Russian bank closed over alleged money laundering

by Wall Street Journal

Central Bank revokes license of Moscow lender for alleged illegal transactions

MOSCOW—Russia's central bank revoked the license of a medium-size Moscow-based lender, notable for the presence on its board of a relative of President Vladimir Putin, for alleged false accounting and repeated violations of anti-money-laundering laws.

The closure of Master Bank is the highest-profile move to date by the central bank since its first female governor, Elvira Nabiullina, took the helm in July, and could herald a new push in Russia's chronic struggle with money-laundering.

Igor Putin is still a member of Master Bank's board, having previously served as a vice president for a brief period. A Kremlin spokesman said that he is a "distant relative" of the president but "they have nothing in common other than their name" and no business ties. The spokesman said the Kremlin had no role in the regulator's decision, noting that Ms. Nabiullina had said from the start of her tenure that she would focus on banking regulation "and she is consistently following that policy."

Ms. Nabiullina told the Duma, the lower house of parliament, the bank had a capital shortfall of at least 2 billion rubles ($61 million). "The bank concealed its real condition, submitting substantially false reports," she said. "The bank was involved in servicing the shadow sector of the economy, illegal transactions and repeated violations of money-laundering laws. We were forced to take this as last-resort measure."

No one could be reached at Master Bank's offices which were closed Wednesday. Police said they were searching the bank's headquarters.

Over recent years, the central bank has regularly closed down small institutions on such grounds, but Master Bank is the largest to have had its license revoked since the financial crisis of 2008-2009.

The lender is Russia's 75th-largest bank by total assets and has a prominent retail presence in Moscow and St. Petersburg. The bank said it has the third-largest network of automated-teller machines in the country.

Regulators said depositors would be repaid under the national deposit-insurance program, which covers accounts up to certain limits. Master Bank is expected to be the program's largest-ever claim, estimated at around 30 billion rubles, but officials said it would not require additional funding from the government. The bank has about 47 billion rubles in private deposits and 74 billion rubles in total assets.

Master Bank had been targeted by police for investigation over a year ago but had continued to operate freely, advertising aggressively for new clients, for the past year and a half. The interior ministry said Wednesday its officials had searched the bank's headquarters to investigate "a case of illegal banking operations involving payments of over 2 billion rubles."

Ms. Nabiullina's predecessor, Sergei Ignatyev, in February had voiced his concerns about massive money-laundering operations in Russia's banking system, but didn't identify specific institutions.

Analysts at VTB, the country's second-largest bank, said the negative systemic effect of Master Bank's closure should be limited, "unless it triggers a wave of deposit withdrawals from other small banks." They noted that the bank was had a negligible presence in the country's wholesale market for bank funds, traditionally one of the prime channels of contagion in banking crises.

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