Sviaz-Bank Retirement Funds manipulation Scheme exposed

The so-called “Russian billionaire” Evgeniy Bolotin was the mastermind of the scheme to use retirement funds without being caught by the Accounts Chamber.

In autumn of 2008 year the greatest bankruptcy in the history of Russia was closely averted. Sviaz-Bank was close to insolvency. The state authorized Vnesheconombank to salvage Sviaz-Bank. It has received 142 billion roubles for the project. “Vedomosti” newspaper was informed regarding difficult situation in Sviaz-Bank discovered by the new administration: massive investment in depreciated securities, loans provided to unreliable persons, credits given away without warranty, to name a few.

The story regarding accumulation of retirement funds by bank looks like childish prank in comparison with the irregularities mentioned above. The punishment is not stipulated for such activities in Russian law codex. Moreover, the retirement money have not disappeared – pensioners received them. But not before someone someone earned 4-8 percent per annum from ten of billions roubles.

Profitable business

“It was unacceptable to bankrupt the bank that served more than 15 million senior citizens” – explained decision to assist Sviaz-Bank the new Chairman of Board of Directors Anatoly Tikhonov (Vnesheconombank) during interview with “Vremya Novostei”. Pensions were paid via Sviaz-bank, because in 2007 year Sviaz-bank started to service many branches of FSUE “Russian Post”. Back to those days the majority of pensioners (in 2007 year – 22.5 million) receive pension by cash, via postmen. According to current data of Russian Pension Fund (RPF), from 350 billion roubles of monthly payments (pensions and benefits) post transfer 186 billion roubles.

Pensions were accounted in Sviaz-Bank via account #40504. As it is understood from statements of Bank, balance of this account started to grow rapidly: at the end of 2006 year 3 billion roubles, at the end of 2007 year – 11.3 billion roubles, at the end of August of 2008 year – 15.8 billion roubles. (monthly turnover – proceed plus expense – increased: 80 billion, 206 billion, 196 billion roubles).

Scheme of these figures was explained by current and former employees of Sviaz-bank. According to their explanations, money was received to the account about three weeks before payments to pensioners. Since the end of 2006 year on account formed minimal irreducible balance (due to constant inflow of pension money it was supported most part of the month, with short-term “failures”), which was increased: in January of 2007 year daily average balance exceeded 1.1 billion roubles, in May – 4.9 billion roubles, in September – 7 billion roubles, in December – 10.4 billion roubles. According to explanations of guests of “Vedomosti”, on balance was accrued interest,: at the end of 2006 year, “about 4-5 percent”, in 2007 year and until the spring of 2008 year – 8.5 percent per annum, then until autumn of 2008 year – 7 percent. They also argue that neither “Post” nor Pension Fund earned nothing via mentioned scheme. Their versions regarding period are the same: scheme was canceled only in 2009 year, when administration of Vnesheconombank settled down there. However, one collocutor of “Vedomosti” asserted that interest were accrued after change of staff of Gennadiy Meshcheryakov by staff of Alla Aleshkina in spring of 2008 year.

Meshcheryakov, whom “Vedomosti” found in defense of his doctoral thesis on the subject of postal banking, upon request to comment this story said nothing mentioned happened, and it is nonsense. We didn’t manage to speak with Aleshkina. Gennadiy Batanov, who was head of RPF up to December of 2007 year, said confidently that “nothing happened in his presence”, but he remarked: ”

I cannot be responsible for whole system. But I wasn’t informed about such things, verification found nothing”. Representatives of “Post of Russia”, RPF and Sviaz-bank refused to comment the scheme.

According to sources of “Vedomosti”, the mastermind of the scheme is Eugeniy Bolotin.

“He agreed that pension funds will be transferred to accounts of “Post of Russia” about 20-25 days before payment, and his employee monitored balances in bank,” – says one of partners of Bolotin, who asked not to be named.

Meshcheryakov said that he knows Bolotin as customer of Sviaz-bank. Batanov also knows Bolotin, but not close: “He negotiated nothing with me.”

Who is Bolotin?

