Russian Bank Lobby Says Crackdown on Illegal Activities and Money Laundering Brings Risks

By Andrey Ostroukh
Wall Street Journal

Russia’s increased efforts to stamp out illegal banking activities could cause the country’s financial system to collapse, a lobby group representing Russian lenders said Tuesday.
The Bank of Russia recently stepped up efforts to clamp down on the country’s banks, revoking licenses and suspending bank operations where lenders were suspected of false accounting and money laundering.
The closure last week of the medium-sized Moscow-based Master Bank was the central bank’s highest-profile move since Elvira Nabiullina became the Bank of Russia chief in July, possibly indicating a renewed push against Russia’s shadow economy. So far this year the central bank has revoked the licenses of nearly two dozen banks.
Ms. Nabiullina’s predecessor, Sergei Ignatyev, had voiced concern earlier this year about massive money-laundering operations in Russia’s banking system but didn’t identify specific institutions.
The Moscow International Currency Association, a lobby representing around 100 domestic banks and Russian branches of international lenders, said in a statement on its website that it welcomes the idea of cleaning up Russia’s banking system, which comprises nearly one thousand lenders.
But it said the central bank should have come down hard on banks involved in illegal activities at an earlier stage, before they had time to amass deposits from households and businesses.
The association, which counts major lenders such as Alfa Bank and Raiffeisen Bank among its members, claimed that over-hasty moves taken now could cause a banking collapse similar to that of 2004.
Back then banks started closing and lowering mutual transaction limits amid fears of a widespread revoking of licenses, which paralyzed the interbank market for several months.
“The interbank market is an important tool used to support and manage liquidity for the majority of Russian banks. Its freeze is capable of creating problems in the whole banking system,” the statement said.
Following last week’s Master Bank closure the ruble dropped to its lowest level against the euro since late 2009. Market observers said some banks were buying foreign currencies in a bid to sidestep risks related to a deepening purge of the banking system.
The Russian central bank declined to comment.

Michael Hearns an Anti Money Laundering specialist with over 27 years of AML experience can also be found at:www.launderingmoney.com and on twitter at :http://twitter.com/#!/LaunderingMoneyas well as his blog at:http://moneylaunderingworld.blogspot.com