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. Last Updated: 07/27/2016

FIMACO Met With Deafening Silence




The Central Bank's admission that it held money in an offshore company has piqued the interest of economists, but the news media and politicians have been surprisingly silent about the highly suspicious scheme involving billions of dollars.


If ousted Prosecutor General Yury Skuratov is correct in his allegation that the Central Bank held $50 billion over five years, from 1992 to 1998, in an offshore company called Financial Management Company Ltd., or FIMACO, it could constitute one of the biggest financial scandals yet in Russia.


Some economists Monday questioned Skuratov's math, claiming the Central Bank hasn't ever had that much money to send offshore. But even the few vague details Central Bank chairman Viktor Gerashchenko gave in confirming FIMACO's existence were enough to arouse suspicions of wrongdoing.


"The $50 billion figure seems obviously absurd," said Peter Ekman, professor of finance with the American Institute of Business and Economics WHERE, noting that the Central Bank's hard currency reserves peaked at $24 billion in mid-1997.


"But even if Skuratov is just counting the same $1 billion going in and out of FIMACO several times, it raises questions about why $1 billion was going in and coming out."


But very few questions have been answered about FIMACO, which in 1993 during Gerashchenko's first reign as Central Bank chairman the Central Bank registered on the island of Jersey, an offshore tax haven in the United Kingdom's Channel Islands. The prosecutor general revealed the scheme in a Feb. 1 letter to parliament, one day before he resigned.


Until last week the prosecutor general had been investigating the Central Bank and its role in the Aug. 17 financial crash, focusing its energy on former Central Bank chairman Sergei Dubinin. But when Skuratov raised the curtain on FIMACO, exposing Gerashchenko, the current chairman may have lobbied for the prosecutor's dismissal, said Andrei Piontkovsky, a political analyst with the Center for Strategic Studies.


"The people who sacked Skuratov wanted this investigation to persecute only Mr. Dubinin, and not Mr. Gerashchenko," Piontkovsky said.


Strangely, the Russian media f normally quick to jump on a scandal f has also been quiet about FIMACO, an institution whose existence begs answers from every high-ranking member of government since 1993.


Kommersant Daily did a front-page story last week, and television station TV 6, believed to be controlled by Boris Berezovsky, ran a long, scathing attack Sunday night on the offshore company. Berezovsky is engaged in a political struggle with Prime Minister Yevgeny Primakov.


But other news organizations have said little. Opposition politicians have also not made FIMACO a bone of contention.


Responding to Skuratov's accusations, Gerashchenko on Friday confirmed only that the Central Bank had founded FIMACO and allowed it to manage and invest Russian assets, taking a commission for its services.


He didn't reveal the amount entrusted to FIMACO, the profits the company made or to whom the profits or commissions had been paid. He didn't say whether the company still has Central Bank funds. And he didn't say why a central bank would need someone else to handle money, which is what banks are supposed to do themselves.


But he did acknowledge that Russia used FIMACO to hide $1.4 billion from hungry foreign creditors in the London and Paris Clubs in 1994.


"At that time Russia was involved in difficult negotiations with the London and Paris Clubs, and there was a probability that the country's foreign property could be seized," Gerashchenko told the State Duma, parliament's lower house, on Friday. "FIMACO was set up in order to avoid complications."


Economist Ekman said he found this admission of asset hiding "astounding."


"If this had been done in a commercial deal it would have been criminal," he said. "It's saying to the [International Monetary Fund], among other people, that we are not going to tell you the truth. Be prepared for all sorts of lies."


In a letter addressed to the Duma revealing the FIMACO issue, Skuratov alleged that some funds lent by the IMF had wound up in the offshore company.


Officials at the IMF and World Bank could not be reached for comment on FIMACO. It is not known whether the international lenders were aware the offshore company existed.


Very few people seemed to have been informed of FIMACO's existence, which makes it particularly troubling, said one Russian economist who asked not to be named.


"The potential risk of operating through this daughter company was that no one knew who stood behind the company, how professional they were or if they took big risks" with Russia's national hard-currency reserves, the economist said.


"If something is not subject to public scrutiny or control, it is subject to corruption," he said.


The economist also questioned Skuratov's allegation that FIMACO had managed $50 billion but agreed that the offshore company's existence was strange, and questionably legal. Central banks worldwide invest their hard currency reserves, often in foreign treasury bills, but they rarely do so through a middleman company like FIMACO.


"This is not a typical way to handle the hard-currency reserves of a foreign country," the economist said.