The banking scandal that broke Russia’s anti-Kremlin opposition
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Last month is another 30 days of war passed in Ukraine. Russian activists, economists, and politicians in the exiled anti-Kremlin opposition spent much of their time arguing about a banking scandal from the last decade. The debate has been as mystifying to outsiders as it is confusing to those of us without an education in finance. If you've never heard of ProBusinessBank, here's a brief overview.

Alexander Zeliznyak and Sergei Leontyev founded it in 1993. After surviving Russia's 1998 financial crisis, they expanded the network, acquiring several regional banks and merging them in 2006 to form Life Group. By the early 2010s, Life Group was Russia's fifth largest banking network in branch size and ProBusiness Bank alone was among the country's top 50 banks. And then it all came crashing down.

In August 2015, Russia's central bank revoked ProBusinessBank's license. Two months later, officials declared it bankrupt. The day ProBusinessBank lost its license, the central bank calculated its liquidity gap to be at least 67 billion rubles, roughly a billion dollars at the time.

If you've heard anything about ProBusinessBank or its founders lately, it was probably in connection with that dispute among Vladimir Putin's public enemies that I mentioned a moment ago. That started in early October when Maxim Katz, a former municipal deputy turned popular YouTuber, released a two-hour investigative video accusing Alexei Navalny's Anti-Corruption Foundation, or ACF as I'll be referring to it several times today, of laundering the reputations of Zelensky and Leonchev

in exchange for large donations and administrative help. Zelenskiak served as the treasurer of ACF's international operations until his resignation after Katz's investigation in late October. After three weeks of pretty much constant cyberspace combat between both sides and their supporters, the Anti-Corruption Foundation responded...

with its own whopper of a YouTube video, a 96-minute dissection of Katz's storytelling omissions and a denial that Zeliznak and Yontsev stole any money at all. The Foundation's rebuttal focused on tearing down errors and manipulations in Katz's investigation. But Zeliznak and Yontsev's return to the news agenda has also refocused journalists and experts on what ostensibly drives the dispute in the first place, namely the actual events and practices at ProBusinessBank.

So let's talk about the criminal stakes at the heart of the scandal involving ProBusiness Bank. And yes, let's break down some of the opposition politics and the anti-corruption ethical dilemma that makes these bankers such a headache all over again. Welcome to The Naked Pravda.

Howdy, folks. Welcome back to the podcast. I'm your host, Kevin Rothrock, the managing editor of Meduza in English. To understand how banking practices from the last decade erupted into an opposition scandal last month, the first thing you need to know is that the Anti-Corruption Foundation in some ways is

got this ball rolling, ruffling the feathers of fellow oppositionists, particularly those in camps outside Team Navalny's orbit, when it argued earlier this year in a YouTube miniseries called Traders that many of the businessmen now instrumental in funding anti-Kremlin activities are responsible for lifting Putin to power in the first place and for betraying Russia's post-Soviet democratic prospects.

Then in September, the team published evidence suggesting that former oil executive Leonid Nevzlin, the purse behind several media outlets and a close ally of Mikhail Khodorkovsky, had recruited thugs to attack members of the Anti-Corruption Foundation, possibly even to kidnap one and hand him over to Russian federal agents.

In this context, ACF supporters say that Maxim Katz is merely acting as a hired gun against an organization that is causing trouble for the corrupt moneyed interests who wrap themselves in anti-Kremlin credentials. In this sense, the response mirrors Katz's allegations against ACF. So they've each got that going for them.

Now, to learn more about Katz's work, I welcomed back to the show Ilya Shumanov, the general director of Transparency International Russia in Exile. Maxim Katz, I suppose, published this story because of the pressure of the people who lost money in this bank and who tried to trace the assets of the former president.

top managers and the owner of this bank and this is a group of the people i mean the people who lost their money they're still willing to return some money from zheleznyak and leontiev

and they're trying to find their assets all over the world and they trust a lot like five or seven years in the process of the litigation in the several jurisdictions such as for example in Liechtenstein they tried to start the court cases in Poland in the United States and other jurisdictions

But now they, let's say, focus on Liechtenstein specifically because there is still option to return their money to those who lost their money in the pro-business bank.

And it was only the one scheme because there were other schemes in the pro-business bank that possibly led to disappearance of this money from the capital of the bank. There were more ugly schemes like technical loans for the shell companies that used globally, not only in Russia, but let's say very, very

easy way to return money from any bank without any explanation. And there were also schemes related to... Like, ProBusiness Bank was one of the banks in the group of the financial group Life that included seven different banks.

