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. Last Updated: 07/27/2016

A Pocket Bank and a Murder Mystery

MTDiskont Bank's office on Ulitsa Marshala Malinovskogo in northwest Moscow
On a quiet residential street in northwest Moscow, a simple logo above a door is the only trace that remains of Diskont Bank, a pocket bank at the center of a money-laundering investigation involving hundreds of millions of dollars.

Despite its unassuming appearance, this is the front line of the country's fight against money laundering -- a campaign that was led until last September by the Central Bank's first deputy chairman, Andrei Kozlov, who was gunned down in a contract-style killing.

The murder is widely seen as connected to Kozlov's efforts to investigate and close down banks involved in money laundering, and the day after his death, President Vladimir Putin called on law enforcement agencies to crack down on the laundering of "billions of rubles every month" amid an "intensifying ... battle against criminal activity in the economic sphere."

Prosecutors insist they have solved the murder case with the arrest of Alexei Frenkel, the CEO of VIP-Bank, which was shut down by Kozlov.

Yet if the case of Diskont Bank is anything to go by, the fight against money laundering is an altogether patchier affair.

Diskont was one of seven banks that had its license revoked in the month before Kozlov's death, and one of 44 closed down last year by the Central Bank's supervisory agency that he headed.

It had all the obvious trappings of a pocket bank -- small, discreet and unwelcoming to customers.

The trigger for its closure was a freeze placed on Diskont's correspondent account at Raiffeisen Zentralbank in Vienna on Aug. 30. The bank alerted Austrian and Russian authorities to $44 million in suspect transfers that day to more than 50 offshore companies, amid $112 million in such transfers over the previous four days.

Kozlov acted quickly, and the following day an order came down from his office to revoke Diskont's license, effectively putting it out of business.

On the surface, there would appear to be no more reason to link Kozlov's death with Diskont Bank than with any of the other banks he had closed, including VIP-Bank.

But in the days that followed Diskont's license revocation, the suspect transfers continued, according to Finance Minister Alexei Kudrin, who singled out the bank when asked about money-laundering links to Kozlov's killing.

"The bank's personnel exported assets" after the bank's license was revoked, Kudrin told reporters on the sidelines of a Sept. 16 Group of Seven finance ministers' meeting in Singapore, adding that criminal cases had been opened against these employees.

Lending support to these statements at a news conference last week, Kudrin said that amid the closure of Diskont Bank, "concrete individuals lost their assets. This doesn't happen in all cases, but in this case, it happened."

The fact that the bank's closure happened just two weeks before Kozlov's shooting on Sept. 13 led Austrian investigators to see a possible link between the two events.

A subsequent Austrian Interior Ministry report concluded that a link between Kozlov's murder and "the criminal actions in Russia" could not be ruled out. "Rather the indications imply a causal relation," it said.

A spokesman for the ministry in Vienna said the link to the Kozlov case was made because of the "very interesting chronology of events."

The possibility of a link between Diskont and the Kozlov killing was explored in a May 21 article by The New Times, a liberal Russian-language weekly. Citing Russian Interior Ministry sources, the article said the money-laundering investigation into Diskont had uncovered a scheme in which senior officials, including Kremlin insiders, were funneling more than $1.5 billion in illegal profits abroad.

Kremlin spokesman Dmitry Peskov declined to comment on The New Times' allegations or the Diskont case, referring inquiries to the Prosecutor General's Office.

The investigation by the Prosecutor General's Office, however, appears to have focused on the link with Frenkel's VIP-Bank and Sodbiznesbank, a bank he headed that was closed down by Kozlov in 2004. The VIP-Bank link was seen as the most likely trail in a front-page article in Izvestia on Sept. 15, just a day after Kozlov's death.

In January, Frenkel was charged with ordering the killing of Kozlov through an intermediary, an amateur boxing promoter named Liana Askerova, who purportedly helped him find three Ukrainian gypsy-cab drivers to carry out the hit. On May 22, the Prosecutor General's Office said the case was closed, and that Frenkel and the six other suspects would go on trial shortly.

Meanwhile, in the Diskont case, what progress has been made nine months after the license revocation -- and whether there is any link to Kozlov's killing -- remains a mystery.

Inquiries to the Prosecutor General's Office this week revealed only that the Diskont Bank money-laundering case was being handled by First Deputy Prosecutor General Alexander Bastrykin, who is the only official authorized to comment. Bastrykin did not respond to several requests for information.

Likewise, the Interior Ministry declined to comment on the ongoing investigation into Diskont Bank employees, which was opened on Sept. 8, eight days after the license revocation.

