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. Last Updated: 07/27/2016

Where Are Bank's Palladium Profits?




The Central Bank has sold or placed as collateral 300 tons of the precious metal palladium this year, but apparently the $2 billion in proceeds from such deals never reached Russia, according to media reports and officials familiar with the matter.


On the surface it looks as if the Central Bank is trying to hide profits, which should be split evenly with the government, said Viktor Gitin, a parliamentary lawmaker with the liberal Yabloko faction who is investigating the palladium sales.


If Gitin's theory is proven true, the Central Bank leadership could even face criminal charges for violating foreign exchange legislation amended last December.


The Central Bank has so far remained tight-lipped about the matter. Its only comment came when the newspaper Novaya Gazeta ran a story about the alleged deal. The newspaper published a letter from the bank alongside its article, in which bank officials warned the paper that it would be violating Russia's law on state secrets if it printed the story.


Citing the same reasons, Central Bank officials have objected to audits of transactions with foreign exchange reserves, steps now required by the International Monetary Fund under the latest loan package.


While details about any deal remain murky, the fact remains that about 300 tons of Russian palladium were sold on international markets earlier this year, pushing the metal's price down to $285 from $384 per ounce in a matter of weeks.


According to Novaya Gazeta, then Central Bank chief Sergei Dubinin decided to make the sales last year after obtaining permission directly from President Boris Yeltsin.


The financial crisis of August 1998 wiped Dubinin's team out of the Central Bank, and new bank head Viktor Gerashchenko did not learn about the planned palladium sale until December, Gitin said.


But then in December the State Duma passed amendments to foreign exchange regulations that banned the sale of palladium through any organization other than specialized government-owned agents, making it a crime for the Central Bank to trade the metal.


"Gerashchenko simply forgot about this amendment," said Gitin.


In September 1999 the Central Bank abruptly turned to several Duma lawmakers and pushed them to introduce an off-setting amendment in parliament.


The legislation was poised to go for a vote but then Deputy Finance Minister Alexei Kudrin unexpectedly upset the apple cart by striking the amendment from the voting list, Gitin said.


Kudrin, who apparently was not clued in about the palladium sales, said the government needed time to consider some other changes that were being introduced in the foreign exchange legislation.


Gerashchenko had thought he could get the issue settled quietly without even informing the Finance Ministry about the palladium sales, said Gitin. As a result, the details of the palladium sales continue to remain undisclosed.


According to some media reports, the palladium was not sold off but placed as collateral for loans.


It appears, however, that proceeds from any palladium sales or the equivalent for the collateral never reached Russia, although it should have been returned within 180 days after the date of transaction, said Gitin.


If the Central Bank had made the sales, its forecasts, included in the budget law, should show a $2 billion profit, Gitin said. But the bank projects no profits for this year.


The sales' back trail is faint as well: the palladium exports were not even registered with customs, said Gitin.


- Igor Semenenko