And the ProBusiness Bank was the center of this group. And there was a scheme of providing loans from one bank to another. It was a bank circle. These banks loaned each other. And it was very complicated for the central bank to, let's say, to trace the real capital of any bank because some of these loans were technical. And it's also the scheme of falsification of the reporting process of the capital of this bank.

by the top managers of this group live. As you've said, the investigation seems to be motivated by people involved in this story, people that essentially lost money to these two bankers who managed to make so much of money on their own and then leave Russia.

Does the Katz investigation rely on documents or records that were not previously available? Was he and his team given new information? Or is this just an old story that he managed to make new again? I suppose that previously, as this fact suggests,

I have never heard about the publication of this data because of a specific transaction that appears in Maxim Khat's revelation, let's say. So he got access to new documents? Yes, new documents. And I suppose that these documents were provided by this group of customers of this bank who lost their money. Yeah. And actually, I...

I put my eye on this bank during the collapse of the bank in like 2015, 2017.

At that time, there was no such facts like Maxim Katz provided to his audience. And of course, there was no specific data related to this complicated scheme of the loans, subordinate loans and the transaction between offshore companies and back to Russian companies. And of course,

It was not possible to, let's say, to identify this scheme in 2016, 2017, something like that. But because of the activity of mostly the court action initiated by these customers of ProBusiness Bank, they succeeded and they received several documents.

that was not publicly available previously and these materials were provided to Maxim Kratz. He published this and of course we can discuss the accuracy of this data because there was a lot of

critics who highlighted that Maxim Kats was not very accurate during his investigation because some of the data was redacted. So what's an example of one of the kind of misleading things that Kats did in his investigation? Actually, he published only the half of the story, like the withdrawal money from the bank and something out of Russia. But there was a process

of providing these subordinate loans. At least a dozen million of dollars from these 470 million that

return to the pro-business bank through these companies affiliated with top managers of the banks. And this is a very essential part of the story that gives us the idea of not only stealing maybe the whole amounts of money, but the stratification of the capital and balance sheet of the bank.

Katz claims that the two bankers stole at least $470 million from ProBusinessBank through a network of brokerage firms, offshore accounts, and subordinated loans. According to the Katz investigation, bank funds were placed in the accounts of foreign and Russian brokers and then transferred to offshores controlled by Zeliznak and Leontiev.

To conceal their connection to the enterprises receiving the money, the bankers registered the offshores to random people and paid them a pittance to pose in paperwork as the owners. Zheleznyak and Leontiev then used the money for personal enrichment, playing the stock market and saddling pro-business banks' clients with the risks. They funneled their winnings through a chain of companies, for example, into Leontiev's trust, which was registered in the Cook Islands.

ACF's response to the allegations that Zheleznyak and Leonchev stole almost half a billion dollars from ProBusinessBank rests on the logic that most of the money was ultimately returned to enterprises under the umbrella of Life Group, team of only reasons that the bankers resorted to moving the money around in such Byzantine ways to evade onerous Russian regulations that arguably suppressed private capital. Here's how Georgy Alburov, one of ACF's leading researchers, defended the setup.

Actually, his tone here reminded me of a certain Hollywood classic. See if you can guess which one.

In short, Maxim and experts who sympathize with his investigation, that's where the 470 million went. The vast majority of it went back to Life Group's companies, redirected to pro-business banks, sister structures, like a debt collection agency, a factoring service and real estate development projects. Life Group was building townhouses and apartments in the Moscow region.

You're thinking of this place all wrong, as if I had the money back in a safe. The money's not here. Well, your money's in Joe's house, that's right next to yours, and in the Kennedy house, and Mrs. Maitland's house, and a hundred others.

You're lending them the money to build and then they're going to pay it back to you as best they can. What are you going to do, foreclose on them? Shumanov told me that ACF researchers' inability to locate all the funds withdrawn from ProBusinessBank is telling. He said he found even less money accounted for in his own search of the bank's records on subordinated debt, the riskier loans issued to Zheleznyak and the Ontuvs' offshores.

Shumanov also challenges ACF's claim that money transferred to offshore companies and later returned to sister structures in Life Group actually constitutes a return of the bank's funds. Yes, look, I suppose at that time that we are talking about that Maxim Kras published this investigation, it was like approximately 2012-2014, there was a, let's say, hole in the

balance of this bank, like deficit in this bank. And actually the founders and shareholders of this bank and top managers, they are looking for some capital that could be increase the balance.

