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. Last Updated: 07/27/2016

Let's Audit FIMACO

The draft accounting report on FIMACO -- the offshore firm that has been accused of mismanaging billions of dollars of Russia's hard currency reserves f was dribbled out in three parts on the IMF's web site over the last three weeks. The draft report has caused very little controversy in Moscow f perhaps because it was released when half of Moscow was on vacation.

Nevertheless, the controversy rages in Paris, with the newspaper Le Monde stating in an editorial that "the audit report" shows that Russia "misappropriates the international community's money, to facilitate the enrichment of a few oligarchs ? with full knowledge of the facts on the part of ? the top officials of the IMF."

IMF Managing Director Michel Camdessus replied last Thursday in Le Monde that the "report of audit says nothing of the kind." Camdessus is correct. The draft report f please don't call it an audit f revealed no direct evidence of misappropriation of funds or any enrichment of any oligarchs. Unfortunately, the draft report simply wasn't designed to check whether these things occurred or not.

Both Camdessus and Le Monde are wrong when they refer to the draft report as an "audit." PricewaterhouseCoopers, the accountants who prepared the report, state that they "have not carried out any verification work which may be construed to represent audit procedures." They preface each part of the draft report with a qualification that can be summarized as: "This is not a final report. It is only for use by the Central Bank of Russia. It relies on information provided by the Central Bank, which was not verified. PWC does not have an opinion on the accuracy of the report."

PWC should not be blamed for the inadequacies of the report. They were hired only to assist the Central Bank "in evaluating the activities and operations of ? FIMACO ? and not for any other party or for any other purpose," according to the draft report.

Camdessus tries to refute Le Monde's implication "that information may have been withheld during the audit." He's almost certainly correct if he means that the IMF didn't withhold information from PWC, but this statement is misleading in that information was certainly withheld from PWC by the Central Bank. In one of several cases cited, Ost-West Handelsbank, a Central Bank subsidiary, refused to give PWC information requested.

Since there are important questions raised by the draft report that haven't been completely answered, and since Russian or Western taxpayers ultimately will have to pay for any mistakes made with the billions of dollars handled by FIMACO, please let us have a real independent audit of FIMACO and of the IMF funds lent to Russia. Some of the questions that need to be answered are outlined below. I urge anybody who is interested in how billions of dollars of taxpayers' money has been handled to download the three parts of the draft report from the IMF's web site ( f this month before they are removed from the web f and raise their own questions.

?Was a signature forged on an order to transfer $1.007 billion to FIMACO? PWC, despite not being able to properly check signatures, found an apparently invalid signature on a $1.007 billion transfer order. This looks, essentially, like a billion dollar forged check written at the Central Bank.

?How much IMF money was lost in bad loans made to Russian commercial banks?

FIMACO's dollar loans to Russian banks look very suspicious. Why were these loans made in the first place, rather than ruble loans directly from the Central Bank? Were the dollars taken directly out of Russia by the banks? For bank loans currently held by FIMACO, 70 percent of the borrowers have defaulted. These loans are collateralized with MinFin bonds, but it is unclear what the collateral is actually worth now. How much did taxpayers actually lose?

?Why did the Central Bank sell dollars over the period July 1 to Sept. 1, 1998, in private deals with commercial banks at an average rate of 6.33 rubles per dollar f while at the same time selling dollars on the public MICEX exchange over the same period at an average rate of 6.97 rubles per dollar?

The use of the IMF's July 1998 $4.8 billion loan to Russia has been a main concern that is still not answered. Perhaps the banks were just lucky in doing their deals before the ruble devaluation, but perhaps they were tipped off early or were given special deals by the Central Bank. From the draft report we just can't tell.

?Why is the Central Bank lying to the IMF and to the public?

The Central Bank's response to questions about FIMACO has always been to state that "every kopeck has been returned" by FIMACO. This statement is absolutely false. On Dec. 29, 1996, FIMACO bought $500 million worth of Russian treasury OFZs with Central Bank money and on Jan. 7, 1997 sold the same OFZs for a loss of $400,000. For some reason the Central Bank reimbursed FIMACO for the loss and recorded a loss of $3.8 million on its own books. Apparently, the Central Bank needs lessons in accounting as well as ethics. This deal could have been used to manipulate the year-end interest rates recorded by the Central Bank or to funnel money to favored traders.

He who pays the piper calls the tune. Russian and Western taxpayers will be paying for the mistakes, and possible misappropriations, of FIMACO and the Central Bank for a long time. The tune I want to hear is called "A Complete and Independent Audit."

Peter Ekman is a finance professor at the American Institute of Business and Economics in Moscow. He contributed this comment to The Moscow Times.