In Russia businessman Bolotin is almost unknown, but Western newspapers called him Russian billionaire. A brief biography on Bolotin on site ETIRC complemented by some details his acquainted. Bolotin was born in Mogilev, obtained technical education in one of Belarusian universities in 1978-1998 years, worked in the company LiftMontaz (manufacturing and installation of lifts and lifting equipment). In 1999 year he became member of the Board of the company Bond, which sold petroleum products and fertilizers. At the beginning of 2000 years, Bolotin came to Russia and started to work on credit schemes with debts of “Bashenergo”. Received for the debts oil and petroleum products he sold in Russia or exported, until conflict with partner after which he had not leave the country.

Former partner calls Bolotin ‘a citizen of the world’: home and business in Israel, Netherlands and Germany. Becoming cosmopolitan, Bolotin changed name to Daniel. In 2003-2004 years, together with famous Dutch entrepreneur Roland Piper he established venture fund European Technology and Investment Research Centre (ETIRC, European Research Technology and Investment Center) in order to, as it is mentioned on ETIRC site, as much as possible and mutually beneficial use intellectual potential of Russia, CIS resources and Western countries . “Sons of Piper and Bolotin studied together and played in the same basketball team. Semyon Bolotin is about 25 years now. Via him Bolotin – father met Piper (Piper confirmed this fact to “Vedomosti”) – he needed flag in hands, in order to return to Russia and start new business, “- says acquainted of Bolotin.

Bolotin has also useful relations in Russia. According to ex-partner, Bolotin met Alexander Korovnikov, who since 2000 year was assistant of chairman of Accounts Chamber, and since 2001 year – executive secretary of Advisory Council at the Chairman of Accounts Chamber. In 2007 year Korovnikov started to work in Federation Council, he stopped to be assistant, but continued to be secretary. Acquainted with Bolotin said that in 2004-2006 years Bolotin had meeting room in negotiation room of Korovnikov – at least, he conducted business meetings there. “In November of 2005 year, I met with Bolotin there” – confirms Anatoliy Skugarevskiy, former general director of “Holding ETIRK Rus” (Moscow). “Bolotin was friend with Korovnikov. But I doubt that he had meeting room (in negotiation room of Korovnikov – “Vedomosti”), – says former auditor and now adviser of chairman of Accounts Chamber Vladislav Ignatiev. – On seventh floor in rent premise of military institute were held the meetings of expert council working groups. I saw him [Bolotin] there, and talked to him – we discussed the project for the construction of aircraft factory in Ulyanovsk”.

“I met Bolotin on 50th anniversary of Korovnikov – says Batanov, who as well, before heading RPF in 2004 year worked in Accounts Chamber. – But we discussed no pension issues. “

Korovnikov did not refute acquaintance with Bolotin (“we are not friends”). He noted that it happened on the basis of interstate aircraft project in Ulyanovsk: “In 2002 year, I met with Bolotin as with assistant and partner of Piper (regarding aviation), who was representative of Eclipse Aviation in Europe. Bolotin participated almost on all meetings to discuss aircraft project in Ulyanovsk in Russia and Netherlands. He could be seen in my office (at the reception – “Vedomosti”), when he came to negotiate. So as Council – is public reception, a lot of people came to me, Bolotin acquainted with them, and couple of times he really asked permission to negotiate in meeting room”- told to “Vedomosti” senator. According to his opinion, Bolotin used in own interests that he is assistant of famous businessman Piper, and acquaintances in Accounts Chamber.

European scale and Russian experience allowed Bolotin to perform variety of business endeavors – from innovative projects on transfer of Sochi transport on hydrogen fuel for Olympics-2014 to production in Irkutsk of coal for processing into gasoline.
The greatest was project ETIRC regarding creation of assembly production of business-jets Eclipse 500 in Ulyanovsk region. This ultra-light airliner was produced by American Eclipse Aviation Corporation, among its investors was Bill Gates. ETIRC Aviation of Piper – Bolotin had exclusive rights to supply and service of Eclipse 500 in Eastern Europe, Russia, CIS and Turkey. ETIRC Aviation also promoted project to assemble aircraft in Russia.

