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Statement by Andrei Borodin’s Attorney Mikhail Dolomanov

According to officially published information, as recently as last February, the city of Moscow was still a shareholder in the Bank of Moscow and controlled, accounting for its stake in OJSC Capital City Insurance Group, 62.06% of the Bank of Moscow stock.

Last February, the above-mentioned shares in the Bank of Moscow and Capital City Insurance Group were privatized. The amount of proceeds received by the budget of the city of Moscow due to the privatization of these high value assets remains unknown. However, the following is well-known.

If, as the law prescribed, those shares had been privatized in a public tender then the proceeds from the sale of shares in the Bank of Moscow and the Capital City Insurance Group would have had to be credited, immediately and in full, to the budget of the city of Moscow.

However, someone found it necessary to replace a public tender with a dubious scheme to privatize the city of Moscow-held stock; a scheme that continues to meet with great skepticism on the part of lawyers, economists, financiers, and even government officials.

The scheme consisted in the following. Last February, the city of Moscow-held stakes in the Bank of Moscow and the Capital City Insurance Group were contributed to the authorized capital of OJSC Central Fuel Company. As of that moment, the city of Moscow lost its ownership of Bank of Moscow shares, receiving, in exchange, newly-issued stock of OJSC Central Fuel Company, a company the city already owned 100% of.

Technically, the new stock issue was worth RUR 90 billion. However, by design of the architects of the scheme, the treasury was not to receive a penny for the Bank of Moscow stock.

This despite the fact that Bank of Moscow shares busily traded at stock exchanges, both at MICEX and RTS. According to available calculations, Bank of Moscow shares were contributed to the authorized capital of OJSC Central Fuel Company at a 20% discount to their stock exchange quotations.

At the next stage of the scheme, OJSC Central Fuel Company – after holding shares previously owned by the Government of Moscow for a few days – sold those very shares to VTB Bank for RUR 103 billion. In doing so, according to certain available information, the money was paid into a current account that had been prudently opened by OJSC Central Fuel Company at VTB Bank. If that is indeed the case then the RUR 103 billion remained in VTB Bank’s correspondent account even after the payment for shares was effected.

In addition, based on the above numbers, the price at which the shares were sold to VTB Bank exceeded, by RUR 13 billion, the price estimate for the same shares from only a few days earlier, when the shares still belonged to the Government of Moscow. Yet even the higher price is significantly lower than the price calculated based on stock exchange quotations.

So, what amount of money did Moscow receive as it gave up its ownerships of stakes in the Bank of Moscow and the Capital City Insurance Group? If VTB Bank indeed paid RUR 103 billion for those shares why didn’t the money reach the Moscow Treasury? And, where is that money?

Mr. Borodin has serious reasons for trying to obtain a straight answer to these questions. The crediting of the amount to the Moscow budget would constitute irrefutable proof that the city received a lot more from its ownership of Bank of Moscow stock than it had invested in the bank. The crediting of RUR 103 billion to the city’s budget would help stop the torrent of dirty insinuations regarding Mr. Borodin’s activities as President of the Bank of Moscow; would demonstrate the utter absurdity of the accusations against him.

When Mr. Borodin realized, in late April, that no one was in any rush to repay the money to the budget, he informed the fourth estate – the media – of the problem and instructed me to send an appropriate statement to the Prosecutor-General.

Borodin’s public statement produced an immediate effect. Within days, our heroic law-enforcement agencies made a decision to arrest him in absentia. Another immediate response by the law-enforcement was, as I learned, that they considered instituting a criminal case against yours truly under Article 306 “Knowingly False Denunciation”.

In spite of my repeated statements submitted to the Prosecutor’s Office, law-enforcement agencies have not made any other decisive steps regarding the facts exposed by Mr. Borodin.

Such sluggishness provides opportunities for designing new schemes of taking budget funds “for a spin”; for creating legends that the said funds will somehow make their way back to the city’s budget via dividends and mysterious corporate procedures; for explaining just how much the city benefits from the fact that no money has been paid to the treasury for assets formerly owned by Moscow; for pontificating that all of this is the fault of Borodin under whom, mind you, the Bank of Moscow was one of the principal donors to the municipal budget, not a recipient of Central Bank or Deposit Insurance Agency funds; for telling tall stories about crafty creditors who all of a sudden have collectively stopped honoring their obligations – just as soon as Borodin was removed from running the bank.

Each new statement by Borodin about the fate of money due to the budget precipitates yet another discharge of slander and libel against the former President of the Bank of Moscow.

It is true though that official spokespersons of the Government of Moscow have confirmed to the media that money has not yet reached the city’s budget. Shall we wait then?