Because since the central bank installed a new regulation related to the capital and the amounts of this capital, the central bank intensively supervised the whole bank and tried to identify

the falsification of the reporting process and the falsification of the balance in any bank. And during that time, some of the amounts of the capital of this bank was deposited in the brokerage account in Russian brokers and international brokers, UK brokerage company.

And as I mentioned, in fact, these assets were reflected on the bank accounts twice. The first time when deposits were deposited on the brokerage accounts and reflected on the balance sheet in ProBusiness Bank. And the second time in the form of subordinate loans that was deposited by or provided by companies that are related to

to these banksters, but not to the real bank affiliated companies. It was done because

Actually, this means that banksters classified bank statements. They actually use this money twice. The first time they were, let's say, mentioned as subordinate loans and appeared on the bank balance. And the second one, they appeared as deposits of the brokerage account and also put it on the bank balance. This is a criminal act.

At that time, in 2014, there was a specific criminal article in the Russian penal court about the falsification of the financial statements of the bank. Every individual who said that there was no criminal in this activity, everybody did this, I mean every bank and every top manager of the bank did this, of course, knew. And we know that because of this criminal article.

The bank managers actually created the parallel system of a dozen of the companies, different companies in Russia, not only in offshore jurisdiction in Cyprus, but in Russia. And actually, these corporate structures, I mean, different companies, shell companies, they were headed by the bank employers.

and they received additional salary for this work. And actually, the main part of their work, they falsified reporting and they were used as, let's say, managers who withdraw money from bank, who issued loans in favor of the top managers of the bank.

and actually the shareholders of the bank. And this specific department that exists in ProBusinessBank and who was responsible for this legal operation, it was called Valkyria.

So I know that their response was that, oh, like you said, Katz gave half the story. In fact, the money came back and therefore you can't say it was stolen. But as I understand it, the sort of financial analysis here is that not all the money came back. You can only account for some of it. So there's still hundreds of millions of dollars that as far as we know is just gone. But the money that did come back, in fact, came back to businesses that are merely owned by

or controlled by the Entebbe and Gilles Nac. So if you were a client of Pro Business Bank, whoop-de-doo, it's now owned by some other company. This money is now somehow paid back to another company, but your savings are gone. Is that correct? So in that sense, we're still talking very much about embezzlement, but somehow this is better. Why exactly does this look better than an outright theft is I guess my question.

Yeah, I don't think she's better. Why did they return it at all? Why did the money come back at all? Is that just a way of making it look more legitimate to regulators? I guess, as you said, a lot of the money, certainly this is the Anti-Corruption Foundation's main argument is that the money came back, but it came back to different places. Why was it returned at all? This is because the

the scheme involved subordinate loans, which meant that there were still debts to be repaid. And so some of that money was repaid. Could you explain for me, like, just the difference here between outright theft and what happened? No, no, you're absolutely right. I mean, the banksters, Leon, they tried to, let's say, to...

to provide their own picture, like there was no stealing of this money, it was legitimate money that they received now and let's say deposited on their bank accounts. There is a big difference between banks' money and their own money. And actually the customers, they try to, let's say, they insist that there is

correlation between this money that deposited on the personal bank accounts of the top lenders of ProBusinessBank and the

hole in the balance of ProBusiness Bank. Yes, you're absolutely right. In context of SHARP, there is no difference. I mean, there is a big difference between the money that was transferred from the bank account through the complicated scheme of the offshore companies

And the money that was deposited on the bank accounts of ProBusiness Bank by some offshore companies, not the same. It's not the bank's money anymore. This is the money belong to the specific offshore companies. And this is a big

I suppose, inaccuracy in the FBK investigation. But some of these amounts, they were provided to banks through subordinate loans and they appeared in the balance of the bank. Of course, it means some of the money is still, let's say, of course, it was a falsified

statements published by the bank, but still this money somehow appeared. And this spot actually never appeared, have never appeared in the Max Katz investigation. But for the, let's say for

For the audience, it's essential that could say that this money somehow returned to Russia, but not disappeared some way in the offshore industry. I saw that Yulia Latynina, who I know is a very colorful character, she described this as robbing a bank one day and then the next day showing up with that exact amount of money and opening a savings account.

