allowed more than $10 billion in questionable funds to move through the institution from Russia and the former Soviet Union.

Swedbank is facing increased scrutiny of the AML controls in place amid allegations it moved billions of dollars in suspicious funds, particularly because they originated from the Estonian branch of Danske Bank, itself accused of laundering nearly $230 billion in a massive financial crime scandal roiling Europe.

Many layers of risk could bring questions

In tandem, investigative journalists have pieced together a formalized Russian money laundering machine that cleansed some $9 billion dubbed the “Troika Laundromat,” and spearheaded by what was once the country’s largest private investment bank, Troika Dialog, and many of the largest U.S. and European Union financial institutions.

This story adds another layer of risk for someone who has already had several layers of risk interwoven around him like a thick winter coat. Politically-exposed persons (PEPs) are already considered at a higher risk for money laundering, so banks with connections to a former PEP will be under increased regulatory scrutiny.

A PEP who, when in office, was accused of ethics and other violations, owning a bank, ratchets that risk even higher. Not just having a bank account. Owning a bank. Consider that another check mark for another higher risk.

Now that bank is linked to a major fraud and money laundering scandal, something that should cause AML analysts to warrant a deeper look at all connections to parties involved.

For an AML officer, a former PEP who owns a bank in Russia should already be classified as high-risk or really high risk. But a former PEP tied to a bank in Russia that has AML problems so severe, it led to the institution folding?

These are key questions that state and federal regulators are going to ask, so any institutions involved need to have answers ready for what they saw, what they thought, what the bank may have missed and quickly and completely file any related, now late, suspicious activity reports (SARs) and have pledged to improve controls that could have allowed any control missteps to occur. 


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