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. Last Updated: 07/27/2016

IMF Was Told of FIMACO Years Ago

Despite its protestations to the contrary, the IMF was informed as early as 1995 that the Central Bank had used obscure offshore company FIMACO to manage Russia's hard currency reserves, an independent Russian parliament member said Tuesday.

In documents that Duma Deputy Nikolai Gonchar claims were obtained from "well-informed sources" in Washington, the Central Bank's auditors in 1993 and 1994, Coopers & Lybrand, condemn Russia's use of little-known Jersey firm FIMACO, or Financial Management Co., to manage billions of dollars of Russia's hard currency reserves.

"The IMF knew about everything," Gonchar told a press conference Tuesday.

The auditor's comments, a copy of which Gonchar provided to The Moscow Times, were handed over to the International Monetary Fund in 1995 at the latest, Gonchar said.

On several occasions since the scandal surrounding the Central Bank and FIMACO broke in February of this year, IMF officials have denied any direct knowledge of FIMACO.

"We knew for some years that the Central Bank held funds in subsidiaries in Europe. But we only found out about FIMACO when it was publicly disclosed earlier this year," an IMF spokesman said Tuesday in a telephone interview from Washington.

The documents that Gonchar claims are extracts from audits presented to the IMF fly in the face of these claims.

"In earlier audits we expressed our doubt about investing funds in FIMACO and recommended that [the Central Bank] turn to the services of other investment companies with stronger reputations. We insist on these recommendations," reads the conclusion to the 1994 audit of the Central Bank, according to the documents provided by Gonchar.

The Moscow office of PricewaterhouseCoopers - the successor to Coopers & Lybrand after it merged with Price Waterhouse in 1998 - said the company was not prepared to comment on the issue Tuesday.

The IMF spokesman, who declined to be identified, would not comment on whether or not the IMF received the yearly audits of the Russian Central Bank.

After initially denying allegations that $50 billion in hard currency reserves had been channeled through FIMACO between 1993 and 1997, Central Bank officials confirmed that something like that amount had cycled through the Jersey-based firm. That prompted the IMF to ask the Central Bank to explain why its reserves had been managed by a firm set up with $1,000 in an offshore zone that has been targeted by the U.S. government and others as a major venue for money laundering.

When further allegations surfaced that FIMACO had been used to channel Russian reserves into the GKO market, the IMF declared that an independent audit was necessary.

While current and former Central Bank officials have claimed this week that a PricewaterhouseCoopers audit into FIMACO has cleared the Central Bank of any wrongdoing, earlier Central Bank audits made clear that FIMACO had been used for handling reserves and buying GKOs, Gonchar alleged Tuesday.

"As far as we understand, the source of 1,854 billion rubles deposited by the Central Bank into FIMACO ... are credits obtained by the Finance Ministry from the World Bank and the International Monetary Fund," the auditors state in their comments, adding that income generated through investments with these funds bypassed the Central Bank balance sheet on its profits and losses.

Gonchar, a member of the State Duma budget committee, has alleged that the Central Bank hid millions of dollars in profits generated through FIMACO. Under the law on the Central Bank, 50 percent of all Central Bank profits must be transferred to the federal budget.

In a press conference held immediately after Gonchar's press conference on Tuesday, former Central Bank chairman Sergei Dubinin claimed that the latest PricewaterhouseCoopers audit of the Central Bank's relations with FIMACO showed no significant violations of either Russian law or IMF agreements.

"All accusations of misappropriation and misuse of funds have been quashed. This is a fundamental fact," Dubinin said.

However, the IMF has yet to receive a copy of the final FIMACO audit, the Fund's spokesman in Washington said.

Dubinin confirmed Tuesday that Central Bank resources had been invested in GKOs through Eurobank and FIMACO in 1996. He also said the profits generated by Eurobank in the scheme might not have been transferred to the Central Bank profit balance sheet.

Russia's agreement with the IMF forbids any use of reserves for investment in risky short-term domestic bonds such as GKOs.

The Central Bank has so far declined to make public the PricewaterhouseCoopers audit of FIMACO.

When asked about the alleged Coopers & Lybrand audits for 1994 and 1995, Dubinin said he could not remember anything about those audits. Dubinin, who is now a vice president at Gazprom, was Central Bank chairman from November 1995 until he stepped down last fall.