So, in that regard, you still robbed the bank, but the money is still there. Is that a fair analogy or is there something, does that oversimplify it? Yeah, it's very simplification of course, but in general for the audience, it will be very, very, let's say, correct, let's say, in general. When ProBusiness Bank lost its license, that was part of a campaign by the central bank in the mid 2010s to clean up the banking industry in Russia.

The initiative targeted captive banks where shareholders diverted money from bank coffers to their own pockets. Shumanov told Meduza that Zeliznak and Yontsev used pro-business bank in exactly this way. And when state investigators opened a criminal case against the two bankers and began questioning other bank managers that they'd left behind in Russia, they discovered a parallel system of dozens of different companies, codenamed Valkyrie, that were created to falsify financial statements and move funds out of the bank.

Now, much of the evidence for this illicit system admittedly comes from testimonies given by suspects held in Russian jails. But the accounts are detailed, and Zeliznakin-Neontyev even disclosed to journalist Andrei Zayakin that they ran a separate department to conceal asset withdrawals. According to Zayakin, in interviews he conducted in 2020, Zeliznakin-Neontyev said that

they raised more than $300 million by selling high-return promissory notes issued by companies affiliated with ProBusiness Bank, doing little to hide that most of the deposits collected were undeclared money, literally suitcases full of cash from persons with direct ties to state prosecutors. In fact, the officials whose money ProBusiness Bank apparently laundered even include former Prosecutor General Yuri Chaika, who was the focus of a bombshell ACF investigation in December 2015.

In response to Katz, the Anti-Corruption Foundation acknowledged that Avalon car dealership company beneficiaries used Pro Business Bank to stash the Prosecutor General's slush fund.

To be honest, I find it utterly repulsive, ACF chairwoman Maria Pevchik told viewers in the organization's 90-minute YouTube video. However, Pevchik argued that Zelensky and Yontsev's dealings with corrupt officials don't mean that the bankers aren't the victims of the Putin regime's political persecution. It is political, but not in the way we're used to, said Pevchik, claiming that Zelensky and Yontsev were persecuted not for their beliefs, but for refusing to share the spoils. They're

There were several clients such as, for example, AviLon Group you have mentioned, and this was

VIP clients that actually had the privilege to use specific type of operation in this band. They easily access to loans. They received loans, big amounts of money without any obligations. And it looks like that this

loans and the services that were provided by ProBusiness Bank were directly connected to the amounts of cash that Avalon Group and connected with these group individuals deposited on the ProBusiness Bank. And there is an investigation done by Andrey Zayakin, the well-known Russian investigative reporter who published this story several weeks after publication.

done by Maxine Hatz, who accused the pro-business bank top managers in laundering cash for general prosecutors. I don't know how it's called in English, upshack of general prosecutor's office, office and high-rank officials, top hiring individuals from general prosecutor office and their families, they deposited

corrupt money in pro-business bank and took money from pro-business bank laundered this money for them. And literally they brought the money in like suitcases and bags, right? Like cash. It's like something out of a movie or cartoon.

Yeah, absolutely. Absolutely. Yeah. And yeah, you have mentioned the cash boxes and these guys that deposited this money without any compliance. And of course, it was black cash, allegedly corrupted.

We can say that it could be, let's say, only a hypothesis published by Andrey Zayakin. But from the other hand, we can see the official statement that is done during the criminal court process in Russia. And there are some top managers of the bank, not the top managers, but the middle managers of this bank, who

were accused in fraud as well as top managers, but they stayed in Russia during this process and they were accused, they were imprisoned because of this allegation. And they did several statements during this process. And these individuals, I mean, managers of this bank, they said that, yes, there was a specific scheme of depositing money

by general prosecutors and connected to this Avialon group.

And actually, this money was from unknown sources. And the guys from our group, Avelon, Kavo Avogumyan, he is one of the owners of this company, and he has close connection with the General Prosecutor's Office. And during the procurement procedures, General Prosecutor's Office bought the number of cars from Kavo Avogumyan company, Avelon, and they interconnected.

not only on the procurement level, but also on the family level. Some of the relatives of Kavova Gumyan were also married and also worked for the General Prosecutor's Office. So this is a very close interconnection between the General Prosecutor's Office and the Avelon Group.

gave the possibility for Kavo Agumyan to communicate with ProBusiness Bank as an ambassador from the General Prosecutors Office group. And of course, he could be the person who deposited money as intermediaries in favor of the General Prosecutors Office, especially several deputy general prosecutors.

