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. Last Updated: 07/27/2016

Watchdog Seeks Right to Wiretap

A senior official in the government's financial markets watchdog has called for investigators to be allowed to wiretap phones in an effort to crack down on illegal insider trading, but analysts said the measure would lack teeth due to weak legislation.

Bembya Khulkhachiyev, deputy head of the Federal Service for Financial Markets, said Wednesday that the service was planning to legalize wiretapping but was "not seeking [to take on] criminal investigative functions," Nezavisimaya Gazeta reported.

Khulkhachiyev said that even though the service reported about 800 cases of illegal insider trading to the Interior Ministry per year, they never led to criminal charges being filed.

It was not immediately clear, however, whether Khulkhachiyev had support for his comments from the head of the service, Vladimir Milovidov.

The call for the state to eavesdrop on financial institutions comes as the watchdog has proposed new legislation to the State Duma that would tighten the rules on disclosure of insider information.

Among other measures, the bill will seek to increase the maximum fine for illegal insider trading to 1 million rubles ($39,000) for legal entities and make company officials responsible for the practice liable for prosecution.

Under Russian law, insider trading is illegal if information is passed to a third party who then profits from it. But a loophole in the legislation means that someone who personally profits from privileged information from his own organization may not be acting illegally if that organization does not expressly forbid the practice.

Repeated calls to the watchdog's office were not answered Thursday.

Ivan Manayenko, an analyst at Veles Capital, said that while insider trading was a "daily occurrence, there is no mechanism to bring erring traders to book. Many traders regularly record their conversations with brokers, but the recordings are of little use because offenders cannot be prosecuted."

Alfa Bank strategist Erik DePoy said cases of illegal insider trading were not frequent enough to scare away investors.