Accounts Chamber supported this idea. In April of 2005 year, Korovnikov came with representatives of ETIRC to discuss this project with Ulyanovsk Governor. In June of 2005 year, ETIRC representative visited Ulyanovsk with auditor of Accounts Chamber Sergei Ryabukhin – curator of project on behalf of Accounts Chamber (he worked in Ulyanovsk region and knew well aviation industry). In February of 2008 year, on industrial area “Zavolzhye”, chairman of Accounts Chamber Sergei Stepashin with Ryabukhin and governor put foundation stone of the plant in Ulyanovsk. Stepashin promised to take personal control of the project.

“This is a modern innovative design! – he quoted him “Promyshlenniy Egenedeknik”. – This know-how made by colleagues of Gates – our current American and Dutch partners”.

Stepashin came to Ulyanovsk for meeting with governor, and governor asked Stepanov to take part in putting of stone, says representative of Accounts Chamber.

The project was supported at highest level. On September 15, 2008 year, supervisory board of Vhesheconombank, under leadership of Prime Minister decided to allocate for the construction of Ulyanovsk aircraft factory 205 million US dollars. Later happened crisis, Eclipse Aviation, without money of Vnesheconombank became bankrupt.

Sviaz-bank, which in December of 2007 year provided credit to ETIRC Aviation in sum 150 million US dollars participated in this situation. It was greatest bank credit to companies of Pieper – Bolotin. By that time, Vnesheconombak engaged in sanitation of Sviaz-Bank, these companies had to repay to Sviaz-bank about 5 billion roubles. As a result, bank actually written- off mentioned debt.

Thus, if author of scheme with pensions was Bolotin, this is just one moderate episode of his cooperation with Sviaz-Bank. It is interesting that Bolotin and Meshcheryakov (who headed Sviaz-Bank until spring of 2008 year) could be found this summer in the list of holders of diploma for “active participation in work of the Advisory Council at Chairman of Accounts Chamber, great personal contribution to the development and formation of theory and methodology of financial control in Russian Federation during 2001-2006 years”. The list was posted on site of council; upon request of “Vedomosti” to Accounts Chamber Bolotin and Meshcheryakov were removed from the list. Bolotin has never had any relation to Accounts Chamber, expert council, and to Stepashin, who met Bolotin once – and only because Piper designated him as representative in the construction of aircraft factory in Ulyanovsk, says Korovnikov. He adds: unlike Meshcheryakov, Bolotin never entered expert advisory council, even though he was among those awarded by diploma. Reward was given not only to the members of board.

Everything is according to legislation

Is it legitimate that money of RPF were received by Sviaz-Bank in advance?

In response to “Vedomosti” “Post” indicates that RPF transfers money “taking into account restrictions of Sample contract for delivery of pensions by federal postal service organization.” Contract provides that RPF is required on monthly basis, not later than three banking days before the start of delivery period to transfer to pension account “Post of Russia” advance of at least 25 percent of money required for delivery of pensions in current month”. Increase of turnover in Sviaz-Bank in 2007 year is explained by “processes of centralization of pensions financing and increase of branches of “Post of Russia”, served in this bank.” It turns out, everything is according to legislation (system of advances appeared at the beginning of 2007 year, but why scheme with support of balances disappeared in 2009 year – turnover of Sviaz-Bank didn’t decrease?).

Even if not according to legislation, who can found it? Accounts Chamber regularly monitors RPF, but from comments of representatives it is understood that such schemes should not be monitored by Accounts Chamber. Accounts Chamber only verified legality and target use of funds, in this case money was paid in time to proper persons, and violations are absent.

In order to reveal abuses (conspired, inefficient use of off-budget funds), it is necessary to carry out investigative measures – ordinary verification seems to be insufficient, says employee of Rosfinnadzor.

Ordinary verification reveal less skillful combination. For example, when off-budget fund keeps money in commercial bank (in case of presence Central bank branch in the same territory, it is not allowed).

In 2008 Rosfinnadzor verified Mandatory Health Insurance Fund (MHIF). It was found that in 2007 year to area fund of HIF in Chechen republic was transferred more than 892.400.000 roubles of budget of MHIF on accounts in Rosselhozbank. Moscow HIF Moscow fund in December of 2007 year transferred in excess of monthly estimated value of insurance payment for January 2008 to accounts of health insurance companies almost 2.26 billion roubles, which were “placed on deposit accounts of banks”.