Before his arrest in April 2019, Kirill Cherkalin was the fast-rising, well-connected head of the FSB Economic Security Directorate's enormously powerful Bank Crimes Division. A few weeks after his arrest, he sought a plea deal, and in a signed statement, he reportedly named a powerful retired FSB general who allegedly provided protection to several credit organizations during his service.

Months later, by accident or on purpose, information leaked to the press that Cherkolin testified that most of the 12 billion rubles, that's B for billion, discovered at his apartments in police raids actually belonged to Valery Mirochnikov, the former deputy head of the Deposit Insurance Agency, Russia's state corporation responsible for various insolvency procedures. Mirochnikov, incidentally, fled the country immediately after Cherkolin's arrest. So, what

What was going on here? According to reporting by journalist Irek Murtazin, Miroshnikov, Cherkalin, and others learned about roughly 2 trillion rubles, more than $20.6 billion in today's currency, and capital shortfalls that Russian banks accumulated between 2013 and 2017. And then they offered the bank's owners a grace period of several months to purge their records and

transfer money to foreign accounts, flee the country, and then pose abroad as victims of the regime. All this in exchange for massive kickbacks up to 30% of the size of individual institutions' capital shortfalls. The state then stepped in and rescued or restructured these banks at taxpayers' expense. And of course, the Charkalan story overlaps with our pro-business bank drama. Alexander Zeliznyak says Charkalan offered him protection in 2014.

Can you explain to me where the FSB and maybe even the MVD fits in? Because they ended up arresting several of these FSB guys and charging them with corruption. And it led to years of prosecution and so on. How does that fit into this? Look, we have to mention for the audience

One fact is that there are several supervisors of the bank industry in Russia. One is Central Bank and another one is Law Enforcement. The main regulator is actually FSB and Department K in FSB. There was a huge corruption scandal in Russia related to the high-rank officers in this department who supervised the Russian bank industry for years.

And actually, during the investigation against the Department K, some of them were in prison because of the corruption and embezzlement connected with the bank industry. They blackmailed some banksters, they blackmailed some people from this industry. And in exchange of receiving benefits from them, it was, let's say, a long-term investigation

communication long-term schemes connected to the main banks in Russia. And actually, FSB plays a great role in this supervision, unofficial supervision of Russian banking industry. And you have mentioned that ProBusiness Bank was one of the banks that was targeted by these FSB officers.

in 2012 or 2014. And it could be possible because every bank during this period struggled with central bank regulation because there was a new head of central bank appeared, Elvira Noviulina.

who decided to clean Russian bank industry and more than 160 banks lost their licenses because the most part of this bank was captive bank and they was not real bank but they provided some service, some official service to withdraw money or to launder money, to send all this money out of Russia.

There was no non-compliance with Russian or international regulation. And I suppose that ProBusiness Bank was in the same situation. And that's why they were contacted by FSB to provide the roof like Krisha for this bank.

And it could be possible during the court process in the United States, Mr. Zheleznyak and Leontyov, they mentioned that they were contacted by FSB. And afterwards, this story appeared in the Russian investigative media Proye, who mentioned this story of the communication between FSB and Mr. Zheleznyak.

And it looks like that this story could be real for me, as I mentioned, because of the collapse of the bank industry in 2012-2014, just before the situation when the ProBiznets Bank lost its license.

By this point, you might be asking yourself, who cares if Alexander Zelenskyak and Sergei Leonchev qualify as victims of political repression? After all, what's one more ethical dilemma for the increasingly irrelevant Russian opposition in exile? Well,

The issue also has been at the center of major litigation. Reporting by the Bell shows that the two bankers have won foreign lawsuits time and again, thanks largely to Western Court's fundamental distrust of Russia's justice and regulatory systems. It has been especially easy for Zelenskiy and Yontov with European and American judges because many of the Russian officials who investigated ProBusinessBank are also implicated in the death of tax advisor Sergei Magnitsky, whose case obviously has become an international rallying cry.

and a horror story that, as the Financial Times put it, encapsulates the darker side of Putinism. Thanks for tuning in, folks. This has been The Naked Pravda, a podcast from Meduza in English. Remember that undesirable status back in Russia means our entire news outlet now relies on readers and listeners around the world to support our work. Please visit our website for information about how to become a contributor with one-time or recurring pledges. Thanks again. Until next week. The Naked Pravda

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