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. Last Updated: 07/27/2016

Bank Cashes in on Vague Law

Citibank, the United States' largest bank, has taken advantage of contradictions in Russian legislation to gain more access to the country's market than any of its foreign competitors, bank representatives and government officials said Monday.


"The Central Bank should watch Citibank's operations," said Alexander Zagryadsky, spokesman for the Association of Russian Commercial Banks. "Otherwise it will occupy the market and will become a monopolist foreign bank."


Citibank and fellow U.S. bank Chase Manhattan appeared to have suffered a setback in June, when President Boris Yeltsin signed a decree lifting most restrictions on foreign banks' activities. The decree reversed a November law banning foreign banks from working with Russian customers until 1996, but specifically left out the U.S. banks because the Russian parliament had not yet ratified a bilateral investment treaty with the United States.


Citibank, however, has continued to serve Russian clients, assuming that since the November decree did not apply to banks that had already opened an office in Russia, as Citibank had, none of the subsequent legislation applied either.


"We are not prohibited to do anything here," said Miljenko Horvat, president of Citibank in Moscow. "And everything we are doing is sanctioned by the Central Bank." The only transactions Citibank cannot do, he said, are operations with jewelry and precious metals, which require a special license.


"It is impossible to understand the situation," said Alexei Sitnin, spokesman for the Central Bank. "The November decree allows Citibank to deal with Russians, the June decree bans them. But how can you prohibit operations that have been going on for half a year?"


Horvat said that Citibank asks the Central Bank's permission whenever it obtains a new Russian client, and that the Central Bank has so far never objected. Citibank is thus in an advantageous position compared to both Chase Manhattan, which had not opened an office here before the November decree, and to European Union banks as well.


Under the Russia-EU partnership and cooperation agreement signed earlier this year, EU banks cannot work with Russian accounts of less than 55,000 Ecus ($66,000). Citibank's minimum account requirement is $1,000, Horvat said.


Leonid Anikeyev, an expert with the Russian subsidiary of Credit Suisse, said CS was not worried by the low deposit requirement offered by Citibank, since his bank concentrated on operations with accounts of at least $75,000.


Meanwhile, Chase Manhattan is in talks with the Russian government to gain access to local clients, according to a spokesperson who asked not to be named. Chase expects an agreement "within weeks, or months, not longer than that," the spokesperson said.