Thursday, September 14, 2006

Russian banker fought for transparency in country’s financial sector

(Source Article: Russian central banker killed in contract hit - Reuters)

Andrei Kozlov, a first deputy chairman of Russia’s Central Bank, died Thursday from gunshot wounds he suffered from unknown gunmen who fired at him Wednesday night. Andrei led a fierce campaign aimed at targeting and closing down banks involved in money laundering and other corruption. This is the highest-profile assassination so-far during President Putin’s six-years in power.

In addition to closing down corrupt financial institutions, Kozlov strived for tougher laws, and enforcement of those laws, to help prevent such corruption in the first place. Just last week he called for life-banishment of bankers found guilty of money laundering. His efforts to clean-up the seedy underbelly of Russian banking inadvertently triggered a financial crisis in 2004: after closing a small bank in Russia that he charged with money laundering, a “crisis of confidence” in the banking sector emerged, prompting many banks to sellout to the state. (see Banker led clean-up drive - Reuters)

Officials in Russia—many of whom regarded Kozlov as a man with “unimpeachable character”—believe that Kozlov’s was a contract murder paid for by the type of criminals he put out of business. Many also fear that this tragedy marks a return to the early 1990’s business atmosphere in Russia, where problems were resolved with murder. A member of Russia’s National Banking Council said that Kozlov’s “killers must be found.” (See Banker was anti-graft fighter - CNN)

Despite Kozlov’s massive efforts to clean up Russia’s banking sector, a lot of work still needs to be done, and his gangland style death illustrates the difficulty—and danger—the Central Bank faces in its efforts to root out criminal activities. Hundreds of tiny banks still exist, with no economic rationale, and the system is undercapitalized and unable to channel savings into useful investment. Further, inflation has made the cost of goods soar, and Sberbank’s dominant position forecloses healthy competition in an industry that should be composed of few, not thousands of, banks. (see Banker died with job unfinished - Reuters)


-Are there other—perhaps more fundamental—problems Russia must solve before its officials can effectively deal with corruption in banking?

-Should such a major issue be dealt with by only Central Banking officials, or should Putin himself become involved?

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