Washington, 19 February (RFE/RL) - Russian Central Bank officials, pressed by the International Monetary Fund (IMF), finally talked publicly about some details of the bank's use of a tiny, self-created offshore company to manage billions of dollars worth of Russia's foreign exchange reserves between 1993 and 1997.
Central Bank Deputy Chairman Oleg Mozhaiskov, one of his predecessors, Dmitri Tulin, and the President of the Central Bank-owned, Paris-based Eurobank, Andrei Movchan, held a press briefing in Moscow Thursday to say the bank had done nothing wrong in using the obscure firm to manage some of its foreign reserves.
All the money was returned, with interest, said Mozhaiskov, "and to the last kopeck."
The company, called FIMACO (for Financial Management Company), was, according to Movchan, created by Eurobank in 1990 for its own operations. It's capital was just $1,000. But he said when the Central Bank in 1993 was looking for asset management services, Eurobank suggested using FIMACO.
It was located on the tax-haven island of Jersey, one of the Channel Islands off the French coast in the English channel.
Tulin, who was deputy chairman of the Central bank during the time it started using FIMACO -- 1991 to 1994 -- said it was designed mostly to keep Russia's reserves out of the hands of western creditors. He said the "risk was real," recalling that in 1993 a Swiss bank was able to seize millions of dollars in assets from several Russian commercial banks and the central bank to cover unpaid debts.
Tulin, who worked for the central bank since the late 1970s, said it was normal Soviet practice to hide assets so that they couldn't be seized by western nations during the cold war.
Hiding assets, especially when negotiating with creditors for debt relief, is considered a fraudulent practice in the west.
Central Bank Chairman Viktor Gerashchenko had earlier acknowledged that FIMACO was designed to keep Russia's assets out of the hands of creditors. But he said it was also needed to help a Central bank with no experience in properly managing foreign reserves.
The existence of FIMACO was first revealed by then-Prosecutor General Yuri Skuratov, who filed a report with the Duma charging that as much as 50,000 million dollars of Russia's foreign exchange reserves had been managed by the firm.
Mozhaiskov rejected the accusation, saying that at its peak in 1994, FIMACO was managing around 1,400 million dollars of the Central Bank's money at any one time. He said that from then on the flow declined and the practice was ended in 1997.
Central Banks frequently use private investment management firms to handle their foreign reserves in other countries. But experts say the question is why Russia hid its use of a private firm and why it chose an inexperienced company it created itself instead of an established investment bank with a substantial track record. Experts also say it would be expected of the bank to publicly reveal what it paid for the firm's services.
Movchan said that the commission FIMACO earned for managing the Central Bank assets was lower than market rates, equally about one-sixteenth of a percent annually of the yearly average of assets under management. He said the firm was instructed to invest the money either in top western banks or what he called "first-class securities."
The explanations may help, but the IMF -- which says it never knew about the firm or the arrangement -- has demanded detailed answers. An IMF letter raising the issue arrived in Moscow this week and prompted the press briefing, Mozhaiskov said.
U.S. Treasury officials, who have supported IMF lending programs in Russia, say privately that they take the situation "very seriously." One told our correspondent that Washington will wait for the Russian government's complete explanation and the results of the IMF enquiry before commenting publicly. But, he said, "we are keeping an eye on it."