Florian Willershausen, Handelsblatt
London and Moscow
He is standing before the ruins of his life – and yet Andrey Borodin seems anything but resigned or downcast. … Borodin is fighting for his reputation as a successful top banker. Let’s not forget, he built up the Bank of Moscow to be the fifth largest bank in Russia within 15 years.
However, since his mentor and once-powerful mayor of Moscow, Yuri Luzhkov, is no longer in office, criticism and investigations have been piling up against Borodin, enough to drive him into exile. For example, the Russian authorities are now after him through Interpol regarding an alleged fraud worth billions and he is facing prosecution in his home country.
Borodin is the key figure of one of the largest banking scandals in Russia. The investigators allege that through the Bank of Moscow he transferred USD 443 million from the budget of the Russian capital to a shell company in Cyprus. The ultimate beneficiary of the money is alleged to be the property company Inteko, which until Tuesday still belonged to Yelena Baturina, the wife of Luzhkov.
If possible, the action will be expanded with further charges. According to the Moscow newspaper “Kommersant”, loans totalling USD 6 billion have supposedly been granted to offshore companies with no perceptible collateral. The money allegedly came from the coffers of the city of Moscow, which, while Borodin was head of the bank, held 46.5% of its shares directly and sold this package in February for USD 3.7 billion to the state bank VTB – at the instigation of Sergei Sobjanin, who replaced Luzhkov as mayor. Borodin does not consider himself to be at fault: “We checked our loans in the usual way and behaved completely correctly.” Moreover, large-volume loans are approved by a committee which, since autumn 2008, has included five representatives of the Central Bank.
The one-time top banker considers himself to be the victim of a plot: he regards the takeover of the Bank of Moscow by the Russian state bank VTB as politically motivated. When the Moscow state government under the new mayor Sergei Sobjanin decided in autumn 2010 to sell the package of shares, the “highest political echelons” made the decision to assign the shares to the state-controlled VTB. “The Russian government has no interest in allowing more competition in the banking sector”, believes Borodin. “This hostile takeover was a put-up job from the start.”
At VTB they look at it quite differently. The head of the bank, Andrey Kostin, has approached the Central Bank for a loan of more than 295 billion roubles, approximately USD 10 billion. According to VTB, this is intended to limit the risk of default on loans which were granted to foreign offshore companies during the Borodin era. VTB considers that almost one third of the USD 50 billion credit volume of the Bank of Moscow is acutely exposed to default risk.
The chaos in the Bank of Moscow is attributed by Kostin to “dodgy practices” by the former management under Borodin. In total, funds amounting to more than USD 5 billion flowed out through Cypriot offshore companies. “In formal terms, these companies have no connection with Borodin”, says Kostin. “The links are often hard to trace.” However, he has passed on “whole folders” full of documents to the public prosecutors. This suggests that Andrey Borodin can expect new charges, but to outsiders, it remains unclear who is ultimately in the right: in the Russian financial sector, transactions through offshore islands such as Cyprus are very much a day-to-day matter. This is clear simply from the fact that the largest direct investments in Russia come from Cyprus, Switzerland or the Netherlands – precisely where many Russian companies have their registered offices for tax reasons. In Russia, the gap between right and wrong is ultimately a question of political connections – and Andrey Borodin has just lost them for sure with the departure of the once-powerful Moscow city father Yuri Luzhkov.