In 2008 year Prosecutor General Office informed that Social Insurance Fund (SIF) irrational use of temporarily free funds:

“There were found facts of conclusion of contracts of bank deposit under unprofitable conditions for the fund with underestimated interest, for interest of commercial bank”.

Thus, FSI, with possibility of placement of deposits on 10-12 percent, placed in Binbank for 2004-2007 years 1-3 billion roubles on 2-6 percent, and in APB “Solidarity” for 2004-2008 years – 2.1 billion roubles on 5 percent. In this case, noted Prosecutor General office, bank deposit contracts, in breach of legislation were signed without tender or auction. In addition, in “Solidarity” FSI, without competitive procedures in 2002 year opened current accounts. Temporary free funds were placed into bills of commercial organizations (in particular, Binbank – nominal value 1.43 billion roubles, with maturity date – end of 2003-2012 years), and “not into liquid government securities, as it is required by legislation”. “Solidarity” informed “Vedomosti” that deposit rates were even higher than market (contributions were not urgent, and “upon demand”) and that at that period there was no prohibition for placement of funds in commercial banks. In “Solidarity”, according data if SPARK, in 2010 year was state contract with FSI for settlement and cash services – at the bank argue that on the basis of wined competition. Binbank simply replied, that there were no claims and breaches.

That is: funds are considered breakers due to incorrect placement of money. FSI and HIF did not respond to “Vedomosti”.

Jewish pension

Bolotin was related with Pension Fund not only via Sviaz-Bank. In 2006 year, “Holding ETIRK rus” CJSC of Bolotin – Piper established Russian firm “For social rights of compatriots”, director general of which was Yurii Petrov, previous head of department of pensions management of Russian citizens living abroad.

During interview with newspaper “Globe” in 2006 year, Petrov explained that company “For the social rights of compatriots” was established by agreement with RPF and assists citizens living in Israel, “in exercise their rights for pension”. As partner in Israel was selected “03 Moscow Ltd” (it is located in the same building as Russian consulate). A person may come to the reception, and receive help to prepared documents, send them to Moscow, and will be accompanied in RPF; if it is necessary, the company is ready to find and request necessary documents on the territory of Russia. Consultations – are free of charge, other services – are payable.

Representative of RPF and Batanov say that fund did not have agreement with the company “For the social rights of compatriots”.

Profitability of this business was not clear. According to data of website “03 Moscow Ltd”, in April of 2007 year, in Israel lived more than 30 000 Russian pensioners. According to data of SPARK gross profit of the company “For the social rights of compatriots” in 2006-2008 years was about 5 million roubles.

Payment of pensions routine in Russia explained

Executive directorate of Russian Pension Fund transfers money to accounts of 81 regional branches, all of which are cash-settlement centres of Central Bank. Regional branches transfer money to banks or other organizations of delivery, main of which is “Post of Russia” (upon selection of pensioner). Delivery organization should pay pension on the agreed with RPF schedule.

Bank is obliged to credit money on account of pensioner on the day of receipt, but not later than the next day after receipt of payment document. In other delivery organizations terms of payment of money is not related to term of receipt by normative acts. Standard contract between RPF and “Post of Russia” stipulates that money is transferred to “Post” three banking days before payment to pensioner.

Unfulfilled partner of Bolotin

Former head of State Property Fund and Moscow airport “Sheremetyevo” Sergei Belyaev, was also member and is now member of advisory board at Accounts Chamber. He says that he met Bolotin not there, but via some foreign investors, whom he refused to identify, “We had an attempt to establish joint project, it was absolutely real. We were going to grow sturgeons and produce caviar under new technology in Ivankovo water reservoir. Bolotin attracted foreign investors – Piper, who was very interested in this project. ETIRC even conducted researches and made calculations. But under technical reasons, project was not started. We did not yet know very well the issue. Later we implemented this project in Krasnodar region”. Bolotin was not involved.

Stepashin’s Dream

“In all countries of the world, Accounts Chamber is body of external control, supreme body of financial control”, – said chairman of Accounts Chamber Sergei Stepashin, speaking in presence of deputies of the State Duma. He proposed amendments into law on Accounts Chamber, in order to authorize it as supreme body of financial control in the country.

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