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13 Aug, 2011 06:34

Russian banker steals billions and runs for London

The case of a former Russian senator, whose bank owes the state more than $1 billion, has grown into one of the biggest financial scandals in Russian history, exposing drastic drawbacks in the country's banking regulations.

Russian businessmen making it onto the UK's rich list have become a common thing – just as Russian investigators, in turn, take an interest in their affairs.Sergey Pugachev has everything: a fortune in several banks, a couple of private jets and numerous properties – from the Cote d’Azur to London.Married to a Russo-British socialite, he was a guest at Prince Albert’s recent royal wedding in Monaco. Among the top ten richest people in the UK according to last year’s Sunday Times newspaper, Pugachev leads a life many would envy. He even made his wife a star of a TV advertising campaign in France for the grand French food store Hediard, which he owns.However, all that is hardly a consolation at home – in Russia – where he owes billions of rubles to his bank’s creditors.“As a result of misconduct and violations by the management and founders of Mezhprombank its creditors suffered damages totaling more than US$1 billion,” reported Investigative Committee spokesman Vladimir Markin.Last year the International Industrial Bank known in Russian as Mezhprombank was the first private bank to default on euro bonds in more than 10 years. It received a more-than-$1 billion loan from the Russian state as part of the anti-crisis support program. But the state has not been returned the money – nor have all the creditors been paid off.“It was Mr Pugachev’s pocket bank that catered for his various businesses. In the wake of its license being revoked, it practically halted its operations and focused on transferring the assets through credits to shell companies that moved it on and on. And in the end the money most probably ended up in the structures affiliated with the owner of the bank,” explained the general director of Russia’s Deposit Insurance Agency, Aleksandr Tourbanov.The bank’s database was deliberately erased and investigators say the bankruptcy was intentional. It is the largest bankruptcy case of a financial institution in Russia’s modern history. Along with the bank, the rest of Pugachev’s business empire seems to have dissolved into other offshore assets. A similar scandal broke out with the Bank of Moscow, Russia's fifth-largest bank. The review revealed a gaping hole in the books, with bad loans totaling $9 billion, or nearly a third of its assets. The former head of the bank is also hiding in London.The bankruptcy of Mezhprombank last year and the recent downfall of the Bank of Moscow, reveal that the country is in desperate need of stronger banking supervision. And while those responsible for the damage enjoy their lives outside Russia, it is the state and its people that have to carry the burden of their losses.