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Russia: Putin Snubs Foreign Banks

President Vladimir Putin (file photo) (official site) Russian President Vladimir Putin told a meeting of leading bankers in the Siberian city of Novosibirsk on Wednesday that Russia will continue to oppose foreign banks opening fully representative branch offices inside the country. At present, foreign banks operating in Russia have to register as subsidiaries, which increases their costs. The issue has become a sticking point in Russia's application for membership of the World Trade Organization. The United States is insisting that Russia must grant foreign banks the right to open branches inside the country before it will support Russian membership of the WTO.

Prague, 15 December 2005 (RFE/RL) -- President Putin arrived in Novosibirsk from the tropical heat of the Malaysian capital, Kuala Lumpur, but the message he delivered to foreign bankers on his arrival bore all the chill of the Siberian permafrost.

"The government of the Russian Federation agrees with our banking community that we have to limit the activity of foreign bank branches in the Russian Federation," Putin said. "In essence, it must [continue to] be banned. This is not just a matter of competition, it is linked also to the impossibility in modern conditions of tracing the movement of capital and money and it is linked to the fight against terrorism. We must not forget that. And it is linked too to the fight against money laundering."

Putin said foreign banks would be required to set up subsidiaries. These daughter companies, he said, would "be Russia's legal entities and subordinate to Russian legislation," ITAR-TASS reported.

This means that foreign banks would be obliged to carry out all directives of the Central Bank of Russia, whereas a branch organization would be subject to the laws of the country in which its parent organization is registered.

The timing of Putin's comments is significant, considering that Russia this week will renew its efforts to join the World Trade Organization at the meeting of the WTO in Hong Kong. Without U.S. support, Russia will not be able to join the organization, and Washington's message is simple: No foreign bank branches, no membership.

And while Moscow maintains that it cannot permit branches of foreign banks to operate in Russia because it might destabilize its still infant banking system, it has to this point gone out of its way to try to persuade foreign banks to bring their capital and expertise to Russia.

Roland Nash of Renaissance Capital in Moscow says the statement has caught foreign bankers by surprise.

"It's a confusing signal," Nash said. "So far, foreign banks have been welcome in Russia. They've not wanted to come until quite recently for a whole set of reasons but it's not been the government that's been keeping them out. So, hearing this from the head of state I think will be quite confusing for them and they'll be looking for clarification."

Whatever the case, President Putin appears to have the full support of the Russian banking community.

Garegin Tossunian, the president of the Russian Banking Association, welcomed the statement and added that it does not mean Russia is turning its back on foreign banking. Russia's banking laws, he said, offer liberal conditions for foreign banks.

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