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. Last Updated: 07/27/2016

Report: Central Bank a Corruption Hotbed

An independent study released Tuesday warns of the deep-reaching roots feeding corruption at the Central Bank.

"The Central Bank as an independent, absolutely opaque and uncontrolled administrative-financial system did not arise by chance or overnight," said the authors of the 70-page report -- the Moscow Carnegie Center and Dmitry Vasilyev, former head of the Federal Securities Commission.

Vasilyev said in an interview Tuesday that one of the major "corruption-causing" problems with the bank is that it regulates the entire banking industry while being a profit-seeking participant. Another problem is the lack of clear, straightforward grounds for issuing licenses or approving operations, which provides ample opportunity for bribery.

He said that he and co-authors Pavel Drobyshev and Alexei Konov analyzed the legislative basis that creates fertile ground in which corruption thrives, focusing on five main areas -- the bank's judicial status, its budgetary independence, the lack of controls over the bank's activities, its regulatory powers, its lack of transparency and its administrative-licensing powers.

"The value of this system for society is doubtful, but the value for the Central Bank and its managers is obvious, as it allows them to get involved in any economic processes in the country and allows them to selectively support commercial banks," Vasilyev said. "There are thousands of regulations, but billions of dollars are leaving the country as capital flight. Banks go bankrupt. The system doesn't work."

One example of the system not working is that while the law stipulates that 50 percent of the Central Bank's profits is distributed to the government -- as compared to 90 percent in the United States -- "the other 50 percent is used for the benefit of at least some of the 80,000 bureaucrats employed at the Central Bank." Vasilyev said.

The Central Bank uses its self-given right to categorize any information pertaining to its activities as "secret" to avoid disclosing such things as salaries, insurance and pension benefits of top managers.

"The amount and form of remuneration the Central Bank's top management receives ... are decided by the management of the Central Bank independently, without anyone's approval, which is de facto appropriation of government property," the report says.

In addition, the secrecy provides a material incentive to speculate on the state securities and currencies markets, Vasilyev said.

The Central Bank -- whose main manifest is to support the stability of the ruble -- holds together with Sberbank and Vneshtorgbank a 30 percent stake in the Moscow Interbank Currency Exchange and speculates on the securities and currency markets, according to the report.

Indeed, audits of the Central Bank conducted by PricewaterhouseCoopers in 1999 found the Central Bank had apparently earned unreported profits from using IMF loans and hard currency reserves to speculate on the Russian treasury bill market. It also found that transactions with an offshore subsidiary, FIMACO, were never recorded.

The Central Bank would not comment officially on the report, but an employee who asked not to be named said: "The Central Bank is not a commercial organization. ... There are no conflicts of interest whatsoever ... as if the Bank of England is transparent through and through. We're less bureaucratic than the Bank of England."

The report was presented to representatives of the Economic Development and Trade Ministry, the presidential administration, the Security Council, the State Duma and the World Bank. But the authors made no charges of actual instances of corruption. "Our goal was to find where the roots lie and how to eradicate them. Naming names is a matter for the Interior Ministry," Vasilyev said.

Vasilyev said the report is just the first stage of a yearlong project started in July to examine several government agencies, with the next target likely to be the State Customs Committee.

"We can change one bureaucrat for another, but if the preconditions for corruption remain, corruption will remain," he said.