A report delivered by an Interior Ministry official to a Moscow banking conference in March, however, indicates that the money-laundering investigation at Diskont was on a far wider scale than that discovered in the Raiffeisen account by Austrian investigators.

Fyodor Putintsev, head of one of the Interior Ministry's investigative units, said Diskont had "carried out fictitious transactions benefiting foreign companies in connection with the purchase of various industrial products with a combined value of 41 billion rubles [$1.6 billion]," according to a transcript of his speech posted on the Association of Regional Banks' web site.

The men behind Diskont could have gotten away with this before, The New Times reported Monday.

The magazine found that three Diskont executives -- Viktor Bukato, Ilya Khaikin and Sergei Shcherbakov -- had also been at the helm of Vneshagrobank, which was closed by the Central Bank in December 2003 on similar charges to those leveled against Diskont. At the time, Russian media reported that money was siphoned out of the bank after it was officially shut down, partly through Diskont.

The three executives could not be located for comment Wednesday.

This would have had to happen under the nose of the Central Bank, which by law is responsible for sending in a temporary administration to wind up the bank's affairs, said two members of the State Duma's Committee for Credit Organizations and Financial Markets.

The administration assigned to Diskont Bank on Aug. 31 was headed up by Yury Gubochkin, chief economist in the department for liquidating credit organizations at the Central Bank's oversight agency.

The bank was officially declared bankrupt five months later.

During this period, Gubochkin and his team were in charge of Diskont's "accounting and other documentation, seals and stamps, materials and other valuables," according to a Central Bank document posted on its web site and signed on Jan. 31 by Kozlov's successor as first deputy chairman of the Central Bank, Gennady Melikyan.

"When the license is revoked and that full stop-order goes onto the bank, then the temporary administration handles all transactions and none can go through without their signature," said Oleg Ivanov, a member of the Duma's Committee for Credit Organizations and Financial Markets. "This is all written into the laws."

Even if Gubochkin's team had been physically kept out of the bank, no money could have been transferred out without the Central Bank's approval, said Ivanov, also vice president of the Association of Regional Banks. "The only way to get anything out of that bank is to physically carry any cash from the register out the back door, any gold, anything like that," he said. "But that would not be very smart. ... There are huge fines slapped on for such actions."

These proceedings are also handled by the Central Bank's administrators.

Reached several times by telephone last week, Gubochkin refused to comment on any aspect of Diskont's temporary administration.

Another employee in the liquidation department, who declined to give his name, made it clear that no comment about the winding-up of Diskont would be forthcoming. "You can forget about ever getting a statement out of this department, period," he said.

The Central Bank's handling of money-laundering cases has been criticized harshly by Frenkel, who has lashed out in ranting letters published while in custody. In these, Frenkel proclaims his innocence, and points the finger instead at the Central Bank.

But if the letters serve as proof of anything, it is that Frenkel indeed had a deep hatred for Kozlov, whom he implicates in a scheme he calls podzhigania, or burning.

Frenkel describes this as a Central Bank practice of picking out a small bank with a few offenses on its record, and privately demanding that it transfer a large amount of money into offshore accounts, often through large financial institutions in the West. In exchange, the bank's managers are given a chance to destroy records of their own crimes. After the transfers are made, the bank's license is revoked.

The Central Bank has denied these accusations. Since Kozlov's death, however, the Central Bank has faced growing calls to tackle mismanagement and allegations of abuse of power. Vyacheslav Reznik, head of the Duma's Credit Organizations and Financial Markets Committee, proposed in February that the Central Bank be stripped of the right to revoke licenses.

"There have been many objections raised that the Central Bank is overstepping its bounds in regard to certain laws. Its decisions were not always objective, and there are often conflicts of interest between the Central Bank and the banks its oversees," said Anatoly Aksakov, deputy head of the committee.

On Feb. 5, Alexei Simanovsky, head of the Central Bank's banking oversight department, said investigators working on Kozlov's murder had concluded their inquiries into the Central Bank and found no connection to the killing. He added that a new probe based on Frenkel's claims had "not yet" been conducted.

It remains to be seen whether such a probe will take place.

Frenkel's lawyer, Igor Trunov, said a separate investigation was still ongoing. Trunov showed The Moscow Times a May 21 letter signed by Valery Khomitsky, an inspector at the Prosecutor General's Office, showing that a second case number had been assigned to the Kozlov murder investigation. The letter provided no further details.

"Today we are looking at a split in the investigation," Trunov said. "It is fully possible that in the scope of the newly opened case they will pursue other lines of inquiry, including this one about Diskont Bank."